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1-2-15
1&6
The fdllowing suggestidns relating to check cl- .ranees are submitted to the
Board for its consideration:
While high sounding phrases can be framed, about the avoidance of favoritism'
and the according of uniform treatment to all customers of a bank, there is in
reality no such uniformity nor would there be any justice in seeking to.apply what
might appear tc be superficially the same .rule to alii Banks do a vast amount cf
unprofitable business, and nearly all of them carry many accounts as a matter of
courtesy and convenience to the depositors which result in* actual loss.
m
Few, if any, practical bankers would concede that there is any injustice in
allowing interest on some accounts and refusing it on others, or in furnishing free
exchange facilities to some customers and declining to. do so in other cases.. These
matters are usually regulated by mutual .agreement and are based upon the general
value of an account to the bank, the. balance and character of the items received
on deposit being taken into consideration. Some dealers prefer to receive interest
on their current, balances and'are willing to pay exchange; others do not- care to
receive interest but prefer tc have their exchanges handled without charge. While
from the view point cf the bank it might feel justified in allowing interest on
accounts showing constant and’uniform balances, it would not consider paying any
thing on spasmodic accounts1; then again a bank might very well afford to give free
exchange facilities to a customer depositing checks in large amounts on Nev; York
and other financial centers while it could not afford to do so'in the case of a .
customer who deposits only checks on small towns.
It is not believed that a Federal reserve bank could legally charge to a bankls
reserve account, over its protest, checks drawn upon the member bank which it had
never seen.or heard ,of, nor has a bank, in fact, the right to authorize the payment
of a check drawn upon it at a place other than at its own counter, as it might
thereby deprive the drawer of his right to stop payment on the check.
It seems, therefore, that .the system of clearances authorized by the Act must
be developed in an orderly and gradual manner and through the cooperation of the
member banks. The problems involved in the clearance of intra-district checks are
not very different from those which must be solved in inter-district clearings.
No check coming from either within or outside of a district should be. charged
to the account of a member bank‘d except by -its consent,' and no Federal reserve bank
should credit a member bank at par on receipt with any check imposing upon it the
burden of the time in transit. It is clear that a Federal reserve bank can credit
at par on receipt checks drawn on member banks in its Federal reserve, city and
that common business rivalry will, no doubt, induce member bank's in other cities
of a reserve district to arrange with the Federal reserve bank, by carrying a de
posit in excess of the reserve deposit required, to charge their accounts with checks
drawn upon themselves, thereby eliminating the factor of time in transit so far. as
the Federal reserve bank is concenned. It is not believed, however * that the mensb er
banks would core to provide for an immediate debit at the reserve bank of any and
all checks th_.t their customers .might draw and which might come into the hands of
the reserve bank. The Federal Reserve Act expressly recognizes the principle of com-,
psnsatann for a member bank'in paying customers' checks that have been sent tc a
distant city by'providing that the Federal Reserve Board may fix a charge thva; may .
be imposed by «. member bank upon its customers for such service. All bunking ex
perience, however, goes to show that such a direct charge, at least at tae r-”“;=e+.:.
(2)
^ w o u l d be so unpopular and would be the subject of as much criticism as to make it
^pnpracticable. The member banks, therefore, must find their compensation in the
value of the accounts against which the checks are drawn.- Possibly all member
banks have some customers to whom they are willing to extend unlimited exchange
facilities, but it is equally certain that they have other customers to whom they
would not think of granting sfuch facilities and who could not reasonably ask such
a favor.
The suggestion is made, therefore, that, member banks give to customers accord
ed unlimited exchange facilities a distinctive form of check indicated by a red
or blue mark on the upper righthand corner and bearing also a printed or stamped
endorsement on the face of the check, as follows:
'*••
■ ■
"The Federal Reserve Bank of ________________ is authorized to
charge this check, v/hen remitted by a member bank, or by a Federal
reserve bank, bl* by tin officer or agent of the United States, against
the account of the (name of bank on which drawn). Such charge will
not constitute final payment of this check, which will be forwarded
to the (name of bank on which drawn) for actual payment."
A Federal reserve bank sfiould receive on deposit at par for immediate credit
from member banks only such checks as are indicated in the manner shown above, and
should they do so, would consequently have only such checks to remit to the Federal
reserve banks in other districts. The Federal reserve hanks should handle wnsht©
unauthorized checks for their member banks as collecting agents only, withholding
credit until payment has actually been received.
