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F ederal r es er v e Ban k o f D allas

DALLAS, TEXAS

75222

Circular No. 72-13^
June 28, 1972

TO THE CHIEF EXECUTIVE OFFICER OF ALL BANKS
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:

Enclosed are the press release and the official notices
issued by the Board of Governors of the Federal Reserve System in con­
nection with the promulgation of changes in Regulations D and J. The
Board has amended its original proposals, published for comment in the
Federal Register of April 1. As the press release indicates, the Board
received a number of comments and suggestions. This Bank, along with
the other Federal Reserve Banks, conducted meetings and discussions on
the proposals. The modifications in the proposals, as finally adopted,
reflect the Board’s desire to make a smooth transition to the new rules.
The modifications in the proposals consist of the addition of
a $10 to $100 million net demand deposit reserve classification and a
provision for waiver of penalties on reserve deficiencies over a period
of up to 21 months for some banks.
During the next three months, prior to the effective date of
the changed regulations, our representatives will work with you to make
all necessary clearing arrangements and to develop a schedule for waiver
of reserve deficiencies in cases where this is applicable. We shall also
be working with many banks on the creation of additional regional check
processing centers in an effort to expedite the development of a nation­
wide network for faster and more efficient check clearings.
Should you or your officers have questions concerning any
element of these proposals, please feel free to write or call collect
to any of our senior staff, especially the following:
Regulation J
Tony J. Salvaggio, Senior Vice President
T. E. Spreng, Assistant Vice President
Jack Clymer, Transit Coordinator
Regulation D
Robert H. Boykin, Senior Vice President and Secretary
E. W. Vorlop, Jr., Vice President and Controller
C. L. Vick, Operations Officer

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

- 2 -

Any broad questions or comments you may wish to have us consider
on these changes can be directed to Robert Smith, III, Public Information
Officer of this Bank. Our branch officers stand ready to assist any bank
in their respective territories.
Very truly yours,
P. E. Coldwell
President
Enclosures

o f GoW o

FEDERAL RESERVE

k
■f

press

release

^4L

For use in papers of
Thursday, June 22, 1972

June 21, 1972

The Board of Governors of the Federal Reserve System today
announced its unanimous approval of two regulatory changes designed to
restructure on a more equitable basis the reserve requirements of
member banks, and to modernize the nation*s check collection system.
The changes will go into effect in two steps in late
September and early October.

They will:

— Apply the same reserve requirements to member banks of
like size, regardless of a bank's location (amending
Regulation D, governing reserves of member banks).
— Require all banks, also regardless of location, served
by the Federal Reserve check collection system (virtually
all of the nation*s banks) to pay— in immediately
collectible funds— for checks drawn on them, the same
day the Federal Reserve presents the checks for payment
(amending Regulation J, governing collection of checks
and other items by Federal Reserve Banks).
The changes, while basically the same as the proposals pub­
lished for public comment March 28, have been modified in detail and
method of application, in the light of comment received.

These modi­

fications include further revisions of the restructured reserve
schedule affecting member banks' net demand deposits ranging from
$10 million to $100 million, and temporary waivers of penalties on
reserve deficiencies attributable to the new check collection pro­
cedures .

