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FEDERAL RESERVE BANK
OF MEW YORK
[
Circular No. 9697 ~|
June 29, 1984
|
PROPOSED AMENDMENT TO REGULATION J
Notification of Large Dollar Return Items
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 published for public comment a proposed amendment to Regula
tion J — Collection of Checks and Other Items and Wire Transfers of Funds — that would require a
depository institution upon which a check is drawn (payor institution) to provide notification to the
depository institution in which the check is first deposited (institution of first deposit) that a large dollar
check is being returned. The Board requested comment by August 31.
Under the proposed amendment, payor institutions would be required to provide notification
directly to the institution of first deposit when they are returning checks of $2,500 and above that are
collected through the Federal Reserve System. The proposal generally would require the payor institu
tion to notify the institution of first deposit within 48 hours after the time by which the payor institution
must return the check. If a payor institution fails to exercise ordinary care in providing timely and accu
rate notification to the institution of first deposit, the payor institution could be liable, under the
proposal, for losses, up to the amount of the item, incurred by the institution of first deposit.
To assist payor institutions in meeting this requirement, Reserve Banks would enhance the current
notification service. The proposal also outlines the fee structure to be applied to this service.
The proposed amendment to Regulation J would reduce the risk to depository institutions associa
ted with returned checks and thus may provide depository institutions an opportunity to make funds
available sooner to their depositors.
Enclosed, for depository institutions and certain others in this District, is the text of the Board’s
proposal. Comments thereon should be submitted by August 31, 1984, and may be sent to James O.
Aston, Vice President, who will forward them to the Board of Governors. Copies of the enclosure
will be furnished to others upon request directed to our Circulars Division.
A nth ony
M. S o l o m o n ,
President.
FEDERAL
RESERV E
SY ST E M
12 C.F.R. Part 210
[Docket No. R-0522]
Federal Reserve Bank Check Collection System
AGENCY:
Board of Governors of the Federal Reserve System„
ACTION:
Request for comment.
SUMMARY: The Board of Governors is requesting public comment
on an amendment to Regulation J that would strengthen the
current requirement that payor depository institutions provide
notice when they are returning unpaid large dollar checks
presented through the Federal Reserve. The amendment would
require the payor institution to provide timely notice to the
depository institution at which the check was originally
deposited that the check is being returned unpaid. The Federal
Reserve Banks would enhance the notification service they
currently provide to assist payor institutions in meeting this
requirement, and also would make the service available to
depository institutions for checks collected outside the
Federal Reserve.
DATE:
Comments must be received by August 31, 1984.
ADDRESS: Comments, which should refer to Docket No. R-0522,
may be mailed to Mr. William W. Wiles, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, N.W. , Washington, D.C. 20551, or
delivered to Room B-2223 between 8:45 a.m. and 5:15 p.m.
Comments received may be inspected at Room B-1122 between 8:45
a.m. and 5:15 p.m., except as provided in § 261.6(a) of the
Board's Rules Regarding the Availability of Information,
12 C.F.R. § 261.6(a).
FOR FURTHER INFORMATION CONTACT: Elliott C. McEntee, Associate
Director (202-452-2231), or Bill Brown, Manager (202-452-3760),
Division of Federal Reserve Bank Operations;
Gilbert T. Schwartz, Associate General Counsel (202-452-3625),
[Enc. Cir. N o . 9697]
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Joseph R„ Alexander, Attorney (202-452-2489), or
Robert G. Ballen, Attorney (202-452-3265), Legal Division,
Board of Governors of the Federal Reserve System, Washington,
D .C „ 20551o
S U P P L E M E N T A R Y IN F O R M A T IO N ?
Background 0 Significant attention
has been focused in recent months on the issue of delayed
availability, that is, the practice of some depository
institutions to delay a depositor's ability to withdraw funds
deposited by check for extended periods of time* Although the
risk of loss to depository institutions associated with
returned items is relatively small in the aggregate, many
institutions point to the potential losses they could incur on
particular returned checks as the reason for their delayed
availability policies., The Board, in conjunction with other
federal banking regulators, recently urged institutions to
review their policies on making funds available to customers
and to consider taking into account factors that indicate the
degree to which a given situation presents a risk of loss.,
(See joint release of Federal Financial Institutions
Regulators, March 22, 1984*) These factors include the length
of time the account has been maintained, the past experience
with the depositor, the identity of the drawer, the type of
check, and the location of the payor institution. The Board
recognizes that many institutions may be unwilling to modify
their hold policies unless some effort is made to reduce what
these institutions believe is their exposure to potential
losses as a result of returned checks.
