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F ederal Reserve Bank o f D allas

DALLAS, TEXAS

75222

Circular No. 73-299
November 21, 1973

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

There is enclosed a copy of a press release dated November 19 9
1973 issued by the Board of Governors of the Federal Reserve System.

The

Board is proposing to amend Regulation J to include electronic payments
through Federal Reserve communications facilities and is inviting comments
on various issues relating to the proposal.
The Board is soliciting your views not only on the technical
details of the proposal, but also with respect to issues arising from
electronic funds transfer, such as ownership and operation, conditions
of access and the basis for funding such a system.

Written comment will

be received by the Board through March 8, 197*+•
If you have any questions concerning this proposal, please call
the appropriate officials in charge of the funds transfer or check collec­
tion operations at any of our offices.

Very truly yours,
P. E. Coldwell
President

Enclosure

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

cow ,

k

F E D E R A L

m

press

R E S E R V E

release

For immediate release

November 19, 1973

The Board of Governors of the Federal Reserve System today
invited comment on the basic structure of the nation's payments
mechanism, and the appropriate roles of the Federal Reserve and other
institutions in it.
The comment was solicited in connection with proposed
regulatory changes concerning the framework for the use of the
Federal Reserve's inter-regional electronic funds transfer network*
Thus, comment may be addressed not only to the technical details of
the proposal but also to issues arising from electronic funds trans­
fer, such as ownership and operation, conditions of access and
payment of the costs of such a system.
The technical proposal is the latest in a series of steps
aimed at reducing reliance on checks for handling money payments.
It is intended to delineate the legal rights and responsibilities of
the

parties to electronic transfer of funds using Federal Reserve

facilities.
The proposal would expand the Board's Regulation J, which
currently governs the use of Federal Reserve facilities to collect
checks.

It is an outgrowth of the Board's policy statement issued

on June 18, 1971, in which the Board gave high priority to modernizing

-

2

-

the nation's payments mechanism, including development, in the interests
of an efficient, low cost payments system, of an electronic substitute
for making payments by check.
Written comment on the proposed legal framework for electronic
funds transfer will be received by the Board through March 8, 1974.
lengthy period for comment —

120 days —

The

was given to accomodate

comment not only on the specifics of the proposed changes in Regula­
tion J, but also upon broader issues such as:
(1)

The appropriate roles in the ownership and operation

of an electronic payments system —

including adjuncts thereto —

of

(a) the Federal Reserve System, (b) other public bodies, and (c) indivi­
dual or groups of private institutions, including commercial banks,
automated clearing houses, credit card companies, thrift institutions,
credit unions, the "bank wire,

and other institutions or organizations

such as those specified in the attached proposal;
(2)

The extent and conditions of access to the electronic

funds transfer system by various kinds of depository institutions,
and of other financial institutions, as well as the terms of access;
(3)

How the cost of electronic funds transfer should be

allocated, including such questions as whether the Federal Reserve
should charge for the use of its facilities; if so, against whom
should the charges be levied, whether they should cover all costs,

-

3 -

and whether reserves maintained by member banks should be taken
into account in any fee schedule which might differentiate between
Federal Reserve member and nonmember institutions.

The Board's efforts to modernize the payments mechanism
are based on estimates that check volume is increasing at a rate that
will double the total check volume during the next decade, from the
current estimate of 26 billion items yearly.

Unless there is a large

scale transition to electronic funds transfer, the growth in check
usage may eventually impede the flow of funds in the economy and make
the use of checks slow and expensive.
Under section 16 of the Federal Reserve Act (12 U.S.C.
248 (o)), the Board of Governors is authorized to promulgate regula­
tions governing the transfer of funds through Federal Reserve Banks,
their branches, and regional facilities.
transfers of funds —
—

Since the inception of wire

a forerunner of modern electronic funds transfers

some 50 years ago, such transfers have been regulated by instructions

issued by the Board to the Federal Reserve Banks, and by Federal
Reserve Bank operating circulars issued to member banks.
The current proposal would expand the Board's Regulation J,
which currently governs the collection of checks through the Federal
Reserve.

The existing Regulation J would become Subpart A of the

expanded regulation.

Two hew sections, dealing with electronic transfer

4

of funds, propose rules under which Reserve Banks could accept and
deliver both credit and debit transfers of funds by wire, over the
Federal Reserve's national communications network.
Subpart B would codify, in regulation form, current
practices in the forwarding of credits —
funds from one point to another —

that is, the sending of

for member banks and their customers

over Federal Reserve communications.

To forward credits, a member

bank authorizes the Federal Reserve to deduct an amount from its
reserve account, and to credit that amount to another commercial
bank.

Present wire transfer volumes in most Reserve Banks have

already exceeded a level at which manual processing is feasible.
Displacement of such low speed manual operations by high speed
processing is nearing completion.
Subpart C proposes the legal framework within which member
banks and their customers would use Federal Reserve facilities to
collect funds electronically from another commercial bank (as they
now use other Federal Reserve facilities for the collection of funds
moved by check) —

a procedure that does not now exist.

process would thus duplicate —
single business day —
days.

The proposed

electronically and generally within a

what a check accomplishes in a period of several

The new procedure would involve:
(a)

A request initiated by a member bank that the Federal

Reserve use its facilities to collect an amount —
the same day —

from another bank;

by wire, usually

(b) Immediate credit given by the Federal Reserve to the
requesting bank's reserve account of the amount it wishes to collect
from another bank; and
(c) Use of the Federal Reserve's communications facilities
to notify the commercial bank from which the amount is to be collected
that the Federal Reserve is deducting the amount from the bank1s reserve
account•

In this process, both the credit given to the bank requesting
collection, and the debiting of the paying bank1s account with the
Federal Reserve, would be subject to reversal, within prescribed time
limits, if the amount could not be collected.
A copy of the proposed regulation is attached.

