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X-3764 FEBE EAL B S 3 E 1 V E BOARD STATEMENT $0* THE PRESS i • ; '• For release lb Morning Papers, Saturday, June 30. 1923 • 3he provisions of the Federal Reserve Act which authorize the establishment of a Federal Reserve collection systeko were designed wholly for the benefit of the banking end commercial interests of the country. The system is now in operation between banks which in number, are about $2 per cent of all banking institutions and which have approximately 98 per cent of the total banking resources of the country. The Federal Reserve collection system has become a necessary instruroentality in effecting the country's domestic exchangee, ite operation, including final payments through the Gold Settlement Fund, has been of inestimable value and has resulted in enormous saving to those actively engaged in carrying on the commerce of the country and there are no other facilities for operating a collection system which could approximate it in economy of operation. It has eliminated a Very large portion of the time formerly consumed in the collection of checks and has cut down the cost of making the country1 s exchangee to the minimum. Even though an involuntary collection system may not be imposed upon the Federal Reserve Banks by the Federal Reserve Act, as interpreted by the Supreme Court of the United States in its recent decision, the system has fully justified its operation and is of such- value to the banlflng and commercial interests of the c o u n t r y that its continuance as a voluntary system is of vital importance. Certain changes in the basis of the par clearance system are advisable in view of the recent decision of the Supreme Court* The Board believes that participation in the par clearance system should be based upon the principle of reciprocity and that hereafter Federal Reserve Banks should not receive'for collection checks on any non-member bank which will not agree to remit in acceptable funds without deduction. The recent opinion of the Supreme Court makes it certain that the Federal Reserve Banks are not permitted by law to pay exchange. It mast be clear tiiat the more inclusive a collection system is tae more efficient it will be and the greater will be the service it can render alike to the business and banking community. Therefore, since it is the object of the Federal Reserve Board to maintain an efficient system of par collection X-3764 whi cb. must a t the same time "be a v o l u n t a r y system a s f a r a s non-member banks a r e concerned, the c o n c e s s i o n s involved and t h e r e s u l t i n g b e n e f i t s -should be made and r e c e i v e d by a l l p a r t i c i p a t i n g banks. I t i s c l e a r t h a t t h o s e nonmember banks which a r e u n w i l l i n g to r e m i t w i t h o u t d e d u c t i o n f o r checks drawn on themselves have no r i g h t to s h a r e i n t h e a d v a n t a g e s of t h e par c o l l e c t i o n system. The F e d e r a l Reserve Board, t h e r e f o r e , i n t h e e x e r c i s e of i t s l e g a l a u t h o r i t y , h a s amended R e g u l a t i o n J , S e r i e s of 1920, i n such a way a s t o p r o h i b i t any F e d e r a l Reserve Bank f r o m r e c e i v i n g on d e p o s i t or f o r c o l l e c t i o n any check drawn on any non-member bank which r e f u s e s t o r e m i t a t par i n a c c e p t a b l e f u n d s and t o r e q u i r e F e d e r a l Reserve Banks to make a c o l l e c t i o n charge f o r t h e i r s e r v i c e s i n c o l l e c t i n g checks which b e a r the endorsement of * o r a r e drawn by or emanate from any non-member bank which r e f u s e s t o r e m i t a t par i n a c c e p t a b l e f u n d s , such c o l l e c t i o n charge t o be a t a r a t e n o t t o exceed one t e n t h of one p e r c e n t .
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