The procedure for returning unpaid checks is
cumbersome, labor intensive and time consuming., As a rule,
depository institutions return unpaid checks to their immediate
endorsers rather than directly to the institution at which the
item was first deposited,, This practice exists because of
several factors, including legal obstacles to direct returns in
five jurisdictionsA/ and operational considerations such as
lack of transportation and settlement arrangements between the
institution returning the check and the institution of first
deposit o
A/ Nevada, New Jersey, Oregon, Wisconsin, and the District
of Columbia have not adopted § 4-212(2) of the Uniform
Commercial Code, which authorizes the payor institution to
return an unpaid check directly to the institution of first
deposit.
-3 -
The Reserve Banks have been considering possible
enhancements to the return item process as a part of the
Federal Reserve's responsibility for improving the efficiency
of the payments mechanism. For example/ the Dallas Reserve
Bank has been experimenting with enhancements to its return
item service that include returning unpaid checks directly to
institutions of first deposit that are located in the Dallas
Reserve Bank's District. It is anticipated that it will take
some time to complete the analysis of the ongoing Dallas
experiment and to determine whether it would be cost effective
to offer the direct return service in other Districts. At this
juncture/ modification to the Federal Reserve's current
requirement that payor institutions provide notification when
they return unpaid large dollar checks appears to be an
effective way of reducing risk to institutions of first deposit.
Current requirement. Federal Reserve Bank operating
circulars currently require a payor institution returning a
check in the amount of $2500 or more that has been presented to
it by a Reserve Bank to provide a notification of nonpayment to
the presenting institution, which is generally the Reserve
Bank. When the Reserve Bank receives a notification from a
payor institution, the Reserve Bank initiates a notification to
the institution that sent the check to the Reserve Bank for
collection.
The current procedure is not entirely satisfactory for
several reasons. There is no requirement that the payor
institution notify the institution of first deposit directly
that the check is being returned, and there are no time periods
specified for providing a notification. As a result, often the
returned check gets to the institution of first deposit at the
same time as or before the notification. In addition,
Regulation J and the operating circulars do not specify the
liability an institution incurs if it fails to provide a
notification. As a result, the Board understands that notices
are given for fewer than half of the large dollar checks
returned through the Federal Reserve. Finally, even when a
notification is provided, the information contained in the
notification is often not sufficiently helpful to the
institution of first deposit.
Proposed notification requirement. The Board believes
that an enhanced notification of nonpayment requirement can
provide the institution of first deposit with meaningful
information about the check that Is being returned unpaid.
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This information would enable the institution of first deposit
that receives such a notice to take steps to protect itself
from potential loss.
(Such measures may include extending a
hold it may have placed on the account or placing a hold on
other funds of the depositor*)
The information that would be required to be provided
in the notification would be specified* The information could
includes
(1) the name of the payor institution, (2) the name
of the payee, (3) the amount of the check, (4) the reason for
return, (5) the date of the endorsement of the institution of
first deposit, (6) the account number of the depositor, (7) the
branch at which the check was first deposited and (8) the trace
number on the check* The account number of the depositor, the
branch at which the check was deposited and the trace number on
the check could be provided in the notification only if the
institution of first deposit had placed such information on the
check* In cases where the Federal Reserve initiated the
notification or the payor institution initiated the
notification through the Federal Reserve's Communications
System, the notification would follow a standard format*
Under the proposal, the payor institution would be
required to provide a notification of nonpayment to be received
by the institution of first deposit by midnight of the second
banking day following the banking day by which the payor
institution is required to dishonor the check* For example, if
the Federal Reserve presents a check to a payor institution on
Monday, that institution generally is required to determine
whether to pay or return the check by midnight Tuesday* If the
institution determines to return the check, it must take steps
to ensure that notification of return is received by the
institution of first deposit by midnight Thursday* The Board
believes this time frame is appropriate in order to provide
payor institutions time to take advantage of the most
cost-effective means of providing notice*
Under the proposal, a payor institution could satisfy
the notification requirement in one of four ways* First, the
payor institution could return the unpaid check such that it is
received by the institution of first deposit by midnight of the
second banking day following the payor institution's midnight
deadline for dishonor of the check* This alternative would
generally be feasible when the payor institution is returning a
check to a nearby institution of first deposit, either directly
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or perhaps through a local clearinghouse„ Second, the payor
institution could itself provide a notification directly to the
institution of first deposito The notice could be given by
telephone or other telecommunicatons network such as Bankwire,
SWIFT, Telex or the Federal Reserve's Communications System,
which would pass the message on to the institution of first
deposito Third, the payor institution could provide its
Reserve Bank with all of the required information concerning
the unpaid check» The Reserve Bank would then advise the
institution of first deposit that the check is being returned
and provide it with the appropriate information,, Fourth, for
checks collected through the Federal Reserve, a payor
institution could return the check to the Reserve Bank with
instructions that the Reserve Bank initiate a notification to
the institution of first deposit. The Reserve Bank would then
provide the appropriate information on the check to the
institution of first deposit,,
Institutions exercising either of these latter two
options would be required to provide the information or the
check (as the case may be) to the Reserve Bank in advance of
the time by which notification would have to be received by the
institution of first deposit. These deadlines would be
specified in the Reserve Bank's operating circular.
