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Federal R eserve Bank OF DALLAS ROBERT D. M c T E E R , J R . DALLAS, TEXAS 75265-5906 P R E S ID E N T AND C H IE F E X E C U T IV E O F F IC E R June 4, 1997 Notice 97-52 TO : The Chief Executive Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Proposed Amendments to Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fed wire) DETAILS The Board of Governors of the Federal Reserve System is proposing amendments to Regulation J to help ease the transition to interstate branching in the check collection area. Under the proposed amendments, an institution could send checks to any Reserve Bank for collection, but all of its check collection transactions through the Federal Reserve would be reflected in a single account held at its “Administrative Reserve Bank” no matter where the institution has its branches. The Board must receive comments by July 21, 1997. Please address comments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Docket No. R-0972. ATTACHMENT A copy of the Board’s notice as it appears on pages 27547-54, Vol. 62, No. 97, of the Federal Register dated May 20, 1997, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) -2- MORE INFORMATION For more information, please contact Jane Anne Schmoker at (214) 922-5101. For additional copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours, Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules ACTION: 27547 Proposed rule. Effective January 1,1998, the Reserve Banks will begin to im plem ent a policy under w hich each depository institution m ay m aintain only a single funds account w ith the Federal Reserve. A single account w ill establish a single debtor-creditor relationship between each institution and a Federal Reserve Bank and w ill make account management more efficient for banks w ith interstate branches. The Board is proposing am endm ents to subpart A of Regulation J to conform the Federal Reserve check collection rules to the single account structure. DATES: Comments m ust be subm itted on or before July 21,1997. ADDRESSES: Comments, w hich should refer to Docket No. R-0972, may be m ailed to Mr. W illiam W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., W ashington, D.C. 20551. Comments addressed to Mr. Wiles also may be delivered to the Board’s mail room betw een 8:45 a.m. and 5:15 p.m. and to the security control room outside of those hours. Both the mail room and the security control room are accessible from the courtyard entrance on 20th Street betw een Constitution Avenue and C Street, N.W. Comments may be inspected in Room M P-500 between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in § 261.8 of the Board’s Rules Regarding Availability of Information, 12 CFR 261.8. SUMMARY: FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General Counsel, (202/452-3625), Stephanie Martin, Senior Attorney (202/452 3198), or H eatherun Allison, Attorney (202/452-3565), Legal Division. For the hearing im paired only, contact Diane Jenkins, Telecommunications Device for the Deaf (TDD) (202/452-3544), Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., W ashington, D.C. 20551. SUPPLEMENTARY INFORMATION: FEDERAL RESERVE SYSTEM 12CFR Part 210 [Regulation J; Docket No. R-0972] Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire AGENCY: Board of Governors of the Federal Reserve System. Overview The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Pub. L. 103-328) m ade significant changes to various banking laws to authorize and facilitate interstate banking. Consequently, the num ber of depository institutions that operate branches in more than one Federal Reserve District is expected to increase. On January 1, 1998, the Federal Reserve Banks w ill begin to im plem ent a new account structure that w ill provide a single Federal Reserve account for each 27548 Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules institution.1 A primary objective of the single account structure is to establish a single debtor-creditor relationship between each chartered entity and the Federal Reserve. A single debtorcreditor relationship is the most effective means for Reserve Banks to manage their affairs w ith a depository institution. A single account structure also may allow depository institutions to manage their overall position w ith the Reserve Banks more efficiently. The Board has already requested com ment on am endm ents to Regulations D and I (Reserve Requirements of Depository Institutions and Issue and Cancellation of Capital Stock of Federal Reserve Banks, respectively) to define the location of a depository institution for purposes of reserve accounts and Federal Reserve m em bership (62 FR 11117, March 11, 1997). The Board is now proposing am endm ents to subpart A of Regulation J, governing the collection of checks and other items by Federal Reserve Banks, to conform the Federal Reserve check collection rules to the single account structure. The Board does not believe it is necessary to am end subpart B of Regulation J, w hich governs funds transfers through Fedwire, to accomm odate the single account structure. The Reserve Banks will, however, issue revised operating circulars governing collection of cash items, Fedwire funds transfers, and other Reserve Bank services to reflect the new account structure. U nder the proposed Regulation J amendments, all of an institution’s check collection transactions through the Federal Reserve Banks w ould be reflected in a single account held at that institution’s “A dm inistrative Reserve Bank” (or in a correspondent’s account at a Reserve Bank). The proposed am endm ents to Regulation D provide a means to determine the location of an institution’s reserve account.2 Proposed Regulation J w ould provide that the account location of an institution that sends items to a Reserve Bank for collection (and the identity of its Administrative Reserve Bank) w ould be 1A foreign ban k ’s U.S. branches and agencies and an Edge or agreement corporation’s offices w ill not be required to adopt a single account structure. 