FEDERAL RESERVE SYSTEM
[12 CFR Part 210]
TRANSFERS OF FUNDS THROUGH FEDERAL RESERVE BANKS

Under Section 16 of the Federal Reserve Act (12 U.S.C. 248(o)),
the Board of Governors is authorized to promulgate regulations governing
the transfer of funds through Federal Reserve Banks, their Branches, and
regional facilities.

Since the inception of wire transfers of funds— a

forerunner of modern electronic funds transfers— some 50 years ago, such
transfers have been regulated only by Instructions issued by the Board to
the Federal Reserve Bank and by Federal Reserve Bank operating circulars
issued to member banks.
The Board is currently considering the promulgation of regula­
tions relating to this matter in the form hereinafter set forth, which
will be consistent with the expanding use of electronic funds transfers
as a substitute for checks.

This regulation is Intended to delineate

the legal rights and responsibilities of the parties and the procedures
to be used henceforth for such funds transfers within the Federal Reserve
System.

At the same time, as the processing of check volume becomes

increasingly costly to the economy, and as the technology of funds
transfers enters a new phase, the Board takes this opportunity to solicit
comments on the basic structure of the nation's payments mechanism,
including the role of the Federal Reserve System and other Institutions.
The proposed new rules are in the form of an amendment to
Regulation J.

The present provisions relating to check collections would

- 2 -

become Subpart A of the Regulation.

The rules regarding electronic trans­

fers of funds through Federal Reserve facilities would be designated as
Subpart B and Subpart C of the Regulation, dealing, respectively, with the
transfers of credits and debits.

The rules regarding collection of checks

and other items, contained in Subpart A, would not apply to the processing
of electronic items.
Under the proposed regulation, a request for transfer
through

of funds

a Reserve Bank initiated by one bank (the "transferor") for credit

to another bank (the "transferee") contained in certain approved media,
would be referred to as a "credit item" in Subpart B.

An instruction for

the payment of money by a "payor" bank, initiated by a "payee" bank, con­
tained in approved media, is designated as a "debit item" under Subpart C.
The regulation would specify the terms and conditions under which such
items would be processed for member banks by the Reserve Banks.
In the past, telegraphic transfers of funds have been initiated
primarily by means of an oral or written communication from the transferor
bank and manually processed through Reserve Banks for subsequent delivery
to the transferee bank.

Present wire transfer volumes in most Reserve

Banks have already exceeded a level at which manual processing is feasible.
Displacement of such low speed manual operations by high speed electronic
processing is nearing completion.
The context in which the proposed regulation is presented is
set forth

in the Board's statement of policy issued on

(57 Federal Reserve Bulletin, June, 1971 at 546-547).

June 18,

1971,

In that statement

- 3 -

the Board assigned a high priority to the improvement of the nation's
payments mechanism and to the development of an electronic substitute
for an overburdened check collection system.
To aid in the consideration of further action in this area by
the Board, interested persons are given the opportunity herein, for a

r

period of 120 days, to submit relevant data, views, or arguments.

The

Board wishes to encourage the widest possible participation in this
process and may extend the period if circumstances warrant.

In addition

to comment on the specific proposal contained in the regulation, and
in recognition of the fact that Regulation J is but one part of a system
which has broad economic and financial implications, the Board invites
comments on other issues concerning electronic funds transfers, including
1.

What are the appropriate roles in the ownership and

operation of the various components and adjuncts of an
electronic funds transfer system of (a) the Federal Reserve
System; (b) other public bodies; and (c) private institu­
tions or groups thereof, including:

commercial banks;

automated clearing houses operated by clearing house
associations or other associations of commercial banks;
bank or non-bank credit card companies; savings and loan
associations; mutual savings banks; credit unions; the "bank
wire"; and non-depository institutions such as:

communication

utilities or companies, electronic equipment vendors or

- 4 -

service bureaus*and vendors generally whose convenience
or other credit extension may cause them to act as
"concentrators'' or otherwise to affect the flow of money
payments.
2.

What should be the extent and conditions of access

to the funds transfer system by various depository
institutions?

Should other financial or nonfinancial

institutions have access to the system?

If so, on

what terms?
3.

How the cost of electronic funds transfers should

be allocated, including such questions as whether the
Federal Reserve should charge for any use of its trans­
fer facilities; if so, against whom should the charges
be levied, whether they should cover all costs, and
whether reserves maintained by member banks should be
taken into account in any fee schedule which might
differentiate between Federal Reserve member and
nonmember institutions?
This notice is published pursuant to section 553(b) of Title 5,
United States Code, and section 262.2(a) of the Rules of Procedure of the
Board of Governors.
Any material should be submitted in writing to the Secretary,
Board of Governors of the Federal Reserve System, Washington, D. C. 20551,
to be received not later than March 8, 1974.

Such material will be made

available for inspection and copying upon request, except as provided in
section 261.6(a) of the Board's Rules Regarding Availability of Information.

-5To implement its proposal, the Board is considering amending
Regulation J [12 CFR Part 210] as set forth below:
1.

The title of Part 210 would be changed to read:

"COLLECTION

OF CHECKS AND OTHER ITEMS AND TRANSFERS OF FUNDS."
2.

