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FEDERAL RESERVE BOARD WASHINGTON X-3U57 J u n e 27, 1922. SUBJECT: Responsibility of Federal Reserve Banks W i t h Respect to Checks D e p o s i t e d for Credit to T r e a s u r e r ' s G e n e r a l A c c o u n t a n d s e n t to O t h e r t h a n D r a w e e B a n k s f o r C o l l e c tion, Dear Sir: T h e B o a r d h a s r e c e i v e d f r o m the U n d e r S e c r e t a r y of t h e T r e a s u r y a c o p y o f a l e t t e r w r i t t e n ty h i m , u n d e r d a t e o f J u n e 9th, to one of the F e d e r a l R e s e r v e B a n k s , w h i c h r e a d s a s f o l l o w s : "I h a v e y o u r l e t t e r of J u n e 1, 1922, r e g a r d i n g the p r o v i s i o n s o f D e p a r t m e n t C i r c u l a r N o , 176, a s a m e n d e d a n d s u p p l e m e n t e d May 15, 1922, a n d h a v e n o t e d y o u r views r e g a r d i n g the a c c e p t a n c e of dividends on claims filed against insolvent banks under paragraph 26 of the circular, a n d regarding the l i a b i l i t y of F e d e r a l R e s e r v e B a n k s i n case t h e y elect to send G o v e r n m e n t c h e c k s to o t h e r t h a n t h e drawee banks for collection under paragraph 25 of the circular. "The p u r p o s e of t h e p r o v i s i o n in p a r a g r a p h 25 of the circular r e g a r d i n g acceptance of dividends on claims against insolvent b a n k s t h a t ' d i v i d e n d s o n c l a i m s so f i l e d s h o u l d b e a c c e p t e d o n l y u p o n s p e c i f i c a u t h o r i t y f r o m t h e S e c r e t a r y o f t h e T r e a s u r y 1 is to e n a b l e t h e T r e a s u r y t o r e s e r v e i t s r i g h t s a g a i n s t t h e t a x p a y e r or o t h e r d r a w e r o f t h e c h e c k u p o n w h i di t h e c l a i m is b a s e d . T h e r e s h o u l d be no legal difficulty o n this account, for the filing of a claim does not p r e c l u d e refusal or delay in a c c e p t a n c e of p a y m e n t . T h e r e a claim filed on account of a dishonored exchange draft covers other items t h a n Government items, however, the b a n k may, of course, a c c e p t dividends o n account of items other than Government items. In a n y case, the F e d e r a l Reserve B a n k m a y receive dividends e v e n on a c c o u n t of Government items without previous instructions from the Treasury, but disposition should be m a d e of such dividends only in accordance with the T r e a s u r y ' s i n s t r u c t i o n s . In s u c h c a s e the r i g h t s of the T r e a s u r y c a n b e a m p l y s a f e g u a r d e d if t h e F e d e r a l R e s e r v e B a n k w i l l n o t i f y t h e Treasury of the receipt of such dividends and the T r e a s u r y will then give p r o m p t a d v i c e of its d e s i r e s in the m a t t e r . Z-3^51 2 - "The p r o v i s i o n s of p a r a g r a p h 25 as to the l i a b i l i t y of a Fede r a l R e s e r v e B a n k w h i c h e l e c t s to s e n d G o v e r n m e n t c h e c k s t o o t h e r t h a n the d r a w e e b a n k for collection restate a w o r k i n g arrangement a g r e e d to b e t w e e n the T r e a s u r y a n d the F e d e r a l R e s e r v e Board, of w h i c h the several Federal Reserve Banks were notified by the Board. The statutes u n d e r w h i c h b o t h certified a n d u n c e r t i f i e d checks a r e a c c e p t e d b y t h e G o v e r n m e n t e x p r e s s l y p r o v i d e that if t h e c h e c k t e n d e r e d b y t h e t a x p a y e r is n o t p a i d b y t h e b a n k o n w h i c h it is d r a w n t h e t a x p a y e r r e m a i n s l i a b l e to the G o v e r n m e n t a s if n o c h e c k h a d b e e n r e c e i v e d . T h i s , of course, m e a n s that, w h e r e v e r the drawee b a n k fails to p a y the check, t h e T r e a s u r y is f u l l y p r o t e c t e d b y i t s r i g h t t o p r o c e e d a g a i n s t t h e taxpayer. But, in cases w h e r e the d r a w e e b a n k has a c t u a l l y p a i d the check to a collecting agent bank used b y the Federal Reserve Bank, the Government has lost its recourse against the taxpayer a n d m u s t l o o k e i t h e r to t h e c o l l e c t i n g a g e n t b a n k or to the F e d e r a l R e s e r v e B a n k . Apart from any question of legal liability on the part of the Federal Reserve Bank, the a r r a n g e m e n t in q u e s t i o n h a s p r o v e d t o b e a w o r k i n g one and has been adopted b y the several Federal Reserve Banks. The Treasury considers the arrangement a reasonable one, and, therefore, h a s e m b o d i e d its t e r m s in Circular N o . 1 7 6 . " T h e f o r e g o i n g is t r a n s m i t t e d f o r y o u r i n f o r m a t i o n . Very truly yours, G o v e r n o r , TO THE GOVERNORS OF ALL F. R. BANKS Copies to Chairmen.
@FedFRASER