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FED ER AL RESERVE B A N K
OF NEW YORK
[
Circular No. 1 0 ,0 5 0 ~|
June 23, 1986
|;
REDUCTION OF CHECK AND ACM FLOAT AND
STANDARD HOLIDAY SCHEDULE FOR RESERVE BANKS
— Amendments to Regulation J
— Modifications off Federal Reserve Bank Services
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has adopted amendments to its Regulation J — Check Collection and
Transfers of Funds — concerning the reduction and reallocation of check float and the collection of
foreign checks as well as some technical changes. In addition, the Board modified its automated clearing
house (ACH) procedures and adopted a standard holiday schedule for Reserve Banks.
One amendment to Regulation J, effective January 1, 1987, requires paying banks that voluntarily
close on nonstandard holidays to pay for checks made available to them on those days, or the paying
banks may elect to pay the Reserve Bank for the value of the float that occurs.
Other changes to the Regulation permit Reserve Banks to collect checks drawn on banks located in
foreign countries. This service will be provided on a limited basis. The technical changes relate primar
ily to a Reserve Bank’s liabilities regarding check collection and wire transfers of funds.
To reduce and reallocate ACH float generated from nonstandard holidays, the Board adopted modi
fications to Reserve Bank automated clearing house procedures, effective April 1,1987. In addition, the
Board approved a standard holiday schedule for the Reserve Banks to follow. Effective January 1,1987,
all Reserve Banks will be closed on standard holidays — the 10 national holidays.
Enclosed is a copy of the text of the amendments to Regulation I, and of the Board’s rules
on ACH float recovery procedures and on the standard Reserve Bank holiday schedule. Questions
regarding check matters may be directed to John F. Sobala, Assistant Vice President
(Tel. No. 212-791-5997); questions regarding ACH and wire transfer of funds matters may be
directed to Andrew Heikaus, Manager, Funds Transfer Department, (Tel. No. 212-791-5661).
E.
G e r a l d C o r r ig a n ,
President.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
COLLECTION OF CHECKS AND OTHER ITEMS
AND WIRE TRANSFERS OF FUNDS
AMENDMENTS TO REGULATION I
MODIFICATIONS OF FEDERAL RESERVE BANK SERVICES
(various effective dates)
notification of nonpayment
requirements of subpart A;
12 CFR Fu'rt 210
(3) Permit Reserve Banks to require
any prior indorser to defend a breach of
[0®@k©S Wes. ©§44, ^~©§gg, and R-0558J
indorsement warranty suit even if the
Reserve Bank has not been sued
Collection of Checks and Other Items
directly:
ami W wq Transfer®
Fond!®;
R@@y8ati®n «
j)
(4) Authorize Reserve Banks to collect
instruments drawn on payors located in
Board of Governors of the
foreign countries:
Federal Reserve System.
(5) Clarify that Reserve Banks are not
a c t i o n : Final rule.*
2
1
liable for consequential damages in
handling wire transfers of funds;
(6) Add the Commonwealth of the
SU M M A R Y : The Board has adopted nine
amendments to Regulation J. These
Northern Mariana Islands to the Twelfth
amendments will:
District for collection purposes;
(1) Permit the owner of a check or
(7) Adopt the definitions of the
other item who is allegedly injured by a
Uniform Commercial Code for terms
Reserve Bank's alleged failure to
that are used but not defined in
exercise ordinary care or act in good
Regulation J;
faith in collecting an item to bring an
(8) Effective January 1,1987, require
action against the Reserve Bank,
paying banks that close voluntarily on
regardless of whether that person is a
days that are banking days for their
“sender” as defined in Regulation J;
Reserve Banks to pay on such days for
(2) Establish, beginning on January 1,
cash items that Reserve Banks make
1990, a two-year limitation period for
available to them on such days;
actions against a Reserve Bank for
(9) Make permanent in slightly
alleged mishandling of items under
modified form the temporary
subpart A or wire transfer items or
requests under subpart B, and, beginning amendment adopted on October 3,1985,
creating a standard holiday schedule to
August 1,1986, a two-year limitation
be applied to Regulation J’s notification
period for actions against paying banks
for failure to comply with the
of nonpayment provision.
FEDERAL RESERVE SYSTEM
Items 1 through 7 were proposed for
comments on March 22,1985, 50 FR
12310 (Mar. 28,1985); item 8 was
proposed on November 18,1985, 50 FR
47772 (Nov. 20,1985); and item 9’s
temporary rule became effective on
October 3,1985, 50 FR 41335 (Oct. 10,
1985).
E F F E C T IV E D & T I S : The amendments are
effective on the following dates.
January 1,1987: § 210.9(a)
January 1,1990: | § 210.6(c) and
210.38(b)(2)
All other amendments take effect on
August 1,1986.
The amended rules will apply to
checks and other items (for amendments
to subpart A) or transfer items or
requests (for amendments to subpart B)
received by a Reserve Bank on or after
the applicable effective date.
F@!Hi F U R T H E R IN FO RM A T IO N C O N T A C T :
Earl G. Hamilton, Assistant Director,
Division of Federal Reserve Bank
Operations (202/452-3879); Joseph R.
Alexander, Attorney, Legal Division
(202/452-2489); or Earnestine Hill or
Dorothea Thompson,
Telecommunications Device for the Deaf
(TDD) (202/452-3544).
For this Regulation to be complete, retain:
1) Regulation J pamphlet, effective August 12, 1981.
2) Amendments, effective April 2, 1984 and October 1, 1985 (included in
slip sheet dated A p r il 1985).
3) This slip sheet.
PRINTED IN NEW YORK, FROM
[Enc. Cir. No. 10,050]
F E D E R A L R E G IS T E R ,
VOL. 51, NOS. 113 AND 115
SUPPLEM ENTARY INFORM ATION:
1. Reserve Bank Liability To Remote
Parties
S e c t io n 2 1 0 .6 (a ) o f R e g u la tio n J
p r e s e n t ly p r o v id e s th a t in c o lle c t in g
it e m s a R e s e r v e B a n k a c t s o n ly a s th e
a g e n t o f its s e n d e r (i.e ., th e d e p o s it o r y
in s titu tio n th a t fo r w a r d s a n ite m to a
R e s e r v e B a n k fo r c o ll e c t i o n ) a n d is n o t
a n a g e n t fo r a n y o th e r p a r ty in th e
tr a n s a c tio n . T h is r u le is r e fe r r e d to a s
th e “s e n d e r r u le ” . B e c a u s e th e lia b ilit y
o f a c o lle c t in g b a n k , s u c h a s a R e s e r v e
B a n k , is p r e d ic a t e d u p o n its s t a t u s a s
a g e n t, th is p r o v is io n h a s th e e f f e c t o f
in s u la tin g a R e s e r v e B a n k from lia b ilit y
in c o ll e c t i o n c a s e s from a ll p a r tie s
e x c e p t th e s e n d e r . A c c o r d in g ly , a th ird
p a r ty th a t d o e s n o t im m e d ia t e ly p r e c e d e
a R e s e r v e B a n k in th e c o ll e c t i o n p r o c e s s
c a n n o t b r in g a n a c t io n a g a in s t th e
R e s e r v e B a n k , e v e n if it is a b le to
d e m o n s t r a t e th a t is h a s b e e n in ju r e d b y
th e R e s e r v e B a n k ’s fa ilu r e to e x e r c i s e
o r d in a r y c a r e in h a n d lin g a n ite m . T h is
p r o v is io n h a s b e e n u p h e ld b y s e v e r a l
c o u r ts . See, e.g., C hilds v. F ed era l
R e se rv e Bank, 7 1 9 F .2 d 8 1 2 (5th Cir.
1 9 8 3 ).
U n d e r s e c t io n 4 -2 0 1 ( a ) o f th e U n ifo r m
C o m m e r c ia l C o d e ( “ U .C .C .’’), a
c o lle c t in g b a n k o th e r th a n a R e s e r v e
B a n k is a n a g e n t o r s u b a g e n t o f th e
o w n e r o f a n ite m . A c c o r d in g ly , th e
c o lle c t in g b a n k m a y b e h e ld l ia b le to
p a r t ie s o th e r th a n th e im m e d ia t e ly
p r e c e d in g p a r ty if i t s im p r o p e r h a n d lin g
o f a n ite m c a u s e s th e m h arm .
The sender rule dates from the 1 9 2 0 s,
before the state laws on check collection
wrere standardized. At that time, the
sender rule was in effect in a number of
states, and the U.S. Supreme Court had
previously approved the sender rule in
cases where federal law was to be
applied. See, E xchange N a tio n a l Bank v.
T hird N a tio n a l Bank, 112 U.S. 2 7 6 (1884);
s e e also, F ederal R e se rv e B ank v.
M alloy, 2 6 4 U.S. 1 6 0 ,1 6 4 (1 924). The
U.C.C., however, adopted a different
rule, and it is the U.C.C. rule that is now
almost universal.
The Board proposed to amend
Regulation } to delete the sender rule so
that Reserve Banks are subject to suit by
the same parties that may bring actions
against collecting banks, and to make it
clear that warranties made by collecting
banks and other prior parties under
state law run to Reserve Banks as well
as other collecting banks. All of the
commenters supported the Board’s
proposal, and the Board has adopted the
amendment as proposed.