-2-

In making the announcement the Board said:
The Board received letters during the seven-week period
for comment through May 15 from less than 5 per cent of the
nation's 13,800 commercial banks.
Although many banks
suggested modifications in the original proposals— chiefly
to minimize effects of the new check collection procedures
upon their funds available for loans and investments— most
of them approved of the program fully or in principle.
The correspondence the Board received, and the special
efforts made by the Federal Reserve Banks during the comment
period to assess the effects of the proposed changes, indicate
that a number of banks, especially those not served by most
Federal Reserve offices and Federal Reserve Regional Check
Processing Centers (RCPCs), would be adversely affected.
The Board has given careful attention to situations
where a bank's funds available for investment would be
significantly reduced by the new check collection procedures.
The changes in the regulations, as now adopted, and the early
activation of System-wide RCPC arrangements, will substantially
lessen the effects upon investable funds of member banks.
Given the normal growth of deposits, these provisions
should make it possible for member banks to adapt without
undue difficulty to the new check collection procedures*
In this respect, it should be noted that the Board has
formulated its new reserve requirements in such a way that
the smaller the member bank, the more its reserve require­
ments are reduced.
For example, member banks in the up to
$2 million net demand deposit category would experience a
reduction in required reserves of 36
per cent, while member
banks with net demand deposits of $400 million and up would
have their required reserves lowered by
9 per cent.
The Board is seeking simultaneously to equalize competi­
tive conditions among banks— and further ease adjustment to
the new check collection procedures— by giving high priority
attention to extending Federal Reserve RCPC clearing services
and equalizing cutoff hours.
Within the context of improving services the Board's
most immediate and highest priority aim, is accelerating the
development of Regional Check Processing Centers.
This will
greatly assist the transition to the new conditions by a
large number of banks— nonmember as well as member.
By
making possible earlier receipt of funds due to banks de­
positing checks for clearance, these facilities for overnight

-3check gathering, processing and clearing will further offset
the earlier payment for checks required by the change in
Regulation J.
R.egional Check Processing Centers located at Federal
Reserve offices will serve areas as large as can be reached
on an overnight basis.
Such expanded zones of overnight
check clearance are already in operation at Baltimore, Miami,
(Florida) Chicago, Kansas City, Omaha and Denver.
Centers
at new locations will be established where needed to serve
banks that cannot be reached overnight from present Federal
Reserve offices.
The Board believes that the revisions of its regulations,
as adopted, will result in a more efficient, more competitive
and productive banking system, better able to take advantage
of modern communications and accounting technology to serve
business and private depositors in a growing economy.
The regulatory changes— and the method to be used in imple­
menting them— will result in a net release of reserves of about $1.5
billion:

a total release of about $3.5 billion from the restructuring

of reserves and the waiver of penalties, which will be partially
absorbed by the immediate $2 billion reduction in float resulting from
the change in Regulation J.

This float arises out of the present

practice whereby so-called ■ country banks" pay for checks presented by
'
the Federal Reserve in funds that are not available for use until the
next business day following presentment of the checks for payment.
Additional reduction in float will occur as transportation arrangements
are improved.
The net release of reserves will be accomplished in two steps.
It is intended that Federal Reserve open market operations will be
adapted as needed, when the amendments go into effect, to neutralize
the effects on monetary policy.
Effects of the changes on the reserve positions of individual
banks will vary and there will be some transitional imbalances

despite the modifications adopted by the Board.

The Board expects that

discount officers at the Reserve Eanks will be responsive to requests
of any member banks temporarily in need of credit to tide them over a
period of adjustment to the new check collection basis.

Reserve Restructuring

(Regulation D)

The B o a r d ’s amendment restructuring reserve requirements on
net demand deposits will modernize the system of reserves in the light
of banking patterns that have evolved over the last 25 years.

It will

provide member banks of equal size with equal reserve requirements.
Under the basic restructuring, reserve requirements on net
demand deposits will be based on the amount of such deposits held by
a member bank without regard to its location.

The restructuring will

apply the following ratios to all member banks:
Amount of Net Demand Deposits
First $2 million or less

Reserve Percentages Applicable
8 per cent

Over $2 Million to $10 million

10

per cent

Over $10 million to $100 million

12

per cent

Over $100 million to $400 million

13

per cent

Over $400 million

17-1/2

per cent

These ratios will become effective in two steps just prior
to the period when there is a seasonal need for reserves in the banking
system.

Beginning in the statement week of September 21 to September 27,

the first three ratios— 8 per cent, 10 per cent and 12 per cent—

-5-

will apply to net demand deposits of $100 million and less, based on
the average level of deposits held by the bank during the week ending
September 13.

This will coincide with the September 21 effective

date for the Regulation J change.

In addition, the 17-1/2 per cent

ratio that now applies to demand deposits between $100 million and
$400 million (for present Reserve City banks) will be reduced to 16-1/2
per cent as part of the first step.

During the statement week from

September 28 to October 4, this latter ratio will be reduced to 13 per
cent based on the average level of deposits held by the bank during the
week ending September 20.
At present, member banks are divided into two classes on a
geographical basis for the purpose of computing reserve requirements
on demand deposits.

