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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:

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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

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