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F ederal

reserve

Ba n k

DALLAS, TE X A S

of

Dallas

75222

Circular No. 83-62
May 6, 1983

PROGRAM FOR ACCELERATING CHECK COLLECTION
TO ALL DEPOSITORY INSTITUTIONS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
As a part of the Federal Reserve System's program for accelerating the
collection of checks, the Federal Reserve Board has proposed th a t a la te r deposit
deadline be granted for item s drawn on certain "non-city" institutions.
The
enclosed press release and Federal Register document describe the proposed
program in detail.
To provide the Board some guidance in finalizing this program, your
input is requested on several issues outlined in the enclosed documents.
We
encourage you to carefully review this proposal and provide your comments to the
Board of Governors by June 17, 1983.
Comments should re fe r to Docket
No. R-0464 and be directed to Mr. William W. Wiles, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C., 20551.
Questions concerning this program should be directed to Donald L.
Jackson, (214) 651-6118 a t the Head Office; Robert W. Schultz, (915) 544-4730 at
the El Paso Branch; Vernon L. Bartee, (713) 659-4433 a t the Houston Branch; or
John A. Bullock, (512) 224-2141 a t the San Antonio Branch.
Additional copies of this circular will be furnished upon request to the
Public Affairs D epartm ent, Extension 6289.
Sincerely yours,

William H. Wallace
First Vice President
Enclosure

B a n k s a n d o t h e r s a r e e n c o u r a g e d to use th e fo llo w in g in c o m in g W A T S n u m b e r s in c o n ta c tin g th is Bank:
1-800-442-7140 (in tr a s t a te ) a n d 1-800-527-9200 (in te r s ta te ). Fo r c a lls p la c e d lo cally, p l e a s e use 651 plus th e
e x te n s io n referred to above.

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

FEDERAL RESERVE press release
For immediate release

May

3, 1983

The Federal Reserve Board today proposed for public comment certain
criteria for including additional depository institutions in the Federal Reserve's
program for accelerating the collection
The proposals would implement

of checks.
the final phase of a program for speeding

up check collection approved by the Board in December.
program,

implemented in February,

The first phase of the

extended deposit deadlines for checks drawn on

institutions in cities with Federal Reserve offices and on institutions located in
Federal Reserve regional check processing zones.

Additionally,

the time for present­

ment or dispatch of checks was moved to 11 a.m. for such city institutions,

effective

February 24.
Under this first phase of the
payments

program,

the

efficiency of the

mechanism has been improved by accelerating the collection of

nation's

checks with a

value of some $2 billion by one day.
The proposed expansion of more rapid check collection would permit the
collection of a further $1 billion of checks a day earlier.
At the time the program was adopted,

the Board indicated that it would be

expanded during 1983 to include certain depository institutions located outside the
rrigir.clly

The Duaia's

£ ■ ! > uidue jjuoxic toaay lay tne groundwork
>*;

for that expansion.
The Board said it had two principal reasons for including "non-city"
institutions in the accelerated check collection program,

in addition to increasing

earlier collection of checks valued at some $1 billion.
1)

There has been a substantial increase in the dollar value
of checks presented for collection to depositories located
outside the cities and areas originally affected ("non-city"
institutions).

-

2)

2

-

Without the expansion of the program, "city" institutions
may be disadvantaged vis-a-vis "non-city" institutions.

Consequently,

the Board proposed the following criteria for inclusion

of non-city institutions in the program:
1.

Initially, include all non-city institutions from which checks are
collected by the Federal Reserve with a daily average value of
$20 million or more.

2.

Include, on one or more of the following bases, non-city institutions
from which checks are collected with a daily average value of less
than $20 million by the Federal Reserve.
— Using standards based on average check size, or on
the number of large-dollar checks presented for
collection by the Federal Reserve to an institution;
or
— Based upon an analysis of requests received from
u c p u a x L u iy

L - LL UL - L . OI 1 S .

