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FED ERAL RESERVE BANK
O F NEW YORK
C ircu lar No.
6892 I
F e b r u a r y 2, 197 2
Guidelines for Federal Reserve Regional
Check Processing Centers
To A ll B anks, and O thers Concerned,
in the Second F ederal R e serve D istrict:
The following statement was issued today by the Board of Governors of the Federal
R eserve System , for release February 3:
The Board of Governors of the Federal R eserve System today announced approval
of guidelines to be used by the System throughout the nation in establishing Regional
Centers for overnight processing and settlem ent of checks.
It is expected that the new check clearing system will result in the majority of the
62 m illion checks written daily by Am ericans being cleared and paid by the opening of
business the day following deposit of a check.
The guidelines were issued in furtherance of a policy statement by the Board
announced last June 17, calling —as a matter of u rgency—for modernization of the
nation's check payments system .
The guidelines give basic directions to the R eserve Banks for the establishm ent, and
operation, of Regional Check P rocessing Centers (RCPCs) in "communities whose trade,
business and financial activities are substantially related” and where check volume
warrants upgrading check handling fa cilities.
Most of the new Clearing Centers w ill be located at existing Federal R eserve
offices: the 12 Federal R eserve Banks, their 24 Branches and one facility.
In operating as Regional Check Clearing fa c ilities, in addition to their other functions,
these Federal Reserve offices in 37 of the nation's financial centers will expand the
overnight check settlem ent arrangements they have had for som e years with banks in the
reserve c itie s.
New Federal R eserve Regional Clearing Centers w ill only be opened in areas not
reached by the Centers in existing Federal R eserve offices, where check volume and the
absence of alternative fa cilities make additional Federal R eserve serv ice essen tia l.
The new system will make maximum use, consistent with improved service to the
public, of check processing centers operated by com m ercial banks. In such com m ercial
bank processing cen ters, checks from a number of correspondent banks are sorted and
otherwise made ready for clearance.
The new system is to become operative, region by region, as soon as practicable.
Clearing regions may cro ss State and Federal R eserve D istrict boundaries.
For individuals and businesses making and receiving payments by check, the new
system will mean ea rlier receipt of funds due to them, and ea rlier payment of funds they
are transferring to others. For example, m ost payroll checks — typically due to be paid
by a local bank to a depositor in another nearby bank — w ill be cleared, and em ployees
will have use of their pay, within a day after they deposit their paychecks. Sim ilarly, a
check written to pay off a bill, or make a purchase, will be debited within a day after the
check is deposited in a participating area bank. In all ca ses, the total tim e between the
writing and collection of a check circulating within a clearing area will vary according
to how long the check is held by the recipient before being deposited.
In its June 1971 policy statement dealing generally with modernization of the
nation’s system for making financial payments, the Board said that a speedier, more
efficient check handling and clearance system is urgent because the huge number of
checks being put in use — som e 23 billion checks, transferring about $13 trillion dollars
yearly — is expected to double by the end of this decade. For the same reasons, the
Board said the im provised check payments system it called for should be regarded as a
transitional step toward replacing the use of checks with electronic transfer of funds.
Consequently, the guidelines released today specified that, generally, Regional
Clearing Centers should be provided with automated clearing and telecom munications
capabilities to serve as the basis for transition to widespread checkless — electronic —
fund transfers.
The guidelines approved by the Board were prepared by the Federal Reserve System
Steering Committee on the Payments Mechanism, headed by R eserve Board Governor
George W. M itchell, in collaboration with the Conference of F irst Vice Presidents of the
R eserve Banks. The Steering Committee issued a statement accompanying the guidelines
giving the background to its decisions. This emphasized integration into the system of
ser v ic es available from com m ercial banks. The Steering Committee likew ise emphasized
that operating arrangem ents at different clearing centers may vary sufficiently to
accommodate —within the basic guidelines —the substantial differences that exist across
the nation in banking structure, population density, volume of check traffic, and differences
in geography and topography which affect highway and other transportation fa cilities for
the movement of checks.
Other m em bers of the Steering Committee are R eserve Board Governors Sherman J.
M aisel and John E. Sheehan (succeeding form er Governor William W. Sherrill), R eserve
Bank Presidents George H. Clay of Kansas City, Aubrey N. Heflin of Richmond, and Eliot
J. Swan of San Francisco, and the First Vice Presidents of the Chicago and the New York
R eserve Banks, Ernest T. Baughman and W illiam F. T reiber.
The size of an area served by a Clearing Center will be determined chiefly by the
distance that surface or air transport (where that is the more practical and econom ical
means of check gathering and delivery) can travel to pick up, during the afternoon, the
day’s crop of checks deposited in participating banks, bring these to the Clearing Center
for processing and settlem ent during the night, and deliver them early the next morning
to banks against which checks deposited the day before were drawn.
