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F ederal


Ba n k





Circular No. 7^-17^June 26, 197^

To the Chief Executive Officer,
Each Bank in the Eleventh Federal Reserve District:

Over the last several years, the number and dollar amount
of items returned unpaid by drawee banks have been increasing at a
substantial rate. The volume of such items clearing through the
Dallas Office of the Eleventh Federal Reserve District reached five
million in 1973. The average annual growth rate was 12.6 percent
during the past three years.
A recent study by the Bank Administration Institute re­
vealed that while the volume of returned items nationwide represented
only one percent of the total items handled by the banking system,
the cost of processing the items accounted for over eleven percent
of total check collection costs. The experience of this Bank supports
the cost data presented in the study. Also, this Bank supports the
conclusion that remedial action shouldbe undertaken in an effort
to contain returned item volume growth
which consequently would
reduce processing activity and cost.
For many years, the Eleventh Federal Reserve District has
experienced a disproportionately high level of returned checks in
comparison with other Reserve Districts. While there has been some
improvement nationally over the last several years, our District is
still witnessing a high return volume. In 1973 > for example, the
Federal Reserve System handled
returned items for each 1000
checks processed. The average for the Dallas Office was 1^.71
returns per 1000 checks handled. This was the highest proportion
of returns to checks handled among all Federal Reserve System Head
Offices and fourth highest among all Federal Reserve Offices in­
cluding branches. We can only speculate on the factors that result
in our proportionately high return volume. Our observation is that
checks generally have a higher degree of over-the-counter accept­
ability in this part of the country than in the East. Also, we are
aware of the growing trend in so called "free checking" which might
be encouraging more marginal checking accounts than might otherwise
have prevailed under the earlier requirement for minimum balances.


This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

In order to determine more specifically the causes of our
high return volume and the steps, where possible, to improve the
position of the Dallas Office, we are making a more detailed study
of return items. As we make this analysis, we are aware that problems
associated with unpaid checks axe by no means exclusive to the Federal
Reserve, and for this reason, we would welcome any comments or
suggestions you may have in this regard.
When the study has been completed, we will send you a copy
of our findings and conclusions.
Yours very truly,
P. E. Coldwell

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