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FEDERAL RESERVE BANK OF NEW YORK Circular No. 8714 December 21, 1979 M O D IFICA TIO N OF PO LICY R EG A R D IN G R E S E R V E ACCOUNT O V ER D R A FT S To All Member Banks, and Others Concerned, in the Second Federal Reserve District: L a st J a n u a ry , in r e c o g n itio n o f an in cre a se d p o te n tia l fo r o v e r d r a fts as a re su lt o f g r o w th in the v o lu m e o f a c tiv ity in re se rv e a cco u n ts an d in the c o m p le x ity o f the fin a n c ia l sy stem , th is B a n k im p le m e n te d a p o lic y c a llin g fo r m o n e ta ry c h a r g e s on o v e r d r a fts in a cco u n ts th at it m a in ta in s. N e a r ly a y e a r has p assed sin ce the p o lic y w a s p u t into e ffe c t, and I a m p le a se d to r e p o r t th at th e re has b een a s ig n ific a n t re d u ctio n in the in c id e n ce o f re se rv e a cco u n t o v e r d r a fts . A s a n ticip a te d w h en the p o lic y w as im p le m e n te d , m ost m e m b e r b a n k s h a ve n ot been a ffe c te d b y the p o lic y b e ca u se th ey d o an e ffe c tiv e jo b o f m a n a g in g th e ir re s e rv e p osition s. B a sed on o u r fir s t y e a r ’s e x p e r ie n ce , w e h ave d e c id e d to co n tin u e the p o licy , b u t w ith a fe w m o d ific a tio n s th a t w ill b e c o m e e ffe c tiv e J a n u a ry 1, 1980. T h e m ost im p o r ta n t c h a n g e is that, in m ost cases, the c h a r g e a p p lic a b le to a re se rv e a c c o u n t o v e r d r a ft w ill be b a se d on a fla t ten p e r c e n t a n n u a l rate. T h e rate p r e s e n tly u sed is eq u a l to fiv e p e r c e n ta g e poin ts a b o v e the a v e r a g e F e d e r a l fu n d s ra te on the d a y o f the o v e r d r a ft. A s in the past, the B a n k w ill co n tin u e to re ta in the d is c r e tio n to w a iv e o v e r d r a ft c h a r g e s in co n sid e ra tio n o f the c ir c u m s ta n c e s o f e a ch case. O v e r d r a fts ca u sed b y c o r r e s p o n d e n t b a n k s an d o th e r th ird p a rtie s h ave d e cre a s e d at an even g r e a te r rate th an o th e r o v e r d r a fts sin ce the im p le m e n ta tio n o f m o n e ta ry c h a r g e s last y e a r. In the e v en t th at y o u r b a n k sh ou ld be c h a r g e d fo r o v e r d r a fts th at a re the d ir e c t re su lt o f an e r r o r b y a th ir d p a rty , w e co n tin u e to e n c o u r a g e you to seek r e im b u r s e m e n t fr o m th ose re sp o n sib le . E n c lo s e d is a c o p y o f the rev ised G en e ra l G u id e lin e s fo r the W a iv e r o r Im p o s itio n o f M o n e ta ry C h a rg e s on O v e rd ra fts , w h ich r e fle cts the n e w m o d ifica tio n s . It is o u r h ope th a t th e im p r o v e m e n ts th a t w e h ave seen in the past y e a r w ill con tin u e . I sh ou ld also note that, b a se d on the e x p e r ie n c e in the S e co n d F e d e r a l R eserv e D istrict, the o v e r d r a ft p o lic y on w h ich the g u id e lin e s a re b a s e d is b e in g a d o p te d at all F e d e r a l R e se rv e B an k s. I w a n t to th a n k you fo r y o u r c o o p e ra tio n , a n d I w a n t to a ssu re you th at th is B a n k stan d s r e a d y to assist in r e s o lv in g an y p r o b le m s th at you m ig h t e x p e r ie n c e in this regard. I f you h ave a n y q u estion s a b ou t the p o licy , p lea se fe e l fr e e to ca ll, at o u r H e a d O ffice , H e n ry S. F u ja r s k i, V ic e P re sid e n t (T el. N o. 212 -7 9 1 -5 2 6 6 ), or, a t o u r B u ffa lo B ra n ch , P e te r D. L u ce , A ss is ta n t V ic e P r e s id e n t an d C a sh ier (T el. N o. 7 1 6 -849 -5013). T homas M. T im len , First Vice President
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