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STUDY OF CHECK COLLECTION SYSTEM
Report of
Joint Committee on Check Collection System
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Federal Reserve Bank of St. Louis
to
The American Bankers Association
Association of Reserve City Bankers
Conference of Presidents of the
Federal Reserve Banks
June 15, 1954
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Federal Reserve Bank of St. Louis
LETTER OF TRANSMITTAL
JOINT COMMITTEE ON CHECK COLLECTION SYSTEM,
June 15, 1954.
ADMINISTRATIVE COMMITTEE OF
THE AMERICAN BANKERS ASSOCIATION,
BoARD OF DIRECTORS OF THE
ASSOCIATION OF RESERVE CITY BANKERS,
CONFERENCE OF PRESIDENTS OF THE
FEDERAL RESERVE BANKS:
The Joint Committee appointed in 1952 to make a comprehensive study of the check
collection system of the nation submits herewith its report and recommendations.
When this study was originally authorized, an estimate was made that it might be completed within six months. That schedule could not be adhered to because, as the study
progressed, it became evident that its scope should be more detailed and comprehensive than
originally contemplated. Nearly a year was required just to assemble and analyze the factual
material on which the study is based. Although completion of the report has been delayed,
the committee believes that the study should be of considerably more value than any which
could have been completed within six months.
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Federal Reserve Bank of St. Louis
Respectfully,
0. U.
HABBERSTAD
JAMES H. KENNEDY
C.
EDGAR JOHNSON
FREDERICK
JOHN
. 16 5
H.
1. DEMING
Chairman
WURTS,
CONTENTS
Page
Chapter
I
Preface.
V
Summary of Findings and Recommendations •
1
II
Background.
13
III
Volum~ of Checks and Their Flow Through the Collection
System
16
IV
Suggestions for Improving Present Check Collection Methods
74
V
Miscellaneous Sub jects Studied.
96
VI
Suggestions for Putting Recommended Program into Effect
103
Sampling Process and Coverage, Methods of Estimate, and
Reconciliation of Commercial Bank and Federal Reserve
Data.
105
The Flow of Checks Through the Check Collection Sy stem.
133
Appendix
A
B
C
139
D
Summary of Recommenda tion s of Committ ee on Bank Manage ment (19 51-1952 ), Illinois Bankers Association , regarding "Check Paying Proc edure s and Return Check Practices " 143
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PREFACE
This report contains the findings and recommendations of
the committee appointed jointly by The American Bankers Association, the Association of Reserve City Bankers and the Federal Reserve System to make a comprehensive s~udy of the check collection
system of the nation. The general objective of the study was to
determine whether fundamental improvements could be made in check
collection methods and practices to increase the speed and efficiency of check collections for the benefit of the banking system
and the general public.
The recommendations set forth in this report are based
upon: (1) findings of fact established by extensive surveys of
all aspects of the check collection system; (2) suggestions made
by a number of bankers and others who wrote or talked to the committee; and ( 3) the committee's conception of the criteria of an
ideal check collection system. The recommendations are not novel;
most of them have been tested in actual operation, although usually on a limited scale. Their practical merit is underlined by the
earlier tests and by the findings stated in the report. With approval and effective sponsorship by representative banking groups,
the changes recommended may be put into effect.
Adoption of the recommendations on a general scale will
minimize handlings, expedite presentation and otherwise contribute
to an improved check collection system for banks and their customers. With present volume, and a prospective continued growth trend,
check handling is, and will remain, a difficult volume operation.
It is imperative, therefore, to improve the efficiency of current
methods.
The committee has approached the assigned problem objectively. Its recommendations are based upon consideration of whether a given change in current meth ods will contribute to speed and
efficiency of check collec tions from the standpoint of the entire
banking system and its depositors; they are not prompted, nor are
they influenced, by the effect whi ch they will have upon the volume
of chec k activity at any particular bank or class of banks . An
equally objective attitude on the part of bankers is essential to
a proper appraisal of the recommendations .
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JOINT COMMITTEE ON CHECK COLLECTION SYSTEM
V
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Federal Reserve Bank of St. Louis
CHAPTER
I
SUMMARY OF FINDINGS AND RECOMMENDATIONS
Among the many services performed by
the nation's banking system, the provision
of channels through which money payments
flow from one point to another ranks high
in importance. More than 90 per cent of
the dollar amount of such payments in the
United States is made by check. A check
collection system that functions smoothly .
and efficiently is of key importance in ✓
facilitating the flow of these payments.
would remove or alleviate those problems,
and otherwise contribute to speedier and
more efficient collections? (4) What would
be the implications of such changes for the
banking system?
The committee's findings in these
areas are summarized below, under the headings A. Volume, Pattern, and Problems of
Check Collection, B. Summary of Recommendations, and C. Implications for the
Banking System.
The volume of check payments has been
growing rap idly in recent years. The
number of checks drawn increased about
10 per cent per year on the average from
1939 to 1952. In the latter year, about
8 billion checks,amounting to $2 trillion,
were drawn and paid. Volume and amount
were even higher in 1953, and the signs
point to continued growt h in the future.
Should the 1939-52 trend continue, 14 billion checks would be written in 1960; and / /
by 1970, check volume would be 22 billion.
These totals may not be reached,of course,
but certainly future volume may be expected
to exceed present levels substantially.
A.
1.
Volume of Check Payments
The number of checking accounts in
this country increased from 27 million to
47 million between 1939 and 1952. In the
same period, the number of checks written
annually grew from an estimated 3 1/2 billion to nearly 8 billion. About 7 billion
of the checks written in 1952 were drawn
on the more than 14,000 commercial banks
throughout the country; of the balance,
450 million were checks drawn on the
Treasurer of the United States, 370 million
were United States postal money orders, and
2 million were checks drawn on Federal
Re serve Banks.
The tremendous increase during recent
years in the volume of check payments has
given rise to increasingly difficult operating and personnel problems for banks.
Today's problems, coupled with awareness
of the probable continued increase in check
payments, were the primary reasons for the
sponsorship of this study by three representat i ve banking groups.
About 6J800 of the banks on which
checks were drawn were members of the
Federal Reserve System, about 5,500 were
par remitting nonmember banks, and about
1,800 were banks which did not remit at
par for all items presented to them for
payment.
The principal assignment of the Joint
Committee on Check Collection System was
to determine whether speed and efficiency
of check collections through the banking
system could be increased by fundamental
changes in current methods and practices.
Attention has been concentrated on four
principal areas of inquiry: (1) What
are the current methods and practices?
(2) What problems do these methods and
practices create for banks? (3) What
changes in current methods and practices
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Volume, Pattern, and Problems
of Check Collection
On an average day in 1952, about
29 million checks were written, and approximately the same number were deposited in
or cashed at banks. Of the checks deposited
in or cashed at the average bank on that
day, one in five was drawn on that bank and
was charged to the drawer's account. The
remaining four were drawn on other banks
1
2
JOINT STUDY OF CHECK COLLECTION
and were collected through the check collection facilities provided by the banking
system of the country.
The collection of items represented
by these four checks is the principal subject with which this study is concerned.
The objective is to get these checks from
the first collecting bank to the drawee V
bank by the most expeditious and direct
route available, and to obtain prompt remittance in a form readily available to
the first collecting bank and its depositor.
The average check deposited in or
cashed at a bank passed through 2 l/3 banks
in the process of collection from the drawee
bank, and about 2 1/3 business days elapsed
between the date it was deposited or cashed
and the date it was presented for payment.
Checks in process of collection through the
banking system on an average day in 1952
numbered about 69 million,l of which 29 million were presented to drawee banks for
payment on that day. Of the remaining
40 million, 15 million were payable at
banks in the same cities as the collecting
banks, 24 million were par items payable at
out-of-town banks, and 1 million were nonpar items.
Forty per cent of all checks written
in 1952 were drawn on 207 banks, each with
$100 million or more in deposits on June 30,
1952. Nearly two-thirds of all check collection activity was centered in these banks
plus the 12 Federal Reserve Banks and their
24 branches. Thus large commercial banks
and the Federal Reserve Banks served together as the major centers of the check
collection system.
About two-thirds of one per cent of
all items presented for payment in 1952
were returned unpaid. This amounted to
about 175,000 items returned unpaid each
day, or about 50 million for the year.
Fifty-four per cent of the unpaid items
were returned because of insufficient funds,
and another 19 per cent because of missing
or irregular endorsements. Sixty-four per
cent of all unpaid items were in amounts
J
1. Because of seasonal and other factors, total
daily volume during the year fluctuated between 60
and 75 million items.
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less than $50. On the basis of average
1952 experience, the estimated cost to the
banking system of handling return items
was between 10 and 20 million dollars a
year.
2.
The Patterns of Check Collections
In order to ascertain the patterns of
check collections, attention was focused
on three aspects of the check collection
system: (a) the sources from which a bank
receives checks for collection; (b) the
channels through which it forwards such
checks in order to collect them; and
(c) the sources from which a drawee bank
receives items presented to it for payment.
The picture thus obtained has been given
greater detail oy considering each of these
aspects in relation to the deposit size of
banks, and in relation to banks' status for
reserve purposes (Reserve City banks2 and
country banks).
(a)
Sources of checks
received for collection
The two principal sources from which
a bank receives checks for collection are:
(i) ·checks cashed at the window or received
in deposits of customers, and (2) checks
received from other banks for collection.
In all banks of the country, 74 per cent of
checks received for collection in 1952 were
derived from the first source, and 26 per
cent from the second. Size of bank influenced this ratio considerably. At banks
with less than $25 million in deposits,
virtually no items were received from other
banks, while at banks with $100 million or
nore in deposits, about 40 per cent of all
items collected were received from other
banks. The same comparison may be made
between country banks and Reserve City
banks. Of all items received by Reserve
City banks for collection, 40 per cent were
received from other banks, whereas only
6 per cent of items received for collection
by all country banks came from other banks.
These figures show the extent to which
Reserve City banks and larger country banks
(over $100 million in deposits) engage in
check collection activities on behalf of
smaller correspondent banks.
2. References in this report to "Reserve City
banks" include both Reserve City banks and Central
Reserve City banks.
SUMMARY OF FINDINGS ANO RECOMMENDATIONS
(b)
Disposition of checks
received for collection
Thirty-four per cent of all checks received by banks for collec t ion during 1952
were presented to drawee banks in the sare
community through local clearings. This
proportion was relatively uniform at banks
of all size classes, allowing for the fact
that many small banks were in one-bank
towns and t herefore collected no items
through local clearings. Reserve City
banks collected 37 per cent of the checks
they received through clearings, and country banks 31 per cent.
At all banks of the country in 1952,
34 per cent of checks received for collection were sent to Federal Reserve Banks,3
22 per cent were sent to correspondent
banks, and 5 per cent were presented by
mail directly to the drawee banks. The
variations in the proportion of items sent
to Federal Reserve Banks or to correspondent banks by banks of different size
classes or of different reserve status are
significant. Banks with less than $7-5 million in deposits sent 48 per cent of the
checks they received for collection to ~orrespondent banks, and only 17 per cent to
Federal Reserve Banks. As the deposit size
of banks increased the percentage of items
sent to correspondent banks became progressively smaller, until in the largest banks
(with deposits exceeding $500 million),
only 5 per cent of checks received for collection were sent to correspondent banks,
while 41 per cent went to Reserve Banks.
Reserve City banks of all sizes tended to
make extensive use of Federal Reserve check
collection facilities, but country banks
depended oore upon the facilities provided
by correspondent banks. For example,
Reserve City banks sent 42 per cent of all
items they received for collection to
Federal Reserve Banks, and only 8 per cent
to correspondent banks; in contrast, the
corresponding percentages for country banks
were 23 per cent and 41 per cent,
·
respectively.
3. Except where the context is clearly to the
contrary, references in this report t o "Federal Reserve Banks" include Federal Reserve Banks and
branches; and references to "Federal Reserve cities"
include cities in which either a Federal Reserve
Bank or branch is located.
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3
Both Reserve City banks and the larger
country banks used direct mail presentation
to collect checks from drawee banks. On
the average, 8 per cent of the items received by Reserve City banks and 2 per cent
of the items received by country banks were
collected this way. About half the items
mailed directly were drawn on nonpar banks.
(c)
Sources of che cks presented
to drawee banks for payment
The final form of the pattern a ppears
when consideration i s given to the sources
from which a drawee bank receives items
presented to it for payment. At all banks
of the country in 1952, 42 per cent of
checks paid were received through local
clearings, 24 per cent were received from
Federal Reserve Banks, 11 per cent were
received direct from other banks, and the
rest were che cks cashed at the window or
received in deposits of custorers.
The percentage of items received
through clearings varied with the size of
bank, running from 22 per cent for banks
with less than $7.5 million in deposits up
to 68 per cent for the largest banks.
These figures were influenced, at the lower
end of the scale, by the absence of local
clearings in one-bank towns, and at the
opposite end by the fact that many items
presented to a drawee bank through the
clearings in a large city were presented
by other comrercial banks or a Federal
Reserve Bank in the city that had received
them from out-of-town banks for collection.
The percentage of checks presented to
drawee banks through the mail by Federal
Reserve Banks varied with the location of
the banks. Reserve City banks got relatively few items by mail from Federal
Reserve Banks. (Most were located in
Federal Reserve cities, and items drawn on
them were presented by the Federal Reserve
Bank through the clearings.) But the
largest country banks got 35 per c_ent and
the smallest over 39 per cent of all items
presented through the mail to them from
Federal Reserve Banks.
Items presented to drawee banks by
mail direct by other commercial banks were
generally a larger percentage of all items
presented in the case of smaller banks. At
4
JOINT STUDY OF CHECK COLLECTION
banks with deposits of less than $25 million, about 13 per cent of the items presented for payment were received through
the mail from other banks. These items
included both direct presentations to nonpar drawee banks, and presentations to par
remitting drawee banks by certain correspondent banks.
(d)
Extent of use of Federal
Reserve facilities
In 1952, only about 3,300 of the
nation's 14,000 comrrercial banks made any
direct use of Federal Reserve check collection facilities. About 7,000 nonmember
banks were not eligible to send checks
directly to Federal Reserve Banks. About
6,800 member banks and 250 nonmember clearing banks did have direct access to Federal
Reserve facilities, but of these only about
1,700 made full use, and 1,600 partial use
of them.
Use of Federal Reserve facilities
varied significantly according to size of
bank. Less than 2,000 of nearly 12,000
small banks sent items directly to Federal
Reserve Banks, whereas 550 of the 718 banks
with $25 million or more in de posits made
direct use of the facilities.
Federal Reserve Banks, which handled
about three-quarters of all par transit
items, regularly sent cash letters to
virtually every par remitting bank in the
country.
(e)
Items drawn on nearby banks
In 1952, 31 per c~nt of all out-oftown items received by country banks for
collection were drawn on banks within 25
miles of the first collecting bank, and
16 per cent more were drawn on banks between 25 and 50 miles distant. Country
banks generally collect items drawn on
banks in nearby towns the same way they
collect other out-of-town items -- they
send them to a correspondent bank or
Federal Reserve Bank, often at a considerable distance away. This practice almost
always involves more handling of the items,
more time spent in transit, and more delay
in presentation and payment than would be
involved in collecting the items directly
from the drawee banks.
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(f)
Nonpar items
Nonpar items were only 1.5 per cent
of the total number of items handled for
collection in 1952. (There were about
1,800 nonpar banks in the country, but
they held only about 1 per cent of all
commercial bank deposits.)
About half of the nonpar items received for collection were sent by mail
directly to the drawee banks; the remaining nonpar items were collected through
correspondent banks. Smaller banks collected nonpar items for the most part
through correspondent banks, while larger
banks collected them to a greater extent
by direct mail presentations to the drawee
banks.
·
(g)
Summary of the pattern
of check collections
The general pattern of check collections disclosed by the data summarized
above is as follows:
(i) Checks cashed at or
deposited in banks, drawn on other
banks in - the same town, are usually presented and pa id locally.
(ii) Methods of collecting
items drawn on out-of-town banks
vary according to the size and
location of the first collecting
bank, and also according to
whether or not it is a member of
the Federal Reserve System.
( iii) All nonmember banks
and many smaller member banks tend
to send all or most of the out-oftown items they get to correspondent banks (.most of which are member
banks). However, some smaller
·member banks send i terns drawn on
or payeble through the Federal
Reserve Banks, and items drawn on '
commercial banks in Federal
Reserve cities, directly to the
Reserve Banks. Relatively few
smaller member banks send all par
items directly to the Federal
Re serve Banks.
(iv) Larger member banks
( particularly Reserve City banks)
SUMMARY OF FIND I NGS AND R EC OMMENDATIONS
acquire items for collection not
only from their customers, but
also (because of the check routing
patterns described in the preceding paragraph) from smaller banks
with which they maintain corres pondent relationsh i ps . Items
thus received that are drawn on
other banks in the same c ity are
collected through local clearing
houses or other arrangements.
Out-of-town items may be collected
by sending them (by mail) directly
to the various ·drawee banks,
especially if the drawee banks are
nonpar banks. But the larger member b anks collect by far the
greater proportion of their outof-town items (including the items
received from other banks) through
Federal Reserve Banks.
(v) Federal Reserve Banks receive some items drawn on or payable through them dire ctly from
smaller country member banks. But
they receive more from larger member banks, and principally from
the Reserve City banks. These
items ,of course, include many received by the l arger banks from
smaller country banks , b oth member
and nonmember .
(vi) Federal Reserve Banks
receive directly from country member b anks a considerable vol ume of
items drawn on other banks in the
same cities as the Federal Reserve
Banks.
(vii) Items received for coll ection by Federal Reserve Banks,
and drawn on banks in Federal
Res·erve cities, are collected by
the Federal Reserve through the
local clearing house or arrangement. These items amount to a
substantial part of the total of
all items presented to drawee
banks in Federal Reserve cities.
(viii) Federal Reserve Banks
receive some par items drawn on
out - of-town banks directly from
country member banks. But they
get more such items from larger
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member banks ( principally Reserve
City banks). As in (v), above,
these items include many r ece ived
by the larger banks from smaller
country banks, member and
nonmember.
(ix) By far the greatest
number of items presented by mail
to drawee banks outside Federal
Reserve Bank ci t ies is pre s ented
by Reserve Banks.
3.
Problems Arising from Check
Collec t ion Patterns
The check collection problems of the
banking system arise primarily out of the
volume of checks that are written. This
volume complicates collection operations
and delays presentat ion of ite~s. Yet
there seems to be no feasi ble way to bring
about any substantial reduct ion in the
number of checks written; in fact, the
trend of volume appears to be in the other
direction.
This does not mean, however, that
there i s no poss i bility of reducing the
volume of check colle ction operations in
t he banking system. The average check
issued in 1952 passed through 2 1/3 banks
in the process of collection. In effect,
therefore, the volume with which the
banking system was concerned from the
standpoint of its check collection operations consisted not of 8 billion pieces
of pape r bu~ of nearly 19 billion. If
check collection patterns h~d been modified so that the average che ck writ ten in
1952 had pas sed through only 2 banks, t he
total number of individual bank handlings
would have been reduced t o 16 billion
without any reduction in the number of
checks written and collected. The result
would have been a reduction of nearly
15 per cent in the check collection work
load of the banking system.
Accordingly, the committee undertak ing this study focused its attention on
the question: What modifications of
existing check .collection patterns can be
made that will provide for presentation
of checks to drawee banks by the most
direct and expeditious routes available ,
and that will eliminate unnecessary han-
5
6
JOINT STUDY OF CHECK COLLECTION
dlings? The recommendations summarized
in the following section give the committee's answer. They are based on the
underlying premise that by expediting
presentation of checks, and eliminating
unnecessary handling, the banking system
can not only reduce operating expenses
without any reduction in the number of
check payments, but it and its depositors
can also gain from faster payments and
earlier availability of funds.
The study also covered several prob:..
lem areas in check collection operations
not directly associated with volume. Recommendations for changes in these areas are
also summarized in the following section.
B.
Summary of Recommendations
Following is a summary of the committee's recommendations for changes in current methods of check collection.4 In
general, the recommendations are designed
to bring current check collection methods
into closer accord with the following
criteria of an ideal check collection
system:
1.
Presentation to drawee by
most expeditious and direct
route available.
2.
Minimum number of handlings.
3.
Prompt remittance of proceeds
in form readily available to
first collecting bank and its
depositor.
4.
Prompt notification and prompt
return to first collecting bank
in the event of nonpayment.
The recommendations are summarized
under five main headings: Checks payable
at par in the same Federal Reserve District;
checks payable at par in other Federal
Reserve Districts; nonpar checks; items
(other than nonpar checks) which Federal
4. The principles by which the committee was
guided in formulating the recommendations, the
situations to which they relate, and the facts justi fying them are stated at length in Chapters IV and v.
The parenthetical notes following each caption in
this summary refer to the pages in those chapters
where the basis for the recomrendations is given.
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Federal Reserve Bank of St. Louis
Reserve Baoks will not handle as cash items;
and return items, check standards, and endorsements.
1.
Checks payable at par in the
same Federal Reserve District
a. Checks drawn on banks in
the same town as the first collecting bank (pp. 74-77)
(i) Where there is a formal
check clearing organization, such
checks should be exchanged through
the clearing organization, and net
balances resulting from the exchanges should be settled on the
day of the exchanges by entries on
the books of a correspondent bank
or of a Federal Reserve Bank.
(ii) Where there is no formal
check clearing organization, informal arrangements should be made
for the reciprocal exchange of such
checks among all banks in the community, and settlement of the exchanges should be made on the same
day by entries on the books of a
correspon~ent bank or of a Federal
Reserve Bank.
(iii) In either case, the
time for exchanges of checks should
be set at such an hour as to permit
checks received in moruing mails to
be included in the exchanges.
b. Checks drawn on nearby
out-of-town banks (pp. 77-79)
(i) Where volume warrants,
such checks should be presented to
the drawees through a central
clearing arrangement serving all
banks in the area, with settlements being made on the books of
a correspondent bank or on the
books of the Federal Reserve Bank.
(ii) Where volume warrants
but a central clearing arrangement
is not feasible, such checks
should be presented directly by
mail to the respective drawees,
with settlement through a correspondent bank or the Federal
Reserve Bank.
SUMMARY OF FINDINGS AND RECOMMENDATIONS
c. Checks drawn on banks in
Federal Reserve cities, when the
first collecting bank is not in a
Federal Reserve city (pp. 79-80)
the proceeds to a correspondent
member bank, if the sending bank
and the correspondent member bank
so desire.
(i) Checks drawn on commercial banks in a Federal Reserve
city should be sent directly to
correspondent banks in that city.
(iii) The Federal Reserve
System should consider modification of its current policy, so
that, upon the joint request of a
nonmember bank and a member bank,
the nonmember bank may send direct
to the Federal Reserve Bank for
account of the member bank items
which the member bank otherwise
would receive from the nonmember
bank and collect through the
Federal Reserve Bank. This would
eliminate the need for the member
bank to handle these items.
(ii) Items payable at the
Federal Reserve Bank (including
Government checks and postal money
orders) should be sent by member
banks directly to the Federal
Reserve Bank, and arrangements
should be available for crediting
the proceeds of such items to a
correspondent member bank if the
sending bank and the correspondent
member bank so desire.
(iii) The Federal Reserve
System should consider modification of its current policy, so
that, upon the joint request of
a member and a nonmember bank,
the nonmember bank may send items
payable at a Federal Reserve Bank
(including Government checks and
postal money orders) direct to
the Federal Reserve Bank, for
credit to the member bank's
a ccount. This would eliminate
the need for the member bank to
handle these items.
d. All other checks drawn
on banks in the same Federal Reserve
district (pp. 80-82 )
(i) Where volume warrants
and where a ppropriate arrangements
exist or can be made, such checks
should be se~t dire ctly to t he
drawee banks, for credit of the
sending bank or for remittance to
a correspondent bank or Federal
Reserve Bank for account of the
sending bank.
(ii) When not handled as
suggested above, such items received by member banks of the
Federal Reserve System should be
sent dire9tly to the Federal
Reserve Bank, and arrangements
should be available for crediting
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Federal Reserve Bank of St. Louis
2.
7
Checks payable at par in
other Federal Reserve
Districts (pp. 82 -8 4)
(i) Where volume warrants
and where a ppropriate arrangements
exist or can be made, such checks
should be sent directly to the
drawee banks, for credit of the
sending bank or for remittance to
. a correspondent bank or Federal
Reserve Bank for account of the
sending bank.
(ii) When not handled as
suggested above, such items should
be collected to the greatest extent practicable through the
Federal Reserve System's procedures
for direct sendings a nd consolidated air shi pments of interdistrict items.
(iii) Where volume warrant s,
Federal Reserve Banks should send
such items directly to drawee banks
located in adjacent areas of adjoining districts.
(iv) For expediting presentation of i terns drawn on banks in
important financial centers where
there is no Federal Reserve Bank
or branch, and where volume and
other circumstances warrant, the
Federal Reserve System should consider providing facilities for consolidated direct air shipments to
r
8
JOINT STUDY OF CHECK COLLECTION
such centers, :permitting presentation to the drawees without the i terns
having to pass through the Federal
Reserve Bank of the district in
which they are payable.
3.
Nonpar checks (pp. 84-92)
(i) Although the weight of
informed banking opinion favors
universal par remittance for cash
items as a desirable improvement
in the check collection system,
the committee offers no specific
recommendation, in the light of
controlling circumstances~ as to
how that result may be achieved
promptly.
(ii) The committee recommends that rules regarding the
absorption of exchange charges by
collecting banks be uniform as between member banks of the Federal
Reserve System and insured nonmember banks. All insured banks, member and nonmember, should be prohibited from absorbing exchange
charges, except where absorption
is. merely incidental and not related to the solicitation of deposit balances.
(iii) The commit t ee recommends the simplification of record
keeping requirements imposed on
member banks of the Federal Reserve
System in conne c tion with the di s position of exchange charges.
4.
Items (other than nonpar items)
which Federal Reserve Banks
will not handle as cash items
(pp. 92-95)
(i) Exce pt where differences are required by local laws,
there should be uniform definitive rules among the Federal
Reserve Banks regarding the items
which they will, or will not,
handle as cash items. The Federal
Reserve Banks should try to frame
these rules so as to permit the
handling as cash items of as many
categories of instruments as
practicable.
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(ii) The Federal Reserve
Banks should handle as cash items
instruments "payable at 11 any bank
located outside Arkansas, Georgia,
Idaho, Minnesota, Illinois, Kansas,
Nebraska and North Dakota. In
those States, the respective State
Associations should explore the
possibility of having the legislatures adopt Section 87 of the
Uniform Negotiable Instruments Law,
and should urge banks at which
items of this nature pur port to be
payable to arrange with their depositors for the issuance of conventional bank checks instead of
items 11 payable at" such banks.
(iii) Banks having customers
upon whom drafts 11 payable through 11
such banks are drawn in substantial
numbers should arrange with such
customers wherever possible for the
use of conventional bank checks instead of such drafts.
(iv) In areas where the
handling of Stat e and municipal
warrants as cash items is not
c urrently possible, steps should
be taken by the State Associations
t o make such items eligible for
handling in that manner. Where
existing State law permi t s disbursements by poli t ical bodies to
be made by bank check as well as
by warrant, the use of checks
wherever possible should be encouraged. Where existing State
law requires such disbursements
to be made by warrants or other
instruments which the de positary
banks of such political bodies
are not authorized by law to pay
upon presentation, appropriate
legislation permitting all such
instruments to be drawn on banks
and payable upon presentation
should be sought.
5.
Return items, ~heck standards, and endorsements (pp. 96 -99)
a.
Return items
(i) The number of items
returned unpaid would be reduced if banks would -
SUMMARY OF FINDINGS AND RECOMMENDATIONS
refuse to retain accounts of
depositors who persist in
drawing checks that are not
good;
exercise greater care to
ascertain that items deposited are properly endorsed; and
employ all reasonable means
to "cure" technical defects
in items presented, so that
they may be paid rather than
arbitrarily returned.
(ii) General adoption
of a procedure for returning
unpaid items directly to the
first endorsing bank would
expedite and simplify such
returns.
b. Standardization of check
sizes and design, as recommended
by the Bank Management Commission
of The American Bankers Association and others, is highly desirable. Banks should undertake more
aggressively to carry out the
recommended program and to obtain
compliance by their depositors.
c. In the interests of legibility, bank endorsements should
be reduced in size and simplified
in content, and steps should be
taken to avoid as much as possible
the superimposition of mechanical
endorsements.
C.
Implications for the Banking System
Ado ption and implementation of the
foregoing recommendations will simplify and
expedite the collection of checks, and will
result in economies for the banking system
as a whole. The re commendations will not,
in the committee 's opinion, cause any fundamental changes in correspondent bank relations, increase materially the work load of
country banks, or alter substantially the
present distribution of work between correspondent banks and Federal Reserve Banks.
The changes recommended may give rise
to questions , however , regarding some current practices, attitudes and policies of
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9
correspondent banks, country banks, and
Federal Reserve Banks. The principal implications of the recommendations for each
of the components of the banking system,
which have received detailed consideration
in the course of the study, are summarized
below.
1.
Relationships and Balances of
Correspondent Banks
Adoption of the changes recommended
will not decrease total collected balances
at correspondent banks; on the contrary,
such balances may increase. There may possibly be some changes at individual banks,
but the impact and extent of any such
changes cannot be estimated with any pre cision at this time. Since one effect of
the recommendations will be to increase the
speed of check collections and provide
earlier presentation and payment, some of
the "float" now reflected in book balances
of correspondent banks (i.e., amounts
credited to correspondent accounts for
items received for collection that have not
yet been actually collected) should be
eliminated.
The conclusion that total collected
balances at corr~spondent banks will not
be reduced as the result of the recommended
changes rests upon the following considerations:
a. A survey was made by the
Federal Reserve Banks in 1949 to
determine whether country member
banks which collected all checks
through Reserve Bank offices
tended to show smaller balances
due from banks (i.e., smaller balances with correspondent banks)
than country member banks which
made little or no direct use of
Federal Reserve collection facilities. The general indication was
that the full use or non-use of
Federal Reserve collection facilities appeared to make no substantial difference in the amount of
balances carried with correspondent
banks. Banks with $10 million or
less in deposits that sent all
items direct to the Federal Reserve
tended to show somewhat smaller
balances due from banks than banks
of that size that collected all or
JOINT STUDY OF CHECK COLLECTION
10
nost of their items through correspondents. But banks holding
$25 million or mre in deposits
that sent all items to the Federal
Reserve carried larger balances
with correspondent banks than those
that did not send items to the
Federal Reserve.
The significant conclusion
which may be drawn from the 1949
survey is that if all country member banks were to send all items
directly to the Federal Reserve
Banks, and concurrently were to
adjust their average balances with
correspondent banks to the level
of the average for banks theretofore making full use of Federal
Reserve facilities, the total decline in balances held by correspondent banks for account of
country member banks throughout
the country might be $250 or
$300 million, or about 5 per cent
of total balances. The recommendations offered in this report,
however, would not have that
effect. With country banks sending i terns drawn on co:rmrercial banks
in Federal Reserve cities to correspondent ban.ks in those cities, and
sending other intradistrict items
directly to Federal Reserve Banks
(with the option of having the proceeds credited to their account s
with correspondent banks), any
change in correspondent bank balances should be upward rather than
downward.
b. Federal Reserve Banks
can neither lend nor invest reserve balances of nember banks,
and they have nothing to gain from
the maintenance by member banks of
reserve balances in amounts exceeding the reserves required by law.
Accordingly, Federal Reserve Banks
will not solicit member banks to
carry excess reserves at the expense of correspondent bank
balances. 5
5.
It has been observe d , in this connection,
that a membe r bank will find it advantageous to
carry funds in excess of the legal reserve r equire ment with a correspondent bank, rather than in its
res e rve account at t he Federal Reserve Bank. The
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c. Balances with correspondent banks constitute part of the
liquidity reserves of the depositing bank. Except to increase the
amount of its vault cash, the only
reason for a bank to reduce its
total deposits with correspondent
banks would be to increase loans
or investments. Any decision by
a bank to reduce liquidity and to
increase loans or investments by
using correspondent balances would
be a matter of management policy,
and not the result of a change in
check routing patterns. 6
Thus there will be no decrease in total
collected balances with correspondent banks,
and there should be no adverse change in
basic corre;pondent relationships. Although
the reco:rmrendations contemplate certain
changes in check routing patterns, correspondent banks will continue to occupy the
same important positio~ in the check collection n:echanism. Not only will they continue to handle items for account of other
banks, but they will be in a position to
receive for the account of country member
banks the proceeds of checks sent by such
banks directly to Federal Reserve offices.
2.
Work Load of Country Banks
The recommended check routing pattern
will require additional sorting on the part
of some country banks. Since the recommendations will result in earlier presentation and payment, the additional sorting
will contribute to a better banking system
and will result in improved service to depositors without imposing an undue burden
on the banks .
It appears that the maximum effect of
the recommended changes in check routing
reason i s that balances due from correspondent banks
which are subject to immediate withdrawal may be
deducted by a member bank fr om gross demand deposits
in determining its r equired reserves, whereas balances due from the Federal Reserve Bank (including
bal ances in excess of required reserve s) may not be
See Regulation D of
deducted for that purpose.
the Board of Governors of the Federal Reserve
System, Section 2(b).
6. It is possible that a given corre spondent
bank might lo se balances as the resul t of a change
in check routing. But if such balances exist in
connection with uneconomic collection procedures,
they do not res t upon a very firm foundation. In
general, a satisfactory and continuing correspondent relationship must result in profit to both sides .
SUMMARY OF FINDINGS AND RECOMMENDATIONS
patterns on the work load of country banks
would be the addition of two (or in a
regional clearing arrangement, three) more
sorts of par transit items than are now
being made at banks which do a minimum
amount of sorting.7 Many country banks
are already making several sorts, and those
handling any substantial~,.·volume of checks
for collection tend to use mechanical
equipment for sorting. Country bankers who
met with the committee in each Federal
Reserve district did not regard the recommendatio'ns as onerous from the standpoint
of country bank operations ..
3. Practices and Policies of
Federal Reserve Banks
Part of the committee's assignment
specified that its study "should include a
careful review of all current (Federal
Reserve) System policies affecting check
collections, but no such policy should
necessarily limit either the scope of the
study or the recommendations of the committee". The committee made such a review
as part of the study, and there is one major
respect in which its recommendations may
conflict with established System policy.
The policy of the Federal Reserve
System has been that Federal Reserve Banks
would accept checks for collection only for
account of member banks and nonmember
clearing banks. Apparently; the reasons why
Federal Reserve Banks generally have not
been willing to receive checks directly
from nonmember banks for collection have
been (1) the feeling that such a step would
throw open to nonmember banks one of the
principal services of the Federal Reserve
System without requiring them to assume the
normal obligations of membership, and (2) a
reluctance to take a step which might be
regarded with disfavor by country member
banks or might be construed by city member
banks as an infringement upon their correspondent relationships with nonmember banks.
Federal Reserve Banks, of course, present
7. Depending on volume, a further breakdown
might be required currently in the case of par
transit items sent to some Federal Reserve offices.
These requirements stem from operating rules of the
Federal Reserve Bank and not from r ecommendations
in this re port. Such requirements are not r egarded
as static; improved operating conditions under
changed collection patterns may lead to some
modifications .
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Federal Reserve Bank of St. Louis
11
checks to virtually every bank in the country, member and nonmember, for payment.
The committee's findings are (1) that
all Government checks, postal money orders
and checks drawn on a Federal Reserve Bank
which are received by correspondent member
banks from nonmember banks, are deposited
by the correspondent member banks with the
Federal Reserve Banks, and (2) that most
par transit items received by correspondent
member banks from nonmember banks are deposited by the correspondent member banks
with the Federal Reserve Banks for collection. Recognizing the opportunity in these
circumstances to minimize the number of
check handlirrgs by the banking system, and
to expedite presentation and pa~nt of the
items involved, the committee has recommended, in effect,that a Federal Reserve
Bank, upon the joint request of a nonmember
bank and a member bank, should receive such
items directly from the nonmember bank for
account of the member bank.8
The arguments favoring a change in the
current policy of the Federal Reserve
System are clear. From a practical standpoint, the items which it is recommended
that Federal Reserve Banks receive directly
from nonmember banks would ultimately be
handled by the Reserve Banks in any event.
With no increase in the work load of the
Reserve Banks, it is possible to save unnecessary handlings of the items by member
banks and to expedite their presentation
and payment. The effect of the recommendation would not be to extend to nonmember
~anks Federal Reserve services not currently
available to them, since the items in question a.re now being collected through the
Federal Reserve System. There need be no
real fear of an infringement upon correspondent relationships of member banks, inasmuch as the consent of the member banks
8 . These recommendations involve the question
of the legal authori ty of a Federal Re serve Bank to
receive items directly from a nonmember bank, which
would have to be resolved by counsel for the Federal
Re serve System. There appears to be a basis, however, for concluding that a Federal Re serve Bank
would have authori ty to receive items from a nonmember bank as re commended ( see 1920 Federal
Reserve Bulletin 948). Al though the question of
authority would be resolved if each nonmember bank
were to open a nonmember clearing account, the committee does not recommend that action, sfnce i t
recognizes that it would not be acceptable to the
Federal Reserve System or to its member banks.
12
JOINT STUDY OF CHECK COLLECTION
would be involved and they would continue
to receive as correspondent balances the
proceeds of collections for nonmember banks.
From the standpoint of general policy,
the public obligations of the Federal
Reserve System should not be overlooked.
The statutory duty of each Federal Reserve
Bank to exercise the functions of a clearing house is intended to afford both to
the general public and to the country's
banking institutions a direct, expeditious
and economical system of collecting checks
and settling balances. In a narrow sense,
the advantages of the System may be viewed
perhaps as limited to those institutions
which are willing to assume the obligations
inherent in membership. More realistically,
however, the duty of each Federal Reserve
Bank to facilitate and improve the payn:ent
mechanism of the economy by providing economical and expeditious check collections
does not run to member banks, as opposed
to nonmember banks, but to the general
public. The recommendations regarding the
receipt of certain items directly from nonmember banks will benefit member banks
directly and will contribute to the speed
and efficiency of the check collection
system~ they should not, therefore, be considered inconsistent with Federal Reserve
System policy.
4.
Benefits if Recommendations
are Adopted
Following is a summary of some of the
benefits which the banking system would
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derive from adoption of the recommendations:
a.
Earlier presentation of items.
b.
Faster collection of proceeds.
c.
Quicker availability of proceeds.
d.
Earlier notification and
earlier return of items to
first collecting banks in
the event of nonpayment.
e.
Improved customer relations.
f.
Additional collection facilities (e.g., regional clearings and direct sendings).
g.
Elimination of unnecessary
handling and circuitous
routing.
h.
Improved efficiency and
accuracy of operations, with
reduced chances of errors or
loss of items.
i.
Lower operating costs.
j.
Improvements in operations
and better distribution of
work loads at Federal Reserve
Banks which may permit
(i) later closing hours for
receipt of certain classes of
items, and (ii) modification
of sorting requirenents.
CHAPTER II
BACKGROUND
A.
original proposal of the Federal Reserve
System . A summary of the statement
follows:
Origin of Proposal for Study
of Check Collection System
In April 1952 , the Federal Reserve
System proposed to The American Bankers
Association and the Association of Reserve
City Bankers that they join with it in a
comprehensive study of the check collection
system of the nation. It was proposed that
the general objective of the study be to
determine whether fundamental improvements
could be made in current che ck collection
methods and practices, with a view to increasing the speed and efficiency of check
collections in the interests of the banking
system and the general public.
B.
1.
Study of recent trends in the
volume of check payments and
prospects for increases in
such volume in the near term
future.
2.
Factual survey to determine
the present methods of collecting various classes of
checks thr oughout the country.
3.
Formulation of a working set
of principles of efficient
check collection me thods
( e .g., minimum collection
time , handling by minimum
number of banks, and handling
by banks best able by locat ion, etc. to handle particular classes of items).
4.
In the light of the facts
developed in the survey, and
applying the principles formulated, determination of appropriate changes to improve the
check collection system.
5.
Study of a number of related
items, such as possible improvements in equipment for
sorting , endorsing and listing checks; simplification and
expedition of handling return
items; possible expansion of
city and county clearing
arrangements; improved facilities and schedules for transportation of checks; and the
like.
Appointment of Joint Committee
The proposal was accepted by the two
bankers' associations, and a joint committee was appointed to conduct the study.
The American Bankers Association designated
as its representatives Orval U. Habberstad,
President of The Union National Bank of
Rochester, Minnesota, and James H. Kennedy,
Vice President and Cashier of The Philadelphia National Bank . The Association of
Reserve City Bankers appointed C. Edgar
Johnson, Vice President of The First National Bank of Chicago. The Federal Reserve
named Frederick L. Deming, Vice President of
the Federal Reserve Bank of St. Louis, 1 and
John H. Wurts, Vice President of the Federal
Reserve Bank of New York, the latter being
designated as chairman of the committee.
C.
Approved Scope of Study
At the direction of the constituent
groups sponsoring the project, the committee formulated a statement of the
proposed scope of its study based on the
general objectives indicated in the
The cormnittee's statement indicated that
approach to the factual study would be objective, and that recommendations would be
dire cted to improvements in the speed and
1 . Since January 1 , 1953, Mr . Deming ha s been
First Vice Pres i dent of the Federal Rese rve Bank
of St. Louis.
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Federal Reserve Bank of St. Louis
13
14
JOINT STUDY OF CHECK COLLECTION
efficiency of check collections for the
benefit of the entire ba~king system and
its depositors. Recognizing that any
changes recommended would have to be made
in relation to the check colle ction system
as a going institution, the committee proposed to approach the study without any
preconceived desire to obtain either mo r e
or less check act i vity for commercial banks
or Federal Reserve Banks, or to interfere
with established correspondent bank relationships. On the other hand, any commitment to maintain present check collection
patterns without change was implicitly
denied, since improvements would necessarily involve some changes.