Participation by banks in the new system will be on an entirely voluntary basis, but
every effort will be made to secure the cooperation of all banks, whether or not they are
m em bers of the Federal R eserve System.
A Clearing Center w ill accept from participating banks in its clearing region all
checks written on other participating banks in the region. It will also accept, from Federal
R eserve member banks, checks drawn upon banks outside the region. U.S. Government
checks, postal money orders, and other item s payable at a Federal R eserve office will
be accepted from participating banks, wherever they originate.
Copies of the System 's Steering Committee statement and the guidelines are printed on
the following pages.
Additional copies of this circular w ill be furnished upon request.
Alfred Hayes,
P resid e n t.
2
STATEMENT BY THE SYSTEM STEERING COMMITTEE
ON IMPROVING THE PAYMENTS MECHANISM
On June 17, 1971, the Board of Governors of the Federal Reserve
System issued a Statement of Policy calling, as a matter of urgency, for
changes in the present check clearing system in order to bring about
significant savings in manpower, eliminate unnecessary handling of checks,
and achieve faster, more convenient and more economical banking services
for the public.
Among actions to which it gave high priority, the Board asked
for the following improvements in the nation's means of making payments:
1.
In cities where Federal Reserve offices are located,
the expansion of present areas for overnight clearing
into larger zones of immediate payment.
2,
Establishment--where warranted by the need for more
expeditious and economical check handling, or other
circumstances--of other regional facilities for over
night check clearance and settlement in immediately
available funds.
Under authority from the Board of Governors, the System Steering
Committee on Improving the Payments Mechanism has approved guidelines to
implement the B o ard’
s policy with respect to Regional Check Processing
Centers that were developed by the Committee on Collections of the Con
ference of First Vice Presidents of the Federal Reserve Banks.
As background to these guidelines, the Steering Committee has
the following observations.
The nation’
s check payments system should evolve in a manner
that will achieve overall efficiency, taking into account both public
and private costs. To this end, and because neither the Federal Reserve
nor the commercial banks can separately provide as efficient a system as
they can jointly, the Steering Committee seeks methods of complementing
essential check handling activities of the commercial banks in the most
effective manner.
In general, the guidelines adopted by the Steering Committee
would limit the Federal Reserve’s check collection role to (1) facili
tating the local exchange of checks when the checks are drawn on and paid
to banks located in the same community, metropolitan area, or region, and
(2) assuming greater responsibility for providing a more efficient system
for handling inter-regional checks and doing so on as uniform a basis as
feasible. The guidelines are not regarded as imposing constraints upon
the continued use and development of check handling facilities of the
commercial banking system.
Electronic data processing is used for most checks today, but
not all banks choose to operate check processing equipment. Many banks
find it more convenient and economical to send their checks to correspon
dent banks or service bureaus for sorting and accounting. The Steering
Committee-. bel ieves that because of the scale economies achieved in
3
e l e c tr o n i c p ro c e ssin g o p e ra tio n s, i t is l i k e l y th a t in the near fu tu re ,
s u b j e c t t o t h e e c on om ic s o f check t r a n s p o r t a t i o n , a l l c h e c k s , upon r e c e i p t
a t t h e bank o f f i r s t d e p o s i t , w i l l be r o u t e d i n t o s u c h c e n t e r s .
Thus,
c h e c k s w i l l , a t t h e e a r l i e s t p o s s i b l e p o i n t i n t h e i r movement, be c o n v e r t e d
t o a m a c h i n e - r e a d a b l e form so t h a t t h e r e a f t e r t h e y can be h a n d le d p r i m a r i l y
by h i g h s p e e d e l e c t r o n i c a n d m e c h a n i c a l e q u i p m e n t .
Up t o t h e p r e s e n t t i m e , F e d e r a l R e s e r v e o f f i c e s h a v e a c c e p t e d
i n l i m i t e d numbers c h e c k s t h a t a r e n o t amount e n c o d e d , j u s t a s , f o r s e v e r a l
y e a r s , t h e y a c c e p t e d c h e c k s t h a t d i d n o t h a v e MICR i d e n t i f i c a t i o n .
However,
c o n s i d e r i n g t h e f a c i l i t i e s now a v a i l a b l e , t h e t i m e i s n e a r a t h a n d f o r
e s t a b l i s h i n g a s t a n d a r d o f m a c h i n a b i l i t y f o r a l l it e m s coming i n t o a
F e d e r a l R e s e r v e c l e a r i n g c e n t e r t h a t would i n c l u d e t h e amount b e i n g encod ed
i n m a g n e t i c i n k a n d o t h e r w i s e f u l l y q u a l i f i e d a c c o r d i n g t o t h e MICR p r o g r a m
s t a n d a r d s e s t a b l i s h e d b y T he A m e r i c a n B a n k e r s A s s o c i a t i o n .
