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FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECTS
X-4878
June 21, 1927
Revision of Board's Regulations,
Dear Sir:
There is enclosed for your information a copy of a draft of a revision
of all the Board 1 s printed regulations, together with a copy of a memorandum
prepared by the Board's General Counsel explaining each proposed change in the
old regulations.
The enclosed draft of the regulations has been approved tentatively by
the Federal Reserve Board, except that!
(1) The Board directed the preparation of an alternative draft of Section
11(d) of Regulation D, defining savings accounts;
(2) In the matter of assessing penalties for deficiencies in reserves, the
Board voted that, as to member banks located in reserve and central reserve cities,
deficiencies should be computed oi} an actual daily basis instead of an average
basis as heretofore, it being understood that the reserves for each day will be.
based upon the net deposit balances of the member bank at the close of business
the preceding day; and, as to banks outside of reserve and central reserve cities,
deficiencies should be computed on the basis of average reserves for weekly periods; and
(3) The Board directed that there should be prepared and added to the regulations a regulation on the subject of non-cash collections.
An alternative draft of Section 11(d) of Regulation D, a redraft of
Section IV of Regulation D to conform to the Board's views with reference to penalties for deficiencies in reserves, and a draft of a proposed regulation on noncash collections are also enclosed herewith; and the Board requests an early expression of your views on the enclosed draft of the regulations with these
changes. The proposed new regulation on non-cash collections was prepared very
hastily, and you are requested to examine it with special care and to criticize
it in detail.
Inasmuch as the Board's existing regulations are in some respects in
conflict with the law as amended by the McFadden Act of February 25, 1927, the
Board desires to promulgate a new edition of its regulations as soon as possible*
The Board, therefore, has set July 20 as the date upon which it will take final
action on these regulations, and, in order to receive any consideration, it will
be necessary for your suggestions and comments to be received not later than
July 15, 1927.
By order of the Federal Reserve Board.
DigitizedEnclosures.
for FRASER
Very truly yours,
Walter L. Eddy,
Secretary.
To Governors & Chairmen of all F. R. Banks,
X-4878-a
(Alternative substitute for Section 11(d) of Regulation D.)
(d) Savings Accounts.
*
The term "savings accounts"is defined
generally as accounts to the credit of which are deposited the savings
or accumulations of small depositors, which bear interest, which are
represented by pass books delivered to the depositors, which a re not
subject to check in the usual sense but can be withdrawn only upon the
as
presentation of the pass book, and/to which the bank reserves the
right to require the depositor to give notice of an intended withdrawal not less than thirty days before a withdrawal is made.
In order to constitute a "savings account" within the meaning of
this regulation, a deposit mast comply with the following requirements
(1)
It must be the deposit of an individual or of a religious,
charitable or similar corporation and not the deposit of one bank
in another or the deposit of a business corporation or firm;
(2)
It must bear interest;
(3)
It must be evidenced by a pass book, certificate or other
similar form of receipt delivered to the depositor, which must actually be required to be presented to the bank whenever a withdrawal is
made;
(4)
It must not be subject to check in the usual sense and
mast not be permitted to be withdrawn except upon the actual presentation of the pass book, certificate or other similar form of receipt
whenever a withdrawal is made;
(5)
The amount must not exceed $5,000; and
(6)
The bank mast reserve the right to require the depositor
to give notice of an intended withdrawal not less than thirty days
before a withdrawal is made*
X-4878-b 4 2 2
(Substitute for Section IV of Regulation D)
SECTION IV.
Pilil'ALTIljS ?0R IEJICIEKCIES 1:1 B3SESVES«
Inasmuch as it is essential that the law in respect to the maintenance "by member "banks of the required minimum reserve "balance shall be strictly complied with, the Federal Reserve Board, under authority vested in it by
section 19 of the Federal Reserve Act, hereby prescribes the following rules
governing deficiencies in reserves:
(a)
Banks in Central Reserve and Reserve Cities.
(1)
Deficiencies in reserve balances of all member banks located
in central reserve and reserve cities will be computed on the basis of actual
net deposit balances, the required reserve balance of each member bank at the
close of business each day being based on its net deposit balances at the
close of business on the preceding business day;
(2)
Penalties for such deficiencies will be assessed monthly on the
basis of actual daily deficiencies during the preceding month;
(3)
Such penalties shall be assessed at a basic rate of 2$ per an-
num above the Federal reserve bank discount rate on 90-day commercial paper;
(4)
When a member bank in a central reserve or reserve city has an
actual deficiency in reserves for fifteen or more days in any month, there
shall be assessed, in addition to the penalty at the basic rate, a progressive
penalty on daily reserve deficiencies, until such member bank has maintained
the required reserves every day for a month.