This statement of the proposed scope
of the study was approved by each of the
constituent groups.
D.
Work of the Committee
The committee held numerous meetings.
It conferred with many bankers, businessmen, equipment manufacturers, goyernment
officials, and others. It conducted a
nationwide survey of check collection
methods and volume of operations, and analyzed the results.
E.
Bank Collection Operations
and Equi pment
As an early phase of the study, consideration was devoted to the extent to
which bank operations and equipment had
adjusted to the substantial increase in
the volume of check collections that had
occurred.
The check handling operation in a bank
involves listing, adding, endorsing and
sorting; in addition checks drawn on the
bank must be posted. Forty years ago,
listing and adding were done on an adding
machine, endorsing was done by hand stamp,
and sorting was done by hand into compartments of a sorting rack. Later a mechanical
endorsing machine was introduced. A more
recent development has been the proof
machine, which lists and adds incoming
work, endorses, sorts to a limited number
of compartments or "pockets", and lists and
adds the checks sorted into each pocket.
This machine, which is the only real advance in the equipment field, still
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Federal Reserve Bank of St. Louis
requires manual operation, and still involves the risk of the "human element" in
so far as accuracy of listing and sorting
is concerned. In addition, the machine
may create errors even when operator performance is perfect. The proof machine has
been a great help in handling check operations in large volume, but by no means can
it be said to be the answer to all the
problems arising from those operations. 2
Except for local items, the collection
of checks is closely related to and dependent upon transportation facilities. The
most significant development in that area
over the last forty years has been the use
of air transportation in the collection of
checks on distant points. Items drawn on
banks in distant Federal Reserve Bank
cities, •which required three or four days
to collect when ground transportation was
used, are now collectible overnight in
many instances; the return of unpaid items
is similarly expedited. In the same
manner, the collection of "country" items
in distant areas requires three or four
days less than before. On the other hand,
the collection of items within a radius of
150 or 200 miles has not improved in
2 . The committee is not unmindful of the development of checks in punch card form and of the
equipment designed to sort, list and add such
checks , but it regards the development in its
present state as significant primarily in relation
to the issuance and payment of checks, rather than
in relation to the collection of checks. In theory,
if all checks were issued as punch cards of uniform
size and type, if at the time of issuance the
amounts of the checks and the fract ional routing
symbols of the drawee banks were punched in standardized fields, and if all banks handling any
considerable volume of checks f or collection were
furnished with appropriate sorting and listing
equipment, the punch card check would be a development of outstanding significance in the check
collection operation . In actual practice, however,
only a small percentage of checks a re in punch card
form; they are of s everal different sizes and of
at least two incompatible types ; neither the
amounts nor the routing symbols of the drawee banks
are customarily punched at the time of issuance,
and there is little standardization of punching
fields. The result is that use of the card check
~ represent an advantage to the issuer or to the
drawee bank, but even a collecting bank having
appropriate equipment available is unable to take
advantage of the punch card form and must handle
such checks manually in the same manner as paper
checks. For this reason, the punch card check is
not to be r e garded as a development of significance
to the check collection operations of banks at the
present ti~e .
---
BACKGROUND
40 years; instead, in some instances, collection has deteriorated ·because of curtailed train and mail services. A recent
trend toward utilizing services of contract motor carriers for the collection of
such items in some areas may be the beginning of a new development.
It appears, therefore, that except
for the development of the proof machine
and the use of air transportation for the
collection of items on distant points, the
check collection mechanism of the country
is about where it was 40 years ago. The
existence of this situation, when the volume of check payments has increased so
significantly, and when business and industry in this country have made unprecedented technological advances particularly
in the fields of automation and mass production, seems to lead inevitably to the
conclusion that bank operations have not
kept pace with the times. This observation
is not restricted to banking; modernization
and mechanization of office procedures in
general have lagged far behind comparable
developments in the production field.
Before embarking on an extensive survey
of pres~nt collection methods in the light
of currently available equipment, it seemed
advisable to ascertain with some degree of
assurance that no completely revolutionary
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Federal Reserve Bank of St. Louis
15
development in check handling equipment,
that would render present methods obsolete,
was impending. The committee therefore consulted with research and development executives of the principal manufacturers of business machines and similar equipment, to review in confidence each company's plans for
improvements in equipment ~dapted to handling checks. The information thus obtained
indicated that while improvements and refinements in existing types of equipment
were being perfected, there was no fundamental innovation of major significance sufficiently close to realization to justify
making this study and its reco:mJn=ndations
for improvements in check collection methods
in any terms other than those of the equipment and methods currently available.
Information furnished in con:t_:idence by
manufacturers in the fall of 1952 indicated,
however,that from the longer range point of
view, techniques then in the process of experimentation and development offered interesting possfbilities of mechanizing substantial segnents of check collection operations.
Although the perfection of such techniques
seemed rather remote at that time, later developments appear to give some reason for
anticipating earlier realization of substantial mechanization of the operations at the
largest banks.
CHAPTER
ill
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
the 8 billion checks paid in 1952. The
value of checks paid in 1952 amounted to
something like 2 trillion dollars.
An old adage says that money makes the
world go 'round. Whether or not that statement is correct, there is no doubt about
what makes money go 'round in the United
States, and that is the check collection
system. More than 90 per cent of the dollar
amount of all of our money transactions is
said to be accomplished by check payments.
Checkbook money, the demand deposits in the
nation's banks, is by far the most important
part of our money supply.
A.
Increased population and a rising level
of economic activity, both of which are associated with larger numbers of payments,
account for much of the gain in volume. Of
even more influence, perhaps, are factors
not directly related to economic and population trends: banking efforts to popularize check use (pay-as-you-go accounts, for
example), growth in Treasury payments and
receipts, changes in payroll practices of
employers,l the increase in installment purchases, and the like.
Growth in Check Use
There are approximately 47 million
checking accounts in banks in this country,
about the same number as there are families.
Most businesses have checking accounts, many
of them have a number, and individuals or
families often have more than one account.
Although many individuals, as well as some
small businesses, still do not have checking
accounts, the number of people using checks
is increasing steadily; there are now about
20 million more checking accounts than there
were 12 years ago. The number of checks
written appears to have increased even more
rapidly than the number of checking accounts.
No attempt was made in this study to
predict the future volume of check activity.
It may be noted, however, that should the
trend of the past thirteen years continue,
the number of checks written in 1960 would
approximate 14 billion, and in 1970 would
be about 22 billion. Although these levels
may not be reached, an upward trend in volume is expected to continue. A severe depression might curtail the number of check
payments, or at least moderate the growth
trend, although the recent record indicates
that short-lived downward economic adjustments have no appreciable effect on check
volume. As previously indicated, moreover,
factors not directly related to economic
and population levels may be expected to
have a substantial influence.
Reasonably accurate figures have been
available for some time on the dollar amount
of checks paid annually, but until recently,
estimates of the number of checks paid have
been little better than informed guesses.
Now a fairly reliable benchmark is available,
as the result of a series of surveys made as
part of this study. The surveys indicate
that the number of checks paid during the
calendar year 1952 was in the neighborhood
of 8 billion.
B.
When the owner of a demand deposit in
a bank draws a check against the deposit and
delivers it to the payee, the payee either
The lack of reliable earlier data makes
it difficult to be precise concerning the
trend in check use. Some approximation of
trend may be obtained, however, by using
data on the number of checks handled by Federal Reserve Banks. Volume flowing through
these offices in 1952 amounted to 2 1/3 times
the volume handled by them in 1939. On this
basis, the total number of checks paid in
1939 was about 3.4 billion, compared with
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The Check Collection Network
1. According to the National Industrial Conference Board, the number of employers paying wages by
check, rather than in cash, increased from 70 per
cent in 1937 to 77 per cent in 1948; the number paying wages weekly, rather than at less frequent intervals, increased during the saire period from 73 per
cent to 81 per cent . These changes add substantially
to check volume; for example, an employer changing
from biweekly to weekly wage payments doubles the
number of payroll checks issued without any change
in the number of persons employed.
16
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
cashes it or deposits it for collection. In
either case, except when the check is cashed
or deposited at the same bank on which it is
drawn, it comes into the hands of a bank
which must collect it from the drawee bank.
The drawee bank may be in the same town as
the collecting bank, or it may be in a nearby community, or it may be across the continent. The essence of the check collection
problem is to get the check from the first
collecting bank to the drawee bank by the
most expeditious and direct route available,
and to obtain prompt remittance in a form
readily available to the collecting bank
and its depositor.
Most checks deposited in or cashed at
a bank must be sent to another bank for payment. On an average day in July, 1952, about
28 million checks were deposited in or cashed
at banks in the United States. Only one out
of every five of these checks was deposited
in or cashed at the bank on which it was
drawn. The other four had to be sent elsewhere for payment.
Eighty per cent of the checks written,
therefore, are processed through the check
collection system in order that they may be
presented to the drawee banks for payment.
In this process, checks pass through big and
little commercial banks, through clearing
houses, and through Federal Reserve Banks V
and branches. They are carried by messenger, by car and truck, by railroad, bus,
airplane, and boat .. They go by mail, by express, and by hand, and notices concerning
them are sent by the same means, as well as
by telegraph and telephone.
'
The check collection system of the
United States consists of a network of processing points tied together by transportation and communication systems. The processing points are the nation's 14,000 commercial banks and their 5,500 branches,
about 300 city clearing houses, and the 12
Federal Reserve Banks and their 24 branches.
The Reserve Banks and about 200 large commercial banks are the major switching centers of the check collection network;through
them flow more than half of the checks written.
In the process of collection, some
checks make only short trips in brief periods of time, others cross the continent
(some going abroad), and some follow very
roundabout routes, stopping at as many as
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Federal Reserve Bank of St. Louis
17
ten or twelve processing points. Remittances for items processed through the network flow in the opposite direction.
Most of the checks moved with reasonable facility and speed through the collection network in 1952, although many were
handled at more banks and traveled far more
miles in the process than an objective observer would have considered necessary.
Relatively few, however, were sent over very
circuitous routes with many stopovers; most
of these were nonpar items, which numbered
about 180 million, or less than 2 per cent
of the total .. Still fewer, about 50 million
items, or two-thirds of one per cent of the
total, were returned unpaid through the network for one reason or another. A little
more than 50,000 items -- about one-thousandth of one per cent of total collections
-- were lost in the network during the year.
c.
Committee Surveys
This general picture of tpe check collection system can now be brought into
sharper focus as a result of a series of
surveys initiated by the Joint Committee on
Check Collection System. In the summer of
1952, The American Bankers Association, the
Association of Reserve City Bankers, and
the Federal Reserve System distributed to
their constituents questionnaires prepared
by the committee to elicit factual data on
check volume, its sources and disposition,
operating procedures and problems, and to
obtain specific suggestions for improvement
in the present check collection system.
The returns from the surveys were most
gratifying. Almost 600 ABA member banks out
of 1,100 solicited returned usable completed
questionnaires. All banks from which the
membership of the Association of Reserve
City Bankers is drawn were sent forms and
172 usable returns came in. All Federal Reserve Banks and branches returned completed
questionnaires. The usable returns covered
check activity at commercial banks of the
country holding more than half of all deposits; coverage was adequate at all size
classes of banks, and almost complete at
very large banks; and coverage was fairly
uniform among the twelve Federal Reserve
districts. 2 The samples obtained in the
2. Appendix A contains a detailed discussion
of the sampling process, coverage of the surveys, and
the questions asked.
18
JOINT STUDY OF CHECK COLLECTION
surveys, therefore, were broad enough and
deep enough to produce a very reliable picture of the check collection system. This
is the first time that such a sharply focused picture has been possible.
The surveys actually provide several
sets of three dimensional views of the check
collection system. One set covers the volume of check activity in all of the commercial banks of the country on an average day
in July, 1952. The first dimension shows
the kinds of checks handled -- checks drawn
on the reporting bank and presented to it
for payment; checks deposited with it for
collection from other banks in the same
city, from other banks in the same Federal
Reserve district, from other banks in other
Reserve districts, and from nonpar banks;
and checks which the Reserve Banks do not
handle as cash items. To add a second dimension, this volume of handlings is classified by sources of receipt -- checks received through the clearing house, in cash
letters from Federal Reserve Banks, in cash
letters from co~rcial banks, or in other
deposits, and checks cashed . The classification by disposition supplies the third
dimension - - checks debited to deposit accounts , local items presented through the
clearing house or by messenger, checks
cleared through special arrangements, checks
sent to the Federal Reserve Bank of the district, to other Federal Reserve Banks, and
to correspondent banks.
Other sets of three dimensional views
are obtained by classifying the banks according to several bank size groups, or by
Reserve City or country bank status. Still
other views are obtained by classifying according to Federal Reserve districts. All
views can be given still more color and
depth by blending in supplementary information supplied by the responding banks and
complementary data obtained ~hrough the Federal Reserve surveys. Practically all of
the data in the following parts of this section come from the surveys, and the analysis and interpretation are based on the survey results .
1.
Check Volume
Table I shows the pattern of check volume in all of the commercial banks of the
country on an average day in July, 1952.
Tables I-A and I-B show percentage distributions of the figures presented in Table I.
The figures shown in Table I relate to
an average day in July, 1952. Check volume
in July is about 4 per cent smaller than
average monthly volume for the year. Conse -
Table I
Chec k Volume on an Average Day in July 1952
By Size Class of Commercial Bank
(Items in thousands, deposits in millions)
Commercial Banks
with Deposits of*1.
2.
3.
4.
5.
Less than $7 - 5 million
$7.5 million- $24.9 million
$25 million- $99-9 million
$100 million-$499 -9 million
$500 million and over
\
Subtotal
6,
Federal Reserve )3anks
Total
Items Received for Collection
On
Par
Nonpar and
Local
Transit Restricted
Banks
Items
Items
Number
of Banks
Total
De;eosits
Total
Check
Volume
11,486
1,802
511
170
__TI
$27,706.0
22,957. 8
23,310.7
34,512.3
53,861.0
11,255
9,137
9,305
11,831
13 , 277
6,657
4,616
3,995
4,502
5,211
1,377
1,526
1,923
3,164
3,970
2 , 990
2 , 874
3,089
3,849
4 , 042
231
120
298
317
~
14 , 006
$162,347.8
54,8o5
24 , 981
11,96o
16,844
1,020
2 , 702
6, 001
14,662
22,845
ll,552
66,357
Items
Paid
2,849**
27,830
1,020
* As of June 30 , 1952.
** Items paid by Federal Reserve Banks include U.S. Treasury checks a nd postal money orders, as well as
checks drawn on the Federal Reserve Banks.
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Federal Reserve Bank of St. Louis
19
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table I -A
Check Volume on an Average Day in July 1952
Per Cent Distribution by Size Cl ass of Commercial Bank
Excluding Federal Reserve Banks
Commercial Banks
wi th Deposits of*1.
2.
3.
4.
5.
Less than $7 . 5
mi llion
$7 -5-$24.9
million
$25-$99 -9
million
$100-$499 -9
million
$500 million
and over
Subtotal
6.
Total
Deposits
Total
Check
Volume
Including Federal Reserve Banks
Items
Paid
Items Received
for Collection
On
Par
Nonpar and
Transit Restricted
Local
Banks
Items
Items
Tota l
Chec k
Vo lume
Items
Paid
Items Received
for Collection
On
Par
Local Transit
Banks
Items
17 . 11,
20 .51,
26 . 6%
11 . 51,
17 .71,
22 . 61,
17 .r:11,
23 . 91,
14 .1
16 . 7
18 . 5
12 . 8
17 . 1
11.8
13 . 8
16 . 6
10 .4
12 . 6
14.3
17 . 0
16 . 0
16 . 1
18.3
29 .2
14 . 0
14.4
13.1
13 .5
21.3
21. 6
18 . 0
26.4
22 . 9
31.1
17 . 8
16 .2
21. 6
16 . 8
33 .2
24.2
20 . 9
33 .2
24 . 0
----2.:l
20 .0
18 .7
27 . 1
17 .7
100 .r:!1,
100.r:!1,
100 .r:!1,
100 .0%
100.r:!1,
100.r:!1,
82 .61,
89 . 81,
81.6%
73 .71,
l7.4
10 .2**
18 . 4
26 . 3
100 . 01,
100 . 01,
Federal Reserve
Banks
Total
100 . r:!1,
9 . 41,
100 . 01,
13. 11,
* As of J une 30 , 1952 .
** Items paid by Fede ral Reserve Banks incluQe U.S. Treasury chec ks and postal money orders, as wel l as chec ks
drawn on the Federal Res e rve Ba nks .
Table I - B
Check Volume on an Average Day in July 1952
Per Cent Distribution by Clas s of Check
Commercial Banks
with DeEosits of'lE- 1.
2.
3.
4.
5.
Less than $7-5 million
$7.5 million- $24 .9 million
$25 million-$99-9 mill i on
$100 million- $499 -9 million
$500 million and ov er
Average
6.
Federal Reserve Banks
Average
*
Total
Check
Volume
Items
Paid
Items Received for Collection
Par
Nonpar and
On
Transit Restricted
Lo cal
Items
Items
Banks
100 . 0'!,
100 .0
100.0
100 . 0
100 . 0
59 . 1'!,
50.5
42 . 9
38 .1
12.~
16 .7
20.7
26 . 7
26 .6'!,
31.5
33 . 2
32 . 5
2 . 1'!,
1.3
3.2
2.7
32.:..1
~
lQ..:i
2..0.
100 . 0,;,
45.6%
21 . 8'!,
30 . 71,
1.91,
100.0
24 . GlE-¼
~
52 . 0
100 . 0'!,
42 .r:!1,
22.11,
34 . 4'!,
1.51,
As of June 30 , 195 2 .
Items paid by Federal Reserve Banks include U. S . Treasury checks and postal money
orders, as well as checks drawn on the Federal Reserve Banks .
**
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N
0
PROPORTION OF PAR CHECKS HANDLED BY THE COMPONENT PARTS OF
THE CHECK COLLECTION SYSTEM ON AN AVERAGE DAY IN JULY 1952
1::•:": :· ,::: : :·.::::
•.•: ;_: • I 4 .O ; : •; •:
=...~ ·. ·:_-; ~ ; ; : ; ,,_; ·.
10
0
40
30
20
50
60
70
80
90
Per cent
Percentage handled by
Federal Reserve Banks
Percentage handled by
commercial banks with deposits
..: . ...: :- ........
:·..:.
,
"
,,
~:
Under $7.5
million
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Federal Reserve Bank of St. Louis
'•
~:,•~·-····
$7.5-24.9
$25.0-99.9
million
million
$100.0-499.9 $500.0 million
million
and over
100
DISTRIBUTION BY CLASS OF CHECK AND BY SIZE OF BANK OF
CHECKS RECEIVED BY BANKS ON AN AVERAGE DAY IN JULY 1952
Bank size-group
t\XHt~tttlUL;
Under $7.5
million
f !%i1Wlitit?::·.
$7.5-24.9
million
::.:.::.. ·::..:•::-:· ••·: :,·: =~··.~•.:::-.:.::•:. ·. ::.:·:.·=·.
::~:::-::::-.\!::: ~=:.:.. 33. 2 : :::.::_::-:::-: 3.2
$25 .0-99.9
million
-.·: •.;•:·.'.•;••:•::.,....-.:::-.•:.-•.::~:~ :•:: :!·.::
:.:·::.l:;·-::•
.=-::: 9:- ·= ~ ·:: : =·:~::~~ ::J.=.:-:-.:~ ::-·:-·
. . • .......... 3 2. s . . ... •· .... · a. 1
$100.0-499.9
million
::-:::-:: =·~ ·.:.·~•·:::: t ·.-::·:.=:•:.:~·. ·: •.:.-+
!~)}{&:ii~?::~?~iii~
$500.0 million
and over
:~\.(t
. ·:·. ::.-;·~?:·:-:::=?:;::::~/~?·;=r·=?~:=:=
... •.• 52.0 .. ·.·•···· .....••. ·:=•·.·:•. •
Federal Reserve
Banks
•_
. •.•:-·.: ·•4:i·.!.·••:.• ,':•,_~__;___:-:: :.• ........ , ._ •••••
~;y;~:; ;,~:-~ti: ~~~;,:; ;:~i~~i~~~;~i~
All banks
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Federal Reserve Bank of St. Louis
~
0
10
20
30
50
40
60
70
80
90
100
Per cent
Checks drawn on
Own bank
Local banks
Out-of-town
banks
Nonpar items
~·.·.·•······.·•·• .. •··.·.···
....
~\\\~:}t}i\)
l\)
I-'
22
JOINT STUDY OF CHECK COLLECTION
quently, the figures in the table understate
average daily volume for the year as a whole)
Seasonally adjusted figures would show about
29 million checks presented to drawee ba~s
and paid, and about 40 million checks handled
for collection each day. The variation in
the total number of checks handled in a day
(items paid and items received for collection), as the result of seasonal influences
and various other factors, ran from a low
of perhaps 60 million items to a high of
perhaps 75 million items. For t he year as
a whole,the number of checks paid (and thus
presumably the number written)was about 7 .8
billion. 4
About two-fifths of all items handled
in the network on an average day in July,
1952, were paid on that day. Presumably
about the same ratio applied on ot her days.
Thus the pattern implied is a flow of new
checks into the network each day as they are
cashed or deposited at banks, matched by an
outflow of items a s they are paid. The items
in process of collection constitute the stock
in the network. That stock, of course, constantly changes in terms of the individual
items composing it, but on balance i t remains about the same relative size. As total
volume goes up or down bec ause of cycl i cal,
seasonal, irregular or trend factors, bo th
t he amounts of t he inflow and outflow of
items and t he amount of t he invent ory i n the
network will vary, but , with present routing
patt erns, the general relationship between
inflow, outflow, and sto ck should t end to
hold.
The rat io of t he number of i t ems paid
t o t he number of i t ems in process of collec3. There may be some duplication a s between
check s i ncluded i n the caption "Items Paid" and tho se
l i s ted under "Items Re ceived f or Col lec tion - On
Local Banks ". In some city cl eari ngs both the pr e senting ba nk a nd the r eceiving bank may have counted
t he same item on the s ame day. Such over statement as
would re s ult, however , woul d not be i n " I tems Pai d"
but i n "Items Received f or Col lec t i on - On Lo cal
Banks" and would have the effects of (1) sl i ghtly
ove r stating , by the amount of the dupli cation , t he
total of items r eceived for coll e c tion, a nd (2)
slightly overemphasizing local items as a pe r cent
of t ot al items r ece ived f or col l ection . It would not
d i stor t t he pa tter ns of so ur ces and disposition of
the various types of i tems r ece i ved fo r collection .
The commit tee does not regar d the possible overstate ment as i mpor tant eno ugh t o warrant a n arbitrary
adjus tment.
4 . Some checks written at t he cl os e of the year
were not pai d until early 1953 ; i n off se t , some wri t ten at the close of 1951 wer e pai d i n ear ly 1952 .
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Federal Reserve Bank of St. Louis
tion on an average day in July, 1952, indicates that the average item remained in the
network for about 2 1/3 business days, and
was handled at about 2 1/3 different banks.5
Therefore, the 7.8 billion checks written
and paid in 1952 evidently requirei about 19
In
billion individual bank handlings.
other words, from the viewpoint of operations, the banking system was concerned with
19 billion pieces of paper rather than 7.8
billion.
One interesting fact is the relatively
small influence which payments by the Federal Government have upon t he volu.ne of operations in bank collection activities. (Volume of operations is not affected much by
dollar amount of payments.) The total number of U. S. Treasury checks handled by banks
in 1952 was less than 450 million -- not
quite 6 per cent of total check volume. Accordingly, even a substantial change in the
number of Government payments, either upward
or downward, would not have a significant
effect upon the total volume of collection
operations. The number of postal mney orders i s sued in a year approximates the number of Treasury checks, but money orders
represent payIDf;nts of private individuals.
(About 10 per cent of postal money orders
issued do not enter the check collection
ne t work, being handled within the Postal
Sys tem.)
The tables also illustrate differences
in t he proportionate volume of check activity at larger banks as compared with smaller
banks. In relation t o shares of total bank
5. This fig ur e i s suppor t ed gener ally by r es ul ts
fr om two theo r etical pa tter ns wor ked out by the co mmittee . One pattern took t he i t e ms i n pr ocess of coll ection on the average day i n July, 1952 and carried
t hem back t hrough the col lection chain t o t he or iginal
bank s of de po s it and forwar d t hrough t he chain t o
dr awee banks , t hereby getting t otal handlings by banks;
t he othe r took t he new entr ant s int o the ne t work and
carried them through to f inal payme nt. The fir st pa t t ern worked out t o 2.6 days and handl i ngs; the second
t o 2 . 2 . The average of the t wo pa tte r ns i s 2 . 4 . In
none of the se r atios was a ny allowance made for t ime
held or numbe r of handlings by holders other than
banks .
6. These fi gure s r el a te t o the number of banks
at whi ch ite ms a r e handled in the course of c oll e c t ion , not to the number of " handl ings" i n the sense
of then umber of times the i tems are picked up and
put down . Some students of bank operat i ons have
estimated tha t on the aver age there a r e three handlings at each ba nk through which a check pas s es in
t he pr oce ss of collect i on; on the basis of th i s e st imate , the numbe r of check "handl i ngs" in ba nks wo uld
have a pproached 60 billion i n 1952 .
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
deposits, proportionately greater numbers of
checks were drawn on smaller banks than on
larger banks. The relationship between deposit size and the dollar amount of checks
drawn was probably appreciably closer.
The proportions of total deposits held
and of numbers of items received for collec tion were more nearly alike in the different
size classes, with the smaller banks tending
to receive a smaller number of checks for
collection than their share of total deposits would indicate and the larger banks (except for the very big ones) tending to get
relatively more. Looking at the types of
· items received for collection, the volume,
both of items on other local banks and of
transit items, relative to total check vol ume was larger at the big banks than at the
smaller ones. This reflects the check collection activities of the correspondent
banks, and the fact that because a number
of small banks are located in one-bank towns
they handle no items on other local banks.
In the case of nonpar items, the largest
banks handled the smallest volume; activity
in collecting nonpar items was concentrated
in banks with deposits between $25 and $500
million. In part, this reflects location -within the four principal nonpar areas, there
was at the time of the survey only one bank
with more than $500 million in deposits -and in part it represents the business habits
of the very big banks.
The 207 commercial banks with deposits
of $100 million or more and the 36 Federal
Reserve offices are the major components of
the check collection network.7 Nearly half
of all checks presented for payment on the
average day were drawn on or payable through
them, and they handled on that day almost
two-thirds of all checks in process of collection.
7. Following is a breakdown of commercial banks
in the different size classes according to their status as "Reserve City" or " country" banks (deposits in
billions):
Size Class
Reserve City Banks Country Banks
Total
Total
Number Deposits Number Deposits
$7.5 million
$7.5 - $24.9 million
72 $ 1.2
$25 - $99.9 million
130
6.9
$100 - $499,9 million 116 25.6
Over $500 million
...Jl 53.9
Totals
355 $87.6
Under
...
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Federal Reserve Bank of St. Louis
11,486 $27.7
1,730 21.8
381 16.4
8.9
54
13,651
$74.8
23
One point, developed in greater detail
l ater , should be noted here. This one di mensional view of total check volume on an
average day in July may give a distorted impression of the place of Federal Reser ve
Banks in the collection system. Total volume figures show that Federal Reserve Banks
handled on the average day one - fourth of all
items in process of collection. The facts
are accurate, but should be viewed in the
ligh~ of the following additional facts . A
certain portion of the total number of checks
deposited in or cashed at the nation ' s banks
on a gi ven day would not pass through a Federal Reserve Bank in any event; these include (1) one-fifth of the total consisting
of items drawn on the banks in which they
are deposited or at which they are cashed,
and (2) one - third of the total consisting
of items drawn on commercial banks in the
same community as the collecting bank and
presented locally, or drawn on nonpar banks .
The balance, about one - half of the checks
deposited in or cashed at commercial banks
daily, and consisting primarily of out-of town par items, is eligible for collection
through Federal Reserve Banks; about 75 per
cent of these items pass through Federal
Reserve Banks in process of collection.
2.
Sources and Disposition of Checks
Data on sources and disposition of
check~ add the other dimensions to this picture.
The checks in the hands of a commercial
bank at any given time may be divided into
two principal categories: (1) checks drawn
on the bank -- so called "on us" items -which have been cashed at the window, received in deposits, or presented by collect ing banks for payment either through the
8. Information on sources of checks received a t
coI11Irercial banks was obtained on a broad scale only
from /illA banks, and the data related to total handlings rather than to specific types of checks. A
subsequent s pot survey of some 200 banks in five Reserve di s tric ts provided information for estimating
sources of checks for each type of check (checks
paid, other local, transit, etc.) for each of the
four size classes of /illA banks. Other information
of more limited character provided the basis for estimating sources of che cks handled by Reserve City
banks. Distribution of checks, by type of check, was
reported s pec ifically by the Reserve· City banks, and
ABA banks re ported distribution of total handlings by
such detailed classifications that estimates by type
of check were readily obtained.
24
JOINT STUDY OF CHECK COLLECTION
clearings, by messenger or by mail; and (2)
checks drawn on other banks, which have been
cashed at the window or received for collection for account of a depositor (including
a commercial bank depositor where a correspondent relationship exists). The surveys
provided information regarding the sources
of receipt and disposition of items in the
bank collection network, which sheds consi~erable light on established check collection patterns. The information is best understood, however, if the two principal categories mentioned are considered separately.
For the purposes of this presentation, checks
in the hands of Federal Reserve Banks will be
disregarded temporarily.
Checks pre·sented to a drawee bank for
payment may come from several sources; obviously there is only one disposition: they
are charged to the drawers' accounts (disregarding for this purpose the small number
returned unpaid). Tables II and II-A illustrate the sources of checks presented to
drawee banks for payment on one day.
(a)
Sources of Items Presented
to Drawee Banks for Payment
Tables II and II-A indicate that about
two-thirds of the items presented to the
commercial banks of the country for payment
were received either through local clearings
Table II
Sources of Items Presented to Commercial Banks
for Payment on an Average Day in July 1952
By Size Class of Commercial Bank
(Thousands of items )
Commercial Banks
with Deposits of*1.
2.
3.
4.
5.
Less than $7.5 million
$7.5 million-$24.9 million
$25 million-$99.9 million
$100 million-$499.9 million
$500 million and over
Total
*
Total
Items
Received
From
Clearings**
From
Federal
Reserve
From
Other
Banks
From
Other
Deposits
Cashed
Checks
1,103
303
622
504
729
452
391
616
6,657
4,617
3,995
4,501
5, 211
1,438
1,576
1,526
2,401
~
2,584
1,586
1,149
624
***
803
700
307
356
~
~
_m
24,981
10,496
5,943
2,707
3,050
2, 785
As of June 30, 1952.
Clearing House, local messenger presentations, special clearing arrangements.
Nominal; only one bank in this size class is located outside a Federal Reserve City .
**
***
Tabl e II-A
Sources of Items Presented to Commercial Banks for Payment
on an Average Day in July 1952
By Size Class of Commercial Bank
Per Cent Distribution by Source
Commercial Banks
with Deposits of*1.
2.
3.
4.
5.
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Federal Reserve Bank of St. Louis
Less than $7.5 million
$7.5 million-$24.9 million
$25 million-$99. 9 million
$100 million-$499.9 million
$500 million and over
Average
*
**
*-H-
Total
Items
Received
From
Clearings**
100.0%
100.0
100.0
100.0
100.0
100.0%,
From
Federal
Reserve
From
Other
Banks
21.6%
34 .1
38.2
53.3
68 . 2
38.8%
34.3
28 . 8
13.9
***
12.1%
15.2
7.7
7-9
10.4
16.6</o
6.6
15.5
11.2
9.9
10.9%
9.8
9 .8
13.7
11.5
42.0%,
23.8%
10 .8%
12.2%
11.21i
---
From
Other
Cashed
Deposits Checks
As of June 30, 1952 .
Clearing House, local messenger presentations, special clearing arrangements.
Nominal; only one bank of this size is located outside a Federal Reserve City.
DISTRIBUTION BY SOURCE OF CHECKS AND BY SIZE OF BANK OF CHECKS PRESENTED FOR PAYMENT
ON AN AVERAGE DAY IN JULY 1952
Bank size-group
Under $7.5
million
$7.5-24.9
million
$25.0-99.9
million
$100.0-499.9
million
$500 . 0 million
and over
All
commercial
banks
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Federal Reserve Bank of St. Louis
0
10
20
30
40
50
60
70
80
90
100
Per cent
Clearings
Source of checks received
Federal Reserve
Customer
Bank
Other banks
deposits
Cashed checks
l\.)
""
26
JOINT STUDY OF CHECK COLLECTION
or in cash letters from Federal Reserve
Banks. The remaining third of the items
presented were received in relatively equal
proportions in cash letters of other banks,
in deposits of customers, and over the
counter for cash.
received the items, but also in the manner
in which the collecting banks disposed of
them in order to effect collection. Tables
III and III-A illustrate the so~ces of receipt of such items and the disposition
which was made of them.
The relative proportion of items received through the clearings and received
in Reserve Bank cash letters varied according to the size of the drawee bank. In
smaller banks the proportion of items received through the clearings tended to be
smaller and the proportion received in Reserve Bank cash letters tended to be larger;
in larger banks, this relationship was reversed. One reason for this variation is
that in the case of many smaller banks clearing arrangements were either nonexistent
(because there was no other bank in town) or
limited in effect (because the number of
other local banks was small). Another reason is that banks in Federal Reserve Bank
cities counted as items received through
the clearings items which were so presented
by the local Reserve Bank; the surveys indicate that if these items had been classified as received from the Reserve Bank, the
total proportion of items received through
the clearings and from the Reserve Banks
would have been about equal -- about onethird of all items presented coming from
each source.
In all of the commercial banks of the
country, 74 out of every 100 items received
for · collection were either cashed at the
window or included in deposits of customers;
the remaining 26 items were deposited by
other banks. The relationship between the
proportionate amounts deposited by customers
and by other banks varied according to the
size of the bank receiving the deposits.
Banks in the two smallest size groups received virtually no items deposited by other
banks,9 whereas banks in the larger size
groups received a considerable portion of
their collection volume -- two-fifths in the
case of the large banks -- in deposits of
other banks. These figures begin to show
the place in the collection pattern occupied
by correspondent banks; the pattern becomes
clearer when attention is directed to the
disposition of checks received for collection.
(c)
A further point to be emphasized in
assessing the figures contained in TablesII
and II-A is that many items presented to
drawee banks -- particularly the larger
banks -- through the clearings originated
with out-of-town banks, which sent them to
city correspondents or to Reserve Banks for
collection.
(b)
Sources of Items
Received for Collection
It has been observed previously that
items of the first category considered -i.e., those presented to drawee banks for
payment -- were retired from the collection
system by being charged to the accounts of
the drawers, and therefore this study is not
concerned further with their disposition. On
the other hand, in the case of checks in the
second category mentioned -- i.e., those received by one bank for collection from another bank -- we are interested not only in
the sources from which the collecting banks
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Federal Reserve Bank of St. Louis
1
Disposition of Items
Received for Collection
In the disposition of items received
for collection, all banks combined presented
about one-third through local clearings,sent
about one-third to Federal Reserve Banks,
one-fifth to correspondent banks, and disposed of the balance about equally between
direct sendings to drawee banks and collections through miscellaneous channels. Of
the items presented through clearings, the
only substantial deviation among the several
size groups was the naturally lower percentage in the smallest size group, reflecting
the absence of clearings in one-bank towns.
Except for banks in the two smallest size
groups, which seldom engage in the practice,
there was little variation among the size
groups in the percentage of items sent direct to drawee banks. The significant variations among the several size groups occurred
9. The small number of items shown consisted
principally of (1) items on nonpar banks in the same
town to be presented over -the - counter for payment at
par, (2) items on other local banks received from
cer tain large direct sending banks (mostly the central midwest) wh i ch often send items on all banks in
a town to the principal correspondent in that town,
and (3) items sent to some small Reserve City banks.
27
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table III
Sources and Disposition of Items Received for Collection
By Commercial Banks on an Average Day in July 1952
By Size Class of Commercial Bank
(Thousands of items)
Sources
Commercial Banks
with De~osits of*1.
2.
3.
4.
5.
Disposition
Sent
Direct
To
To
to
Federal
CorreMiscellaClearings** Drawee# spondents Reserve## neous***
Total
Items
Received
Nonbank
De~osits
4,598
3,827
42
729
1,188
37
2,216
800
357
4,520
3,817
151
552
1,371
91
1,959
953
146
5,310
3,683
1,306
321
1,782
329
1,185
1,913
101
Deposits
of Banks
Cashed
Checks
Less than $7.5
million
$7.5 million$24.9 million
$25 million$99.9 million
$100 million$499.9 million
$500 million
and over
7,330
4,226
2,839
265
2,646
602
812
3,043
227
8,066
~
3,491
200
3,231
_ill.
_ill
3,297
_§J!
Total
29,824
19,928
7,829
2,067
10,218
1,592
6,546
10,006
1,462
* As of June 30, 1952.
** Includes local messenger presentations and some special clearing arrangements.
*** County and country clearing houses, as well as various special arrangements. Includes some items
payable at Federal Reserve Banks.
# Transit items only, including nonpar items. (See footnote 10, page 29)
## Includes some but not all items payable at Reserve Banks.
Table III-A
Sources and Disposition of Items Received for Collection
By Commercial Banks on an Average Day in July 1952
By Size Class of Commercial Bank
Per.Cent Distribution by Source and Disposition
Sources
Total
Commercial Banks
Items
with De:eosits of*- Received
1.
2.
3.
4.
5.
Dis:eosition
Sent
Direct
To
to
CorreDrawee# sEondents
To
Federal
MiscellaReserve## neous***
Nonbank
DeEosits
Depo sits
of Banks
Cashed
Checks
Clearine;s**
100.(Yjo
83.21,
o .91,,
15.9'{,,
25.81,
o .81,
48.21,
17.41,
7.81,
100 .0
84.5
3. 3
12.2
30.3
2.0
43.4
21.1
3.2
100 .0
69.4
24.6
6.o
33.6
6.2
22.3
36.0
1.9
Le ss than $7.5
million
$7. 5 million$24 .9 million
$25 million$99-9 million
$100 million$499.9 million
$500 million
and over
100.0
57 .7
38 .7
3.6
36.1
8.2
11.1
41.5
3.1
100.0
54.2
.il:1
~
40.1
6.6
4.6
40.9
7,8
Average
100.or;,
66.81,
26. 31,
34.31,
5 .31,
21.9%
33.61,
4.9%
6.91,
* As of June 30, 1952.
** Includes local messenger presentations and some special clearing arrangements.
*** County and country clearing houses, as well as various special arrangements. Includes some items payable
at Reserve Banks.
# Transit items only, including nonpar items. (See footnote 10, page 29)
## Includes some but not all items payable at Reserve Banks.
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Federal Reserve Bank of St. Louis
N
00
SOURCE AND DISPOSITION OF CHECKS RECEIVED FOR COLLECTION BY
COMMERCIAL BANKS ON AN AVERAGE DAY IN JULY 1952
DISPOSITION
SOURCE
Bank size-group
Under $7 .5
million
+-
o.9
'< < < < ( 1
pcx y. e ca,-
9
p"
$7 .5-24.9
million
$25.0-99 .9
mi II ion
$100 .0-499 .9
million
$500.0 mi 11 ion
and over
All banks
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Federal Reserve Bank of St. Louis
0
20
40
60
80
100
20
0
Per cent
Bank
Customer Cashed
deposits checks deposits
Sent
direct
to
Clearings drawee
~
:-...~....................
.....!~.......~
-~♦.·~~......~·~
--~--......
..,;~~
60
40
Per cent
To
Sent
to corres- F. R.
pondent Banks
100
80
Misc.
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
in the percentage of items sent to correspondent banks or to Reserve Banks for collection. The smallest banks sent a large
percentage of out-of-town items to correspondent banks and a comparatively small
percentage of such items to the Reserve
Banks; these figures change progressively
through the size groups, until amor-'6 the
'largest banks the relationship is reversed,
with a very small percentage of out-of-town
items being sent to correspondents and the
major portion being collected through the
Reserve Banks. These relationships are the
complements of those noted in the previous
paragraph, insofar as the pattern of correspondent bank check collection activity is
concerned.
3.
Source and Disposition Patterns
of Various Types of Items
Received for Collection
Another view of sources and disposition
of items received for collection by commercial banks is given in Tables III-Band
III-C. Here the items are classified by
type: those drawn on other local banks, on
other par banks in the same Reserve district
(intradistrict par items), on other par
banks in other Reserve districts (interdistrict par items), and nonpar and restricted
items.
For all commercial banks combined there
was relatively little difference in the proportions of the different classes of items
received from the various sources. Roughly
two-thirds of each class was received in deposits of customers, between a quarter and
a third came in cash letters from other
banks, and the balance represented checks
cashed at the window. The source patterns
varied by size of bank, as noted earlier,
but within each size class they were quite
similar for all types of items.
The disposition patterns varied both
with type of item and with size of bank.
Most items on other local banks were presented through clearing arrangements, either
formal clearing houses or informal clearings
(including some messenger presentation). The
local items shown as going to the Federal
Reserve represented mainly items drawn on or
payable through the Federal Reserve Banks;
some items included in the miscellaneous disposition category also were items payable at
the Reserve Banks. Variations between banks
of different size classes with respect to
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Federal Reserve Bank of St. Louis
29
disposition of local items reflected principally points noted earlier: mre formal
clearing arrangements in large cities, less
formal arrangements in smaller towns (and
consequently more frequent presentation by
messenger and through miscellaneous channels).
