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EX-OFFICIO MEMBERS W . P . G . H A R D I N G . GOVERNOR A L B E R T S T R A U S S . VICE GOVERNOR ADOLPH C. MILLER CHARLES S. HAMLIN CARTER GLASS SECRETARY o f THE TREASURY CHAIRMAN J O H N SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY FEDERAL RESERVE BOARD J . A. B R O D E R I C K . SECRETARY L . C . A D E L S O N , ASSISTANT SECRETARY W . T . C H A P M A N . ASSISTANT SECRETARY W . M. I M L A Y . FISCAL AGENT WASHINGTON ADDRESS REPLY TO F E D E R A L R E S E R V E BOARD January 29, 1919, ' SUBJECT: X-1370 Deductions allowed, in computing member banks 1 reserves c a r r i e d with Federal Reserve Bank.. Sir: Section 19 of the Federal Reserve Act, which r e l a t e s t o reserve requirements of member banks and which supersedes Section 5191 Revised S t a t u t e s , provides in p a r t as follows: "Every bank, banking a s s o c i a t i o n , or t r u s t which i s or which becomes a member of any Reserve Bank s h a l l e s t a b l i s h and maintain balances with i t s Federal Reserve Bank as company Federal reserve follows: *** "In estimating the balances required by t h i s Act, the net d i f f e r e n c e of amounts due to and from other banks s h a l l be taken as the basis f o r a s c e r t a i n i n g the deposits a g a i n s t which required balances with Federal Reserve Banks s h a l l be determined." Under a u t h o r i t y of t h i s provision of the Act, i t has h e r e t o f o r e been customary t o permit banks t o t r e a t "exchanges f o r c l e a r ing house" and "checks on other banks in the same place" as part of the balance due from other banks, so t h a t these amounts have been deducted from "balances due to other banks" in computing reserve. The Board's a t t e n t i o n has been c a l l e d t o the f a c t t h a t in many instances "exchanges f o r c l e a r i n g house" g r e a t l y exceed the ledger ""balances due to other banks" and as a r e s u l t banks which carry few accounts f o r o t h e r banks are required to maintain a reserve against such exchanges. I t . h a s accordingly been suggested t h a t where t h i s condition e x i s t s , the member banks should be permitted to deduct "exchanges f o r c l e a r i n g house" from i n d i v i d u a l d e p o s i t s . The Board i s advised by counsel t h a t t h i s would not be c o n s i s t e n t with the l e t t e r and s p i r i t of the Act but t h a t inasmuch as "exchanges f o r c l e a r i n g house" and "checks on other banks in the same place" a r e X-1370 —2— t r e a t e d a s p a r t of the "balance due from other banks" on the assumption t h a t such items n e c e s s a r i l y become a part of such balance in due course of business, i t would be c o n s i s t e n t with the purposes of t h e Act t o permit the o f f s e t t i n g items of " c a s h i e r s ' or t r e a s u r e r s ' checks outstanding'' and " c e r t i f i e d checks outstanding", which in due course w i l l be presented by and become a p a r t of balances due to other banks, t o be t r e a t e d as part of such balances. The Board has accordingly ruled t h a t in computing reserve, banks may deduct the t o t a l of (a) (b) (c) Balances due from other banks; "Exchanges f o r clearing house"; Checks on other banks in the same place; from the t o t a l of * (a) Balances due t o other banks; (b) Cashiers 1 checks on own bank outstanding (c) C e r t i f i e d checks outstanding. In determining the balances t h a t must be maintained with the Federal Reserve Bank t h i s method of computation tray be followed. The Comptroller of the Currency concurs in t h i s r u l i n g and w i l l give the necessary i n s t r u c t i o n s t o n a t i o n a l bank examiners. Kindly acknowledge r e c e i p t . Respectfully, Governor, * This w i l l include S e c r e t a r y ' s or T r e a s u r e r ' s checks in case of i n s t i t u t i o n s where such o f f i c e r s s i g n .