The ratios for reserve city banks— typically the

larger banks in the larger cities— are currently 17 per cent on the
first $5 million of demand deposits and 17-1/2 per cent on demand
deposits exceeding $5 million.

The reserve ratios for all other member

banks— often called ’ country banks"— are currently 12-1/2 per cent on
’
the first $5 million of demand deposits and 13 per cent on demand de­
posits exceeding $5 million.
As originally proposed, a ratio of 13 per cent would have
applied to net demand deposits from $10 million to $400 million.

The

Board decided to include an additional category— a 12 per cent ratio

-6-

for net demand deposits beti\reen $10 million and $100 million— to help
offset the absorption of reserves through float reduction under the
new check collection rules that will have a sharp impact on banks
of this size.
This particular action will release $400 million in reserves,
and of this amount $250 million will go to country banks with net de­
mand deposits of more than $10 million.
One part of the reserve
in which "reserve city banks"

restructuring V7illchange the manner

are designated.

Under the amendment,

a

bank is a reserve city bank automatically whenever the average of its
net demand deposits for the res;erve period rises above $400 million.
In authorizing the Federal Reserve Banks to grant temporary
waivers of penalties on certain deficiencies in reserves attributable
to the change in Regulation J, the Board set the following guidelines:
— A waiver will be granted initially only for penalties on
reserve deficiencies equal to a reduction in available funds that ex­
ceeds two per cent of a member b a n k ’s net demand deposits.
— The amount of deficiency eligible for waiver of penalties
will decrease one per cent of

net demand deposits for each quarter

beginning January 1, 1973.
— No further waivers will be granted under this authority
after June 30, 1974.

-7Check Collection (Regulation J)
The Board adopted the proposals it made in March for revising
its Regulation J, covering collection of checks by the Federal Reserve
System.

At the same time, it took steps to attenuate and mitigate the

impact on affected banks of faster check collection.
Commercial banks that are members of the Federal Reserve
System send to the Federal Reserve for collection checks deposited by
their customers that are drawn for the most part on banks outside their
local clearing systems.

The Federal Reserve presents the checks, for

collection, to the banks against which they are drawn.

Nonmember banks

use Federal Reserve collection facilities by sending their checks to
the Federal Reserve through a member bank.

The Federal Reserve credits

the reserve account of member banks which send checks to it for collection.
The Reserve Bank recovers the amounts it has credited when it collects
from banks whose customers wrote the checks.
The revised check collection regulation requires all banks
to pay for their checks the same day the Federal Reserve presents them
for payment, and to make the payment in funds that are available to
the Federal Reserve that day, i.e., to pay in immediately available funds.
In no case, however, would a bank be expected to pay for its checks prior
to receipt of its cash letter
of a bank

to return any check on the
Nearly all banks in

banks are

from the Reserve Bank. Nor would

the 12

located, and the 25 cities

following day be
cities where the

the right

affected.
Federal Reserve

with other Federal Reserve offices

-8 -

have been on such an immediate payment basis.

Payment for checks by

these banks and their customers, are not affected by the new check
collection procedures.

They will, of course, benefit from earlier

credit from banks whose earlier payment is passed on by the Federal
Reserve.
In recent m o n t h s , in furtherance of Federal Reserve policy
aimed at modernizing the nat ion’s payments mechanism, the Federal
Reserve Banks have begun establishing Regional Check Processing Centers
(RCPCs) to serve expanded "zones of immediate payment" around, as well
as in, their cities.

Banks and their customers in these zones also have

been on an immediate payments basis and their payment practices are thus
not affected by the new check collection procedures.
The banks that may be adversely affected most by the revised
check collection procedure are those outside cities with Federal Reserve
facilities, and outside the immediate payment areas served by the RCPCs.
Such banks, which will go on an immediate payment basis, generate some
15 per cent of the dollar volume of all checks, and about half of the
100 million checks currently written in the United States each business
day.

