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329 Revised Draft of PROPOSED REGULATION J . Series of ig24 (Superseding Regulation J of 1920) X-4025 CHECK CLEARING AND COLLECTION. SECTION I . STATUTORY PROVISIONS. Section 16 of the Federal Reserve Act authorizes the Federal Reserve Board to require each Federal Reserve Bank to exercise the functions of a clearing house for i t s member banks, and Section 13 of the Federal Reserve Act, as amended by the act approved June 21, 1917, authorizes each Federal Reserve Bank to receive from any nonmember bank or trust company, s o l e l y for the purposes of exchange or of c o l l e c t i o n , deposits of current funds in lawful money, national-bank notes, Federal Reserve notes, checks and drafts payable upon presentation, or maturing hotes and b i l l s , provided such nonmember bank or trust company maintains with i t s Federal Reserve Bank a balance s u f f i c i e n t to o f f s e t the items in transit held for i t s account by the Federal Reserve Bank, SECTION I I . GENERAL REQUIREMENTS, In .pursuance of the authority vested in I t uhder these provisions of law, the Federal Reserve Board, desiring to afford both to the public and to the various banks of the country a direct, expeditious, and economical system of check c o l l e c t i o n and settlement of balances, has arranged to have each Federal Reserve Bank exercise the functions of a clearing house and c o l l e c t checks for such of i t s member banks as desire to a v a i l themselves of i t s p r i v i l e g e s and for such nonmember State banks and trust companies as may maintain with the Federal Reserve Bank balances s u f f i c i e n t to qualify them under the provisions of section 13 to send items to Federal Reserve Banks for purposes of exchange or of c o l l e c t i o n . Such nonmember State banks and trust companies w i l l hereinafter be referred to as nonmember clearing banks. Each Federal Reserve Bank shall exercise the functions of a clearing house and c o l l e c t checks under the general terms and conditions hereina f t e r set f o r t h . SECTION I I I . CHECKS RECEIVED FOR COLLECTION. ( l ) Each Federal Reserve Bank w i l l receive at par from i t s member banks and from nonmember clearing banks in i t s d i s t r i c t , checks drawn lA check i s generally defined as a draft or order upon a bank or banking house, purporting to be drawn upon a deposit of funds, f o r the payment a t a l l events of a certain sum of money to the order of a certain person therein named, or to him or h i s order, or to bearer, and payable on demand. 8 3 0 -2- X-4025 on a l l member and nonmember clearing banks, and checks drawn on a l l other nonmember banks which are c o l l e c t a b l e at par in funds acceptable to the Federal Reserve Bank of the d i s t r i c t in which such nonmember banks are l o cated . (2) Each Federal Reserve Bask w i l l receive at par from other Federal Reserve Banks, and from a l l member and nonmember clearing banks in other Federal Reserve D i s t r i c t s which are authorized to route d i r e c t for the credit of their accounts with their respective Federal Reserve Banks, checks drawn on a l l member and nonmember clearing banks of i t s d i s t r i c t , and checks drawn on a l l other nonmember banks of i t s d i s t r i c t which are collectable at par i n funds acceptable to t h e c o l l e c t i n g Federal Reserve Bank. (3) No Federal Reserve Bank shall receive on deposit or for c o l l e c t i o n any check drawn on any nonmember bank which cannot be collected at par in funds acceptable to the Federal Reserve Bank of the d i s t r i c t i n which such nonmember bank i s located. SECTION IV. TIME SCHEDULE AND AVAILABILITY OF CREDITS, (1) Each Federal Reserve Bank will publish a time schedule showing the time at which any item sent to i t w i l l be counted as reserve and become available for withdrawal or other use by the sending bank. For a l l checks received, the sending bank w i l l be given immediate c r e d i t , or deferred c r e d i t , i n accordance with such time schedule, and as provided below. (2) For a l l such checks as are received for immediate credit i n accordance with such