The disposition of nonpar and restricted items by all banks as a: group shows that
a little more than half were sent directly
to drawee banks and a little less than half
were sent to correspondent banks for collection. Banks in the smaller size classes
tended to collect such items for the most
part through correspondents, whereas larger
banks engaged extensively in direct sendings
to the drawee banks. As noted earlier,banks
with deposits exceeding $500 million received relatively few nonpar items for collection.• In contrast to other correspondent
banks, the very large banks sent very few
nonpar items directly to drawee banks, but
sent most of the items to other correspondent banks for collection.
The patterns of distribution of interdistrict and intradistrict par items by all
banks show that about the same proportion of
each class of item was sent to Federal Reserve Banks. Proportionately more interdistrict items than intradistrict items were
collected through correspondent banks. Collections by direct sendings to drawee banks
were more prevalent in the case of items
drawn on banks located within the district
than in the case of items drawn on banks in
other districts. There were some variations
in this pattern of distribution among the
different size classes of banks. As in the
case of checks generally, the proportion of
both interdistrict and intradistrict par
items sent to Federal Reserve Banks in relation to those sent t o correspondent banks increased as size . of bank increased; and direct
sendings to drawee banks were heavier among
larger banks. 10
10. r t shoul d be not ed that banks gener ally
tend t o count as di r ect sending s to drawee banks only
i tems se nt out in letter s going specially to drawee
banks ; such l etters sel dom contai n any items other
than those on the drawee banks . Ac t ual ly, a number
of i tems s ub stanti ally l ar ger than indicated by the
tables goes dir ectly to drawee banks . The small
banks parti cularl y s e nd items of all types to correspondent banks and i nc l uded i n such l etter s ar e a
number of i t e ms drawn on the corr espondent . The
small banks ge ner all y do not count such sendi ngs as
direct, and in t hi s r epor t the dispo s i tio n categor y
" d irect to drawee bank" cover s mainly the direct
letter s co nta i ni ng only i t e ms drawn on the banks
t o whi ch s uch le tter s ar e sent.
30
J OINT STUDY OF CHECK COLLECTION
Table III-B
Sources and Disposition of Items Received for Collection
by Commercial Banks on an Average Day in July 1952
By Type of Item
(Thousands of items)
Sources
Items Received
for CollectionOn Local Banks
On Other Par Banks in
Same F. R. District
On Other Par Banks in
Other F. R. Districts
Nonpar and Restricted
Items
Total
Total
Nonbank
De12osits
Cashed
Checks
Deposits
of Banks
11,960
7,797
658
3,505
11,732
8,044
1,019
2,669
5,112
3,398
390
1,020
~
29,824
19,928
2,067
Clearings-IHI-
Dis12osition
Sent
Direct
To
to
To Corre- Federal
MiscellaDrawee# s12ondents Reserve## neous-lH!-*
10,218
*
1,011
731
888
3,789
6,344
711
1,324
147
2,294
2,651
20
_ill
_ill
~
l,592
6,546
10,006
1,462
7,829
10,218
* Some local items go to correspondents; these are included in miscellaneous.
-IHI- Includes local messenger presentations and some special clearing arrangements.
*-IHI- Includes county and country clearing houses, as well as various special arrangements.
payable at Reserve Banks.
# Transit items only, including nonpar items (See footnote 10, page 29)
## Includes some, but not all, items payable at Reserve Banks.
Includes some items
Table III-C
Sources and Disposition of Items Received for Collection
By Commercial Banks on an Average Day in July 1952
By Type of Item
Per Cent Distribution by Source and Disposition
Sources
Items Received
for Collection On Local Banks
On Other Par Banks in
Same F. R. District
On Other Par Banks in
Other F. R. Districts
Nonpar and Restricted
Items
Average
Dis12osition
Sent
Direct
To
to
To Corre - Federal
Miscella Clearings-IHI- Drawee# s12ondents Reserve## neous*-IHI-
Total
Nonbank
Deposits
1001,
65.21,
5-5%
29.3<1,
100
68.6
8.7
22.7
7.6
32.3
54.1
6.o
100
66.5
7.6
25.9
2.9
44.9
51.8
0.4
100
67.5
32.5
54.6
45.4
1001,
66.8%
33.6i
4.%
Cashed
Checks
6.%
Deposits
of Banks
26.3%
85.41,
34.3%
*
5.31,
21.%
Some local items go to correspondents; these are included in miscellaneous.
Includes local messenger presentations and some special clearing arrangements.
*-IHIIncludes county and country clearing houses, as well as various special arrangements.
payable at Reserve Banks.
# Transit items only, including nonpar items (See footnote 10, page 29)
## Includes some, but not all, items payable at Reserve Banks.
8.5%
6.1i
*
-IHI-
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Federal Reserve Bank of St. Louis
Includes some items
31
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table IV comple t es the picture of
sources and disposition of items in the process of collection by showing the flow of work
through the Federal Reserve Banks and branches on a typical day.
' 4.
4.
B.
Routing Patterns Applicable to
Collec t ion of Out -of-town Items
Interdistrict items1.
Items drawn on or payable through the Federal
Reserve Bank of another
district, or drawn on commercial banks in the Federal Reserve Bank city of
another district.
2.
Items drawn on all other
banks in other districts.
From the standpoint of a collecting
bank, out-of-town items may be classified as
follows:
A.
Intradistrict items1.
2.
3.
Items drawn on or payable through the Federal
Reserve Bank of the district.
Items drawn on other banks
within the district.
(The first two groups of intradistrict items
would not apply in the case of a bank in the
Federal Reserve Bank city, since such a bank
would regard them as local items to be handled in the clearings or presented directly.)
Items drawn on co1I1IIercial
banks in the city of the
Federal Reserve Bank.
Some indication of routing patterns applicable to collection of out-of-town items
appears from the data regarding disposition
of intradistrict and interdistrict items
presented in Tables III-Band III-C. The
Items drawn on banks in
communities adjacent to
the community of the collecting bank.
Table rv
Check Volume, by Source and Di spos it ion, in Fede r al Reserve Banks
on an Average .Day i n July 1952
(Thousands of items)
Types of
Items
Items Drawn
on or Pa yable
thr ough the
Reserve Bank*
Other Items
Payable in
the Reserve
Bank City
Other Items
Payable in
the Same
District
Items Payable
in Other
Districts
From Member
Banks
in Othe r
Di strict s
Sources
From
Other F.R.
Offices in
Di strict
Dis;eosition
From
Other F.R.
Banks
Total
From Own
Members
2,849
2,849
2,702
1,525
936
35
206
5,423
4,146
897
59
321
___L@
~
11 ,552
9,098
Total
To
Clearing
House
Dir ect to
Commerc i al
Banks
To
Other F. R.
Banks
Debits
2,849
1,833
94
527
2,196
506
5, 423
2,196
_22
548
5,959
548
2,849
* Includes U.S . Tr easury checks and postal money orders.
Note: These data a r e taken from the surveys made of the Federal Reserve Banks and branches and do not check
out prec isely with the complementary data f r om the commercial bank survey s . The differences are small , however,
and a reconciliation is shown in the a ppendix.
Also to be noted is the fact that the above class ifications are from the standpo int of the Federal Reserve
offices handling the items and not f rom the standpoint of the sending commercial banks . For example , local items
in this tab le represent local, intradistrict and interdistrict items as seen by the sending ba nk .
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Federal Reserve Bank of St. Louis
32
JOINT STUDY OF CHECK COLLECTION
correspondents about 2.4
JDillion items payable at
other commercial banks in
those cities. Well over
half of these were received
from country banks in the
same district.
following facts developed in the survey shed
further light on these patterns:
(1)
(2)
Most items payable at Federal
Reserve Banks were presented
by coilllIErcial banks in the
same city, which shows that
country banks tended to send
a substantial portion of such
items to correspondent banks
rather than to Federal Reserve Banks. 11
(3)
As a rule, it appeared in
July, 1952, that in handling
out-of-town intradistrict
items, country banks did not
differentiate between items
payable at nearby banks and
items payable elsewhere in
the district. In a relatively few scattered instances,
an effort was made to collect
such items locally by direct
presentation or through local
clearing arrangements. In
order to ascertain what proportion of out-of-town items
were drawn on nearby banks,
the questionnaire directed
to country banks asked them
to classify par transit items
according to the distance
from the drawee banks. For
all country banks combined,
31 per cent of par transit
items were drawn on banks
within a 25 mile radius of
the collecting bank, and 16
per cent more were payable
at banks from 25 to 50 miles
away from the collecting bank.
In terms of numbers of items,
2.5 million items were payable within 25 miles and 1.3
million were payable from 25
to 50 miles away, out of the
8 .2 million par transit
items12 handled daily by country banks. Most of these
items on nearby points would
be intradistrict items.
(4)
In collecting other intradistrict items, some country
member banks sent them directly to the Federal Reserve
Bank. Most country member
A large proportion of items
payable at commercial banks
in Federal Reserve cities
were sent to Federal Reserve
Banks for presentation through
local clearing arrangements.
The Federal Reserve survey
disclosed that 755,000 items
payable at commercial banks
in Federal Reserve cities
were received daily by the
Reserve Banks from country
banks in the same Federal
Reserve district. The Reserve City bank survey
showed that of 1.4 million
items payable at commercial
banks in Federal Reserve
cities where the sending
banks also had accounts with
correspondent banks, 949,000
were sent to Federal Reserve
Banks and 438,000 to correspondent banks. Commercial
banks in Federal Reserve
cities received daily from
11. Tabl e DI shows that t he Federal Res erve
Banks received 2 , 849 ,000 items payable by them on an
average day in J uly, 1 952 . These were postal money
orders , Treasury checks, and items drawn on the Federal Reserve Banks . Since 10 per cent of the money
orders proce ssed by the Reserve Banks came from the
post offices, and did not enter commercial bank col lection channel s , the number of items payable by the
Reserve Banks sent in by commercial banks daily was
about 2 . 7 million . Of these, the great bulk (pe rhaps 80 per cent) came from banks in the same c i t ies
as the Reserve Banks, although they normally would
have received as original deposits and cashed checks
just about 55 per cent of the volume f or collecti on .
In othe r words, between 550 ,000 and 600,000 i tems on
the Reserve Banks we r e sent by the first collecting
ba nks to correspondents for presentation to the Federal Reserve rather than directly to the Reser ve
Banks. This r eflects the fact that nonmember banks
do not send items directly to Federal Reserve Banks,
and also i t reflects the r egular routing habits of
country bank s , both member a nd nonmember.
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Federal Reserve Bank of St. Louis
12. Some of t hese i tems would be payable a t
Federal Reserve Banks or at commer cial banks i n Federal Reserve c ities, since s ome co untry banks are
within 25 or 50 miles of a Federal Reserve city .
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
items payable at Reserve
Banks, 998 sent only such
items plus those payable at
commercial banks in the same
city, 409 sent only items
payable elsewhere, and 1,678
banks sent all types of items.
Less than 2,000 of nearly
12,000 small banks (each
with less than $7.5 million
in deposits) sent items to
Federal Reserve Banks; 800
of the 1,800 bar~s with deposits between $7.5 million
and $25 million sent items
directly to the Federal Reserve, and 550 of the 718
banks with $25 million or
more in deposits made direct
use of Federal Reserve facilities.
banks, however, and all nonmember banks customarily sent
such items to correspondent
member banks, and the latter
as a rule collected the items
through the Federal Reserve.
The Federal Reserve Banks received daily from commercial
banks in their own districts
4.1 million intradistrict
items payable outside their
cities. Almost 3 million of
these came from banks in Federal Reserve cities.
(5)
(6)
Most interdistrict items were
collected through Federal Reserve facilities. Table IV
shows that the -Federal Reserve Banks received directly
from commercial banks in other
districts a daily volume of
936,000 items drawn on banks
in the cities of the receiving Reserve Banks.
As shown by Table IV, the Federal Reserve Banks received
daily 897,000 items payable
outside their cities but elsewhere in their districts direct from commercial banks
outside their districts. They
also received 578,000 items
payable at commercial banks
in other districts from banks
in their own districts.
Bearing on the routing patterns applicable to the collection of out-of-town items
are the following findings relative to the
extent of direct use of Federal Reserve col lection facilities by member banks:
(1)
According to Federal Reserve
survey data, only 3,315 of
the nation's 14,189 banks
sent items directly to Federal Reserve Banks in July,
1952. At that time, there
were 7,197 nonmember banks
that were not eligible to
send items directly to the
Federal Reserve; there were
6,739 member banks and 253
nonmember clearing banks
that did have direct access
to Federal Reserve facilities.
Of the latter, 230 sent only
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Federal Reserve Bank of St. Louis
33
(2)
Federal Reserve Banks presented items directly to
virtually all banks on which
checks were drawn. Local
items usually were presented
through clearings, intradistrict items were presented
directly by mail to drawee
banks, and interdistrict
items as a rule were sent
to the Federal Reserve office serving the territory
of the drawee bank. A few
interdistrict items were
sent directly to drawee
banks across district lines .
These facts, considered with t he data
presented in Tables III, III-A, III-B, and
III-C, and IV, show the customary check
routing patterns prevailing in the United
States. Checks deposited by customers or
cashed at the window flow into the check
collection system daily . Items drawn on
the banks receiving them are paid, and items
on other local banks are presented through
the clearings . The pattern, insofar as "on
us" and local items are concerned, prevails
regardless of the size or status of the bank.
In the case of out-of-town items, however,
the pattern varies according to whether the
bank is a member of the Federal Reserve System and, among member banks, it also varies
with the size of the bank. Almost all nonmember banks and many smaller member banks
tend to send all or most out-of-town -items
to correspondent banks. Some smaller member
\.))
~
PROPORTION OF 14.189 COMMERCIAL BANKS MAKING DIRECT AND INDIRECT USE OF
THE RESERVE BANK CHECK COLLECTION FACILITIES*
1878
sending all types of items
3315
230
MEMBER AND - - NONMEMBER CLEARING
ACCOUNT BANKS - - ELIGIBLE AND USING
..-_: FACILITIES DIRE.CTLY
7197
NONMEMBER BANKS
INELIGIBLE TO DIRECTLY
USE F. R. FACILITIES
-4-
............
3677
MEMBER BANKS
ELIGIBLE BUT
NOT USING
FACILITIES DIRECTLY
*
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Federal Reserve Bank of St. Louis
Federal Reserve Survey data .
-.. ....... -..
Banks sending only items
payable at a Reserve Bank
998
Banks sending only items payable
at a Reserve Bank or a bank
located in the same city as the
Reserve Bank
409
Banks sending only interdistrict
items or intradistrict country items
35
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
banks send directly to Federal Reserve Banks
items drawn on or payable through the Federal Reserve Banks and items drawn on other
banks in the Federal Reserve city; a comparatively small number of smaller member
banks send all types of par items to the
Federal Reserve Banks. The larger member
banks send to the Federal Reserve Banks all
items drawn on or payable through the latter, including such items received from
member and nonmember correspondent banks.
They also tend to send m::>st out-of-town par
items, including many received from country
banks, to the Federal Reserve Banks for
collection.
three dimensional views of the check collec tion network are presented in this section,
the first showing differences between Reserve City and country banks, the second
showing differences between banks of different size classes.
1.
Contrast Between Reserve
City and Country Banks
Tables V, V-A, and V- B present data on
sources and disposition of check volume at
Reser ve City banks and country banks. The
tables make clear the differences between
the two types of banks. They point up the
following facts:
A schematic outline of the flow of
checks through the check collection system
is contained in Appendix B.
(1)
D. Check Activity Patterns at
Banks of Different Sizes
and Reserve Status
The foregoing discussion co~cerns primarily the sources and disposition of check
collection volume in terms of the entiPe
check collection system -- the nation's
14,000 commercial banks and the Federal Reserve Banks. References to differences according to size or type of collecting bank
have been incidental for the most part.
Major differences in volume of checks
handled and in check routing patterns appear
am::>ng banks of different reserve status and
different size. Two additional sets of
The Reserve City banks are a
much m::>re homogeneous group,
from the standpoint of their
check collection operations,
than are the country banks;
the percentage distributions
among the various categories
in the tables do not vary
among the size groupings to
the same extent as in the
case of country banks. Most
Reserve City banks, regardless of size, do a correspondent banking business
and serve as major collecting banks. This is reflected
in the fact that in all size
classifications of Reserve
City banks, the volume of
items received for collection
Table V
Patterns of Chec k Volume, Sources and Disposit ion
on an Average Day i n July 1952
Reserve City Banks
Banks with Deposits of*
Country Banks
Banks with Deposits of*
Less Than
$500
$7 . 5-24 . 9 $25 -99 -9 $100- 499-9 Million
Total
Total Volume
Items Paid
Items for
Collection
Items for
Collection
On Local Banks
Intradistrict Par
Interdistrict Pa r
Nonpar a nd
Re str icted
*
-r
100_.o
Million
Million
%
3/o
Million
and Over
%
$7 -5
$7 -5-24 .9 $25 -99 -9 $100-499 -9
Million
%
Total
~
100.0
53.4
100 .0
59.1
100 .0
51.4
100 .0
47 .7
100 .0
48 .o
3/o
Million
Million
%
%
Million
%
37.5
100 .0
36 . 6
100 .0
34 .4
100 .0
35 .7
100 . 0
39 .2
62 .5
63 .4
65 . 6
64.3
6o . 8
46.6
40 . 9
48 . 6
52 . 3
52 .0
100.0
45 . 8
34 .2
17.3
100 .0
47 . 8
34 .1
15 .0
100 .0
38 . 7
44.0
13 .0
100.0
43.8
34 . 6
16 .9
100 . 0
49 .2
31.3
18 .8
100 .0
32 .7
45 . 8
17.0
100.0
29 . 9
49 .8
15.3
100 .0
32.5
46 .4
18 . 5
100.0
34.5
42.2
16.8
100.0
40 .0
39 .0
18 .8
2 .7
3.1
4.3
4.7
0 .7
4. 5
5.0
2.6
6. 5
2 .2
As of June 30, 1952.
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Federal Reserve Bank of St. Louis
36
J O I N T STUDY OF CHECK COLLECTION
Table V-A
Patterns of Check Volume, Sources and Disposition
on an Average Day in July 1952
Country Banks
Banks with Deposits of*
Less Than
Re serve City Banks
Banks with Deposits of*
$500
$7 -5-24.9 $25-99-9 $100 -499- 9 Million
Sources of
Items Paid
Clearings**
Federal Re s erve
Other Banks
Other Deposits
Cas hed Checks
and Over
-r
Million
Million
Million
%
3/o
%
%
100.0
62 .4
5. 8
9.4
9.4
13.0
100.0
42 . 6
25 . 6
8.5
10. 8
12 . 5
100.0
42 . 8
25 .4
7.9
9.5
14. 4
100 .0
61.2
7 .0
8.6
8.6
14 . 6
100 .0
68 .2
Total
***
10 .4
9 .9
11.5
$7.5
$7-5 -24.9 $25-99-9
$100-499-9
--r
Million
Million
Million
Million
%
%
%
%
100. 0
28 .5
35 . 6
11.8
14.1
10.0
100.0
21.6
38.8
12 .1
16.6
10.9
100.0
33.7
34. 8
15.5
6.4
9.6
100.0
36.3
30 .1
7.6
18 .0
8 .0
100.0
29 .0
35.3
5.9
19. 2
10 .6
Total
* As of J une 30, 1952.
** Clearing House, l ocal messenger presentations, special clear ing arrange ments .
*** Nominal; only one bank in this size class is located outside a Federal Reserve City .
TABLE V- B
Patterns of Check Volume , Sources and Disposition
on an Average Day in July 1952
Rese rve City Banks
Banks with Deposits of*
Country Banks
Banks with Depos its of*
Less Than
$500
$7 . 5-24 . 9 $25 -99 -9 $100-499 -9 Million
Items for Collection
Total
~
Million
Million
and over
%
3/o
%
o/o
Million
$7.5
Total
$7 -5-24 . 9 $25 -99 -9 $100-499 -9
-r-
Million
Million
Million
Million
%
%
%
%
Sources:
Deposits of
Banks
Nonbank Deposits
Cashed Checks
100 . 0
100 .0
100 . 0
100 . 0
100.0
100 .0
100 . 0
100 .0
100 . 0
100.0
41.6
54 . 7
3.7
31.4
8 . ($
36.7
57 . 2
6. 1
42 .0
54 . 5
3. 5
43.3
54. 2
2.5
6. 4
82 . 2
11.4
0.9
83 .2
15 . 9
0.9
86 . 7
12 .4
16. 2
77.8
6.o
21. 8
74 .0
4.2
Disposition:
Clearings**
Dire ct to Drawee#
Corres pondent s
Federal Reserve##
Miscellane ous***
100.0
37 . 0
8. 3
7.5
42 .0
5.2
100 . 0
28 . 1
16.7
16 .1
38.2
0.9
100 . 0
32 . 2
9.3
10.0
46.2
2.3
100 . 0
35 . 5
9.6
9 .7
42 .1
3 .1
100.0
40 .1
6. 6
4.6
40 . 9
7. 8
100 .0
30 . 6
1. 8
40. 5
22 . 7
4.4
100 .0
25 . 8
0 .8
48 .2
17.4
7 .8
100.0
30 . 6
0.6
45 .8
19.6
3.4
100.0
34.5
4.1
30 ..9
28 . 9
1. 6
100.0
39 . 3
1.2
18.3
38 .3
2 .9
6o .o
* -As of June 30 , 1952.
** Includes l ocal messenge r pres entations and some special clear ing arrangements.
*** County and country clearing houses, as well as va ri ous special arrangements . Includes some items payable a t
Reserve Banks.
# Transit items only, i ncluding nonpar items.
ff Includes some but not all i tems payable at Rese rve Banks .
substantially exceeded the
number of items presented to
them for payment. For all
country banks combined, the
number of items paid was
larger than the number received for collection. Some
of the larger country banks
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Federal Reserve Bank of St. Louis
do a correspondent business,
of course, and this is reflected in higher percentages of items received for
collection, but generally
country correspondent banks
are less active as collecting banks than are Reserve
City banks.
CONTRASTS BETWEEN CHECK COLLECTIONS AT
RESERVE CITY BANKS AND COUNTRY BANKS
37
BANK SIZE IN DEPOSITS
90
90
80
80
70
70
I
60
N
N
60
50
0
0
50
40
N
N
40
30
E
E
30
20
I
I
I
10
I
I
I
10
fm
70
Reserve city banks
~
Country banks
SOURCE OF ITEMS PAID
(All size banks)
60
20
l2ZZI
-
50
CLASS OF ITEMS RECEIVED
FOR COLLECTION
(All size banks)
Reserve city banks
Country banks
70
60
50
40
40
30
30
20
I0
10
0
0
Clearings
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
F .R.
Banks
Other
banks
Cu sCashed
tomer checks
deposits
Local
banks
Intradistrict
banks
Interdistrict
banks
Nonpar
items
w
00
CONTRASTS BETWEEN ITEMS RECEIVED FOR COLLECTION AT RESERVE CITY BANKS AND COUNTRY BANKS
(All size banks combined)
Per cent
of total
SOURCE OF ITEMS
RECEIVED FOR COLLECTION
Per cent
of total
90
DISPOSITION OF ITEMS
RECEIVED FOR COLLECTION
90
80
70
70
60
60
50
so
40
40
30
30
20
20
10
10
o--__._J.-1-DEPOSITS
OF
0
CUSTOMER
DEPOSITS
CASHED
CHECKS
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Federal Reserve Bank of St. Louis
DIRECT
TO
DRAWEE
BANKS
~ Reserve city banks
CLEARINGS
■ Country banks
CORRESPON-
DENTS
FEDERAL
RESERVE
BANKS
MISCELLANEOUS
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
(2)
Differences between Reserve
City banks and country banks
in the proportions of various types of items handled
for collection reflect mainly the location of Reserve
City banks in larger cities,
where there are proportionately more items on other
local banks and proportionately fewer intradistrict
transit items.
(3)
Table V-A, showing where
items paid came from, indicates that a relatively small
proportion of the items were
received by Reserve City
banks from the Federal Reserve, as mentioned earlier.
This reflects the location
of Reserve City banks mainly
in Federal Reserve cities,
so that items received from
the Federal Reserve show up
as items received through
local clearings.
(4)
A striking fact is that
about one-third of all items
presented to country banks
for payment, regardless of
the size of the banks, were
received from Federal Reserve Banks. More than half
of all country banks are not
members of the Federal Reserve System, with the proportion of nonmembership
(and the proportion of nonpar banks) much larger in
the small size class than
in the larger size classes.
Yet nonmember country banks
covered by the survey actually received from Federal
Reserve Banks a slightly
higher proportion of their
total check volume than did
member banks. These facts
illustrate the extent to
which items drawn on nonmember banks flow through the
Reserve Banks.
(5}
The pattern of sources of
items received for collection is shown in Table V-B.
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Federal Reserve Bank of St. Louis
39
The large percentage of such
items received by_ ~e serve
City banks in deposits by
other banks emphasizes the
function of the Reserve City
banks as collecting banks,
and is in sharp contrast to
the pattern shown for the
country banks.
(6)
The pattern of disposition
of items received for collection points up again the
check routing habits of commercial banks. The smaller
country banks made major use
of correspondents for collecting out-of-town items; the
bigger the country bank, the
more it used the Federal Reserve collection service.
Reserve City banks, with
little regard for size, made
major use of the Federal Reserve check collection facilities.
(7)
Among commercial banks,
most check collections by
direct sendings to drawee
banks are by correspondent
banks; a substantial part
of these direct sendings
are to nonpar banks.
Check collection patterns and activities vary not only in relation to reserve
classification but also according to the
size of banks. Although Reserve City banks
of all sizes tended to show the same general
patterns in their check activity, the characteristics at country banks differed according to size. Most banks in the two
smallest size classes were country banks,
about 75 per cent of the third size class
were country banks, and most banks in the
two largest size classes were Reserve City
banks. In order to point up the contrasts
in patterns and activities, discussion of
the two smallest size classes is followed
immediately by discussion of the two largest, and the more heterogeneous middle group
is treated last.
2.
Banks with Less than $25
Million in Deposits
Almost 13,300 out of the 14,000 comm.er-
40
JOINT STUDY OF CHECK COLLECTION
cial banks in the United states fell in the
two smaller size classes -- those with less
than $7.5 million in deposits and those with
deposits between $7-5 and $25 million. All
of the 11,486 banks with less than $7.5 million in deposits were country banks; 1,730
of the banks with deposits between $7-5 and
$25 million were country banks, and 72 were
Reserve City banks. Total deposits on June
30, 1952, of banks in the two size classes
amounted to almost $51 billion. During 1952
about 3.2 billion checks were drawn on these
banks, approximately 40 per cent of all
checks drawn in that year.
a)
Banks with Deposits of
Less than 7.5 Million
The 11,486 country banks making up this
size class held deposi t s of $28 billion on
June 30, 1952, and paid about 1.9 billion
checks in the year as a whole. Less than
5,000 of t hese banks were members of the
Federal Reserve System, and about the saIIE
number were nonmember par remi t ting banks.
Most of t he nation's nonpar banks were in
thi s size group . Banks in this size class
were locat ed predominantly i n t pe midwest
and south .
The average bank in this group, which
held about $2.4 mi llion in deposi t s, handled
about 980 checks on an average day in July,
1952. About 580 i t erns drawn on the bank
were presented to it a nd paid and 400 items
drawn on other banks were received by it for
collection. The number of checks handled
per day by banks of this size seemed to vary
directly wi t h t he amount of de posits, with
about 400 items being handled daily for each
million dollar s of deposits. Thus a $500,000
· bank handled about 200 items; a $7-5 million
bank handled about 3,000 items . Geograph ic
differences in check volume seemed to refle ct primarily differences in average size
of banks in the areas. In the east, far
west, and southwes t , where the average bank
tended to be larger than in the midwest or
south , che ck volume was larger also.
Of t he 580 items paid each day, abo ut
230 were received in cash letters from the
Federal Reserve, 120 from local clearings,
160 in deposit s of customers or in checks
cashed at the window, and 70 in cash letters
from other banks. The 400 items received
for collection consisted almost entirely of
checks de posited by c ustomers or cashed at
t he window. The few items received from
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Federal Reserve Bank of St. Louis
other banks for collection reflected for the
most part the practice of certain midwestern
correspondent banks which sent to their
principal correspondent in a town all items
payable at banks . in the . town. Some of these
items also represented nonpar items received
for collection.
The 400 items received for collection
consisted of 120 items drawn on other local
banks, 200 payable at par banks in the sare
Federal Reserve district, 60 payable at par
banks in other districts, and 20 items which
either were drawn on_nonpar banks or were
otherwise restricted as to handling as cash
items. Most local items were collected
through local clearing arrangements; 1 3 some
nonpar items were sent directly to drawee
banks and the balance were sent to correspondents; transit items were collected by
sending them either to a city correspondent
bank o~ to a Federal Reserve Bank.
Only 5,000 of the banks in this size
group were members of the Federal Reserve
System. The 6,500 nonmembers for the most
part did not have direct access to Federal
Reserve collection facilities and therefore
had to have other outlets for collection
of their transit items. Of the 5,000 small
member banks, less than 2,000 actually sent
items directly to their Reserve Banks, and
only 1,100 sent any items other than those
payable at the Reserve Banks or drawn on
commercial banks in the Federal Reserve city.
In other words, only one small bank out of
six sent any i terns to a Federal Reserve Bank.
The average small rember bank which sent
items to Federal Reserve Banks sent about
400 items; all other banks sent none.14 This
works out to an average of about 65 transit
items going to the Federal Reserve per small
bank. On the other hand, pract_ically all
banks in the smallest size class received
13 . In mee tings held with groups of ba nkers in
t he twelve Feder al Reserve di stri cts , the committe e
lear ned of a number of cases wher e i tems on one l ocal
bank , received by another l ocal ba nk f or collect i on,
wer e not cleared locall y but were s e nt to out - of- town
,corr espondents f or collection . The t otal vol ume involved i n al l such cases combined appare ntly is quite
smal l r elati ve to the number of loc al i tems cl eared
local l y, and t he number of instances c i ted al s o is
small. Theref or e , the e f fect on the total colle c t i on system is negligi bl e .
14 . The aver age small member bank tends to be
larger than t he aver age small nonmember and conse que ntly woul d have more check vol ume to handl e . Al so ,
smal l membe r banks that send i tems to Feder al Re serve
Banks tend to be l arger than. those wh i ch do not .
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
daily cash letters from the Federal Reserve
Bank containing items drawn on them. The
differences between the number of items per
bank sent to and received from the Federal
Reserve and the number sent - to and received
from other banks serve as rough indicators
of the volume actually routed indirectly .
through correspondents to Federal Reserve
offices for presentation by mail to drawee
banks.
Of the 260 transit items received by the
average small bank for collection, about 90
were payable at banks within 25 miles and
another 40 were payable within 25 to 50
miles . A very small number of the banks
collected any of these items through local
area clearing arrangements.
(b)
Banks With $7.5 to $25
Million Deposits
The 1,802 banks in this size class held
$23 billion in deposits on June 30, 1952,
and paid 1. 3 billion checks during that year.
Most of the banks are country banks; the 72
Reserve City banks held only 5 per cent of
the group's deposits and handled only 6 per
cent of the group's check volume. Reserve
City banks in this size class are located
in four Federal Reserve districts -- Richmond, Chicago, st. Louis and Kansas City .
Since the Reserve City banks made up
such a small part of the group, their presence had little effect on the collection
patterns of the group , and it is, therefore,
discussed as a whole.
The average bank in this size class had
$13 million in deposits on June 30, 1952, and
handled about 5,100 checks daily during
July of that year. About 2,600 items drawn
on the bank were presented to it and paid .
About 2,500 items drawn on other banks were
received by it for collection . About onethird of the items received for collection
were drawn on other local banks, a little
less than half were intradistrict par items,
about one-sixth were interdistrict par
i terns , and about 2 per cent were nonpar or ·
restricted items.
Items drawn on these banks were received as follows: about 870 items were received from Federal Reserve Banks and a like
number through local clearings; about 430
items were received in deposits of customers
or were cashed at the window, and about the
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Federal Reserve Bank of St. Louis
41
same number were received in cash letters
from other banks. Items received for collection were derived almost entirely from
customers' deposits and cashed checks, a
pattern almost identical with that of the
smallest size group.15
Items on other local banks were col lected for the most part through local
clearing arrangements. A larger share of
transit items went to Federal Reserve Banks,
and a smaller share to correspondents, than
was the case among banks in the smallest
size class. Three-fourths of the banks in
the $7-5-$25 million deposit group were members of the Federal Reserve System, and 60
per cent of the members (less than half of
the group as a whole) sent some items to
Federal Reserve Banks for collection . The
number of items sent to correspondent banks,
however, was more than double the number
sent to Federal Reserve Banks: 60 per cent
of intradistrict par items and 8o per cerit
of interdistrict par items were sent to correspondents, in contrast to the 36 per cent
and 17 per cent, respectively, sent to Federal Reserve Banks.16 Seven out of every
ten nonpar items were sent to correspondents ;
the rest were presented to drawee banks by
direct mail.
Of the 2,500 items received for collection daily by the average bank, about 850
local items (including some on the Federal
Reserve Banks) were collected locally. Of
the 1,650 transit items, 500 were sent to
the Federal Reserve,17 1,050 were sent to
corres pondents, and the remaining 100 items
were sent directly to drawee banks or collected through miscellaneous channels, including regional clearing arrangements for
15. Rese r ve City banks in this group r eceived
rel at i vely more items drawn on them from clearings
and relatively fewer from the Federal Reserve and
from other banks; almost one-third of the items received f or colle ction were deposited by other banks .
These facts reflect (1) location of most such ban.ks
in Federal Reserve cities , and (2) their correspondent bank activity pattern .
16. In this instance the Reserve City banks do
influence the figures f or the group . While they handle only 6 per cent of total volume , they ac count for
15 per cent of the gr oup 's sendings to Federal Reserve offi ces.
17. This fi gure is for the "average" bank .
Less than half of all banks in th i s size class sent
a ny items to the Federal Reserve. Thus, this figure
is an average of (1) about 1,200 items per member
bank using F ederal Reserve facilities directly, and
(2) no items per bank not sending anything to the
Federal Reserve.
42
JOINT STUDY OF CHECK COLLECTION
certain local area checks. Slightly smaller
proportions of transit items were payable
nearby than in the case of the smallest
banks -- 29 per cent within 25 miles; 15 per
cent from 25 to 50 miles.
The picture shown by banks of this size
class is not greatly different from that
shown by banks in the smallest class. Patterns of check volume and sources of items
were quite similar; the major difference is
that more banks were eligible to send items
to Federal Reserve Banks and more banks did
so.
3.
The Larger Banks
There were 207 commercial banks which
had $100 million or more in deposits on
June 30, 1952. Of these, 153 were Reserve
City banks and the remaining 54 were country banks. They held an aggregate of $88
billion in deposits, more than half of all
commerci~l bank deposits. Almost all of
these banks did a correspondent bankiIJg
business and handled a substantial volume
of checks received for collection.
Most of the larger banks were members
of the Federal Reserve System, and used its
check collection facilities extensively.
More than 60 per cent of all items received
by Federal Reserve Banks came from these 207
commercial banks. Most of them sent interdistrict items directly to the Federal Reserve office serving the drawee bank.
(a)
Banks with $500 Million
or More in Deposits
There were 37 banks in this size class,
with aggregate deposits of almost $55 billion, an average of $1.5 billion per bank.
All were Reserve City banks. They were located in seven of the twelve Federal Reserve
districts, although two of the seven districts each contained only one bank this
size. Most were found in three districts,
New York, Chicago, and San Francisco.
One out of every five checks drawn in
the United states in 1952 was drawn on these
37 banks. Altogether, they paid 1.5 billion
checks, or more than 5 million checks each
day.18 The average bank in the group paid
140,000 checks and handled about 220,000
18. On an average day in July 1952, these 37
banks paid 5,211,000 checks and handled 8 ,066,000
checks for collection.
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Federal Reserve Bank of St. Louis
for collection daily in July, 1952. Roughly
half of all items received by them for collection were drawn on other banks in the
same city (including Federal Reserve Banks),
and half wer~ par transit items. The average
bank in this size class handled relatively
few nonpar items -- about 1,500 per day in
July, 1952.
The patterns of receipts and disposition of check volume, both items .p resented
to the 37 banks for payment and items received by them for collection, were not
greatly different from those shown by all
Reserve City banks combined. In relation
to total volume handled, the number of checks
paid by these banks and the number received
by them for collection from other local banks
and from banks outside their Reserve districts were slightly higher, and the number
of nonpar items handled was lower, than .the
average for all .R eserve City banks. This
pattern is easily understood; the big banks
did a nationwide business, they were located
in the big financial centers, in concentrations of other big banks, and only one of
them was in a district containing any nonpar
banks. Since all but one were located in
Federal Reserve cities, virtually all of the
items drawn on them that were presented by
Federal Reserve Banks are shown in the tables as items received through the clearings.
As a group, they did relatively little direct sending to drawee banks and sent relatively few items to correspondents for collection. Most of the items deposited with
or cashed by them were collected through
Federal Reserve Banks or through local clearings.
(b
Banks with Deposits of
500 Million
The 170 banks in this group held $35
billion in deposits on June 30, 1952. The
group contained 116 Reserve City banks averaging $220 million in deposits and 54 country banks averaging $165 million in deposits.
The average country bank in this size class
paid about 20,000 items and received about
22,000 items for collection from other banks
on an average day in July, 1952. Since the
Reserve City banks were somewhat larger, and
since, as a group, they tended to engage more
actively in correspondent bank functions, the
average number of items which they paid was
29,000 and the number received for collec- ·
tion was 52,000 daily.
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
The pa t terns of sources and disposition
of check volume of Reserve City banks and
country banks in this group differed primarily i n t he following respe c ts:
(1 )
4.
Sub stantially more items present ed t o Reserve Ci t y banks
for payment were received
through clearings and substantially less were received
directly from the Federal Reserve, than in the case of
the country banks. As noted
earlie~, items presented by
Federal Reserve Banks to local
Reserve City banks are shown
in t he tables as received
through clearings.
(2)
The Reserve City banks received proportionately twice
as many items for collection
from other banks as did the
country banks, giving evidence of greater correspondent bank activity in the Reserve City group.
(3)
Direct sending to drawee
banks was relatively heavy
in banks of this size class;
about 8 per cent of all
items collected were sent
direct. The prevalence of
direct sending is explained
by two facts: (1) banks in
this size class handled a
very large volume of nonpar
items (almost bne-third of ,
the total), and collected
most of them by direct sendings; and (2) a few banks in
t his size class traditionally have collected much of
t heir transit volume by direct mail presentations to
drawee banks.
The Middle-sized Banks
$25-$100 Million Deposits
The 511 banks in this class held $23
billion in deposits on June 30, 1952, an
average of $47 million per bank. The group
contained 130 Reserve Cit y banks averaging
about $53 million in de posi t s, and 381 country banks with an average deposit liability
of about $43 million. Most of these banks
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Federal Reserve Bank of St. Louis
43
are Federal Reserve members, but t he check
routing patterns for the group are the most
heterogeneous of the five classes. The Reserve City banks for t he most part show
characteristics common to t hose of Re serve
City banks in the other size classes. On
t he other hand, because some of t he count ry
banks do a correspondent bank business like
t he country banks in the next larger size
class while others do virtua::J,.ly no correspondent bank business, the totals for the
group reflect mixed influences.
The average number of items paid daily
in July, 1952, for each of the 130 Reserve
City banks in this group was 9,000, and the
average number ~f items received for collection was 17,000. The items collected consisted of about 6,600 items on other local
banks, 7,500 intradistrict par items, 2,200
interdistrict par items, and 700 nonpar or
restricted items. More than one-third of
all items received for collection were deposited by other banks. Alm:>st half the
items were collected through Federal Reserve
Banks, about one-third went to clearings,
one-tenth were sent directly to drawee banks,
and a like amount went to other correspondents for colle~tion.
The average bank among the 381 country
banks paid about 7,500 items daily. It received a little more than 8,000 items daily
for collection, about one-sixth of which
were sent to it by other banks. Country
banks in t his class collected about the same
proportion of items through local clearings
as did the Reserve City banks of the same
group, but sent three times as many items
to correspondents, and only about half as
many to Federal Reserve Banks or directly
to drawee banks.
E.
The Federal Reserve Banks
and Branches
The 12 Federal Reserve Banks and their
24 branches handled 2.3 billion items for
collection in 1952. About 820 million additional items were presented to them and
paid.19 The details of volume handled by
the Federal Reserve System, and sources and
19. I nc l uded in this figure are 446 mill i on
Treasury checks and 371 million postal money orders.
(About 10 per cent of the latter did not enter t he
commerci al banking syst em but were pai d by the va rious post offices a nd s orted and tabulat ed by Federal
Reserve office s .)
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Federal Reserve Bank of St. Louis
t:
DISTRIBUTION OF CHECKS DRAWN ON COMMERCIAL BANKS AND
FEDERAL RESERVE BANKS ON AN AVERAGE DAY IN JULY 1952
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14 .4't'o
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(SI
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(SI
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VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
dispositions of that volume, have already
been given. (Table IV gives this information for the System as a whole, and Tables
VI and XI, appearing at the end of this
chapter, give it by districts.) This section discusses Federal Reserve operating
procedures and practices in connection with
check collection activities. Also, it contains a summary of comments of commercial
bankers regarding such practices, obtained
from letters to the committee, from the
questionnaires, and from observations made
at meetings with the committee.
Only member banks and nonmember clearing banks deposit checks with the Federal
Reserve Banks for collection. In July, 1952,
253 nonmember banks maintained clearing accounts with Federal Reserve offices. Most
of these were maintained primarily to facilitate participation by nonmember banks in
city or group clearing arrangements, and to
permit settlement of the balances arising
from clearings to be made on the books of
the Federal Reserve Banks.