Whether or not they are adversely affected depends upon the off­

setting amount of earlier credits they will receive and reduction of
their required reserves.
These "country" banks had previously paid for checks presented
to them in funds collectible one day or more after presentation.

This

practice— rooted in times of slower communications— made available to
such banks for investment an average of approximately $2 billion a day

-9-

in funds that were in the process of collection through the Federal
Reserve.

This $2 billion "float” will be eliminated under the new

same-day-payment check collection procedure.
The new check collection rules thus place all banks— city
and country, member and nonmember— on the same footing as regards check
collection by the Federal Reserve.

A number of the member ''country"

banks not now paying in immediately available funds are medium to large
banks, located in

the many sizeable cities that do not have

Federal Re­

serve offices and

in suburban areas around Federal Reserve cities.

In making immediate rather than deferred payment for their
che c k s , banks not already on an immediate payment basis could— in the
absence of offsetting action by the Board— lose investable funds.

The

Board's action will provide newly investable funds resulting from the
lower reserves the new reserve schedule permits.

And the effect of

having to pay the

Federal Reserve for their checks earlier,

offset by earlier

credit from the Federal Reserve on checks written

their favor.

will be

Where earlier credit is given for checks due to either

member or nonmember banks operating through a correspondent bank, the
Federal Reserve anticipates that correspondent banks will pass the
earlier credit back to the banks they represent.
Despite these offsets, some banks will nevertheless still
have to give up funds previously available to them in the form of
"float."

To attenuate and mitigate the effect of this reduction of

funds, the Board has authorized the Reserve Banks to waive penalties
on certain deficiencies in reserves for periods of up to 21 months.

in

-10-

The amount of funds on which penalties initially will be
waived, after the new check collection procedure goes into effect,
will depend upon the amount of net loss of funds a bank experiences.
The net loss of reserves will be (1) the reserve reduction due to imme­
diate rather than deferred payment for checks that

(2) is not offset by

the Board's new reserve requirement structure or (3) by receipt of
earlier credit for checks under the new check collection rules.

The

amount will be figured as a per cent of the bank's net demand deposits.
Where a bank's net reduction of funds is less than 2 per cent
of its net demand deposits, no waiver of penalties vT
.ill be granted.
Penalties will be waived on reserve deficiencies in excess of 2 per
cent of net demand deposits through the remainder of this year.

There­

after, the waiver of penalties will be reduced at the beginning of each
quarter on an amount equal to 1 per cent of the bank's net demand de­
posits, up to a maximum of six quarters.
Attached are copies of the regulatory amendments and order
relating to waiver of penalties.

-0 -

TITLE 12--BANKS AND BANKING
CHAPTER II--FEDERAL RESERVE SYSTEM
SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. D]
PART 204--RESERVES OF MEMBER BANKS
Computation and Requirements

On March 28, 1972,

the Board of Governors announced that it

was considering adopting a system of reserve requirements against the
demand deposits of all member banks based on the amount of such deposits
held by a member bank.

(See 37 Federal Register 6694.)

Under the p r o ­

posal, reserve percentages would be based on a member bank's deposits
without regard to the location of the bank.

The Board has decided to

adopt the proposal, with certain modifications.

Some modifications are

designed to phase in gradually the reserve requirement structure proposed
on March 28; in this connection,

the amendments to Regulation D

have various deferred effective dates.

The purpose of phasing in the new

reserve structure is to avoid an unduly large release of reserves at any
given point in time.

Another modification is designed to cause a r e ­

duction from 13 per cent (as proposed earlier) to 12 per cent in the
reserve percentage that is applicable to the portion of a member bank's
net demand deposits in excess of $10 million but less than $100 million.
To implement its proposal,

the Board has amended Regulation D

(12 CFR 204) in the following respects:

-2 -

1*

Effective September 21, 1 9 7 2 , sections 204.51 through

204.57 are revoked.
2.

Effective September 21, 1972, sections 204 , 2 (a)(2) and (3)

are amended to read as follows:
§ 204.2 Computation of reserves.
"fe

"fe

-k

(2) A member bank in a reserve city is deemed to have a
character of business similar to banks outside of reserve cities w h e n ­
ever it has average net demand deposit balances of $400 million or less
for the second computation period preceding the current reserve main­
tenance period.

