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F ederal r e s e r v e Bank OF DALLAS Dallas, Texas, December 23,1948 D ELAYED RETURN OF UNPAID CASH ITEMS To the Par Remitting Nonmember Banks in the Eleventh Federal Reserve District: Reference is made to our circular letter of November 30, 1948, in which we quoted a statement by the Board of Governors of the Fed eral Reserve System with respect to amendments to Regulation J. These amendments, which become effective January 1, 1949, relate to “ Delayed Return of Unpaid Items.” We are now enclosing a copy of the amended Regulation J for your files. Remittances for our cash letters should be made on the day of receipt at par in immediately available or acceptable funds. We will receive for credit or refund cash items which are returned to us by collecting and remitting banks in accordance with paragraph (4) of Section 5 of Regulation J. Such provision of Regulation J does not mean, however, that any bank is required to follow the practice of delaying the return of unpaid cash items; and any collecting or remit ting bank may continue to return unpaid cash items with its remit tance on the day of receipt. Each cash item returned unpaid should bear a notation clearly indicating the reason therefor. If unpaid items are returned on the day of receipt, they should be deducted from and returned with the remittance for the cash letter in which the items were received. Those items for which remittance has been made on the day of receipt and on which payment is revoked in accordance with paragraph (4) of Section 5 of Regulation J may be deducted from and returned with the remittance for the cash letter received the following day. Yours very truly, R. R. GILBERT President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM CHECK CLEARIN G AND COLLECTION REGULATION J This Regulation as printed herewith is in the form as amended effective January 1, 1949 INQUIRIES REGARDING THIS REGULATION Any inquiry relating to this regulation should be addressed to the Federal Reserve bank of the district in which the inquiry arises. REGULATION J As amended, effective January 1, 1949 CHECK CLEARING AND COLLECTION SECTION 1. STATUTORY PROVISIONS Section 16 of the Federal Reserve A ct authorizes the Board of Governors of the Federal Reserve System to require each Federal Reserve bank to exercise the functions of a clearing house for its mem ber banks, and section 13 of the Federal Reserve Act, as amended by the A ct approved June 21, 1917, authorizes each Federal Reserve bank to receive from any nonmember bank or trust company, solely for the purposes of exchange or of collection, deposits of current funds in lawful money, national-bank notes, Federal Reserve notes, checks and drafts payable upon presentation, or maturing notes and bills, provided such nonmember bank or trust company maintains with its Federal Reserve bank a balance sufficient to offset the items in transit held for its account by the Federal Reserve bank. SECTION 2. GENERAL REQUIREMENTS In pursuance of the authority vested in it under these provisions of law, the Board of Governors of the Federal Reserve System, desir ing to afford both to the public and to the various banks of the country a direct, expeditious, and economical system of check col lection and settlement of balances, has arranged to have each Fed eral Reserve bank exercise the functions of a clearing house and col lect checks for such o f its member banks as desire to avail themselves of its privileges and for such nonmember State banks and trust com panies as may maintain with the Federal Reserve bank balances suf ficient to qualify them under the provisions o f section 13 to send items to Federal Reserve banks for purposes of exchange or o f col lection. Such nonmember State banks and trust companies will here inafter be referred to as nonmember clearing banks. Each Federal Reserve bank shall exercise the functions of a clearing house and collect checks under the general terms and conditions here inafter set forth, and each member bank and nonmember clearing bank shall cooperate fully in the system of check clearance and col lection for which provision is herein made. SECTION 3. CHECKS RECEIVED FOR COLLECTION (1) Each Federal Reserve bank shall receive at par from member and nonmember clearing banks in its district, from other Federal l 2 REGULATION J Reserve banks, and from all member and nonmember clearing banks in other Federal Reserve districts which are authorized to route direct for the credit of their respective Federal Reserve banks, ch eck s1 drawn on all member and nonmember clearing banks of its district, and checks drawn on all other nonmember banks of its district which arc collectible at par in funds acceptable to it. (2) Each Federal Reserve bank may receive at par from member and nonmember clearing banks in its district, checks drawn on all member and nonmember clearing banks in other Federal Reserve districts, and checks drawn on all other nonmember banks in other Federal Reserve districts which are collectible at par in funds accept able to the collecting Federal