Under the proposal, if a payor institution that had
received a large dollar check from a Reserve Bank fails to
exercise ordinary care in providing timely and accurate
notification to the institution of first deposit, the payor
institution would be liable for losses incurred by the
institution of first deposit up to the amount of the item if
timely and accurate notification would have enabled the
institution of first deposit to take steps to avoid a loss*
(Several courts already have applied this standard in cases
involving the failure of a payor institution to provide
notification of return,) On the other hand, a payor
institution that did not provide timely and accurate
notification would not incur liability if, after exercising
ordinary care, it had not been able to determine the identity
of the institution of first deposit because of an illegible
endorsement.
Similarly, in cases where the Reserve Bank assists the
payor institution in providing notification, the Reserve Bank
would be liable for a loss incurred by the institution of first
- ,6 -
deposit up to the amount of the item if the loss would have
otherwise been avoided had the Reserve Bank exercised ordinary
care in providing the notification. If the payor institution
returns the check to the Reserve Bank in accordance with
established deadlines and requests the Reserve Bank to initiate
the notification, the Reserve Bank would incur the same
liability to the institution of first deposit as would the
payor institution,,
It is proposed that a three tiered fee structure apply
to the services offered by the Reserve Bank. If the
institution provides notification through the use of an online
Fedwire message, a fee of $2.25 per advice would be charged.
This fee is based upon the estimated cost of providing the
service, including any notifications that the Reserve Bank must
make by telephone to the institution of first deposit. If the
payor institution telephones the Reserve Bank and requests it
to provide the required information to the institution of first
deposit, a fee of $4.25 would be charged. This fee reflects
additional labor costs involved in transcribing the information
provided by the payor institution and potential liability
Reserve Banks may incur as a result of possible errors in
transcription. Finally, if the payor institution returns a
check collected through the Federal Reserve to the Reserve Bank
with instructions to provide notification to the institution of
first deposit, a fee of $4.25 would be charged. This fee
includes the costs of sorting, reading the endorsements,
initiating the wire advice, and potential Reserve Bank
liability. It is appropriate to charge the payor institution
for these services because the Reserve Bank is assisting the
payor institution in fulfilling its responsibility to provide
notification and because its customer is usually responsible
for the returned check.
When the payor institution makes use of the Federal
Reserve's notification service, the institution of first
deposit would be able to specify to the Reserve Bank whether
the institution desires to receive notification of dishonor via
the telephone or the Federal Reserve's Communication System.
The institution of first deposit would also be able to specify
the department (or other entity) that should receive the notice.
It is proposed that the notification requirement apply
to returned checks of $2500 and above. The current
notification requirement applies to checks $2500 and above.
-7 -
Although checks in amounts of $2500 and above comprise
approximately 2 percent of all returns, they account for over
50 percent of the dollars associated with returned checks,,
Finally, when the Board proposed to strengthen the liability
provisions of the current notification requirement in May,
1981, many of the public commenters opposed raising the dollar
cut off to which the notice requirement would apply*
Although
the Board is recommending that the notification requirement
initially apply to returned checks of $2500 or more, the impact
of the proposal will be evaluated over time to determine the
feasibility of lowering the $2500 cut off.
It should be noted that the proposed notification
requirement could only apply to the checks originally collected
through the Federal Reserve.
(It is estimated that
approximately one-third of all checks written are collected
through the Federal Reserve.)
Legislation would be necessary
to extend the notification requirement to checks originally
collected outside the Federal Reserve.
The Board expects that the notification requirement
will provide significant improvements in the return item
process in the near term.
At the same time, the Board
recognizes that this is an interim solution, and further
initiatives will be required to achieve long term comprehensive
solutions to the processing of return items.
These initiatives
are likely to include development and implementation of
endorsement standards, evaluation of extension of the midnight
deadline for small dollar checks, assessment of technology to
substitute automation for the largely manual handling of
returns, and consideration of electronic means to speed the
flow of payment information.
The Federal Reserve intends to
continue to take an active role in working with the industry
and Congress to pursue these improvements.
In addition to other aspects of the proposal, the
Board specifically requests comment on the following questions?
(1)
Should a payor institution be required
to provide notification of nonpayment
such that it is received by the
institution of first deposit by
midnight of the payor institution's
next banking day, rather than by
midnight of the second banking day as
-8 -
proposed, following the banking day by
which the payor institution is required
to dishonor the check?
(2)
Should the notice be required to be
received by the institution of first
deposit by the close of the
institution's business day (i.e., 2s00
p . m . ) rather than by midnight of the
banking day?
(3)
Will the information specified in the
proposal to be required be useful to
the institution of first deposit?