Such progressive penalty shall be
at the rate of 1% for the first month and shall increase at the rate of 1$ for
each subsequent month thereafter in which the bank's^actual reserves have been
deficient for fifteen days or more; provided that the maximum penalty charged
shall not exceed 10$.
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X-4878-b'
4 ^ 3
("b) Barks not in Reserve or Central Reserve Cities.
(1)
Deficiencies in reserve balances of member banks not located in
central reserve and reserve cities will be computed tin the basis of average daily
net deposit balances covering a weekly period of seven days.
(2)
Penalties for such deficiencies will be assessed monthly on the
b,",sis of average daily deficiencies during each of the weekly periods ondirg
.in feho preceding month..
(3)
Such penalties shall be assessed at a basic rate of 2$ per an-
num above the Federal reserve bank discount rate on 90-day commercial paper.
(4)
When a member bank not located in a central reserve or reserve
city has had an average deficiency in reserves for four consecutive weekly periods, there shall be assessed, in addition to the penalty at the basic rate, a
progressive penalty on weekly deficiencies until the required reserve has been
restored and maintained for four consecutive weekly periods.
Such progressive
penalty shall be at the rate of 1$ for the first four weeks and shall increase
at the rate of l/4 of 1$ for each subsequent week thereafter in which the bank's
average reserves have been deficient; provided that the maximum penalty charged
shall not exceed 10$.
(c)
Continued Deficiencies.
T~
""
Whenever any member bank is subject to the maximum penalty of 1 Cfo,
the Federal Reserve Agent shall promptly report the fact to the Federal Reserve
Board with a recommendation as to whether or net the Board should:
(1)
In the case of a national bank, direct the Comptroller of the
Currency to bring a suit to forfeit the charter of such national bank under the
provisions of Section 2 of the Federal Reserve Act; or
(2)
In the case of a State member batik, institute proceedings to re-
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'
X-4878-b S: ^"^
quire such bank to surrender its stock in the Federal reserve bank and to forfeit all rights and privileges of center ship, pursuant to the provisions of
Section 9 of the Federal Reserve Act; or
(3)
In either case, to take such other action as the Federal Reserv
Agent nay recomend or the Federal Reserve Board nay consider advisable.
X-4G78-C
(Note: Make this Regulation 1C; change old K to G; don' t change designation of' B7;
ftB&UUTlOJSr Ki SfiRlES OF 1927.
COLLECTION OF MATURING MOTES AND BILLS-.
SECTION I,
STATUTORY PROVISIONS.
Section 13 of the Federal Reserve Act authorizes Federal reserve "banks to receive from their member "banks and non-member clearing
banks, for collection, maturing notes and bills and to receive from
other Federal reserve banks for collection maturing notes and bills payable within the district of the Federal reserve bank receiving such
items.
The authority to receive such items for collection includes the
authority to take such steps and perform such acts as may be necessary to
effect collection, and to exercise such other powers as are reasonably
incidental to the collection of such items.
SECTION II.
(a)
DEFINITIONS.
Maturing; Notes and Bills.
The term "maturing notes and
bills" has been construed, and is hereby defined, to include:
1*
Maturing notes, drafts, bills of exchange, acceptances, bankers' acceptances, and certificates of
deposit;
2.
Drafts on savings accounts with pass-books attached;
3.
Checks, drafts and other cash items which have previously been dishonored;
4.
Maturing bonds and coupons; and
5.
All other negotiable instruments payable in the United
States, except checks, bank drafts, and other cash items
which have not been previously dishonored.
The term "maturing notes and bills'1 does not include checks,
bank drafts, or certificates of deposit drawn on or payable by nonmember banks and which cannot be collected at par in funds acceptable to
the collecting Federal reserve bank. .
-2(b) ITonmemb er Clearing Bank.
X-4878-b
The term "nonmember clearing bank"
is defined to mean a nonmember bank or trust company which maintains
with the Federal reserve bank of the district in which it is located
a balance sufficient to qualify it under Section 13 of the Federal Heserve Act to send cash items to the Federal reserve bank for purposes
of exchange or collection under Regulation J.
SSCTIOH III.
G-EjEHAL REQUIREMENTS.
The Federal Reserve Board, desiring to afford to the public end to
the various banks of the country a dircct, expeditious and economical
system for the collection of maturing notes and bills, has arranged to
have all Federal reserve banks collect maturing notes and bills on a
uniform basis and on the terms and conditions herinafter prescribed.
SECTIOff IV. ITEMS RECEIVED FOR COLLECTION.
(a) Each Federal reserve bank will receive from its member and
nonmember clearing banks, for collection on the terms and conditions
hereinafter prescribed, all items defined in Section II as "maturing
notes and bills."
(b) Each Federal reserve bank will receive from other Federal
reserve banks, and from all member banks and nonmember clearing banks
in other districts which are authorized to route direct for the credit
of their respective Federal reserve banks,for collection on the terms
and conditions hereinafter prescribed, all items defined in Section
II as "maturing notes and bills".
