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FEDERAL
OF

RESERVE
NEW

BANK

YORK

[

Circular No. 7 9 1 4
July 8, 1976

]

INTERPRETATION OF REGULATION D
Automated Payment Arrangements

T o A l l M e m b e r B a n k s , a n d O th e r s C o n cern ed ,
in the S e c o n d F e d e ra l R e s e r v e D is tr ic t:

The 1>oard of Governors of the Federal Reserve System has issued an interpre­
tation of its Regulation D, “Reserves of Member Banks,” regarding- the treatment
of certain automated payments in the computation of member bank reserves.
Fnclosed is a copy of the interpretation. Any inquiries thereon may be directed
to our Bank Regulations Department. Additional copies of the enclosure will be fur­
nished upon request.




P

aul

A.

V

olcker,

President.

c

Board of Governors of the Federal Reserve System

RESERVES OF MEMBER BANKS

IN TERPRETA TIO N OF REGULATION D
Automated Payment Arrangements and the Use of Cash Items in Process of Collection
^204.11H

C ash item s in process of collection

The Board of Governors has issued the fol­
lowing interpretation regarding the ability of a
member bank to include certain automated pay­
ments in the account “cash items in process
of collection.’’ Such payments are regarded as
cash items and are permitted to be deducted
from “gross demand deposits” used in comput­
ing member bank reserves. The Board has is­
sued the interpretation based upon its statutory
authority to define cash items under § 19(g)
of the Federal Reserve Act, 12 U.S.C. 465, and
its regulatory authority under § 204.2(b) of
Regulation D (12 CFR 204.2(b)).
( a ) As a result of involvement in automated
arrangements in which payment information is
contained on magnetic tape, paper listings, etc.,
rather than checks, a number of member banks
have inquired as to the proper reserve require­
ment treatment for payroll, Federal recurring
payments, and other items received for credit to
a customer’s account in such arrangements.
(b) Where payment information is sent to a
member bank prior to the date credit is passed
for the item, some banks have been crediting
their customers on the date prior to that pay­
ment date to ensure that such deposit is available
to the depositor at opening of business on the
payment date. Such procedure, however, results
in an increase in reported member bank deposits

P RI NTE D IN

[E n c , C ir. N o. 7914]




even though the member bank does not itself
receive credit for the funds until the next day.
Some member banks have inquired as to whether
the account “cash items in process of collec­
tion” may be debited in an amount equal to the
amount credited on the date prior to the pay­
ment date.
(c)
Section 19(g) of the Federal Reserve
Act (12 U.S.C. 465) permits a member bank
to deduct “cash items in process of collec­
tion” as defined by the Board. Section 204.2(b)
of Regulation D provides that cash items may
be deducted from gross demand deposits, and
§ 204.1 (h) (3 ) defines cash items in the process
of collection as “those customarily cleared or
collected by banks as cash items.” The deduc­
tion was intended, in part, to avoid the “double
counting” by member banks of their deposits
subject to reserves. Furthermore, due to the
spread of automated arrangements, it has be­
come customary to treat such automated pay­
ments as “cash items.” Because double counting
would arise in circumstances described above,
and in view of the fact that automated arrange­
ments are now customary practices, the Board
believes that banks are permitted to debit the
account “cash items in process of collection”
in such amounts.
By order of the Board of Governors, June 16,
1976.

NE W YORK