The Board grants permission to any such bank or banks

to maintain for the current period the reserve balances that are in
effect for member banks not located in reserve cities.

Such permission

and any other permission granted by the Board to maintain reduced re­
serves is automatically suspended for the current reserve maintenance
period with respect to any member bank in a reserve city that has average
net demand deposit balances of more than $400 million for the second
computation period preceding the current reserve maintenance period.
Any such bank shall maintain for the current period the reserve balances
in effect for banks located in reserve cities.
(3)

For the purposes of this Part, each city having a Federal

Reserve office is a reserve city.

In addition,

or other community, whether or not incorporated,

any city, town, village
is a reserve city for

-3-

a reserve computation period if it contains a head office of any member
bank that had average daily net demand deposit balances of more than
$400 million for the second computation period preceding the current
reserve maintenance period.
3.

Effective during the period from September 21 to September

1972, sections 204.5(a)(1)(iii) and (2)(iii) are amended to read as
follows:
§ 204.5

Reserve requirements.
(a) Reserve percentages.

Pursuant to the provisions of sec­

tion 19 of the Federal Reserve Act and § 204.2(a) and subject to para­
graph (c) of this section, the Board of Governors of the Federal Reserve
System hereby prescribes the following reserve balances that each member
bank of the Federal Reserve System is required to maintain on deposit with
the Federal Reserve Bank of its district:
(1) If not in a reserve city-•k it ie

(iii)

(a) 8 per cent of its net demand deposits if Its

aggregate net demand deposits are $2 million or less,

(b) $160,000 plus

10 per cent of its net demand deposits in excess of $2 million if its
aggregate net demand deposits are in excess of $2 million but less than
$10 million,

(£) $960,000 plus 12 per cent of its net demand deposits in

excess of $10 million if its aggregate net demand deposits are in excess
of $10 million but less than $100 million, or (d) $11,760,000 plus 13 per

-4 -

cent of its net demand deposits in excess of $100 million, except that
in the case of a bank that was considered located in a reserve city
prior to September 21, 1972, the reserve percentage shall be 16-1/2 per
cent of its net demand deposits in excess of $100 million.
(2)

If in a reserve city (except as to any bank located in

such a city that is permitted by the Board of Governors of the Federal
Reserve System, pursuant to § 204.2(a)(2), to maintain the reserves
specified in subparagraph (1) of this paragraph) —
* * *
(iii)

$61,260,000 plus 17-1/2 per cent of its net demand

deposits in excess of $400 million.
4.

Effective September 28, 19 72, sections 204.5(a)(1)(iii)

and (2)(iii) are amended to read as follows:
§ 204.5

Reserve requirements.
(a) Reserve percentages.

Pursuant to the provisions of

section 19 of the Federal Reserve Act and § 204.2(a) and subject to
paragraph (c) of this section, the Board of Governors of the Federal
Reserve System hereby prescribes the following reserve balances that
each member bank of the Federal Reserve System is required to maintain
on deposit with the Federal Reserve Bank of its district:
(1) If not in a reserve city—
i - "e
e k !

(iii)

(a) 8 per cent of its net demand deposits if its

aggregate net demand deposits are $2 million or less, (b) $160,000 plus

-510 per cent of its net demand deposits in excess of $2 million if its
aggregate net demand deposits are in excess of $2 million but less than
$10 million,

(c ) $960,000 plus 12 per cent of its net demand deposits in

excess of $10 million if its aggregate net demand deposits are in excess
of $10 million but less than $100 million, or (d) $11,760,000 plus 13 per
cent of its net demand deposits in excess of $100 million.
(2)

If in a reserve city (except as to any bank located in

such a city that is permitted by the Board of Governors of the Federal
Reserve System, pursuant to § 204.2(a)(2),

to maintain the reserves

specified in subparagraph (1) of this paragraph)—
* * *
(iii)

$50,760,000 plus 17-1/2 per cent of its net demand

deposits in excess of $400 million.
(12 U.S.C. 248(i) and 461.)
By order of the Board of Governors, June 20, 1972,

(Signed) Michael A. Greenspan

[SEAL]

Michael A. Greenspan
Assistant Secretary

TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. J]
PART 210— COLLECTION OF CHECKS AND OTHER ITEMS BY
FEDERAL RESERVE BANKS
Payment of Cash Items Upon Presentment

On M arch 28, 1972, the Board of Governors proposed to amend
its Regulation J to require banks— member and nonmember— to pay cash
items on the day of presentment in funds available to the Reserve
Bank on that day.

