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1958 W . P . 6 . H A R D I N G . GOVERNOR P A U L M . W A R B U R G . VICE GOVERNOR EX-OPFICIO MEMBERS F R E D E R I C A. DELANO ADOLPH C. MILLER CHARLES S . HAMLIN W I L L I A M G . MCADOO SECRETARY OF THE TREASURY CHAIRMAN J O H N SKELTON WILLIAMS COMPTROLLER O F THE CURRENCY FEDERAL RESERVE BOARD WASHINGTON H . P A R K E R W I L L I S . SECRETARY S H E R M A N P . A L L E N , ASST. SECRETARY AND FISCAL AGENT ADDRESS 994 FEDERAL January 26, 1917 • Dear Sir: N On "behalf of the Committee on Clearing of the Federal Reserve Board I beg to state that i t i s the belief of the Committee that i t is important that we should make ready arid have our plans formulated as to the next step that should be taken in advancing the operations of the clearing and c o l l e c tion system. Congress w i l l adjoufn oft March 4th and we w i l l then know viiat, if any, steps have been taken in respect to the Kitchin amendment. At the present time it does not look ,as i f there were much likelihood of the Kitchin amendment being adopted* If i t i s not, i t w i l l become the duty of the Board and the Federal reserve banks to go ahead energetically and perfect the system, the most serious objection to which at the present time is the fact that there are s t i l l some 7,000 banks who do not remit at par* In laying our plans for the future I desire to ask for comments from you upon the following suggestions and statements: (1) It would appear that one of the greatest obstacles to progress i s the attitude of many of the local clearing houses; for instance, we have a recent case where under the clearing house rules of Macon, Georgia, the banks impose a charge of one-eighth of one per cent for a check which would be given immediate credit a t par at Atlanta, only eighty-eight miles away; whereas they accept at par checks drawn on Philadelphia or New York. How sTiall we meet t h i s situation, and has the time come for the Board t o promulgate rules, as contemplated in Section .16, which w i l l specify the maximum, charges which a member bank Bay make against i t s customers? (2) As indicating the sort of adjustment which should be made with clearing houses if they are w i l l i n g to meet the views of the Federal Reserve Board and the Federal reserve banks y I would point out that in quite a number of important clearing houses a d i f f e r e n t i a l in favor of checks of banks that can be collected through the Federal reserve bank at par i s made, as compared with cJiecks which cannot be so collected. Such a d i f f e r e n t i a l operates to a s s i s t the Federal reserve bank in extending i t s par l i s t . In quite a number of cases, however, a l l checks of certain areas are taken on the same RESERVE BOARD * 1959 9 $k -2- basis regardless of how collected. This means that the checks collectable through the Federal reserve bank have no advantage bver those not so colletable. This method, while not ideal, i s , obviously, more advantageous to the Federal reserve bank thati that described in No. 1, where checks collectable through the Federal reserve bank are actually discriminated against. , (3) We are getting ready to o f f e r country banks the privilege of issuing drafts against Federal reserve banks, Which w i l l be given immediate credit and availability not only at the bank upon which drawn, but at one other designated Federal reserve bank. This w i l l be a privilege of considerable value t o member banks, but i t i s assumed that i t w i l l be accompanied, or followed soon a f t e r , by the granting of the privilege of collecting for <x>untry banks time items, on terms at least as favorable as the terms heretofore afforded by city banks to their country correspondents. (4) The o f f i c e r s of several of the Federal reserve banks have expressed themselves as believing that not much more progress can be made in enlarging the volume of transactions off e f b d for clearing and collection until Federal reserve banks express themselves as willing to collect items on nonassenting State banks'and trust companies. In a number of the Districts arrangements are being perfected for the collection of items bf t h i s character through express companies, but in some Dis* t r i c t s i t i s impossible to teach a l l of the banks, eVen through express companies, azid i t may in those cases be necessary to adopt the Post Office method. Collection through express companies vti.ll, however, enable the collection of a great many nonassenting member bank; items and i t would appear as though in the more thickly settled Districts, such as New York, Pennsylvania, and Cleveland t h i s matter should be immediately taken in hand. (5) At the l a s t meeting of Governors a plan was submitted by the writer under which a scale of charges as between Federa l reserve banks and member banks, and as between member banks and t h e i r customers was proposed. It was the Opinion of the Governors that the time was not opportune for putting out this schedule of charges; also that the rates suggested were too high. Is this s t i l l your view, and i f you Relieve that the scale of charges i s too high, have you any counter suggestions to make? ssk (6) To vyhat extent can the clearing system be made more popular with b a n k e r s in reserve c i t i e s - or in other large c i t i e s with similar banking f a c i l i t i e s - by the adop-tion Of a plan similar to that adopted in Dallas and about to be adopted in the kansas City district? This plan provides for the direct interchange of items between c i t i e s , and drawing on the Federal reserve bank i or items sent direct* This plan has the merit of cutting down f l o a t , of relieving the federal reserve bank of cost of handling a good many items, and, l a s t l y , of putting the banks in d i t i e s thus inter~eotinected on a parity. Yours very truly, Chairman, Committee on Clearing.
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