Reserve bank. (3) N o Federal Reserve bank shall receive on deposit or for col lection any check drawn on any nonmember bank which cannot be collected at par in funds acceptable to the Federal Reserve bank. SECTION i. TIME SCHEDULE AND AVAILABILITY OF CREDITS (1) Each Federal Reserve bank will publish a time schedule show ing the time at which any item sent to it will be counted as reserve and become available for withdrawal or other use by the sending bank. For all checks received, the sending bank will be given imme diate credit, or deferred credit, in accordance with such time sched ule, and as provided below. (2) For all such checks as are received for immediate credit in accordance with such time schedule, immediate credit, subject to final payment, will be given upon the books of the Federal Reserve bank at full face value in the reserve account or clearing account upon day o f receipt, and the proceeds will at once be counted as reserve and become available for withdrawal or other use by the sending bank; provided, however, that the Federal Reserve bank may in its discre tion refuse at any time to permit the withdrawal or other use of credit given for any item for which the Federal Reserve bank has not yet received payment in actually and finally collected funds. (3) For all such checks as are received for deferred credit in accord ance with such time schedule, deferred credit, subject to final p ay ment, will be entered upon the books of the Federal Reserve bank at full face value, but the proceeds will not be counted as reserve nor become available for withdrawal or other use by the sending bank until such time as may be specified in such time schedule,2 at which *A check is generally defined as a draft or order upon a bank or banking house, purporting to be drawn upon a deposit of funds, for the payment at all events of a certain sum of money to the order of a certain person therein named, or to him or his order, or (o bearer, and payable on demand. -F or rules for computation of reserves and penalties for deficiencies in reserves, see Regulation D, Secs. 2 and 3. REGULATION J 3 time credit will be transferred from the deferred account to the re serve account or clearing account subject to final payment and will then be counted as reserve and become available for withdrawal or other use by the sending bank; provided, however, that the Federal Reserve bank may in its discretion refuse at any time to permit the withdrawal or other use of credit given for any item for which the Federal Reserve bank has not yet received payment in actually and finally collected funds. SECTION 5. TERMS OF COLLECTION The Board of Governors of the Federal Reserve System hereby authorizes the Federal Reserve banks to handle such checks subject to the following terms and conditions; and each member and non member clearing bank which sends checks to any Federal Reserve bank for deposit or collection shall by such action be deemed (a) to authorize the Federal Reserve banks to handle such checks subject to the following terms and conditions; (b) to warrant its own author ity to give the Federal Reserve banks such authority; (c) to agree to indemnify any Federal Reserve bank for any loss or expense sus tained (including but not limited to attorneys’ fees and expenses of litigation) resulting from the failure of such sending bank to have such authority, or resulting from such Federal Reserve bank’s guar anty of prior endorsements, or resulting from any action taken by the Federal Reserve bank within the scope of its authority for the purpose of collecting such checks; and (d) to guarantee all prior endorsements on such checks whether or not a specific guaranty is incorporated in an endorsement of the sending bank. (1) A Federal Reserve bank will act only as agent o f the bank from which it receives such checks and will assume no liability except for its own negligence and its guaranty of prior endorsements. (2) A Federal Reserve bank may present such checks for payment or send such checks for collection direct to the bank on which they are drawn or at which they are payable, or in its discretion may forward them to another agent with authority to present them for payment or send them for collection direct to the bank on which they are drawn or at which they are payable. A Federal Reserve bank, or any agent to which such checks are forwarded by a Federal Reserve bank, may present such checks pursuant to any special col lection agreement not inconsistent with the terms of this regulation or may present them through a clearing house su bject to the rules and practices thereof. (3) A Federal Reserve bank may, in its discretion and at its option, either directly or through or from an agent, accept in payment of or in remittance for such checks, cash, bank drafts, transfers of funds or 4 REGULATION J bank credits, or other forms of payment or remittance, acceptable to the collecting Federal Reserve bank. The Federal Reserve bank shall not be liable for the failure of the drawee bank or any agent to pay or remit for such checks, nor for any loss resulting from the accept