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FEDERAL RESERVE BANK
O F NEW YORK
r Circular No. 3 400*1
L December 9, 1948 J

COLLECTION OF CASH ITEMS
Amendments Effective January 1, 1949, to Regulation J and
Operating Circular No. 4
To all Member and Nonmember Clearing Banks,
and all Collecting and Remitting Banks, in the
Second Federal Reserve District:

We transm it herewith the following:

I

Copy of Regulation J of the Board of Governors of the Federal Reserve System as amended
effective January 1, 1949, and
Copy of our Operating Circular No. 4 as amended effective January 1, 1949.

The text of the amendments to Regulation J is set fo rth in Appendix A to this circular.
The amendment effected by the insertion of a new p arag rap h (4) of section 5 of Regu­
lation J , and the corresponding amendm ents to the operating circulars or letters of the
Federal Reserve Banks, were referred to in the statem ent issued by the B oard of Governors
of the Federal Reserve System, the text of which was set forth in our Circular No. 3397, dated
November 29, 1948, and is also set forth in A ppendix B to this circular. These amendments
are of interest not only to member and nonmember clearing banks which send cash items to
us for collection but also to all collecting and rem itting banks to which we send cash letters,
since the amendments authorize F ederal Reserve Banks to accept, as conditional, paym ent for
checks and other cash items made on the day such items are received by a drawee bank and
to perm it the drawee bank to retu rn items as unpaid, fo r credit or refund, on the drawee
b an k ’s next business day following receipt of and rem ittance for such items. The adoption of
these amendments does not mean, however, th a t any bank is required to follow the practice of
delaying the retu rn of unpaid cash item s; and any bank may continue to retu rn unpaid cash
items with its rem ittance on the day of receipt.
As the statem ent of the B oard of Governors indicates, the American Bankers Associa­
tion recommended that Regulation J and. the operating circulars or letters of the Federal
Reserve Banks governing the collection of cash items be amended to authorize a procedure for
the conditional paym ent of cash items on the day of receipt subject to the right to retu rn
unpaid items on the next business day; this recommendation being made in the light of the fact
th at in recent years many banks have adopted the practice of “ delayed p o stin g ” which involves
a procedure of this kind w ith respect to the retu rn of unpaid items and th at the practice has A
been recognized by the enactment of statutes in a number of States and by rules adopted by
numerous clearing house associations. As the B o ard ’s statem ent also indicates, the American
B ankers Association has drafted a[model s ta tu t| authorizing a procedure of this k in d ; and this
model statute has been sent by the Association to the State Bankers Association of each State,
together with an explanatory statem ent urging its adoption.




New parag rap h s numbered 20 to 23, inclusive, have been inserted in our O perating C ir­
cular No. 4, as amended, under the heading “ Instructions to collecting and rem itting banks” .
The instructions contained in these parag rap h s, and in p arag rap h 12 under the heading “ U ni­
form instructions regarding protest and wire advice of nonpaym ent” , will apply to all collect­
ing and rem itting banks (including not only member and nonmember clearing banks but also
other nonmember banks) to which we send cash letters, and will apply with respect to all cash
letters which we send to any such banks. W hen our present supplies of cash letter form s are
exhausted, we shall discontinue the use of cash letter form s containing instructions to collect­
ing and rem itting banks, so th at thereafter such instructions will appear only in our O perating
C ircular No. 4.
The changes in O perating C ircular No. 4 include, in addition to the new p arag rap h s
referred to above, certain other amendments to conform to the amendments to R egulation J,
certain m inor changes for brevity and clarity, and the following:
l

(1) In paragraph numbered 2, the phrase “ Items which have been previously presented and dis­
honored or protested;” has been eliminated, and the following sentence has been added: “ We reserve
the right to return or to handle as a noncash collection any item which has been previously dishonored.”
(2) Under the heading “ Check routing symbol” there has been added a new paragraph numbered
29 urging that the proper check routing symbol, in fractional form, be clearly imprinted in the upper
right-hand corner of all checks or other cash items drawn payable by, at, or through all par remitting
banks.