The Table of Contents of Part 210 would be changed to read

as follows:

SUBPART A— COLLECTION OF CHECKS AND OTHER ITEMS

Sec.
210.1

Authority and scope

210.2

Definitions

210.3

General provisions

210.4

Sending of items to Federal Reserve Banks

210.5

Sender's agreement

210.6

Status and warranties of Federal Reserve Bank

210.7

Presentment for payment

210.8

Presentment of noncash items for acceptance

210.9

Remittance and payment

210.10

Time schedule and availability of credits with respect to
cash items

-6 -

210.11 Availability of proceeds of noncash items
210.12

Return of cash items

2 1 0 .1 3

Chargeback of unpaid cash items and noncash items

2 1 0 .1 4

Timeliness of action

2 1 0 .1 5

Effect of direct presentment of certain warrants

2 1 0 .1 6

Operating letters

SUBPART B--TRANSFERS OF FUNDS— CREDIT TRANSFERS

Sec.

2 1 0 .5 0

Authority and scope

2 1 0 .5 1

Definitions

2 1 0 .5 2

General provisions

2 1 0 .5 3

Approved media for issuance, transmission or recording
of transfer items

2 1 0 .5 4

Transferor's agreement

2 1 0 .5 5

Transferee's agreement

2 1 0 .5 6

Issuance of transfer items and telephonic requests for
transfers of funds

2 1 0 .5 7

Handling of transfer items and telephonic requests

2 1 0 .5 8

Time limits

2 1 0 .5 9

Advice of credit

2 1 0 .6 0

Issuance and handling of requests for revocation of
transfer items and telephonic requests

2 1 0 .6 1

Final payment, right to withdraw or use funds

2 1 0 .6 2

Timeliness of action

2 1 0 .6 3

Liability of a Federal Reserve Bank

2 1 0 .6 4

Operating circulars

-7 “

SUBPART C— TRANSFERS OF FUNDS— DEBIT TRANSFERS

Sec.

210.70

Authority and scope

210.71

General provisions

210.72

Definitions

210.73

Receipt of debit items

210.74

Handling of debit items

210.75

Ordering bank’s agreement

210.76

Federal Reserve Bank agreement

210.77

Payment

210.78

Time schedule

210.79

Return

210.80

Chargeback

210.81

Timeliness of action

210.82

Liability of a Federal Reserve Bank

210.83

Operating circulars

3.

Part 210 would be amended by inserting immediately before

§ 210.1 a heading reading:
4.

'SUBPART A— COLLECTION OF CHECKS AND OTHER ITEMS."
’

Paragraph (a) of § 210.2 would be amended, but without change

in footnotes, to read as follows:
(a)

The term "item" means any instrument for the payment of

money, whether negotiable or not, which is payable in a Federal Reserve

-8-

district,!./ is sent by a sender or a nonbank depositor to a Federal Reserve
Bank for handling under this Part, and is collectible in funds acceptable
to the Federal Reserve Bank of the district in which the instrument is
payable; except that the term does not include any check which cannot
be collected at par,.!/ nor does it include any item as defined in
§ 210.51(a) of this Part.
5.

Part 210 would be amended to change the words 1this Part"
1

wherever they occur in §§ 210.1-210.16 to read "this Subpart.
6.

Part 210 would be amended by adding after § 210.16 the

following:

SUBPART B— TRANSFERS OF FUNDS— CREDIT TRANSFERS

§ 210.50— Authority and scope
Pursuant to the provisions of paragraph 1 of section 13 of the
Federal Reserve Act, as amended (12 U.S.C. § 342), paragraph (f) of section
19 of the Federal Reserve Act (12 U.S.C. § 464), paragraph 14 of section 16
of the Federal Reserve Act (12 U.S.C. § 248(o)), paragraphs (i) and (j) of
section 11 of the Federal Reserve Act (12 U.S.C. § 248(i) and (j)), and
other provisions of lav;, the Board of Governors of the Federal Reserve
System has promulgated this Subpart governing the handling by Federal
Reserve Banks of transfer items and telephonic requests for transfers of
funds (hereinafter referred to as telephonic requests).

-9-

§ 210.51— Definitions
As used in this Subpart, unless the context otherwise requires:
(a) The term "item" means any instrument for the payment of money,
issued, transmitted or received in accordance with this Subpart.
(b) The term "instrument for the payment of money1 means any
'
writing evidencing a right to the payment of money, addressed by one person
to another, and contained in or on any medium approved by § 210.53 of this
Subpart for the issuance, transmission or recording of transfer items.
(c) The term ntransferor': means a member bank, a corporation
which maintains an account with a Federal Reserve Bank in conformity with
the requirements of § 211.7 of Part 211 of this Chapter (Regulation K ) ,
a Federal Reserve Bank, an international organization, or a foreign corre­
spondent, or other institution authorized by a Federal Reserve Bank, to
issue or send a transfer item to a Federal Reserve Bank, or to request a
Federal Reserve Bank by telephone to debit its account and transfer funds
to a designated transferee.
(d) The term "transferee" means a member bank, a corporation
which maintains an account with a Federal Reserve Bank in conformity with
the requirements of § 211.7 of Part 211 of this Chapter (Regulation K),
a Federal Reserve Bank, an international organization, or a foreign corre­
spondent, or other institution maintaining an account on the books of a
Federal Reserve Bank, which is designated in a transfer item or telephonic
request to receive the amount thereof.