Is
there any information other than that
specified in the proposal that should
be included in the notification?
(4)
For notifications that are not handled
by the Federal Reserve, should the
institution of first deposit be
permitted to specify the department of
the institution (or other entity) that
should receive the notification?
Should this information be required to
be placed on the check?
(5)
If the day the payor institution
provides notice to the institution of
first deposit is not a business day for
the institution of first deposit,
should the regulation provide that
receipt of notice on the institution of
first deposit's next business day
constitutes timely notice?
(6)
Is ^2500 and over the appropriate cut
off?
(7)
What is the appropriate standard of
payor institution liability for failure
to comply with the notification
requirements?
(a)
The proposal adopts the current
standards of liability contained
in the Uniform Commercial Code for
■=9“
failure to exercise ordinary care
(ioe„ liability up to the amount
of the item) or failure to act in
good faith (ise„ liability for
consequential damages). Should
the proposal adopt the U„C„C=
standards or should some other
standards of liability apply?
(b)
Should the payor institution be
liable for the institution of
first deposit's court costs and
reasonable attorney's fees?
(8)
What impact will the proposal have on
institutions' delayed availability
policies?
(9)
What do institutions of first deposit
and payor institutions estimate will be
their internal costs resulting from
this proposal? What do intermediary
institutions estimate will be their
savings because they will no longer be
required to pass notifications to their
prior endorsers?
(10) Is it desirable to enact legislation
establishing a notification requirement
for all checks above a certain amount
and not just those collected through
the Federal Reserve.
(11) In view of the information required, is
it desirable to establish an
endorsement standard to identify better
institutions of first deposit?
The impact of this proposal on small entities has been
considered in accordance with the Regulatory Flexibility Act
(Pub. L. 96-354; 5 U 0S 0C 0 § 603) . The proposal should not
result in a significant burden on small depository institutions
because all depository institutions currently are required to
provide notification of nonpayment of checks of $2500 or more
collected through the Federal Reserve.
That is, a payor
institution currently is required to incur the cost of
providing notice of nonpayment of such checks to the presenting
institution,,
Under the proposal, a payor institution would be
required to provide this notice of nonpayment directly to the
institution of first deposit rather than to the presenting
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institution.
Moreover, it is proposed that the Reserve Banks
would provide an enhanced notification service which would
serve to reduce the operational effect the proposal may have.
Finally, the proposal imposes no new reporting or recordkeeping
requirements on depository institutions.
Pursuant to its authority under section 13 of the
Federal Reserve Act, (12 U.S.C. 342); section 16 of the Federal
Reserve Act (12 U.S.C. 248(o), 360); and section ll(i) of the
Federal Reserve Act (12 U.S.C. 248(i)), the Board proposes to
amend 12 CFR 210 (Regulation J) as follows;
In § 210.12, the last sentence of the section is
designated as paragraph (d), and new paragraph (c) is added
after paragraph (b) to read as follows;
(c)
Notification of Nonpayment. (1) A paying bank
that receives a cash item in the amount of ^2,500 or more
directly or indirectly from a Reserve Bank (other than an item
indorsed by, or for credit to, the U.S. Treasury) shall provide
notice to the first bank to which the item was transferred for
collection ("depositary bank") that the paying bank is
returning the item unpaid.
(2) The paying bank shall provide the notice
specified above such that it is received by the depositary bank
by midnight of the second banking day of the paying bank
following the deadline for return of the item as specified in
paragraph (a) of this section.
Such notice may be provided
through any means, including return of the cash item so long as
the cash item is received by the depositary bank by midnight of
the second banking day of the paying bank following the
deadline for return of the item as specified in paragraph (a)
of this section.
(3) The information contained in the notice shall
be in accordance with uniform standards and procedures
specified by the operating circular of the Reserve Bank from
which the item was received.
(4) A paying bank that fails to exercise ordinary
care in meeting the requirements of this paragraph shall be
liable to the depositary bank for losses incurred by the
depositary bank, up to the amount of the item, reduced by the
amount of the loss that the depositary bank would have incurred
-1 1 -
even if the paying bank had used ordinary care.
A paying bank
that fails to act in good faith in meeting the requirements of
this paragraph may be liable for other damages, if any,
suffered by the depositary bank as a proximate consequence.
A
paying bank providing notice under this paragraph shall not be
liable for mistake, neglect, negligence, misconduct, insolvency
or default of any other bank or person.
(5)
Notwithstanding
the
provisions
section 210„6 of this subpart, a Reserve Bank that fails to
exercise ordinary care in undertaking to provide the notice
required in this paragraph on a paying bank's behalf shall be
liable to the depositary bank for losses incurred by the
depositary bank, up to the amount of the item, reduced by the
amount of the loss that the depositary bank would have incurred
even if the Reserve Bank had used ordinary care.