Although the Federal Reserve Act (with
some restrictions) authorizes nonmember par
banks to maintain clearing accounts and to
send items for collection to Federal Reserve
Banks, it has not been the policy of the
Federal Reserve System to encourage the opening of these accounts, or the direct use of
its check collection facilities, by nonmember
banks. In part, this attitude in the System
has reflected the view that the direct benefits of its facilities should be extended
only to those banks willing to assume the
responsibilities of membership; also, it has
probably reflected a desire to avoid a situation that might be regarded with disfavor
by country member banks, or that might seem
to interfere with established correspondent
arrangements.
45
member banks and present to the drawee banks
many items originally deposited with nonmember banks for collection . The preceding
sections point up the fact that the bulk of
par transit i terns flows through the Federal
Reserve Banks. Nonmember banks, including
nonpar banks, send par transit items to correspondent banks for collection, and most of
these items, other than those payable at the
correspondent bank or in its city, are sent
by the correspondent banks to Federal Reserve offices.
The preceding sections also have indicated that only four of every ten small member banks send items for colle6tion directly
to Federal Reserve Banks. In large measure,
this is a product of (a) the System's practice of deferred availability credit for
transit items, (b) the small banks' reluctance to disturb their reserve ·a ccounts, coupled with their disinclination to handle the
accounting entries incident to deferred
availability credits, and (c) the long-established relationships of small banks with
their city correspondents. The larger member banks tend to use Federal Reserve check
collection facilities extensively.
1.
Federal Reserve Practices in
Receiving Checks for Collection 20
In general the Federal Reserve Banks
establish definite closing hours for receipt
of checks, for the purpose of fixing the
date on which they will give credit according to their availability schedules. The
closing hours are geared to Federal Reserve
operating facilities and to transportation
schedules; they are set on the general theory
that items received up to the hour specified
can be processed and either presented to local drawee banks, or dispatched to out-oftown drawee banks, on the day of receipt.
The statutory authority of the Federal
Reserve Banks limits them to the collection
of checks payable at par. They collect
checks regularly, by direct presentation, to
practically every par remitting bank in the
country, nonmember as well as member. In
addition, they present checks payable to the
United States Government or its agencies to
nonpar banks, and receive remittances at par
for these items.
Sorting requirements of Federal Reserve
Banks are the subject of much discussion,
and are sometimes misunderstood. Sorting
requirements generally are established by
the individual Reserve Banks. They are set
so that the Bank.a can process as many items
as possible on the day of receipt, are required only when volume warrants, are not
rigid but may be changed under changed conditions, and are not complex. Most Reserve
While the Reserve Banks do not accept
items directly from nonmember banks for collection, in actual practice they receive from
20. The practices noted in this and subsequent
portions of this section of the report were those existing in July 1952. Changes since that time have
been minor.
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Federal Reserve Bank of St. Louis
46
JOINT STUDY OF CHECK COLLECTION
Banks relate their sorting requirements to
their availability schedules.
{a)
I~diate Credit Items
These items fall into two broad categories: (1) items drawn on the Federal Reserve Bank, official checks of other Federal Reserve Banks, u. S. Treasury checks and
postal money orders, and (2) items drawn on
commercial banks, which are either in the
same city as the Federal Reserve Bank, 21 or
which are members of special clearing or
collection arrangements providing for immediate presentation and payment. Closing
hours for receipt of items in the first
category are generally later than those for
the second. (Closing hours for receipt of
items drawn on or payable through the Reserve Bank usually are set so that these
items can be processed and charged to the
appropriate accounts on the day received.)
The hours for receiving items payable
at other local banks for immediate credit
are generally geared to the final clearing
hours of local clearing houses or other
clearing arrangements. Seven Federal Reserve offices22 grant immediate credit (on
day of receipt) only if the items are received in time to be cleared (or presented
for payment in some other way) on that day;
those offices have no specific closing hours
for receipt of local items. The other 29
offices set definite hours, and give credit
whether or not the items arrive in time to
be processed and presented for payment on
the day of receipt. In five districts, concessions are made to a few member banks
faced with inadequate or unsatisfactory
transportation facilities, and immediate
credit is given even though the items from
these banks come in after regular closing
hours. 2 3
21. Items on other local banks accept ed for
immediate credit are limited to those that can be
presented over the counter or through clearings the
same day.
22 . In this and following part s of this section, reference to number o f ~ pertains to t he
12 Banks and 24 branches except where the text specifically refers to distric t s or to Banks alone. For
check collection purposes, the System may be regarded
as operating 36 separate offices, each one tending to
set its own operating rules within t he framework of
general operating policies developed by the System as
a whole.
23. In July 1952, 151 banks were so treated;
their total volume was only 14,000 items daily.
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Federal Reserve Bank of St. Louis
Twelve offices require no sorts at all
of immediate credit items, fifteen require
sorting only if volume warrants, four require only one split, and five require a
three-way break -- commercial bank items,
Treasury checks, and money orders.
(b)
Intradistrict Items
Closing hours for intradistrict items
·"ary from noon to 3 p. m. and are related
primarily to transportation schedules. The
closing hours of five offices are as early
as noon; of four, as late as 3 p .m. Closing
hours at the.majority of offices, however,
are between 1 p.m. and 2 p.m. And all offices but five accept items for large
amounts after regular closing hours. The
cut-off time for large items is keyed to
processing ability and outgoing transportation schedules.
With few exceptions, there are no formal sorting requirements for intradistrict
items, but the cooperation of sending banks
is solicited informally when intradistrict
volume is so heavy that some sorting will
expedite collections.
In general, Federal Reserve offices
will not accept from one office of a bank
items drawn on another office of the same
bank in the same town or city. In some districts, this restriction extends to items
drawn on out-of-town offices as well.
{c)
Interdistrict Items
In order to eliminate one handling and
to expedite presentation, any member bank
customarily receiving a substantial volume
of checks drawn on banks in another Federal
Reserve district will ordinarily be requested by the local Federal Reserve Bank to send
them direct to the Federal Reserve office of
the area in which they are payable, rather
than to send them to the local Reserve office for transmission to the other district.
If a bank receives between 200 and 300 items
payable in another district, it usually is
requested to send direct to the other Reserve office. The Reserve Banks pay transportation costs on such shipments, and compute availability of credit from date of
dispatch.
Nine Federal Reserve offices send items
drawn on banks in adjacent areas of an ad-
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
joining district directly to the drawee
banks, for remittance through the Federal
Reserve office of the area in which the
drawees are located. Such arrangements,
which require cooperation by both Reserve
offices concerned and by the drawee bank,
are relatively few.
2.
Night Forces and Saturday Work
About one-third of the Federal Reserve
offices use night forces to process work.
These are employed where transportation
facilities warrant them. Where mail and
express facilities are not available after
normal working hours, or where volllm.:! can
be processed in normal hours, night forces
are not employed.
While 25 of the Reserve offices are
located in cities where banks are closed on
Saturdays, all these 25 offices process
checks on Saturdays. Saturday work is devoted primarily to deferred credit items,
since items cannot be presented to the local banks, which are closed. All but two
offices dispatch both intradistrict and interdistrict items on Saturdays, however.
3.
Remittances for Items Presented
by Federal Reserve Offices
Drawee banks remit the proceeds of
items received from Federal Reserve offices
in a variety of ways: some by drafts on
correspondents; some by drafts on (or authorization to charge) their reserve accounts; some by shipments of currency.
4.
Banker Co~nts
Federal Reserve check collection operations generally are regarded by the nation's
banks as being efficient. A number of bankers, however, do not like the accounting
pro'cedures required by 6.eferred credit
availability, and these are probably the
major factor responsible for the relatively
limited direct use of Federal Reserve facilities by the smaller member banks. Federal Reserve sorting requirements may also
be a deterrent, since bankers sometimes suggest that if all items were received by Federal Reserve Banks for immediate credit,
there would be no occasion to require banks
to sort items according to availability
schedules.
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Federal Reserve Bank of St. Louis
47
A more pertinent bankers' suggestion
is that Federal Reserve Banks accept items
frGm country m=mber banks for credit to
those banks' accounts with a designated city
correspondent. Such a practice would relieve the country bank of the accounting requirements of deferred availability credits,
since the bank would presumably receive
immediate book credit in its account with
the correspondent bank. The Reserve Bank
would give credit to the city correspondent
bank on the basis of the regular availability schedule. This procedure would presumably create no new problem,since the city
bank is accustomed to deferred credit availability. The practice is now being followed
in the Minneapolis District, with apparently
satisfactory results both for country and
city banks. The Federal Reserve Banks,asked
by the committee about their attitudes with
res pect to this practice, indicated no objection to it provided the country and city
banks wished to adopt it.
A number of bankers also suggested that
the Reserve Banks and branches establish
later closing hours for receipt of items,
and that Federal Reserve offices not using
night forces ~ight employ them. Most Reserve Bank officers feel, however, that
t heir closing hours are already set about
as late as they can be, and that setting
them any later would not leave enough time
to process items and to meet outgoing transportation schedules. They believe that
later closing hours would result in holding
work over, because of insufficient time for
processing. And they point out that night
forces are useful only if transportation
facilities are available for sending out
the work the night forces proce.~~d.
To meet the objection (based on lack
of transportation facilities)to more night
operation~one banker urged the Reserve
Banks to explore the possibility of using
trucks (either their own or those of contrac t motor carriers) for delivery of cash
letters to drawee banks within a sui t able
radius. Then, he pointed out, transportation schedules could be geared to working
hours, rather than the reverse. A few Reserve Banks have already t aken steps in the
direction suggested.
Another point mentioned by bankers had
to do with so-called "restricted items",
48
JOINT STUDY OF CHECK COLLECTION
those which Federal Reserve Banks will not
receive for collection as cash items, but
which are frequently regarded as cash items
by commercial banks. Bankers apparently
believe that the practices of the Reserve
Banks in handling restricted items should
be more uniform, _and that efforts should
be made to persuade the issuers of such
items to use checks instead. One of the
committee's recommendations deals with this
matter.
The number of "restricted" items is
really quite small. Accordio.g to the survey, only 86,000 such items were in the
check collection system on an average day
in July, 1952. This figure represents less
than 0.3 per cent of all items in the process of collection at all commercial banks
on that day. In the statistical portions
of this report, restricted items have been
combined with nonpar items, because neither •
class of items is handled by Federal Reserve offices and because they represent
too small a proportion of total items to
warrant separate classificatio~.
F.
Variations Among Federal
Reserve Districts
In this section, data on check volume,
sources and disposition are subdivided according to Federal Reserve districts.24 The
baste data are the same as those used earlier to show the pattern of check collections
among banks of different sizes and different
reserve classifications.
The tables at the end of this chapter
give all the pertinent district data. Tables VI tp.rough XI show data (by Federal
Reserve district) on check volume by type
of item handled. by sources of check volume,
24. The figures shown as totals for the 12
districts do not correspond exactly with corresponding national totals shown in earlier tables. Most of
the differences, which result largely from the rounding of the figures for each district, are minor and
may be ignored. In Tables IX and X, however, the
differences are somewhat larger, am::,unting to about
one per cent, because in the data obtained in the
survey, the number of items presented to drawee banks
for payment did not exactly match the number of items
charged to depositors' accounts. In the national
figures, these items were brought into balance by adjusting a miscellaneous category in the data; the
comparable adjustment was not made on a district
basis, since·_the differences are too small to have
any appreciable effect upon the percentage computations ~r to distort the patterns of distribution.
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Federal Reserve Bank of St. Louis
and by disposition of check volume, for all
co~rcial banks and all Federal Reserve
offices, all Reserve City banks, all country
banks with more, than $7-5 million in deposits, all country banks with less than $7.5
Iirl.llion in deposits (as of June, 1952), and
all Federal Reserve offices.
Tables XII through XIV show data (by
Federal Reserve district) on number of banking offices, by number of offices sending
items to Federal Reserve Banks, and by banking offices receiving items from the Federal
Reserve Banks. This information is subclassified by type of item sent and by size and
reserve status of sending and receiving
banks.
Tables XV through XVI-3 present a district' breakdown of certain information developed specifically to point up certain
recommendations contained in the report.
They show percentages of items payable within various distances from the first collecting bank, and proportions of various types
of items handled by Reserve City banks and
Federal Reserve Banks.
The variations from district to district are apparent from the tables and require no extended discussion. The following points, which bear upon interpretations
of the district figures, should be noted
however:
(1) Check collection patterns do not
differ greatly among the various districts.
Differences in collection patterns seem to
be related more directly to differences in
sizes of banks than to differences in locations of banks. The different mixtures of
bank sizes in the various Reserve districts
account in large neasure for the geographic
differences that exist.
(2) Apart from differences attributable to mixtures of bank sizes, geographic
differences reflect four factors: (a) concentrations of big banks in important financial centers; (b) large scale ~ranch
banking; (c) correspondent bank activity,
e.g., solicitation of check collections and
direct sendings to drawee banks; and (d)
concentrations of nonpar banks.
(3) The volume of items received by
Reserve City banks for collection, including the volume of transit items, is pro-
DISTRIBUTION OF NONPAR ITEMS RECEIVED AND OF NONPAR
BANKING OFFICES BY FEDERAL RESERVE DISTRICTS
49
BOSTON
NEW YORK
PHILADELPHIA
CLEVELAND
RICHMOND
ST. LOUIS
MINNEAPOLIS
DALLAS
SAN FRANCISCO
0
10
20
30
Per cent
40
50
0
Per cent of total nonpar items received in all districts
Em
Per cent of nonpar items received in each district
to all items received in each district
-
Per cent of nonpar banking offices in each district
to all banking offices in each district
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Federal Reserve Bank of St. Louis
60
50
JOINT STUDY OF CHECK COLLECTION
portionately heavier than deposit volume
would indicate in the Philadelphia, Cleveland, Chicago and Kansas City districts.
The proportion of it~ms presented directly
to smaller banks by correspondents is also
relatively large in those districts, reflecting a substantial amount of direct
sendings. These facts indicate intensive
activity in check collections characteristic
of the correspondent banks in those areas.
banks in a Federal Reserve city were sent to
correspondent banks for collection, acertain proportion of the items received by
each bank would be drawn on it and would not
have to be collected through clearings; no
matter how small that proportion, it would
represent an economy in handlings as contrasted with the hand.lings required when
items drawn on other local banks are sent
to Federal Reserve Banks.
(4) Direct sendings to drawee banks
are prevalent also in the Richmond, Atlanta,
Minneapolis and San Francisco districts. In
the first three areas, this reflects largely
the concentrations of nonpar items handled;
in the last, it reflects inter-office clearings of the large branch banking systems in
that area.
.The items shown in the table under Federal Reserve Banks are limited to items payable at coIIIIl'.ercial banks in their cities
which were received by the Federal Reserve
Banks from country banks in the same Federal
Reserve district. The comparison would be
more pointed if it were possible to limit in
the same manner the items shown under Reserve City banks, but such a breakdown is
not available. Included in the Reserve City
figures are items drawn on or payable at
other local banks (including the Federal Reserve Bank) received from both city and country banks in the same and other districts,
and other items of that nature received in
customers' deposits or cashed at the window.
(5) The volume of items received at
Reserve City banks for collection from other
local banks is proportionately heavier in
the New York and San Francisco districts,
reflecting concentrations of big banks.
(6) Tables XV and XV-A show, on a district basis, the rough orders of magnitude
of local area check volume potentially available for collection through regional clearing arrangements. Generally speaking, the
checks payable within a 25 mile radius of
the collecting bank would seem amenable to
collection through regional arrangements;
perhaps some of those in the 25 to 50 mile
circle might also be counted. Naturally
enough, the concentrations are greater in
the more populous districts.25
(7) Table XVI-1 shows the proportions
of local items handled by Federal Reserve
Banks and by Reserve City banks in each Federal Reserve district. It points up the
fact that a substantial number of items are
sent to Federal Reserve Banks for collection
from local commercial banks, mainly by presentation through local clearings. High percentages for Reserve Bank handlings tend to
indicate more double handling than is necessary. If all items payable at commercial
25. The committee re cognizes that mere distance is not the controlling factor in establishing
regional clearing arrangements. As pointed out
earlier, some of the checks payable within 25 miles
or 50 miles of the collec ting bank actually are payable in big cities and would be sent to banks there
rather than cleared in a regional arrangement.
Nevertheless, the very fact that such large proportions of transit items are payable at nearby points
indicates that the regional clearing arrange~nt
potential is far greater than is actually being
realized today .
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Federal Reserve Bank of St. Louis
(8) Table XVI-2 gives the same sort of
information for intradistrict country items.
The table on intradistrict country items is
subject to the same sort of limitations noted
with respect to that for city items, in that
the Reserve City figures include items received in deposits of nonbank customers or
cashed at the window. High percentages for
the Reserve City banks indicate double handlings, representing many items received by
them from country member banks and thereafter deposited by the Reserve City banks
with Federal Reserve Banks for collection.
(9) Table XVI-3 presents the picture
for interdistrict items. Federal Reserve
handlings come only from city or country
members, and do not include items sent by
member banks direct to other districts. Correspondent bank handlings, whether received
in nonbank deposits or in sendings from
banks, can be sent directly to the Federal
Reserve offices of the territories in which
the drawee banks are located, in order to
save time and minimize handlings. In the
table, high percentages for Reserve City
banks and low ones for Federal Reserve Banks
indicate a substantial use of direct sendings to other districts. This technique is
used more extensively by banks in the New
York and St. Louis districts than by banks
elsewhere.
51
PROPORTION OF PAR TRANSIT ITEMS HANDLED BY ALL COUNTRY BANKS
DRAWN ON BANKS WITHIN VARYING DISTANCES
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Federal Reserve Bank of St. Louis
Over 100 miles
37%
Drawn on banks
within a
25 mile area
31 o/o
52
PROPORTION Of INTERDISTRICT PAR ITEMS HANDLED BY RESERVE CITY
AND FEDERAL RESERVE BANKS IN EACH FEDERAL RESERVE DISTRICT
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Federal Reserve Bank of St. Louis
BOSTON
ST. LOU IS
0
20
40
60
80
Per cent
ETIJ Reserve city banks
~ Federal Reserve Banks
100
Table VI
Check Volume on an Average Day in July 1952
By Federal Reserve District
(Items in thousands , deposits in mill_Jns)
Federal Reserve Banks
Commercial Banks
Items Received for Collection
Total
Commercial
Bank
Deposit s*
Federal
Reserve
District
Subtotal
Commercial
~ Bank Volume
Total
Items
Paid
Total
Nonpar and
On
InterIntraLoc a l district district Restricted
Items
Banks Par Items Par Items
Items Received for Collection
Other
Subtotal
- 'lllllediate IntraInterReserve
Items
Bank
Credit;/f district district
~ Paid** Total I t ems*** Par Items Par Items
$ 7, 642.6
3,966
2,980
1,410
1,570
470
811
282
7
986
145
841
134
669
38
38,840.1
11,129
9,082
4,389
4,693
2,249
1,5 69
853
22
2,047
390
1, 657
725
878
54
8,5 69.4
3,981
3,149
1,269
1,880
582
734
548
16
83 2
199
633
149
433
51
13,046.5
4,989
4,113
1,906
2,207
743
912
537
15
876
220
656
130
428
98
5, Richmond
8,774.6
3, 930
3,238
1,461
1,777
685
686
308
98
692
208
484
59
353
72
6. Atlanta
8,948.3
4,357
3,709
1, 692
2,017
781
590
321
325
648
268
380
78
268
34
7. Chicago
26,585.3
10,552
8,994
3,915
5,079
1,892
2,322
805
60
1,558
436
1,122
239
777
106
8. St. Louis
7,468 .7
3,742
3,151
1,465
1,686
674
533
321
158
591
219
372
75
283
14
9. Minneapolis
5,179.7
2,543
2,225
1,031
1,194
432
390
170
202
318
89
229
35
168
26
10. Kansas City
8,391.2
4,549
3,859
1,692
2,167
725
1,007
387
48
690
185
505
87
386
32
11. Dallas
8,476.8
4,468
3,935
1,829
2,106
1,021
745
288
52
533
145
388
63
303
22
20 ,424.6
~
.i.zl1Q
2,922
~
1,706
~
291
_l1
1,011
~
666
158
477
~
$162,347.8
65,587
54,805
24,981
29, 824
11,96o
11,733
5,111
1,020
10,782
2,849
7,933
1,932
5, 423
578
1. Boston
2. New York
3. Philadelphia
4. Cleve land
12. San Francisco
Total
As of June 30, 1952.
Treasury checks, postal money orders, and checks drawn on the Federal Reserve Banks.
on banks in same city as handling Reserve Bank .
*** Mostly
# These figures exclude 770,000 local items handled as packages by the Federal Reserve Banks of New York, Philadelphia, Chicago, and St. Louis .
Consequently the total of other immediate items is shown as 1,932,000 items rather than the 2,702,000 shown in Tables I and IV, and total Federal Reserve
;volume is shown as 10,782,000 rather than 11,552,000 items. Total volume is shown as 65,587, 000 rather than 66,357 , 000.
*
**
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
V'\
~
Vt
~
Table VI-A
Check Volume on an Average Day in July 1952
Per Cent Distribution by Federal Reserve District
Commercial Banks
Items Received for Collection
Federal
Reserve
District
Total
Subtotal
Commerc ial
Total Commercial
Bank
Deposits* Volume# Bank Volume
Items
Paid
Total
On
Local
Banks
Nonpar and
InterIntra district district Restricted
Items
Par Items Par Items
Subtotal
Reserve
Bank
~
Federal Rese rve Banks
Items Received for Collection
Other
Immediate Int raInterCredit# dis tr ict district
Items
Total
Items*** Par Items Par Items
Paid**
4.7
6.o
5.4
5.6
5.3
3.9
6.9
5.5
0.7
9.1
5.1
10.6
6.9
12.3
6.6
23 .9
17.0
16.6
17.6
15. 7
18.8
13 .4
16.7
2.1
19.0
13. 7
20 .9
37.5
16.2
9.4
3. Ph ilade lphia
5.3
6.1
5 .7
5.1
6.3
4.9
6.3
10.7
1.6
7.7
7.0
8.0
7.7
8.0
8.8
4.
8.0
7.6
7.5
7.6
7.4
6. 2
7.8
10.5
1.5
8.1
7.7
8.3
6.7
7.9
16.9
5. Richmond
5.4
6.0
5.9
5.8
5.9
5.7
5.8
6.o
9. 6
6.4
7.3
6.1
3.1
6.5
12.5
6. At lanta
5.5
6.6
6.8
6.8
6.8
6.5
5.0
6.3
31.9
6.o
9.4
4.8
4.0
5.0
5.9
7. Chicago
16.4
16.1
16.4
15.7
17.0
15. 8
19. 8
15.8
5.9
14.'5
15.3
14.1
12.4
14',3
18.3
8. St . Louis
4. 6
5.7
5.8
5.9
5. 6
5.7
4. 6
6.3
15 .5
5.5
7.7
4,7
3.9
5.2
2.4
9 . . Minneapolis
3.2
3.9
4.1
4.1
4.0
3. 6
3.3
3.3
19. 8
2.9
3.1
2.9
1.8
3.1
4.5
1.
Boston
2. New York
Cleveland
.
10.
Kaneas Ci t y
5.2
6.9
7.0
6.8
7.3
6.1
8.6
7.6
4.7
6.4
6.5
6.3
4,5
7.1
5.5
11 .
Dallas
5.2
6.8
7.2
7.3
7.1
8.5
6.3
5. 6
5.1
5.0
5,1
4,9
3.3
5.6
3.8
12. 6
11.3
100 .0
11. 6
11.7
100 .0
11. 6
14.3
100.0
12. 2
-2...:l
1. 6
~
12.1
8.4
8.2
100.0
100.0
100.0
100 .0
100.0
100.0
100.0
8.8
-100.0
100.0
12. San Fr ancisco
Total
*
**
***
#
100 .0
100.0
100.0
As of June 30, 1952.
Tre asury checks, postal mone y orders, and checks drawn on the Federal Reserve Banks.
Mos t ly on banks i n same city as handling Reserve Bank.
These figures exclude 770 ,000 local items handled as packages by the Federal Reserve Banks of New York, Philadelphia, Chicago, and St. Louis.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
~
55
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table VI-B
Items Rec eived for Collection on an Average Day in July 1952
By Federal Reserve Distri ct
Per Cent Distribution by Type of Item
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Total
Items
Received*
Boston
New Yo rk
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
Commercial Banks
On
Intra Nonpar and
Interdistrict district Restricted
Local
Par Items Par Items
Banks
Items
Federal Reserve Banks
Immediate Intra. Total
Inter Items
Credit* district
district
Received* Items** Par Items Par Items
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100.0
100 . 0
100 . 0
100 . 0
29.9
47.9
31.0
33 . 7
38 . 6
38 . 7
37 . 3
40 . 0
36 . 2
33 . 4
48 . 5
49 . 5
51.7
33.4
39.0
41.3
38 . 6
29 . 3
45.7
31.6
32 . 7
46 . 5
35 - 4
41.6
18.0
18 . 2
29 . 1
24 , 3
17 . 3
15.9
J_5 . 8
19 . 0
14 . 2
17 . 9
13 .7
8.4
0.4
0.5
0.9
0.7
5.5
16.1
1. 2
9.4
16 . 9
2 .2
2.4
~
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100.0
100.0
100 . 0
100.0
15 . 9
43 . 8
23 . 5
19 . 8
12 . 2
20 . 5
21. 3
20 .1
15 . 3
17 . 2
16 . 2
23 . 7
79 . 6
53 . 0
68 . 4
65 . 3
72 . 9
70.5
69 . 3
76 . 1
73 , 4
76 .. 5
78 . 1
71.6
4,5
3 .2
8 .1
14 . 9
14 . 9
9 .0
9.4
3.8
11.3
6.3
5. 7
~
100 . 0
40 . 1
39.4
17.1
3 ,4
100 . 0
24 . 3
68.4
7.3
* These figures exclude 770 , 000 local items handled as package s by the Federal Rese rve Banks of New York,
Philadelphia, Chicago , and St. Louis.
** Mostly on banks in same city as handling Reserve Bank .
Table VII-1
Check Volume on an Average Day in July 1952
Reserve City Banks
By Federal Reserve Di strict
(Thousands of items)
Federal
Reserve
Di s trict
1. Boston
2 . New York
3 . Philadelphia
4. Cleveland
5 . Richmond
6 . Atlanta
7 . Chicago
8 . St . Louis
9 . Minneapolis
10. Kansas City
11. Dallas
12 . San Francisco
Total
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5 ,589
1,429
2 , 022
1,293
1,156
4,556
1 , 157
678
1,804
1,513
4,738
Items
Paid
305
2 , 527
337
763
440
415
1,418
375
207
595
494
2 , 089
Total
483
3,862
1,092
1,259
853
741
3,138
782
471
1,209
1,019
2 , 649
26 ,723
9,965
16,758
Total
Volume
788
Items Received for Collection
InterIntra On
district
district
Local
Par Items
Par Items
Banks
174
235
73
640
1,_808
597
326
354
397
285
511
458
402
283
153
111
209
311
1, 256
553
1 , 299
164
198
330
62
193
99
231
421
543
114
504
374
1,074
1,382
~
7 , 679
5, 733
2 , 895
Nonpar and
Restricted
Items
1
17
15
5
15
110
30
90
117
14
27
10
451
JOINT STUDY OF CHECK COLLECT I ON
Table VII-2
Check Volume on an Average Day in July 1952
Country Banks with $7 . 5 Million or More Deposits*
By Federal Reserve District
(Thousands of items)
Items Received for Collection
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
ll .
12 .
Boston
New York
Philadelphia
Cleveland
Ri chmond
Atlanta
Chicago
St . Louis
Minneapolis
Kansas City
Dallas
San Fran cisco
Total
Intradistrict
Par Items
Nonpar and
Interdistrict Restricted
Items
Par Items
Total
Volume
Items
Paid
Total
On
Local
Banks
1,631
2 ,888
1,151
1,373
1,146
1, 567
2, 645
940
596
776
1,000
l,ll5
779
1,523
619
733
522
694
1,424
448
278
355
476
508
852
1, 365
532
640
624
873
1 , 221
492
318
421
524
607
260
366
ll8
229
180
352
417
203
108
145
243
284
425
805
249
223
282
236
619
157
127
162
187
238
162
190
164
179
ll5
136
164
96
53
89
88
78
5
4
1
9
47
149
21
36
30
25
6
7
16,828
8,359
8,469
2,905
3,710
1,514
340
* A s of June 30 , 1952 .
Table VII - 3
Check Volume on an Average Da y in July 1952
Country Banks with Less Than $7.5 Million in Deposits*
By Federal Reserve Distri ct
(Thousands of items)
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
*
**
Total
Volume
Items
Paid
Total
561
6o5
569
718
799
986
1 ,793
1,054
951
1, 279
1, 422
517
326
339
313
409
499
583
1,073
642
546
743
859
325
235
266
256
309
300
403
720
412
405
536
563
192
36
75
67
56
103
ll8
176
141
132
159
274
40
151
166
132
178
121
'144
446
178
164
302
184
122
47
24
57
73
40
75
89
61
54
66
86
_l2
1
1
**
2
36
66
9
32
55
9
19
**
11, 254
6,657
4, 597
1 , 377
2,288
702
230
As of June 30, 1952 .
Less than 500 items .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
It ems Receive d for Collection
Nonpar and
InterIntra On
district dis trict Restricted
Local
Banks
Items
Par Items Par Items
57
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table VII -A-1
Check Volume on an Average Day in July 1952
Reserve City Banks
By Type of Item
Percentage Distribution by Federal Reserve District
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11 .
12 .
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisc o
Total
Items Received f or Collecti on
Intra On
Inter Local
d.istrict
district
Banks
Par Items
Par Items
Nonpar and
Rest ricted
Items
Total
Volume
Items
Paid
Total
3.0
20 . 9
5.4
7.6
4. 8
4.3
17 . 0
4. 3
2.5
6.8
5.7
17.7
3.1
25 . 3
3.4
7.7
4. 4
4.2
14 . 2
3.8
2 .1
6.o
4.9
20 .9
2.9
18 . 3
6.5
7.5
5 .1
4.4
18 . 7
4,7
2 .8
7 .2
6.1
15 . 8
2.3
23 . 5
5.2
6 .0
5.2
4.0
16 . 9
4.3
2.5
5.5
6. 6
18 .0
4.1
10 . 4
6.2
8.9
4.9
3.7
21.9
3.5
1.7
9.5
6.5
18.7
_§_:]
0.2
3.8
3.3
1.1
3.3
24 . 4
6.7
20 . 0
25 . 9
3.1
6.0
2 .2
100.0
100.0
100 . 0
100 . 0
100. 0
100 . 0
100 . 0
2.5
22 . 1
11. 3
9 .9
5.3
3.8
19 . 1
5.7
2 .1
8 .o
3.9
Table VII -A- 2
Check Volume on an Average Day in July 1952
Country Banks with $7 -5 Million or More Deposits*
By Type of Item
Percentage Distribution by Federal Reserve District
Feder al
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cleve land
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
*
Items
Paid
Total
9.7
17 . 2
6.8
8 .2
6.8
9.3
15 . 7
5. 6
3.5
4.6
6.o
6.6
9.3
18 . 2
7. 4
8 .8
6.3
8.3
17.0
5. 4
3.3
4.2
5.7
6 .1
10 . 1
16 . 1
6.3
7.5
7 ,4
10 . 3
14 . 4
5 .8
3.7
5 .0
6 .2
~
100.0
100.0
100.0
Total
Volume
As of June 30 , 1952.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Items Rece ived for Collection
On
IntraInter Local
district
di str ict
Banks
Par Items
Par Items
9 .0
12 . 6
4.1
7 .7
6.2
12.1
14 .4
7 .0
3 .7
5.0
8 .4
Nonpar and
Restricted
Items
~
11.5
21.7
6.7
6.o
7.6
6.4
16.7
4.2
3.4
4.4
5.0
6. 4
10 . 7
12. 5
10 . 8
11.8
7.6
9 .0
10 . 8
6.4
3.5
5.9
5.8
~
1.5
1.2
0.3
2.6
13 . 8
43 . 8
6.2
10 . 6
8.8
7.4
1.8
2 .0
100.0
100 . 0
100 . 0
100 . 0
58
JOINT STUDY OF CHECK COLLECTION
Table VII-A-3
Check Volume on an Average Day in July 1952
Country Banks with Less Than $7.5 Million in Deposits*
by Type of Item
Percentage Distribution by Federaf Reserve District
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12 .
Total
Volume
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
*
**
Items
Paid
Total
5. 0
5.4
5.0
6. 4
7.1
8 .8
15.9
9.4
8 .4
11.4
12 . 6
4. 6
4 .9
5. 1
4.7
6.1
7.5
8 .8
16 . 1
9.6
8 .2
11. 2
12 .9
~
5.1
5. 8
5. 6
6.7
6.5
8 .8
15.7
9.0
8 .8
11.6
12 . 2
4.2
100.0
100 . 0
100.0
Items Received for Collection
On
IntraInterLocal
di s trict
di s trict
Banks
Par Items Par Items
2.6
5.4
4.9
4.1
7. 5
8.6
12.8
10. 2
9.6
11.5
19.9
2:.2
6. 6
7. 2
5. 8
7.8
5.3
6 .3
19.5
7.8
7 .2
13 . 2
8 .o
5.3
6 .7
3.4
8 .1
10.4
5.7
10 .6
12 .7
8 .7
7.7
9.4
12.3
4.3
100.0
100 .0
100.0
As of June 30, 1952 .
Less than O. 05%.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Table VII-B-1
Items Rec e ive d f or Colle ction on an Ave rage Day in July 1952
Rese rve City Banks by Fe deral Re serve District
Pe rce ntage Distribution by Type of Item
Federal
Rese rve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12 .
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
Nonpar and
IntraInter district district Restricted
Par Items Par Items
Items
Total
On
Local
Banks
100.0
100.0
100 . 0
100 .0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
. 100.0
36.0
59.0
36.4
36.4
47.1
42.0
41.4
42.2
41.0
34. 8
49.5
52.2
48 .7
19.5
32.4
40.6
33.2
28 .2
40 . 0
25 . 3
21.0
44.9
36.7
40.5
15.1
20.9
29.8
22.6
17 . 9
15.0
17 .6
21.0
13.2
19.1
11.2
6 .9
0.2
o.6
1.4
0.4
1.8
14 . 8
1.0
11.5
24. 8
1.2
2.6
0.4
100.0
45. 8
34 . 2
17.3
2.7
Nonpar and
Restricted
Items
0.4
0.4
**
0.9
15.7
28 .7
3.9
13.9
23.9
3.9
8.3
**
100 . 0
59
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table VII-B-2
Items Received for Collection on an Average Day in July 1952
Country Banks with $7.5 Million or More Deposits*
By Federal Reserve District
Percentage Distribution by Type of Item
Federal
Reserve
District
1. Boston
2. New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
ll. Dallas
12. San Francisco
3.
4.
5.
6.
7.
8.
9.
10.
Average
IntraNonpar and
Interdistrict district Restricted
Par Items Par Items
Items
Total
On
Local
Banks
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
30.5
26.8
22.2
35.8
28.9
40. 3
34 . 2
41.3
34.0
34.5
46.4
46.8
49.9
59.0
46 .8
34.8
45.2
27.0
50.7
31.9
39.9
38.5
35.7
39.2
19.0
13.9
30.8
28.0
18.4
15. 6
13.4
19.5
16.7
21.1
16.8
12.9
o.6
0.3
0.2
1.4
7.5
17.1
1.7
7.3
9.4
5.9
1.1
1.1
100.0
34.3
43.8
17.9
4.0
* As of June 30, 1952.
Table VII-B-3
Items Received for Collection on an Average Day in July 1952
Country Banks with Less Than $7.5 Million in Deposits*
By Federal Reserve District
Per centage Distribution by Type of Item
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
15. 3
28.2
26.2
18.1
34 . 3
29.3
24.4
34.2
32.6
29.7
48.6
20.8
64. 3
62.4
51.5
57.6
40.4
35.7
61.9
43.2
40.5
56 .3
32 .7
63.6
20.0
0.4
9.0
22.3
23.6
13.3
18.6
12 .4
14.8
13.3
12.3
15. 3
15. 6
0.4
**
0.7
12.0
16. 4
1.3
7.8
13.6
1.7
3.4
**
100.0
29.9
49.8
15.3
5.0
* As of June 30, 1952.
Less than 0.05%-
**
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Nonpar and
IntraInterdistrict district Restricted
Par Items Par Items
Items
On
Local
Banks
60
JOINT STUDY OF CHECK COLLECTION
Table VIII-1
Sources of Checks Handled by Country Banks on an Average Day in July 1952
All Country Banks
By Federal Reserve District
(Thousands of items)
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12.
Total
Receipts
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
From
Clearing
House*
From
Federal
Reserve
Bank
2,192
3,493
1,720
2,091
1,945
2,553
4,438
1,994
1,547
2,055
2,422
1,632
244
360
191
350
292
341
647
379
240
330
532
575
1,036
502
354
330
278
753
399
268
328
313
~
28,082
4,280
From
Other
Commercial
Banks
Nonbank
Deposits
Cashed
Checks
~
118
196
132
177
340
341
379
121
174
230
202
200
1,059
1,515
675
983
753
1,362
2,186
860
722
1,007
1,032
697
196
386
220
227
230
231
473
235
143
160
343
~
5, 361
2,610
12,851
2,980
* Includes local messenger presentation and special local clearing arrangements.
Table VIII-2
Sources of Checks Handled by Country Banks on an Average Day in July 1952
Country Banks with $7.5 Million or More in Deposits*
By Federal Reserve District
(Thousands of items)
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Total
Receipts
1,631
2, 888
1,151
1,373
1,146
1,567
2,645
940
596
776
1,000
1,115
16,828
From
Clearing
House**
212
335
143
292
187
258
439
221
112
160
192
From
Federal
Reserve
Bank
From
Other
Commercial
Banks
106
159
84
118
265
237
225
64
93
135
131
Nonbank
Deposits
Cashed
Checks
119
294
135
135
117
96
286
104
53
59
56
_§2
1,523
~
375
829
300
180
129
142
375
134
55
53
94
112
_J£[
819
1,271
489
648
448
834
1,320
417
283
369
527
~
2,842
2,778
1,764
7,921
* As of June 30, 1952.
** Includes local messenger presentation and special local clearing arrangements.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
61
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table VIII-3
Sources of Checks Handled by Country Banks on an Average Day in July 1952
Country Banks with Less Than $7.5 Million in Deposits*
By Federal Reserve District
(Thousands of items)
Fe deral
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Total
Recei:Ets
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
561
605
569
718
799
986
1, 793
1,054
9 51
1,279
1,422
517
11,254
From
Other
From
From
Federal CommerClearing Re.s erve cial
Nonbank
House**
Bank
Banks DeEosits
Cashed
Checks
~
200
207
202
174
201
136
378
265
213
275
219
~
12
37
48
59
75
104
154
57
81
95
71
~
240
244
186
335
305
528
866
443
439
638
505
201
_§]_
1,438
2,583
846
4,930
1,457
32
25
48
58
105
83
208
158
128
170
340
77
92
85
92
113
135
187
131
90
101
287
* As of June 30, 1952.
** Include s local messenge r presentation and special local clearing
arrangements.
Tab l e VIII-A-1
Source s of Che cks Handl ed by Country Banks on an Average Day in July 1952
All Country Banks
By Federal Reserve District
Percentage Distribution by Source
Federal
Reserve
Di strict
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12 .
Total
Rece i:12ts
Bo ston
New York
Philadelphia
Cle veland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Ave r age
-----* Include s
arr angeme nt s .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
100.0
100.0
100.0
100 .0
100 .0
100 .0
100 .0
100 .0
100.0
100 .0
100 . 0
100 . 0
From
Cl earing
House*
From
Federal
Re serve
Bank
From
Othe r
Commercial
Banks
Nonbank
DeEosits
Cashed
Che cks
11.1
10. 3
11.1
16. 7
15.0
13.4
14.6
19. 0
15.5
16 . 0
22. 0
22. 9
26.2
29.7
29.2
16.9
17 .0
10.9
17 . 0
20. 0
17.3
16.0
12 .9
13 .8
5.4
5. 6
7.7
8.5
17. 5
13.4
8 .5
6.1
11.2
11. 2
8 .3
12. 3
48 .3
43.4
39.2
47 , 0
38 .7
53 .3
49 .3
43.1
46.7
49.0
42 .6
42 .7
9 .0
11.0
12 . 8
10 .9
11. 8
9.0
10 .6
11. 8
9.3
7 .8
14.2
J?..:l
10.6
45 . 8
19.1
15. 2
100 . 0
9. 3
local messe nge r pr e se ntation and special local clearing
62
JOINT STUDY OF CHECK COLLECTION
Table VIII-A-2
Sources of Checks Handled by Country Banks on an Average Day in July 1952
Country Banks with $7.5 Million or More in Deposits*
By Federal Reserve District
Percentage Distribution by Source
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
Total
Receipts
From
Clearing
House**
From
Federal
Reserve
Bank
From
Other
Commercial
Banks
Nonbank
Deposits
Cashed
Checks
100 . 0
100.0
100 . 0
100.0
100.0
100.0
100 . 0
100.0
100 . 0
100.0
100.0
100.0
13.0
11.6
12 . 4
21.3
16 . 3
16.5
16.6
23.5
18 . 8
20 .6
19.2
26 . 1
23 . 0
28 .7
26.1
13 . 1
11.3
9.1
14.2
14.2
9.2
6 .8
9.4
10.0
6 .5
5.5
7.3
8.6
23 .1
15.1
8 .5
6 .8
15 . 6
17 . 4
13.1
13.2
50.2
44 . 0
42 . 5
47.2
39.1
53 . 2
49.9
44.4
47-5
47.6
52 .7
44 . 5
7.3
10.2
11.7
9.8
10.2
6.1
10 . 8
11.1
8 .9
7.6
5.6
6.2
100.0
16 . 9
16.5
10.5
47 . 1
9.0
As o.f June 30 , 1952 .
