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FEDERAL RESERVE BANK OF CHICAGO 79 WEST MONROE STREET THE COLLECTION SYSTEM CHICAGO, JUNE 28, 1916. TO THE NON-MEMBER BANK ADDRESSED: With further reference to the circular letter sent you under date of June 24, 1916, with which was transmitted copy of circular on Check Clearing and Collection, issued May 1, 1916, by the Federal Reserve Board to members of the Federal Reserve System, there is one feature concerning which it is essential that you be fully advised: While establishing a system through which checks will be collectible at par, the Federal Reserve Banks do not undertake to absorb the necessary expense of operation, nor do they undertake to eliminate the time consumed in the collection of checks on member and non-member banks. Your attention is directed to the following excerpts from our Bulletin No. 44, issued June 15, 1916, to the member banks of this, the seventh Federal Reserve District: "SERVICE CHARGE "As it is optional with each member bank whether it will collect checks through the Federal Reserve Bank or through other channels, the cost of operating the system of check clearing and collection will be borne exclusively by the banks that use it and in exact proportion to the extent of its use by the individual banks. "The actual cost of operation will be assessed monthly on a per item basis upon the member banks depositing items. The service charge for the present will be 1½ cents per item. Should the cost per item decrease as the system develops the service charge will be reduced accordingly. No service charge for the present, at least, will be made for collecting items drawn on Chicago banks." "WHEN PROCEEDS OF ITEMS WILL BE AVAILABLE "Immediate credit entry at par, subject to final payment, will be made for all checks received by this bank by 2:00 P. M., except Saturday, when the hour will be 12:00 o'clock Noon. The proceeds of such items will not, however, be available for withdrawal nor count as reserve until the lapse of time indicated in the attached schedule.* "For the convenience of member banks, the schedule is arranged in four divisions: "1. Points on which checks are immediately available for reserve. "2. Points on which checks are available in two days. "3. Points on which checks are available in four days. "4. Points on which checks are available in eight days." *(See schedule on third page of this circular.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis "PENALTY FOR IMPAIRMENT OF RESERVES "With the inauguration of the collection system, the penalty for impairment of reserves, provided by the Federal Reserve Act, will be imposed. You will be requested to report monthly the average reserve required to be kept with the Federal Reserve Bank. Impairment of the reserve, if any, will be ascertained by comparing the amount of the average reserve required with the average actual reserve as shown by our books. The penalty for the present, to be figured on the deficiency in reserve, will be an interest charge fixed by the Federal Reserve Board at a per annum rate of 2% above the maximum discount rate in this district, but in no case less than 6%." _ From the foregoing, it is clear-first, that a service charge of 1½ cents per item will be assessed against the depositing bank on all checks payable outside of Chicago collected through the Federal Reserve Bank; second, when member banks draw against the proceeds of checks before such proceeds are available in _accordance with the time schedule referred to above, a penalty is imposed, to be figured on any deficiency in reserve thereby created. Please note that the service charge hereinbefore mentioned will be assessed against the depositing banks and no charge whatsoever will be made against .b anks upon which checks are drawn. Very respectfully, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis JAMES B. McDOUGAL Governor. SCHEDULE SHOWING WHEN THE PROCEEDS OF ITEMS WILL BECOME AVAILABLE EFFECTIVE JULY 15, 1916 AVAILABLE ON RECEIPT Chicago TWO BUSINESS DAYS AFTER RECEIPT Illinois (except Chicago) Indiana Iowa Michigan Wisconsin https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Atlanta, Ga. Boston, Mass. Cleveland, Ohio Dallas, Texas Kansas City, Kan. Kansas City, Mo. Minneapolis, Minn. New York City Philadelphia, Pa. Richmond, Va. Saint Louis, Mo. Saint Paul, Minn. FOUR BUSINESS DAYS AFTER RECEIPT San Francisco, Cal. Alabama Nebraska Arkansas New Hampshire Colorado New Jersey Connecticut New York (except New York City) Delaware North Carolina District of Columbia North Dakota Florida Ohio (except Cleveland) Georgia (except Atlanta) Oklahoma Kansas (except Kansas City) Pennsylvania (except Philadelphia) Kentucky Rhode Island Louisiana South Carolina Maine South Dakota Maryland Tennessee Massachusetts (except Boston) Texas (except Dallas) Minnesota (except Minneapolis Vermont Mississippi and Saint Paul) Virginia (except Richmond) Missouri (except Kansas City and West Virginia Saint Louis) EIGHT BUSINESS DAYS AFTER RECEIPT Arizona California (except San Francisco) Idaho Montana Nevada New Mexico Oregon Utah Washington Wyoming