A Reserve
Bank that fails to act in good faith in undertaking to provide
the notice required in this paragraph on a paying bank's behalf
may be liable for other damages, if any, suffered by the
depositary bank as a proximate consquence.
A Reserve Bank
providing notice under this paragraph shall not be liable for
mistake, neglect, negligence, misconduct, insolvency or default
of any other bank or person, including the paying bank.
*
*
*
*
*
By order of the Board of Governors, June 22, 19840
William W 0 Wiles
Secretary of the Board
of
F ED ER A L R E S E R V E O M SK
O F N EW Y O R K
Fiscal Agent o f the United States
C ir c u la r N o . 9 6 9 8
J u n e 2 9 , 1984
Offering of $8,250,000,000 of 364-Bsiy Treasury Bills
Balled July 12,1984
Due July 11,1985
To All Banking Institutions, and Others Concerned,
in the Second Federal Reserve District:
Following is the text of a notice issued by the Treasury Department:
T h e D e p a r t m e n t o f th e T r e a s u r y , b y th is p u b lic n o t ic e , in v it e s te n d e r s
f o r a p p r o x im a t e ly $ 8 ,2 5 0 m il lio n o f 3 6 4 - d a y T r e a s u r y b ills t o b e d a t e d
J u ly 1 2 , 1 9 8 4 , a n d t o m a t u r e J u ly 1 1 , 1 9 8 5 ( C U S I P N o . 9 1 2 7 9 4 H J 6 ) .
T h is is s u e w ill p r o v id e a b o u t $ 4 0 0 m il lio n n e w c a s h f o r th e T r e a s u r y , a s
t h e m a t u r in g 5 2 - w e e k b ill w a s o r ig in a lly is s u e d in th e a m o u n t o f $ 7 ,8 4 6
m il lio n .
T h e b ills w ill b e is s u e d f o r c a s h a n d in e x c h a n g e f o r T r e a s u r y b ills
m a t u r in g J u ly 1 2 , 1 9 8 4 . I n a d d it io n t o t h e m a t u r in g 5 2 - w e e k b ills , th e r e
a r e $ 1 2 ,5 4 1 m il lio n o f m a t u r in g b ills w h ic h w e r e o r ig in a lly is s u e d a s
1 3 -w e e k a n d 2 6 - w e e k b ills . T h e d i s p o s it io n o f th is la t t e r a m o u n t w ill b e
a n n o u n c e d n e x t w e e k . F e d e r a l R e s e r v e B a n k s a s a g e n t s f o r f o r e ig n a n d
in t e r n a t io n a l m o n e t a r y a u t h o r itie s c u r r e n t ly h o ld $ 1 ,6 0 1 m il lio n , a n d
F e d e r a l R e s e r v e B a n k s f o r th e ir o w n a c c o u n t h o ld $ 4 ,5 1 1 m illio n o f th e
m a t u r in g b ills . T h e s e a m o u n t s r e p r e s e n t th e c o m b in e d h o ld in g s o f s u c h
a c c o u n t s f o r th e th r e e is s u e s o f m a t u r in g b il ls . T e n d e r s f r o m F e d e r a l
R e s e r v e B a n k s f o r t h e m s e lv e s a n d a s a g e n ts f o r fo r e ig n a n d in t e r n a t io n a l
m o n e t a r y a u t h o r itie s w ill b e a c c e p t e d a t th e w e ig h te d a v e r a g e b a n k d is
c o u n t r a te o f a c c e p t e d c o m p e t it iv e t e n d e r s . A d d i t io n a l a m o u n t s o f th e
b ills m a y b e is s u e d t o F e d e r a l R e s e r v e B a n k s , a s a g e n ts f o r f o r e ig n a n d i n
t e r n a t io n a l m o n e t a r y a u t h o r it ie s , t o th e e x t e n t th a t th e a g g r e g a t e a m o u n t
o f te n d e r s f o r s u c h a c c o u n t s e x c e e d s th e a g g r e g a t e a m o u n t o f m a t u r in g
b ills h e ld b y t h e m . F o r p u r p o s e s o f d e te r m in in g s u c h a d d it io n a l a m o u n t s ,
f o r e ig n a n d in t e r n a t io n a l m o n e t a r y a u t h o r it ie s a r e c o n s id e r e d t o h o ld
$ 1 5 5 m il lio n o f t h e o r ig in a l 5 2 - w e e k is s u e .
T h e b ills w ill b e is s u e d o n a d is c o u n t b a s is u n d e r c o m p e t it iv e a n d n o n
c o m p e t it iv e b id d in g , a n d a t m a t u r ity th e ir p a r a m o u n t w ill b e p a y a b le
w it h o u t in t e r e s t . T h is s e r ie s o f b ills w ill b e is s u e d e n tir e ly in b o o k - e n t r y
f o r m in a m in im u m a m o u n t o f $ 1 0 ,0 0 0 a n d in a n y h ig h e r $ 5 ,0 0 0 m u lt ip le ,
o n th e r e c o r d s e ith e r o f th e F e d e r a l R e s e r v e B a n k s a n d B r a n c h e s , o r o f
th e D e p a r t m e n t o f th e T r e a s u r y .