Includes local messenger presentation and speci~l local clearing arrangements.
*
**
Table VIII -A-3
Sources of Checks Handled by Country Banks on an Average Day in July 1952
Country Banks with Less Than $7 .5 Million in Deposits*
By Federal Reserve District
Percentage Distribution by Source
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11 .
12.
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
*
**
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
From
Other
Commercial
Banks
Nonbank
Deposits
Cashed
Checks
Total
Receipts
From
Clearing
House**
From
Federal
Reserve
Bank
100.0
100.0
100.0
100.0
100 . 0
100.0
100.0
100 . 0
100.0
100 . 0
100.0
100 .• 0
5.7
4.2
8 .4
8 .1
13.1
8 .4
11.6
15.0
13.4
13 . 3
23 . 9
16.0
35.7
34.2
35.5
24.2
25.1
13. 8
21.1
25.2
22.4
21.5
15.4
21.9
2 .1
6 .1
8.4
8.2
9.4
10.5
8 .6
5.4
8.5
7.4
5 .0
10.3
42.8
40 . 3
32.7
46.7
38.2
53.6
48.3
42.0
46.2
49.9
35.5
38 .9
13.7
15 . 2
15 . 9
12 . 8
14.2
13.7
10.4
12.4
9.5
7.9
20 . 2
12.9
100.0
12.8
23.0
7 .5
43.8
12.9
As of June 30, 1952.
Includes local messenger presentation and special local clearing arrangements.
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table IX
Disposition of Checks Handled by Comme r cial Banks on an Average Day in July 1952
By Federal Re s erve Distr ic t
(Thousands of items)
Fede r al
Reserve
Dist r i ct
1. Boston
2 . New York
3. Phila delphia
4. Cleveland
5. Richmond
6. Atlan ta
7 . Chica go
8 . St . Loui s
9. Minneapolis
10 . Kansas City
11. Dallas
12 . San Francisco
Total
*
**
Total
To
Debits
2, 930
9, 082
3,149
4, 113
3, 238
3, 709
8, 994
3, 151
2, 225
3, 859
3, 935
6, 370
1, 375
4, 426
1, 281
1, 905
1, 462
1, 693
3, 875
1, 442
1, 048
1, 674
1, 847
2, 913
54 , 805
24 , 941
Total
Items Rece i ved for Coll ec ti on
Di re ct
To
To
Federal
Corre - to Drawee
To
Bank
Res erve spondents
Clearings*
1
28
23
147
29
122
380
83
125
164
73
Othe r**
~
448
1, 958
485
664
653
662
1, 720
452
366
634
895
1,301
911
2, 019
748
774
6o7
513
1, 757
6o3
294
550
541
~
232
470
524
547
411
575
1, 101
498
357
724
496
~
-122
13
181
88
76
76
144
161
73
35
113
83
6o4
29, 864
10 , 238
10 , 013
6, 586
1, 380
1, 647
1, 605
4, 656
1, 868
2, 208
1, 776
2, 016
5, 119
1, 709
1, 177
2, 185
2, 088
Includes local me ssenger p resentation .
Incl udes county and count r y clearing houses and spec~al l ocal clearing arran gements .
Table IX -A
Disposition of Che cks Handled by Comme r cial Ban.ks on an Ave r age Day in July 1952
By Federal Rese r ve District
Pe r Cent Distr ibution by Mean s of Dispos i tion
Items Received for Collection
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12 .
Fede r al
Reserve
Di stri ct
Total
Boston
Ne w Yo r k
Philadelphia
Cl e ve l a nd
Richmond
At l a nta
Chicago
St . Louis
Mi nneapo l is
Kansas Ci ty
Dal l as
San Franc i sco
100.0
100 .0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 .0
100 . 0
100 .0
100 . 0
46 . 1
48 .7
40 .7
46 .3
45 . 2
45.6
43 .1
45 .8
47 . 1
43 . 4
46 .9
45 . 7
53 .9
51. 3
59 . 3
53 .7
54 .8
54 .4
56 .9
54 . 2
52 .9
56 .6
53 . 1
54 .3
100 . 0
100 .0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 . 0
100 .0
100 . 0
100 . 0
45 . 5
54 . 5
100 . 0
Average
Debi ts Collect i ons
Total
To
To
Direct
To
Fede r al
Corre - To Drawee
Clearings* Reserve spondents
Bank
Other**
- --
14 . 4
10 . 1
28 . 1
1.2
30 .1
36 .8
32 .8
33 .6
26 . 4
31.1
29 .0
42 .9
37 .6
56 .8
43 . 4
40 . 0
35 . 0
34 . 2
25 . 5
34 . 3
35 . 3
25 . 0
25 . 2
25 .9
20 .1
24 .8
23 .1
28 . 5
21.5
29 . 1
30 . 3
33 .1
23 . 7
18 .9
6 .7
1.6
6 .1
7.4
4.9
10 .6
7.5
3. 5
5 .9
o .8
3.9
4.7
3. 4
4. 3
7 .1
3. 2
4. 3
3. 0
5. 2
4. 0
17 -5
34 .3
33 . 5
22 . 1
4. 6
5. 5
27 .9
42 . 0
26 . o
0 .1
o .6
* Inc lude s l ocal messenger presentation .
** Inc ludes county and countr y clearing houses and special local clearing arrangements .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
64
JOINT STUDY OF CHECK COLLECTION
Table X-1
Disposition of Che cks Handled by Commercial Banks on an Average Day in July 1952
Reserve City Banks
By Feder a l Res erve District
(Thousands of items)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11 .
12 .
Items Received for Collection
To
To
Dire ct
Fede r al
Correto Drawee
To
Clear ings* Rese rve
spondents
Bank
Federal
Rese r ve
District
Total
To
Debits
Total
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapoli s
Kansas City
Dallas
San Francisco
788
5,589
1,429
2 , 022
1 , 293
1 , 156
4, 556
1,157
678
1 , 804
1 , 513
4 , 738
305
2,527
337
763
440
414
1 , 420
374
207
595
495
2 , 089
483
3,062
1,092
1 , 259
853
742
3 , 136
783
471
1 , 209
1 , 018
2 , 649
130
1,635
322
370
358
236
1 ,1 59
142
135
320
407
1 , 003
26 , 723
9 , 966
16,757
6 , 217
Total
*
**
~
11
73
105
157
72
64
154
46
40
159
86
278
1
28
23
147
29
122
380
83
125
164
73
~
2
6
27
6o
36
22
61
10
1
78
27
548
7 , 037
1 , 245
1 , 380
878
339
1, 320
615
525
358
298
1 , 382
502
170
488
425
Includes local messenger presentati on .
Includes special l ocal clearing arrangements.
Table X- 2
Disposition of Checks Handled by Commercial Banks on an Ave r age Day in July 1952
Country Banks with $7 . 5 Milli on or More in Depos its*
By Fede ral Re serve Di stri ct
( Thousands of i tems)
Fede ral
Reserve
Di strict
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Boston
Ne w York
Philade lphia
Cleveland
Ric hmond
Atlanta
Chicago
St. Louis
Mi nneapoli s
Kansas City
Dallas
San Francisco
Total
Items Received for Co llecti on
To
To
To
Federal
Corre Cleari!!ejs** Reserve s12ondents
To
Debits
Total
1 , 631
2 , 888
1,151
1,373
1,146
1 , 567
2,645
9 40
596
776
1,000
1,115
765
1 , 557
620
733
498
694
1 , 386
426
27 4
349
462
501
866
1,331
53 1
640
648
873
1 ,259
51 4
322
427
538
61 4
289
312
114
238
201
349
376
183
112
149
243
262
417
603
115
194
191
141
198
82
74
50
72
43
152
309
260
203
234
295
635
213
112
212
214
270
8
107
16,828
8 , 265
8 , 563
2, 828
2 ,180
3, 109
446
Total
Other**
Other#
42
5
22
88
50
36
24
16
9
39
* As of June 30, 1952 .
** Includes local messenger prese ntati on .
# Includes county and country cl earing houses and special local clearing arrangements .
VOLUME OF CHECKS ANO THEIR FLO W THRO UGH THE COLLECTION SYSTEM
Table X-3
Disposition of Checks Handled by Comme rcia l Banks on an Average Day in July 1952
Count ry Banks with Less Than $7 . 5 Mi l lion in Deposits*
By Federal Rese rve Distric t
(Thousands of items)
I t ems Received fo r Collection
Federal
Reserve
Distri ct
l.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12 .
Total
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chi cago
St . Louis
Minneapolis
Kansas City
Dal la s
San Francisco
Total
To
Deb its
To
Clearings**
Total
To
Federal
Rese rve
561
605
569
718
799
986
1 , 793
1 , 054
951
1 , 279
1 ,422
517
305
342
324
409
524
585
1, 069
642
567
730
890
323
256
263
245
309
275
401
724
412
384
549
532
194
29
11
49
56
94
77
185
127
119
165
245
36
1 55
96
18
55
58
74
177
19
50
12
11,254
6 , 710
4, 544
1 , 193
To
CorresEondents
Other#
38
69
88
159
187
105
216
312
239
205
353
196
103
3
68
19
11
18
34
50
27
10
19
47
17
796
2, 232
323
44
* As of June 30, 1952.
** Inclu des local messenger prese ntation.
# Include s county and country cl e aring houses and special local clearing arr angements.
Tab l e X-A-1
Dispositi on of Checks Handled by Commercial Banks on an Average Day in July 1952
Reserve City Banks
By Federal Reserve District
Per Cent Distribution by Means of Disposition
Federal
Reserve
District
l.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Boston
New York
Philadelphia
Cl eveland
Richmond
Atlanta
Chicago
St . Louis
Minneapolis
Kansas City
Dallas
San Francisco
Average
Total
Debits
Co llect ions
Total
100. 0
100 . 0
100. 0
100.0
100 . 0
100 .0
100.0
100.0
100 . 0
100 . 0
100. 0
100 . 0
38.7
45 . 2
23 . 6
37.7
34.0
35 . 8
31.2
32.3
30 . 5
33 . 0
32 . 7
44 . 1
61. 3
54 . 8
76.4
62. 3
66 .o
64 . 2
68 . 8
67 . 7
69 . 5
67 . 0
67 . 3
55 .9
100.0
100 .0
100 . 0
100 . 0
100 . 0
ioo . o
100 . 0
100 . 0
100 . 0
100 .0
100.0
100 .0
26 . 9
53 . 4
29 . 5
29 . 4
42 . 0
31.8
37 . 0
18 . 1
28 .7
26 . 5
40 . 0
37 . 9
70 . 2
43 . 1
56 .3
41.7
42 . 0
40 . 2
44 . l
64 . 1
36 . 1
40.4
41.7
23 . 2
2 .3
2.4
9.6
12 .5
8. 4
8 .6
4.9
100 .0
37.3
62 . 7
100 . 0
37 . 1
42 .0
* Includes loc a l me ssenger presentation.
**
Includes special loca l cle aring arrangements .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Items Received for Collection
Direct
To
To
Federal
Cor re to Drawee
To
Bank
Reserve sEondents
Clearings*
Other**
8.5
13 .1
8.4
10 . 5
0.2
0 .9
2 .1
11.7
3.4
16 . 4
12 .1
10 . 6
26 . 5
13 .6
7.2
7 .7
0.4
0 .2
2 .5
4 .7
4.2
3 .0
1.9
1.3
0.2
6.4
2.7
20 . 7
7.4
8 .2
5 .3
5.9
66
JOINT STUDY OF CHECK COLLECTION
Table X-A- 2
Disposition of Checks Handled by Commerc i al Banks on an Average Day in July 1952
with $7 . 5 Million or More in Deposits*
By Federal Reserve Di stri ct
Pe r Cent Distribution by Means of Di spos ition
Feder a l
Reserve
Di s tric t
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12.
Boston
New York
Philadelphia
Clevela nd
Richmond
Atlanta
Chicago
St . Loui s
Minneapoli s
Kansas City
Da llas
San Fra nci sco
Ave rage
*
**
#
Items Rece ived for Collection
To
To
To
Feder a l
CorreClea rin~s** Reserve s pondents
Tota l
Debit s
Collections
Tota l
100 . 0
100 . 0
100 .0
100.0
100 . 0
100 . 0
100 . 0
100 . 0
100.0
100 . 0
100.0
100 . 0
46 . 9
53 . 9
53 . 9
53 . 4
43 . 5
44 . 3
52 . 4
45 . 3
46 . o
45 .0
46.2
44 . 9
53 . 1
46 . 1
46.1
46.6
56 . 5
55.7
47.6
54.7
54 . 0
55 . 0
53 . 8
55. 1
100.0
100 . 0
100 .0
100 . 0
100 .0
100 .0
100 .0
100 . 0
100.0
100 . 0
100 .0
100 . 0
33.4
23 .5
21.5
37. 2
31.0
40 .0
29 . 9
35.6
34 . 8
34 . 9
45 .1
42.7
48.1
45. 3
21. 6
30 . 3
29 . 5
16 . 1
15. 7
16. 0
23.0
11.7
13.4
7. 0
17 . 6
23 . 2
49 . 0
31.7
36 .1
33 . 8
50.4
41.4
34 . 8
49.7
39 .8
44 . 0
....§..:l
100 . 0
49 . 1
50.9
100 . 0
33 . 0
25.5
36 . 3
5 .2
Other#
0 .9
8 .o
7. 9
o .8
3.4
10 .1
4.0
7.0
7 .4
3 .7
1.7
As of June 30, 1952.
Includes loca l messenge r presenta tion .
Includes county and country clea ring houses and spe cial loca l clea ring a rrangements .
Tabl e X-A- 3
Disposition of Checks Handled by Commerc i al Banks on an Ave rage Day in July 1952
with Less Than $7- 5 Million i n Deposits*
By Fede ral Re serve Di strict
Pe r Ce nt Di stribution by Means of Disposition
Items Rec e ived for Collec tion
1.
2.
3.
4.
5.
6.
7.
8.
9.
10 .
11.
12 .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Fede ral
Re serve
District
Total
Boston
Ne w York
Phila delphia
Cleveland
Ri chmond
Atlanta
Chicago
St . Louis
Minneapolis
Kansas City
Da llas
San Francisco
100 . 0
100 . 0
100 . 0
100 . 0
100.0
100 . 0
100 . 0
100 . 0
100 . 0
100.0
100.0
100 . 0
54.4
56 . 5
56 . 9
57.0
65.6
59 .3
59.6
60.9
59 . 6
57.1
62 .6
62 . 5
45. 6
43. 5
43 . 1
43 . 0
34 . 4
40.7
40 . 4
39.1
40.4
42.9
37 .4
37 . 5
100 . 0
100.0
100.0
100 . 0
100 . 0
100.0
100 . 0
100 . 0
100.0
100 . 0
100.0
100 . 0
11.3
4. 2
20.0
18 .1
34. 2
19 . 2
25 . 6
30. 8
31.0
30 . 0
46 .1
18 . 5
60 . 5
36 . 5
7.3
17 . 8
21.1
18 .4
24.4
4 .6
13 . 0
2.2
8 .3
19 . 6
27 .0
33 . 5
64 . 9
60 . 5
38 .2
53 . 9
43 . 1
58 .0
53 . 4
64 . 3
36 . 8
53 .1
1.2
25. 8
7.8
3 .6
6 .5
8 .5
6 .9
6 .6
2.6
3.5
8 .8
100 . 0
59 .6
40.4
100. 0
26.3
17. 5
49 . 1
7 .1
Average
Debits Colle ctions
Total
To
To
Fede ral
Clearings** Re serve
To
CorreSEOndents
Other#
8 .8
* As of June 30 , 1952 .
** Includes local mes se nger pre sentati on .
# Includes county and country cle aring houses a nd specia l local c learing arrangements.
Table XI
Sources of Checks Handl ed on an Average Day in July 1952
Fede ral Rese rve Banks by Distric t
(Thousands of i tems )
Immediate Credit Items*
Federal
Res erve
Dis t rict
I tems
Paid**
Total
From
Member
Banks#
From
Other
Offices
in
District
From
Othe r
Federal
Reserve
Banks
Intr adistr ict Items
From
Direct
Send ing
out -ofDistrict
Commerci al
Banks
Total
From
Fr om
Other
City
Member Membe r
Banks
Banks#
From
Other
Offices
in
District
Interdistrict Items
Fr om
Other
Federal
Reserve
Banks
From
Direct
Sending
out - of District
Commerci al
Banks
Tot al
From
City
Memb er
Banks/
From
Other
Member
Banks
1.
Boston
145
134
87
II
7
40
669
214
314
II
14
127
38
12
26
2.
New York
390
725
264
4
51
406
878
503
252
2
43
78
54
18
36
3.
Philadelphia
199
149
72
II
15
62
433
241
71
II
29
92
51
9
42
4.
Cl eve l and
220
130
46
6
20
58
428
215
84
10
31
88
98
42
56
5.
Richmond
208
59
19
3
7
30
353
140
78
15
28
92
72
50
22
6.
At lanta
268
78
36
3
9
30
268
144
47
5
20
52
34
19
15
7.
Chicago
436
239
60
7
41
131
777
476
128
3
44
126
106
74
32
8.
St . Louis
219
75
16
1
15
43
283
172
24
2
36
49
14
8
6
9.
Minneapolis
89
35
17
***
2
16
168
108
29
1
9
21
26
18
8
10.
Kansas City
185
87
28
2
16
41
386
227
74
4
20
61
32
10
22
11.
Dallas
145
63
19
2
9
33
303
165
54
6
19
59
22
18
4
12 .
San Francisco __li2.
~
_]
14
46
~
_ill
~
11
28
~
_]l
22
---2
35
206
936
5 ,423
2 , 918
1, 228
59
321
897
578
300
278
Tot al
*
**
***
#
I~
2, 849
1,93 2
E
755
Almost all on banks i n same cit y a s Re s erve Bank or branch . Does not include items handled in packages .
Tr easury checks, postal money orders and checks drawn on the Fede r a l Rese rve Banks - virtually all from own member banks .
Less than 500 ite ms.
I ncluding direct senders in othe r district office territories .
Not including items s ent in consolidated s hipments .
No branch offices .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
O'
--J
68
JOINT STUDY OF CHECK COLLECTION
Table XII
Number of Banks and Their Out - of -Town Branches , July 1952
By Federal Rese rve District
Federal
Rese r ve
District
1. Boston
2 . New York
3. Philadelphia
4. Cleveland
5. Richmond
6. Atlanta
7. Chicago
8 . St . Louis
9. Minneapolis
10 . Kansas City
11. Dallas
12. San Francisco
Total
All Banks and
Their Out-ofTown Br anches
Banks Branches
Nonmember Par
Nonpar Banks
Member Banks
Banks and Their
and Their
and Their
Out - of-Town
Out-of - Town
Out -of - Town
Branches
Branches
Branches
Branches
Banks Branches Banks Branches Banks
458
859
835
1,099
1,006
1, 221
2,683
1,468
1, 285
1, 737
1, 039
60
24
138
132
211
422
338
271
1,674
650
211
1, 042
304
35
112
14
573
45
193
594
149
40
323
6oo
64
11
4
8
9
101
10
--122.
233
245
56
125
358
104
583
109
38
4
18
1, 001
_ill
~
14,189
2,874
5,630
924
1 , 820
274
320
727
624
677
475
356
1, 009
495
474
686
634
262
___2g
6,739
1, 676
173
221
56
90
97
50
10
27
Note on Sour2es: The survey of Federal Reserve Banks and branches pr oduced the
basi c da ta for number of all banks and out- of - town branches for member and nonmember
banks. Data on nonpar banks are from the Federal Res erve Bulletin . Data on nonmember pa r banks are derived.
Table XIII
Nu.,t1ber of Commercial Banks and Their Out - of - Town Branches Sending Items
to Federal Reserve Banks, July 1952
By Federal Rese rve District
By Type of Item Sent
,..-,,
i't
(,'
~·,.
.-.'\
i/
V
Federal
Reserve
District
1.
2.
34.
5.
·6 .
7.
8.
9.
10.
11.
12 .
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St . Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
-
\
Total Potential
Senders*
Banks Branches
322
764
628
680
475
358
1,011
529
475
752
637
~
6,992
Total Senders**
Banks Branches
1,001
276
423
306
303
282
212
622
193
23 4
164
184
116
1,750
3,315
173
242
56
90
97
50
12
1
27
1
/
Send Only
Treasury Checks
and Postal
Mone;:t: Order s
Banks Branches
~Send Only
Send Only
Deferred
Immediate
Credit Items# Credit Items##
Banks Branches Banks Branches
16
84
114
74
52
73
275
59
76
61
81
2
5
1
1
15
1
474
38
20
15
18
11
~
_J]_
125
17
37
77
21
30
10
112
14
43
24
4
20
767
230
33
998
153
409
92
78
4
37
36
25
6
1
14
18
2
59
39
12
2
3
4
18
3
5
2
4
Send
All Classes
of Items
Banks Branches
243
284
115
149
161
117
235
82
95
64
81
86
53
29
21
22
6
1
7
_g
~
268
88
1, 678
493
* All member banks plus 253 nonmember banks and their 74 branc hes which had clearing accounts with the Federal
Res erve Banks of their districts. Most of the la tte r were in four distri cts : New York, St. Louis, Kansas CitY, and
San Francisco.
~* Includes all banks which send even oc casionally ., Of this group 3, 035 banks and 725 branches were regular
senders, 280 banks and 42 branches were infrequent but occasional s enders .
# Items on comme r cial banks in same city as Fede ral Reserve Bank handling the items, plus Treasury checks , postal
money orders and items drawn on the Federal Rese rve Banks.
## .Items on commercial banks outside the city of the Fede r al Reserve Bank handling the items .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table XIII-A
Number of Commercial Banks Eligible* to Send Items
to Federal Reserve Banks, July 1952
By Federal Reserve Districts
Senders and Nonsenders by Size of Bank
$7.5
Under
$7. 5 Million
Federal
Reserve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Deposits
Send
Not Send
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St . Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
161
229
229
196
170
92
38
236
247
299
165
121
149
271
298
236
~
396
178
1,966
2,999
383
116
80
109
514
$25 Million
Depo s its
Send
Not Send
73
106
52
72
71
71
153
47
65
43
34
8
42
89
60
65
25
21
78
34
88
22
~
809
556
549
6
70
48
1.
Boston
2 . New York
3. Philadelphia
4. Cleveland
5. Richmond
6 . Atlanta
7 . Chicago
8 . St . Louis
9. Minnea polis
10. Kansas City
11. Dallas
12. San Francisco
Member
Bank
Offices
Nonmembeir
Par Bank
Offi ces
410
1,418
647
832
647
402
1,237
480
485
173
136
207
435
472
257
1,971
678
205
996
327
221
779
613
1,249
Depo s its
Not Send
16
15
13
3
4
30
4
4
9
~
113
Bra nche s excluded from
Number of Banking Offices* Regularly Sent Cash Letters
By Federal Reserve Banks , July 1952
By Federal Reserve District
F ederal
Reserve
District
Send
25
35
41
49
96
30
19
41
41
42
* All member banks plus 253 nonmember clearing banks.
this tabulation.
Table XIV
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Over
Million-
$24.9 Million
Nonpar
Bank**
Offices
342
634
387
611
9
111
Total
6,078
2, 094
9,199
* Includes branch offices. Als o includes some
offices located in other districts and collection
zones which thus receive letters from more than one
Federal Reserve office .
** Federal Re serve Banks and branches send to
nonpa r drawee banks items payable to the United
States Government and its agencies , and the drawee
banks are required to remit a t par for them.
70
JOINT STUDY OF CHECK COLLECTION
Table XV
Number of Par Transit Items Handled by all Country Banks
on an Average Day in July 1952
By Federal Reserve District
By Distance from Handling Bank
(Thousands of items)
Total Number on Other Banks Within x Miles of Handling Bank
Par
Transit
Over
100
Items
25 Miles
25-50
50 Miles
50-100
Handled
or Less
Miles
Miles
or Less
Mi l e s
Federal
Reserve
District
1.
2.
Boston
York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
785
1,185
602
653
558
591
1,318
492
398
619
545
468
259
557
199
183
134
148
435
123
83
130
136
~
173
213
114
98
89
77
211
84
32
80
49
84
432
770
313
281
223
225
646
207
115
210
185
211
101
83
198
108
52
87
82
~
_l&1
Total
8 ,214
2 ,514
1,304
3,818
1,344
3,052
New
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
118
190
138
235
225
151
255
234
283
474
117
177
231
322
278
Table XV-A
Numbe r of Par Transit Items Handled by All Country Banks
on an Average Day in July 1952
By Federa l Re serve District
Per Cent Distri bution by Distance from Handling Bank
Total
Federal
Re serve
District
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11 .
12 .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Boston
New York
Philadelphia
Cle ve l and
Ri chmond
Atlanta
Chicago
St. Louis
Mi nneapolis
Kansas City
Dallas
San Francis co
Average
Per cent on othe r Banks
x Mile s of Handling Bank
Over
50
Miles
100
50 -100
25 -50
Mi les
or Less
Miles
Miles
Within
Par
Transit
Items
Handled
25
Miles
or Less
100
100
100
100
100
100
100
100
100
100
100
100
33
47
33
28
24
25
33
25
21
21
25
27
22
18
19
15
16
13
16
17
8
13
9
18
100
31
16
55
45
15
16
23
18
18
14
15
22
13
14
15
15
30
19
25
39
42
48
36
36
58
52
51
40
47
16
37
65
52
43
40
38
49
42
29
34
34
71
VOLUME OF CHECKS AND THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table XVI-1
Amounts and Percentages of Local Items in
Reserve City and Federal Reserve Banks on an Average Day in July 1952*
Federal
Reserve
District
Thousands of Items
Total
Reserve
City
Banks
and
Federal
Reserve
Federal
Reserve
Reserve
City
Banks
Banks
Banks
Per Cent of Total
Reserve
City
Banks
Federal
Reserve
Banks
261
174
87
66.1%
33 -3%
2,072
1,808
264
87.3
12.7
Philadelphia
469
397
72
84.6
15.4
4.
Cleveland
504
458
46
90.9
9.1
5.
Richmond
421
402
19
95.5
4.5
6.
Atlanta
347
311
36
89.6
10.4
7.
Chicago
1,359
1,299
60
95.6
4.4
8.
St. Louis
346
330
16
95.4
4.6
9.
Minneapolis
210
193
17
91.9
8 .1
10.
Kansas City
449
421
28
93.8
6.2
11.
Dallas
523
504
19
96.4
3.6
12 .
San Francisco
1,473
1,382
91
93.8
6.2
8 ,434
7,679
755
1.
Boston
2.
New York
3.
Total
*
country
include
are not
**
(91.0°/o )**
(9.o°fo)**
For Federal Reserve Banks the items shown include only those received from
member banks in the same district as the Federal Reserve Bank and do not
items drawn on or payable through the Reserve Bank. Items handled in packages
included.
Average.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
72
JOINT STU DY OF CHECK COLLECTION
Table XVI-2
Amounts and Percentages of Intradistrict Par Items in
Reserve City and Federal Reserve Banks on an Average Day in July 1952*
Federal
Reserve
District
1.
Boston
2.
New York
3.
Thousands of Items
Total
Reserve
City
Banks
and
Reserve
Federal
F.ederal
City
Reserve
Reserve
Banks
Banks
Banks
Per Cent of Total
Reserve
City
Banks
Federal
Reserve
Banks
235
528
30.8%
69.2%
1,352
597
755
44.2
55.8
Philadelphia
666
354
312
53.2
46.8
4.
Cleveland
810
511
299
63 .1
36.9
5.
Richmond
501
218
56.5
43.5
6.
Atlanta
400
209
191
52.3
47.7
7.
Chicago
1,86o
1,256
604
67.5
32.5
8.
St. Louis
394
9.
Minneapolis
236
99
137
41.9
10.
Kansas City
844
543
301
64.3
11.
Dallas
593
374
219
63.1
12.
San Francisco
Total
196
1,460
9,879
49.7
73 . 6
5,733
4,146
58.1
26 .4
(58.0%)** (42.0%)**
* For Federal Reserve Banks the number of items shown include only those
received from member banks in the same district as the Federal Reserve Bank.
** Average.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
73
VOLUME OF CHECKS ANO THEIR FLOW THROUGH THE COLLECTION SYSTEM
Table XVI-3
Amounts and Percentages of Interdistrict
Par Items in Reserve City and Federal Reserve
Banks on an Average Day in July 1952
Federal
Reserve
District
Thousands of Items
Total
Reserve
City
Banks
and
Reserve
Federal
Federal
City
Reserve
Reserve
Banks
Banks
Banks
Per Cent of Total
Reserve
City
Banks
Federal
Reserve
Banks
34 . 2%
1.
Boston
111
73
38
65 . 8!1p
2.
New York
694
640
54
92.2
7.8
3.
Philadelphia
377
326
51
86 . 5
13.5
4.
Cleveland
383
285
98
74.4
25 . 6
5.
Richmond
225
153
72
68 .o
32.0
6.
Atlanta
145
111
34
.76.6
23 .4
7.
Chicago
659
553
106
83.9
16 . 1
8.
St. Louis
178
164
14
92.1
7 .9
9.
Minneapolis
88
62
26
70.5
29 .5
10.
Kansas City
263
231
32
87.8
12.2
11.
Dallas
136
114
22
83 . 8
16.2
12.
San Francisco
214
~
31
85.5
14 . 5
3,473
2,895
578
Total
*
Average.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(83 .4%)*
(16.6°,l)*
CHAPTER IV
SUGGESTIONS FOR IMPROVING PRESENT OIECK COLLECTION METHODS
A.
Introduction
simplifie d and expedited without unnec e ssarily complicating the r emittance operation .
Information gathered in response to
the questionnaires sent to commercial banks
and Federal Res erve Banks discloses the
methods and practices generally followed at
present in collecting checks. In order to
determine to what extent it would be pos sible to improve on these methods and prac tices from the standpoint both of the banking system and of its depositors, the committee has formulated what it considers to
be the criteria of an ideal che ck collection system, and has examined current methods and practices in the light of these
criteria. Where such methods and practices
fall short, changes that will contribute to
speed and efficiency, and bring the check
collection system closer to the ideal, are
recommended.
B.
In the light of these considerations,
the following are submitted as the criteria
of an ideal collection system:
The Criteria of an Ideal
Collection System
The principal subject of this study involves the collection of a check drawn on
one bank which is deposited in another bank.
In its simplest terms, the problem for consideration is how the check may be presented
to the drawee bank for payment,and the proceeds remitted to the first collecting bank,
as quickly and as simply as possible. Speed
and simplicity of collection imply presentation to the drawee by the most expeditious
and direct route available, with a minimum
number of handlings, and with prompt r emittance of the proceeds in a form readily
available to the first collecting bank.
There are obvious limits beyond which direct routing of checks from the first collecting bank to the drawee bank cannot be
extended. For example, the extreme pos s ibility where every check received on deposit
would be forwarded directly to the drawee
bank would create an unreasonable numbe r of
separate sendings and a multiplicity of accounting entries in connection with the remittances. Fundamentally, therefore, the
problem involves the extent to which presentation of checks to drawee banks can be
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1.
Presentation to drawee by
most expeditious and direct
route available.
2.
Minimum number of handlings .
3.
Prompt remittance of proceeds
in form readily available to
first collecting bank and its
depositor.
4.
Prompt notification and prompt
return to first collecting
bank in the event of nonpayment.
The following portion of this report
is subdivided according to the various
categories of checks for which collection
methods may differ. A description of
methods currently employed1 is followed by
a reference to the areas in which improvements appear possible and desirable. The
recommendations, in each instance, embody
changes in collection methods which appear
to be practicable and to meet the suggested criteria as closely as possible.
C. Checks Payable at Par
in the Same Federal Reserve District
1.
Local checks
The term "local checks" refers to
checks drawn on a bank in the same town as
the bank in which they are received for
collection. The survey indicates (1) that
1. The methods mentioned are those most commonly employed; no attempt is made to describe all
minor or local variations , except where the variations may be regarded as improvements over the
methods generally employed .
74
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
38 per cent of the number of all checks received for collection on a given day are
drawn on other banks in the same town, and
(2) that 42 per cent of the number of all
checks presented to drawee banks for payment are presented by other banks in the
same town, although many of these items
also bear the preceding endorsement of an
out-of-town bank.
(a)
Recommendations
The established criteria indicate the
following as the best methods of collecting
local checks , and they are therefore
recommended:
(i) Where there is a formal
check clearing organization, such
checks should be exchanged through
the clearing organization, and net
balances resulting from the exchanges should be settled on the
day of the exchanges by entries on
the books of a correspondent bank
or of a Federal Reserve Bank.
(ii) Where there is no formal check clearing organization,
informal arrangements should be
made for the reciprocal exchange
of such che cks among all banks in
the community and settlement of
the exchanges should be made on
the same day by entries on the
books of a correspondent bank or
of a Federal Reserve Bank.
(iii) In either case , the
time for exchanges of checks
should be set at such an hour as
to permit checks received in
morning mails to be included in
the exchanges.
(b)
Current methods
Methods of collecting local checks depend largely upon conditions in the commun ity.
In communities in which there is a
clearing house association or other formal
check clearing organization, local checks
drawn on one clearing house member which
are received by another member are, of
course, collected through the clearing organization. In many instances arrangements
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Federal Reserve Bank of St. Louis
75
have been made to settle balances on the
books of a correspondent bank or the Fed eral Reserve Bank of the district. Some local banks not members of the clearing organization clear through a member.
In the larger cities, banks in outlying areas which by reason of their
location do not find it practicable to
participate as regular members of the
clearing organization sometimes engage in
a "package exchange" of checks with the
regular members of the clearing organization and among themselves. This arrangement may be part of the principal clearing
organization, or it may be a separate organization. In either case, availability of
credit on items included in the "package
exchange" is substantially the same as on
items included in the regular exchanges
through the clearings.
In some communities where there is no
formal check clearing organization , local
banks have developed informal arrangements
for the reciprocal exchange of checks drawn
on one another, settlements usually being
made by check on a correspondent bank.
In some instances, no attempt is made
to exchange local checks but they are sent
to a correspondent bank or a Federal
Reserve Bank for collection in the same
manner as out-of-town items.
(c)
Areas for improvement of current
methods
The exchange of local checks through
a clearing house or the reciprocal exchange
of such items by informal arrangement results in the most direct presentation
possible, and the minimum number of handlings. Settlement of net balances result ing from the exchanges on the same day by
entries on the books of a correspondent
bank or of the Federal Reserve Bank provides the most prompt remittance available.
Where settlement of balances is made
by drafts drawn on out-of-town correspondent
banks, availability of the proceeds of the
items cleared is delayed pending collection
of the drafts. By working out an arrangement for settlement of net balances on the
books of a correspondent bank or Federal
Reserve Bank, instead of settling by drafts,
participants in the clearings will render
JOINT STUDY OF CHECK COLLECTION
better service to their customers and will
save the trouble and expense involved in
handling and collecting the drafts.
Attention has been called to the fact
that in some cities the hour for clearing
local checks is so early in the morning
that it is impossible to clear items received in the first mail on that day, while
in other cities the actual exchange of
checks is in the evening with settlement
defe r red until the following day. Either
of these limitatioDs defe r s the final payment of local items, and the committee
recommends that the time for exchanges of
checks should be set at an hour to permit
checks received in morning mails to be included in the exchanges on that day, and
that settlement be made on the same day.
It has been observed that although
banks in many cities have recently adopted
the practice of fully deferred posting,
very often the hour for final exchanges of
checks through the clearings in such cities
has not been changed in many years. The
committee recommends that, in any such
case, the hour for final exchanges of checks
through the clearings be reviewed and redetermined in the light of changed conditions resulting from the adoption of fully
deferred posting. In most instances, it
should be possible to establish a later
hour for final exchanges.
In a number of cities where clearing
houses operate, banks in outlying sections
of the city do not participate in the clearings. The committee recommends that in such
cases, where volume warrants, consideration
be given to arranging for participation by
such banks either as direct clearing members, or by means of a "package exchange"
of checks with the regular clearing members
and among the outlying banks themselves. In
other cities, it has been observed that
there would be advantages in arranging for
"package exchanges" including suburban banks
beyond the city limits. Such an arrangement
operates successfully in St. Louis, where
47 banks not members of the St. Louis Clearing House Association, of which 26 are located outside the city limits, participate
in a check exchange on a package basis. A
similar procedure is followed to advantage
in other cities.
It has also been observed that in some
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areas where two cities are in reasonably
close proximity, check collections between
the two cities could be expedited and simplified by providing an inter-city clearing
arrangement. Such an arrangement operates
successfully in Minneapolis and St. Paul. In
addition to a clearing house in each city,
through which commercial banks in the city
clear checks among themselves, there is the
Twin City Clearing House Association. Through
that association, Minneapolis banks clear
checks on St. Paul banks, and St. Paul banks
clear checks on Minneapolis banks. Settlements of clearings through the Twin City
Clearing House are made on the books of the
Fe deral Reserve Bank of Minneapolis, which
also participates in the clearings.
In summary, the foll owing are submitted as the principles which should govern
the organization and operation of clearing
houses in the larger cities:
1.
The premises where checks
a r e exchanged should be in
a central location in relation to the locations of
the participants.
2.
As many local banks as possible should participate.
Where full participation by
banks in outlying areas is
not feasible, they should be
afforded the opportunity to
participate in a package exchange, both with clearing
house members and among
themselves. These arrangements should be extended to
suburban banks where volume
warrants.
If volume warrants, arrangements should be made for
preliminary exchanges at
hours best suited to the
working hours of the participants.
4.
The final exchange of checks
should be arranged at a
reasonable hour to permit
clearance of checks received
in morning maits. The hour
should be fixed in relation
to the time of arrival of
principal mail and express deliveries by train and plane.
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
5.
6.
Settlement of net amounts due
or owed as the result of the
exchanges should be made on
the books of a correspondent
bank or Federal Reserve Bank
on the same day. When settlement is made on the books of
the Reserve Bank, arrangements
should be made for nonmember
banks to settle through correspondent member banks.
Return items should be exchanged as early as the
posting hours at the participating banks will reasonably
permit.
In communities where there is no
arrangement for exchanging local checks,
there is room for decided improvement.
Sending local checks to a correspondent
bank or Federal Rese r ve Bank at a distance,
for collection from a bank in the same town
as the first collecting bank, invol ves circuitous routing, unnecessary handlings, and
delayed presentation and remittance. Where
this method is employed for the collection
of local items, the conrrnittee recommends
that arrangements be developed by the banks
in the community for the exchange of local
checks. Federal Reserve Banks and correspondent banks can do much to encourage the
development and adoption of app r opriate
arrangements in the se instances.
2.
77
to the criteria established, and they are
therefore recommended:
(i) Where volume warrants,
such checks should be presented
to the drawees _thr ough a central
clearing arrangement serving all
banks in the area, with settlements being made on the books of
a correspondent bank or on the
books of the Federal Reserve Bank.
(ii) Where volume warrants
but a central clearing arrangement is not feasible, such checks
should be presented directly by
mail to the .respective drawees,
with settlement through a corre spondent bank or the Federal
Re serve Bank.
(b)
Current methods
As a general rule, no particular
effort is made to keep checks drawn on
nearby banks within the area. Most banks
treat all out-of-town items alike, regardless of the distance of the banks on
which they are drawn, and send them to
their principal correspondent or to the
Federal Reserve Bank of the distr ict. Many
bankers have called to the committee's attention the fact that this practice, in
many instances, results in transportation
of checks over unnecessarily long distances,
and in a superfluous number of handlings.
Checks drawn on nearby out-of-town banks
This section is devoted to checks received by one bank fo r collection that are
drawn on a (par) bank in a nearby community.
The sur vey indicates that of all out-of-town
checks r eceived for collection by banks outside of Reserve and Central Reserve Cities,
31 per cent are drawn on banks within a radius of 25 miles, and 16 per cent are drawn
on banks between 25 and 50 miles away. In
the more populous districts, as might be
expected, these percentages run much higher
than the national average . A breakdown by
Federal Re serve districts appears in Tables
XV and XV-A at page 70.
(a)
Recommendations
The following methods of collecting
chec ks drawn·on out-of-town banks in the
vicinity will result in a closer approach
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In numerous instances cited by bankers
who participated in the survey, a check
d;rawn on one bank and deposited in a bank
a few miles distant for collection travels
several hundred miles, and is handled by
two or three other banks, before being
presented to the drawee for payment. In
addition to being a conspicuous departure
from the established criteria, this procedure for the collection of items drawn
on nearby banks is unnecessarily inefficient and uneconomical, and provides an
opportunity for check kiting. By sending
these items to correspondent banks or
Federal Reserve Banks in distant cities,
instead of keeping them in the area where
they belong, the first collecting banks
delay presentation of the items and cause
unnecessar y wo r k for the banking system.
The present situation also has important
customer relations aspects, arising out of
78
JOINT STUDY OF CHECK COLLECTION
the delay in presentation and the time required for collection; depositors are
frequently unable to understand why the
proceeds of a check drawn on a bank only a
few miles distant are not available until
several days after deposit.
(c)
Areas for improvement of current
methods
Several alternative methods of collectr
ing items of this nature, that will result
in speedier and mo r e direct presentation
to the drawee banks, reduce the number of
handlings to a minimum, and a·ccelera te the
availability of the proceeds of collection,
are available. The c hoice between the
alternative methods will depend on circumstances in the particular a r ea.
The ideal approach to the suggested
criteria in the handling of checks payable
in nearby communities would be to provide
a central clearing house fo r all banks i n
a given trade area or other locality, and
to conduct it in the same manner as the
usual form of city clearing house as sociation, with settlements being,made on the
books of a correspondent bank of all members
or on the books of the Federal Re s e rve Bank.
Under this procedure, each participant would
list the checks drawn on each of the other
participants,and package them separately.
The packages would be delive r ed to the exchanges by contract motor carrier or other
form of messenger service, and the packages received through the exchanges would
be sent to the drawee banks in the same
manner.