2. Limitation Period
a. A ctio n A g a in st a R e se rv e Bank
R e g u la tio n J is s ile n t a s to th e tim e
lim its in w h ic h a p e r s o n m a y b r in g
a c tio n a g a in s t a R e s e r v e B a n k for
m is h a n d lin g c h e c k s or o th e r ite m s (in
su b p a r t A ) a n d w ir e tr a n sfe r ite m s or
r e q u e s t s (in su b p a r t B). C o n s e q u e n tly ,
c o u r ts m a y a p p ly s t a t e la w . T h is h a s
r e s u lte d in a la c k o f u n ifo r m tr e a tm e n t
a m o n g R e s e r v e B a n k s, s in c e a p p lic a b le
l a w s v a r y from s t a t e to s t a t e , 12a n d it is
o f t e n u n c le a r e v e n w ith in a s t a t e w h ic h
lim ita tio n p e r io d a p p lie s . S ee Bank o f
A m erica N. T. & S.A. v. S e c u rity P acific
N a tio n a l Bank, 23 C a l. A p p . 3d 6 3 8 ,1 0 0
C a l. R ep . 4 3 8 (1972): F irst S ta te Bank v.
Tanner, 4 9 5 S .W .2 d 267 (T e x . C iv. A p p .
1973). G iv e n th e id e n t ic a l fu n c tio n s
p e r fo r m e d b y R e s e r v e B a n k s a n d th e ir
o f f ic e s in c o lle c t in g c h e c k s a n d h a n d lin g
w ir e tr a n s fe r s , th e B o a r d p r o p o s e d to
e s t a b lis h a u n ifo r m t w o - y e a r lim ita tio n
p e r io d for th e c o m m e n c e m e n t o f a c t io n s
a g a in s t R e s e r v e B a n k s for m is h a n d lin g
c h e c k c o ll e c t i o n s a n d w ir e tr a n sfe r s .
F o r ty -o n e c o m m e n te r s r e s p o n d e d to
th is p r o p o s a l: 18 o f th e m (44 p e r c e n t)
su p p o r te d it; 23 (56 p e r c e n t) o p p o s e d it.
O p p o s in g c o m m e n t e r s b a s e d th e ir
o p p o s it io n la r g e ly o n th e ir b e l ie f th a t
th is p r o p o s a l r e p r e s e n t s a n a b u s e o f th e
F e d e r a l R e s e r v e ’s r e g u la to r y a u th o r ity
b y c r e a tin g a n a d v a n t a g e fo r R e s e r v e
B a n k s w h ic h is n o t e n j o y e d b y th e ir
p r iv a te s e c t o r c o u n te r p a r ts . O p p o s in g
c o m m e n te r s p o in te d o u t th a t p r iv a te
s e c to r c o lle c t in g b a n k s w o u ld n o t
r e c e iv e a n y b e n e f it fro m th is ru le, a n d
w o u ld s t ill b e s u b j e c t to lia b ilit y fo r u p
to s ix y e a r s . N e v e r t h e l e s s , m o s t o f th e
c o m m e n t e r s , e v e n t h o s e o p p o s e d to th is
p r o p o s a l, s u p p o r te d th e c o n c e p t o f a
u n ifo r m s t a t u t e o f l im it a t io n s fo r a ll
d e p o s it o r y in s t it u t io n s in v o l v e d in c h e c k
c o lle c t io n a n d w ir e tr a n s fe r c a s e s . T h is
is e s p e c ia l l y im p o r ta n t in lig h t o f th e
in c r e a s in g im p o r ta n c e o f in t e r s t a te
b a n k in g .
This proposal, like all the proposals
the Board is here adopting, was not
intended to give a competitive
advantage for Federal Reserve Banks
vis-a-vis private sector institutions.
Rather, the Board believes that the
present state of the law, as regards both
Reserve Banks and private sector
institutions, is unsatisfactory. While the
Uniform Commercial Code has
standardized the responsibilities and
liability of collecting banks throughout
the nation, there has as yet been no
attempt to standardize the time for
which institutions may be held liable for
mishandling checks. Thus, a collecting
bank in Massachusetts may be held
liable for three years, while one in
illinois id held liable for five years and
one in California is held liable for four
years,2 even though the plaintiffs’
actions against them may arise from
exactly the same kinds of actions.
This problem will intensify as
interstate banking becomes more of a
reality, and it could result in
inefficiencies in the check clearing
process if banks shift their clearing
operations to states with the most
favorable laws. The Board believes that
collecting banks, whether they are
Reserve Banks or private sector
correspondents, perform nearly identical
functions regardless of where they are
located, and should not be subject to
differing periods of liability merely
because of their location/
If a Reserve Bank does mishandle a
check or wire transfer, the results of the
mishandling should be apparent almost
immediately. Requiring the injured party
to sue within two years after the injury
occurs does not appear to impose any
significant hardship on any affected
parties. A two-year period provides an
adequate time for the institution
involved to identify the problem, and if
it cannot be resolved through
discussions with its Reserve Bank, to
bring an appropriate action against the
Reserve Bank. The Board further
believes that establishement of a twoyear limitation on actions against
Reserve Banks may serve as a model to
encourage state legislatures to enact
similar limitation periods.
In o r d e r to a d d r e s s th e i s s u e s o f
c o m p a r a b ilit y b e t w e e n R e s e r v e B a n k s
a n d c o lle c t in g b a n k s , o n e c o m m e n te r
s u g g e s t e d th a t th e B o a r d d e l a y th e
e f f e c t iv e n e s s o f th is a m e n d m e n t u n til
J a n u a ry 1 ,1 9 8 8 , to g iv e th e s t a t e s tim e to
a d o p t s im ila r le g is la t io n . T h e B o a r d
b e l i e v e s th a t th is is a u s e f u l a p p r o a c h —
it a l l o w s th e F e d e r a l R e s e r v e to
e n c o u r a g e a n im p r o v e m e n t in p a y m e n t s
la w , w h il e a t th e s a m e tim e a v o id in g th e
a p p e a r a n c e o f th e F e d e r a l R e s e r v e ’s
1 While state statutes of limitations sometimes
provide for specific limitations periods arising out of a b u s in g its r e g u la to r y a u th o r ity fo r
c o m p e tit iv e g a in th a t s o m e m a y s e e in
specific kinds of actions (seee.#.. Cal. Civ. Pro.
Code | 340.5 {W'est 1982). which provides that, with th is a c t io n . T h e B o a r d b e l ie v e s ,
certain exceptions, an action for professional
h o w e v e r th a t a J a n u a ry , 19 8 8 , e f f e c t iv e
negligence against a health care provider must be
d a t e w o u ld n o t g i v e th e s t a t e s s u ffic ie n t
commenced within the shorter of three years after
tim e to a c t, g iv e n th e u s u a l tim e fo r
the date of the injury, or one year after the plaintiff
either discovers the injury or should have
c h a n g e s in u n ifo r m l a w s , a n d , th e r e fo r e ,
discovered it through the use of reasonable
diligence), such statutes generally do not address
actions arising out of the collection of checks or the
transferring of funds by wire. Rather, such actions
are covered by more general statutes.
2
2 See. Mass. Gen. Laws Ann . ch. 20, § 2A (W esl
Supp. 1884): III. Stat. Ann. ch. 110, 1 13-205 (SmithHurd 1982): Cal. Civ. Proc. Code § 343 (W est 1982).
th e B o a r d is d e la y in g th e e f f e c t iv e d a te
o f th is a m e n d m e n t u n til J a n u a ry 1, 1990.
A c c o r d in g ly , th e B o a r d h a s
d e te r m in e d to a d o p t a t w o - y e a r
lim ita tio n , p e r io d for a c t io n s a g a in s t a
R e s e r v e B a n k for a lle g e d m is h a n d lin g o f
ite m s u n d e r s u b p a r t A or w ir e tr a n sfe r
ite m s or r e q u e s t s u n d e r su b p a r t B. T h is
a m e n d m e n t w ill ta k e e f f e c t o n Jan u ary
1 ,1 9 9 0 .
b. A ction A g a in st a P ayin g B ank fo r
Failure To G ive N o tic e o f N on p a ym en t
In F eb ru a ry , 1985, th e B o a r d a d o p te d
a n a m e n d m e n t to R e g u la tio n J r eq u irin g
p a y in g b a n k s to p r o v id e n o t ic e to
d e p o s it a r y b a n k s w h e n th e y retu rn
u n p a id la r g e -d o lla r it e m s p r e s e n t e d b y
R e s e r v e B a n k s. T h is a m e n d m e n t to o k
e f fe c t o n O c t o b e r 1 ,1 9 8 5 . In r e s p o n d in g
to th e B o a r d ’s p r o p o s a l, o n e c o m m e n te r
a s k e d w h a t s ta tu te o f lim it a t io n s
a p p lie d to th e d e p o s it a r y b a n k ’s c la im
a g a in s t th e p a y in g b a n k fo r fa ilu r e to
c o m p ly w ith th e n o t if ic a t io n
r e q u ir e m e n t. A s is th e c a s e w it h a c t io n s
a g a in s t a R e s e r v e B a n k , th e lim it a t io n s
p e r io d o f th e s t a t e in w h ic h th e p a y in g
b a n k is lo c a t e d w o u ld o r d in a r ily b e
a p p lie d .