<**■
The Board should suggest to the Federal reserve banks that a regular settling
day be agreed upon between them, either once or twice a month, and each Federal
reserve bank at the opening of- business on each settling day should wire the Fed
eral Reserve Board the figures in even thousands shown on .its books to the debit
or credit of each other Federal reserve bank. A* balance sheet would, then be made
up in the Secretary*s office and each Federal reserve bank would be advised by
wire as to the debits *and credits necessary to be‘made in order to offset balances
as far as possible. Balances remaining without offset could either run'until the
next settling day or could be provided for between the banks themselves. It is not
r the idea "that the-Board should make any suggestions as to transfers except upon the
settling days agreed upon so that every bank may be free to shift balances between
settling days to suit itself.
In case the Secretary of the Treasury should be willing to deposit from one to
two rdllion dollars with each Federal reserve bank, such deposit baing a bookkeep
ing entry only, the funds to be held here in Washington to the credit of each bank,
transfer checks could be drawn by one bank in favor of another against such funds
in the Treasury and proper readjustments of balances could be made when necessary.
'S'
.
It should not be forgotten that a check drawn on Tombstone, Arizona, is not
and can n^ver be ipso facto worth as much in Boston as a check for t^he same amount
drawn on a'bank in Lowell, nor can a check drawn on Augusta, Maine, be worth as
much in Portland; Oregon, as it would be ip. Portland, Maine; therefore the matter
of compensation for time in transit should be left to each bank and its individual
customer, and an attempt to have the Federal reserve system absorb the float would
be not only inequitable, but would stimulate a most unhealthy expansion of credits
for the benefit of a portion of the public at the expense of another; it would r.i.'"impetus to the practice of drawing checks .against non-exinting balances, an ’
r"
promote enormously the industry of check kiting.
117 a.
Regulation No*
FEDERAL RESERVE BOARD
Y/ashington, D. C.,
. R egulation governing conditions under which National
Banks may be granted permission to aot as trus
tee, etc., under Section 11, Subsection K, of
the Federal Preserve Act.
I.
Application of national banks to act as trustee, executor,
administrator, or registrar of stocks and bonds under Section 11 (K)
of the Federal Reserve Act.
1.
Any national bank desiri ig to exercise any or all of the .
privileges authorized by this section shall make application to the Federal
Reserve Board on a form approved by said Board.
Thi3 application shall be
forwarded by the applying bank to the chairman of the board
of directors
of the Federal reserve bank of the district in which the applying bank is
located,
and shall thereupon be transmitted to th6 Federal Reserve Board
with the recommendation of the directors of .said Federal Reserve bank.
2.
Thore shall be attached to each application the following ex
hibits:
(a) ■ A statement in detail of the character and extent
of the privileges which the applying bank desires to under
take, and if it desires to act as trustee, the statement
shall show specifically tha nature of such trusteeships and
the obligations to be assumed.
(b)
A copy of the laws of the State in which such bank
is located which relate to the exercise of these powers by
corporations.
(c)
A copy of the laws relating to the appointment of,
and the bonds and reports rs^ui^ed of executors and a d
ministrators, if the applying bank de.3ires to act in such
capacities.
(d)
■ A copy of the laws, if any, relating to corporations ‘acting as registrars of stocks and bonds, if .the ap-»
plying bank decires to act in such capacity.
*
II Trust O f f i c e .
Each national bank permitted to exercise the powers provided for
under this section,
shall appoint a trust officer who shall perform his
duties under the supervision of a committee to be known as a Trust Com
mittee,
to be composed of not less than three members of the board of
directors
of the bank.Ill Provision
for keeping Trust F u n d s .
All funds, securities and investments of every kind held in
trust by any national bank granted permission to.act as trustee,
or administrator,
shall be segregated and kept separate and apart
any and all other
funds,
executor
from
securities and investments of the bank, and
separate and apart from one another.
The accounts relating to all' such
vestments,
securities and in
and to all transactions engaged in by the bank as trustee,
oxocutor or administrator,
securities
funds,
3hall bs eo kept that the specific
fund3,
or investments belonging to each trust estate may be at all
times definitely identified,
and such funds shall in no case bo carriod-
on the booka.eef tho bank a-, deposits and rfhall not bo eo treated in
calculating reserve, making loans or in any other manner,-but shall at
all times be held and treated as t^ust funds held by the bank in the
capacity of trustee,
executfor or administrator as the case may be.
Z*“ A .
IV
Trust
jLo *
Investment of Trust F und:.;.
j
funds shall be invested in any manner provided in
the .instrument creating the trust
any codrt of competent
fund or ar, ordered
or authorized by
jurisdiction or as specifically authorized by
the laws of the State in which
said national bank is situated.