ance from the drawee bank or any collecting agent, in lieu of cash, of any other form o f payment or remittance authorized herein, nor for the nonpayment of, or failure to realize upon, any bank draft or other medium of payment or remittance which may be accepted from the drawee bank or any collecting agent. (41 Any check which a Federal Reserve bank or an agent thereof presents to the drawee bank for payment or sends to the drawee bank for collection, and for which remittance or settlement is made by the drawee bank on the day on which it receives3 such check, may be returned for credit or refund at any time prior to midnight of the drawee’s next business day following such day of receipt or prior to the time provided by applicable clearing house rule or special collec tion agreement, whichever is earlier, except that this paragraph shall not apply to checks presented over the counter. (5) Checks received by a Federal Reserve bank which are p ay able in its own district will ordinarily be forwarded or presented direct to the banks on which they are drawn, and such banks will be required to remit or pay therefor at par in such one or more of the forms of payment or remittance authorized under paragraph (3) hereof as may be acceptable to the Federal Reserve bank. (6) Checks received by a Federal Reserve bank payable in other districts will ordinarily be forwarded for collection to the Federal Reserve bank o f the district in which such checks are payable; pro vided, however, that, where arrangements can be made satisfactory to the collecting bank or agent and to the Federal Reserve bank of the district in which such checks are payable, any such checks may be forwarded for collection direct to the bank on which they are drawn or at which they are payable, or may be forwarded for col lection to another agent with authority to present them for payment direct to the bank on which they are drawn or at which they are payable. All such checks shall be handled subject to all the terms and conditions of this regulation. (7! W ith respect to any check sent direct by a member or non member clearing bank in one district to a Federal Reserve bank in 3A check received by a drawee batik on a day other than its business day, or received on a business day after its regular business hours or during afternoon or evening periods when it has reopened (or remained open) for limited functions, ■shall be deemed to have been received on its next succeeding business day. REGULATION J 5 another district, the relationships and the rights and liabilities existing between the member or nonmember clearing bank, the Federal Reserve bank o f its district and the Federal Reserve bank to which the check is sent will be the same, and the relevant provisions of this regulation will apply, as though the member or nonmember clearing bank had sent such check to the Federal Reserve bank of its district with its endorse ment and guaranty of prior endorsements and such Federal Reserve bank had sent the check to the other Federal Reserve bank with its endorsement and guaranty of prior endorsements. 18) Bank drafts received by a Federal Reserve bank in payment of or in remittance for checks handled under the terms o f this regu lation shall likewise be handled for collection subject to all the terms and conditions of this regulation. 191 The amount o f any check for which paym ent in actually and finally collected funds is not received shall be charged back to the forwarding bank, regardless of whether or not the check itself can be returned. In such event, neither the owner or holder o f any such check, nor the bank which sent such check to the Federal Reserve bank for collection shall have any right of recourse upon, interest in, or right of payment from, any reserve balance, clearing account, deposit account, or other funds of the drawee bank or o f any bank to which such checks have been sent for collection, in the possession of the Federal Reserve bank. N o draft, authorization to charge, or other order, upon any reserve balance, clearing account, deposit account, or other funds of a paying, remitting, or collecting bank in the possession of a Federal Reserve bank, issued for the purpose of settling items handled under the terms of this regulation will be paid, acted upon, or honored after receipt by such Federal Reserve bank of notice of suspension or closing of such paying, remitting, or col lecting bank. SECTION 8. OTHER RULES AND REGULATIONS Each Federal Reserve hank may also promulgate rules not incon sistent with the terms of the law or of this regulation, governing the details of its operations in clearing and collecting checks and other cash items. Such rules shall be set forth by the Federal Reserve bank in its letters of instruction to its member and nonmember clearing banks and shall be binding upon any member or nonmember clearing bank which sends any check or other cash item to such Federal R e serve bank for collection or to any other Federal Reserve bank for the account of such Federal Reserve bank for collection.
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