The Board sought comment on
whether it would be appropriate to
establish a two-year limitation period
applicable to actions against a paying
bank for failing to make the required
notice of nonpayment. In the absence of
such a rule, the application of different
state limitation statutes could result in a
paying bank in one state being in
jeopardy for a longer period than a
paying bank in another state even
though both would be alleged to have
violated a uniform requirement of a
federal regulation in exactly the same
way.
T h e c o m m e n te r s o v e r w h e lm in g ly
s u p p o r te d th e p r o p o s a l. O f th e 32
r e s p o n d e n t s c o m m e n tin g o n th is is s u e ,
26 (81 p e r c e n t) s u p p o r te d it.
Those commenters opposing the
proposal generally believed that the
limitation period for the notice of
nonpayment requirement should be
consistent with the limitation period for
actions against Reserve Banks, and that
both should be consistent with state
law.
The Board believes the notification
requirement should be applied
uniformly, and that it should not work in
conjunction with varying state laws to
subject some persons to liability longer
than others. Accordingly, the Board has
adopted the proposed amendment.
3. Tender of Defense
S e c t io n 2 1 0 .5 o f R e g u la tio n J
e s t a b l i s h e s a p r o c e d u r e th a t a l lo w s a
R eserv e Bank, w h en su ed b y a
s u b s e q u e n t c o lle c t in g or p a y in g b a n k , to
d e m a n d th a t th e s e n d e r u n d e r ta k e
d e f e n s e o f th e a c t io n . T h is " te n d er o f
d e f e n s e " p r o v is io n s im p lif ie s fo r g ed
in d o r s e m e n t c a s e s b y r eq u irin g th e
p a r ty th a t s h o u ld h a v e o b t a in e d a
p r o p e r in d o r s e m e n t to c o m e in to th e
a c t io n a n d d e f e n d .3 T h is p r o v is io n ,
h o w e v e r , a p p lie s o n ly w h e n th e a c t io n
h a s b e e n b r o u g h t d ir e c tly a g a in s t a
R e s e r v e B a n k . L itig a tio n m a y b e
r e d u c e d b y e lim in a tin g th e r e q u ir e m e n t
th a t a n a c t io n m u s t b e b ro u g h t a g a in s t a
R e s e r v e B a n k b e f o r e d e f e n s e is te n d e r e d
b y a R e s e r v e B a n k to a p rior p a rty .
A c c o r d in g ly , th e B o a r d s o u g h t c o m m e n t
o n a p r o p o s e d a m e n d m e n t th a t w o u ld
a c c o m p lis h th is r e s u lt.
T h e p r o p o s e d a m e n d m e n t a ls o
in c o r p o r a te d a p r o v is io n fo u n d in th e
u n ifo rm p r o v is io n s o f th e R e s e r v e
B a n k s ’ o p e r a tin g c ir c u la r s o n th e
c o lle c t io n o f c a s h it e m s th a t p r o v id e s
th a t i f a R e s e r v e B a n k te n d e r s d e f e n s e
o f a n a c t io n to a p r io r p a r ty , th e R e s e r v e
B a n k is n o t r e s p o n s ib le for d e f e n d in g
th e a c tio n .
T h ir ty -s ix c o m m e n t s w e r e r e c e iv e d o n
th e p r o p o s a l; 28 (78 p e r c e n t] o f ib e m
su p p o r te d th e p r o p o s a l as eliminating
m u ltip le la w s u it s . T h e e ig h t c o m m e n t s
o p p o s in g th e p r o p o s a l g e n e r a lly th o u g h t
th a t R e s e r v e B a n k s w o u ld b e g iv e n a n
u n fa ir a d v a n t a g e o v e r p r iv a te s e c to r
b a n k s b e c a u s e o f th e ir a b ilit y to r e c o v e r
th e a m o u n t o f th e ir lia b ilit y b y c h a r g in g
th e s e n d e r ’s a c c o u n t .
T h e B o a r d b e l i e v e s th a t th e p r o p o s a l
w ill p r o v id e a m o r e e f fic ie n t w a y o f
h a n d lin g fo r g e d in d o r s e m e n t c a s e s .
F u rth er, th e B o a r d a l s o b e l i e v e s th a t
a d o p t io n o f th e p r o p o s a l w ill n o t r e s u lt
in a s ig n if ic a n t i n c r e a s e d a d v a n t a g e for
R e s e r v e B a n k s o v e r c o m p e tin g p r iv a te
se c to r b a n k s. T h e R e se r v e B an k s
a lr e a d y h a v e th e righ t to c h a r g e b a c k
u n d e r p r e s e n t p r o c e d u r e s ; th is
a m e n d m e n t w o u ld m e r e ly a d d a
r e la t iv e ly lim ite d c l a s s o f c a s e s to t h o s e
in s t a n c e s w h e n th e c h a r g e -b a c k w o u ld
b e a p p lie d u n d e r th e c u r re n t r e g u la tio n .
F u rth er, m a n y p r iv a te s e c to r in s t it u t io n s
w o u ld b e c o lle c t in g c h e c k s o n ly for
p a r tie s th a t h a v e a c c o u n t s w ith th e m
(e.g . o th e r b a n k s or in d iv id u a ls or
c o r p o r a te d e p o s it o r s ) , a n d c o u ld
e x e r c i s e a b a n k e r ’s righ t o f s e t - o f f to
r e c o v e r a m o u n ts th a t th e y h a d b e e n
h e ld lia b le for, th u s a p p r o x im a tin g th e
R e s e r v e B a n k s ’ righ t to c h a r g e b a c k .
3 A similar provision is found in U.C.C. § 3-803.
The U.C.C. provision differs from the Regulation |
tender provision in that the U.C.C. allow s the
person tendered defense to require other prior
parties to defend the action. The U.C.C. provision
also does not clearly permit the person tendering
defense to recover the amount of the judgment and
expenses of litigation by charging the prior
indorser's account.
3
4.
D e p o s it o f F o r e ig n I te m s
R e g u la tio n J d e f in e s th e term “ it e m ” to
in c lu d e o n ly in s tr u m e n ts p a y a b le w ith in
a F e d e r a l R e s e r v e D istr ic t. F e d e r a l
R e s e r v e D is tr ic ts in c lu d e th e U n ite d
S t a t e s , P u erto R ic o , th e U .S . V ir g in
I s la n d s . G u a m , a n d A m e r ic a n S a m o a .4
T h is d e fin it io n e f f e c t iv e l y e x c l u d e s from
th e c o v e r a g e o f R e g u la tio n J in s tr u m e n ts
d r a w n o n p a y o r s l o c a t e d o u t s id e th e
U n ite d S t a t e s , a n d c o n s e q u e n t ly
R e s e r v e B a n k s d o n o t c o ll e c t s u c h
in str u m e n ts . M a n y s m a lle r in s t it u t io n s
h a v e in d ic a te d th a t th is r e s tr ic tio n
im p o s e s s u b s t a n t ia l h a r d s h ip s o n th e m ,
b e c a u s e it r e q u ir e s th e m to m a in ta in a
s e p a r a t e r e la tio n s h ip w ith a
c o r r e s p o n d e n t b a n k th a t w o u ld h a n d le
fo r e ig n ite m s , a n d b e c a u s e fo r e ig n ite m s
in a d v e r te n tly s e n t to a R e s e r v e B a n k a re
retu rn ed b y th e R e s e r v e B a n k , c a u s in g
u n d u e d e la y . C o n s e q u e n tly , th e y h a v e
r e q u e s te d th a t R e s e r v e B a n k s c o lle c t
s u c h ite m s in o r d e r to r e d u c e th e
o p e r a tin g b u r d e n th e c u r re n t lim ita tio n
im p o s e s .
A c c o r d in g ly , th e B o a r d p r o p o s e d a n
a m e n d m e n t to R e g u la tio n J th a t w o u ld
a l lo w d e p o s it o r y in s t it u t io n s to d e p o s it
w ith th e ir R e s e r v e B a n k s it e m s p a y a b le
in fo r e ig n c o u n tr ie s . A t th e tim e th e
B o a r d p r o p o s e d th e a m e n d m e n t, B o a r d
an d R e se r v e B an k sta ffs h a d n ot
d e v e lo p e d a p r o p o s a l th a t w o u ld a d d
th e c o lle c t io n o f fo r e ig n it e m s to th e
p r ic e d s e r v ic e s o f f e r e d b y th e R e s e r v e
B a n k s. T h u s, th e p r o p o s e d a m e n d m e n t
d id n o t s p e c if y a p a r tic u la r s e r v ic e
a r r a n g e m e n t, b u t w o u ld m e r e ly c le a r th e
r e g u la to r y o b s t a c l e to th e s e r v ic e ’s
im p le m e n ta tio n .