2 The proposed Regulation D provision w ould provide that a depository institution is considered to be located in the Federal Reserve District specified in the institution’s charter or organizing certificate, or, if no such location is specified, the location of its head office. If that location, in the Board’s judgm ent, is ambiguous or w ould im pede the ability of the Board or the Federal Reserve Banks to perform their functions u n d er the Federal Reserve Act, the Board could make exceptions to the general rule for a p articular institution after considering certain criteria. determ ined in accordance w ith the provisions of Regulation D, even if the institution is not otherwise subject to that regulation. U nder the proposed am endm ents, an institution generally w ould be perm itted to send an item to any Reserve Bank for collection, but the item w ill be deemed to have been sent first to that institution’s Administrative Reserve Bank. The proposed am endm ents w ould designate the parties that are deemed to handle the item and the order in w hich they are deemed to have handled it. (Although the Administrative Reserve Bank w ould be deemed to handle the check, it w ould not be considered to have “received” the check as that term is used in subpart A of Regulation J if the check is initially sent to another Reserve Bank.) The am endm ents w ould require a paying bank to settle for an item w ith its Administrative Reserve Bank (regardless of w hether the institution received the item from its Administrative Reserve Bank) and w ould specify the time and m anner in w hich the paying bank is to make settlement. The proposed am endm ents also w ould make changes in the rules governing the handling of and settlem ent for returned checks parallel to those proposed for cash items. Section-by-Section Analysis Section 210.2 Definitions The Board proposes to add two new definitions to Regulation J. U nder the new account structure, all of an institution’s transactions will be reflected in a single account held at the institution’s Administrative Reserve Bank. The Board is proposing to add a definition of “account” to m ean an account w ith reserve or clearing balances held on the books of a Federal Reserve Bank. If a depository institution desires, the Reserve Banks w ill also keep informational records, or subaccounts, of certain subsets of transactions that affect an account (such as the transactions performed by a branch of a bank that m ay be in another district from the Administrative Reserve Bank). The Board proposes to define “Adm inistrative Reserve Bank” as the Reserve Bank in whose District the entity in question is located. An entity’s location w ould be determ ined in the same way as location is determ ined for purposes of reserve accounts under the Board’s Regulation D. (See footnote 2.) The Board also proposes to am end the definition of “bank” to conform to the Uniform Commercial Code (§§ 4—105 and 4-107). Finally, the Board proposes to am end the definition of “cash item ” to provide that, under the new single account system, the Reserve Bank that initially receives an item for deposit, rather than the Reserve Bank in whose District the item is payable, is the Reserve Bank that decides w hether to accept the item as a cash item. Section 210.3(a) General Provisions This paragraph provides that the Reserve Banks may issue operating circulars governing the details of their check collection services and related matters. The Board proposes to specify that the operating circulars may allow an Adm inistrative Reserve Bank to give instructions to other Reserve Banks, such as instructions regarding the handling of items that w ould affect an account on its books. Section 210.4 Sending Item s to Reserve Banks The Board proposes to am end this section to provide that a sender (other than a Reserve Bank sender) may send an item to any Reserve Bank for collection, regardless of where the sender or the paying bank is located. This am endm ent w ould provide flexibility for depository institutions, foster com petition among Reserve Banks, and promote faster collection of checks. For example, a bank w ith its head office in Richmond w ould likely have its account at the Federal Reserve Bank of Richmond. An Iowa branch of that bank may w ish to send its checks to the Federal Reserve Bank of Chicago or the Federal Reserve Bank of Kansas City, or both, all of w hich w ould be perm issible under the proposed rule. The sender’s Administrative Reserve Bank (the Federal Reserve Bank of Richm ond in this example), however, m ay override this rule and require the sender to send the item to a particular Reserve Bank. For example, if a bank is in financial difficulty, the Administrative Reserve Bank may w ant to require the bank to deposit all of its items directly w ith a particular Reserve Bank in order to retain closer control over the bank’s account. Section 13(1) of the Federal Reserve Act (FRA)3 authorizes a Reserve Bank to accept deposits of checks and other items from its member banks or from other depository institutions and to accept from other Reserve Banks checks and other items payable w ithin its District. Under the Board’s proposal, if a sender sends a check to a Reserve Bank other than its Administrative Reserve Bank or the Reserve Bank in whose District the check is payable, the receiving Reserve Bank w ould be 3 12 U.S.C. 360. Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules deem ed to be acting as agent of the A dm inistrative Reserve Bank. Proposed Regulation J w ould require, however, that such a receiving Reserve Bank take on additional rights, duties, and liabilities in its ow n name that it would not necessarily have as a comm on law agent of the A dm inistrative Reserve Bank. For example, the receiving Reserve Bank w ould be considered an indorser on the check and w ould make warranties on the check under § 210.6, Regulation CC, and the Uniform Commercial Code in its ow n name. The Board believes that requiring such a receiving Reserve Bank to take on these rights, duties, and liabilities is necessary to preserve a clear chain of warranties and other claims in the check collection and return system. Currently, in those lim ited situations where a Reserve Bank accepts deposits from institutions other than those located in its District, it does so under a special agency agreement w ith the institution’s home Reserve Bank. Rather than perpetuating these special agreements, the Board proposes to am end