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-·-~-- __ ,. FEDERAL RESERVE BOARD WASHINGTON October 27, 1926. ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD SUBJECT: Deductions in computing reserves of member banks. Dear Sir: One of the Federal reserve banks recently addressed an inquiry to the Board raising the question whether a forwarding member bank in computing its reserves may pro~etly treat as amounts due from banks credits actually entered by correspondent banks, representing such items as coupons, checks drawn on themselves by corporations other than banks, bill of lading drafts, etc., which items have not yet actuall~l been collected by the correspondent banks. It a,pears that it is not a~ uncom~on practice for a correspondent bank to give credit to a forwarding bank i~~ediately upon receipt of items of this kind, adjusting the difference between the date of credit and date of collection by interest charges or by analysis deductions for float.· The Board has heretofore ruled that bonds, coupons and bill of lading drafts forwarded for collection may not be deducted as items due from banks until such items have actually been collected and the proceeds have been credited to the account of the forwarding bank. In these rulings, however, the Board was considering the case where items are forwarded for collection, and credit is not given by the correspondent bank until the items have been collected. Under the facta of the instant 'case, the correspondent bank gives credit to the forwarding bank i~~ediately upon-receipt of the items, regardless of the fact that these items have not yet been collected. The two cases are thus fundamentally different. If immediate credit is given by a correspondent bank, reserving only the right to charge back the items in case of nonpayment, the correspondent bank at once becomes indebted to the forwarding bank in the amoa~t of the items and the forwarding bank is entitled to draw against the credit so made as soon as the items are received by the correspondent bank. . In the Boardis opinion when credit has actually been entered by a correspondent bank on an i tom forwarded to it -oy a member bank and the member bank is irn.~ediately entitled to draw against the crcdi t so entered, the amount.of this credit may properly be considered an amo1mt due from ba~ks and deducted by the member bank in computing its reserve from its bala.aces due to banks, notwithstanding t~e fact that the correspondent bank has not yet actually collected the item. By order of the Federal Reserve Board. Walter L. Eddy, Secretary. To Governors of all F.R.Banks.
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