F o rty -se v e n c o m m e n te r s a d d r e sse d
th is p r o p o s a l, 2 6 (55 p e r c e n t) o p p o s e d it,
w h ile 21 (45 p e r c e n t) s u p p o r te d it.
T h e n e g a t iv e c o m m e n t e r s g e n e r a lly
a r g u e d th a t, c o n tr a r y to th e B o a r d ’s
c rite r ia for th e in tr o d u c tio n o f n e w
s e r v ic e s ; th e F e d e r a l R e s e r v e h a d n o t
d e m o n s t r a t e d a n y n e e d fo r a fo r e ig n
c o lle c t io n s e r v ic e , a n d th a t th e F e d e r a l
R e s e r v e w a s u s in g fo r e ig n c o ll e c t i o n s a s
a m e a n s o f g a in in g m a r k e t s h a r e .
C o n s e q u e n tly , if th e B o a r d a d o p t e d th e
n e w s e r v ic e it w o u ld b e a b u s in g its
r e g u la to r y p o w e r in o r d e r to a d v a n c e
th e R e s e r v e B a n k s ’ b u s i n e s s in t e r e s t s .
S e v e r a l c o m m e n te r s a l s o s a i d th a t th e
B o a r d h a d n o t p r o v id e d s u f f ic ie n t d e t a il
in its p r o p o s a l r e g a r d in g s u c h i s s u e s a s '
o p e r a tio n a l p r o c e d u r e s a n d p r ic e s .
A fte r r e v ie w in g th e c o m m e n t s , B o a r d
an d R e se rv e B a n k sta ffs u n d e rto o k a n
e ffo r t to d e f in e th e p r o p o s e d s e r v ic e
fu rth er in lig h t o f th e c o m m e n t e r s
■ After Board action today, the Northern Mariana
*
Islands also are within a Federal Reserve District
c o n c e r n s . T h e B o a r d b e l i e v e s th a t a
lim ite d s e r v ic e w ill m e e t th e o b j e c t io n s
to a m o re c o m p r e h e n s iv e F e d e r a l
R e s e r v e fo r e ig n c o lle c t io n s e r v ic e .
A c c o r d in g ly , th e B o a r d h a s a p p r o v e d
th e p r o p o s e d a m e n d m e n t to R e g u la tio n
J. a n d is s im u lt a n e o u s ly a d o p t in g a
p o lic y a p p lic a b le to F e d e r a l R e s e r v e
B a n k s u n d e r w h ic h th e c o ll e c t i o n o f
fo r e ig n ite m s w ill b e a n i n c id e n t a l
s e r v ic e o r ie n t e d to w a r d e x is t in g
d e p o s it o r s . U n d e r th is p o lic y :
1. E a c h R e s e r v e B a n k w ill h a v e th e
o p tio n to o ffe r th e s e r v ic e , a n d w ill
d e te r m in e w h ic h fo r e ig n it e m s it w ill
c o ll e c t fo r its d e p o s it o r s .
2. F o re ig n it e m s w ill b e a c c e p t e d o n ly
a s a n in c id e n t a l s e r v ic e fr o m r e g u la r
d e p o s it o r s o f d o m e s t ic it e m s . F u rth er,
R e s e r v e B a n k s w ill n o t p r o m o te th is
s e r v ic e in d e p e n d e n t ly o f r e g u la r c h e c k
c o ll e c t i o n s e r v ic e s .
3. E a c h R e s e r v e B a n k o ffe r in g th e
s e r v ic e w ill s o lic it w r it te n p r o p o s a ls
fro m d e p o s it o r y in s t it u t io n s in t e r e s t e d
in c o lle c t in g fo r e ig n it e m s for th e
R e se rv e B ank.
T h e d e p o s it o r y in s t it u t io n s s h o u ld b e
a s k e d to s p e c if y th e te r m s fo r th e ir
s e r v ic e , in c lu d in g p e r ite m f e e s ,
a v a ila b ilit y , e x c h a n g e r a te s , a n d o th e r
fa c to r s d e e m e d im p o r ta n t b y th e
R e s e r v e B a n k . T h e R e s e r v e B a n k w ill
th e n s e l e c t a n in s t it u t io n b a s e d u p o n th e
R e s e r v e B a n k ’s d e t e r m in a t io n o f th e
b e s t c o m b in a t io n o f te r m s a v a i la b le
a m o n g th e p r o p o s a ls . N o c o n t r a c t w it h a
c o r r e s p o n d e n t in s t it u t io n fo r fo r e ig n
c o ll e c t i o n s w ill b e for a p e r io d o f m o r e
th a n t w o y e a r s , a fte r w h ic h tim e th e
R e s e r v e B a n k w ill s o lic it n e w p r o p o s a ls .
4. R e s e r v e B a n k p r ic e s w ill b e b a s e d
o n th e p r ic e s a n d te rm s o b t a in e d fro m
th e s o lic it a t io n p r o c e s s . A R e s e r v e
B a n k ’s p r ic e w ill in c lu d e th e f e e s p a id to
th e c o r r e s p o n d e n t a n d th e R e s e r v e
B a n k ’s fu ll c o s t s fo r h a n d lin g th e ite m .
T h e P S A F w ill b e a p p lie d to th e
a p p r o p r ia te R e s e r v e B a n k c o s t s : it n e e d
n o t b e a p p lie d to th e c o r r e s p o n d e n t ’s
f e e s , w h ic h a lr e a d y w ill in c lu d e th e
c o s t s (s u c h a s t a x e s a n d retu rn o n
c a p ita l) im p u te d w it h th e P S A F .
B e c a u s e o f th e lim ite d n a tu r e o f th is
n e w s e r v ic e , th e B o a r d d o e s n o t e x p e c t
th a t it w ill h a v e a n y s ig n if ic a n t lo n g -r u n
e f f e c t s o n th e n a t io n ’s p a y m e n t s s y s t e m ,
a n d a c c o r d in g ly it is n o t n e c e s s a r y
u n d e r th e B o a r d ’s p r ic in g p r in c ip le s to
p u b lis h for p u b lic c o m m e n t th e p r ic e s
a n d s e r v ic e a r r a n g e m e n ts .
5. Damages ffor Wire Transfers
R e g u la tio n J c u r r e n tly p r o v id e s th a t a
R e s e r v e B a n k m a y b e l ia b le fo r d a m a g e s
if it f a ils to e x e r c i s e o r d in a r y c a r e o r a c t
in g o o d fa ith in h a n d lin g a w ir e tr a n s fe r
o f fu n d s . R e g u la tio n J, h o w e v e r , d o e s n o t
c le a r ly s p e c if y th a t a R e s e r v e B a n k is
lia b le o n ly for d ir e c t d a m a g e s a n d is n ot
lia b le for c o n s e q u e n t ia l d a m a g e s .
T h e B o a r d p r o p o s e d to a m e n d
R e g u la tio n J to lim it a R e s e r v e B a n k 's
lia b ilit y for m is h a n d lin g w ir e tr a n sfe r
ite m s a n d r e q u e s t s to d a m a g e th a t is
d ir e c tly a n d im m e d ia t e ly a ttr ib u ta b le to
th e m is h a n d lin g a n d to m a k e it c le a r
th a t a R e s e r v e B a n k w ill n o t b e lia b le
for c o n s e q u e n t ia l d a m a g e s .
O f th e 38 c o m m e n t s r e c e iv e d o n th is
p r o p o s a l, 25 (66 p e r c e n t) s u p p o r te d it,
w h ile 13 (34 p e r c e n t) w 'ere o p p o s e d .
T h o s e o p p o s in g the p r o p o s a l g e n e r a lly
a c k n o w le d g e d th a t in s t it u t io n s h a v e
a m e n d e d th eir c o n t r a c t s w ith c u s to m e r s
to a v o id lia b ilit y for c o n s e q u e n t ia l
d a m a g e s , b u t s a id th a t c o n tr a c tu a l
a r r a n g e m e n ts c o u ld n o t p r o v id e th e m
w ith th e s a m e l e v e l o f s e c u r it y th a t a
fe d e r a l r e g u la tio n w o u ld p r o v id e to th e
R e s e r v e B a n k s. T h e r e fo r e , a d o p t io n o f
th e a m e n d m e n t w o u ld g iv e a n
a d v a n t a g e to th e R e s e r v e B a n k s th a t
r e s u lt s from th e e x e r c i s e o f r e g u la to r y
a u th o r ity a n d n o t th e c o m p e tit iv e m e r its
o f th e F e d w ir e s e r v ic e .
T h e B o a r d b e l i e v e s th a t t h e s e
o b j e c t io n s a re n o t w e l l fo u n d e d . E v e n
t h o s e th a t o p p o s e d th is a m e n d m e n t
g e n e r a lly a c k n o w le d g e d th a t th e
s ta n d a r d th a t th e p r o p o s a l s e e k s to
a c h i e v e for th e R e s e r v e B a n k s is th e
s ta n d a r d o f th e in d u str y , a n d th e B o a r d
d o e s n o t b e l ie v e th a t it w o u ld b e
a p p r o p r ia te for R e s e r v e B a n k s to b e a r a
s u b s t a n t ia lly g r e a te r r is k o f l ia b ilit y
th a n th e r e s t o f th e b a n k in g in d u str y .