“ 10-

(e) The term "beneficiary" means a person, firm or corporation
(other than the transferee) designated in a transfer item or telephonic
request to receive the amount thereof for his or its own use by credit to
an account maintained with the transferee or otherwise from the transferee.
(f) The term "transfer item" means either (i) an item issued by
a transferor (other than a Federal Reserve Bank) to a Federal Reserve Bank
for a debit to an account of the transferor at such Federal Reserve Bank
and for a credit to a transferee named in such item, or (ii) an item issued
by a Federal Reserve Bank to another Federal Reserve Bank for credit to
such other Federal Reserve Bank or any other transferee.
(g) The term ^international organization" means any international
organization for which the Federal Reserve Banks are empowered to act as
depositaries or fiscal agents subject to regulation by the Board of
Governors of the Federal Reserve System and for which a Federal Reserve
Bank has opened and is maintaining an account.
(h) The term "foreign correspondent1 means any of the following
1
for which a Federal Reserve Bank has opened and is maintaining an account:
a foreign bank or banker, or foreign state as defined in section 25(b) of
the Federal Reserve Act (12 U.S.C. § 632), or a foreign correspondent or
agency referred to in section 14(e) of that Act (12 U.S.C. § 358).
(i) The terms "nonbank transferor" and

nonbank transferee"

respectively mean any department, agency, instrumentality, independent
establishment5 or office of the United States, or any corporation other

*11than A transferor or a transferee, which maintains or uses an account
with a Federal Reserve Bank.

Except as may otherwise be provided by any

applicable statutes of the United States or regulations issued or arrange­
ments made thereunder, the provisions of this Subpart and of the operating
circulars of the Federal Reserve Banks applicable to a transferor or to
a transferee, as the case may be, are applicable respectively to a nonbank
transferor, and to a nonbank transferee.
§ 210.52— General provisions
In order to afford to the banks of the country a direct, expedi­
tious, and economical system for the transfer of funds, each Federal
Reserve Bank, in accordance with the terms and conditions set forth in
this Subpart, shall receive, process and act upon transfer items and
telephonic requests and, where appropriate, shall itself issue transfer
items and telephonic requests; and the provisions of this Subpart and the
operating circulars of the Federal Reserve Banks shall be binding upon
transferors and transferees.
§ 210.53— Approved media for issuance, transmission or recording of
transfer items
A transfer item may be contained in any one of the following
media:
(a) a letter, memorandum or other similar writing;
(b) a telegram (including TWX, TELEX and any similar form of
communications); and

-12(c)

any form of communication, other than voice, which is

registered upon, or is in form suitable for being registered upon, magnetic
tape, disc or any other medium designed to capture and contain in durable
form conventional signals used for the electronic communication of messages.
§ 210.54— Transferor’s agreement
By its action in issuing and sending any transfer item, contained
in any of the media specified in § 210.53, to a Federal Reserve Bank, or
by its action in telephonically requesting a Federal Reserve Bank to transfer
funds to a designated transferee, a transferor shall be deemed:

(1) to

authorize said Federal Reserve Bank to apply a corresponding debit to its
account; (2) to authorize said Federal Reserve Bank to handle and act
upon the transfer item or telephonic request and the Federal Reserve Bank
at which the transferee's account is maintained to handle and act upon a
transfer item or telephonic request of equivalent import, in accordance
with the provisions of this Subpart and the operating circulars of such
Federal Reserve Banks; and (3) to agree that such provisions shall, insofar
as they are made applicable thereto, govern the relationships between such
transferor and such Federal Reserve Banks.
§ 210.55— Transferee's agreement
(a)

A transferee, other than a Federal Reserve Bank, designated

in a transfer item or telephonic request to receive the amount thereof, by
its action in maintaining or using an account at a Federal Reserve Bank,
shall be deemed to authorize that Federal Reserve Bank to execute a transfer
of funds to it by making corresponding credit entries on its books.

-J 3-

(b)

A transferee, other than a Federal Reserve Bank, receiving

from a Federal Reserve Bank the amount of a transfer item or of a telephonic
request and an advice of credit which designates a beneficiary to receive
the amount, shall be deemed to agree (1) that it will promptly credit said
beneficiary's account or otherwise make the amount of the transfer item or
telephonic request available to the beneficiary for withdrawal or other
use; and (2) that, if it is unable to do so because of circumstances beyond
its control, it will give prompt notice of the facts tothe Federal Reserve
Bank from which it received such amount.
§ 210.56— Issuance of transfer items and telephonic requests for
transfer of funds
(a) Any transferor, other than a Federal Reserve Bank, may, in
accordance with the provisions of this Subpart and the operating circulars
of the Federal Reserve Bank with which it maintains or uses an account,
issue transfer items and telephonic requests to that Federal Reserve Bank
for the transfer of funds to transferees for their own use or the use of
beneficiaries:

Provided, That each transferor shall maintain with such

Federal Reserve Bank a daily net balance sufficient to cover the transfers
of funds debited to its account.
(b) Any Federal Reserve Bank may, in accordance with the pro­
visions of this Subpart, issue transfer items or telephonic requests
another Federal Reserve Bank for its own use or the use of any other
transferee or any beneficiary.

to

-1A(c) If, at any time during a Federal Reserve Bank's business day,
a transferor does not have a daily net balance sufficient to cover the
transfers of funds debited to its account at the Federal Reserve Bank during
that day, that Federal Reserve Bank shall have a security interest in any
or all assets of such transferor in its possession.
(d) The Federal Reserve Banks may, from time to time, establish
in their operating circulars the minimum or maximum dollar amounts, or both,
which will be transferred without charge upon receipt of a transfer item
or telephonic request and may also impose reasonable service charges for
transfers of funds below any such minimum so established.
§ 210.57— Handling of transfer items and telephonic requests
(a) Where the transferor and the transferee maintain or use
accounts at the same office of a Federal Reserve Bank, such office receiving
a transfer item or telephonic request shall execute a transfer of funds
by making corresponding debit and credit entries to those accounts.
(b) Where the transferor and the transferee do not maintain or
use accounts at the same office of a Federal Reserve Bank, the office
first receiving the transfer item or telephonic request shall debit the
transferor’s account in the amount to be transferred and shall, as a
transferor, issue a transfer item or telephonic request of equivalent import
to the office at which the transferee's account is maintained; and that
office shall execute a transfer of funds to the transferee by making
corresponding debit and credit entries.

