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540 W. P. G. HARDING, GOYIRIIOR ALBERT STRAUSS, VICI GOYIRNOR ADOLPH C. II ILLER CHARLES S. HAMLIN CARTER GLASS SICRETARY OF THI TREASURY I ~MltMAN JOHN SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY FEDERAL RESERVE BOARD J. A. BRODERICK, SECRETARY W. T. CHAPMAN, ASSISTANT SECRETARY W. M.IMLAY, FISCAL AGENT ADDRESB REPLY TO WASHINGTON FEDERAL RESERVE BOARD X-1630 ( NOT FOR PUBLICATION) ... SUBJECT: Charges by Member Banks on Checks deposited with them, and correction of present discrimination against Member Bank Checks. Dear Sir: "' I ! • "' There are now nearly twenty-one thousand banks on the par lists of the Federal Reserve Banks~ and the number is gradually growing. Frequent complaints, however, have been made to the Board that drawers of cheCks on memb~r oanks and on no:1-member banks which are liD the par list are being advised by those to whom they remit cheCks that charges are being imposed by banks with which these checks are deposited considerably in e~cess of a reasonable allowance for interest for time in transit, and that checks on banks which are not on the par list, collection of which involves a substantial charge, - in sorr.e cases as high as one-quarter of one per cent~ - are received on deposit on exactly the same terms as cheCks on member banks. This is in effect a discrimination against checks drawn upon member banks and upon other banks on the par list. At ·some of the Federal Reserve Banks arrangements have been made with certain member banks by which checks on those bank·s are taken for immediate credit, being charged directly to the account of the member bank on 'receipt at the Federal Reserve Bankt and credited subject to final payment. Member banks making this arrangement carry an excess balance over reserve requirements with the Federal Reserve Bank. The Board feels that this privilege should be extended to· all member banks desiring to make. such an arrangement. · It is suggested that the Transit Managers of all Federal Reserve Banks meet with the Board at washington on Monday, August 18th. for the purpose of working out a practical method of according these facilities and of determining the cha:-ges that nay be made by member. banks agail;l.st out-of-town checks deposited with them which are in turn collected througn the Federal Reserve Bank. Section 16 of the Federal Reserve Act provides that nthe Federal Reserve Board shall, by rule, fix the char~s to be collected by the member banks from its (sic) patrons whose checks are cleared through the Federal Reserve .Bar..k." The Board constl"'IJ.es this cla\1se a.s above ind.i·~ cated. Realizing that cooperation on the part of member banks and their http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis ----------------------------~-·-·- ~---- 541 .. , - d~ositors is necessary to enable the Federal Reserve Banks to forward transit items expeditiously. the Board has decided that any rule' made by it will apply only to such checks as have stanped or printed plainly upon their face a symbol indicating, (l) that the cheCk will be given ~ediate credit subject to payment on its receipt at the Federal Reserve Bank or proper branch bank of the district in which the drawee bank is located, or (2) that the cheCk is collectible at par through the Federal Reserve Bank. '!'he Board has determined 'Upon a system of transit numbers for use in this connection, and in the case of a member bank located elsewhere than !n a Federal Reserve or branch bank city wishing to arrange for irrnediatE credit on receipt at the Federal Reserve Bank of checks drawn uron it, su.bject to payment, the symbol shall be: This would indicate to all transit clerks that the check is drawn on some bank in the Boston district, and that it is subject to immediate credit on receipt at the Federal Reserve Bank of Boston. In the ease of member banks and banks whose names appear on the par· list, the s~bol will be ,. which would indicate that it is drawn on a bank in the Chicago district, and that it is collectible at par, subject to the proper time allowance, through the Federal Reserve Bank of Chicago. In the case of branches, the letters A, B,. c·, etc .. , will be added to the district number. It is the purpose of the Board to have these symbols copyrighted and to arrange with each Federal Reserve Bank to -allow the use of either or both Of these symbols to such rr.ember banks as mq. desire to make the necessary arrange• ments, apd to permit the use of the second symbol by all banks on the pa.r list, whether members or non-members. · Whell: the Board rules on the charges that· member banks may impose on cheCks deposited with them, a schedule will be furnished applicable in all districts alike, and interest for time in transit will. be computed as far as possible at not· exceeding 6% per annum, although the rates must, of course, be-in round percentages to admit of ready computation. It is proposed that member bcmks be notified that upon the date the plan becomes effective the Federal Reserve Banks will receive from them free of service charge only such cheeks as have the second symbol imprinted or st~ed upon them, the right being reserved to impose a service charge upon all other checks. Member banks can in ·turn notif;y their depositors ---~--------- ~--------~---------------- 542 -3- X-1630 that the minimum rates will apply only to checks so i~rinted or st~ed, and that all other checks even though dra,.wn upon member banks are subject to a higher charge at the discretion of the rr.ember bank ..with which the checks are deposited~ It is to be expected that banks will charge at least cost on checks subject to a so-called exchange charge, and which cannot be collected through a Federal R$serve Bank~ I I· The Board believes that it will be practicable to work out a schedule of charges which may be imposed by banks on checks deposited with them bearing the Fede:;;·al Reserve collection symbol, with one-tenth of one per cent. as a ~&xi~~, and in case,of checks involving a shorter time in transit that the charge may be fixed at one-twentieth, and in some cases one-fortieth~ of one per cent. Ample notice, of course, will be given of these proposed changes after thay have been definitely determin'ed upon, in order that the banks and the public may thoroughly understand them and na.y have au.q:>le time to prepare for them.. It is believed that the effect of this plan when put into operation will be to create a demand on the part of depositors for checks bearing the symbol (or the transit number of any other Federal Reserve Bank or branch) and that many banks which are not now Ibn the par list will feel obliged to meet the wiShes of their customers to have this facility extended, the result being constant and substantial additions to the par lists. An ac~owledgement of this letter is requested. Very truly yours • • Go.vernor. Letter to all Governors - copy to each F.R. Agent.
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