If it is not considered practicable
fo r the participants to list and package
checks drawn on each of the other participants separately, each participant at the
close of business on one day may send to a
central location all checks drawn on other
participants, and the fine sorting and
preparation of the outgoing listings to
the respective drawee banks may be done
during evening hours at the central point,
for delivery to the drawees before the
opening of business on the next day. Either
of these arrangements for handling a substantial volume of checks payable in the
vicinity provides the most direct and expeditious presentation available, the minimum number of handlings, and the promptest
payment.
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Federal Reserve Bank of St. Louis
Descriptions of several variations of
arrangements of the type recommended, which
are currently in operation on a succ~ss~-11
basis, are contained in Appendix C. The
surveys indicate that there may be as many
as 150 other areas throughout the country
where the possibility of establishing
clearing arrangements of this nature should
be seriously considered. 2
In an area where the system described
above may not be considered practicable,
the so-called "county" clearing arrangement may represent an improvement over
current methods for collecting checks drawn
on nearby banks. This a r rangement should
be disassociated from the "county" unit,
however, and should be established on the
basis of trade areas or other integrated
territorial units or population centers,
not necessarily related to political
boundaries. Under this arrangement, each
participating bank mails daily to each of
the other participants checks received by
it which are drawn on them, and on the
same day sends by mail to the .Federal
Re serve Bank of the district a statement
of the total of its sendings to each of
the other participants. On the following
business day, when statements are received
by the Federal Reserve Bank, the Reserve
Bank credits each bank for its total sendings and charges the accounts of the
recipient banks for the amounts sent t o
them. Credits and charges tp nonmember
banks may be arranged through accounts of
correspondent member banks. Any unpaid
items are returned by mail to the presenting bank, along with checks drawn on it,
and the amounts of the unpaid items are
2. The growth in use of trucks (including
contract motor carriers) for transporting checks
has enhanced the prospects for establishing regional clearing arrangements by introducing very
flexible transportation facilities, which can be
geared to a variety of operating conditions .
It is interesting to note in this connection that most existing arrangements for clearing
i tems drawn on nearby banks are found in the east ern Federal Reserve districts, where the Reserve
Banks and many correspondent banks have followed a
policy of encouraging such arrangements. While the
short distances and population concentrations found
in the eastern sections undoubtedly rmke for favorable operating conditions in those areas, the establishment of actual working- arrangements may well
be as much a result of active encouragement as of
the favorable conditions .
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
included in the charge against it fo r items
presented on that day.3
One fu rther method fo r collecting
local a r ea checks ha s been suggested to
the committee which, although not having
an opportunity to test it , believes that
it may be found valuable in some circumstances. A surve y has indicated that, in
most country banks, an analysis of checks
received fo r collection wil_l show that a
larger percentage of them (10 per cent or
more) tend to b e drawn rather consistently
on a particular bank; in most cases, t his
will be a bank not very far away . The suggestion is that if each country bank were
to make an analysis of checks received for
collection, and then de termine on what bank
or banks the l arger percentage of them
appeared to b e dr awn, and were to s e nd such
items directly to the drawees with instructions to remit to a corr es ponde nt bank or
to the Fe deral Reserve Bank for a ccount of
the sender, a substantial portion of checks
would be p r esented and paid more quickly
without passing either through correspondent
b a nks or Federal Re serve Banks.
3.
Checks dravm on banks in a Federal
Reserve city when the collecting bank
is not in a Federal Res e r ve city
(a)
Re commendations
(i) Checks drawn on commer cial banks in a Federal Reserve
city should be seht directly to
c orrespondent banks in that city.
(ii) Items payable at the
Federal Res erve Bank (including
Government checks and postal money
orders ) should be sent by member
banks directly to the Fe deral
Reserve Bank , and arrangements
3. At the time of the survey , clearing arrangements of this type we r e operating as fo llows :
Number of
Participants
Federal Rese rve
Di st ri ct
Number of
Ar rangements
Boston
New York
Philadelphia
Cleveland (Pittsbur gh)
Chicago (Detroit)
Dallas (San Antonio)
San Francisco (Seattle)
2
22
26
1
1
1
4
_fl.
57
1,045
Total
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Federal Reserve Bank of St. Louis
12
265
732
3
2
14
79
should be avail able for c r editing
the p r oceeds of such items to a
correspondent member bank if the
sending bank and the correspondent
member bank so desire.
(iii) The F~deral Reserve
should consider mod if ication of
its current policy, so that, upon
the joint request of a member and
a nonmember bank, the nonmember
bank may send items payable at a
Federal Reserve Bank (including
Government che cks and postal mone y
orders) direct to the Federal
Reserve Bank, for credit to the
member bank's account. This would
eliminate the need for the member
bank to handle these items.
(b)
Current methods
The survey indicates that 40 per cent
of the member banks not located in Federal
Reserve cities send at least some of the
items they receive that are drawn on or
payable at banks in Federal Reserve cities
direct to the Federal Reserve Bank for
collection. The other 6o per cent of the
member banks not located in Fe deral Reserve
cities send all these items to correspondent banks in Federal Reserve cities. 4
(Nonmember banks, of course, send all items
drawn on banks in Federal Reserve cities to
correspondent banks.) On an average day
in 1952, the Federal Reserve Banks received
755 , 000 checks drawn on banks in Federal
Reserve cities from member banks outside
the c ity , while between 550,000 and 600 , 000
items payable at or thr ough the Reserve Bank
were sent b y out-of-town banks to correspondent banks for collection.
(c)
Areas for improvement of current
methods
Checks drawn on a c ommercial bank in
a Fe deral Reserve city that are sent to the
Reserve Bank must be handled by two banks-the Res e rve Bank and the drawee bank -- befo re they are paid . But if the checks are
sent to a correspondent ba~k , a certain
percentage ( which will vary from city to
city) will be drawn on t he corre sponde nt
bank, and will therefore not need to be
handled by another bank before they are
4.
See Table XIII, p .
68 .
8o
JOINT STUDY OF CHECK COLLECTION
paid. Also, items drawn on the correspondent bank will be paid on the day of receipt,
even though transportation delays may cause
them to arrive later than the local clearing hour.
The committee recommends, therefore,
that checks payable at commercial banks in
Federal Reserve cities be sent to a correspondent bank, rather than to the Federal
Reserve Bank. Sending these checks to a
correspondent bank will provide direct
presentation to the drawee and will minimize the number of handlings for those
items drawn on the correspondent banks.
Consequently, out-of-town member banks that
send Federal Reserve city item~ directly to
the Federal Res e rve Bank would contribute
to a more efficient collection system if
they would instead send these items to correspondent banks in the Federal Reserve
city.
Checks drawn on the Federal Reserve
Bank, Government checks, and postal money
orders require additional handling when
sent to a correspondent bank. A member
bank sending these items to the Reserve
Bank gets direct presentation, minimizes
handling, and obtains the earliest final
payment. Accordingly, the committee recommends that member banks send thes e
items direct to Federal Reserve Banks .
When a nonmember bank receives these
kinds of items, it customarily sends them
to a correspondent member bank, which in
turn presents them to the Reserve Bank.
One handling of the items would be eliminated if the nonmember bank were to send
them direct to the Reserve Bank, for credit
to the correspondent member bank. The committee recommends further, therefore, that
the Federal Reserve System consider modification of its current policy, so that,
upon the joint request of a nonmember bank
and a member bank, the nonmember bank may
send items drawn on a Federal Reserve Bank,
Government checks and postal money orders
direct to the Federal Reserve Bank, for
credit to the member bank's account. This
would eliminate the need for the member
bank to handle these items.
4.
All other checks drawn on banks in the
same Federal Reserve District
(a)
Recommendations
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Federal Reserve Bank of St. Louis
(i) Where volume warrants
and where appropriate arrangements
exist or can be made, such checks
should be sent directly to the
drawee banks for credit of the
sending bank or for remittance to
a correspondent bank or Federal
Re serve Bank for account of the
sending bank.
(ii) When not handled as
suggested above, such items received by member banks of the
Federal Reserve System should be
sent directly to the Federal
Reserve Bank, and arrangements
should be available for crediting
the proceeds to a correspondent
member bank, if the sending bank
and the correspondent member bank
so desire.
(iii) The Federal Reserve
System should consider modification of its current policy, so
that, upon the joint request of
a nonmember bank and a member
bank, the nonmember bank may
send direct to the Federal Re serve Bank for account of the
member bank items which the member bank otherwise would r e ceive
from the nonmember bank and collect through the Federal Reserve
Bank. This would eliminate the
need for the member bank to handle these items.
(b)
Current methods
The survey indicates that very
f ew banks outside Rese r ve cities send outof -town intradistrict items directly to the
banks on which they are drawn. Reserve
Ci ty banks, on the other hand, send about
15 per cent of such items directly to the
drawee banks.
Further, only three out of every ten
member banks send any intradistrict country
items to the Fe deral Reserve Bank. The
other seven send all such items to corres pondent banks in the same cities.5 Nonmember banks, of course, send such items to
corresponde nt banks . Finally, a large percentage of the items sent by member and
5, See Table XIII,
p.
68.
SUGGESTIONS FOR IMPROVING PRESENT a-tECK COLLECTION METHODS
nonmember banks to member bank correspondents are sent by the latter to the Federal
Reserve Bank for collection.
(c)
Areas for improvement of current
methods
Where volume warrants, collection of
these items by sending them directly to th~
drawee banks results in expeditious presentation and the minimum number of handlings.
Comparatively few city correspondent banks
engage extensively in sending items directly to drawee banks in their respective
areas. Asid~ from the objection on the
part of some country banks to the additional work involved in receiving and remitting
for more than one cash letter daily , these
direct sending arrangements appear to conform with the criteria established in this
study.
Where volume does not justify direct
presentation to the drawee banks, the sending by a member bank of these items to a
correspondent bank involves indirect routing, an unnecessary double handling, and
delayed presentation for payment. The criteria for a simplified and more efficient
check collection system then dictate that
items in this category be sent by member
banks directly to the Federal Reserve Bank,
and the committee so recon:..nends.
One of the reasons why such a small
percentage of out-of-town member banks send
directly to the Federal Reserve Bank is the
Federal Reserve practice of giving deferred
credit. This requires banks to make accounting entries that are not necessary if
they send the items to a correspondent bank,
which will give them "immediate" book credit.
Another reason is that many country member
banks prefer to maintain a relatively level
balance in their reserve accounts with the
Federal Re serve Bank, and to keep surplus
funds with correspondents.
To encourage more out-of-town member
banks to send intradistrict country items
directly to Federal Reserve Banks, the committee recommends that arrangements be made
so that out-of-town memQer banks may send
items directly to Federal Reserve Banks for
credit to accounts with correspondent
member banks. Country banks would then be
able to maintain reserve balances in relatively level amounts, approximating their
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Federal Reserve Bank of St. Louis
81
required reserves, and correspondent banks
could continue to give them "immediate"
book credit for the items sent directly to
Federal Reserve Banks. Also, it would not
be necessary for correspondent banks to
handle the items, and as a general rule
presentation for payment would be expedited .
The committee's investigation indicates
that the wish to avoid accounting details
required by the Federal Reserve deferred
availability schedules has been the principal reason why country member banks have
preferred to send intradistrict country
items to correspondent banks rather than
directly to Federal Reserve Bank. The committee's recommendation would remove this
problem.
The sorting requirements of Federal
Reserve Banks are said to deter country
member banks from sending deferred availability items directly to the Reserve
offices. But the committee is satisfied
from its investigation, which included conferences with many country bankers, that
this observation has received more gratuitous repetition ang more attention than
the facts warrant.
Country bankers generally are not opposed to reasonable
sorting requirements that will have the
effect of simplifying and expediting pres entation of items for the benefit of their
customers.
The larger country banks, which handle
the major portion of country bank check
volume, usually have mechanical sorting
equipment (proof machines) available; and
with such equipment, a reasonable number
of sorts should create no hardship or
problem. Banks using manual sorting are
smaller banks, as a rule, with correspondingly smaller volume. Even they may make
a reasonable number of sorts without added
expense or delay. The committee concluded,
therefore, that limited sorting at the
country bank level is justified, since the
result not only directly benefits the depositors of the bank doing the sorting,
but also contributes to speedier and more
efficient check collections for the banking system as a whole, thus benefiting the
general public also.
6. Resistance by some country banks to sorting checks appears to be based in large measure on
the emphasis by some city correspondent banks upon
their willingness to accept unsorted checks for
collection.
82
JOINT STUDY OF CHECK COLLECTION
Adoption of the foregoing recommendations for the routing of other intradistrict
country items would affect operations at
Federal Reserve Banks. Under present practices, country items are sent to correspondent banks, and items received by correspondent banks in the morning are not delivered
to the Federal Reserve Bank until later in
the day. The Reserve Bank's closing hour
for the receipt of such items must be related to the hours at which outgoing shipments must be made, to provide adequate
time for processing and shipment on the
same day. As a result, the work at the Reserve Bank must be crowded into the period
between the time it receives the items and
the time the items must be dispatched to
the drawee banks. If, as recommended, the
items are sent directly to the Reserve
Bank, they will arrive early iq the morning, and more time will be available for
processing before the hours at which outgoing shipments must be Irurde. This may facilitate operations at Federal Reserve offices to the point where later closing
hours for the receipt of intradistrict country items that correspondent banks have received from local depositors can be established.
Improved operating conditions may also
affect Federal Reserve sorting requirements.
Future requirements would presumably reflect
the effect of any improvements in operating
conditions at Federal Reserve offices that
resulted from the recommendations of this
report.
In the normal collection pattern, a
nonmember bank receiving intradistrict country items forwards them to a correspondent
member bank for collection through the Federal Reserve. If the nonmember bank could
send them directly to the Federal Reserve,
the correspondent member bank would not need
to handle them at all. Accordingly, the committee recommends that the Federal Reserve
System consider modification of its current
policy, so that, upon the joint request of
a nonmember bank and a member bank, the nonmember bank may send direct to the Federal
Reserve Bank for account of the member bank
items which the member bank otherwise would
receive from the nonmember bank and collect
through the Federal Reserve Bank. This
would eliminate the necessity for the member bank to handle these items.
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Federal Reserve Bank of St. Louis
(d)
General observations regarding
other intradistrict checks
In its general review of the methods
of collecting intradistrict checks, the committee's attention was directed to the fact
that a general curtailment over the past 25
years in the number of trains carrying mail
and express has resulted in noticeable delays in the presentation and collection of
checks. These delays have affected collection time to various suburban points, and
also to more distant points that are not
sufficiently remote from a Federal Reserve
Bank city to warrant the use of air transportation.
In several suburban areas affected by
curtailed service, substantial advantages
in collection schedules have been realized
by using contract motor carriers. These
carriers call at suburban banks in the evening, and pick up (usually from outside
safes) the checks those banks are sending
to city correspondents or to the Federal
Reserve Bank. When the checks from the suburban banks are delivered, the carriers pick
up the checks the city banks (including the
Federal Reserve Bank) are sending the suburban banks, and leave them at the suburban
banks before they open the next morning.
With this arrangement, suburban banks
do not, as a rule, have to cut their outgoing work off as early as they would to
make mail or express shipments, and their
incoming work is on hand before they open
in the morning. Correspondent banks and
Federal Reserve Banks (particularly those
employing night check forces) have also
found that contract motor carriers deliver
checks much earlier than other forms of
transportation. The committee believes,
therefore, that banks in areas where contract motor carriers have not been used,
and where conventional transportation services are unsatisfactory, should explore the
use of motor carrier service.
D.
Checks Payable at Par in Other Federal
Reserve Districts
Interdistrict checks constitute 32 per
cent of all out-of-town items for the Reserve
City banks, 25 per cent for other banks,
and 29 per cent for the banking system as
a whole.
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
(a) Recommendations
(i) Where volume warrants
and where appropriate arrangements exist or can be made, such
checks should be sent directly
to the drawee banks for credit
of the sending bank or for remittance to a correspondent bank
or Federal Re serve Bank for account of the sending bank.
(ii) When not handled as
suggested above, such items
should be collected to the greatest extent practicable through
the Federal Reserve System's procedures for direct sendings and
consolidated air shipments of interdistrict items.
(iii) Where volume warrants,
Federal Reserve Banks should send
such items directly to drawee banks
in adjacent areas of adjoining
districts.
(iv) For expediting presentation of items drawn on banks
in important financiai centers
where there is no Federal Reserve
Bank or branch, and where volume
and other circumstances warrant,
the Federal Reserve System should
consider providing facilities for
consolidated direct air shipments
to such centers, permitting presentation to the drawees without
the items having to pass through
the Federal Reserve Bank of the
district in which they are payable.
(b)
Current methods
When volume warrants, interdistrict
items are generally sent directly by the
first collecting member bank (usually by
air) to the Federal Reserve Bank of the
district in which the drawee bank is situated. The Federal Reserve Bank of the district in which the sending bank is located
reimburses it for the transportation ex pense incurred in sending directly to another Federal Reserve Bank. When volume
is not sufficient to warrant direct sending to the other district, the first collecting bank sends such items either to the
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Federal Reserve Bank of St. Louis
local Federal Reserve Bank or to a corre spondent; in the la1ter case, the corr e spondent usually sends direct to the Federal Reserve Bank of the other district,
and , if in a Federal Reserve Bank city,
may consolidate its shipment with that of
the Federal Reserve ; in either event the
local Federal Reserve Bank pays the expense
of the shipment . Nonmember banks customarily send such items to member bank correspondents.
Although most interdistrict items are
collected through the Federal Reserve System in the manner indicated, the committee's survey disclosed that about 24 per
cent of interdistrict items handled by
Reserve and Central Reserve City banks are
sent to correspondents for credit or remittance and about 5 per cent are sent direct
to the drawee banks.
(c)
Areas for improvement of current
methods
Collection of interdistrict items by
sending them directly to the drawee banks
results in the most expeditious presentation and involves a minimum number of handlings. Where volume warrants, therefore,
and where appropriate arrangements exist
or can be made, this method for collecting
such items should be followed.
The procedures established by the Fed·eral Reserve System for direct sendings and
consolidated air shipments of interdistrict
items expedite presentation and minimize
handlings of the items. Except in circumstances in which it is practicable to send
interdistrict items directly to the drawee
banks, the committee favors full utilization of these procedures. A member bank
which does not have a sufficient volume of
items payable in other districts to send
directly to Federal Reserve offices in the
other districts should send interdistrict
items either to its correspondent member
bank in the nearest Federal Reserve Bank
city or to its Federal Reserve Bank. A nonmember bank in such circumstances should
send interdistrict items to its correspondent member bank in the nearest Federal Reserve Bank city. In this manner, both
smaller member banks and smaller nonmember
banks will realize the benefits of the procedures for expediting presentation and
collection of interdistrict items.
84
JOINT STUDY OF CHECK COLLECTION
Two situations came to the committee's
attention in which it would be possible to
expedite and simplify the handling of interdistrict items payable at banks outside
Federal Reserve cities.
all these checks are collected through the
Federal Reserve System and therefore are
sent to the Reserve Bank of the district
in which they are payable for presentation
to the drawees.
In instances in which one Federal Reserve Bank receives a considerable volume
of items drawn on banks in an adjacent
area of an adjoining district, and collection through the other Federal Reserve
office will result in roundabout transportation, a r rangements have been made for the
drawee banks to accept daily cash letters
dire ctly from the Federal Reserve Bank of
the district in which the items are deposited for collection. For example, the 31
banks in Fairfield County, Connecticut,
which is in the New York Federal Reserve
District receive a daily cash letter from
the Federal Reserve Bank of Boston (the
rest of the State of Connecticut is in the
Boston District). The banks receiving
such cash letters remit to the Federal Reserve Bank of New York for account of the
Federal Reserve Ba nk of Boston; unpaid
items are returned directly to the Boston
Federal Reserve, with a copy of the return
item letter being sent to the New York Federal Reserve so that it may make the appropriate adjustment entries.
Where the volume of checks drawn on
banks in such financial centers warrants,
it should be possible to expedite and simplify their collection. For example, under present collection methods, a Philadelphia bank that receives a check drawn on a
bank in Indianapolis will include the check
in its direct sent cash letter to the Federal Reserve Bank of Chicago. Its letter
will be included in the consolidated shipment of the Federal Reserve Bank of Philadelphia, and will go by air to Chicago.
The Federal Reserve Bank of Chicago will
handle the item, and send it with its cash
letyer to the drawee bank~ This cash letter
will go to Indianapolis by train.
Prior to the institution of this arrangement, the Federal Reserve Bank of
Boston sent Fairfield County items to the
Federal Reserve Bank of New York, which in
turn sent them to the drawee banks in Fairfield County, retracing part of the distance to Boston. Now, items are presented
one day earlier, they travel at least 100
miles less, and one handling is eliminated.
Unpaid items are received two days earlier,
and one less handling of them is involved.
Similar arrangements exist in some other
Federal Reserve districts. In the interests of speed and efficiency of check collections, the committee recommends extension of this practice where the circumstances warrant.
The other situation to which the committee has devoted its attention involves
the collection of interdistrict checks
payable at banks in important financial
centers where there is no Federal Reserve
Bank or branch. Except for items sent to
correspondents in such cities, virtually
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Federal Reserve Bank of St. Louis
If it were possible to send the item
directly from Philadelphia to Indianapolis
by air, for remittance through the Federal
Reserve Bank of Chicago, it would be presented at least one day earlier, many miles
of unnecessa r y travel would be avoided, and
one handling could be eliminated. Unpaid
items returned by the same route would be
received at least two days earlier than under present methods. There are undoubtedly
a number of other important financial centers where comparable advantages could be
realized by sending interdistrict checks
directly for presentation to the drawees
through local clearings, rather than through
the Federal Reserve Bank of the district.7
The committee suggests, therefore, that the
possibility of this change in the interdistrict check collection mechanism be explored by the Federal Reserve System.
E.
Nonpar Checks
The recommendations contained in the
report up to this point have related to
the collection of checks drawn on banks
which remit at par for all cash items. Many
7. Cities in which no Federal Reserve Bank
or branch is located and in which checking account
debits exceeded $5 billion in 1953 were Milwaukee,
Washington, D. C., Newark, N. J., Indianapolis,
Hartford, Conn., Albany, N. Y., Tulsa, Columbus, O.,
Oakland, Calif., Sacramento, Fort Worth, Providence,
R. I., Toledo, Rochester, N. Y. and Wilmington, DeL
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
bankers who communicated with the committee
referred to the problems of bank operations
which grow out of the collection of checks
drawn on banks which deduct excha_nge charges
from the remittances for such items, and it
is to this matter that this section of the
report is devoted.
Summary of Recommendations
(i) The weight of informed
banking opinion favors universal
par remittance for cash items as
a desirable improvement in the
check collection system, but, in
the light of controlling circumstances, the connnittee offers no
specific recommendation as to how
that re sult may be achieved promptly.
(ii) The committee recommends
that rules regarding the absorption
of exchange charges by collecting
banks be uniform as between member
banks of the Federal Reserve System
and insured nonmember banks.
(iii) The committee recommends
the simplifi cation of record keeping
requirements imposed on member banks
of the Federal Reserve System in connection with the disposition of exchange charges.
1.
Introduction and background
Prior to the development of modern
banking methods and relationships, and to
the establishment of our present system of
centralized reserves, a banker in one section of the country who was called upon to
make funds available at a distant point
often incurred an out-of-pocket expense in
doing so. Accordingly, it was the custom
to charge a fee, called "exchange", for the
service of making funds available at a distant point. Out of this custom arose the
practice of imposing an "exchange charge"
for remitting for a check presented by mail
for payment. The charge is made against the
person presenting the check and is deducted
from the remittance. The charge is base~
on the premise that it costs the remittipg
bank something to make funds available to
the presenting bank. Banks which make such
charges are generally referred to as "nonpar
banks".
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Federal Reserve Bank of St. Louis
An exchange charge is to be distinguished from a service charge which is imposed on the drawer of the check -- i.e.,
the depositor of the bank which makes the
charge. The service charge arises out of
a contract between the bank and its depositor, and the amount of the charge reflects
the expense of maintaining the account in
relation to the value of the depositor's
balance. A service charge is not deducted
from the proceeds of the check, and such
proceeds are remitted in full, or "at par".
Since this report is concerned primarily with the possibility of improvements
in the check collection system from the
standpoint of bank operations, the deduction of exchange charges will be considered
in the light of the effect on check collection operations of banks; the report will
not undertake to cover in detail the effects
of nonpar banking upon the general public.
In that connection, however, the observation usually made is that since more than
90 per cent of all financial obligations
are settled by using bank checks, and since
checks have therefore become in effect the
principal currency of the country, the public interest dictates that all checks b e
paid at par, so that the obligations they
represent may be discharged in full. Proponents of universal par remittance point
out that the justification which nonpar
banks assert for deducting exchange charges -- namely, that such charges represent
the cost to them of making remittances
available to the presenting banks -- is a
fictitious one under present conditions.
2.
Volume and distribution of nonpar banking
On December 31, 1952, there were 1,820
banks that charged exchange, or 13 per cent
of the total number of banks in the country.
These nonpar banks, however, held less than
$2 billion in deposits, or slightly more
than 1 per cent of total deposits of all
commercial banks. The number of nonpar
items in the entire bank collection system
accounts for only 11/2 per cent of the
total number of items handled, and for about
4 per cent of all out-of-town items. In
some instances, nonpar banks remit at par
for checks presented to them by out-of-town
banks.
Although nonpar items r epresent only
11/2 per cent of cash items handl~d by
86
J O I N T STUDY OF C HECK COLLECTION
banks throughout the country, the proportion is substantially higher in the sections
where the large concentrations of nonpar
banks are situated. At the end of 1952,
over 1,700 of the country's 1,820 nonpar
banks were located in four Federal Reserve
districts--Richmond, Atlanta, St. Louis
and Minneapolis. The remainder were in the
Kansas City and Dallas Districts (9 and 10,
respectively). Six districts had no nonpar
banks. Banks in the four districts with the
most nonpar banks, and in adjacent districts,
handled the bulk of the nonpar items, although some items found their way into all
districts . The table on this page shows the
number and per cent of total nonpar items
handled by banks in each Federal Reserve
district on an average day in July 1952.
Banks in the fou r principal nonpar districts handled 77% of all nonpar items. One
out of five transit items (one out of every
four in commercial banks) handled in the
Atlanta and Minneapolis Districts was not
payable at par. Banks in the Chicago and
Kansas City Districts, by reason of proximity to nonpar areas, also had a relatively high volume of nonpar items. In
the Northeastern section of the country,
and on the Pacific coast, the proportion
of nonpar items was low.
The process a bank follows to collect
nonpar items varies according to the dis-
trict in which the collecting bank is located, the number of items it handles, and
its size. In areas where the volume of nonpar items is small, all classes and sizes of
banks send practically all such items to
correspondents, which in turn send them to
other banks that specialize in nonpar collections. Where volume of nonpar items is
heavy, even the small banks collect some of
the items by sending them directly to the
drawee banks, although these are almost entirely items drawn on banks at nearby
points; srr~ll banks send the bulk of nonpar
items to larger banks, which collect the
items by sending them directly to drawee
banks.
Banks in some areas have combined to
establish regular collection arrangements
through which nonpar items are handled . The
best known of these, in Atlanta and Richmond, receive nonpar items from their members, combine them into cash letters , and
generally send them directly to the drawee
banks .
3.
Operating problems resulting from nonpar collections
Although the total number of nonpar
i terns is rela t'i vely small, and volume var ies from one section of the country to another, bankers throughout the country have
complained that the presence in the collec -
Table XVII
Number and Per Cent of Nonpar Items Handled
in an Average Day in July 1952 , by
Federal Reserve District
Per Cent of Total Per Cent of Total Per Cent of Total
Transit Items
Items Handled
Nonpar Items
District
Number of Items
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
5, 700
21,200
11,300
13,800
85,200
319,000
55,500
148,500
191 ,100
38,100
35,8oo
8,8oo
~
934,000
100 . 0%
Total
* Average
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Federal Reserve Bank of St. Louis
o.6%
2.3
1.2
1.5
9.1
34 .2
5.9
15 . 9
20.5
4.1
3.8
0.2%
0.2
0. 4
0.3
2. 6
8.6
o.6
4.7
8. 6
1.0
0.9
0.1
( 1. 7%)*
0 . 3%
o.6
o.6
0.7
5. 6
20 . 7
1.4
11.3
20.0
2.0
2.5
0.4
( 3 .9% )*
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
tion system of two classes of i terns -- one
payable at par, and one payable after deduction of exchange charges-- creates an
expensive operating problem and results in
an inefficient colle ction system. The
reasons cited in suppor t of this complaint
are these:
1.
The handling of nonpa r items
r eceived for collection is
expensive to collecting banks.
The expense arises f r om the
fact that initially the nonpa r items must be culled out
fr om the par items and thereafter handled separately. The
nonpar items must be sent to
pa rt i cular correspondent banks
e quipped to collect them, and
compensating balanc e s are customarily required to be maintaine d with those banks; or,
in the case of some banks situated in the areas where nonpa r banking is widespread, the
nonpar items must be sent directly to the respective drawe e banks, with the result that
nume r ous separate letters must
be processed and dispatched
and a like number of separate
r emittances must be handled.
In either case, the additional expense, compared with the
expense of handling par items,
is substantial. In addition,
the accounting procedures incident to the recovery of exchange charges from prior endorsers add materially to bank
expenses. (Arrangements provided by the Richmond and
At lanta Clearing Houses for
consolidating collections of
nonpar items for account of
clearing house membe r s r e duce exchange charges and
collection expenses in some
measure.)
2. The exchange charges themselves create an expense to
the banking system, whether
they are abso r bed by one of
the collecting banks or
whether they are pas sed along to the original depositor of the item. When ex-
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Federal Reserve Bank of St. Louis
change charges are abs orbed
the expense is obvious, although two aspects of this
matte r should be bor ne in
mind. First, the re is no
gain in earnings of the banking system as a whole, s i nce
the r evenue derived by the
drawee bank is offset by a
loss of revenue at one or
more of the collecting
banks. Second, the bank
which absorbs the exchange
charge is reimbursed in most
instances by the use of a
compensating balance from
its prior endorser, and in
eff ect therefore the charge
is passed along to the prior
·endorser. When exchange
charges are not absorbed but
are passed back to the original depositor of the ite~ ,
the expens e to the banking
system arises from the work
of passing the charges back
through each of the banks
which handled the item in
the course of collection. In
the case of member banks of
the Federal Rese r ve System,
additional expense is involved in the maintenance
of records to establish
that such charges have not
be en absorbed to an extent
not permitted by Re gulation Q of the Board of
Governors of the Federal
Re serve System.
3.
Except where volume and othe r
circumstances are such as to
warrant direct presentation
to nonpar drawee banks, banks
receiving nonpar items for
collection usually send them
directly or indirectly to
correspondent banks which
specialize in handling such
items. If it is desired to
avoid exchange charges, the
items may be further routed
so that they will be presented by a bank which either
can obtain payment at par by
special arrangement with the
drawee, or will absorb any
88
JOINT STUDY OF CHECK COLLECTION
exchange charges. As a result, the collection of nonpar checks frequently involves circuitous routing,
unnecessary handlings, delayed presentation for payment, and delayed notice and
return in the event of nonpayment.
The extent of the cost to the banking
system of handling the collection of nonpar items has not been estimated by the
committee. It is known, however, that the
operating cost to any collecting bank of
handling a nonpar item is several times
the cost of handling a par item. One representative of a large bank in an area where
nonpar banks predominate told the committee
that if all checks were payable at par his
bank would save $150,000 a year in operating expense, not including exchange charges.
It should be recognized that increased
operating costs arising out of the handling
of nonpar items affect small banks as well
as large banks. Since small banks greatly
outnumber large banks, the total added costs
of all small banks probably exceed those of
all large banks. All bankers with whom the
committee conferred were of the opinion that
bank collection operations would be substantially improved if there were universal par
remittance for cash items. (Suggestions as
to means for achieving universal par remittance ranged from legislative action to
more intensive educational campaigns.)
4.
Conclusion regarding nonpar banking
The committee notes, therefore, that
the weight of inforned banking opinion favors universal par remittance for cash
items. After study of the matter, however,
the committee offers no specific recommendation as to how that re~ult may be achieved
promptly.
The number of nonpar banks has been
slowly although steadily decreasing. In the
ten years ended December 31, 1952, the number decreased from 2,710 to 1,820; as a percentage of all banks, nonpar institutions
declined in that period from 19 per cent to
13 W+ cent. In three states,Iowa,Nebraska
-~nd ~vlj.s,consin, legislation re:rooved 367 banks
'·from\ tp~ nonpar list; the remaining 523 banks
adopted par remittance without statutory compulsion. Except when legislation has been
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Federal Reserve Bank of St. Louis
enacted or intensive campaigns for par remittance have been conducted, the year-toyear decrease in number of nonpar banks has
been small.
The states in which nonpar banks are
situated, the number of such banks, and the
proportion of total banks in each state
which the nonpar banks represent are presented in the following table.
Table XVIII
Distribution of Nonpar Banks by States
State
Alabama
\. Arkansas
Florida
Georgia
~.-Illinois
Kansas
Louisiana
Minnesota
, Mississippi
Missouri
North Carolina
North Dakota
Oklahoma
South Carolina
South Dakota*
v 'Tennessee
Texas
Virginia
'West Virginia
*
~
Nonpa r
Banks
Par
Banks
96
117
52
284
2
2
106
410
157
64
107
93
8
81
97
84
47
134
113
155
119
893
602
65
268
42
529
102
60
376
68
72
212
870
311
181
4
1
Per Cent
Nonpar
of Total
42
51
25
70
~
~
62
60
79
11
51
61
2.
54
57
28
5
1
0.5
All items $10 and under payable at par.
Less than 0.5 per cent.
The committee does not believe that
the practical answer to universal par remittance lies in legislation, either State
or Federal. With the possible exception of
one or more states in which the percentage
of nonpar banks is small and in which there
is already substantial sentiment favoring
state legislation, the possibilities of obtaining legislation seem remote. The committee believes, rather, that par remittance
must be realized, albeit slowly, by voluntary action of the bankers now favoring exchange charges as they realize that par remittance constitutes good banking and is
the best thing for their depositors, themselves, and the general public.
In view of the attitude of a substantial majority of bankers, and of the disadvantages to the banking system and the
general public arising out of nonpar banking, why should a small minority of bankers
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
persist in charging exchange on checks paid
by them? The answer is simple: nonpar
bankers are reluctant to give up the income
derived from the exchange charges. Their
position was expressed as follows by
Mr. R. E. Gormley, Vice President of the
Georgia Savings Bank & Trust Company, Atlanta, Georgia, in testimony before the
Committee on Banking and Currency of the
House of Representatives in connection with
its conside r ation of the so-called BrownMaybank bill on January 27, 1944 (Hearings,
p. 303):
" • . (deduction of exchange) has furnished Georgia
banks the most beautiful form
of service charge they have ever
had. Unlike banks in the other
States, they have not permitted
themselves to be forced or cajoled into going onto a par basis.
It is the most beautiful form of
revenue they have ever had, and
it is a form of revenue you can
collect with the least disturbance of public relations between
you and your customer. After
all, that is banking. As long
as I can maintain the good will
of my depositors, the people I
am dealing with at home, it is
up to me to do it. This affords
us a wonderful means of collecting toll for these checks; and
yet it is being levied against
the man on the other side."
The substance of this statement is that nonpar banks are able to meet some of the operating expenses by charging exchange against
third parties instead of levying service
charges against their own depositors. In
fact, however, the committee learned that
in many instances nonpar banks deduct exchange and impose service charges.
The argument that nonpar banks need
the revenue derived from exchange charges
in order to stay in business disregards the
fact that in states where par remittance
has been required by statute banks not only
have managed to remain in business but in
many instances have shown increased earnings after adopting par remittance. In. this
connection, it should also be observed that
in the areas where nonpar banks predominate,
the exchange charges deducted by any single
bank cannot be regarded as clear profit,
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Federal Reserve Bank of St. Louis
since that bank or its depositors will also
be paying exchange on items drawn on other
nonpar banks in the area.
5. Absorption of exchange
charges by collecting banks
At the suggestion of many bankers from
all sections of the country, the committee
has devoted attention to the current situation with respect to the absorption of exchange charges by some collecting banks,
and particularly to the difference in interpretation or a pplication of statutes and
regulations regarding such absorption by
member banks of the Federal Reserve System,
on the one hand, and by nonmember banks the
deposits of which are insured by the Federal Deposit Insurance Corporation (hereinafter referred to as "insured nonmember
banks"), on the other.
The following provisions apply to member banks:
Section 19 of the Federal
Reserve Act
"No member bank shall, directly or indirectly, by any device whatsoever, pay any interest
on any deposit which is payable
on demand: .
"
Section 2 of Regulation Q
of the Board of Governors
of the Federal Reserve
System
"
no member bank of the
Federal Reserve System shall, directly or indirectly, by any device
whatsoever, pay any interest on
any demand deposit. Within this
regulation, any payment to or for
the account of any depositor as
compensation for the use of funds
constituting a deposit shall be
considered interest."
The following provisions apply to insured nonmember banks:
The Federal Deposit Insurance Act ~12 U.S.C.A.
~
1828(g)
"The board of directors (of
the F.D.I.C.) shall by regulation
90
JOINT STUDY OF CHECK COLLECTION
prohibit the payment of interest
on demand deposits 11 in ins ured nonmember banks •
Section 2 of Regulation IV
of the Federal Deposit Insurance Corporation
" . . . no insured nonmember
bank shall directly or indirectly,
by any device whatsoever, pay any
interes t on any demand deposit.
Within this regulation any payment
to or for the account of any depositor as compensation for the
use of funds constituting a_depog/it shall be considered interest._
The absorption of normal or
customary exchange charges by
an insured nonmember bank, in
connection with the routine
collection for its depositors
of checks drawn on other banks,
does not constitute the payment
of interest within the provisions of this regulation."
Thus it appears that under substantially similar statutory authorizations,
the Board of Governors and the F.D.I. c .
have adopted identically worded regulations
which prohibit the payment of interest "directly or indirectly, by any device whatsoever," on any demand deposit, and which define interest as " any payment t o or for the
account of any depositor as compensation
for the use of funds constituting a deposit".
In a specific case presented for its
consideration in 1943, the Board of Governors ruled that the absorption of exchange
charges by a member bank in order to attract
and keep compensating balances of depositors
violated the prohibition against payment of
interest on demand deposits (1943 Federal
Reserve Bulletin 817). In the case before
the Board, it a ppeared that in 1942 the bank
had absorbed for customers maintaining compensating balances with it $18,000 out of
$25,000 exchange charges paid, and that in
the first three months of 1943 it had ab sorbed for such customers $4,660 out of
$5,600 exchange charges paid. In some instances, the amounts absorbed were as,much
as two or three per cent of customers balances. Total correspondent bank de~osits
had increased from less than $7,00Q,000 at
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Federal Reserve Bank of St. Louis
the end of 1941 to nearly $18,000,000 in
1943, a ratio far greater than the increase
in total demand de posits, or than the corres ponding increases of other banks in the
same area. In the case of customers which
did not maintain compensating balances, the
bank did not absorb exchange charges but
passed them along to its endorsers, because
the bank had "no way of making it back". In
at least one instance, an account had been
shifted from a competing bank to the bank
in question because of its willingness to
absorb exchange charges. In its consideration of the case, the Board pointed out
that the questions to be determined were
first, whether the absorption of exchange
charges by the bank constituted a "payment",
and, s_e cond, whether such payment was made
as compensation for the use of funds constituting a deposit. The Board stated that
the absorption of an exchange charge clearly results in a "payment"; and that, on the
facts of the specific case, the " payments"
resulting from absorption of exchange charges appeared to have been made by the bank
for the purpose of soliciting and augmenting
its demand deposit accounts, or as "compensatio~' for the use of funds constituting
de po s its.
In a subsequent case, the Board held
that a member bank which was absorbing exchange charges in order to avoid additional
expense which would be involved in collecting such charges was not violating the prohibition against payment of interest on demand deposits (1944 Federal Re serve Bulletin
339). The Board found that the charges were
absorbed solely as a matter of operating efficiency where the cost of passing them back
would exceed the amount of the charges, and
that there was no evidence that the bank in
soliciting new accounts or in maintaining
existing accounts had offered to absorb such
charges as an inducement to the maintenance
of balances. The Board concluded, therefore,
that the charges were not absorbed as compensation for the use of funds on deposit
but as a means of avoiding expense to the
bank.
It appears to be the position of the
Board of Governors that the absorption of
exchange charges may, or may not, constitute the payment of interest on a demand
deposit within the meaning of Regulation Q,
depending upon the facts of a given case.
In general, the view of the Board seems to
be that if it appears from any understand-
r
SUGGESTIONS FOR IMPROVING PRESENT 'CHECK COLLECTION METHODS
ing between a bank and a depositor, or from
other evidence such as solicitation of deposits upon the basis of a willingness to
absorb exchange charges, that it is the
intention to absorb the charges as compensation for the use of the depositor's'fund~
then such bank would be regarded as violat ing the prohibition against payment of interest on demand deposits (see 1944 Federal
Reserve Bulletin 339) . The Board has stated
as its expectation that no member bank in
any case would utilize the absorption of
exchange charges as a device for compensating a de positor for the use of funds in order to obtain or retain demand deposits .
As a rule of administrative convenience ,
however, the Board will disregard as trivi al the absorption of exchange charges in
amounts aggregating not nnre than $2.00 for
any one depositor in a single month (1945
Federal Reserve Bulletin 564).