-15(c)

When a Federal Reserve Bank having in due time received a

transfer item or telephonic request subsequently obtains knowledge that,
for whatever reason, it will be unable to effectuate a transfer of funds
to the transferee on the day requested, said Federal Reserve Bank shall,
within a reasonable time thereafter, notify the transferor of the delay.
§ 210.58— Time limits
(a) Each Federal Reserve Bank shall include in its operating
circulars a schedule of the time limits showing, with respect to inter­
district, interoffice, and intraoffice transfers of funds, the hours on
each business day during which it will receive from transferors transfer
items and telephonic requests for consummation on the day of receipt and
may include therein a schedule of time limits during which it will receive
transfer items and telephonic requests for consummation on the next business
day.
(b) Unless otherwise instructed, each Federal Reserve Bank handling
transfer items and telephonic requests will use its best efforts to effect
the transfers of funds to the designated transferees on the day of receipt:
Provided, That such items and requests reach the Federal Reserve Bank not
later than the time shown in its schedule of time limits, except that no
representation shall be made by a Federal Reserve Bank to the effect that
transfers will be consummated on the day requested.
(c) In emergency or other unusual circumstances, a Federal
Reserve Bank may, in its discretion, receive after the hours shown in its

-16schedule of time limits transfer items dnd telephoiiic requests for consumma­
tion on that business day, but only upon the understanding, in the case of
an interoffice or interdistrict transfer, that completion of each requested
transfer shall be discretionary with the office at which the transferee's
account is maintained.
§ 210.59— Advices of credit and debit
(a) Written advice of credit in respect of an executed transfer
of funds shall be given to the transferee by the Federal Reserve Bank with
which it maintains or uses an account or, when the transferor or transferee
has so requested, immediate advice of credit shall be given to the transferee
by telegraph, telephone, or other form of electronic telecommunications.
Immediate advice may also be given where, in the judgment of said Federal
Reserve Bank, the nature of the transaction or the amount involved justifies
such an action.
(b) Written advice of debit in respect of a transfer of funds
shall be given to the transferor by the Federal Reserve Bank with which
it maintains or uses an account where funds have been transferred, pursuant
to a telephonic request, to a transferee for the account of a beneficiary.
Immediate advice of debit (in lieu of written advice) may be given by
telegraph, telephone, or other form of electronic telecommunications where,
in the judgment of said Federal Reserve Bank, the nature of the transaction
or the amount involved justifies such action.

If, within 10 business days

of the transferor following reccipt of the advice of debit, the
transferor fails to send to said Federal Reserve Bank written objection to
such debit, the transferor shall be deemed to have approved the debit.

-17-

§ 210.60— Issuance and handling of requests for revocation of transfer
items and telephonic requests
(a) Any transferor including a Federal Reserve Bank that has issued
a transfer item or a telephonic request may issue to the Federal Reserve
3ank with which it maintains or uses an account a request for revocation
of such transfer item or telephonic request.

A Federal Reserve Bank shall

handle a request for revocation in accordance with the provisions of its
operating circulars and this Subpart.
(b) Intraoffice revocation. Where the transferor including a
Federal Reserve Bank and transferee maintain or use accounts at the same
Federal Reserve Bank, that Federal Reserve Bank upon receipt of a request
for revocation:
(1) shall cancel the transfer item or telephonic request, if the
request for revocation is received at such time and in such manner as to
afford that Federal Reserve Bank a reasonable opportunity to act prior to
the final payment of the transfer item or telephonic request in question;

(2) at the transferor's request, shall send a request to the
transferee that it return the funds described in the request for revocation
to the transferor, if the request for revocation is received later than the
time specified in subparagraph (1) of this paragraph.
(c) Interdistrict and interoffice revocation. Where the transferor
and transferee do not maintain accounts at the same Federal Reserve Bank

-1 8 .

or at the same Federal Reserve office, the transferor's Federal Reserve Bank
upon receipt of a request for revocations
(1) shall cancel the transferor's transfer item or telephonic
request, if the request for revocation is received at such time and in
such manner as to afford it a reasonable opportunity to act prior to
issuing its own transfer item or telephonic request; or
(2) at the transferor's request, shall issue a request for
revocation of its transfer item or telephonic request to the Federal Reserve
Bank at which the transferee's account is maintained, if the request for
revocation is received later than the time specified in subparagraph (1)
of this paragraph; and
(i) if the Federal Reserve Bank's request for revocation is
received at such time and in such manner as to afford the transferee's
Federal Reserve Bank a reasonable opportunity to act prior to final payment
of the Federal Reserve Bank's transfer item, the transferee's Federal
Reserve Bank shall return the funds described in the request for revocation
to the transferor; or
(ii) if the Federal Reserve Bank's request for revocation is
received later than the time specified in subdivision (i) of this sub­
paragraph, transferee's Federal Reserve Bank, at the transferor's request,
shall send a request to the transferee that it return the funds described
in the request for revocation to the transferor.