A lth o u g h it m a y b e tru e th a t a f e d e r a l
r e g u la tio n w o u ld p r o v id e m o r e
p r o te c tio n to a R e s e r v e B a n k th a n a
s im ila r p r o v is io n in a w ir e tr a n s fe r
a g r e e m e n t w o u ld p r o v id e to p r iv a te
s e c to r in s t it u t io n s , th e B o a r d d o e s n o t
b e l ie v e th a t th is is s u f f ic ie n t r e a s o n for
n o t g o in g fo r w a r d w it h a d e s ir a b le
c h a n g e to R e g u la tio n J. A s w it h th e
p r o p o s a l r e g a r d in g th e p e r io d d u rin g
w h ic h a c t io n s m a y b e c o m m e n c e d
a g a in s t a R e s e r v e B a n k for m is h a n d lin g
c h e c k s a n d w ir e tran sfer's, th e B o a r d
b e l i e v e s th a t th is c o n c e p t is a d e s ir a b le
o n e for th e in d u s tr y a s a w h o le , a n d , to
th e e x t e n t th a t in s t it u t io n s tr a n s m ittin g
w ir e tr a n s fe r s o n th e b e h a l f o f
c u s to m e r s c a n n o t p r o te c t t h e m s e l v e s
th ro u g h a g r e e m e n t s , s t a t e l a w s s h o u ld
b e a m e n d e d to in s u la t e tr a n sm ittin g
b a n k s from l ia b ilit y fo r c o n s e q u e n t ia l
d a m a g e s in th e a r e a o f w ir e t r a n s f e r s .5*
5 While the law has not been completely settled
on this point, a leading case holds that
consequential damages may not be awarded unless
the transmitting bank is put on notice of the special
circumstances giving rise to them. E v r a C o r p . v.
S w i s s B a n k C o r p .. 673 F.2d 951 (7th Cir. 1982). The
Board, however, does not believe that this is a
practical solution. It is not clear what kind of
information would have to be available to the
4
T h e B o a r d b e l i e v e s th a t it c a n b e s t
in d u c e t h e s e c h a n g e s b y ta k in g th e le a d
a n d a d o p tin g th is p r o p o s a l.
r
6. N o r th e r n M a ria n a I s la n d s
T h e S a n F r a n c is c o R e s e r v e B a n k h a d
r e c e iv e d a r e q u e s t from a b a n k in th e
N o r th e r n M a r ia n a I s la n d s for a r o u tin g
n u m b e r s o th a t c o lle c t in g b a n k s c o u ld
a u t o m a t ic a lly p r o c e s s c h e c k s d r a w n o n
it. B e c a u s e th e N o r th e r n M a r ia n a s a re
n o t n o w lo c a t e d in a n y F e d e r a l R e s e r v e
D is tr ic t fo r c o lle c t io n p u r p o s e s .
R e g u la tio n J w o u ld h a v e to b e a m e n d e d .
B e c a u s e o f p r e c e d e n t in a m e n d m e n t s to
R e g u la tio n J th a t r e d e fin e d th e T w e lf t h
D is tr ic t to in c lu d e G u a m a n d A m e r ic a n
S a m o a , th e B o a r d p r o p o s e d to in c lu d e
th e N o r th e r n M a r ia n a I s la n d s w it h in th e
T w e lf t h D istr ic t.
r
T h e r e w a s n o o p p o s it io n to th e
p r o p o s a l in th e p u b lic c o m m e n ts , a n d
th e B o a r d h a s a d o p t e d it.
7. Incorporating U.C.C. Definitions
R e g u la tio n J d e f in e s s e v e r a l te rm s
u s e d in th e r e g u la tio n . F or th e m o s t p a rt,
t h e s e d e f in it io n s d e f in e te rm s th a t a re
n o t fo u n d in th e U .C .C . (e.g ., “p a y in g
b a n k " a n d “s e n d e r " ) or d e f in e te r m s
d if f e r e n t ly th a n th e U .C .C . d o e s (e.g .,
“ b a n k " ). O th e r te rm s, h o w e v e r , a r e n o t
d e f in e d in R e g u la tio n ), s u c h a s “g o o d
fa it h ,” “p r e s e n t m e n t ,” a n d “h o ld e r ." A s
t h e s e te r m s a r e u s e d w ith o u t e x p lic it
d e fin itio n , th e B o a r d p r o p o s e d to a m e n d
R e g u la tio n J to a d o p t th e t e r m in o lo g y o f
th e U .C .C . w h e r e it is n o t in c o n s is t e n t
w it h th e d e f in it io n s s p e c i f ic a l ly
p r o v id e d in th e r e g u la tio n or wrh e r e th e
c o n t e x t d o e s n o t r e q u ir e a d iffe r e n t
in te r p r e ta tio n .
r
T h e r e w a s n o s ig n if ic a n t o p p o s it io n to
th is p r o p o s a l in th e p u b lic c o m m e n ts ,
a n d th e B o a r d h a s a d o p t e d it.
®. Holiday Schedule for Notice of
Nonpayment Provision
In O c to b e r , 1985, th e B o a r d a d o p t e d
a s a n in te r im ru le a n a m e n d m e n t to
R e g u la tio n J th a t d e f in e d a h o lid a y
s c h e d u le for p u r p o s e s o f th e r e q u ir e m e n t
th a t p a y in g in s t it u t io n s g iv e n o t ic e o f
n o n p a y m e n t for la r g e -d o lla r c h e c k s
d ir e c t ly to th e d e p o s it a r y b a n k . T h e
h o lid a y s a d o p t e d b y th e B o a r d in c lu d e
a ll S a t u r d a y s a n d S u n d a y s a n d th e ten-’
f
Reserve Bank, or how the Reserve Bank would have
to be informed: nor is it clear whether the Reserve
Bank would be in a position to evaluate the
information that the customer provided Rather, the
Board believes that the customer originating the
transfer is in the best position to know of the
consequences of a failure to make a timely payment,
and that customer should be required to take
prudent steps to avoid these consequences and
should bear the risks if those steps prove to be
inadequate.
v
G
holidays observed by the federal
government.6
O n e s ig n if ic a n t is s u e th a t w a s r a is e d
b y th e c o m m e n te r s c o n c e r n e d th e
tr e a tm e n t o f f ix e d - d a t e h o lid a y s (su c h
a s July 4 ) f a llin g o n S a tu r d a y or S u n d a y .
U n d e r th e te m p o r a r y ru le, a h o lid a y
fa llin g o n a S u n d a y w o u ld b e o b s e r v e d
o n th e f o llo w in g M o n d a y , a n d o n e
fa llin g o n a S a tu r d a y w o u ld b e o b s e r v e d
o n th e p r e v io u s F r id a y . T h e c o m m e n te r s
a g r e e d w it h th e tr e a tm e n t o f h o lid a y s
fa llin g o n S u n d a y s , b u t s e v e r a l s a i d th a t
u s u a l b a n k in g in d u s tr y p r a c tic e w a s n o t
to c l o s e o n th e p r e v io u s F r id a y if th e
h o lid a y f a lls o n a S a tu r d a y . T h e y a ls o
p o in te d o u t th a t, fo r e x a m p le , F rid a y ,
D e c e m b e r 31, w o u ld p r o b a b ly b e a n
im p o r ta n t b u s i n e s s d a y fo r c u s to m e r s ,
a n d th a t it w o u ld b e u s e fu l to g e t
n o t if ic a t io n o f n o n p a y m e n t o n s u c h
d ays.
T h e B o a r d a g r e e s w it h t h e s e
c o m m e n ts , a n d , in m a k in g th e te m p o r a r y
ru le fin a l, it h a s a m e n d e d th e r u le b y
d e le t in g th e c la u s e th a t p r o v id e s th a t a
f ix e d - d a t e h o lid a y f a llin g o n a S a tu r d a y
w ill b e o b s e r v e d o n th e p r e v io u s
F r id a y .7
9.
N o n s ta n d a r d H o lid a y F lo a t
In N o v e m b e r , 1 985, th e B o a r d
p r o p o s e d th a t R e g u la tio n J b e m o d ifie d
s o th a t a p a y in g in s titu tio n e le c t in g to
c lo s e o n a v o lu n ta r y n o n s t a n d a r d
h o lid a y w o u ld b e g iv e n th e o p t io n o f
a c c e p t in g th e d e b it fo r c h e c k s th a t
w o u ld h a v e b e e n p r e s e n t e d to it i f it
w e r e o p e n fo r b u s i n e s s o r p a y in g for th e
v a lu e o f th e f lo a t .8 T h e B o a r d n o t e d th a t
th e in c r e a s in g p r e v a le n c e o f in te r s ta te
b a n k in g c r e a t e d th e p o t e n t ia l for
i n c r e a s e s in s u c h flo a t, a n d th a t c u r re n t
p r o c e d u r e s fo r d e fe r r in g c r e d it to
s e n d e r s for n o n s t a n d a r d h o lid a y flo a t
a r e g e n e r a lly lim ite d to t h o s e in s t a n c e s
w h e r e a ll b a n k s in a s t a t e - a r e c lo s e d .9
9 In a related action today, the Board approved a
Reserve Bank proposal to adopt a standard holiday
schedule beginning in 1987.