Although the wording of section 2 of
F.D . I.C. Regulation IV is identical with
that of section 2 of Regulation Q, the
F.D.I.C. adds as a footnote t hat "the absorption of normal or customary exchange
charges by an insured nonmember bank, in
connection with the routine collection for
its depositors of checks drawn on other
banks , does not constitute the payment of
interest" within the meaning of the regulation. This footnote was apparently derived
from a ruling of general application to insured nonmember banks, issued by the F.D.I.C.
effe ct ive December 6, 1943 under the caption
"Absorpt ion of Exchange Charges as Payment
of Interest". This ruling expressed the
view " . . . that the absorption of
exchange charges by an insured nonmember bank in connection with its
routine collection for its depositors of checks drawn on other banks
can not be considered a payment of
interest, within the terms of the
intere s t regulations of the Federal
Depos it Insurance Corporation, in
the absence of facts or circumstances establishing that the prac tice is resorted to as a device for
the payment of interest."
Al though the concluding clause of this ruling a ppears to beg the question, the position taken by the F.D.I.C. in the administration of its regulation appears to be
that an insured nonmember bank may solicit
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Federal Reserve Bank of St. Louis
91
deposits upon the basis of a willingness
to absorb exchange charges, without violating the prohibition against payment of interest upon demand deposits.
The regulations of the two supervisory
bodies are identical (except for the interpretative footnote added to the F.D.I.C.
regulation) and at the time they were promulgated it was the intention of the Board
of Governors and of the F .D. LC. that the
definition of "interest" as "any payment
to or for the account of any depositor as
compensation for the use of funds consti tuting a deposit" was a restatement of
principles of law decided by the courts to
provide for dealing with each case which
might arise on the basis of its specific
facts. Given this premise , it seems inconceivable as a matter of law that two
contrary conclusions regarding the same
facts can be reached.
The result is an anomalous situation
in which under identically worded rules a
member bank of the Federal Reserve System
may not absorb exc hange charges in return
for compensating balances while an insured
nonmember bank may. Not only does this put
the member bank at a competitive disadvantage as compared with insured nonmember banks,
but it encourages circuitous routing, unnecessary handlings and delayed presentation of
nonpar checks .
6.
Conclusion regarding absorption
of exchange charges
The committee concludes that from the
standpoint of the bank check collection system it would be desirable to arrive at a uniform interpretation of the two regulations.
Uniformity could take one of two forms: either (1) all insured banks, member and nonmember, might be permitted to absorb exchange charges even though t heir willingness
to do so might be the basis for soliciting
deposit balances; or (2) all insured banks
might be prohibited from absorbing such
charges except when such absorption is merely incidental and not related to the solicitation of deposit balances.
As far as improved s peed and efficiency
of bank check collections are concerned, the
first alternative would be a step in the
wrong direction. Permitting all banks to
absorb exchange charges without limitation
would result in the development of a pattern
92
JOINT STUDY OF CHECK COLLECTION
for the collection of nonpar checks involving more circuitous routing and more superfluous handlings of such items than occur
under current circumstances . This would
mean not only inefficiency in check collection operations of the banking system but
also unnecessary delay in presentation of
the items for payment . Accordingly, from
the standpoint of check collection operations, the preferable way to remove the
present discriminatory situation as between
member banks and insured nonmember banks is
to prohibit all insured banks, member and
nonmember, from absorbing exchange charges,
except where such absorption is merely incidental and not related to the solicitation of deposit balances.
7.
Modification of record
keeping requirements
Numerous bankers have complained to
the committee that member banks of the Federal Reserve System are put to unreasonable
trouble and expense in maintaining records
of the disposition of exchange charges . As
previously stated, the Board of Governors
has indicated that in certain circumstances
the absorption of exchange charges by a member bank may constitute the payment of interest on a demand deposit in violation of
the prohibition contained in Regulation Q,
although the Board has ruled that "the absorption of such charges in amounts aggregating not more than $2.00 for any one de pos itor in any calendar month or in any
other regularly established period of 30
days will be considered as trivial and will
be disregarded, provided the bank keeps such
records as the appropriate supervisory authority may require for reconcilement pur poses" (1945 Federal Reserve Bulletin 564) .
Assuming that the general absorption of exchange charges by member banks will continue to be prohibited, the committee recommends that the Board of Governors and the
Comptroller of the Currency take steps to
simplify and minimize the record keeping
required of State member banks and national
banks , respectively, for this purpose.
F. Items (Other Than Nonpar Checks)
Which Federal Reserve Banks Do Not
Handle as Cash Items
Items ( other than nonpar checks) which
the Federal Reserve Banks will not handle
as cash items constitute less than three-
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Federal Reserve Bank of St. Louis
tenths of one per cent of all items deposited for collection through check collection
channels. The existence of these items in
the check collection stream, and the fact
that the Federal Reserve Banks will not accept them as cash items, creates an operating problem for banks , notwithstanding the
relatively small volume. The problem is
further complicated by the fact that in some
instances an item which will be handled as
a cash item by the Federal Reserve Bank of
one district will not be so handled by the
Reserve Bank of another district.
1.
Recommendations
( i) Exce.pt where differences
are required by local laws, there
should be uniform definitive rules
amohg the Federal Reserve Banks regarding the items which they will,
or will not, handle as cash items.
The Federal Reserve Banks should try 0
to frame these rules so as to permit
the handling as cash items of as
many categories of instruments as
may be practicable.
(ii) The Federal Reserve
Banks should handle as cash items
instruments "payable at" any bank
located outside Arkansas, Georgia,
Idaho, Minnesota, Illinois, Kansas,
Nebraska, and North Dakota. In
those States, the respective State
Associations should explore the possibility of having the legislatures
adopt Section 87 of the Uniform Negotiable Instruments Law, and should
urge banks at which items of this
nature purport to be payable to arrange with their depositors for the
issuance of conventional bank checks
instead of items "payable at" such
banks.
( iii) Bank·s having customers
upon whom drafts "payable through"
such banks are drawn in substantial
numbers should arrange with such
customers wherever possible for the
use of conventional bank checks instead of such drafts.
(iv) In areas where the handling of State and municipal warrants as cash items is not currently
possible , steps should be taken
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
by the State Associations to make
such items eligible for handling
in that manner. Where existing
state law permits disbursements
by political bodies to be made by
bank check as well as by warrant,
the use of checks wherever possible should be encouraged. Where
existing State law requires such
disbursements to be made by warrants or other instruments which
the depositary banks of such political bodies are not authorized by
law to pay upon presentatio_n , appropriate legislation permitting
all such instruments to be drawn
on banks and payable upon presentation should be sought.
2.
Conditions causing
current problems
The provisions of the operating circulars of the several Federal Reserve Banks
defining the items which they will accept
for collection as cash items are relat ively
uniform. After stating s pecifically that
the Reserve Banks will accept as cash items
checks drawn on par remitting banks, Government checks and postal money orders, the
circulars generally add that the Reserve
Bank will also a ccept as cash items such
other i t ems, collectible at par in acce ptable funds, as the Bank "may be willing to
a ccept as cash items". The generality and
lack of prec ision of t h is ca t ch-all provision, which as a rule is not clarified by
any other published instructions of the Reserve Bank, is of no assistance to member
banks in determining whether particular
i terns may o·r may not be collected as cash
items.
The fundamental problem arises from
the nature of t he instruments involved and
from differences in loc al laws and collec tion practices, rather · than from t he operating rules of the Federal Reserve Banks .
As a general rule, it appears t hat the test
as to whether a given item may or may not
be handled by a Federal Reserve Bank as a
cash item is whether the item may be presented to a bank and paid by charge to a
depositor's account in the same manner as
a check. Certain items (e.g., a draf t
" payable through" a bank) may be sent to
a bank for collection but the bank is not
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Federal Reserve Bank of St. Louis
93
authorized py law to pay the item; the law
requires thebank to present the item to
the named drawee for payrent. The Federal
Reserve Banks, therefore, must take the
position that as a general principle such
instruments may not be handled as cash items.
In many instances, however, by agreement between the drawee of such an item and the
drawee's bank of account the bank is authorized to charge such items to the drawee's
account on the day of receipt in the same
manner as a check. Where these arrangements
become known to a Federal Reserve Bank, it
will usually accept the items affected for
collection as cash items notwithstanding the
fact that as a general rule items of t hat
class may not be so handled. Since the se
exceptions are de pendent upon numerous individual agreements between many different
banks and their depositors, it is neither
possible nor feasible for the Federal Reserve Banks to include such exceptions in
their instructions to member banks.
The committee has concluded that the
best approach to t he pr oblem involves t wo
principal steps: (1) the Federal Reserve
Banks should endeavor to achieve substantial
uniformity in their rules and practices regarding the types of instruments which they
will accept for collection as cash items,
with the aim of so handling as many categories of instruments as may be practicable;
and (2) individual banks and State Associations should use their effort s t o bring about
a change in t he types of item used by depositors so that the items will be in a f orm
which the Reserve Banks can handle as cash
items .
3.
Specific areas for improvement
The inst ances in which it appears possible to widen the categories of instruments
wh ich may be handled as cash items, and to
bring about a situation in wh ich it will be
possible to distinguish more clearly between
the items which may be so handled and those
which may not , are summarized below.
(a) Bankers' acce ptances. Six Reserve
Banks have published instructions to the effect that they will handle bankers' acceptances as cash items if forwarded in a separate cash letter in sufficient time to reach
the place of payment at least one day before
maturity . The other six Banks have apparently issued no such instructions.
94
JOINT STUDY OF CHECK COLLECTION
(b) Items "payable at" a bank. At some
Federal Reserve Banks, items "payable at" a
bank are handled as cash items while at others they are not. In some cases, this variation is attributable to differences in
State laws. Section 87 of the Uniform Negotiable Instruments Law provides that where
an instrument is made payable at a bank it
is equivalent to an order to the bank to pay
the same for the account of the principal
debtor thereon, but this section has not
been enacted in Arkansas, Georgia, Idaho,
Minnesota, Illinois, Kansas, Nebraska, and
North Dakota. Accordingly, items "payable
at" banks in those States are not orders on
the banks named but must be presenied to the
principal debtors for payment. Since the
banks at which the items purport to be payable are not, in the absence of some further
agreement, in a position to charge the accounts of the principal debtors and remit
the proceeds upon receipt of the items in
the same manner in which they charge and remit for checks drawn on them, the Reserve
Banks a pparently are not able to handle the
instruments as cash items. In the remainder of the country where Section 87 is in
force, items "payable at" a bank are the
equivalent of checks drawn on the bank and
there appears to be no reason why they may
not be handled by Reserve Banks as cash
items. These items would include the many
envelope drafts which are "payable at" a
bank.
able is not authorized to charge the item to
the drawee's account with it but must present the item to the drawee for payment. In
such a case, a Federal Reserve Bank is generally not in a position to handle the draft
as a cash item, since the bank through which
the item purports to be payable has no legal
authority to pay and remit for it upon receipt . As a practical matter, many persons
upon whom such drafts are regularly drawn
have authorized the banks through wh ich they
are designated as payable to charge them to
the drawees' accounts with such banks. In
some instances, the charge is made after inspection of the items by the drawee before
the close of business on the date of receipt, but in other cases apparently the
items are charged in the same manner as
checks. Where a Federal Reserve Bank learns
from experience that such an arrangement exists between a particular drawee and a given
bank, it frequently handles such drafts as
cash items. Because of the number and variety of these exceptions, however, it is
neither feasible nor possible for a Federal
Reserve Bank to publish definitive instructions as to the items of this nature which
it will, or will not, receive for collection
as cash items.
There seem to be two principal reasons
why some bank depositors use .drafts on themselves "payable through" their bank, rather
than conventional checks drawn on their bank
accounts:
It is recoII11D=nded, therefore, that Federal Reserve Banks uniformly provide for the
handling as cash items of instruments "payable at" any bank located outside Arkansas,
Georgia, Idaho, Minnesota, Illinois, Kansas,
Nebraska, and North Dakota. It is further
recommended that in the states named the respective State Associations (1) explore the
possibility of having the legislatures adopt
Section 87 of the Uniform Negotiable Instruments Law, and (2) urge the banks at which
items of this nature purport to be payable
to arrange with their depositors for the issuance of conventional bank checks instead
of "payable at" items in order that they
may be collected as cash items.
1. During the period when the
Federal tax on bank checks was in
effect , a number of issuers of substantial numbers of bank checks
switched to the use of drafts "payable through" their banks of ac count in order to avoid the tax.
Since from the depositors' standpoint the use of such drafts was
equally as sat isfactory as the
earlier use of checks, inertia as
much as anything else has probably
been res ponsible for their failure
to switch back to the use of checks
following repeal of the tax .
(c) Items " payable through" a bank. A
draft on an individual or company is frequently designated as "payable through" a
designated bank, usually the bank in which
the drawee maintains an account. In the
absence of some further agreement, the bank
through which the item is designated as pay-
2. Some companies with
regional offices have apparently
concluded that there are advantages in having the managers of
such offices make disbursements
by drafts on the head offices,
"payable through" their princi-
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Federal Reserve Bank of St. Louis
SUGGESTIONS FOR IMPROVING PRESENT CHECK COLLECTION METHODS
pal banks of account, rather
than by issuing company checks
on local bank accounts or on
their principal accounts. This
device enables the head offices
to review disbursements by regional offices before they are
actually paid. The companies may
also be influenced by the fact
that the device delays payment
and may give them an additional
day's use of the funds. In addition, the device may result in
lower analysis charges since in
some cases it is unnecessary to
maintain numerous local bank ac counts for regional offices, and
in others the analysis charge of
the principal bank of account may
be less for handling the drafts
than for handling individual checks
drawn against the company's account.
It is recognized that in some cases
there are sound business reasons why a bank
de positor decides to use a draft rather than
a check for certain disbursements, but it
appears that i n many instances drafts are
being used unnecessarily and checks could
be used for disbursenents without any disadvantage to the depositor . It is recommended that banks review the circumstances
with customers · upon whom drafts "payable
through" such banks are drawn in substantial
numbers, and arrange wherever possible for
the customer to use conventional checks which
may be handled as cash items through the Federal Reserve Banks .
(d) State and municipal warrants. Items
drawn on the treasurers or other disbursing
officers of States, counties, cities and
other municipal subdivisions must be pre sented by a colle cting bank to the drawee
for payment and , in the absence of some further agreement, the bank in which such disbursing officer carries his account is not
authorized to pay the items without such
presentation. As a matter of law, the refore , the Federal Reserve Banks are not
able generally to handle State and municipal warrants as cash i tems . As a practical
matter, however, there are numerous instances throughout the country in whic h such a
disbursing officer has authorized his bank
of account to pay warrants drawn on h i m in
the same manner as if they were checks drawn
on his account , and the Federal Reserve
Banks, to the extent that they are aware of
such arrangements , will handle such warrants
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Federal Reserve Bank of St. Louis
95
as cash items. Because of the number and
variety of such exceptions, however, it is
neither feasible nor pos sible for the Federal Reserve Banks to publ ish instructions de fining the warrants which they will, or will
not, handle as cash items .
The operating problems involved in handling Sta t e and municipal warrants , and par ticularly in determining whether particular
warrants may or may not be handled as cash
items, have been minimized in certain areas .
Largely as the result of efforts initiated
by the Federal Reserve Bank of Minneapolis,
the States of Wisconsin, Minnesota and South
Dakota have amended the laws relating to
disbursements of p ublic funds (Wisconsin
Laws of 1951, ch . 407; Minnesota Laws of
1953, ch . 319; Session Laws of South Dakota1953, ch . 500) , so that in effect all instruments representing such disbursements
are drawn on a bank and payable upon pres entation . The State of Oregon has recently
enacted a l aw (Oregon Laws of 1953, ch . 664)
which, while different in form from the Wisconsin statute and although continuing in
effect the authority of a political body to
disburse by warrant if it wishes, makes possible the same gene ral result as in Wisconsin.
It is recommended, therefore , that in
areas where the handling of state and muni cipal warrants as cash i te ms i s not current ly poss ibl e one of two steps be taken:
(1) If exi sting State law
permit s disbursement s by politi cal bodies to be made by bank
check as well as by warrant, the
State Association should encour age the use of checks rather than
warrants wherever poss ible .
(2) If existing state law
require s such disbursements to be
made by warrants or other instru ments which the depositary banks
of such political bodies are
not authorized by law to pay
upon pre sentation, t he State
Assoc i ation should seek ap pro priate legislat ion permit ting all such instruments to
be drawn on banks and payable
on presentation, in order that
they may be handled as cash
i terns.
The committee anticipates that the Federal
Reserve Banks would coo perat e actively with
State Associations in such efforts .
CHAPTER
V
MIBCELLANEOUSSUBJECTSSTUDIED
At the time the study was announced to
the membership of The American Bankers Association, and again when the survey was undertaken and questionnaires were sent to about
1 300 selected banks throughout the country,
'
were requested to inform the comm1·t bankers
specific problems involving
their
of
tee
check collections and to submit their suggestions for improving the check collection
system. Many responses were received and a
number of the suggestions for improvements
in current check collection methods have
been incorporated in the recommendations
contained in the preceding section of the
report. Related problems, concerning matters other than collection methods, and sug gestions for dealing with them, are covered
in this chapter.
Additional helpful information was obtained in a series of twelve meetings which
the committee held during the fall and winter of 1953-54 in each Federal Reserve district. About ten commercial bankers asked
to attend each meeting were selected in approximately equal numbers from key operating
men in Reserve City banks, large country
banks, and small country banks. The committee aware that its approach to improving
the' check collection system was national in
outlook and that certain regional variations
in practices might have been overlooked in
its study, arrange d these meetings as a final check on its recommended program . The
meetings demonstrated that such regional
variations as do exist apparently will not
invalidate the recommended program in any
respect; as a collateral benefit , the meetings provided an additional source of inf ormation regarding check collection problems and suggestions for resolving them.
Other collateral information came to
the committee ~rom a group of technical representatives of business machine manufacturers who met separately with the committee
over a three-day period in the fall of 1952,
a group of treasurers of national corporations who met with the committee at about
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Federal Reserve Bank of St. Louis
the same time, representatives of the Post
Office Department, individual banks, and
various Federal Reserve operating men.
A.
Return Items Procedures
Many bankers who communicated with the
committee emphasized the need for simplification and expedition in the return of unpaid items. Almost every comment included an
example in which a week or ten days elapsed
between the date an item was deposited and
the uate it was returned to the first collecting bank after nonpayment even though
the drawee bank was relatively nearby. One
banker termed as "the problem of the day"
the increase in the number of return items
and the slowness of the return process.
These comments have received careful
study, and the committee has concluded that
it should be possible for banking, by cooperative effort, ( 1) to bring about a substantial reduction in the number of items
returned, and ( 2 ) to expedite the receipt by
the first collecting bank of items which
must be returned.
Transit items returned unpaid amount to
about 0.65 per cent of items presented for
payment. Although this may appear to be a
small proportion of al l items handled,175,000
items are returne d unpaid every day (about 50
milli on items in 1952 ). The ac companying
table s hows a breakdown of the number of
transit items returned unpaid by (a) reason
for return, and (b) amounts of items returned.
Accordingly , it appears that 54 per
cent of unpaid items are returned for insufficient funds and another 19 per cent
because of missing or irregular.endorsements, and that 64 per cent of all items
returned unpaid are in amounts less than
$50 . Since the expense of handling a return item is high (many times the expense
of handling a transit item in the regular
course), these returns cost the banking
97
MISCELLANEOUS SUB J ECTS STUDIED
Table XIX
Transit Items Returned Unpaid
(On an average day in July, 1952)
Reason
Insufficient funds
Endorsement
Missent
Signature
Uncollected funds
Other
Total
_j_
Amount
-1.
54
19
$50 or less
$50 - $100
$100 - $500
Over $500
64
20
12
4
11
3
3
10
100
system between 10 and 20 million dollars a
year. In the committee's view, a considerable portion of this expense is avoidable.
Three steps may be taken to reduce the
number of items returned unpaid:
1. The fact that more than half
of unpaid items are returned
for insufficient funds and 64
per cent of all items returned
are for less than $50 indicates
where the principal source of
trouble lies. Banks should refuse to retain accounts of depositors who persist in drawing
checks which are not good .
2. The fact that 20 per cent of
unpaid items are returned for
missing or irregular endorsements indicates that greater
care on the part of first collecting banks at the time the
items are deposited for collection would eliminate many return items.
3. The number of return items may
be reduced substantially if
drawee banks will employ all
reasonable means at their disposal to "cure" technical defects in items and pay them,
rather than to return them arbitrarily to the endorsing
banks. In this connection,
the committee endorses the
"Recommended Procedures and
Practices", issued August 6,
1952, by the Illinois Bankers
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Federal Reserve Bank of St. Louis
Total
100
Association and its Committee
on Bank Management . The substance of these recommendations
is included in Appendix D.
If banking were to carry out the program suggested above, the number of return
items would be reduced substantially and
many of the difficulties associated with the
return of unpaid items would be minimized.
It should also be possible, however, to expedite the return of unpaid items. The committee's general recommendations for expediting the presentation of items should have
the effect of expediting the return of items
presented and not paid.
In this connection, the committee has
considered the proposal of the Bank Management Commission of The American Bankers Association for the direct return of unpaid
items to the first endorsing banks. This
proposal contemplates that a bank which does
not pay an item drawn on it will send the
item directly to the first bank endorser
without entry, and at the same time will
draw on the first bank endorser a so-called
unpaid item draft which it will send through
regular channels for collection as a cash
item. The effect ·of the proposal is to return an unpaid item to the first endorsing
bank and its customer as promptly as possible and to eliminate expense and delays incident to its handling by intermediate endorsers. In order to be fully effective,
however, the proposal must be acceptable to,
and be adopted by, bankers generally, and
they must be wi lling to assume the obligation
to pay unpaid item drafts. The committee
understands that The American Bankers Association is ascertaining whether such accept-
JOINT STUDY OF CHECK COLLECTION
ance and adoption may be expected; if a favorable reaction should be obtained, it is
understood that the Federal Reserve System
will amend its regulations and circulars
governing check collections to make the proposal effective. The committee believes
that general adoption of the proposal should
expedite and simplify the return of unpaid
i terns .
Anothe r suggestion with respect to the
handling of return items appears to have
merit . A uniform return items slip with
standardized wording of the reasons for return would be helpful. Th~ committee under stands that The American Bankers Association
plans to sponsor general use of a uniform
slip.
B. Standardization of Check Sizes and Design
Many bankers suggested the need for
further progress toward standardization of
check sizes and of check layout or desi gn .
The Bank Management Commission of The American Bankers Association has already devoted
a considerable amount of study to this problem and has issued several publications setting forth its recommendations . The committee adopts and endorses these recommendations .
Standardization of check sizes and design is desirable because it will facilitate
bank operations and enable banking to render
better service to the public at lower cost.
Standardization within certain reasonable
prescribed ranges of sizes and types will be
imperative if the check collection operation
is to be substantially mechani ze d.
The principal burden of a program for
standardization must be assumed b y banks.
They are the only ones affected who are in
a position to insist upon standardi za tion in
their dealings with customers, check manufacturers and business machine manufacturers,
and they must be willing to adopt a firm and
united position if any real progress is to be
made . The program recommended by The Ame rican Bankers Association is a good one; it is
up to the individual banks of the country to
adopt and sell it.
C.
Legibility of Endorsements
One of the most troublesome problems of
banks in connection with check operations is
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Federal Reserve Bank of St. Louis
t he superimposit i on of bank endorsements and
the consequent difficulty of reading them
when it bec omes nece s s ary to identi f y sever al endorsers .
One cause of the trouble is the size
of many bank endorsements and the fact that
t hey contain a comparatively large numbe r
of words and figures . Another cause lies in
the widespr ead use of various types of en dorsing equipment which are so adjusted that
they tend to pile one endorsement on top of
another . The committee's study of this prob lem has led it to the conclusion that it
should be possible to minimize these diff i culties.
Many bank endorsements are more than
two inches square . As a rule they contain
the name of the bank, its transit number,
a date , and a legend such as "Pay to the
order of any bank , banker or trust company.
Prior endorsements guaranteed".
The use of a restrictive endorsement ,
including a specific guarantee of prior endorsements, on checks handled by banks for
collection is r ecognized by statute, by existing transit instructions ( including the
check collection circulars of the Federal
Reserve Banks ), and by general banking practice . Disregarding legal considerations ,
there are two important elements of a bank
endorsement on an item handled for collection : ( 1) identification of the endorsing
bank, and (2) the date on which the item is
handled. In large proof machine installa tions, there is usually a third element - the number of the machine on which the item
is handled, to facilitate tracing the item
if that should become necessary. According ly, unless le ga l considerations would pre vent it, it should be possible to reduce
substantially the size and content of a
bank endorsement by confining it to the
transit number and the abbreviated name of
the endorsing bank, the date, and (when de sired) a proof machine number.
The committee has consulted counsel informally t o ascertain whether it would be
possible from a legal standpoint to modify
a bank collection endorsement in the manner
indicated and still retain the rights and
liabilities that now grow out of the standard form of restrictive endorsement and the
specific guarantee of prior endorsements in -
99
MISCELLANEOUS SUBJECTS STU DIED
eluded therein . Counsel has indicated, in
sub s tance , that the legal effect of any symbol or device adopted as an endorsement may
be prescribed by agreement between the col lecting banks . As an illustration of such
an agreement, counsel has indicated that a
provision in the Federal Reserve Bank check
collection circulars that the Federal Re serve Bank guarantees prior endorsements on
checks sent by it to drawe e banks irrespec tive of whether its endorsement contains a
specific guaranty would be effective. In
the case of checks sent to the Federal Reserve Bank, the circular might provide that,
irrespective of the form of the endorsement
of the sending bank , its liabilities with
respect to a check which it forwards to the
Federal Reserve Bank shall be the same as
though it had endorsed such check with the
usual form of restrictive endorsement and
with its specific guaranty of pri or endorse ments . Incorporation of such provisions in
the check collection circulars of the Fed eral Reserve Banks would not affect checks
which are not handled by the Reserve Banks,
but presumably appropriate amendments of the
standard transit instructions prescribed by
The American Bankers Association would extend the use of simplified endorsements to
all transit items .
Simplification of endorsements will
help to minimize the problems. In addition ,
the committee believes that two other steps
to avoid superimposition of endorsements and
to facilitate their legibility should be considered . One of these is to assign certain
areas of the back of the check for the endorsements of certain classes of banks . For
example, in either a vertical or a horizontal plane, one third might be reserved for
endorsements of "country'' banks, one third
for endorsements of Federal Reserve Banks
and branches , and the remaining third for
endorsements of "correspondent" banks . The
other step is for each class of bank to use
a different colored ink for endorsements.
In order to be effective, this program would
involve not only substantial acceptance by
banks but also cooperation by manufacturers
of mechanical endorsing equipment , since it
would require adjustments of endorsing mechanisms and changes in the size and shape of
endorsing plates .
The committee concludes from its study
that substantial improvements along the lines
mentioned above are possible . I t has not
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been able in the time at its disposal to pur sue the matter further , and regards a pro gram for 5'implifying bank endorsements as a
project in itself . The committee recommends
tha t the Federal Reserve System and The American Bankers Association consider undertaking
the project on a joint basis, either through
special committees or through the Reserve
System ' s Subcommittee on Collections and the
Association ' s Bank Management Commission .
D.
Transportation of Checks
Many bankers complained of the deterioration of facilities for transporting out of - town checks. The substantial advantages
derived from the use of air transportation
for the collection of checks payable at distant points were recognized, but many emphasized that the collection of items within
a radius of 200 or 300 miles by ground transportation had become progressively slower in
recent years .
Many complaints regarding mail service
were received . These complaints mentioned
the slow handling of all mail after it
reaches the post office at the point of de livery, and in the case of air mail it was
observed that transportation from the air port to the addressee even in the largest
cities frequentl y requires more time than
it takes to fly the mail 1,000 miles or more.
Bankers also criticized the adoption by post
offices of progressively earlier hours for
final deposit of outgoing mail.
The Federal Reserve Banks and branches
were asked to comment on the effects on Federal Reserve operations of changes in mail
and transportation service. Half of the Re serve offices reported no substantial effects
on their operations . Ten offices stated that
train service had deteriorated and hindered
their check operations, but two of these and
five others indicated that newly established
truck mail service had been beneficial . Two
offices reported that truck mail service had
not changed the situation appreciably , and
one office stated that train service had improved in its area . Three offices complained
of earlier closing hours for receipt of out going mail at post offices .
In the fall of 1953 , the committee consulted with representatives of the Post Office Department regarding the points men tioned above . The Post Office authorities
100
JOINT STUDY OF CHECK COLLECTION
pointed out that the railroads had reduced
sharply the number of nonprofitable passenge r trains, which in many communities were
the only means by which mail was received.
They noted that specially designed highway
post office vehicles, star routes and truck
routes had been employed to serve these communities and in most instances were doing a
good job. They also indicated that continued study and vigorous attention were being
given to the elimination of delays _in handling mail, including handling at airports,
and expected this situation would improve.
One banker suggested that the Post Office establish a special class of mail to
receive preferred handling (particularly
between airports and addressees' lock boxes)
at a premium rate of postage. The committee
regards this suggestion with favor and has
communicated it to the Post Office Department.
E.
Depositors' Practices-
There are certain practices of depositors which may affect check operations in
the banks in which they carry their accounts.
The purpose of this section is to call atterr
tion to arrangements which some banks have
found helpful. Any modifications of current
practices would have to be initiated by individual banks and worked out with their depositors.
1.
Staggered Payrolls and Cycle Billing
One of the problems in check handling
operations is fluctuating work load. The
survey showed that at all banks work load on
a peak day in July, 1952, was between 35 and
45 per cent higher than the load on an average day in that month. In general, these
peaks were more pronounced in larger banks
than they were in smaller banks.
Fluctuations are caused in considerable
measure by recurring periodic payments, such
as wage payments or payments of obligations
falling due at a particular time each month.
Banks having depositors who draw large numbers of checks periodically (large employers,
for example), or who deposit large numbers
of checks for collection periodically (public utilities or department stores;~or example), may be able to work out arrangements
with such depositors to reduce fluctuations
of work load in the check operations of such
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Federal Reserve Bank of St. Louis
' banks. Large employers may be willing to
adopt staggered payrolls. Depositors such
as utilities, department stores and others
which send out large numbers of monthly bills
may be persuaded to adopt cycle billing practices. Such changes may result in operating
economies not only for the bank but for the
depositors as well.
2.
Checks Deposited in Packages
In the case of a depositor who receives
large numbers of checks in the course of
business, the depositor and the bank sometimes work out an arrangement under which
the depositor packages and lists items which
are to be deposited. The depositor endorses
the items with its own endorsement and with
that of the bank, and separates and lists
items as required by the bank. The bank receives the packages intact and forwards them
to its correspondent bank or Federal Reserve
Bank without rehandling the items .
In any such case, the depositor should
not be permitted to include in the package
items drawn on local banks or items which
the local bank might collect through a regional clearing arrangement or by sending
directly to drawee banks.
F. Number of Cash Letters Sent and Received
The committee's survey included data
regarding the number of cash letters sent
and received daily by country banks. The
number of cash letters sent daily -- particularly by the smaller country banks -- is
interesting s1nce it gives some indication
of the extent to which banks sort checks.
The number of cash letters received daily
has a bearing on the number of different
remittances drawee banks must make .
Table XX shows that less than 20 per
cent of country banks sent only one cash
letter daily; about half of the country
banks sent between two and five, the average being a little more than three;and nearl y 20 per cent sent between six and ten letters daily. The pattern for banks with less
than $25 million in deposits was roughly the
same. Bearing in mind that only 21 per cent
of banks with deposits of less than $25 million sent items to Federal Reserve offices,
the fact that eight out of every ten country
banks of that size sent more than one cash
letter daily indicates that most of these
banks do some sorting of checks .
101
MISCELLANEOUS SUBJECTS STU DIED
Table XX
Number of Cash Letters Sent and Received Daily by Country Banks*
Sendings
Number
of Cash
Letters
Average
Number
Per Cent of
all Country
Banks
1.0
3 .2
7.6
14.9
15.of,,
46 .5
19 .6
8.3
More than
25
64 .4
Total
11.2
1
5
2 -
6 - 10
11 - 25
*
if-*
Recei12ts
Per Cent of
all Country
Banks under
$25 Million
Depositsif-*
Average
Number
18.~
52 . 1
19.8
6.1
1.0
3.2
7.5
15.0
10.6
3.8
45 .7
100.0%
100.CJ/o
8.6
Per Cent of
all Country
Banks
17~3%
48 .2
17.2
7.6
-2.:.1
100.CY{o
Per Cent of
all Country
Banks under
$25 Million
Depositsif-*
20.6%
54.8
16.2
5.6
2.8
100 . of,,
Based on figures for an average day in July, 1952.
As of June 30, 1952.
The pattern of receipts of cash letters
is much the same as the pattern of sendings,
and indicates that a substantial proportion
of country banks with deposits of less than
$25 million received more than one cash letter da ily . The committee was informed that
smaller banks prefer to receive a single
cash letter in order to simplify handling
remittances and return items. To the extent
that a country bank receives cash letters
from more than one Federal Reserve office,a
single remittance may be made for all such
letters; if cash letters are received from
more than one correspondent bank, separate
remittances are required.
G. Lost Items, Microfilming and Insurance
The number of checks lost in the process of collection is almost microscopic in
relation to the total number of checks written, and is an even smaller proportion of
total check handlings. Between 50,000 and
60,000 checks were lost during the year 1952.
Most of these were involved in losses of entire cash letters, which were destroyed by
fire, cut up by train wheels, or lost in
other accidents . Some individual items v.ere
al so lost. Reconstructing entire cash letters, or tracing individual lost items, and
obtaining checks to replace those lost, is
a troublesome and expensive operation for
banks.
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Federal Reserve Bank of St. Louis
Most country banks microfilm some of
the checks they handle, in order to keep a
record for themselves and their depositors.
The survey showed that about 9 out of every
10 country banks filmed some check~ in total
about 65 per cent of all checks they handled.More than half the country banks filmed
items drawn on them, and about the same proportion filmed checks which they cashed. Almost all country banks filmed some transit
items; relatively few filmed local items.
The survey showed that about one country bank in five carried insurance protecting it against financial loss arising from
the loss of checks in transit. Supplementary
information obtained in the study indicates
that such insurance generally takes one of
two forms.
One type of policy protects against
monetary loss resulting from loss, theft,
destruction or disappearance of any items
enclosed in a cash letter in transit during
the course of collection; and also against
loss of cancelled checks after being ~harged
to a customer's account and dispatched to
the customer. The policy contains a stated
limit of coverage in dollar amount, and the
premium is based upon the average daily dollar amount of checks sent for collection. A
reduction of 50 per cent in the amount of
102
JOINT STUDY OF CHECK COLLECTION
the premium is allowed if the insured bank
a grees to maintain photographic or manual
records of transit items; otherwise no record keeping is required and, in fact, the
policy is offered on the basis that the cost
of the full premium is less than the cost of
keeping records. Insurance coverage of this
type is apparently carried primarily by
smaller banks. Larger banks handling very
high daily dollar amounts of transit items
regard the premiums as disproportionate to
the risk involved.
Another form of insurance a gainst
losses arising from the loss of checks and
cash letters in transit is c onfined to losses
occurring while the items a r e in the possession of a specific carrier. At the present
time, this form of insurance is used principally to cover checks while in the course of
transportation by contract motor carrier. As
a rule the insurance covers the sending bank
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Federal Reserve Bank of St. Louis
against loss or destruction of a cash letter
and its contents while in the possession of
the carrier, and will pay in the event of
such a loss -1.
Reasonable costs of reconstructing the letter and its
contents;
2.
Any loss of interest actually
sustained by use of funds to
maintain cash position during the period of reconstruction; and
3.
The face va lue of any items
which cannot be traced.
Such a policy generally provide s for an
over-all limit of liability arising out of
any one loss.
CHAPTER
VI
SUGGESTIONS FOR PUTTING RECOMMENDED PROGRAM INTO EFFECT
The completion of the study and the
filing of this report, with its findings
and recomri....!ndations for changes in current
methods considere d necessary to improve the
speed and efficiency of check collections ,
represent the beginning , rather than the
end, of the principal task . The recommenda tions if adopted by the sponsoring groups
will not be self - executing . If any benefit
is to be derived from the work that has been
done, banker s generally must be persuaded to
adopt the changes in methods which the report recommends. This will involve fundamentally an educational process: a banker,
in order to be willing to adopt a change in
methods, must be convinced that the change
will benefit h i s bank and its depositors .
To secure gener al adoption of the committee's recommendations, therefore , will r equire a concerted and continuing organized
effort. Following are the comrni ttee ' s views
as to how tha t r esult may be achieved.
As a second step , the sponsoring groups
(this and subsequent references to "sponsoring groups" will be unders tood to include
NABAC if it agrees to cooperate) should cre ate a standing joint committee , composed of
one or two representatives from each group ,
which would be charged with the over-all direction and coordination of a national program t o secure general adoption of the recommendations. The committee has in mind
that re~resentatives on such a standing joint
committee might be drawn in the case of the
ABA from its Bank Management Commission, in
the case of the Reserve City Association
from its Committee on Correspondent Bank Re lations, in the case of NABAC from its Oper ations Commission, and in the case of the
Federal Reserve from the Subcommittee on
Collections of the Conference of Presidents .
It is also suggested that staff members of
the ABA assigned to the Bank Management Commission and the State Association Section
might be affiliated with the committee .
Some of the committee's recommendations
ar e directed to specific organizations or
groups . Compliance with those r ecommendations presents the least problem, since the
re commendations may be transmitted directly
for consideration by the organizations or
groups concerned. Most of t he recommendations concerning changes in curre nt check
collection methods (Chapte r IV), however,
are directed to banks generally, and it is
the program embodied in these re commendations that will require the most attent ion .
As a third step , the standing joint
committee should appoint a committee in each
Federal Reserve district. Each district committee would be composed of one representative from each sponsori ng group, and its
primary function would be to r epresent the
national committee at the di strict level,
and to provide liaison, guidance and coordination to state committees within the district.
As a fourth step , through the State
Assoc i ation Section of the ABA, the Secretary of each State Asso c iation should be
reque sted to form a state committee composed
of members of the State As soc iation, without
any par ticular regard for affiliation wi th
one of the s ponsoring groups. Preferably
such men shoul d have had some experience on
a committee on bank operations , or the like ,
within the State Assoc iation. Each state
committee would re ce ive guidance from the
appropriate di strict committee . The respons ibility of the state committee would be to
In view of the nature of the organi zation and the activities of the National Association of Bank Auditors and Comptrollers,
it appears that the support of the Association would be of considerable assistance to
the three original sponsoring groups in se curi.ng general adoption of the recommenda tions. As a first step , therefore , an effor t should be made by the three sponsor ing
groups to obtain the cooperation and assist ance of the National Association of Bank
Auditors and Comptroller s.
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Federal Reserve Bank of St. Louis
103
104
JOINT STUDY OF CHECK COLLECTION
see that the program and its benefits are
presented and discussed at county and group
levels, with particular reference to presentations at operations clinics, seminars and
panel discussions. To assist the state committees in this respect, the respective district committees should be in a position to
furnish speakers or discussion leaders.
The results of the study and the principal recoID.IIEndations contained in the report should be given the broadest possible
publicity in banking and other financial
publications. Articles on specific portions
of the report--for example, articles on
clearing house operations, or on regional
clearing arrangements--should be featured.
The form of pyramidal organization
recommended is regarded as very important.
The way to obtain adoption of the recommended check collection methods is by direc t approach to the individual banker, but
proper guidance and coordination from the
top are essential.
Finally, at the various graduate banking schools of the country, lectures describing the recommendations offered and
the advantages to be obtained by their adoption should be presented. In addition, serious consideration should be given to the
inclusion in courses on bank operations of
more detailed material regarding methods
and patterns of check collections, with
particular reference to the recommendations
made in this report.
Having established an organization such
as that recommended, there would remain an
extensive program of publicity and banker
education to be carried out.
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Federal Reserve Bank of St. Louis
APPENDIX A
Sampling Process and Coverage, Methods of Estimate,
and Reconciliation of Commercial Bank and Federal Reserve Data
balance consisted of a random selection from
the strata of states and two size classes.
The basic data on check volume and flow,
together with certain collateral information
used in the report, was obtained mainly from
three major surveys conducted for the committee. Questionnaires were sent to all
Federal Reserve Banks and branches, to all
banks which had members of the Association
of Reserve City Bankers, and to a sample of
members of The American Bankers Association.
Copies of the three questionnaires will be
found at the end of this appendix.
As noted, 598 usable returns were recei~ed, 269 coming from banks with deposits
of less than $7-5 million and 329 from banks
with deposits of $7.5 million or more. This
effective sample re presented approximately a
55 per cent response to the survey on the
part of A.B.A. member banks.
Also as noted, 172 responses were received to the questionnaire sent out to
banks with members in the Association of
Reserve City Bankers. The total number of
banks sent questionnaires was 206 and the
return represented 85 per cent of the number sent questionnaires.
All of the Federal Reserve Banks and
branches returned completed questionnaires.
Usable returns were received from 172 banks
which had members in the Association of Reserve City Bankers and 598 usable re t urns
were received from members of The American
Bankers Association. The comm=rcial banks
which responded to the survey requests held
deposits on June 30, 1952 aggregating to 52
per cent of all commercial bank deposits in
the United States.
Characteristics of the Sample Used
Selection of the Sample
Sent Questionnaires
Since questionnaires were sent to all
Federal Reserve Banks and branches and to
all banks with members of the Association
of Reserve City Bankers, sample selection
was confined to banks with membership in
The American Bankers Association. Forcertain purposes of r ecords and ad.ministration ,
the Bank Management Commission of The American Bankers Association divides its membe r
banks into two deposit size classes : banks
with less than $7-5 million in deposits and
banks with $7-5 million or more in deposits .