Regulation J to establish the terms under w hich the receiving Reserve Bank w ould handle items on behalf of an A dm inistrative Reserve Bank. Specifically, the proposed am endm ents to § 210.4 w ould designate the parties that are deem ed to handle an item and the order in w hich they are deemed to have handled the item. These am endm ents w ould establish the chain of indorsem ents on an item under Regulation J, Regulation CC, and the Uniform Commercial Code, as well as the order in w hich the parties are agents or subagents of the owner of an item, as provided in § 210.6(a). As noted above, the proposal provides that the sender is deemed to send the item to its Administrative Reserve Bank, regardless of w hether that Reserve Bank actually receives the item first. The A dm inistrative Reserve Bank is deemed to send the item to the Reserve Bank that actually receives the item from the sender (if different from the Administrative Reserve Bank). Any subsequent Reserve Bank that receives the item from another Reserve Bank is deemed to handle the item in turn. In the example from the previous paragraph, where an Iowa branch of a 27549 Richm ond bank sends a check to the Chicago Reserve Bank for collection, the check w ould be deem ed handled in the following order: the initial sender, the Richm ond Reserve Bank (the Adm inistrative Reserve Bank), and the Chicago Reserve Bank (the first Reserve Bank to receive the item). If the check in this example w ere draw n on a banking office in New York, the Chicago Reserve Bank w ould send the check to the Federal Reserve Bank of New York, in w hich case the New York Reserve Bank w ould be the last Reserve Bank to handle the check and w ould present the check to the paying bank. No other Reserve Bank w ould handle or w ould be deem ed to handle the item. In the example, if the paying b ank’s A dm inistrative Reserve Bank is the Federal Reserve Bank of Boston (which might be the case if the check is payable by a New York office of a bank headquartered in Boston), the Boston Reserve Bank is not a party to the check, even though settlem ent for the check w ill ultim ately take place by a debit to an account on the Boston Reserve Bank’s books. (See Table 1.) T ab le 1 This table illustrates the following example: A Richmond-based bank has its account at the Federal Reserve Bank of Richmond (Richmond Fed), its Administrative Reserve Bank. An Iowa branch of the bank sends a check to the Federal Reserve Bank of Chicago (Chicago Fed) for collection. The check is payable by a New York office of a Boston-based bank, which has an account at the Federal Reserve Bank of Boston (Boston Fed). The Chicago Fed sends the check to the Federal Reserve Bank of New York (NY Fed), which presents the check to the New York office of the paying bank. Path of physical check Initial sender —► Chicago Fed —* NY Fed —*• Paying Bank Parties deemed to have handled the check (Chain of indorsements) Initial sender —► Richmond Fed —► Chicago Fed —► NY Fed —► Paying Bank Section 210.5 Sender’s Agreement; Recovery by Reserve Bank Paragraph (a) of § 210.5 sets forth the terms and w arranties to w hich a sender agrees w hen it sends an item to a Reserve Bank. The Board is proposing to am end this paragraph to conform with the provisions of § 210.4. Specifically, a sender w ould authorize its A dm inistrative Reserve Bank, as well as any other Reserve Bank to w hich the item is sent, to handle an item and w ould authorize the Reserve Banks to make the appropriate accounting entries in settlem ent for the item. The Board proposes to make m inor am endm ents to paragraph (c) (and parallel am endm ents to § 210.12(f)), w hich w ould simplify the provisions describing how settlements occur betw een Reserve Banks. The Board also proposes to redesignate the paragraph num bers in paragraph (c). Paragraph (d) of § 210.5 requires a sender to grant a security interest in all its assets held by a Reserve Bank to secure any of its obligations related to items collected through the Reserve Banks. The Board proposes to am end this section to provide that the security interest is granted to the sender’s Administrative Reserve Bank. Section 210.6 Status, Warranties, and Liability o f Reserve B ank Paragraph (a) of this section provides that Reserve Banks act as agents or subagents of the owner of an item. The Board proposes to modify the reference to a Reserve Bank in the first sentence w ith the phrase “that handles an item ” to clarify that this paragraph refers to the Reserve Banks that are identified in proposed § 210.4. The current language provides that the agency terminates w hen a Reserve Bank receives final paym ent for the item and makes the proceeds available for use by the sender. The Board proposes to am end this provision by stating that the agency status w ill not end unless the time for commencing all actions against the Reserve Bank has expired. This am endm ent w ould ensure that the agency and subagency relationships betw een Reserve Banks regarding a particular item, as set forth in proposed § 210.4, w ill continue until the statute of limitations has run on claims regarding any dispute concerning the item. The Board also proposes to reorganize the num bering in paragraphs (a) and (b) of this section. Section 210.7 Paym ent Presenting Item s for This section provides rules regarding the presentm ent of items for payment. The Board proposes to make minor changes to paragraphs (c) and (d). Rather than referring to an item that is 27550 Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules “payable” in a certain Federal Reserve District, the Board proposes to refer to items that may be “sent to the paying bank or nonbank payor” in a certain Federal Reserve District. The Board believes the proposed language is more precise that the current provision. Section 210.8 Presenting Noncash Item s fo r A cceptance Similar to the proposed changes to § 210.7, the Board is proposing to replace the term “payable elsew here” w ith the term “may be presented elsewhere.” The Board also proposes to reorganize the paragraph num bering in this section. Section 210.9 Settlem ent and Paym ent This section sets forth the time and m anner by w hich a paying bank m ust settle for items it receives from a Reserve Bank. The Board