(See 37 Federal Register 6695.)

For the reasons

indicated in that earlier announcement, the Board has decided to
adopt the proposal.
To aid in the implementation of the proposal, the Board has
also decided to amend its Regulation J to provide that if a Federal
Reserve Bank does not receive payment for a cash item in the manner
prescribed by Regulation J, the amount of the item may be charged back
to the sender of the item.
Effective September 21, 1 9 7 2 , the Board has amended its
Regulation J as follows:
1.
§ 210.9

Section 210.9(a)

is amended to read:

Remittance and payment.
(a)

(1) Cash item.

A paying bank becomes accountable for

the amount of each cash item received by it from or through a Federal
Reserve Bank at the close of the paying bank*s banking day on which

-2 -

the cash item was so received-

if it retains such item after the close

of such banking day, unless, prior to such time, it pays or remits for
the item as herein provided.

Payment or remittance therefor shall be

effected on such day of receipt by:
(i)

debit to an account on the books of a Federal Reserve

Bank; or
(ii) payment in cash; or
(iii)

in the discretion of the Federal Reserve Bank, any other

form of payment or remittance:
Provid ed» that the proceeds of any such payment or remittance in any
form herein stated shall be available to the Federal Reserve Bank not
later than the close of the banking day for such Federal Reserve Bank
on the day on which such item was so received by the paying bank.

If

the banking day on which an item is received by a paying bank is not
a banking day for the Federal Reserve Bank from which the item was
received, any payment or remittance made hereunder shall be effected
on the banking day of both such Federal Reserve Bank and such paying
bank next following the day of receipt of such item,

4j
A cash item received by a paying bank shall be deemed to have been
received by the bank on its next banking day if the item is received
under one of the following circumstances:
(1) on a day other than a
banking day for it, or (2) on a banking day for it, but (a) after its
regular banking hours, or (b) after a "cut-off hour" established by it
in accordance with applicable State law, or (c) during afternoon or
evening periods when it is open for limited functions only.

-3 -

(2)

Noncash i tem,

A Eederal Reserve Bank may require the

paying bank or collecting bank to which it has presented, sent, or
forwarded any noncash item pursuant to § 210,7 to pay or remit for
such item in cash, but is authorized, in its discretion, to permit
such paying bank or collecting bank to authorize or cause payment or
remittance therefor to be made by a debit to an account on the books
of such Federal Reserve Bank or to pay or remit therefor in any of the
following which is in a form acceptable to such Federal Reserve Bank:
Bank draft, transfer of funds or bank credit, or any other form of
payment or remittance authorized by applicable State law*
(3)

Nonbank pa yor.

A Federal Reserve Bank may require the

nonbank payor to which it has presented any cash item or noncash item
pursuant to § 210.7 to pay therefor in cash, but is authorized, in its
discretion, to permit such nonbank payor to pay therefor in any of the
following which is in a form acceptable to such Federal Reserve Bank:
Cashier's check, certified check, or other bank draft or obligation.
2.
§ 210.12

Section 210.12(a) is amended to read:

Return of Cash items .
(a)

A paying bank that receives a cash item from or through

a Federal Reserve Bank, otherwise than for immediate payment over
the counter, and that pays or remits for euch item aa provided in
§ 210.9(a) of this Part shall have the right to recover any payment
or remittance so made if, before it has finally paid the item, it

-4-

returns the item before midnight of its banking day next following
the banking day of receipt or takes such other action to recover such
payment or remittance within such time and by such means as may be
provided by applicable State law:

Provided, that the foregoing pro­

visions shall not extend, nor shall the time herein provided for
return be extended by, the time for return of unpaid items fixed by
the rules and practices of any clearing house through which the item
was presented or fixed by the provisions of any special collection
agreement pursuant to which it was presented.
3.
S 210.13

Section 210.13 is amended to read:

Chargeback of unpaid cash items and noncash items.
If a Federal Reserve Bank does not receive payment for any cash

item in accordance with the provisions of $ 210.9(a), the amount of such
item may be charged back to the sender, regardless of whether or not
the item itself can be returned.