19(d)

To correct an erroneous or otherwise irregular transfer of

funds, a Federal Reserve Bank, upon its own initiative or at the request
of another Federal Reserve Bank, may send a request to the transferee to
return funds previously transferred to it.
§ 210.61--Final payment, right to withdraw or use funds
(a) A transfer item or telephonic request issued by a transferor
is finally paid at the time an advice of credit is sent or telephoned to
the transferee by a Federal Reserve Bank.
(b) Subject to the right of a Federal Reserve Bank to apply the
transferred funds to an obligation owed to the Federal Reserve Bank by
the transferee, credit given by a Federal Reserve Bank for a transfer of
funds to the transferee's account becomes available for withdrawal as of
right by the transferee upon the sending or telephoning of an advice of
credit by the Federal Reserve Bank.
§ 210.62— Timeliness of action
If, because of interruption of communications facilities, war,
emergency conditions or other circumstances beyond its control, a Federal
Reserve Bank shall be delayed beyond the time limits provided in this
Subpart or in the Bank's operating circulars or by the applicable law of
any State in taking any action with respect to a transfer item or a
telephonic request, including but not limited to making corresponding credit
and debit entries on its books, sending appropriate advice of credit to the
transferee and otherwise making funds available for withdrawal or other use,

*20or, where necessary, effectively transmitting a transfer item or telephonic
request of equivalent import to the Federal Reserve Bank at which the
transferee's account is maintained, the time of such Bank for taking or
completing such action, as limited by this Subpart or by the operating
circulars, or by the applicable law of any State, thereby delayed shall be
extended for such time after the cause of the delay ceases to operate as
shall be necessary to take or complete the action, provided the Bank exercises
such diligence as the circumstances require.
§ 210.63— Liability of a Federal Reserve Bank
(a) A Federal Reserve Bank, in connection with the matters
specified in this Subpart or its operating circulars, shall not have, nor
shall it assume, any responsibility to a transferee, a beneficiary, or any
other party, except its immediate transferor nor shall a Federal Reserve
Bank have or assume any liability except for its own or another Federal
Reserve Bank's lack of good faith or failure to exercise ordinary care,
and, except as herein provided, a Federal Reserve Bank shall not be liable
for the insolvencyj neglect, misconduct, mistake, or default of another
bank or person, including a transferor.
(b) Subject to the limitations on liability hereinabove stated,
where a Federal Reserve Bank's conduct, notwithstanding its exercise of
good faith and ordinary care, results in a failure to credit the amount
of a transfer item or telephonic request to the account of a transferee
on the day requested, unless otherwise Instructed at the time notice Is

-21given the transferor, the Federal Reserve Bank shall complete the transfer
on the next business day with debits and credits posted to the appropriate
accounts as of the day the transfer was to have been consummated.
(c) Subject to the limitations on liability hereinabove stated,
if the failure to credit the amount of the transfer item or telephonic
request to the account of the transferee resulted from a failure on the
part of any Federal Reserve Bank to exercise ordinary care or to act in
good faith, the transferor shall have the right to recover from the
Federal Reserve Bank with which it maintains or uses an account any damages
proximately caused by such failure:

Provided, however, That whether any

consequential damages are proximately caused by the Federal Reserve Bank's
failure to exercise ordinary care or lack of good faith is a question of
fact to be determined in each case.
(d) The Federal Reserve Bank at which the account of the trans­
feree is maintained shall be deemed to agree to indemnify the Federal
Reserve Bank at which the transferor's account is maintained for any loss
or expense sustained (including but not limited to attorneys' fees and
expense of litigation) as a result of the transferee's Federal Reserve
Bank's failure to exercise ordinary care or to act in good faith with
respect to a transfer item or telephonic request Issued to it by the
transferor's Federal Reserve Bank at the request of the transferor.

•2Z »

§ 210.64— Operating circulars
Each Federal Reserve Bank shall issue operating circulars (some­
times referred to as operating letters or bulletins), not inconsistent with
this Subpart, governing the details of its funds transfer operation and
containing such provisions as are required or permitted by this Subpart.

SUBPART C— TRANSFERS OF FUNDS— DEBIT TRANSFERS

§ 210.70— Authority and scope
Pursuant to the provisions of section 13 of the Federal Reserve
Act, as amended (12 U.S.C. § 342), paragraph (f) of section 19 of the
Federal Reserve Act (12 U.S.C. § 464), section 16 of the Federal Reserve
Act (12 U.S.C. § 248(o); 12 U.S.C. § 360), paragraphs (i) and (j) of
section 11 of the Federal Reserve Act (12 U.S.C. § 248(i) and (j)), and
other provisions of law, the Board of Governors of the Federal Reserve
System has promulgated this Subpart governing the handling by Federal
Reserve Banks of debit items.
§ 210.71— General provisions
In order to provide for the efficient and economical transfer
of bank balances on the books of the Federal Reserve Banks and as a means
of improving the nation's payments mechanism, the Board of Governors of
the Federal Reserve System has promulgated this Subpart.

Each Federal

Reserve Bank, in accordance with the terms and conditions set forth in
this Subpart, shall receive, process, and act upon debit items in accordance

-2 3 -

with the terms and conditions set forth in this Subpart, and the provisions
of this Subpart and applicable operating circulars of the Federal Reserve
Banks shall be binding upon ordering banks and payor banks.
§ 210.72— Definitions
As used in this Subpart, unless the context otherwise requires:
(a) The term "ordering bank" means a member bank issuing and
sending a debit item to the Federal Reserve Bank with which it maintains
an account.
(b) The term
item

"payor bank" means the bank designated in a debit

asthe bank by which the amount of the item is payable and

which is

n'

located in a Federal Reserve District
(c) The term
of money,

"debit item" means an instrument for the

payment

contained in any of the media approved by § 210.53 of Subpart B

of this Regulation, for payment by a payor bank and for credit to the
ordering bank, which is issued and sent by an ordering bank to a Federal
Reserve Bank for handling under this Subpart.
(d) The term "State" means any State of the United States, the
District of Columbia, or Puerto Rico, or any territory, possession or
dependency of the United States.
(e) The term "banking day" means any day during which a bank is
open to the public for carrying on substantially all its banking functions.