proposes to add a new paragraph (a) (and to redesignate the following paragraphs accordingly) to provide that a paying bank m ust settle for an item w ith its A dm inistrative Reserve Bank, w hether or not the paying bank actually receives the item from that Reserve Bank. By settling w ith its Administrative Reserve Bank, the paying bank w ould m eet any settlem ent obligation it may have u nder Regulation CC and the Uniform Commercial Code. For example, the Uniform Commercial Code (§§4-301 and 4-302) requires a paying bank to settle w ith the presenting bank by m idnight on the day of presentm ent if it w ants to preserve its right to return the check by its m idnight deadline on its next banking day. By settling w ith its Administrative Reserve Bank, a paying bank w ould satisfy this obligation to a presenting Reserve Bank. The new paragraph (a) w ould also provide that a paying bank may settle through a correspondent account, with the agreement of its Administrative Reserve Bank, the Reserve Bank (if different) that holds the correspondent’s account, and the correspondent. The paying bank w ould rem ain responsible for settlem ent if for some reason settlement does not occur through the correspondent account. The Board proposes to make a conforming change to paragraph (c) (as redesignated) related to paym ent for noncash items. Currently, Regulation J requires the paying bank to settle so that funds are available to the presenting Reserve Bank by the close of Fedwire on the day of presentm ent. The Board proposes: (1) am endm ents to paragraph (b) (as redesignated) of § 210.9 to clarify that settlement funds m ust be made available to the paying bank’s Administrative Reserve Bank, rather than the presenting Reserve Bank; (2) to change the references to a Reserve Bank’s operating circular to include all of the Reserve Banks’ operating circulars, as those circulars w ill be uniform as of January 1, 1998; (3) to clarify paragraph (b)(3) to refer to days the paying bank is closed voluntarily “so that it does not receive a cash item ” (the provisions of this paragraph w ould not apply if the paying bank’s head office were closed for business but a branch still received presentm ent of cash items from the Reserve Banks); (4) to replace references to “one hour after the scheduled opening of Fedw ire” w ith “9:30 a.m. Eastern Tim e” so that this time w ill rem ain unchanged w hen the Fedwire opening hour is moved to 12:30 a.m. in December 1997; (5) to add paragraph headings throughout paragraph (b); and (6) to make conforming changes to cross-references throughout § 210.9 in light of the paragraph redesignations. Section 210.10 Tim e Schedule and A vailability o f Credits fo r Cash Item s and Returned Checks This paragraph provides that a Reserve Bank shall make proceeds available for cash items and returned checks according to its published time schedules. The proposed amendments to this section w ould clarify that the Reserve Bank that holds the settlement account w ill make credit available according to the time schedule of the Reserve Bank that first receives the cash item (or returned check) from the sender (or the paying or returning bank). The Board also proposes a conforming am endm ent to § 210.11(b) regarding credit for noncash items. Section 210.12 Return o f Cash Item s and H andling o f R eturned Checks This section sets forth the rules governing handling of and settlement for returned checks. The rules for returned checks are generally parallel to the rules for cash items, and the Board is proposing am endm ents that are parallel to the am endm ents for cash items discussed above. U nder the proposal, a paying bank or returning bank may send a returned check to any Reserve Bank, unless its Adm inistrative Reserve Bank directs it to send the returned check to a specific Reserve Bank. As w ith cash items, the paying or returning bank’s Administrative Reserve Bank w ould be deemed to have handled the item first, prior to the Reserve Bank that actually received the item, for purposes of determ ining the relationships, rights, and liabilities of the parties (see discussion of § 210.4). Also similar to cash items, a paying or returning bank w ould authorize the handling of a returned check by its Adm inistrative Reserve Bank, as well as by any other Reserve Bank to w hich a returned check is sent, and w ould authorize the Reserve Banks to make the appropriate accounting entries in settlement for the returned check (see discussion of § 210.5). A subsequent returning bank or depositary bank w ould be required to settle for a returned check w ith its Administrative Reserve Bank, w hether or not the bank actually receives the returned check from that Reserve Bank. By settling w ith its Administrative Reserve Bank, the subsequent returning bank or depositary bank w ould m eet its settlement obligations under Regulation CC and the Uniform Commercial Code (see discussion of § 210.9(a)). Finally, a paying or returning bank w ould grant a security interest in all its assets held by its Adm inistrative Reserve Bank to secure any of its obligations related to returned checks it sends to a Reserve Bank (see discussion of § 210.5(d)). Initial Regulatory Flexibility Analysis The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an agency to publish an initial regulatory flexibility analysis w ith any notice of proposed rulemaking. Two of the requirements of an initial regulatory flexibility analysis (5 U.S.C. 603(b)), a description of the reasons w hy action by the agency is being considered and a statem ent of the objectives of, and legal basis for, the proposed rule, are contained in the supplem entary material above. The proposed rule requires no additional reporting or recordkeeping requirements and does not overlap w ith other federal rules. Regulation J bears a close relationship w ith the Board’s Regulation CC (12 CFR part 229), and that relationship is explained in the supplem entary inform ation above as well as in the provisions of the two regulations. Another requirem ent for the initial regulatory flexibility analysis is a description of and, where feasible, an estimate of the num ber of small entities to w hich the proposed rule w ill apply. The proposal will apply to all institutions, regardless of size, that