T e n d e r s w ill b e r e c e iv e d a t F e d e r a l R e s e r v e B a n k s a n d B r a n c h e s a n d a t
th e B u r e a u o f th e P u b lic D e b t , W a s h in g t o n , D .C . 2 0 2 3 9 , p r io r t o 1 :0 0
p . m . , E a s t e r n D a y lig h t S a v in g t im e , T u e s d a y , J u ly 1 0 , 1 9 8 4 . F o r m P D
4 6 3 2 -1 s h o u ld b e u s e d t o s u b m it te n d e r s f o r b ills to b e m a in t a in e d o n th e
b o o k - e n t r y r e c o r d s o f th e D e p a r t m e n t o f th e T r e a s u r y .
E a c h te n d e r m u s t s ta te th e p a r a m o u n t o f b ills b id f o r , w h ic h m u s t b e
a m in im u m o f $ 1 0 ,0 0 0 . T e n d e r s o v e r $ 1 0 ,0 0 0 m u s t b e in m u lt ip le s o f
$ 5 ,0 0 0 . C o m p e t i t iv e te n d e r s m u s t a ls o s h o w th e y ie ld d e s ir e d , e x p r e s s e d
o n a b a n k d is c o u n t r a te b a s is w ith t w o d e c im a ls , e . g . , 7 . 1 5 % . F r a c t io n s
m a y n o t b e u s e d . A s in g le b id d e r , a s d e f in e d in T r e a s u r y ’s s in g le b id d g e r
g u id e l in e s , s h a ll n o t s u b m i t n o n c o m p e t it iv e te n d e r s t o t a lin g m o r e th a n
$ 1,000 ,000 .
B a n k in g in s t it u t io n s a n d d e a le r s w h o m a k e p r im a r y m a r k e ts in
G o v e r n m e n t s e c u r itie s a n d r e p o r t d a ily t o t h e F e d e r a l R e s e r v e B a n k o f
N e w Y o r k th e ir p o s it io n s in a n d b o r r o w in g s o n s u c h s e c u r it ie s m a y s u b
m it te n d e r s f o r a c c o u n t o f c u s t o m e r s , i f th e n a m e s o f t h e c u s t o m e r s a n d
t h e a m o u n t f o r e a c h c u s t o m e r a r e fu r n is h e d . O th e r s a r e o n ly p e r m it t e d to
s u b m it te n d e r s f o r th e ir o w n a c c o u n t . E a c h te n d e r m u s t s t a t e th e a m o u n t
o f a n y n e t lo n g p o s it io n in th e b ills b e in g o f f e r e d i f s u c h p o s it io n is in
e x c e s s o f $ 2 0 0 m il lio n . T h is in f o r m a t io n s h o u ld r e f le c t p o s it io n s h e ld a s
o f 1 2 :3 0 p . m . , E a s t e r n t im e o n th e d a y o f t h e a u c t io n . S u c h p o s it io n s
w o u ld in c lu d e b ills a c q u ir e d th r o u g h “ w h e n is s u e d ” tr a d in g , a n d f u tu r e s
a n d fo r w a r d tr a n s a c t io n s . D e a le r s w h o m a k e p r im a r y m a r k e t s in G o v e r n
m e n t s e c u r itie s a n d r e p o r t d a ily t o t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k
th e ir p o s it io n s in a n d b o r r o w in g s o n s u c h s e c u r itie s , w h e n s u b m it t in g
te n d e r s f o r c u s t o m e r s , m u s t s u b m it a s e p a r a t e te n d e r f o r e a c h c u s t o m e r
w h o s e n e t lo n g p o s it io n in th e b ills b e in g o f f e r e d e x c e e d s $ 2 0 0 m il lio n .
A n o n c o m p e t it iv e b id d e r m a y n o t h a v e e n te r e d in t o a n a g r e e m e n t , o r
m a y n o t m a k e a n a g r e e m e n t w it h r e s p e c t t o t h e p u r c h a s e o r s a le o r o t h e r
d is p o s it io n o f a n y n o n c o m p e t it iv e a w a r d s o f th is is s u e in t h is a u c t io n
p r io r t o th e d e s ig n a t e d c lo s i n g t im e f o r r e c e ip t o f te n d e r s .