The last alternative approach,

the Board said, would involve careful

evaluation of such suggestions, weighing benefits expected to be realized through
improved availability of funds arising from faster check collection, versus the
costs of including the non-city institution in the program.
In addition to providing comments on the selection criteria,

the Board has

asked that the following questions be addressed:
1.

Should a minimum ratio of costs to value of improved funds
availability be set for inclusion in the program?
If so, what
ratio is aoorouriaf p ?

2.

Should
level?

3.

Should
institutions with average presentments of less than $20
million be added to the program based on criteria using
average check size or the number of large-dollar checks presented,
or both?

the $20 million cutoff be set at a higher or lower
If so, what should the appropriate level be?

(a) If so, how should the appropriate average check size be
determined?

-

3

-

(b) How should the number and size of the large-dollar check
criterion be determined?
(c) Which would be a better criterion— the average check size
or the number of large-dollar checks presented for collection?
Should both factors be used?
(d) What timeframe should be used to analyze average check size
and the number of large-dollar checks?
4.

If a criterion base on requests received from depositories were
used:
(a) How would this best be administered?
(b) When an institution requests that a payor institution be
added, how long should the requesting institution be
obligated to utilize the service?

5.

Would a geographic approach be preferable in determining which
additional institutions should be included?
(a) If so, how should the geographic area be selected?
(b) Should all institutions within the geographic area be
included in the program?
If not, on what basis should
institutions be included?
Average dollar presentments?
Average check size? Number of large-dollar checks? Any
other criteria?
(c) What criteria should be used for including institutions
outside the specific geographic area?

6.

How often should the institutions in the program be reviewed by
the Federal Reserve System for continued cost efficiency?

7.

Are there any other objective criteria that should be considered
as a basis for selecting institutions for inclusion in the program?

The Board's proposals are set forth in the attached notice.

-

Attachment

0

-

-

4

-

FEDERAL RESERVE SYSTEM
[Docket No. R-0464]
Federal Reserve Bank Check Collection Services

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Request for comments.

SUMMARY:
The Board of Governors is requesting public comment on proposed
criteria for selecting depository institutions located outside Federal
Reserve office cities for inclusion in a program to accelerate the
collection of checks that was approved in December 1982.
DATE:

Comments must be received by June 17, 1983.

ADDRESS:
Comments, which should refer to Docket No. R-0464, may be mailed
to Mr. William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C.
20551, or delivered to Room B-2223 between 8:45 a.m. and 5:15 p.m.
Comments
received may be inspected at Room B-1122 between 8:45 a.m. and 5:15 p.m.,
except as provided in § 261.6(a) of the Board's Rules Regarding the
Availability of Information, 12 CFR § 261.6(a).
FOR FURTHER INFORMATION CONTACT:
Elliott C. McEntee, Assistant Director
(202/452-2231) or Florence M. Young, Program Manager (202/452-3955),
Division of Federal Reserve Bank Operations; Daniel L. Rhoads, Attorney
(202/452-3711),
Robert
G.
Ballen,
Attorney
(202/452-3265),
or
Elaine M. Boutilier, Attorney (202/452-2418), Legal Division, Board of
Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
On December 17, 1982, the Board approved a
program to accelerate the collection of checks by Reserve Banks and thereby
improve the efficiency of the nation's payments mechanism.
48 F.R. 79
(January 3, 1983).
The major elements of the program included extending
deadlines for depositing checks at Federal Reserve offices and moving to a
later, uniform time for the presentment!./ or dispatch of checks to paying
ins titutions.

.^/presentment indicates the time that Reserve offices will present checks
at clearinghouses or make them available for pickup at the Reserve offices.