Provided
that if there are no contrary instructions as to investments in the
instrument creating the trust and no specific provisions of the laws
of the Stats relating thereto,
of any court of competent
such trust funds,
subject to the order
jurisdiction may be invested:
(a)
In mortgages upon unincumbered and improved real estate
situated in ths State in which the tank is located, such real es- .
state being of a value, to be ascertained by not loss than two d i s
interested appraisers, equal to' double the amount proposed to be
invested therein.
(b)
In bonds or other interest bearing obligations of the
United ■States cr of the District .of Columbia.
■(c)
In the bond's or other interest bearing obligations of
any State of the United States, or
(d)
In any legally authorized bonds issued by any city, town,
county, or other legally constituted municipality or district in
the United States which has been in existence for a period of ten
years and which for a period of ten years previous to such invest
ment has not. defaulted for more than fifteen days in the payment
of any part of either principal, or interest o'f any funded dej^v au
thorized to be contracted by it ?..and whose not funded indebtedness
(as defined in the Regulations of the Board of Trustees of the Postal
Savings System approved June 13, 1913) does not exceed ten per cent
of the valuation of its taxable property to be ascertained by the
last preceding valuation of the property for the assessment of taxes.
Bonds t o vh 4 .eligible under pars.jraph (c) and (d) above must
be the general obligations of the entire State, city, town, county.,
municipality or district which issues them, it being intended to ex
clude as ineligible for purchase bonds payable out of the ''local benefit‘d
or "special assessment" taxes when the' issuing State, city'town, county,
municipality’ or district at large is not directly or ultimately liable.
In Cc.3e of merger, consolidation or succession of any city,
town, county, municipality or district the ten year period of existence and non-default referred to in paragraph (d)’ above will be ■
held to be complied v/ith under the conditions set forth in Section 8-c,
paragraphs one* two and three of the regulations of the Board of Trustees
of the Postal Savings System for the Guidance of Qualified Banks and
Others Concerned as amended November 19, 1914.
V.
Trustee under Mortgage or Deed of Trust
In. any case where the bank is named as trustee m
any mortgage
\
or deed of trust it shall require a certified copy of the original mort
gage or deed of trust to bo filed v/ith it and shall at all times keep an
accurate account of any bonds outstanding which arc scoured by such mort
gage or deed of trust, and which have been certified to. for identifica
tion by the trustee.
Such records shall be so kept as to enable the
bank.fto furnish the Federal. Reserve R*ard from time to time with any in
formation called for relating to the uwwers vested in the trustee and the
duties imposed by the mortgages or deeds of trust upon such trustee, and
to an;/ other matters r :lating to the exercise of such pavers
and the
VI.
L.
Statement !•o Registrar.
Before any bank granted permission to act as registrar
\
of stocks and bonds shall countersign any certificate of stock or any
bond, or shall register any certificate of stock or any bond, it shall
require the corporation issuing this stock or bond to file with it
a statement signed by the president or vice-president of the corpora
tion, with the seal of the corporation affixed and attested by the
secretary, setting forth fully and accurately the basis or financial
plan upon which all stocks and bonds arc to be and have boon issued.
Sucii statement ox financial plan snail be in form and shall con*
•tain sufficient 'information in detail to enable the bank acting a3 regis
trar to furnish the Federal heserve Board, or any stockholder or bondholder
of the corporation, or any other person entitled thereto, with any informa
tion as to the basis of issue of such stock or bonds, the authority for
such issue, and the amount outstanding at any time.
vii.
Reports.
7/henever the Comptroller of the Currency calls for reports of
condition Of the bank, such report shall be accompanied by a full state
ment of the condition of the trust department.
Upon request, reports
shall also bo furnished to the Federal Reserve Board and to the Federal
reserve bank of the district in which said bank is located.
VIII.
Examination.
Examiners appointed by the Comptroller of the Currency or desig
nated by the Federal Reserve Board, shall make thorough and complete audits
of the cash, securities i accounts and investments of the trust department
of every bank, at the same time that examination is made of the banking de
partment.
IX.
Security on Bond.
Any national bank acting as trustee, executor, administrator, or
registrar of stocks and bonds, shall give such bond as may be required
by the laws of the stato in which said bank is located, or as may be re
quired by the court appointing it.
x.
Conformity with State Laws.
Nothing in these regulations shall be construed
to give to a national bank doing business as trustee,
executor, administrator, or registrar of stocks and
bonds under Section ll{k) of the Federal'Reserve Act,
any rights or privileges in contravention of the laws
of the state in which the bank is located.
XI .•
Changes in Rules.
. These rules and regulations arc subject to change
at any time by the Federal Reserve Board.
@FedFRASER