If a Federal Reserve Bank does not

receive payment in actually and finally collected funds for any cash
item or noncash item for which it gave credit subject to payment in
actually and finally collected funds, the amount of such item shall be
charged back to the sender,
can be returned.

regardless of whether or not the item itself

In the event the amount of the item is charged back,

neither the owner or holder of any such item nor the sender shall have the
right of recourse upon, interest in, or right of payment from, any reserve

-5-

b a la n c e ,

clearing account, deposit account, or other funds of the

paying bank or of any collecting bank, 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
in the possession of a Federal Reserve Bank, issued for the purpose of
paying or remitting for any cash items or noncash items handled under
the terms of this Part, will be paid, acted upon, or honored after
receipt by such Federal Reserve Bank of notice of suspension or closing
of the bank making the payment or remittance for its own or another's
account,
4,

Section 210,15 is amended to substitute the term "§ 210,9"

for the term "§ 210,12" appearing at the end of § 210,15,
(12 U.S.C. 2 4 8 (i) and (o) and 342.)
By order of the Board of Governors, j une 20, 1972.

(Signed) Michael A. Greenspan

[SEAL]

Michael A. Greenspan
Assistant Secretary

FEDERAL RESERVE SYSTEM
[12 CFR Parts 204 and 210]
Waiver of Penalties for Deficiencies in Reserves

On March 28, 1972, the Board announced that it was consider­
ing amending its Regulations D and J to restructure and reduce reserve
requirements and to require banks to pay checks on the day of present­
ment in immediately available funds*

After reviewing the comments

received, the Board has determined that member banks that will be
adversely affected to a substantial degree by adoption of these proposals
should be permitted a reasonable time to adjust to the effects of the new
regulations.

Below is the text of a letter to the Federal Reserve Banks

setting out this measure;
The Board regards it as appropriate for a Reserve Bank to
waive penalties in some cases for member bank reserve deficiencies that
result from the implementation of the proposed amendments to Regulations
D and J, announced on March 28, 1972*

In those cases where the imple­

mentation of these changes would result in a net loss of funds

(as

computed by the Reserve Bank) in an amount more than two per cent of
the member ba n k ’s net demand deposits, it seems appropriate to waive
certain of the penalties for reserve deficiencies*

For the reserve

periods ending on or before January 1, 1973, it is regarded as
appropriate in such cases to waive penalties on deficiencies in amounts
of the full loss, less the two per cent of net demand deposits*
each subsequent quarter, an additional one per cent of net demand

For

-2

deposits would be subtracted from the amount of deficiencies eligible
for waiver, until the amount of the waiver is eventually zero.

This

authorization for waivers will terminate on June 30, 1974.
The loss to each member bank should be calculated as the
average amount-i/ of the b a n k fs Federal Reserve cash letter for which
it would make earlier payment, less the average amount of sameterritory country items for x^hich the bank would receive earlier credit,
or two per cent of its net demand deposits, whichever is less, less the
average reduction in reserve requirements due to the change in Regula­
tion D.

(For those few banks whose reserve requirements would be

increased, the change in reserves would be added rather than sub­
tracted.)
Applications for waiver should be submitted by a member
bank prior to August 15, 1972.

1/ The average amount will be calculated over the 4-week period
ending on June 28, 1972. However, if an RCPC has been implemented
during 1972, the Reserve Bank should choose a 4-week period prior
to the date of such implementation.
In addition, for purposes of these
calculations, the figure for net demand deposits should be the average
amount of net demand deposits over that same period.

By order of the Board of Governors, June 20, 1972.

(Signed) Michael A. Greenspan
[SEAL]

_________________________________
Michael A'. Greenspan
Assistant Secretary

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