Please sign and retu rn the enclosed card, acknowledging receipt of this circular and the
enclosures.
A dditional copies of this circular and of the enclosures will be furnished upon request.




A llan S proul,

President.

A P P E N D IX A
AMENDMENTS TO REGULATION J
ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Effective January 1, 1949, Regulation J, “ Check Clearing and Collection” , is amended in the
following respects:
1. Paragraph (2) of section 5 is amended by adding at the end of such paragraph the following
sentence:
A Federal Reserve bank, or any agent to which such checks are forwarded by a Federal Reserve
bank, may present such checks pursuant to any special collection agreement not inconsistent with
the terms of this regulation or may present them through a clearing house subject to the rules
and practices thereof.
2. Section 5 is amended by inserting therein a new paragraph (4) reading as set forth below
and by changing the designations of present paragraphs (4) to (8 ), inclusive, so that such para­
graphs will be designated (5) to (9 ), inclusive:
(4)
Any check which a Federal Reserve bank or an agent thereof presents to the drawee
bank for payment or sends to the drawee bank for collection, and for which remittance or settle­
ment is made by the drawee bank on the day on which it receives3 such check, may be returned
for credit or refund at any time prior to midnight of the drawee’s next business day following
such day of receipt or prior to the time provided by applicable clearing house rule or special
collection agreement, whichever is earlier, except that this paragraph shall not apply to checks
presented over the counter.
3 A check received by a drawee bank on a day other th a n its business day, or received on a business day a fte r its
regular business hours or during afternoon or evening periods when it has reopened (or rem ained open) for lim ited
functions, shall be deemed to have been received on its next succeeding business day.

3. Section 6 is amended to read as follow s:
Each Federal Reserve bank may also promulgate rules not inconsistent with the terms of the
law or of this Regulation, governing the details of its operations in clearing and collecting checks
and other cash items. Such rules shall be set forth by the Federal Reserve bank in its letters of
instruction to its member and nonmember clearing banks and shall be binding upon any member
or nonmember clearing bank which sends any check or other cash item to such Federal Reserve
bank for collection or to any other Federal Reserve bank for the account of such Federal Reserve
bank for collection.




A P P E N D IX B
STATEMENT
ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

November 24, 1948

Amendments to Regulation J Regarding Delayed Return of Unpaid Items
Several months ago, the American Bankers Association recommended that the Board of Governors
of the Federal Reserve System amend its Regulation J, relating to the clearing and collection of checks
by Federal Reserve Banks, in order to authorize a procedure for the conditional payment of cash items
presented by Federal Reserve Banks subject to the right of a drawee bank to return unpaid items for
credit or refund on the next business day after their receipt by the drawee. The recommendation was
made in the light of the fact that in recent years many banks have adopted the practice of ‘ ‘ delayed
posting” which involves a procedure of this kind with respect to the return of unpaid items and that
the practice has been recognized by the enactment of statutes in a number of States and by rules
adopted by numerous clearing house associations.
On April 16, 1948, the Board of Governors published in the Federal Register a preliminary notice
of proposed amendments to its Regulation J to give effect to the procedure recommended by the
American Bankers Association; and at that time a statement with respect to the proposed changes was
sent by the Federal Reserve Banks to their member banks for their information.
The Board has now adopted the amendments to Regulation J, to become effective January 1, 1949,
in the form in which they were previously published in the Federal Register (except for a change in
the footnote and one other minor change). These amendments are being published in the Federal
Register on or about November 30, 1948. It is contemplated that the Federal Reserve Banks will
amend their operating circulars or letters relating to the collection of cash items to conform to the
amendments to the Regulation. In effect, the amendments to the Regulation and to the operating
circulars or letters of the Federal Reserve Banks authorize the Federal Reserve Banks to accept, as
conditional, payment for checks and other cash items made on the day such items are received by a
drawee bank and to permit the drawee bank to return items as unpaid, for credit or refund, at any time
up to midnight of the drawee’s next business day following receipt of and remittance for such items.
It should be noted that adoption of these amendments does not mean that any bank is required
to follow the practice of delaying the return of unpaid cash items; and any bank may continue to
return unpaid cash items with its remittance on the day of receipt.
It is also to be noted that the procedure provided for in these amendments for the return of
unpaid items on the day after presentment and remittance applies only to checks and other items
handled by the Reserve Banks as “ cash item s” and does not apply to items handled by them as
“ noncash item s” under the Board’s Regulation G.
In May 1948 the American Bankers Association transmitted to banks which are members of the
Association a suggested form of collection agreement with depositors, for use by banks on deposit
tickets, signature cards, and the like, in order that the banks may be afforded adequate protection with
respect to the collection of items in accordance with such conditional payment procedure. The
Association has also drafted a model statute authorizing a procedure of this kind and has informed
the Board of Governors that it will send a copy of the proposed statute, together with an explanatory
statement, to the State Bankers Association of each State, urging its adoption.
The text of the amendments to Regulation J is attached.*
* See Appendix A.