As a f u r t h e r
a i d t o t h e e f f i c i e n c y o f t h e S y s t e m 's ch e ck p r o c e s s i n g o p e r a t i o n s , i t would
be d e s i r a b l e , i n t h e n e a r f u t u r e , t o r e q u i r e l i m i t e d b a s i c s o r t s o f i t e m s
c o m i n g i n t o t h e c e n t e r i n o r d e r t o s p e e d up s u b s e q u e n t h a n d l i n g .
Across the n a t i o n , th e re a r e s u b s t a n t i a l d i f f e r e n c e s in banking
s t r u c t u r e a s w e l l a s i n p o p u l a t i o n d e n s i t y a n d , t h e r e f o r e , t h e volume o f
check a c t i v i t y .
T h e r e a r e a l s o d i f f e r e n c e s i n g e o g r a p h y and t o p o g r a p h y
w h ich a f f e c t hig h w ay and o t h e r t r a n s p o r t a t i o n f a c i l i t i e s a v a i l a b l e f o r
t h e mov emen t o f c h e c k s .
T h e s e e n v i r o n m e n t a l v a r i a t i o n s mean t h a t c o m p l e t e
u n i f o r m i t y i n t h e o r g a n i z a t i o n and o p e r a t i o n o f c h e ck c l e a r i n g f a c i l i t i e s
is im practical.
F o r e x a m p l e , t h e s i z e a nd c h a r a c t e r o f f a c i l i t i e s n e e d e d t o
e x p e d i t e t h e e x c h a n g e o f l o c a l c h e c k s may d i f f e r s i g n i f i c a n t l y f r o m o n e
p a r t of the co u n try to a n o th e r .
In s t a t e - w i d e b r a n c h i n g s t a t e s , most of
t h e l a r g e b r a n c h i n g s y s t e m s have c o n s o l i d a t e d t h e i r che ck p r o c e s s i n g I n one
o r t wo o f f i c e s , a n d t h e y u s u a l l y e x c h a n g e c h e c k s d i r e c t l y w i t h o t h e r l a r g e
system s, using t h e i r Federal Reserve accounts for a net s e ttle m e n t.
More
o v e r , che cks coming i n t o a F e d e r a l R eserv e f a c i l i t y s e r v i n g su ch banks
n e e d o n l y be s o r t e d t o t h e p a r e n t u n i t , t h u s , s i g n i f i c a n t l y r e d u c i n g
c learin g center so rtin g .
I n t h e p a s t c l e a r i n g f a c i l i t i e s s e r v i n g u n i t b a n k in g s t a t e s must
h a v e b e e n p r e p a r e d t o make s o r t s t o e v e r y b a n k i n g o f f i c e .
Ev en i n t h o s e
s t a t e s , h o w e v e r , t h e t e n d e n c y i s t o w a r d t h e c l u s t e r i n g o f demand d e p o s i t
a c c o u n t i n g and t r a n s i t o p e r a t i o n s i n c o r r e s p o n d e n t , s e r v i c e b u r e a u , and
h o l d i n g comp an y p r o c e s s i n g c e n t e r s . T h i s d e v e l o p m e n t o p e n s t h e way f o r
i n t e r c e p t i n g t h e i t e m s c o m i n g f r o m a g i v e n b a n k a nd d r a w n on o t h e r b a n k s
s e r v e d i n t h e s ame p r o c e s s i n g c e n t e r .
Thus, o p e r a tio n in th ese p ro c e s s in g
c e n t e r s c a n r e d u c e t h e v o l u m e o f wo rk a t t h e c l e a r i n g c e n t e r by r e d u c i n g
t h e n u m b e r o f e nd p o i n t s f o r s o r t e d c h e c k s t h r o u g h t h e c o n s o l i d a t i o n o f
i t e m s d e s t i n e d t o t h e same p r o c e s s i n g c e n t e r .
Arrangem ents of t h i s type
w h i c h c a n be d e v i s e d f o r e a c h c l e a r i n g c e n t e r a r e i n d i c a t i v e o f t h e way
i n w h i c h c l o s e r i n t e g r a t i o n o f F e d e r a l R e s e r v e an d c o m m e r c i a l b a n k a c t i v
i t i e s can s i g n i f i c a n t l y r e d u c e o v e r a l l ch e ck h a n d l i n g and t r a n s p o r t a t i o n
co sts.
The f o l l o w i n g g u i d e l i n e s a r e a p p l i c a b l e t o a l l F e d e r a l R e s e r v e
R e g io n a l C l e a r i n g o p e r a t i o n s i n p r e s e n t l o c a t i o n s o r i n newly c r e a t e d
4
special facilities. They are intended to achieve as much uniformity in
clearing operations as is feasible under varying present-day conditions.