-

5

-

The first phase of this program was implemented on February 24.
New later deposit deadlines were implemented for checks drawn on city and
RCPC institutions along with a uniform presentment or dispatch time of 11:00
a.m. for checks drawn on city institutions.
Under this first phase of the
program, checks with a value of approximately $2 billion are now being
collected one day earlier than they were being collected previously.
The
second phase of the program calls for the presentment or dispatch of checks
drawn on city institutions to be moved to 12:00 noon on May 2.
In addition, the program provides that new later deposit deadlines
for checks drawn on certain non-city institutions,.?/ as well as later
presentment or dispatch times for the selected institutions, would be
implemented on July 1.
Criteria for selecting non-city institutions to be
included in this aspect of the program, called the high-dollar group sort
(HDGS),3/ were to be developed.
There are two primary reasons for
including non-city institutions in the accelerated check collection
program.
First, an analysis of check clearing patterns indicated that there
was a substantial increase in the dollar value of checks presented by the
Federal Reserve to non-city institutions over the period May 1981 through
November 1982.
By expanding the program to include certain non-city
institutions, it is anticipated that checks with a value of $1 billion could
be collected one day earlier than at present.
Second, in commenting on the
proposal to accelerate the collection of checks, commenters indicated that
moving presentment or dispatch times to 12:00 noon for city institutions
only would put such institutions at a disadvantage vis-a-vis non-city
institutions in competing for corporate cash management business.
Several factors are to be considered in developing criteria for the
selection of non-city institutions to be included in the HDGS.
The
selection criteria should consider the value of improved funds availability
in relation to the costs incurred in collecting the funds faster, that is,
the value of funds cleared one day earlier versus the additional processing
and transportation costs that would be required to achieve this
improvement.
Finally, the selection criteria should be sufficiently
flexible to address changing economic trends and disbursement patterns.
Three principal approaches have been considered for selecting
non-city institutions for the HDGS:
(1) the value of check presentments by
the Reserve Banks; (2) the location of non-city institutions? and (3) market
demand.
Each of these approaches offers varying degrees of improved

■^/Non-city institutions are depository institutions that are located
outside cities where there are Federal Reserve check processing offices.
2 / a group sort is a service that Reserve Banks provide to collecting
institutions.
Under this service, institutions that sort checks drawn on a
defined group of institutions may deposit those checks at later deadlines
than unsorted deposits.

-

6

-

availability and responsiveness
to changing disbursement patterns.
Additionally, the costs associated with servicing and administering each
approach would differ.
Value of Check Presentments - Under this approach, the selection
process could be developed in two ways.
First, non-city institutions could
be included in the program on the basis of the daily average dollar value of
checks presented to them by the Federal Reserve.
All non-city institutions
at or above some specific dollar level would be included in the program.
Second, non-city institutions could be included on the basis of some measure
of average check size and/or the number of large dollar items presented to
them by the Federal Reserve.
A determination of the appropriate average
check size or number of high-dollar checks would be developed through an
analysis of Reserve Bank check clearings over a specified time period.
An analysis of daily average presentments to non-city institutions
indicated that nearly 30 percent of the total $22 billion daily average
presentments by the Federal Reserve to non-city institutions were made to
institutions whose daily presentments averaged $20 million or more.
The
proportion rises to only 37 percent when institutions with daily
presentments averaging $10 million or more are included and to 44 percent
when institutions with daily presentments averaging $5 million or more are
included.
However, the number of institutions that would be included in the
HDGS would increase 150 percent, from 97 to 249 institutions, between the
$20 million and $10 million cutoff points and increase 350 percent, from 97
to 463 institutions, between the $20 million and $5 million cutoff points.
These data suggest that, at least initially, a $20 million cutoff point may
be preferable in light of the relationship between potential dollars
collected and the cost of providing the service.
A selection criterion based on total dollars presented would be
uniform and objective as well as simple to implement and administer.
This
criterion would not, however, allow for accelerating the collection of
checks on smaller institutions where it may be cost-effective to do so.
There may be opportunities to improve funds availability at a small marginal
cost by including institutions whose dollar value of presentments is below
the established cutoff.
Conversely, this criterion would call for including
certain institutions where it may not be cost-effective to do so because
transportation costs may be prohibitive.
Using selection criteria based on average check size and/or the
number of large dollar checks presented by the Federal Reserve could include
institutions on which large dollar checks are frequently drawn but that
might not be included in the HDGS under a total dollar value presentment
approach.
Additionally, this approach would ensure that the checks
presented to selected institutions would have a sufficiently high dollar
value to make their inclusion in the HDGS cost-effective for collecting
institutions.
Finally, this approach may offer greater adaptability to
changes in market conditions than the pure dollar-based approach.
On the
other hand, determining the optimal average check size or appropriate number
of large dollar checks would require complex analysis.