(c) i-To Federal reserve bank shall receive for collection any
check, bank draft, or certificate of deposit drawn on or payable by
a nonmember bank which cannot .be collected at par in funds acceptable
to the Federal reserve bank of the district in which such non-member
bank is located, nor any item payable outside of the Continental United
States.
- 3 -
X-4878-c
SECTION Y. TE&IS OF COLLECTION.
ht/oV
The Federal Reserve Board hereby authorizes the Federal reserve banks to handle such maturing notes and bills subject to the
following terras and conditions; and each member bank and nonmember
clearing bank which sends maturing notes and bills to any Federal
reserve bank for collection 'shall by such action be deemed: (a) to
have agreed to all the terras and conditions of this regulation; (b)
to have warranted to the Federal reserve banks that it has authority
to empower the Federal reserve banks to handle items in the manner
hereinafter provided; and (c) to have agreed to indemnify any Federal
reserve bank for any loss resulting from the failure of such sending
bank to have such authority.
1.
Federal reserve banks will act only as the collecting agents
of the sending banks and wi11 be responsible only for due diligence
and care in forwarding or presenting such items.
2.
Federal reserve banks may present or forward such items for
payment in cash or bank draft, direct to the banks on which they are
drawn, at which they are payable, or through which they are collectible;
or present them direct to the person, firm or corporation on which they
are drawn, for payment in cash or bank check; or, if the item is not payable in a city in which there is a Federal reserve bank or a branch of a
Federal reserve bank, then they may, in their discretion,
forward them
to another agent with the same authority that they have to present or
forward them for payment.
3.
Items payable in another district will be forwarded to
the Federal reserve bank of such district or to a branch of such
-4-
Federal reserve bazik for collection on the terms and conditions herein
prescribed.
4. Except as herein provided, Federal regorve banks shall be held
liable only when they have received actual payment in cash or in the
proceeds of any bank draft or check received in remittance.
SECTIOIT VI. CREDIT FPU KailgXAJCSS..
ITo Federal reserve bank shall crcdit the reserve account of
any member or nonmcmber clearing bank with the amount of any maturing
note or bill until a remittance for such item has actually been received
in funds acceptable to such Federal reserve bank.
Upon the receipt of"'such
a remittance, the Federal reserve bank ''/ill give credit in the reserve
account of the member bink from which such item was received or in the
clearing account of the nonmcmber clearing bank from which such item
was received.
Such credit, however, shall be subject to final payment
of the remittance so received and, in the event of the failure of the
Federal reserve bank to receive payment of any remittance in actually
and finally collected funds, the amount thereof shall be charged to the
reserve account or clearing account of the bonk from which the item or
items covered by such remittance were'received.
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X-4SF8-*
'
429
SBCTIOB VII.
(ft)
CHARGES FOB CC&IECtlON.
Charges by Federal Besorve Banks,
No charge shall to nado by any Federal reserve "bank for
the service p e r f o m b d "by it in the collection of maturing notes and
"bills, except th&t:
(1)
Any charge cade by another collecting agent shall he
deducted and credit given for the actual net proceeds;
(2)
The actual expense of registration, insurance, or
transportation of bonds and coupons forwarded to
other points for collection shall he deducted and
credit given for the actual net proceeds;
(3)
All telegraph and telephone charges in connection
with the collection of Maturing notes and M i l s shall
he charged to the bank caking the request involving
such expense; and
(4)
A service charge of fifteen cents per iten on all
maturing notes and "bi^ls returned unpaid and uiprotested shall be charged to the bank fron which such
itens were received for collection.
This charge shall
not be m d s on iteos that are protested.
M
i NIPMM
Agents,
Any hectber bank or noncenber bank selected by the Federal
reserve bank #6 an agent to collect maturing notes and bills received
Tinder the t a m e o f this regulation nay nake a reasonable charge for
its services in handling such maturing notes and bills,
• j fj
Iter Meciber Banks and Bonaenber Banks frop which.
X-487S-ti
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Any mentor bank or nonmembor clearing bank sending matui'ing
notes and bills to a Federal reserve bank for collection under the terms
of this regulation may, at its option, mnke n reasonable charge to its
customers for its services in handling such items.
SECTION VIII.
OTHER RULES AMD REgPLATIONS.
Each Federal reserve bank shall also promulgate rules and
regulations not inconsistent with the terms of the law or of this regulation governing the details of the collection of maturing notes and
bills by such Federal reserve bank.
Such rules and regulations shall
be set forth by each Federal reserve bank in its letter of instructions
to its member and nonmembor clearing banks and shall be binding upon
any member or nonmembor clearing bank which sends maturing notes and
bills for collection to such Federal reserve bank or to any other
Foder-1 reserve bank for the accrunt of such Federal reserve bank.
@FedFRASER