1 This treatment conforms to the standard
Reserve Bank holiday schedule referred to in note 7.
8 Daily average nonstandard holiday float in cash
item collection services is now approximately $5
million.
9 The Board noted in its original proposal, 50 FR
47,772 (Nov. 20.1985), that the Delaware State Bank
Commissioner permits banks located in that state to
close on any day they choose, provided they give
the public advanced notice. Banks with affiliates in
other states may take advantage of this fact to close
on days that their out-of-state affiliates are closed,
regardless of whether other banks in Delaware are
closed, and regardless of whether the Philadelphia
Reserve Bank is observing the holiday. The Board
noted that this situation creates the potential for
substantial increases in nonstandard holiday float,
and that cases like this are likely to increase as
interstate banking becomes more prevalent.
Against this background, the Board
proposed to require paying banks that
voluntarily close on nonstandard
holidays to pay for cash items made
available to them on such days. If the
nonstandard holiday is mandatory, the
paying bank would not have to pay for
items made available by its Reserve
Bank.
lo c a lly . E a c h R e s e r v e B a n k w h o s e
D istr ic t c o n t a in s s t a t e s o b s e r v in g
m a n d a to r y n o n s ta n d a r d h o lid a y s s h o u ld
p u b lis h a s a n a p p e n d ix to its o p e r a tin g
c ir c u la r o n th e c o lle c t io n o f c a s h ite m s a
lis t o f m a n d a to r y n o n s ta n d a r d h o lid a y s
o b s e r v e d in its D istr ic t.
B e c a u s e it is d iffic u lt to d is tin g u is h
b e t w e e n m a n d a to r y a n d v o lu n ta r y
h o lid a y s , a p r e lim in a r y lis t o f p r o p o s e d
m a n d a to r y n o n s ta n d a r d h o lid a y s w a s
is s u e d a s p art o f th e B o a r d ’s r e q u e s t for
p u b lic c o m m e n t. In o r d e r to p r o v id e
s u f f ic ie n t tim e to id e n tify a ll m a n d a to r y
h o lid a y s , a n im p le m e n ta tio n d a t e o f
J a n u a ry 1 ,1 9 8 7 , w a s p r o p o s e d .
F o r ty -th r e e o f th e 45 c o m m e n te r s o n
th is p r o p o s a l s u p p o r te d it. T w o
c o m m e n t s o p p o s e d th is p r o p o s a l, a lb e it
fo r d iffe r e n t r e a s o n s . O n e c o m m e n te r
s u g g e s t e d th a t th e p r o p o s a l w a s u n fa ir
to s m a ll, rural b a n k s ; th e o th e r
c o m m e n t e r s u g g e s t e d th a t th e p r o b le m
o f in t e r s t a te b a n k in g , w h ic h in c r e a s e s
th e p o t e n t ia l for n o n s t a n d a r d h o lid a y
flo a t, is u n iq u e to D e la w a r e a n d , a s
su c h , th e p r o p o s a l s h o u ld o n ly a p p ly to
in s t it u t io n s in th a t s t a t e .
T h e B o a r d d o e s n o t b e l ie v e th a t th e
p r o p o s a l i s u n fa ir to sm a ll, rural b a n k s
or o th e r in s titu tio n s . S o m e in s t it u t io n s
m a y o b s e r v e m o r e v o lu n ta r y
n o n s t a n d a r d h o lid a y s th a n o th e r s , b u t
th e B o a r d b e l ie v e s th a t th is is a
v o lu n ta r y d e c is io n m a d e b y th e
in s t it u t io n s , a n d it is r e a s o n a b le th a t th e
in s t it u t io n s b e m a d e r e s p o n s ib le fo r th e
f lo a t in c u r r e d b y th e ir a c t io n s . T h e
B o a r d a l s o b e l i e v e s th a t a n a t io n a l
p o lic y to d e a l w ith flo a t r e s u ltin g from
th e o b s e r v a n c e o f v o lu n ta r y
n o n s t a n d a r d h o lid a y s is a p p r o p r ia te
g i v e n th e e x p a n s io n o f in te r s ta te
b a n k in g th r o u g h o u t th e U n ite d S t a t e s .
A c c o r d in g ly , th e B o a r d h a s a p p r o v e d
th e p r o p o s e d a m e n d m e n t to R e g u la tio n J
th a t w ill g iv e a p a y in g b a n k e le c t in g to
c l o s e o n a v o lu n ta r y n o n s ta n d a r d
h o lid a y th e o p tio n o f a c c e p t in g th e d e b it
fo r c a s h ite m s th a t w o u ld h a v e b e e n
p r e s e n t e d to it if it h a d b e e n o p e n for
b u s i n e s s or o f p a y in g for th e v a lu e o f th e
flo a t.
R e g a r d in g th e B o a r d 's r e q u e s t for
c o m m e n t o n a p r e lim in a r y lis t o f
m a n d a to r y n o n s ta n d a r d h o lid a y s , a
n u m b e r o f c o m m e n te r s o ffe r e d
s u g g e s t io n s for c h a n g in g or a d d in g to
th e lis t. S u g g e s t io n s w e r e m a d e to a d d
P a tr io t’s D a y , S e w a r d 's D a y , E a s te r
M o n d a y , A la s k a D a y , a n d th e d a y a fte r
C h r is tm a s to th e lis t o f m a n d a to r y
n o n s t a n d a r d h o lid a y s for v a r io u s s t a t e s .
T h e B o a r d b e l ie v e s th a t s o m e o f th e
h o lid a y s m a y in fa c t b e m a n d a to r y , b u t
th a t t h e s e is s u e s s h o u ld b e r e s o lv e d
T h e B o a r d d o e s n o t b e l ie v e th a t t h e s e
a m e n d m e n t s w ill h a v e a s ig n ific a n t
e c o n o m ic im p a c t o n a s u b s t a n t ia l
n u m b e r o f s m a ll b u s i n e s s e s or
o r g a n iz a t io n s .
5
R e g u la to r y F le x ib ilit y A n a ly s is
L ist o f S u b j e c t s in 12 C F R P art 2 1 0
Banks, banking, Federal Reserve
System.
P A R T 2 1 0 — [AMENDED]
P u r su a n t to its a u th o r ity u n d e r s e c t io n
13 o f th e F e d e r a l R e s e r v e A c t, 12 U .S .C .
342; s e c t i o n 1 6 o f th e F e d e r a l R e s e r v e
A c t, 12 U .S .C . 2 4 8 (o ) a n d 360; s e c t io n
l l ( i ) o f th e F e d e a l R e s e r v e A c t, 12 U .S .C .
248(i); s e c t i o n 1 9 (f), 12 U .S .C . 464; a n d
o th e r p r o v is io n s o f la w , th e B o a r d
h e r e b y a m e n d s 12 C FR P art 210,
R e g u la tio n J, a s s e t fo r th b e lo w :
1. T h e a u th o r ity c it a t io n for P art 210
c o n t in u e s to r e a d a s f o llo w s :
A uthority: Fed eral R eserve A ct, sec. 1 3 ,1 2
U.S.C. 342; s e c. l l ( i ) , 12 U .S.C. 248(i) sec. 16,
12 U.S.C. 248(o) and 360; and sec. 19(f), 12
U .S.C. 464.
2. B y a d d in g a n e w u n d e s ig n a t e d
p a r a g r a p h to th e e n d o f § 210.2, a n d b y
r e v is in g f o o t n o t e 1 to r e a d a s fo llo w s :
§210.2 Definitions.
*
*
w
*
*
U n le s s th e c o n t e x t o t h e r w is e r e q u ir e s,
th e te r m s n o t d e f in e d h e r e in h a v e th e
m e a n in g s s e t fo r th in th e U n ifo r m
C o m m e r c ia l C o d e .
1 For purpose of this subpart, the Virgin
Islands and Puerto Rico are d eem ed to be in
the S econ d District, and Guam, American,,
Sam oa, and the Northern M ariana Islands in
the T w elfth District.
3. In § 210.3, n e w p a r a g r a p h (e) is
a d d e d to r e a d a s f o llo w s :
§210.3 Genera! provisions.
(e) F o reign item s. A R e s e r v e B a n k
a l s o m a y r e c e iv e a n d h a n d le c e r ta in
ite m s p a y a b le o u t s id e a F e d e r a l R e s e r v e
D is tr ic t, a s p r o v id e d in its o p e r a tin g
c ir c u la r s . T h e h a n d lin g o f s u c h ite m s in
a s t a t e is g o v e r n e d b y th is su b p a r t, a n d
th e h a n d lin g o f s u c h it e m s o u t s id e a
s t a t e is g o v e r n e d b y th e lo c a l la w .
4. In § 210.5, p a r a g r a p h s (a) (2), (b),
a n d (c ) a r e r e v is e d to r e a d a s f o llo w s :
§ 210.5 Sender's agreement; recovery by
Reserve Bank.