-

7

-

Geographic Location - A geographic approach has been recommended by
some members of the banking community.
It has been suggested that all
institutions located in specific geographic areas, such as, Ranally
Metropolitan Areas, would be included in the HDGS without regard to the
value of checks presented to them.
Such an approach would be predictable and objective, since it
clearly specifies the groups of depository institutions that would be
included in the HDGS.
Also, it would treat depository institutions located
in Federal Reserve cities and those located in large non-Federal Reserve
cities comparably.
Nonetheless, this approach appears to have some
disadvantages.
There may be little benefit from including very small
institutions in the HDGS, since the costs of doing so would likely be higher
than the potential marginal benefits that may be realized.
The inclusion of
many small institutions could add significantly to transportation and
processing costs while contributing very little to incremental dollars
collected.
Further, it might be cost effective to serve many institutions
that receive large dollar presentments that may not be in the geographic
areas specified.
Therefore, a pure geographic approach might not maximize
improvements in funds availability.
Market Demand - Under this approach, depository institutions could
request that certain non-city institutions be included in the HDGS in order
to obtain improved funds availability.
In administering the market demand
approach, the benefits to be obtained through improved funds availability
versus the cost of including such non-city institutions in the HDGS would be
evaluated.
Only when clear net benefits could be achieved would a
particular institution be included.
This approach has the advantage of ensuring that the HDGS is
responsive to the changing needs of depository institutions.
It also
provides that institutions would be included in the HDGS only if depository
institutions were willing to pay a price that would cover the Federal
Reserve's costs of collecting checks on the selected non-city institutions.
However, several potential drawbacks are associated with this approach.
Improvements in funds availability and in the payments mechanism generally
may not be fully realized since the success of the program would be wholly
dependent upon the requests of depository institutions.
Additionally, this
approach may not result in the most efficient allocation of resources since
greater or comparable improvements in funds availability may be achieved at
costs lower than those associated with limiting selection to depository
institutions' requests.
Finally, it could be more costly to administer this
approach than either the pure total dollar value or geographic approaches
because of the continuing necessity to evaluate depository institutions'
requests.
Price Determination and Deposit Deadlines - It is proposed that a
two-part fee structure be used for the HDGS:
a cash letter fee and a per
item fee.
The cash letter fee would consist of each office's existing
intra- or interterritory cash letter fees plus a charge to recover the fixed

