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FEDERAL RESERVE BANK OF NEW YORK Circular No. 10699 March 17, 1994 MODIFICATION OF POLICY REGARDING OVERNIGHT OVERDRAFTS IN DEPOSIT ACCOUNTS Effective April 1, 1994 To All Depository Institutions in the Second Federal Reserve District, and Others Holding Deposit Accounts with this Bank: To prom ote effective account m anagem ent practices, assure equitable treatm ent o f all account holders, and reduce paym ents system risks, it is the policy o f the Federal R eserve System that reserve/clearing accounts should be m aintained on a positive daily settlem ent basis. To assure adherence to this policy, R eserve B anks im pose a m onetary charge for the occurrence o f overnight overdrafts. The B oard o f G overnors o f the Federal Reserve System recently reconsidered the overnight overdraft policy in light o f historical changes in the Federal funds rate and R eserve B ank steps to reduce overnight overdrafts, and has adopted the follow ing penalty rate structure effective A pril 1, 1994: • The m onetary penalty for an overnight overdraft will be calculated at a rate that is four percentage points above the effective Federal funds rate prevailing on the date the overdraft occurred. This is a change from the current rate w hich is two percentage points above the effective Federal funds rate or 10 percent, w hichever is greater. • In the case o f institutions incurring an excessive num ber o f overdrafts, the m onetary rate will be increased by one percentage point for each occurrence over three in a m oving 12-month period. This is a change from the current policy where the m onetary rate m ay be increased by one-half o f a percentage point for each occurrence over six in a m oving 12-month period. • The m inim um m onetary charge per occurrence will continue to be $100. Q uestions m ay be directed, at our Head Office, to Donald R. Anderson, M anager, A ccounting D epartm ent (Tel. N o. 212-720-5250) or, at our Buffalo Branch, to David P. Schw arzm ueller, Operations O fficer (Tel. No. 716-849-5018). W illiam J. M c D ono ug h , President.
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