time schedule, inmddiate c r e d i t , subject to f i n a l payment, w i l l be given upon the books of the Federal Reserve Bank at f u l l face value i n the reserve account or clearing account upon day of rec e i p t , and the proceeds w i l l a t once be counted as reserve and Become a v a i l able for withdrawal or other use by the sending bank. (3) For a l l such checks as are received for deferred credit in accordance with such time schedule, deferred, c r e d i t , subject to f i n a l payment, w i l l be entered, upon the books of the Federal Reserve Bank at f u l l face value, but the proceeds w i l l not be counted as reserve nor become a v a i l able for withdrawal or other use by the sending bank u n t i l such time as may be s p e c i f i e d in such time schedule, at which time credit w i l l be transferred from the deferred account to the reserve account or clearing account subject to f i n a l payment and w i l l then be counted as reserve and become available for withdrawal or other use by the sending bank• SECTION V. TERMS OF COLLECTION. The Federal Reserve Board hereby authorizes^ and each member and nonmember clearing bank which sends checks to a Federal Reserve Bank for dep o s i t or c o l l e c t i o n shall by such action be deemed to authorize, the Federal Reserve Banks to handle such checks subject to the following terms and conditions: 9 3 1 -3- X-42C5 (1) A Federal Reserve Bank w i l l a c t as agent only and w i l l assume no l i a b i l i t y except f o r i t s own negligence and i t s guaranty of p r i o r indorsements. (2) A Federal Reserve Bank may present such checks f o r payment or send such checks f o r c o l l e c t i o n d i r e c t to the bank on which they a r e drawn or a t which they are payable, or in i t s d i s c r e t i o n may forward them to another Agent with a u t h o r i t y t o present them f o r payment or send them f o r c o l l e c t i o n d i r e c t to the bank on which they a r e drawn or a t which they a r e payable. A Federal Reserve Bank may in i t s d i s c r e t i o n and at i t s option^ e i t h e r d i r e c t l y or through an agent, accept e i t h e r cash or bank d r a f t s in payment of or in remittance f o r such checks and s h a l l not be held l i a b l e f o r any l o s s r e s u l t i n g from the acceptance of bank d r a f t s i n l i e u of cash, nor f o r the f a i l u r e of the drawee bank or any agent to r e mit f o r such checks, nor f o r the nonpayment of any bank d r a f t accepted i n payment or a s a remittance from t h e drawee bank or any a g e n t . (4) Checks received by a Federal Reserve Bank on i t s member or nonmember c l e a r i n g banks w i l l o r d i n a r i l y be forwarded or presented d i r e c t t o such banks, and such banks w i l l be required t o r e m i t , o r pay t h e r e f o r a t par i n cash or bank d r a f t acceptable to the c o l l e c t i n g Federal Reserve Bank, or a t the option of such Federal Reserve Bank to a u t h o r i z e such Federal Reserve Bank to charge t h e i r r e s e r v e accounts or c l e a r i n g a c c o u n t s . ( 5 ) Checks received by a Federal Reserve Bank payable i n other d i s t r i c t s w i l l be forwarded f o r c o l l e c t i o n upon the terms and conditions herein* provided to the Federal Reserve Bank of the d i s t r i c t i n which such checks a r e payable. (6) The amount of any check f o r which payment in a c t u a l l y and f i n a l l y c o l l e c t e d funds i s not received s h a l l be charged back t o the forwarding bank, r e g a r d l e s s of whether or not the check i t s e l f can be returned. * • SECTION VI. PENALTIES FOR DEFICIENCIES IN RESERVES. (a) S t a t u t o r y p r o v i s i o n s . - Section 19 of the Federal Reserve Act provides t h a t The r e q u i r e d balance c a r r i e d by a member bank with a Federal Reserve Bank may, under the r e g u l a t i o n s and s u b j e c t t o such p e n a l t i e s as may be p r e s c r i b e d by the Federal Reserve Board, be checked a g a i n s t and withdrawn by such member bank f o r the purpose of meeting e x i s t i n g l i a b i l i t i e s ; Provided, however, That no bank s h a l l a t any time male new loans or s h a l l