-

8

-

costs of outgoing transportation.
The per item fee will be set to recover
processing costs plus the expected value of any holdover or intraterritory
transportation float.
Proposed fees for the HDGS have been developed by each Federal
Reserve office based upon the costs associated with a high-dollar group sort
consisting of non-city institutions with daily average presentments of $20
million or more.
A schedule of these proposed fees is attached to this
notice.
The deposit deadlines for the HDGS would be comparable to the
current deadlines for checks drawn on city institutions.
It is proposed
that the HDGS deposit deadlines would range from 8:00 a.m. to 9:30 a.m.
The
proposed deposit deadlines also appear in the attachment.
Some Federal
Reserve offices are considering an optional service that permits
institutions to deposit one cash letter
for checks drawn oninstitutions
included in the HDGS.
Deposit deadlines
would be earlier and fees may be
slightly higher for this local option.
Presentment - Institutions included in the HDGS will continue to
receive a large proportion of the checks presented or dispatched to them in
the same manner as at present.
It is anticipated that only a small
proportion of the checks drawn on these
institutions will be presented or
dispatched to the banks by 12:00 noon.
Payor Bank Service - The accelerated check collection program,
approved by the Board in December, specifically addressed the impact of
later presentment on depository institutions' ability to offer cash
management services to their customers.
As announced by the Board in
December, each Reserve Bank will be required to offer a minimum level of
service that provides presentment totals by selected account or facilitates
the paying institutions' ability to extract such totals.
Information
concerning the details of each Reserve Bank's service is available from the
Reserve Bank.
Implementation - The Board will establish an implementation date
when final action on this matter is taken after comments are analyzed.
Combining Selection Criteria - It appears that no one criterion
will be fully satisfactory.
However, the Board believes that the daily
average presentment value approach provides an objective basis for
initiating the HDGS.
By initially including all institutions with average
daily presentments amounting to $20 million or more, the number of selected
institutions would be manageable.
Meaningful improvements in funds
availability could be realized while information is gained regarding
depository institutions' use of the HDGS and the cost-effectiveness of
including all institutions defined by this criterion.
Further improvements in funds availability could be achieved at a
reasonable cost by including additional non-city institutions in the HDGS.
Lowering the dollar cutoff, however, may not be the most cost effective
approach because improvements in funds availability may not exceed the
increased costs that would be incurred to include additional institutions in
the HDGS.
Therefore, other criteria may be needed for selecting
institutions whose average daily presentments are below the $20 million
cutoff.
All depository institutions that fall within the selection criteria
chosen will be included within the HDGS.

-

Accordingly,
selection criteria:

the

Board

9

-

requests

public

comment

on

the

following

1.

Initially include all non-city institutions in the HDGS whose
daily average presentments by the Federal Reserve amount to
$20 million or more.

2.

Select additional non-city institutions with total
daily
average presentments by the Federal Reserve under $20 million
for inclusion in the HDGS:
a.

Using standards based on the average check size and/or
the number of large-dollar checks presented to an
institution; or

b.

Based on an analysis of requests
institutions.

received

from depository

In addition to providing comments on the selection criteria
proposed above, the Board asks that commenters also address the following
ques tions:
1.

Should a minimum ratio of costs to value of improved
funds
availability be set for inclusion in the program?
If so, what
ratio is appropriate?

2.

Should the $20 million cutoff be set at a higher or
level?
If so, what should the appropriate level be?

3.

Should institutions with average presentments of less
than $20
million be added to the program based on criteria using
average check size and/or the number of large dollar checks
presented ?
(a)

If so, how should the appropriate
determined?

(b)

How should the number and size of the large dollar check
criterion be determined?

(c)

Which would be a better criterion— the average check size
or the number of large dollar checks presented?
Should
both factors be used?

(d)

4.

average

lower

What timeframe should be used to analyze average
size and/or the number of large dollar checks?

If a market demand criterion were used:
(a)

How would this best be administered?

check size be

check

-

(b)

5.

10

-

When an institution requests that a payor institution be
added, how long should the requesting institution be
obligated to utilize the service?

Would a geographic approach be preferable in determining which
additional institutions should be included?
(a)

If so, how should the geographic area be selected?

(b)

Should all institutions within the geographic area be
included in the program?
If not, on what basis should
institutions be included?
Average dollar presentments?
Average check size?
Number of large dollar checks?
Any
other criteria?

(c)

What criteria should be used for including
outside the specified geographic area?

institutions

6.

How often should the institutions in the HDGS be reviewed by
the Federal Reserve System for continued cost efficiency?

7.

Are there any other objective criteria that should be
considered as a basis for selecting institutions for inclusion
in the HDGS program?