5/‘ For the purposes of this Subpart, the Virgin Islands and Puerto Rico
shall be deemed to be in or of the Second Federal Reserve District and
Guam and American Samoa shall be deemed to be in or of the Twelfth Federal
Reserve District.

-2 4 -

(f) The term Iwire" includes telephone, telegraph, and cable.
:
§ 210.73— Receipt of debit items
(a) A debit item may be contained in any of the media approved
by § 210.53 of Subpart B that is acceptable to the Federal Reserve Bank
handling the debit item and shall be deemed to be the same debit item
notwithstanding that the medium in which it is contained may change during
its handling or return under this Subpart.
(b) An ordering bank may, if permitted by the Federal Reserve
Bank with which it maintains an account, telephone a debit item issued
by the ordering bank to such Federal Reserve Bank.

Such telephone message

may be recorded by such Federal Reserve Bank.
(c) Unless otherwise agreed, a Federal Reserve Bank shall receive
debit items only from the head office of an ordering bank and shall send
debit items only to the head office of a payor bank.
§ 210.74— Handling of debit items
(a) An ordering bank may, in accordance with tb.e provisions of this
Subpart and the applicable operating circulars of the Federal Reserve Bank
with which it maintains an account, issue and send debit items to that
Federal Reserve Bank.
(b) Where theNordering bank and payor bank are located in the
same Federal Reserve territory, the Federal Reserve Bank receiving the
debit item will transfer it to the payor bank over the Federal Reserve
telecommunications network or by any other means selected by such Federal
Reserve Bank.

-23

(c)

Where the ordering bank and payor bank are not located in

the same Federal Reserve territory, the Federal Reserve office first
receiving the debit item will transfer it over the Federal Reserve System
telecommunications network to the Federal Reserve office of the territory
within which the payor bank is located, and such other Federal Reserve
office will transfer the debit item to the payor bank over the Federal
Reserve telecommunications netxjork or by any other means selected by such
Federal Reserve office.
§ 210.75— Ordering bank’s agreement
For purposes of this section, the term “ordering bank” includes
a Federal Reserve Bank sending a debit item to another Federal Reserve Bank.
(a) By its action in sending any debit item to a Federal Reserve
Bank, an ordering bank shall be deemed to authorize said Federal Reserve
Bank and the Federal Reserve Bank in whose district the debit item is payable
to handle and act upon the debit item, in accordance with the provisions
of this Subpart and the applicable operating circulars of such Federal
Reserve Bank s .
(b) An ordering bank shall be deemed to warrant to each Federal
Reserve Bank handling the debit item:

(1) that it is authorized to give

the authority specified in paragraph (a) of this section, and (2) that it
is authorized to obtain transfer of the funds in the manner called for by
the debit item; and such ordering bank shall be deemed to agree to indemnify
each such Federal Reserve Bank for any loss or expense sustained (including

-26-

but not limited to attorney's fees and expenses of litigation) resulting
from the failure of such ordering bank to have the authority to give such
authority and warranties or resulting from any action taken by the Federal
Reserve Bank within the scope of its authority in handling the debit item.
(c)

Whenever any action or proceeding is brought in any court

against a Federal Reserve Bank, based upon the alleged failure of such
ordering bank to have the authority to give the authority and warranties
specified in paragraphs (a) and (b) of this section, or upon any action
taken by the Federal Reserve Bank within the scope of its authority in
handling such a debit item, or upon any warranty or authority with respect
thereto made by the Federal Reserve Bank consistently with § 210.76 of
this Subpart, the Federal Reserve Bank may, upon the entry of a final
judgment or decree in such action or proceeding, recover from the ordering
bank the amount of attorney's fees and other expenses of litigation actually
incurred, and, in addition3 any amount required to be paid by the Federal
Reserve Bank under such judgment or decree, together with interest thereon,
by charging the amount thereof to any account of the ordering bank maintained
on the books of the Federal Reserve Bank (of if the ordering bank is another
Federal Reserve Bank, by entering a charge therefor against such other
Federal Reserve Bank), provided only (1) that the Federal Reserve Bank shall
have made
the

reasonable demand on the ordering bank in writing to assume

defense of the action or proceeding, and (2) that the ordering bank

shall not have made any other provision acceptable to the Federal Preserve

-27
Bank for the payment of such amount.

A Fed'eral Reserve Bank against which

any such charge has been entered may recover from the ordering bank, in
any case herein provided, as if the action or proceeding against the Federal
Reserve Bank which entered the charge had been brought against it.

The

failure of any Federal Reserve Bank to avail itself of the remedy provided
by this paragraph shall not prejudice the enforcement by it in any other
manner of the indemnity agreement referred to in paragraph (b) of this
section.
§ 210.76— Federal Reserve Bank agreement
By its action in transferring any debit item, a Federal Reserve
Bank shall be deemed to warrant to the payor bank and to any other Federal
Reserve Bank handling such debit item that it is authorized to obtain
payment of the funds called for by the debit item, but otherwise such a
Federal Reserve Bank shall not have, and shall not be deemed to assume,
any liability to such payor bank or Federal Reserve Bank except for its
own lack of good faith or failure to exercise ordinary care.
§ 210.77— Payment
A payor bank becomes accountable for the amount of each debit
item received by it from a Federal Reserve Bank at the close of the payor
bank’s banking day on which the debit item was so received-^ if it retains

6/ A debit item received by a payor bank shall be deemed to have been
received by the bank on its next banking day if the item is received under
one of the following circumstances: (1) on a day other than a banking day
for it, or (2) on a banking day for it, but (a) after its regular banking
hours, or (b) after a "cut-off hour" established by the Federal Reserve Bank
of the district in which the payor bank is located, or (c) during afternoon
or evening periods when it is open for limited functions only.