P a y m e n t f o r th e f u ll p a r a m o u n t o f th e b ills a p p lie d f o r m u s t a c c o m
p a n y a ll t e n d e r s s u b m i t t e d f o r b ills t o b e m a in t a in e d o n t h e b o o k - e n t r y
r e c o r d s o f t h e D e p a r t m e n t o f th e T r e a s u r y . A c a s h a d j u s t m e n t w ill b e
m a d e o n a ll a c c e p t e d t e n d e r s f o r th e d if f e r e n c e b e t w e e n th e p a r p a y m e n t
s u b m it t e d a n d th e a c t u a l is s u e p r ic e a s d e t e r m in e d in' th e a u c t io n .
N o d e p o s it n e e d a c c o m p a n y te n d e r s f r o m in c o r p o r a t e d b a n k s a n d
tr u s t c o m p a n ie s a n d f r o m r e s p o n s ib le a n d r e c o g n iz e d d e a le r s in in v e s t
m e n t s e c u r it ie s f o r b ills t o b e m a in t a in e d o n th e b o o k - e n t r y r e c o r d s o f
F e d e r a l R e s e r v e B a n k s a n d B r a n c h e s . A d e p o s it o f 2 p e r c e n t o f t h e p a r
a m o u n t o f t h e b ills a p p lie d f o r m u s t a c c o m p a n y t e n d e r s f o r s u c h b ills
f r o m o t h e r s , u n le s s a n e x p r e s s g u a r a n t y o f p a y m e n t b y a n in c o r p o r a t e d
b a n k o r tr u s t c o m p a n y a c c o m p a n ie s t h e t e n d e r s .
P u b lic a n n o u n c e m e n t w ill b e m a d e b y th e D e p a r t m e n t o f th e T r e a s u r y
o f th e a m o u n t a n d y ie ld r a n g e o f a c c e p t e d b id s . C o m p e t i t iv e b id d e r s w ill
b e a d v is e d o f t h e a c c e p t a n c e o r r e j e c t io n o f th e ir te n d e r s . T h e S e c r e ta r y
o f th e T r e a s u r y e x p r e s s ly r e s e r v e s t h e r ig h t t o a c c e p t o r r e j e c t a n y o r a ll
te n d e r s , in w h o le o r in p a r t, a n d th e S e c r e t a r y ’s a c t io n s h a ll b e f in a l. S u b
j e c t t o t h e s e r e s e r v a t io n s , n o n c o m p e t it iv e te n d e r s f o r $ 1 , 0 0 0 ,0 0 0 o r le s s
w it h o u t s t a t e d y ie ld f r o m a n y o n e b id d e r w ill b e a c c e p t e d in f u ll a t th e
w e ig h t e d a v e r a g e b a n k d is c o u n t r a te (in t w o d e c im a ls ) o f a c c e p t e d c o m
p e t it iv e b id s . T h e c a lc u la t io n o f p u r c h a s e p r ic e s f o r a c c e p t e d b id s w ill b e
c a r r ie d t o t h r e e d e c im a l p la c e s o n t h e b a s is o f p r ic e p e r h u n d r e d , e . g . ,
9 9 . 9 2 3 , a n d t h e d e t e r m in a t io n s o f th e S e c r e ta r y o f th e T r e a s u r y s h a ll b e
fin a l.
S e t t le m e n t f o r a c c e p t e d te n d e r s f o r b ills t o b e m a in t a in e d o n th e b o o k e n tr y r e c o r d s o f F e d e r a l R e s e r v e B a n k s a n d B r a n c h e s m u s t b e m a d e o r
c o m p le t e d a t t h e F e d e r a l R e s e r v e B a n k o r B r a n c h o n J u ly 1 2 , 1 9 8 4 , in
c a s h o r o t h e r im m e d ia t e ly - a v a ila b le f u n d s o r in T r e a s u r y b ills m a t u r in g
J u ly 1 2 , 1 9 8 4 . C a s h a d j u s t m e n t s w ill b e m a d e f o r d if f e r e n c e s b e t w e e n th e
p a r v a lu e o f th e m a t u r in g b ills a c c e p t e d in e x c h a n g e a n d th e is s u e p r ic e o f
th e n e w b ills . In addition, Treasury Tax and L o a n Note Option
Depositaries may make payment for allotments of bills for their own
accounts and for account of customers by credit to their Treasury Tax
and Loan Note Accounts on the settlement date.