send checks, returned checks, or other items to a Reserve Bank or receive items from a Reserve Bank. In 1996, subsidiaries of the 100 largest bank holding companies deposited approxim ately 46 percent of the Federal Reserve Banks’ check volume, and all other banks deposited 54 percent. The Reserve Banks presented approximately 31 percent of their check volume to subsidiaries of the 100 largest bank holding companies, Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules and 69 percent to all other banks. The proposed rule sets out the terms under w hich the Reserve Banks handle items and do not impose significant burdens on small institutions. Paperwork Reduction Act In accordance w ith the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320 A ppendix A .l), the Board reviewed the proposed rule u nder the authority delegated to the Board by the Office of Management and Budget. No collections of inform ation pursuant to the Paperwork Reduction Act are contained in the proposed rule. List of Subjects in 12 CFR Part 210 Banks, banking, Federal Reserve System. For the reasons set out in the preamble, the Board proposes to am end part 210 of chapter II of title 12 of the Code of Federal Regulations as set forth below: PART 210—COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J) (g) Cash item m eans— * * 342, 360, 464, and 4001-4010. 2. Section 210.2 is am ended by redesignating paragraph (a) and paragraphs (b) through (p) as paragraph (b) and paragraphs (d) through (r), respectively; adding new paragraphs (a) and (c); and revising new ly redesignated paragraphs (d), (g) introductory text, and (g)(2) to read as follows: §210.2 * * * * Definitions. * * * (a) A ccount m eans an account w ith reserve or clearing balances on the books of a Federal Reserve Bank. A subaccount is an informational record of a subset of transactions that affect an account and is not a separate account. * * * (c) A dm inistrative Reserve B ank w ith respect to an entity means the Reserve Bank in whose District the entity is located, as determ ined u n der the procedure described in § 204.3(b)(2) of this chapter (Regulation D), even if the entity is not otherwise subject to that section. * * * * * (d) B ank means any person engaged in the business of banking. A branch or separate office of a bank is a separate bank to the extent provided in the Uniform Commercial Code. * * * * * * * (2) Any other item payable on dem and and collectible at par that the Reserve Bank that receives the item is willing to accept as a cash item. Cash item does not include a returned check. * * * * * 3. In § 210.3, the last sentence of paragraph (a) is revised to read as follows: §210.3 General provisions. (a) General. * * * The circulars may, among other things, classify cash items and noncash items, require separate sorts and letters, provide different closing times for the receipt of different classes or types of items, provide for instructions by an Administrative Reserve Bank to other Reserve Banks, set forth terms of services, and establish procedures for adjustments on a Reserve Bank’s books, including amounts, waiver of expenses, and paym ent of interest by as-of adjustment. * * * * * 4. Section 210.4 is revised to read as follows: §210.4 1. The authority citation for part 210 continues to read as follows: Authority: 12 U.S.C. 248(i), (j), and (o), * Sending items to Reserve Banks. (a) Sending o f item s. A sender, other than a Reserve Bank, may send any item to any Reserve Bank, w hether or not the item is payable w ithin the Reserve Bank’s District, unless the sender’s A dm inistrative Reserve Bank directs the sender to send the item to a specific Reserve Bank. (b) H andling o f item s. (1) The following parties, in the following order, arc deem ed to have handled an item that is sent to a Reserve Bank for collection— (1) The initial sender; (ii) The initial sender’s Administrative Reserve Bank; (iii) The Reserve Bank that receives the item from the initial sender (if different from the initial sender’s Administrative Reserve Bank); and (iv) Another Reserve Bank, if any, that receives the item from a Reserve Bank. (2) A Reserve Bank that is not described in paragraph (b)(1) of this section is not a party that handles an item and is not a collecting bank w ith respect to an item. (3) The identity and order of the parties under paragraph (b)(1) of this section determ ine the relationships and the rights and liabilities of the parties under this subpart, part 229 of this chapter (Regulation CC), and the Uniform Commercial Code. An initial sender’s A dm inistrative Reserve Bank that is deem ed to handle an item is also deem ed to be a sender w ith respect to 27551 that item. The Reserve Banks that are deemed to handle an item are deem ed to be agents or subagents of the owner of the item, as provided in § 210.6(a) of this subpart. (c) Checks received at par. The Reserve Banks shall receive cash items and other checks at par. 5. In § 210.5, paragraphs (a)(1) and (c) and the first sentence of paragraph (d) are revised to read as follows: § 210.5 Sender’s agreement; recovery by Reserve Bank. (a) * * * (1) Authorizes the sender’s Adm inistrative Reserve Bank and any other Reserve Bank or collecting bank to w hich the item is sent to handle the item (and authorizes any Reserve Bank that handles settlem ent for the item to make accounting entries), subject to this subpart and to the Reserve Banks’ operating circulars, and warrants its authority to give this authorization; * * * * * (c) M ethods o f recovery. (1) The Reserve Bank may recover the am ount stated in paragraph (b) of this section by charging any account on its books that is m aintained or used by the sender (or by charging a Reserve Bank sender), if— (1) The Reserve Bank m ade seasonable w ritten dem and on the sender to assume defense of the action or proceeding; and (ii) The sender has not m ade any other arrangement for paym ent that is acceptable to the Reserve Bank. (2) The Reserve Bank is not responsible for defending the action or proceeding before using this m ethod of recovery. A Reserve Bank that has been charged under this paragraph (c) may recover from its sender in the m anner and under the circumstances set forth in this paragraph (c). A Reserve Bank’s failure to avail