BOARD OF GOVERNORS
o f th e
FEDERAL RESERVE SYSTEM

CHECK CLEARING AND COLLECTION

REGULATION J

This Regulation as printed herewith is in the
form as am ended effective January 1, 1949




INQ UIRIES REGARDING T H IS REGULATION
Any inquiry relating to this regulation should be addressed to the
Federal Reserve bank of the district in which the inquiry arises.




REGULATION J
As a m e n d e d , effective Ja n u a ry 1, 1949

CHECK CLEARING AND COLLECTION
SECTION 1.

STATUTORY PROVISIONS

Section 16 of the Federal Reserve Act authorizes the Board of
Governors of the Federal Reserve System to require each Federal
Reserve bank to exercise the functions of a clearing house for its mem­
ber 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, solely
for the purposes of exchange or of collection, deposits of current
funds in lawful money, national-bank notes, Federal Reserve notes,
checks and drafts payable upon presentation, or maturing notes and
bills, provided such nonmember bank or trust company maintains
with its Federal Reserve bank a balance sufficient to offset the items
in transit held for its account by the Federal Reserve bank.
SECTION 2.

GENERAL REQUIREM ENTS

In pursuance of the authority vested in it under these provisions
of law, the Board of Governors of the Federal Reserve System, desir­
ing to afford both to the public and to the various banks of the
country a direct, expeditious, and economical system of check col­
lection and settlement of balances, has arranged to have each Fed­
eral Reserve bank exercise the functions of a clearing house and col­
lect checks for such of its member banks as desire to avail themselves
of its privileges and for such nonmember State banks and trust com­
panies as may maintain with the Federal Reserve bank balances suf­
ficient to qualify them under the provisions of section 13 to send
items to Federal Reserve banks for purposes of exchange or of col­
lection. Such nonmember State banks and trust companies will here­
inafter be referred to as nonmember clearing banks.
Each Federal Reserve bank shall exercise the functions of a clearing
house and collect checks under the general terms and conditions here­
inafter set forth, and each member bank and nonmember clearing
bank shall cooperate fully in the system of check clearance and col­
lection for which provision is herein made.
SECTION 3. CHECKS RECEIVED FOR COLLECTION

(1)
Each Federal Reserve bank shall receive at par from member
and nonmember clearing banks in its district, from other Federal




I

2

REGULATION J

Reserve banks, and from all member and nonmember clearing banks
in other Federal Reserve districts which are authorized to route direct
for the credit of their respective Federal Reserve banks, checks1
drawn on all member and nonmcmber clearing banks of its district,
and checks drawn on all other nonmcmber banks of its district which
arc collcctible at par in funds acccptable to it.
(2) Each Federal Reserve bank may receive at par from member
and nonmember clearing banks in it? district, checks drawn on all
member and nonmember clearing banks in other Federal Reserve
districts, and checks drawn on all other nonmcmber banks in other
Federal Reserve districts which are collectible at par in funds accept­
able to the collecting Federal Reserve bank.
(3) No Federal Reserve bank shall receive on deposit or for col­
lection any check drawn on any nonmember bank which cannot be
collected at par in funds acceptable to the Federal Reserve bank.
SECTION 4. T IM E SCHEDULE AND AVAILABILITY OF CREDITS