U n d e r S e c t io n 4 5 4 ( b ) o f th e I n te r n a l R e v e n u e C o d e , th e a m o u n t o f
d is c o u n t a t w h ic h t h e s e b ills a r e s o ld is c o n s id e r e d t o a c c r u e w h e n th e b ills
a r e s o ld , r e d e e m e d , o r o t h e r w is e d is p o s e d o f . S e c t io n 1 2 3 2 (a ) (4 ) p r o v id e s
t h a t a n y g a in o n t h e s a le o r r e d e m p t io n o f t h e s e b ills t h a t d o e s n o t e x c e e d
th e r a t a b le s h a r e o f t h e a c q u is it i o n d is c o u n t m u s t b e in c lu d e d in th e
F e d e r a l in c o m e ta x r e tu r n o f th e o w n e r a s o r d in a r y in c o m e . T h e
a c q u is it i o n d is c o u n t is t h e e x c e s s o f t h e s t a t e d r e d e m p t io n p r ic e o v e r th e
t a x p a y e r ’s b a s is ( c o s t ) f o r t h e b ill. T h e r a t a b le s h a r e o f th is d is c o u n t is
d e t e r m in e d b y m u lt ip l y in g s u c h d is c o u n t b y a f r a c t io n , t h e n u m e r a t o r o f
w h ic h is t h e n u m b e r o f d a y s t h e t a x p a y e r h e ld th e b ill a n d t h e
d e n o m in a t o r o f w h ic h is th e n u m b e r o f d a y s f r o m t h e d a y f o l l o w i n g th e
t a x p a y e r ’s d a t e o f p u r c h a s e t o t h e m a t u r it y o f t h e b ill. I f t h e g a in o n th e
s a le o f a b ill e x c e e d s t h e t a x p a y e r ’s r a t a b le p o r t io n o f th e a c q u is it i o n
d is c o u n t , t h e e x c e s s g a in is t r e a te d a s s h o r t - t e r m c a p it a l g a in .
D e p a r t m e n t o f th e T r e a s u r y C ir c u la r s , P u b lic D e b t S e r ie s — N o s .
2 6 - 7 6 a n d 2 7 - 7 6 , a n d t h is n o t ic e , p r e s c r ib e t h e te r m s o f t h e s e T r e a s u r y
b ills a n d g o v e r n t h e c o n d it io n s o f t h e ir is s u e . C o p ie s o f t h e c ir c u la r s a n d
t e n d e r f o r m s m a y b e o b t a in e d f r o m a n y F e d e r a l R e s e r v e B a n k o r B r a n c h ,
o r f r o m th e B u r e a u o f t h e P u b lic D e b t .
Tenders will be received prior to 1:00 p.m ., Eastern Daylight Saving time, Tuesday, July 10, 1984 at the Securities
Departm ent of this Bank’s Head Office, at our Buffalo Branch, or at the Bureau o f the Public Debt. A tender form is
enclosed. Please be sure to use that form to submit the tender and return it in the enclosed envelope. Forms for submitting
tenders directly to the Treasury are available from the Government Bond Division o f this Bank. Tenders not requiring a
deposit may be submitted by telegraph, subject to written confirmation; no tenders may be submitted by telephone. Settle
m ent must be made in cash or other immediately available funds or in Treasury securities m aturing on or before the issue
date. Treasury Tax and Loan Note Option Depositaries may make payment fo r Treasury bills by credit to their Treasury
Tax and Loan Note Accounts.
A n t h o n y M . So l o m o n ,
President.
TREASURY NEWS
. ^ p f i i r t m e n t ®(? GK)@ T r e a s u r y O W a s h in g t o n , ® .e „ O ‘u’(§0@[5)ftl®OB© S@@=S@<S'0
Auction date;
July 10, 1984
RESULTS OF PREVIOUS 52-WEEK BILL AUCTION
Tenders for $8,262 million of 52-week bills to be issued
July 12, 1984,
and to mature
July 11, 1985,
were accepted
todayc The details are as follows?
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Investment Rate
(Equivalent Coupon-Issue Yield) Price
Rate
Low
—
10.98 %
12.15%
88.898
12.18%
High
11.00%
88.878
12.17%
Average 10.99%
88.888
Tenders at the high discount rate were allotted 84%.
Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Received
Accepted
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
$
301,415
16,493,860
14,920
331,905
94,715
61,615
1,066,825
95,950
73,130
53,980
14,880
1,385,715
119,345
$
71,415
7,560,820
14,920
47,905
47,755
33,445
177,545
24,630
47,530
51,980
10,880
53,635
119,345
$20,108,255
$8,261,805
$17,648,870
604,385
$18,253,255
1,700,000
$5,802,420
604,385
$6,406,805
1,700,000
155,000
155,000
$20,108,255
$8,261,805
An additional $120,000 thousand of the bills will be issued
to foreign official institutions for new cash.
e ra l R e se rv e B a n k of N e w Y o r k
ir . No. 9698]
Digitized forC FRASER
June 27, 1984
To the Addressee:
Earlier this year, a new operating circular regarding
On-Line Transactions in Book-Entry Securities (No. 21A) was issued.
Enclosed, for those who maintain binders containing the operating
circulars of this Bank, is a divider tab for that Operating Circular.
Also enclosed are divider tabs for Operating Circular Nos. 2A, 7A,
and 7B of that service.
Circulars Division
FEDERAL RESERVE BANK OF NEW YORK
@FedFRASER