itself of the remedy provided in this paragraph (c) does not prejudice its enforcement in any other m anner of the indem nity agreement referred to in paragraph (a)(3) of this section. (d) Security interest. W hen a sender sends an item to a Reserve Bank, the sender and any prior collecting bank grant to the sender’s Administrative Reserve Bank a security interest in all of their respective assets in the possession of, or held for the account of, any Reserve Bank to secure their respective obligations due or to become due to the Administrative Reserve Bank under this subpart or subpart C of part 229 of this chapter (Regulation CC). * * * 6. In § 210.6, paragraphs (a)(1) and (b) are revised to read as follows: 27552 Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules § 210.6 Status, warranties, and liability of Reserve Bank. (a)(1) Status and Liability. A Reserve Bank that handles an item shall act as agent or subagent of the owner w ith respect to the item. This agency terminates w hen a Reserve Bank receives final paym ent for the item in actually and finally collected funds, a Reserve Bank makes the proceeds available for use by the sender, and the time for commencing all actions against the Reserve Bank has expired. A Reserve Bank shall not have or assume any liability w ith respect to an item or its proceeds except— (i) For the Reserve Bank’s own lack of good faith or failure to exercise ordinary care; (ii) As provided in paragraph (b) of this section; and (iii) As provided in subpaxt C of part 229 (Regulation CC) of this chapter. * * * * * (b) W arranties and liability. (1) By presenting or sending an item, a Reserve Bank warrants to a subsequent collecting bank and to the paying bank and any other payor— (1) That the Reserve Bank is a person entitled to enforce the item (or is authorized to obtain paym ent of the item on behalf of a person w ho is either entitled to enforce the item or authorized to obtain paym ent on behalf of a person entitled to enforce the item); and (ii) That the item has not been altered. (2) The Reserve Bank also makes the warranties set forth in § 229.34(c) of this chapter, subject to the terms of part 229 of this chapter (Regulation CC). The Reserve Bank shall not have or assume any other liability to the paying bank or other payor, except for the Reserve Bank’s ow n lack of good faith or failure to exercise ordinary care. * * * * * 7. In § 210.7, paragraph (c) introductory text and paragraph (d) are revised to read as follows: § 210.7 * Presenting items for payment. * * * * (c) Presenting or sending direct. A Reserve Bank or subsequent collecting bank may, w ith respect to an item that may be sent to the paying bank or nonbank payor in the Reserve Bank’s District— * * * * * (d) Item sent to another district. A Reserve Bank receiving an item that may be sent to a paying bank or nonbank payor in another District ordinarily sends the item to the Reserve Bank of the other District, but w ith the agreement of the other Reserve Bank, may present or send the item as if it were sent to a paying bank or nonbank payor in its own District. 8. Section 210.8 is revised to read as follows: §210.8 Presenting noncash items for acceptance. (a) A Reserve Bank or a subsequent collecting bank may, if instructed by the sender, present a noncash item for acceptance in any m anner authorized by law if— (1) The item provides that it m ust be presented for acceptance; (2) The item may be presented elsewhere than at the residence or place of business of the payor; or (3) The date of paym ent of the item depends on presentm ent for acceptance. (b) Documents accompanying a noncash item shall not be delivered to the payor upon acceptance of the item unless the sender specifically authorizes delivery. A Reserve Bank shall not have or assume any other obligation to present or to send for presentm ent for acceptance any noncash item. 9. Section 210.9 is am ended by redesignating paragraphs (a) through (e) as paragraphs (b) through (f); adding a new paragraph (a); revising new ly redesignated paragraphs (b) and (c); and in new ly redesignated paragraph (f) removing the references “paragraphs (a), (b), and (c)” and adding in their place “paragraphs (b), (c), and (d)” . §210.9 Settlement and payment. (a) Settlem ent through A dm inistrative Reserve Bank. A paying bank shall settle for an item under this subpart w ith its Adm inistrative Reserve Bank, w hether or not the paying bank received the item from that Reserve Bank. A paying bank’s settlem ent w ith its Administrative Reserve Bank is deem ed to be settlement w ith the Reserve Bank from w hich the paying bank received the item. A paying bank may settle for an item using any account on a Reserve Bank’s books by agreement w ith its Administrative Reserve Bank, any other Reserve Bank holding the settlem ent account, and the account-holder. The paying bank remains responsible for settlem ent if the Reserve Bank holding the settlement account does not, for any reason, obtain settlem ent in that account. (b) Cash item s—(1) Settlem ent obligation. On the day a paying bank receives 2 a cash item from a Reserve Bank, it shall settle for the item such 2 A paying bank is deem ed to receive a cash item on its next banking day if it receives the item— (1) On a day other than a banking day for it; or (2) On a banking day for it, b u t after a “ cut-off h o u r” established by it in accordance w ith state law. that the proceeds of the settlement are available to its Administrative Reserve Bank by the close of Fedwire on that day, or it shall return the item by the later of the close of its banking day or the close of Fedwire. If the paying bank fails to settle for or return a cash item in accordance w ith this paragraph (b)(1), it is accountable for the am ount of the item as of the close of its banking day or the close of Fedwire on the day it receives the item, w hichever is earlier. (2) Tim e o f settlem ent, (i) On the day a paying bank receives a cash item from a Reserve Bank, it shall settle for the item so that the proceeds of the settlem ent are available to its Administrative Reserve Bank, or return the item, by the latest of— (A) The next clock hour that is at least one hour after the paying bank receives the item; (B) 9:30 a.m. Eastern Time; or (C) Such