pay any dividends u n l e s s and u n t i l the t o t a l balance r e quired by law i s f u l l y r e s t o r e d . (b) Computation of r e s e r v e s . - Items can not be counted as p a r t of the minimum r e s e r v e balance t o be c a r r i e d by a member bank w i t h i t s Federal Reserve Bank u n t i l such time as may be s p e c i f i e d in the a p p r o p r i a t e time schedule r e f e r r e d to i n Section IV. If a member bank draw a g a i n s t items b e f o r e such time, t h e d r a f t w i l l be charged a g a i n s t i t s r e s e r v e balance i f such balance be s u f f i c i e n t in amount to pay i t ; but any r e s u l t i n g impairment of reserve balances w i l l be s u b j e c t t o a l l the p e n a l t i e s provided by the Act. 232 -?4- X-4025 (c) Basic penalty. - Inasmuch as i t i s e s s e n t i a l that the law i n respect to the maintenance by member banks of the required, minimum r e serve balance s h a l l be s t r i c t l y complied with, the Federal Reserve Board, under authority vested i n i t by section 19 of the Federal Reserve Act, hereby prescribes a basic penalty f o r d e f i c i e n c i e s i n reserves according to the following r u l e s : 1. D e f i c i e n c i e s in reserve^ balances of member banks i n central reserve and reserve c i t i e s w i l l be computed on the b a s i s of average d a i l y net deposit balances covering a weekly period of seven days. D e f i c i e n c i e s in reserve balances of other member banks w i l l be computed on the b a s i s of average d a i l y net deposit balances covering a semi-monthly period. 2. Penalties for d e f i c i e n c i e s in reserves w i l l be assessed, monthly on the basis of average d a i l y d e f i c i e n c i e s during each of the reserve computation periods ending in the preceding month. 3* A b a s i c rate of 2 per cent per annum above the Federal Reserve Bank discount rate on 90-day commercial paper w i l l be assessed as a penalty on d e f i c i e n c i e s i n reserves of member banks. (d) Progressive penalty. - The Federal Reserve Board w i l l also prescribe for any Federal Reserve D i s t r i c t , upon the application of -the Federal Reserve Bank of that d i s t r i c t , an additional progressive penalty for continued d e f i c i e n c i e s in r e s e r v e s , i n accordance with the following rules. 1. When a member bank in a central reserve or reserve c i t y has had an average d e f i c i e n c y in reserves for s i x consecutive weekly periods, a progressive penalty, increasing at the r a t e of one-fourth of 1 per cent for each week thereafter during which the average reserve balance i s def i c i e n t , w i l l be assessed on weekly d e f i c i e n c i e s u n t i l the required r e serve has been restored and maintained for four consecutive weekly period 9, provided that the maximum penalty charged w i l l not exceed 10 per cent. 2. When a member bank outside of a central reserve or reserve c i t y has had an average d e f i c i e n c y i n reserves for three consecutive semimonthly periods, a progressive penalty, increasing a t the r a t e of one-half of 1 per cent for each half month thereafter during which the average r e serve balance i s d e f i c i e n t , w i l l be assessed on semirmonthly d e f i c i e n c i e s u n t i l the required reserve has been restored and maintained for two consecutive semi-monthly periods, provided that the maximum penalty charged w i l l not exceed 10 per cent. SECTION VII. OTHER RULES AND REGULATIONS. Each Federal Reserve Bank s h a l l also promulgate rules and regulations not inconsistent with the terms of the law or of this r e g u l a t i o n , governing the d e t a i l s of i t s check clearing and c o l l e c t i o n operations. Such rules and regulations shall be s e t f o r t h by the Federal Reserve Banks i n their l e t t e r s of instruction to their member and nonmember clearing banks and shall be binding upon any member or nonmember clearing bank which sends any check to such Federal Reserve Bank f o r c o l l e c t i o n or to any other Federal Reserve Bank for the account of such Federal Reserve Bank for collection*
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