(1) Each Federal Reserve bank will publish a time schedule show­
ing the time at which any item sent to it will be counted as reserve
and become available for withdrawal or other use by the sending
bank. For all checks received, the sending bank will be given imme­
diate credit, or deferred credit, in accordance with such time sched­
ule, and as provided below.
(2) For all such checks as are received for immediate credit in
accordance with such time schedule, immediate credit, subject to final
payment, will be given upon the books of the Federal Reserve bank
at full face value in the reserve account or clearing account upon day
of receipt, and the proceeds will at once be counted as reserve and
become available for withdrawal or other use by the sending bank;
provided, however, that the Federal Reserve bank may in its discre­
tion refuse at any time to permit the withdrawal or other use of
credit given for any item for which the Federal Reserve bank has
not yet received payment in actually and finally collected funds.
(3) For all such checks as are received for deferred credit in accord­
ance with such time schedule, deferred credit, subject to final pay­
ment, will be entered upon the books of the Federal Reserve bank at
full face value, but the proceeds will not be counted as reserve nor
become available for withdrawal or other use by the sending bank
until such time as may be specified in such time schedule,2 at which
1 check is generally defined as a draft or order upon a bank or banking house,
A
purporting to be drawn upon a deposit of funds, for the payment at all events of a
certain sum of money to the order of a certain person therein named, or to him
or his order, or to bearer, and payable on demand.
- For rules for computation of reserves and penalties for deficiencies in reserves,
’
see Regulation D, Secs. 2 and 3.



REGULATION J

3

time credit will be transferred from the deferred account to the re­
serve account or clearing account subject to final payment and will
then be counted as reserve and become available for withdrawal or
other use by the sending bank; provided, however, that the Federal
Reserve bank may in its discretion refuse at any time to permit the
withdrawal or other use of crcdit given for any item for which the
Federal Reserve bank has not yet received payment in actually and
finally collected funds.
SECTION 5. TERM S OF COLLECTION

The Board of Governors of the Federal Reserve System hereby
authorizes the Federal Reserve banks to handle such checks subject
to the following terms and conditions; and each member and non­
member clearing bank which sends checks to any Federal Reserve
bank for deposit or collection shall by such action be deemed (a) to
authorize the Federal Reserve banks to handle such checks subject
to the following terms and conditions; (b) to warrant its own author­
ity to give the Federal Reserve banks such authority; (c) to agree
to indemnify any Federal Reserve bank for any loss or expense sus­
tained (including but not limited to attorneys’ fees and expenses of
litigation) resulting from the failure of such sending bank to have
such authority, or resulting from such Federal Reserve bank’s guar­
anty of prior endorsements, or resulting from any action taken by
the Federal Reserve bank within the scope of its authority for the
purpose of collecting such checks; and (d) to guarantee all prior
endorsements on such checks whether or not a specific guaranty is
incorporated in an endorsement of the sending bank.
(1) A Federal Reserve bank will act only as agent of the bank
from which it receives such checks and will assume no liability except
for its own negligence and its guaranty of prior endorsements.
(2) A Federal Reserve bank may present such checks for payment
or send such checks for collection direct to the bank on which they
are drawn or at which they are payable, or in its discretion may
forward them to another agent with authority to present them for
payment or send them for collection direct to the bank on which
they are drawn or at which they are payable.
A Federal Reserve
bank, or any agent to which such checks are forwarded by a Federal
Reserve bank, may present such checks pursuant to any special col­
lection agreement not inconsistent with the terms of this regulation
or may present them through a clearing house subject to the rules
and practices thereof.
(3) A Federal Reserve bank may, in its discretion and at its option,
either directly or through or from an agent, accept in payment of or
in remittance for such checks, cash, bank drafts, transfers of funds or