January 31, 1972
GUIDELINES FOR FEDERAL RESERVE REGIONAL CHECK PROCESSING CENTERS
1•
Definitions
a.
A "Federal Reserve Regional Check Processing Center ("RCPC")
is a facility in which check collection operations are performed
by or on behalf of a Federal Reserve Bank for (1) the deposit,
by the participating banks, with the RCPC of checks and other
cash items on, or payable at, other banks in the RCPC area and,
in certain cases, banks outside the RCPC area; (2) the collection
of items drawn on participating banks, deposited outside the area
and routed through certain channels; (3) the processing, exchange,
clearing, and presentment of such items by the RCPC; and (4) the
payment on the day of presentment in immediately available funds
(Federal Reserve balances) by each participating bank for such
items.
In accordance with such definition, it should be noted
that an RCPC might be at a Federal Reserve Bank or Branch, a
Federal Reserve special facility, or a bureau or other clearing
center or arrangement sponsored by a Federal Reserve Bank.
b.
A "Participating Bank" is a bank which pays in immediately avail
able funds for items presented to it through the RCPC.
c.
A "Member Bank" is a bank that is a member of the Federal Reserve
System.
5
d.
An H RCPC area" is a defined geographical area which includes
within its boundaries an RCPC and all its participating banks.
e.
A "District" is a Federal Reserve District.
f.
A "Territory" is the area assigned to a particular Federal Reserve
office within a Federal Reserve District.
2.
Geographic location
a.
The RCPC area should encompass communities whose trade, business,
and financial activities are substantially related and generate a
sufficient volume of check payment transactions to justify an
efficient processing operation.
Crossing State, District or
Territory lines should not be a deterrent in defining the area.
Where the possibility of an inter-District or inter-Territory
RCPC exists, studies and plans will be coordinated between the
Federal Reserve offices involved.
b.
Since the RCPC operations must be conducted largely between the
close of banking business one day and the early business hours on
the next day, transportation time between the participating banks
and the RCPC, as well as the center’
s processing capabilities,
should determine the geographical size of an RCPC area.
c.
In general, an RCPC should have automated clearing and tele
communication capabilities to serve as the basis for a transition
to the widespread use of paperless entries and to service the
developing needs of the banks as the region’
s payments transactions
require it.
3.
Eligible sender and payor banks
a.
An RCPC will accept for processing and collection from all its
participating banks cash items drawn on other banks in the same
RCPC area.
6
b.
An RCPC will accept from its participating banks which are members
of the Federal Reserve System cash items drawn on banks outside
the RCPC area.
c.
A fully operational RCPC will accept cash items from all Federal
Reserve offices, other RCPCs, and Federal Reserve member banks
located outside the RCPC area on terms and conditions comparable
to those applicable to RCPC participating member banks.
d.
Where volumes and efficiencies warrant, local clearing arrange
ments in the RCPC area should continue in operation and the banks
involved should continue to package-sort separately items drawn
on other banks in such clearing arrangements and should exchange
items directly.
Payment for cash letters
Each participating bank shall make provisional payment in immediately available funds on the banking day of presentment for the
items presented to it.
Expenditures for RCPCs
a.
All costs of the RCPCs other than for incoming transportation of
checks, except as provided in b, shall be borne by the Federal
Reserve Banks.
b.
Certain incoming transportation charges, for example, those related
to pick-up points for the consolidation of shipments to the RCPCs
may be assumed in whole or in part by the Federal Reserve Bank if
by doing so a more nearly optimal, overall use of equipment, personnel
and transportation facilities will be achieved.
Federal Reserve routing symbol
The Federal Reserve will assign an immediate credit routing symbol
to all participating banks in an RCPC area.
/.
Eligible cash items, deposit deadlines, and sorting requirements
a.
An RCPC will accept from its participating banks all cash items
drawn on offices of other banks participating in the same RCPC.
However, "on us" items will not be accepted from any partici
pating bank, and, subject to negotiation, banks and nonbank agents
performing check processing for others should exclude from their
deposits in the RCPC items drawn on banks which they are servicing.
b.
U. S. Government checks, postal money orders, and other items
payable at a Federal Reserve office will be accepted from partici
pating banks at all RCPCs.
c.
Sorting requirements and deposit deadlines should be set to promote
efficient handling and timely presentation of items.
Participating
member banks may deposit up to 2,000 items per day with the RCPC
unsorted.
8.
MICR encoding requirements
In general, items from depositing banks should be amount-encoded
in magnetic ink and fully qualified according to the American Bankers
Association MICR program standards.
January 31, 1972
8
@FedFRASER