(a) ' 4 *
(2) W a r r a n ts to e a c h R e s e r v e B a n k
h a n d lin g th e item that: (i) T h e s e n d e r
h a s g o o d title to th e ite m o r is
a u th o r iz e d to o b t a in p a y m e n t o n b e h a lf
o f o n e w h o h a s g o o d title { w h e t h e r or
n o t th is w a r r a n ty is e v id e n c e d b y th e
s e n d e r 's e x p r e s s g u a r a n ty o f p rio r
in d o r s e m e n t s o n th e item ): a n d
(ii) T o th e e x t e n t p r e s c r ib e d b y s t a t e
la w a p p lic a b le to a R e s e r v e B a n k or
s u b s e q u e n t c o lle c t in g b a n k h a n d lin g th e
item , th e ite m h a s n o t b e e n m a t e r ia lly
a lte r e d ; b u t th is s u b p a r a g r a p h (a )(2 )
d o e s n o t lim it a n y w a r r a n ty b y a s e n d e r
or o th e r p rio r p a r ty a r is in g u n d e r s t a t e
la w ; a n d
*
*
*
*
*
(b) R e c o v e ry b y R e se rv e Bank. If a n
a c t io n o r p r o c e e d in g is b r o u g h t a g a in s t
(or if d e f e n s e is t e n d e r e d to) a R e s e r v e
B a n k th a t h a s h a n d le d a n item , b a s e d
on:
(1) T h e a lle g e d fa ilu r e o f th e s e n d e r to
h a v e th e a u th o r ity to m a k e th e w a r r a n ty
a n d a g r e e m e n t in p a r a g r a p h (a )(1 ) o f
th is s e c tio n ;
(2) A n y a c t io n b y th e R e s e r v e B a n k
w ith in th e s c o p e o f its a u th o r ity in
h a n d lin g th e item ; or
(3) A n y w a r r a n ty m a d e b y th e
R e s e r v e B a n k u n d e r § 2 1 0 .6 (b ) o f th is
su b p a rt, th e R e s e r v e B a n k m a y , u p o n
e n tr y o f a fin a l ju d g m e n t or d e c r e e ,
r e c o v e r fro m th e s e n d e r th e a m o u n t o f
a t t o r n e y s ’ f e e s a n d o th e r e x p e n s e s o f
litig a tio n in c u r r e d , a s w e l l a s a n y
a m o u n t th e R e s e r v e B a n k is r e q u ir e d to
p a y b e c a u s e o f th e ju d g m e n t or d e c r e e
o f th e te n d e r o f d e f e n s e , to g e th e r w ith
in te r e s t th e r e o n .
(c) M eth o d s o f reco v e ry . T h e R e s e r v e
B a n k m a y r e c o v e r th e a m o u n t s t a t e d in
p a r a g r a p h (b ) o f th is s e c t i o n b y c h a r g in g
a n y a c c o u n t o n its b o o k s th a t is
m a in t a in e d or u s e d b y th e s e n d e r (or if
th e s e n d e r is a n o th e r R e s e r v e B a n k , b y
e n te r in g a c h a r g e a g a in s t th e o th e r
R e s e r v e B a n k th r o u g h th e In te r d istr ic t
S e t t le m e n t F u n d ), if:
(1) T h e R e s e r v e B a n k m a d e
s e a s o n a b l e w r it te n d e m a n d o n th e
s e n d e r to a s s u m e d e f e n s e o f th e a c t io n
or p r o c e e d in g ; a n d
(2) T h e s e n d e r h a s n o t m a d e a n y o th e r
a r r a n g e m e n t fo r p a y m e n t th a t is
a c c e p t a b le to th e R e s e r v e B a n k .
T h e R e s e r v e B a n k is n o t r e s p o n s ib le for
. d e f e n d in g th e a c t io n or p r o c e e d in g
b e f o r e u s in g th is m e th o d o f r e c o v e r y . A
R e s e r v e B a n k th a t h a s b e e n c h a r g e d
th r o u g h th e I n te r d is tr ic t S e t t le m e n t F u n d
m a y r e c o v e r fr o m it s s e n d e r in th e
m a n n e r a n d u n d e r th e c ir c u m s t a n c e s s e t
fo rth in th is p a r a g r a p h . A R e s e r v e
B a n k ’s fa ilu r e to a v a il i t s e l f o f th e
rernedy’provided in this paragraph does
not prejudice its enforcement in any
other manner of the indemnity
agreement referred to in paragraph (aj(3)
of this section.
5. In § 210.6. paragraph (a)(1) is
revised, and, effective January 1,1990.
new paragraph (c) is added as set forth
below:
§ 210.® Status, warranties, and liability of
Reserve Bank.
(a)(1) S ta tu s a n d lia b ility . A Reserve
Bank shall act only as agent or subagent
of the owner in respect of an item. This
agency terminates not later than the
time the Reserve Bank receives payment
for the item in actually and finally
collected funds and makes the proceeds
available for use by the sender. A
Reserve Bank shall not have or assume
any liability in respect of an item or its
proceeds expect for'the Reserve Bank’s
own lack of good faith or failure to
exercise ordinary care and except as
provided in paragraph (b) of this section.
* * * * *
(c) Tim e fo r com m en cin g a ction
aga in st R e se rv e Bank. A claim against
a
Reserve Bank for lack of good faith or
failure to exercise ordinary care shall be
barred unless the action on the claim is
commenced within two years after the
claim accrues. A claim accrues on the
date when a Reserve Bank’s alleged
failure to exercise ordinary care or to
act in good faith first results in damages
to the claimant.
6. Effective January 1,1987, the last
sentence of § 210.9(a)(2) is revised to
read as follows:
§ 210.® Payment.
*
* * * *
(a) * * *
(2) * * * A paying bank that closes
Voluntarily on a day that is a banking
day for the Reserve Bank shall either
pay on that day by the close of the
Reserve Bank’s banking day for cash
items that the Reserve Bank makes
available to the paying bank on that
day, or compensate the Reserve Bank
for the value of the float associated with
the items in accordance with procedures
provided in its Reserve Bank’s operating
circular; in such circumstances, the
paying bank is not considered to receive
the item until its next bank-ing day.
7. In § 210.12, paragraph (c)(10) is
revised and new paragraph (c)(ll) is
added as set forth below:
§ 210.12
Return © cash items.
ff
(c) * * *
(10)
The following days shall not be
considered banking days for purposes of
the deadline for notice of nonpayment:
6
S a tu r d a y s a n d S u n d a y s , J a n u a ry 1. th e
third M o n d a y in Jan u a ry , th e third
M o n d a y in F eb ru a ry , th e la s t M o n d a y in
M a y . July 4. th e first M o n d a y in
S e p te m b e r , th e s e c o n d M o n d a y in
O c to b e r , N o v e m b e r 11, th e fo u rth
T h u r s d a y in N o v e m b e r , a n d D e c e m b e r
25. If J an u ary 1. July 4, N o v e m b e r 11, or
D e c e m b e r 25 fa ll o n a S u n d a y , th e n e x t
fo llo w in g M o n d a y s h a ll n o t b e
c o n s id e r e d a b a n k in g d a y for p u r p o s e s
o f th is s u b s e c t io n .
(11)
A c la im for fa ilu r e to c o m p ly w ith
th e r e q u ir e m e n ts o f th is p a r a g r a p h (c) is
b a r r ed u n l e s s th e a c t io n o n th e c la im is
c o m m e n c e d w it h in t w o y e a r s a fte r th e
d a te u p o n w h ic h th e n o t ic e w a s r e q u ir e d
to b e r e c e iv e d b y th e d e p o s it a r y b a n k .
8. In § 210.38. p a r a g r a p h (b) is r e v is e d
to r e a d a s f o llo w s :
§ 2 1 0 .3 S
*
*
R®s©n/© 0anCt liability.
*
*
*
(b) D am ages. A R e s e r v e B a n k is lia b le
to its im m e d ia t e tr a n s fe r o r for a fa ilu r e
to c r e d it th e a m o u n t o f a tr a n s fe r ite m or
r e q u e s t to th e t r a n s f e r e e ’s a c c o u n t
c a u s e d b y a R e s e r v e B a n k ’s fa ilu r e to
e x e r c i s e o r d in a r y c a r e or a c t in g o o d
fa ith . A R e s e r v e B a n k ’s l ia b ilit y fo r s u c h
a fa ilu r e to c r e d it i s lim ite d to d a m a g e s
th a t are a ttr ib u ta b le d ir e c tly a n d
im m e d ia t e ly to th e fa ilu r e to c r e d it, b u t
d o e s n o t in c lu d e - d a m a g e s th a t a r e
a ttr ib u ta b le to th e c o n s e q u e n c e s o f th e
fa ilu r e to c r e d it, e v e n if s u c h
c o n s e q u e n c e s w e r e f o r e s e e a b l e a t th e
tim e o f s u c h fa ilu re .
9. E f f e c t iv e J a n u a ry 1 ,1 9 9 0 , in
§ 210.38, p a r a g r a p h (b ) is r e d e s ig n a t e d
p a r a g r a p h (b )(1 ), a n d n e w p a r a g r a p h
(b )(2) is a d d e d a s fo llo w s :
§ 210.3§
Reserve ©ank liability.
