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F ederal reserve Ba n k DALLAS. TEXAS of Dallas 75222 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. 9b »Q This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) 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 President