4

REGULATION J

bank credits, or other forms of payment or remittance, acceptable to
the collecting Federal Reserve bank. The Federal Reserve bank shall
not be liable for the failure of the drawee bank or any agent to pay
or remit for such checks, nor for any loss resulting from the accept­
ance from the drawee bank or any collecting agent, in lieu of cash,
of any other form of payment or remittance authorized herein, nor
for the nonpayment of, or failure to realize upon, any bank draft or
other medium of payment or remittance which may be accepted from
the drawee bank or any collecting agent.
(41 Any check which a Federal Reserve bank or an agent thereof
presents to the drawee bank for payment or sends to the drawee bank
for collection, and for which remittance or settlement is made by the
drawee bank on the day on which it receives3 such check, may be
returned for credit or refund at any time prior to midnight of the
drawee’s next business day following such day of receipt or prior to
the time provided by applicable clearing house rule or special collec­
tion agreement, whichever is earlier, except that this paragraph shall
not apply to checks presented over the counter.
(5)
Checks received by a Federal Reserve bank which are pay­
able in its own district will ordinarily be forwarded or presented direct
to the banks on which they are drawn, and such banks will be required
to remit or pay therefor at par in such one or more of the forms of
payment or remittance authorized under paragraph (3) hereof as may
be acceptable to the Federal Reserve bank.
(61 Checks received by a Federal Reserve bank payable in other
districts will ordinarily be forwarded for collection to the Federal
Reserve bank of the district in which such checks are payable; pro­
vided, however, that, where arrangements can be made satisfactory
to the collecting bank or agent and to the Federal Reserve bank of
the district in which such checks are payable, any such checks may
be forwarded for collection direct to the bank on which they are
drawn or at which they are payable, or may be forwarded for col­
lection to another agent with authority to present them for payment
direct to the bank on which they are drawn or at which they are
payable. All such checks shall be handled subject to all the terms
and conditions of this regulation.
(7)
With respect to any check sent direct by a member or non­
member clearing bank in one district to a Federal Reserve bank in
*A check received by a drawee bank on a day other than its business day, or
received on a business day after its regular business hours or during afternoon or
evening periods when it has reopened (or remained open) for limited functions,
shall be deemed to have been received on its next succeeding business day.




REGULATION J

5

another district, the relationships and the rights and liabilities existing
between the member or nonmember clearing bank, the Federal Reserve
bank of its district and the Federal Reserve bank to which the check is
sent will be the same, and the relevant provisions of this regulation will
apply, as though the member or nonmember clearing bank had sent
such check to the Federal Reserve bank of its district with its endorse­
ment and guaranty of prior endorsements and such Federal Reserve
bank had sent the check to the other Federal Reserve bank with its
endorsement and guaranty of prior endorsements.
(8) Bank drafts received by a Federal Reserve bank in payment
of or in remittance for checks handled under the terms of this regu­
lation shall likewise be handled for collection subject to all the terms
and conditions of this regulation.
(9) The amount of any check for which payment in actually and
finally collected funds is not received shall be charged back to the
forwarding bank, regardless of whether or not the check itself can
be returned. In such event, neither the owner or holder of any such
check, nor the bank which sent such check to the Federal Reserve
bank for collection shall have any right of recourse upon, interest in,
or right of payment from, any reserve balance, clearing account,
deposit account, or other funds of the drawee bank or of any bank
to which such checks have been sent for collection, in the possession
of the Federal Reserve bank. No draft, authorization to charge, or
other order, upon any reserve balance, clearing account, deposit
account, or other funds of a paying, remitting, or collecting bank in
the possession of a Federal Reserve bank, issued for the purpose of
settling items handled under the terms of this regulation will be paid,
acted upon, or honored after receipt by such Federal Reserve bank
of notice of suspension or closing of such paying, remitting, or col­
lecting bank.
SECTION 8. OTHER RULES AND REGULATIONS

Each Federal Reserve bank may also promulgate rules not incon­
sistent with the terms of the law or of this regulation, governing the
details of its operations in clearing and collecting checks and other
cash items. Such rules shall be set forth by the Federal Reserve bank
in its letters of instruction to its member and nonmember clearing
banks and shall be binding upon any member or nonmember clearing
bank which sends any check or other cash item to such Federal Re­
serve bank for collection or to any other Federal Reserve bank for
the account of such Federal Reserve bank for collection.





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102