*
*
*
*
*
(b) * * *
(2) A c la im a g a in s t a R e s e r v e B a n k fo r
fa ilu r e to e x e r c i s e o r d in a r y c a r e or to
a c t in g o o d fa ith s h a ll b e b a r r e d u n le s s
th e a c t io n o n th e c la im is c o m m e n c e d
w u thin t w o y e a r s a fte r th e c la im a c c r u e s .
A c la im a c c r u e s o n th e d a t e a R e s e r v e
B a n k 's a lle g e d fa ilu r e to e x e r c i s e
o r d in a r y c a r e or to a c t in g o o d fa ith first
r e s u lts in d a m a g e s to th e c la im a n t.
*
*
*
*
*
By order o f the Board of G overnors. June 6,
1986.
William W. Wiles,
Secretary o f the Board.
(FR Doc. 86-13219 Filed 6-13-86; 8:45 amj
SILLING CODE Q210-01-KJ
[Docket No. R-0558]
ACH Float
In ACH transactions, float may be
Modifications to Federal Reserve
created if a party to a transaction is
Services
closed on the date the transaction is to
be settled. In such cases, the Federal
AGENCY: Board of Governors of the
Reserve may not be able to debit the
Federal Reserve System.
appropriate account at the same time
ACTION: Modifications to Federal
that credit is passed.1 Some of this float
Reserve Bank services.
is generated as a result of nonstandard
s u m m a r y : The Board has (1) adopted a
holidays (state or local holidays not
proposal to modify the procedures used
observed on a regional or national
by Federal Reserve Banks to recover the basis).
Currently, the Federal Reserve
value of float generated in automated
recovers most ACH float attributed to
clearing house (“ACH”) operations due
to nonstandard holiday closings, and (2) nonstandard holiday closings through
the use of "as o f’ adjustments made to
approved a proposal to establish a
standard holiday schedule to be
originators’ accounts. Originators are
followed by Federal Reserve Banks.
also given the option of paying for the
float that results from being closed on
DATE: The modifications to ACH float
the settlement date. These procedures
recovery procedures will take effect on
April 1,1987; the standard Reserve Bank have enabled the Federal Reserve to
keep nonstandard holiday float to a
holiday schedule will take effect on
daily average of approximately $2
January 1,1987.
million.
FOR FURTHER INFORMATION CONTACT:
These procedures, however, place the
Florence M. Young, Adviser {202-452entire burden of the recovery on
3955) Division of Federal Reserve Bank
originators of ACH transactions. The
Operations; Joseph R. Alexander,
Attorney, Legal Division (202-452-2489); National Automated Clearing House
Association (“NACHA") indicated to
or Eamestine Hill or Dorothea
Thompson, Telecommunications Device the Board that it is often difficult for
originators to pass float costs back to
for the Deaf (TDD) (202-452-3544).
their customers, and that the current
SUPPLEMENTARY INFORMATION:
procedures therefore discourage smallBackground
and medium-size institutions from
beginning to originate ACH
For the past several years, the Federal
transactions. Accordingly, the Board
Reserve has made continuous efforts to
proposed a change to the procedures for
reduce float in the nation’s payments
recovering ACH float arising because
system. As part of these efforts, on
one of the parties to an ACH debit
November 18,1985, the Board proposed
transaction (originator, receiver,
to reduce float in check and ACH
Reserve Bank) is closed.
transactions generated as a result of
The Board also proposed a change to
nonstandard holiday closings (state or
the Treatment of ACH credit
local holidays not observed on a
transactions when one of the parties to
regional or national basis). 50 FR 47752
the transaction is closed that was
(Nov. 20,1985). At the same time, the
designed to minimize the risks to the
Board also proposed to reduce the
financial risks to the Federal Reserve by Federal Reserve System that arise
because the Federal Reserve treats ACH
changing procedures for handling ACH
credit transactions as final on the
credit transactions on days that the
settlement date.
originator is closed, and a proposal to
Most of the commenters responding to
establish a standard holiday schedule
these proposals supported the proposed
for the Federal Reserve Banks.
With this action, the Board is adopting treatment of ACH debit transactions.
Substantial issues were raised, however,
in modified form the proposal for the
with respect to the treatment of ACH
reduction of ACH float and approving
credit transactions, with commenters
the Reserve Banks' proposal for a
expressing the opinion that the Board
uniform holiday schedule. In a related
action today (Docket No. R-0544), the
1 In ACH transactions, credits and debits
Board approved the proposal regarding
resulting from the same transaction would normally
check float. The Board has decided to
be posted on the same day. In credit transactions,
the originator's account is debited and the receiver's
defer action with respect to reducing
account is credited; these entries are generally
ACH risks pending consideration of
treated as final. In a debit transaction, the
broader risk issues that were published
originator's account is credited and the receiver’s
for comment in May, 1985. Docket No.
account is debited; these entries are treated as
provisional.
R-0515B, 50 FR 21135 (May 22,1985).
7
should not attempt to address these
issues in isolation. Rather, the
commenters urged the Board to defer
action on this proposal pending its
consideration of the larger ACH risk
issues that were published for comment
in May, 1985, S ee Docket No. R-0515B,
50 FR 21,135 (May 22,1985). With
respect to the proposal for treating ACH
debits on nonstandard holidays,
approximately 16 percent of the
commenters opposed it for various
reasons: one felt that the proposal was
too complex and would cause
reconcilement problems, while another
thought that the float burden should be
placed on the originator as the only
party that can control the generation of
ACH transactions.
After analysis of these issues the
Board has decided to
1. Defer action on ACH credit
transactions pending resolution of the
larger issues involving ACH risk, and
2. Adopt in modified form the
proposal regarding ACH debit
transactions.
Under the modified proposal
concerning debit transactions adopted
by the Board, if an originator of an ACH
debit transaction is closed on a
nonstandard holiday, the Reserve Bank
will credit the originator’s account as
though the institution were open. If a
receiver of an ACH debit transaction is
closed on a nonstandard holiday, the
Reserve Bank will debit the receiver’s
account as though the institution were
open or assess the cost of the float
through an explicit charge or an as-of
adjustment. Nevertheless, if, after
consultation with its Reserve Bank, an
institution still objects to receiving
debits on mandatory nonstandard
holidays, the Reserve Bank will not
charge the institution on such days, but
will use the current procedures for
recovering the ACH float that results.
Reserve Bank Holiday Schedule
Several commenters to previous float
reduction proposals had recommended
that the Federal Reserve should observe
a standard holiday schedule. These
commenters indicated that a standard
holiday schedule would reduce the
number of occasions when one Federal
Reserve office was open and another
closed, and, therefore, would reduce the
uncertainty as to whether they would or
would not be credited for their deposits.
In response to these concerns, the Board
proposed to adopt the following uniform
holiday schedule for all Reserve Banks
beginning in 1987:
All Saturdays,
All Sundays,
New Year’s Day (January 1)
Martin Luther King’s Birthday (third
Monday in January),
Washington’s Birthday (third Monday in
February),
Memorial Day (last Monday in May),
Independence Day (July 4),
Labor Day (first Monday in September),
Columbus Day (second Monday in
October),
Veterans' Day (November 11),
Thanksgiving Day (fourth Thursday in
November), and
Christmas Day (December 25).
It was also proposed that if a fixed
holiday (such as Christmas) falls on a
Saturday, the holiday would be
observed on the previous Friday; if it
falls on a Sunday, the holiday would be
observed on the following Monday.2
All of the 54 comments addressing
this issue supported a standard holiday
schedule for Reserve Banks. The
respondents believed that adoption of
such a schedule by Reserve Banks
Would provide substantial economic
benefits to the nation’s payments
mechanism by eliminating some of the
uncertainty surrounding the crediting of
cash letters sent to Reserve Banks,
allowing depository institutions to
experience more even workflows, and
providing customers more timely access
to their funds. Several commenters did
suggest that Reserve Banks not close on
the Friday prior to a Saturday holiday,
but instead observe the holiday on that
Saturday or the following Monday.
2 This holiday schedule is standard, not uniform.
It will be followed by all offices of the Federal
Reserve Banks with one exception: the Federal
Reserve Bank of Atlanta’s New Orleans office will
continue to close on Mardi Gras.
These respondents indicated that most
states do not observe a Saturday
holiday on the prior Friday, and,
therefore, most banks would be required
to remain open under state law. They
also believed that closing Reserve Banks
on Friday would place an unnecessary
hardship on the banking industry and its
customers, saying, for example, that
Friday, December 31, would be a very
important business day for business
customers.
The Board agrees that the banking
industry and the nation’s payment
mechanism would be better served by
not observing Saturday holidays on the
preceding Fridays, and has modified the
proposal accordingly.
c
c
By order of the B oard of G overn ors of the
Fed eral R eserve System June 6 .1 9 8 6 .
W illiam W . W iles,
S ecreta ry o f the Board.
[FR Doc. 8 6 -1 3 2 2 0 Filed 6 -1 1 -8 6 ; 8:45 am )
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