later time as provided in the Reserve Banks’ operating circulars. (ii) If the paying bank fails to settle for or return a cash item in accordance w ith paragraph (b)(2)(i) of this section, it shall be subject to any applicable overdraft charges. Settlement under paragraph (b)(2)(i) of this section satisfies the settlem ent requirem ents of paragraph (b)(1) of this section. (3) Paying bank closes voluntarily, (i) If a paying bank closes voluntarily so that it does not receive a cash item on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes the cash item available to the paying bank on that day, the paying bank shall either— (A) On that day, settle for the item so that the proceeds of the settlem ent are available to its Administrative Reserve Bank, or return the item, by the latest of the next clock hour that is at least one hour after it ordinarily w ould have received the item, 9:30 a.m. Eastern Time, or such later time as provided in the Reserve Banks’ operating circulars; or (B) On the next day that is a banking day for both the paying bank and the Reserve Bank, settle for the item so that the proceeds of the settlem ent are available to its Administrative Reserve Bank by 9:30 a.m. Eastern Time on that day or such later time as provided in the Reserve Banks’ operating circulars and compensate the Reserve Bank for the value of the float associated w ith the item in accordance w ith procedures provided in the Reserve Bank’s operating circular. (ii) If a paying bank closes voluntarily so that it does not receive a cash item on a day that is a banking day for a Reserve Bank, and the Reserve Bank makes the cash item available to the Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules paying bank on that day, the paying bank is not considered to have received the item until its next banking day, but it shall be subject to any applicable overdraft charges if it fails to settle for or return the item in accordance w ith paragraph (b)(3)(i) of this section. The settlem ent requirem ents of paragraphs (b)(1) and (b)(2) of this section do not apply to a paying bank that settles in accordance w ith paragraph (b)(3)(i) of this section. (4) Reserve B ank closed, (i) If a paying bank receives a cash item from a Reserve Bank on a banking day that is not a banking day for the Reserve Bank, the paying bank shall— (A) Settle for the item so that the proceeds of the settlem ent are available to its A dm inistrative Reserve Bank by the close of Fedwire on the Reserve Bank’s next banking day, or return the item by m idnight of the day it receives the item (if the paying bank fails to settle for or return a cash item in accordance w ith this paragraph (b)(4)(i)(A), it shall become accountable for the am ount of the item as of the close of the its banking day on the day it receives the item); and (B) Settle for the item so that the proceeds of the settlement are available to its A dm inistrative Reserve Bank by 9:30 a.m. Eastern Time on the Reserve Bank’s next banking day or such later time as provided in the Reserve Bank’s operating circular, or return the item by m idnight of the day it receives the item. If the paying bank fails to settle for or return a cash item in accordance w ith this paragraph (b)(4)(i)(B), it shall be subject to any applicable overdraft charges. Settlement under this paragraph (b)(4)(i)(B) satisfies the settlement requirem ents of paragraph (b)(4)(i)(A) of this section. (ii) The settlem ent requirements of paragraphs (b)(1) and (b)(2) of this section do not apply to a paying bank that settles in accordance with paragraph (b)(4)(i) of this section. (5) M anner o f settlem ent. Settlement w ith a Reserve Bank under paragraphs (b) (1) through (4) of this section shall be m ade by debit to an account on the Reserve Bank’s books, cash, or other form of settlem ent to w hich the Reserve Bank agrees, except that the Reserve Bank may, in its discretion, obtain settlem ent by charging the paying bank’s account. A paying bank may not set off against the am ount of a settlem ent under this section the am ount of a claim w ith respect to another cash item, cash letter, or other claim under § 229.34(c) of this chapter (Regulation CC) or other law. (6) Notice in lieu o f return. If a cash item is unavailable for return, the paying bank may send a notice in lieu of return as provided in § 229.30(f) of this chapter (Regulation CC). (c) Noncash item s. A Reserve Bank may require the paying or collecting bank to w hich it has presented or sent a noncash item to pay for the item in cash, but the Reserve Bank may perm it paym ent by a debit to an account m aintained or used by the paying or collecting bank on a Reserve Bank’s books or by any of the following that is in a form acceptable to the collecting Reserve Bank: bank draft, transfer of funds or bank credit, or any other form of paym ent authorized by State law. * * * * * 10. Section 210.10 is revised to read as follows: §210.10 Time schedule and availability of credits for cash items and returned checks. (a) Each Reserve Bank shall include in its operating circulars a tim e schedule for each of its offices indicating w hen the am ount of any cash item or returned check received by it is counted as reserves for purposes of part 204 of this chapter (Regulation D) and becomes available for use by the sender or paying or returning bank. The Reserve Bank that holds the settlem ent account shall give either im m ediate or deferred credit to a sender, a paying bank, or a returning bank (other than a foreign correspondent) in accordance w ith the tim e schedule of the receiving Reserve Bank. A Reserve Bank ordinarily gives credit to a foreign correspondent only w hen the Reserve Bank receives paym ent of the item in actually and finally collected funds, but, in its discretion, a Reserve Bank may give im m ediate or deferred credit in accordance w ith its tim e schedule. (b) Notw ithstanding its tim e schedule, a Reserve Bank may refuse at any time to perm it the use of credit given by it for any cash item or returned check, and may defer availability after credit is received by the Reserve Bank for a period of time that is reasonable under the circumstances. 