By order of the Board of Governors of the Federal
May 2, 1983.

Reserve

System,

(signed) James McAfee

James McAfee
Associate Secretary of the Board

[SEAL]

-

11

-

ATTACHMENT

Proposed HDGS Prices and Deposit Deadlines— '

Office and
Group Number
BOSTON
Lewiston2/
Windsor Locks

Per Item
(cents)
Group
Fine

.^

5 0

Intraterri tory
C/L Fee
(dollars)

Interterritory
C/L Fee
____ (dollars )

$9.00
N/A
9.00

$10.00

N/A
3.25

N/A
5.0

N/A
5.25

N/A

10.00

Proposed
Deadline
0830
N/A
0800

NEW Y0RK2/
Buffalo
Jericho
Cranford
Utica

8.0
8.0
8.0

8.00

10.00

9.00
16.00

1 1 .0 0
18.00

N/A
0830
0830
0830
0830

PHILADELPHIA

9.0

8.00

9.00

0800

10.0

5.00
9.50
7.00
7.00

7.00
11.50
7.00
7.00

0930
0930
0930
0800

22.50
16.50

CLEVELAND
Cincinnati
Pi ttsburgh
Columbus

N/A

8.0

10.0

5

. 0<L

5.0

RICHMOND
Baltimore
Charlotte
Columbia
Charleston2/

11.0
8.0
12.0
14.0
N/A

21.50
15.50

ATLANTA
Birmingham^/
Jacksonville
Nashville2/
New Orleans
Miami

8.0
N/A
15.0
N/A

CHICAGO
Detroit 1
Detroit 2
Des Moines2/
Indianapolis2_/
Milwaukee

20.00

21.00

13.50
N/A

14.50
N/A

0900
0830
0800
0900
N/A

15.0
5.0

3.00
N/A
50.00
N/A
29.00
14.50

4.50
N/A
51.50
N/A
29.00
14.50

0800
N/A
0800
N/A
0800
0830

15.0

13.75

13.75

10.00

10.00

17.00
N/A
N/A
12.50

17.00
N/A
N/A
12.50

0830
0900
0900
N/A
N/A
0830

10.0
10.0
N/A
N/A
15.0

Office and
Group Number
ST LOUIS
Little Rock2/
Louisville
Memphis
MINNEAPOLIS
Helena
KANSAS CITY2/
Denver2/
Oklahoma City
Omaha2/
DALLAS
Hous ton2/
San Antonio
El Paso
SAN FRANCISCO
Los Angeles 1
Los Angeles 2
Los Angeles 3
Portland2/
Salt Lake City2/
Seattle2/

Per Item
(cents)
Group
Fine

Intraterritory
C/L Fee
(dollars)

Interterritory
C/L Fee
(dollars)

Proposi
Deadlii

7.0
9.0

9.00
N/A
14.00
51.50

9.00
N/A
14.00
51.50

0900
N/A
0930
0930

9.8

7.00
19.50

8.00
19.50

0800
0900

N/A
51.75
30.00
N/A

N/A
51.75
31.00
N/A

N/A
0900
0900
N/A

6.00
N/A
30.50
14.50

8.00
N/A
30.50
14.50

0900
N/A
0930
0915

29.00
10.00
38.00
29.00
N/A
N/A
N/A

29.00
12.00
38.00
31.00
N/A
N/A
N/A

0800
0800
0800
0800
N/A
N/A
N/A

12.0
N/A

6.0

N/A
N/A
10.0
N/A

15.0

7.0
N/A
3.0
3.0
5.0
7.8
5.0
11.0
N/A
N/A
N/A

1/ Fees are based on (1) including only institutions with daily average presentments of
$20 million and above, and (2) Reserve Bank estimates of the number of checks and the
number of deposits that will be received for this HDGS.
2/ There are no institutions with daily average presentments of $20 million and above
the territory served by this office.

N/A —

Not applicable.

in

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