-2 8 such item after the close of such banking day, unless prior to such time,
it pays for the item as herein provided.
on such day or receipt by

Payment therefor shall be effected

a debit to an account on the books of a Federal

Reserve Bank.If the banking day

on which an item is received by a payor

bank is not a

banking day for the Federal Reserve 3ank from which the item

was received,

any payment made hereunder shall be effected on the

banking

day of both such Federal Reserve Bank and such payor bank next following
the day of receipt of such item.
§ 210.78— Time schedule
(a) Each Federal Reserve Bank shall include in its operating
circulars a time schedule showing when the amount of any debit item received
by it will be counted as reserve for the purposes of Part 204 of this
Chapter (Regulation D) and become available for withdrawal or other use
by the ordering bank.

The ordering bank will be given either immediate

credit or deferred credit for such amount in accordance with such time
schedule.

Notwithstanding the provisions of its time schedule, a Federal

Reserve Bank may in its discretion refuse at any time to permit the with­
drawal or other use of credit given for any debit item for which the
Federal Reserve Bank has not yet received payment in actually and finally
collected funds.
(b) A Federal Reserve Bank will use its best efforts to transmit
debit items on the day of receipt:

Provided, That the debit item is received

by a Federal Reserve Bank not later than the time shown in the time schedule

-2 9 -

ref erred to in paragraph (a) of this section, except that no representation
shall be made by a Federal Reserve Bank to the effect that debit items
will be transmitted on the day of receipt.
§ 210.79— Return
(a) A payor bank that receives a debit item from a Federal Reserve
Bank and that pays for such debit item as provided in this Subpart shall
have the right to recover any payment so made if, before it has finally
paid the debit item, it returns the debit item before the close of business
of its banking day next following the banking day of receipt.

In accordance

with the provisions of this Subpart and the applicable operating circulars
of the Federal Reserve Banks, debit items shall be returned to the Federal
Reserve Bank from which they were received in a form acceptable to such
Federal Reserve Bank, and in the same medium in which they x^ere received
by the payor bank unless the payor bank obtains the written authority of
such Federal Reserve Bank to return debit items in another medium specified
in § 210.53 of Subpart B.

In the event such medium is other than by the

Federal Reserve telecommunications network to the Reserve Bank, wire advice
of nonpayment shall be given as to any debit item of $1,000 or over.
(b) Any payor bank which receives a credit or obtains a refund
for the amount of any payment made by it in respect of a debit item
received by it from a Federal Reserve Bank shall be deemed (1) to warrant
to such Federal Reserve Bank, to any other Federal Reserve Bank handling
the item and to the ordering bank that it took all action necessary to

-3 0 -

entitle it to recover such payment within the time or times limited therefor
by the provisions of this Subpart, and (2) to agree to indemnify any such
Federal Reserve Bank for any loss or expense sustained (including but not
limited to attorneys' fees and expenses of litigation) resulting from its
action in giving such credit or making such refund, or in making any charge
to, or obtaining any refund from, the ordering bank.

No Federal Reserve

Bank shall have any responsibility for determining whether the action
hereinabove referred to was timely.
§ 210.80— Chargeback
If a Federal Reserve Bank does not receive payment in actually
and finally collected funds for any debit item for which it gave credit,
the amount of such item shall be charged back to the party receiving such
credit.

If such a chargeback is made to the account of an ordering bank,

such ordering bank shall not have any right of recourse upon, interest in,
or right of payment from, any reserve account or other funds or property
of the payor bank in the possession of a Federal Reserve Bank.

No authoriza­

tion to charge upon any reserve account or other funds or property in the
possession of a Federal Reserve Bank, issued for the purpose of paying
for any debit item handled under the terms of this Subpart, will be acted
upon after receipt by such Federal Reserve Bank of notice of suspension
or closing of the bank making the payment for its own or another’s account.

-3 1 *

§ 2 1 0 . 8 1 - - T im e lin e s s o f a c t io n

If, because of interruption of communication facilities, suspension
of payments by another bank, war, emergency conditions or other circumstances
beyond its control, any bank (including a Federal Reserve Bank) shall be
delayed beyond the time limits provided in this Subpart or the operating
circulars of the Federal Reserve Banks, or prescribed by the applicable
law of any State in taking any action with respect to a debit item, the
time of such bank, as limited by this Subpart or the operating circulars
of the Federal Reserve Banks, or the applicable law of any State, for
taking or completing the action thereby delayed shall be extended for such
time after the cause of the delay ceases to operate as shall be necessary
to take or complete the action, provided that the bank exercises such
diligence as the circumstances require.
§ 210.82— Liability of a Federal Reserve Bank
A Federal Reserve Bank will act only as agent of its ordering
bank, or of a Federal Reserve Bank transmitting debit items to it, with
respect to the handling of debit items under this Subpart.

A Federal

Reserve Bank will not act as the agent or subagent of nor shall it assume
any responsibility to any other person.

A Federal Reserve Bank, in connec­

tion with the matters specified in this Subpart or its operating circulars,
shall not have, nor shall it assume, any liability to an ordering bank, or
another Federal Reserve Bank, except for its own lack of good faith or
failure to exercise ordinary care.

-3 2 -

§ 2 1 0 .8 3 — O p e ra tin g

c irc u la rs

Each Federal Reserve Bank shall issue operating circulars
(sometimes referred to as operating letters or bulletins)„ not inconsistent
with this Subpart, governing the details of its debit item operation and
containing such provisions as are required or permitted by this Subpart.
*

*

*

*

*

By order of the Board of Governors t November 15, 1973.

(Signed) Chester B. Feldberg

Chester B. Feldberg
Secretary of the Board
/

[SEAL]