11. In § 210.11, the last sentence of paragraph (b) is revised to read as follows: §210.11 Availability of proceeds of noncash items; time schedule. * * * * * (b) * * * A Reserve Bank may, however, refuse at any time to perm it the use of credit given by it for a noncash item for w hich the Reserve Bank has not yet received paym ent in actually and finally collected funds. * * * * * 12. Section 210.12 is am ended by revising paragraphs (a), (b), and (c)(1), 27553 the first sentence of paragraph (d), paragraphs (f) and (h), and the first sentence of paragraph (i); and by removing the last sentence of paragraph (g), to read as follows: § 210.12 Return of cash items and handling of returned checks. (a) Return o f item s—(1) Return o f cash item s h andled by Reserve Banks. A paying bank that receives a cash item from a Reserve Bank, other than for im m ediate paym ent over the counter, and that settles for the item as provided in § 210.9(b) of this subpart, may, before it has finally paid the item, return the item to any Reserve Bank (unless its Adm inistrative Reserve Bank directs it to return the item to a specific Reserve Bank) in accordance w ith subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks’ operating circulars. A paying bank that receives a cash item from a Reserve Bank also may return the item prior to settlement, in accordance w ith § 210.9(b) of this subpart and the Reserve Banks’ operating circulars. The rules or practices of a clearinghouse through w hich the item was presented, or a special collection agreement under w hich the item was presented, may not extend these return times, but may provide for a shorter return time. (2) Return o f checks n o t handled by Reserve Banks. A paying bank that receives a check as defined in § 229.2(k) of this chapter (Regulation CC), other than from a Reserve Bank, and that determines not to pay the check, may send the returned check to any Reserve Bank (unless its Adm inistrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance w ith subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks’ operating circulars. A returning bank may send a returned check to any Reserve Bank (unless its Administrative Reserve Bank directs it to send the returned check to a specific Reserve Bank) in accordance w ith subpart C of part 229 of this chapter (Regulation CC), the Uniform Commercial Code, and the Reserve Banks’ operating circulars. (b) Handling o f returned checks. (1) The following parties, in the following order, are deemed to have handled a returned check sent to a Reserve Bank under paragraph (a) of this section— (i) The paying or returning bank; (ii) The paying bank’s or returning bank’s A dm inistrative Reserve Bank; (iii) The Reserve Bank that receives the returned check from the paying or returning bank (if different from the 27554 Federal Register / Vol. 62, No. 97 / Tuesday, May 20, 1997 / Proposed Rules paying bank’s or returning bank’s A dm inistrative Reserve Bank); and (iv) Another Reserve Bank, if any, that receives the returned check from a Reserve Bank. (2) A Reserve Bank that is not described in paragraph (b)(1) of this section is not a party that handles a returned check and is not a returning bank w ith respect to a returned check. (3) The identity and order of the parties under paragraph (b)(1) of this section determine the relationships and the rights and liabilities of the parties u nder this subpart, part 229 of this chapter (Regulation CC), and the Uniform Commercial Code. (c) Paying b a n k ’s and returning b a n k’s agreement. * * * (1) Authorizes the paying or returning bank’s Adm inistrative Reserve Bank, and any other Reserve Bank or returning bank to w hich the returned check is sent, to handle the returned check (and authorizes any Reserve Bank that handles settlem ent for the returned check to make accounting entries) subject to this subpart and to the Reserve Banks’ operating circulars; * * * * * (d) Warranties by Reserve Bank. By handling a returned check u nd er this subpart, a Reserve Bank makes the returning bank warranties as set forth in § 229.34 of this chapter, subject to the terms of part 229 of this chapter (Regulation CC). * * * * * * * * (f) M ethods o f recovery. (1) The Reserve Bank may recover the am ount stated in paragraph (d) of this section by charging any account on its books that is m aintained or used by the paying or returning bank (or by charging another returning Reserve Bank), if— (1) The Reserve Bank m ade seasonable w ritten dem and on the paying or returning bank to assume defense of the action or proceeding; and (ii) The paying or returning bank has not m ade any other arrangement for paym ent that is acceptable to the Reserve Bank. (2) The Reserve Bank is not responsible for defending the action or proceeding before using this m ethod of recovery. A Reserve Bank that has been charged under this paragraph may recover from the paying or returning bank in the m anner and under the circumstances set forth in this paragraph. A Reserve Bank’s failure to avail itself of the rem edy provided in this paragraph does not prejudice its enforcement in any other m anner of the indem nity agreement referred to in paragraph (c)(3) of this section. (h) Settlem ent. A subsequent returning bank or depositary bank shall settle w ith its Administrative Reserve Bank for returned checks in the same m anner and by the same time as for cash items presented for paym ent under this subpart. Settlem ent w ith its Adm inistrative Reserve Bank is deemed to be settlem ent w ith the Reserve Bank from w hich the returning bank or depositary bank received the item. (i) Security interest. W hen a paying or returning bank sends a returned check to a Reserve Bank, the paying bank, returning bank, and any prior returning bank grant to the paying bank’s or returning bank’s Administrative Reserve Bank a security interest in all of their respective assets in the possession of, or held for the account of, any Reserve Bank, to secure their respective obligations due or to become due to the Adm inistrative Reserve Bank under this subpart or subpart C of part 229 of this chapter (Regulation CC). * * * By order of the Board of Governors of the Federal Reserve System, May 14,1997. William W. Wiles, Secretary o f the Board. [FR Doc. 97-13028 Filed 5-19-97; 8:45 am] BILLING CODE 6 210 -01 -P
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