In selecting t he sample of A.B.A. member
banks to be sent questionnaires, the Bank
Management Commission staff, with the advice
of the committee, selected a sample of approximately 1,100 banks , distributed in pro portion to each state's share of the national total number of banks in the two size
classes. Roughly one-fifth of the sample
consisted of banks with operating men who
make up the "Key Banker" list for testing
certain proposals advanced by the Bank Management Commission from time to time. The
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Federal Reserve Bank of St. Louis
105
Tables A and B present data showing
the number and amount of total de posits of
all bank s in the United States, all Reserve
City banks and all country banks as of June
30, 1952, by size class and by Federal Reserve district. The tables also show similar data for banks included in the effective
sample , i.e., those t hat returned usable
completed questionnaires.
As can be seen , the percentage of coverage wa s very high for the very large banks
and diminished as size class of bank declined. Of all Reserve City banks, those
returning usable completed questionnaires
held total deposits amounting to 83 per cent
of all de posits held by banks of this type. 1
Of all country banks with deposits of $7.5
million or more, banks responding to the
survey held 23 per cent of total deposits
held by all banks in this size class. Small
country banks inc luded in the survey represented those holding 3.4 per cent of the deposits of all such banks.
1. It should be noted that some Reserve City
banks which operate branch systems did not report on
check volume at all offices. In such cases, however,
the deposit figures included in the sample represent
only the deposits of the offic es covered in the ques tionnaire.
106
JOINT STUDY OF CHECK COLLECTION
Table A
Number and Total Deposits of Commercial Banks in the United States
June 30, 1952
By Size Class and Reserve Status
(De pos its in milli-0ns)
Deposit
S~ze
Class
$500 million
and over
$100 - $499-9
million
$25 - $99-9
million
$7- 5 - $24.9
million
Less than
$7. 5 million
Total
All Commercial
Bank s
No.
De:12osits
All Banks
Reserve City
Banks*
No.
Depos its
Sample Banks
Reserve City
Banks*
Country Banks
Country Banks
No.
37
$ 53,861
37
$53,861
170
34,512
116
25,621
54
511
23,310
130
6 ,936
1, 802
22,95 8
72
11,486
14,006
27,706
$162 , 347
355
Deposits
No.
Deposits
No.
Deposits
Sample as 'fo of
Total Deposits
Reserve
~
Country
36
$49,711
92 . 3%,
$ 8 , 891
87
20,139
20
$ 3,269
78 . 6
381
16,374
42
2,759
94
4,424
40.4
1,194
1,730
21,764
7
143
215
3,074
12.0
$87,612
11,486
13, 651
27,706
$74,735
172
$72,752
269
598
~
$11,709
14.1
Include s Central Reserve City banks.
Aver age .
Note: The number and deposits of Reserve City and country banks shown here are slightly different from actual figures as of June 30 , 1952 . The committee' s sample of Reserve City banks re al ly was a sample of members of the Assoc iation of Reserve City Bankers. Some cities formerly classified as Reserve Cit ies subsequently were reclassified as nonReserve Cities, but certain banks in these c ities continued to be members of the Association of Reserve City Bankers.
Five s uch banks with de posits of $419 million were included in the survey. Their figures were added to actual Reserve
City universe figures and subtr acted from country bank universe figures for the purposes of this study. Thus both universe and sample shown for Reserve City banks conta in some banks whi ch formerly had Reserve City status but now are country banks and the universe and sample for country banks as shown are slightly smaller than actual records would indicate.
*
#
Table B
Deposits of Commercial Banks in the United States, June 30, 1952
By Federal Reserve District
(In millions of dollars)
Federal
Reserve
Di strict
1. Boston
2. New York
3. Philadelphi a
4. Cleveland
5. Ri chmond
6. Atlanta
7. Chicago
8 . St. Louis
9. Minneapolis
10. Kansas City
11. Dallas
12. San Franc isco
Total
* Average.
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Federal Reserve Bank of St. Louis
All
Commercial
Banks
$ 7,642
38,840
8,570
13,047
8 ,775
8,948
26 , 585
7,469
5,179
8,391
8 ,476
20,425
$162,347
De;eosits of All Banks
Country
Banks with
deposits of
Reserve
City
$7. 5 million
or more
-Banks
-$ 2,394
$ 4,214
28,033
8 ,971
2,855
3,768
6,968
3,638
3,060
3,636
3,051
3,731
14,241
7,454
2,668
2,096
1,321
1,445
1,700
3,777
2,647
3,599
15,645
3 ,729
$87 , 612
$47,029
Country
Banks with
deposits of
less than
$7.5 million
$ 1,034
1,836
1,947
2,441
2,079
2,166
4,890
2,705
2,413
2,914
2,230
~
$27,706
De:12osits of SamEle Banks as '};_ of All Banks
Country
Country
Banks with
Banks with
Reserve
de pos its of
deposits
City
$7. 5 million of less than
or more
$7-5 million
-Banks
-88 .21,
4.81,
39.3%,
97 .2
16.3
3.2
63.2
24.1
2.5
90.6
19.4
3.2
30.2
4.1
54.9
80 .0
26.6
3.1
81.0
21.1
3.2
11.4
75.4
3 .7
83.9
17.7
5.1
24.4
63 . 8
3.6
76.0
11.3
1.9
72.6
31.1
~
( 83 .21,)*
(22.91,)*
(3.41,)*
107
APPE~DIX A
As may be observed from examination of
Table B, the samples were reasonably consistent among the Federal Reserve districts.
Philadelphia, Richmond and Kansas City were
somewhat under-represented in the case of
the Reserve City banks; st. Louis and Dallas
in the case of country banks with deposits
of $7.5 million or more; and Dallas in the
case of small country banks. On the whole,
however, the response to the survey, both
in terms of size class and Federal Reserve
district, was extremely good.
and 5 were nonmember nonpar banks. Deposits
of all nonmember banks represent about onesixth of total commercial bank deposits in
the United States and about 30 per cent of
all country bank deposits. In the sample,
nonmember bank deposits represent 6 to 7
per cent of all country bank deposits. Nonpar bank deposits represent only 1 per cent
of total commercial bank deposits in the
United States (about 2 per cent of all country bank deposits); in the sample the deposits of such banks were only a fraction
of total deposits.
Federal Reserve Member and
Nonmember Banks in the Sample
Examination of the patterns of check
volume, sources and receipts indicates that
additional representation of nonmember banks
would have had little effect on the figures
used by the committee in its study. The
following table shows such patterns for all
country member banks and all country nonmember banks (including the nonpar banks) included in the sample.
Most of the banks responding to the
survey were members of the Federal Reserve
System. Of the total of 598 A.B.A. member
banks sending in usable completed questionnaires, 532 were members of the Federal Reserve System; 59 were nonmember par banks;
Table C
Patterns of Check Volume, Sources and Dispositions,
Sample Member and Nonmember Banks (including Nonpar Banks)
(As of an average day in July 1952 )
Member Banks
Nonmember Banks
Total Check Volume
Items paid
Items on other local banks
Intradistrict par items
Interdistrict par items
Nonpar and restricted items
100.0%
100.0%
49.9
51.0
2.2
18.4
9.8
3.3
Total Sources of Check Volume
Clearings
Federal Reserve
Other banks
Other deposits
Cashed checks
100.0'fo
100.a,i
16.1
16.7
17 .o
47.6
8.7
11.8
42 .7
10.8
Total Disposition of Check Volume
Debits
Clearings (or messenger)
Federal Reserve
Correspondents
Miscellaneous
100.oi
100.0;i
49.8
16.9
14.6
15.8
2.9
50.2
16.7
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Federal Reserve Bank of St. Louis
l7 .4
21.8
8.7
10.9
17 .5
17 .7
1.0
29.7
2.4
108
JOINT STUDY OF CHECK COLLECTION
With one significant exception, the
patterns are strikingly similar. The similarities are even more striking when it is
noted that both samples contain banks of
all sizes, but nonmember banks in the sample
average just about half the deposit size of
member banks in the sample, $10 million as
against $20 million. Generally nonmember
banks are concentrated in the smaller deposit size classes.
The significant exception, of course,
is in proportions of items sent directly to
Federal Reserve Banks. Since nonmember banks
generally are not permitted to send i terns directly to Federal Reserve Banks, only 1 per
cent of their volume was sent there in contrast to 14 per cent for member banks. It
is noteworthy, however, that the proportion
of total volume going to Federal Reserve
and correspondent banks combined was virtually the same for both member and nonmember
banks. Equally noteworthy is the fact that
nonmember banks actually received a slightly
higher proportion of the total number of
checks they handled in Federal Reserve cash
letters than did member banks. These facts
underline important points brought out in
the text on findings and on reco:tmn=ndations.
The sample of country banks (member and
nonmember banks combined) shows about 14 per
cent of total items handled going directly
to the Federal Reserve Banks. Assuming that
the nonmember banks in the sample are representative of all nonmember banks, representation of nonmember banks in the sample proportionate to their representation in the
universe would show only 11 per cent of total handlings of country banks as going directly to Federal Reserve Bgnks. Therefore,
the committee's figures for all country
banks, derived from the sample, probably
overstate slightly sendings to Federal Reserve Banks. It should be remembered, however, that the bulk of items sent to Federal
Reserve Banks come from Reserve City banks
so that such overstatement of sendings to
Federal Reserve Banks by country banks has
little effect on the figures covering all
banks. Actually, the committee's estimate
of total sendings by commercial banks to
Federal Reserve Banks is slightly smaller
than the figures reported by all Federal
Reserve offices as to number of items received from commercial banks.
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Federal Reserve Bank of St. Louis
The net conclusion, then, is that
under-re presentation of nonmember banks in
the sample creates no significant bias, and
that the figures derived from the sample
are adequately representative of figures
for the universe.
No significant comparisons on a si.milar
scale may be made with respect to nonpar,
nonmember par, and member banks, because of
the small number of nonpar banks in the sample. Since nonpar banks hold only 1 per
cent of total deposits and since nonpar items
comprise only 1.5 per cent of all items, however , either over- or under-representation of
nonpar banks would have virtually no effect
on total figures used, or on patterns of volume, sources and disposition.
Method of Estimating Totals for
All Ballfs from sample Figures
To obtain estimates of total figures on
check volu~ from the sample figures, the
sample was blown up on the basis of the proportion of its deposits to total deposits.
The relationship between the number of checks
handled and the amount of deposits at banks
of different sizes probably is not quite as
close as the relationship between the dollar
amount of checks so handled and the amount
of deposits. Nevertheless, tests indicated
that the relationship is sufficiently close
so that the blow-up of check volume figures
using proportions of sample to total deposits produces reliable results.
In blowing up the sample figures, totals were obtained by: (1) blowing up nationally by size class for Reserve City
banks and for all country banks (the size
classes used were those shown in Table A),
and (2) blowing up by Federal Reserve district for all Reserve City banks, for country banks with $7-5 million or more in deposits and for country banks with less than
$7. 5 million in deposits. The totals reached
by the two processes were in very close
agree~nt, further indicating close correlation between deposit size and check volume.
The totals obtained from the second process
differed from those obtained from the first
process by about 1 or 2 per cent. The national totals that were used were those obtained from the size class blow-up, andth::>se
obtained by the district blow-up were adjusted to conform.
109
APPENDIX A
Methods of Estimating Figures on
Sources and Disposition by Type of Item
The questionnaires sent out for the
committee did not ask for, and consequently
the data reported in them did not produce,
a complete cross-classification of sources
and disposition of items handled.2 The Reserve City banks reported check volume by
type of i tern handled ("on us", on local
banks, intradistrict and interdistrict par-,
nonpar and restricted) and by type of disposition (to debits, to Federal Reserve,
direct to drawee bank, to correspondents,
to clearings, etc.). They gave no detail
as to sources. A.B.A. banks reported total
volume by (1) type of item, (2) by source,
and (3) by disposition. Federal Reserve
Banks and branches reported total volume
(except items they paid) by type of item
and subclassified by source. Consequently,
to obtain the figures shown in many of the
tables it was necessary to make certain
estimates.
Sources of Items at Reserve
City Banks
New items entering the check
collection network daily come from
two primary sources: deposits of
customers other than banks and
checks cashed at the window. The
number of new items entering daily
is about equal to the number of
old items paid and leaving. (This
would be particularly true in the
case of the data reported in the
surveys which applied to an average day in July, 1952.) Information was available from the surveys on items paid by Reserve City,
country and Federal Reserve Banks.
In:formation also was available on
volume received by country banks
from nonbank deposits and cashed
checks. It follows that the combined total of items received from
2. Were the committee to resurvey check volume,
sources, and receipts, it would seek a more complete
cross-classification and also attempt to get a more
detailed breakdown of types of checks (local, out-oftown, etc.). This observation comes with the benefit
of hindsight with respect t o the committee's recommendations, however; without t he data obtained in the
surveys which aided the committee in formulating its
recommendations, it is at best questionable as to
whether the need for the addi t ional detail now t hought
desirable could be seen.
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Federal Reserve Bank of St. Louis
nonbank deposits and cashed checks
at Reserve City banks could be derived. In:forma.tion was available
from the surveys on the proportion
of total items received at country
banks as cashed checks, on volume
received at country banks from
Federal Reserve offices, and on
volume sent all banks by Federal
Reserve Banks. Thus three sources
of items for Reserve City banks
(nonbank deposits, cashed checks,
and Federal Reserve) could be estimated with reasonable certainty.
The Reserve City bank data gave
in:formation on number of items sent
to clearings which should approximate number· of items so received.
Cash letters from banks as a
source therefore could be derived as a residual.
Distribution of Sources of Items
by Type of Item for Reserve City
and Country Banks
The basic considerations underlying the estimating procedure were
these:
1. Items coming from clearings and from Federal Reserve
offices were "on us" items.
2. A spot survey of some
200 banks in five Reserve districts (conducted subsequent
to the major survey) produced
distribution patterns, by type
of item received for payment
or collection, for cashed checks
and cash letters from other
banks, for banks of the various
size classes. These patterns
were used to distribute items
coming from these two sources
by type of item.
3. Nonbank de posits then
were distributed as a residual.
Distribution of Disposition
of Items by Type of Item
As noted the Reserve City
banks reported this data, and thus
the need for estimating was confined to A.B.A. bank data. Actu-
110
JOINT STUDY OF CHECK COLLECTION
ally the A.B .A. bank data on disposition was reported in such detail that estimates by type of
item were obtained fairly easily.
For example, checks debited to accounts on own books obviously were
"on us" items; checks going to
clearings were local items, checks
going to Federal Reserve offices
outside the district of the collecting bank were interdistrict
par items. The A.B.A. banks reported specifically on intradistrict and interdistrict par items
going to correspondents, and on
nonpar items going to correspondents or direct to drawee banks.
They also reported on volume going to country, county or group
clearings (intradistrict items).
Thus estimating of disposition
was confined mainly to distributing items going to local Federal Reserve offices and to miscellaneous channels. The latter
were distributed (as accompanying
comments indicated they should be)
among local items, nonpar items
going direct to drawee banks,
items payable at Federal Reserve
Banks, and to balance minor discrepancies between "items paid"
and "items debited". Items going to local Federal Reserve
Banks were distributed as residuals to balance the totals shown
for intradistrict and interdistrict par items.
All of the above-noted estimating processes were carried on for each size class of
bank shown. The resulting figures seemed to
be quite consistent internally and checked
out with reasonable accuracy in computing
"flow" patterns and in comparison with data
reported by Federal Reserve Banks and branches.
Reconciliation of Commercial
Bank ~nd Federal Reserve Survey
Data on Volume Sent to and Re ceived from Federal Reserve Banks
Estimates as to sendings to and re ceipts from Federal Reserve Banks by com-
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Federal Reserve Bank of St. Louis
mercial banks on an average day in July,
1952 did not agree completely with data actually reported by the Federal Reserve Banks
and branches as of the same time. In large
part the discrepancy seemed to reflect two
factors: (1) commercial bank reporting
which either (a) left out of account postal
money orders and Treasury checks in counting items, or (b) included such items in
the disposition category "other" or "miscel laneous"; and (2) differences in ways a sending bank and a receiving bank might classify
a particular item and its disposition. For
example, commercial banks receiving items
through the clearings from Federal Reserve
Banks would classify such items as coming
from clearings and Federal Reserve Banks
would classify them as going to cleari ngs .
But a bank partici pating in the package
check exc hanges operated by the New York
and St. Louis Banks might classify such
items as going to (a) clearings, (b) Federal Reserve, or (c) miscellaneous, and on
the receiving side similar choice might be
exercised. Also Federal Reserve Banks would
count a package of items, handled as such,
as one i tern; the sending bank would count it
as the sum of the items it contained . Finally,while all items payable at or through
Federal Reserve Banks should be classed ei ther as local or intr adistrict items , a bank
sending such items to an interdistrict correspondent probably classed them as interdistrict . These examples are taken from
some of the explanations attached to commercial bank completed questionnaires .
Reconciliation of Federal Reserve and
commercial bank figures requires , therefore,
allowance for such factors as are noted
above . It also requires certain subtrac tions from Federal Reserve figures as shown
in Table IV of Chapter III . There, the Re serve Banks are shown as handling 11,552,000
items on an average day in July 1952 . From
this total must be subtracted (1) items received from other Federal Reserve offices,
since they presumably had been counted previously in commercial bank sendings to Federal Reserve Banks, and (2) postal money
orders coming to the Reserve Banks from the
Post Office rather than from commercial
banks. With these adjustments Federal Re serve volume on an average day in July 1952
was:
111
APPENDIX A
Total
From
Banks
From
Other
I tems paid
2 , 849 ,000
2,719,000
130,000
Immed i ate credit
2,702,000
2,461,000
241,000
Intradistrict
5,423,000
5,043,000
380,000
Inter distri ct
578 ,000
578,000
---
11,552,000
10,801,000
751,000
Total
The commercial banks show as going to
Federal Reserve Banks:
From Reserve Ci t y banks
7,034,000
From Country banks
2,972,000
Total
10,006,000
The discrepancy of 795,000 items probably re presents about half and half underre porting by commercial banks and reporting
dis position to "miscellaneous" or "messenger"
instead of to Federal Reserve.
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Federal Reserve Bank of St. Louis
On the other side of the picture (Federal Reserve sendings and commercial bank
receipts) the discrepancy is much smaller.
Here, from total Federal Reserve volume handled must be eliminated items paid, those
going to clearings and those going on to
other Federal Reserve offices. Thus:
Total
To Other
To Banks
Items paid
2,849,000
Immediate credit
2 ,702 , 000
506,000
Intradi strict
5,423,000
5 , 423 ,000
Interdi s tri ct
578,000
30 , 000
548, 000
11,552,000
5,959 ,000
5,.593,000
Total
2,849,000
2,196,000
Commercial bank figures show as coming
from Federal Reserve Banks:
To Country banks
To Reserve City bank s
Total
5 ,363 , 000
58o,ooo
5,943,000
(estimated)
112
JOINT STUDY OF CHECK COLLECTION
CONFIDENTIAL SURVEY OF THE CHECK COLLECTION SYSTEM
Sponsored jointly by the
AMERICAN BANKERS ASSOCIATION
ASSOCIATION OF RESERVE CITY BANKERS
FEDERAL RESERVE SYSTEM
General Instructions
1. Please read entire questionnaire carefully before answering any questions.
2. ln answering questions involving volume of operations, rounded figures will
be sufficient.
3. Please assemble the volume information Tequested on a day in the month
of July when your check operation is typical of an average day in that
month.
4. ln answering any of the questions, and particularly those requesting desscriptive or explanatory replies, please feel free to write in detail on separate sheets which you may attach to this questionnair'e. We will be grateful
for any additional information or suggestions you may care to offer.
5. Please complete the questionnaire as soon as convenient and return in the
enclosed envelope to
Bank Management Commission
American Bankers Association
12 East 36 Street
New York 16, N. Y.
Name of Bank ____________________...ederal Reserve District No. _ _ _ __
City and State._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _Total Deposits _ _ _ _ _ _ _ __
(June 30, 1952)
By
- - - - - - - - - - - - - - - - - - - - - ~ a t e Completed _ _ _ _ _ _ _ __
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Federal Reserve Bank of St. Louis
Title
113
APPENDIX A
I. CHECK VOLUME (Average .number of checks handled daily by your bank)
Number
1. Local checks
(A) Checks drawn on your bank ... . ... ...... ..... .. .. ... .. ... ... . . .. . . . .. .. . ............. . ........ .
(B) Checks drawn on other banks in your city ........ .. ... . ... . .. ... . .. . .. .. ..... . .. ... .. ..... .
(C) Total local, checks handled daily (lines A plus B) .......................... . ...... . ... .
2. Out-of-Town Checks (Collectible at Par)
(D) Checks drawn on banks located in territory served by the Federal Reserve
Bank or Branch of your district ... . ............ ......... . ..... . ...... .. .... . ........ .. .... .. .
(E) Checks drawn on banks located in all other Federal Reserve Districts .... . ... . .. .
(F) Total "out-of-town" checks handled daily (lines D plus E) ... .................. . . .. . .
3. Nonpar checks and other restricted items handled by you on cash basis. (Items not
collectible through Federal Reserve Bank.)
(G) Nonpar checks collected through direct sendings tc, drawee banks ... . ... ...... . ... .
(H) Nonpar checks collected through correspondent banks .... .. . ... .......... .... .... .... .
(I) Other restricted items handled (items not collectible through the Federal
Reserve Banks other than nonpar checks) .. .. ..... .. . ............ . .... . ....... .. ...... ... .
( J) Total nonpar checks and other restricted items handled daily (lines G plus H
plus I) ..... . ... ........... ...... ........ ........ . ... . ...... . .. . ••·· •••••· •••· •••·· •· ·· · ••· •· · ·· · ·· ·· ·
(K) Total number of all checks, par and restricted items, handled daily (lines C
plus F plus J) ....................................................... ... ........ .. .... .......... .. .
(L) How much does your peak day volume exceed this average daily volume
(approximate) ... . . . . . . ... ..... ..... .. .. .... . ..... . ... ....... .. .. .. . . ....... _ _ _ _ _ _ %
4. Relationship of checks drawn on comparatively nearby points to par out-of-town
items handled. (Approximate per cent of par •out-of-town" checks - line F)
Checks drawn on banks located within a radius of
(M) 25 miles of your bank. . ... ... ........ .. ...... . ......... . .. . . .... .. .. . ... _ _ _ _ _ _ %
(N) More than 25 miles and less than 50 miles of your bank . ..... . - - - - - - - 1 %
(0) More than 50 miles and less than 100 miles of your bank ... . .. _______ %
(P) Over 100 miles .. .. . .. . . . . .. . .. . . . . . . . . .. . .. . .. . . .. ... ... . . . . .. . .. . . .. . . .. .
(Q) Total ... . .. .. .. ... . . . .. .. . .. .. .. .. . .. . . .. .. .... .. . .. . . ... ... . . .. . .. .. . . .. .. . .
%
100
%
5. Sources of all checks received (total should be equal to line K, above)
(a) Received through local clearing house .. ..... ... .. . . ... .. ... ... . . ... ..... .... .... .. . .... . . .
(b) Received from Federal Reserve Bank or Branch .. . .... . .. . . .... .. .. . ... .. .. ....... . ... . .
(c) Received from other banks .. .. .. . . .... . . .. ... . . .... . ... .... .. .. ..... ... . .. ......... . .. . .. .. .. .
( d) Received in all other deposits ...... .. . .. . . . .... . .. .. .... .. ... .... .. .. .. .. .. .. . .. . . . . . . .. ... .
(e) Cashed checks ... ... .. .. . .. . . . .. .. ... ... . .... ..... .... ... . ... . ....... ................. . .. . .. ... .. .
( f) Total (equals line K, above) . .. .. .... . .. . ....... . ..... ... .. ..... .. . . ...... .. ..... . .. .. .. ... . .
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Federal Reserve Bank of St. Louis
- 2 -
114
JOINT STUDY OF CHECK COLLECTION
Number
6. Disposition of all checks received. (Total should be equal to line K, page 2)
(g) Debited to accounts on your books ... ........ . ... . . .. .. ......... . .. ... .. .. .... .... ... . ... . .
(h) Collected through local clearing house ............ .. ...................... .. ...... ...... .
(i) Presented by messenger . ...... . . ................. ... ... .. . ..... . .... ... ...... .. . .. . . . . .. . ... .
(j) Collected through county clearing house ................................................ .
(k) Collected through country or group clearing house .................. . ......... .... .. ..
(1) Sent to Federal Reserve Bank or Branch of your district ............. ... ...... .. .. .. .
(m) •Sent to all other Federal Reserve Banks and Branches .... .. .......... .. .. .. .. .. .. ..
(n) Checks payable in your Federal Reserve Districts sent to correspondent banks
(o) Checks payable in all other Federal Reserve Districts sent to correspondent
banks .. . .. . .. . . .... ... ... . . .. .. ....... ... ......... . ......... .... . .. .... . ....... . .. ... .. .. ... . .. ... .
(p) Checks collected through all other channels .. .. .......... .. ................ .. ......... .
(q) Total [equals line K, page 2) ...... .. ................ .. .. .... .... .. ............. .... .. . .... .
II.
CASH LETTERS
7. Number of banks from which you receive a daily cash letter of checks
8. Number of banks to which you send a daily cash letter of checks ................. . .. .
III. RETURN ITEMS (endorsed or returned by out-of-town banks)
9. Average number of unpaid items returned to you daily
10. Average number of unpaid items returned by you daily
11. Approximate per cent of items returned by you
For the following Reason
For the following Amount
Endorsement
Insufficient Funds
Uncollected Funds
Wrong Bank
Signature
Other Reasons
Total
S 50 or less
S 50 - $100
------- %
_______ %
_______ %
_ _ _ _ _ _ _%
_______ %
_______ %
====l=O=O== %
-------%
_______ %
_______ %
_______ %
$100 - $500
Over $500
Total
====10=0=== %
IV. INTERNAL OPERATING PROCEDURES
12. Do you microfilm checks? . .... ... ..... .... ...... .. ..... .............. ...Yes
D
No
D
13. If yes, what percentage do you microfilm? .. .... ... .. .. .... ............................. .... .
14. Check class of items microfilmed
Own checks
Cashed checks
Clearing house checks
Transit checks
Special items
15. Approximate number of checks lost in transit in 1951
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Federal Reserve Bank of St. Louis
- 3 -
________ %
115
APPENDIX A
16. Do you carry special insurance for checks lost in transit? . .. .. ... . .. ....... . ....... ... .
YesO
No
0
O
No
D
17. Check method of forwarding checks to your principal correspondent or Federal
Reserve Bank or Branch.
Messenger
Regular Mail
Air Mail
V.
Air Express
Railway Express _ _ _ _ _ __
Truck Service
SPECIAL ARRANGEMENTS FOR PROCESSING AND PRESENTMENT OF CHECKS
18. Do you send checks direct to drawee banks for your credit at your Iiederal
Reserve Bank or correspondent bank? ... ...... . . . ..... .. ..... .. ..... ............... ........ . .
19. If so, indicate per cent of total checks handled (per cent of line K, page 2) .. . .. . ..
20. In order to avoid duplicate handling, do any of your bank or nonbank customers
bulk list checks to you so that they may be deposited for your credit by your
customer or by you in your Federal Reserve Bank or a correspondent bank? . ..... . .
Yes
-------- %
Yes
D
No
D
21. If so, indicate per cent of total checks handled (per cent of line K, page 2) ....... .
________%
22. Do you participate in any arrangement for clearing checks drawn on banks in
other towns in your immediate trade territory (other than through your correspondent or the Federal Reserve Bank or Branch of your district)? ...... .. .. . .... . ... .
Yes
D
No
D
23 . If so, please describe briefly in separate memorandum and attach to this questionnaire.
24. Please describe in separate memorandum any other special arrangements which you may follow for
processing or presenting checks.
VI. PLEASE INDICATE IN SEPARATE MEMORANDUM ANY
25. Specific problems you may have in mind regarding check collections in so far as your particular bank
is concerned.
26. Suggestions you may have for improving our check collection system generally.
WE SINCERELY APPRECIATE YOUR COOPERATION.
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Federal Reserve Bank of St. Louis
- 4-
116
JOINT STUDY OF CHECK COLLECTION
CONFIDENTIAL SURVEY OF THE CHECK COLLECTION SYSTEM
Sponsored jointly by the
AMERICAN BANKERS ASSOCIATION
ASSOCIATION OF RESERVE CITY BANKERS
FEDERAL RESERVE SYSTEM
General Instructions
1.
Please read entire questionnaire carefully before answering any questions.
2.
In answering questions involving volume of operations, rounded figures will be sufficient.
3.
Please assemble the volume information requested on a selected day in the month of
July when your check operation is typical of an average day (for the month). Volume
in each case refers to the number of items.
4.
In answering any of the questions, and particularly those requesting descriptive or
explanatory replies, please feel free to write in detail on separate sheets which you
may attach to this questionnaire. We will be grateful for any additional information
or suggestions you may care to offer.
5.
Please complete the questionnaire as soon as convenient and return in the enclosed
envelope to the:
Association of Reserve City Bankers
105 West Adams Street
Chicago 3, Illinois
Name of Ban.___ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _-4ederal Reserve District No. _ __ _ _
City and State_ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _Total Deposits _ _ _ _ _ _ _ __
(June 30, 1952)
By _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ ___Date Completed _ _ _ _ _ _ _ _ __
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Federal Reserve Bank of St. Louis
Title
117
APPENDIX A
Number
of Items
I. ITEMS DRAWN ON YOUR BANK
1. Items debited to customers' accounts
2. Cashier's checks, bank drafts, bank money orders, etc.
3. Payable through drafts handled as cash items
4. Total items drawn on your bank
II. LOCAL CHECKS
(A) Indicate number of items you handle daily, which are drawn on
other banks in your city, collected through
5. Local clearing arrangements
6. Federal Reserve Bank
7. Other procedures (Attach memo with explanation)
8. Total local checks handled daily
III. OUT-OF-TOWN ITEMS (COLLECTIBLE AT PAR)
(A) Indicate number of items drawn on banks in your Federal
Reserve District ( excluding local items), collected through
9.
10.
11.
12.
13.
Correspondent banks for credit or remittance
Direct sendings to drawee banks
Parent Federal Reserve Bank
Branch Federal Reserve Bank
Other procedures (Attach memo with explanation)
14. Total out-of-town items in your District
(B) Indicate number of items drawn on banks located in all other
Federal Reserve Districts, collected through
15.
16.
17.
18.
Correspondent banks for credit or remittance
Direct sendings to drawee banks
Federal Reserve Banks and Branches
Other procedures (Attach memo with explanation)
19. Total out-of-town items outside your District
20. Total all out-of-town items (Combine Lines 14 & 19)
21. Grand total all items ( Combine Lines 8 & 20)
22. How much does peak day volume in month exceed
Line 21 in same month?
----%
(C) Indicate how you collect items drawn on banks in a city where
you have an account with a correspondent bank and where there
is also a Federal Reserve Bank or Branch, collected through
23. Correspondent banks
24. Federal Reserve Bank or Branch
25. Total
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Federal Reserve Bank of St. Louis
Number
Cash Letters
ll8
JOINT STUDY OF CHECK COLLECTION
IV. NON-PAR AND OTHER RESTRICTED ITEMS HANDLED BY
YOU ON CASH BASIS (ITEMS NOT COLLECTIBLE
THROUGH FEDERAL RESERVE BANKS)
Number
Cash Letters
Number
of Items
(A) Non-par checks,
collected through
26. Direct sendings to drawee banks
27. Correspondent banks
28. Total non-par checks
(B) Other restricted items,
collected through
29. Direct sendings to drawee banks
30. Correspondent banks
31. Total restricted items
32. Grand total ( Combine Lines 28 and 31)
V. SUMMARY OF ALL LOCAL AND OUT-OF-TOWN ITEMS
33. Total number of all outgoing items processed
(Combine Lines 21 and 32)
34. Number of cash letters dispatched daily to banks
( Combine Lines 21 and 32)
VI. RETURN ITEMS (ITEMS INDORSED OR RETURNED BY
OUT-OF-TOWN BANKS ONLY)
35. Average number of unpaid items returned to you daily
36. Average number of unpaid items returned by you daily
37. Approximate per cent of items returned by you :
For the Following Reason
For the Following Amount
Indorsement
Insufficient Funds
Uncollected Funds
Wrong Bank
Signature
Other Reasons
---%
---%
---%
---%
---%
---%
$ 50 or less
$ 50 to $100
$100 to $500
Over $500
---%
---%
---%
---%
Total
===%
Total-
___ %
VII. MISCELLANEOUS
Please attach a separate memorandum indicating:
38. Whether you have any specific problems regarding check collections insofar as your particular
bank is concerned.
39. Whether you have any suggestions for improving the check collection system generally.
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Federal Reserve Bank of St. Louis
WE SINCERELY APPRECIATE YOUR COOPERATION
APPENDIX A
SURVEY OF FEDERAL RESERVE CHECK OPERATIONS
conducted by
Joint Committee on Check Collection System
General Instructions
1. In questions involving volume of operations please base your
answers on your average daily volume for the month of July, 1952. The month of
July is selected because comparable information for the same month is being obtained from commercial banks. All Federal Reserve Banks and branches will have
records from ~hich daily averages in volume of city and country items during
July may be obtained. It is recognized that some questions call for breakdown
of volume which may not be available in records of July operations; in such a
case, the breakdown of volume on a selected day in August may be ascertained
and the percentages applied to the daily average for July. In any instance
where specific information is not obtainable, please give the best approximation available. In all cases, rounded figures will be sufficient.
2. It is recognized that some of the banks or branches may find difficulty in answering categorically some of the questions calling for "yes" or
"no" answers. If such difficulty should exist, a qualifying statement may be
added in the space below the answer.
3. References to "member banks" should be regarded as including
"nonmember clearing banks".
4. In answering any of the questions, and particularly those requesting descriptive or explanatory replies, please feel free to write in detail on
separate sheets which you may attach to this questionnaire. Please identify
the question to which each such statement relates. The Committee will be grateful for any additional information or suggestions you may care to offer.
5. Disregard numbers appearing in parentheses in right-hand margin.
They will be used in tabulating the answers.
6.
Please complete the questionnaire and return it before September 1,
1952, to -
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Federal Reserve Bank of St. Louis
Mr. John H. Wurts, Chairman
Joint Committee
Federal Reserve
Federal Reserve
New York 45, N.
on Check Collection System
Bank of New York
P. 0. Station
Y.
119
120
JOINT STUDY OF CHECK COLLECTION
Fede~al Reserve Bank (or Branch) of
I.
--------------
(Date)
ITEMS FOR WHICH YOU GIVE IMMEDIATE CREDIT (EXCLUDING TREASURY CHECKS,
POSTAL MONEY ORDERS AND CHECKS DRAWN ON YOU).
A.
Indicate daily average number of such items received by you Number*
(1) From member banks in your district (including
direct sending banks in other territories of
your district)
(2) From other Federal Reserve offices of your
district
(3) From Federal Reserve Banks and Branches of
other districts
(4) From direct sending banks in other districts
*
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Federal Reserve Bank of St. Louis
(01)
(02)
(03)
(04)
If you conduct a package exchange of checks, count each package as one item.
If you are able to estimate the number of items handled in packages, please
add a supplementary note giving your estimate.
B.
Indicate your closing hour or hours (Monday through Friday) for
receiving such items for immediate credit on the same day Hour
(1) From member banks in your district
(2) From other Federal Reserve Banks and
Branches
(3) From direct sending member banks in other
districts
C.
(10)
(11)
(12)
Indicate whether you give immediate credit for all such items
received up to the hour or hours specified, regardless of your
ability or inability to present such items on the day of receipt YES
D
NOD
(13)
121
APPENDIX A
D.
Indicate whether you have any later closing hours for the receipt
of such items for immediate credit from country banks in your
district to compensate for inadequate or unsatisfactory transportation facilities; and, if so, the number of banks and approximate
daily average number of items involved YES
E.
0
NOD
Numbe r of banks
(14)
Number of items
(15)
Indicate the different methods by which you present such items to
the drawees, and the daily average number handled under each
method Number*
(1) Through City Clearing House Association
(2) Through special local clearing arrangement
(attach brief description of operation)
(3) Through other procedures (specify)
(16)
( 17)
(18)
(19)
(20)
*
If you conduct a package exchange of checks, count each package as one item.
If you are able to est imate the number of items handled in packages, please
add a supplementary note giving your estimate.
F.
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Federal Reserve Bank of St. Louis
Indicate the clearing hours for t he City Clearing House and for
any special local clearing arrangements -
122
JOINT STUDY OF CHECK COLLECTION
G.
Indicate whether you employ an evening or night force to process
such items; and, if so, the hours during which they work YES
0
NO
0
(21)
HOURS
H.
II.
What s0rts do you require of immediate credit items?
DEFERRED CREDIT ITEMS DRAWN ON BANKS IN YOUR TERRITORY.
A.
Indicate daily average number of such items received by you Number
(1) From member banks in your city
(30)
( 2) From other member banks in your district
(including direct sending banks in other
territories of your district)
(3) From other Federal Reserve offices of
your district
( 4) From Federal Reserve Banks and Branches
of other districts
( 5) From direct sending banks in other
districts
B.
(31)
(32)
(33)
(34)
Indicate your closing hour or hours (Monday through Friday) for
receiving such items in order that deferred availability of credit
therefor may be computed from the date of receipt Hour
(1) From member banks in your district
(2) From other Federal Reserve Banks and
Branches
(3) From direct sending member banks in other
districts
C.
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Federal Reserve Bank of St. Louis
(40)
(41)
( 42)
Indicate whether you compute availability of credit from the day
of receipt for all such items received up to the hour or hours
specified, regardless of your ability or inability to dispatch
such items on the day or receipt YES
0
NO
0
(43)
123
APPENDIX A
D.
Indicate whether you will accept such items in large amounts from
banks in your city at later hours; and, if so, the amount above
which you will accept items at later hours YES
0
NO
0
Amount$_ _ _ _ _ __
E.
( 44)
Indicate whether you have any arrangement for accepting such items
from banks in your city at later hours when the items have been
packaged for presentation to the respective drawee banks; and, if
so, give brief description of arrangement and estimate of average
number of items so handled daily YES
0
NOD
Number of i terns
F.
(45)
Indicate whether you employ an evening or night force to process
such items; and, if so, the hours during which they work YES
0
NO
0
(46)
HOURS
G.
What sorts do you require of intradistrict deferred credit items?
H.
Indicate, if you know, whether apart from special clearing arrangements any commercial banks in your territory regularly send
direct to the drawee (or to another commercial bank in the same
city or town in which the drawee is situated) items which the
Federal Reserve is willing to handle as cash items.
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Federal Reserve Bank of St. Louis
YES □
NO
0
(47)
124
JOINT STUDY OF CHECK COLLECTION
I.
Indicate whether you will handle items when they are drawn on
another office of the depositing bank YES
0
NO □
( 48)
If so, describe any conditions you may impose with respect to
your handling of the items -
III.
CASH ITEMS DRAWN ON BANKS IN OTHER FEDERAL RESERVE DISTRICTS OR ON BANKS IN
THE TERRITORIES OF OTHER FEDERAL RESERVE OFFICES OF YOUR DISTRICT.
A.
Indicate daily average number of such items received by you Number
(1) From member banks in your city (not including
(50)
items received for consolidated shipments)
(2) From other member banks in your district
B.
Indicate whether member banks of your territory regularly
items payable in the territories of other Federal Reserve
of your district direct to such other offices; if so, and
can give any estimate, indicate the approximate number of
forwarding items i n this manne r YES
0
(51)
send
offices
if you
banks
NO □
Number
(60)
(61)
(1) Member banks in your c i ty
(2) Other member banks in your territory
C.
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Federal Reserve Bank of St. Louis
Indicate number of member banks in your territory which frequently send such items direct to Federal Reserve Banks and
Branches of other districts Number
(1) Member banks i n your city
( 2 ) Other member banks in your territory
(70)
(71)
12 5
APPENDIX A
D.
When one of your member banks regularly has more than a certain
number of checks payable in the territory of a Federal Reserve Bank
or Branch of another district, it is assumed you will request the
member bank to send its items direct to such bank or branch; please
indicate the number of items upon which you base such a request.
Number
E.
Indicate whether you have arranged to consolidate in daily shipments
your items and those of your direct sending member banks; and, if so,
to how many Federal Reserve Banks and Branches such shipments are
made -
0
NO
Number
--------
YES
F.
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Federal Reserve Bank of St. Louis
( 82)
--------
Indicate whether you forward such items direct to the drawee banks
in the territories of other Federal Reserve offices of your district; and, if so, the number of banks -
0
NO
Number
--------
YES
H.
(81)
If you make such consolidated shipments indicate how many of your
member banks regularly participate Number
G.
0
0
Indicate whether you forward such items direct to the drawee banks
in other districts; and, if so, attach brief statement of the arrangement including the number of banks involved, the method of
remittance, the manner in which unpaid items are returned, etc.
YES □
NO
0
( 84)
126
JOINT STUDY OF CHECK COLLECTION
IV.
CLEARING HOUSES AND REGIONAL CLEARING ARRANGEMENTS.
(NOTE: "Clearing house" refers to a formal organization which provides
a mechanism for simultaneous exchange of checks among the members, with
settlements made on a net basis. "Regional clearing arrangement" refers
to a group of neighboring banks which by agreement send items (usually
by mail) directly to one another as drawees and report to the Federal
Reserve Bank for settlement on its books the totals of their respective
sendings.)
A.
Clearing Houses*
1.
Indicate how many active clearing houses in your territory
and the number of banks which actively participate a. Number of banks participating in clearing
house in your city
(85)
b. Number of clearing houses in other cities
in your territory
( 86)
c. Number of banks participating in clearing
houses in other cities
2.
Indicate how many clearing houses have arranged to settle on
your books balances resulting from such exchanges -
(88)
Number
3.
Indicate your estimate, if you are able to make one, of the
amount of checks cleared daily Amount
*
a. In your city clearing house
(90)
b. In clear i ng houses of other cities in
your territory
(91)
It is recognized that complete information may not be available regarding
clearing houses in other cities and volume and amount of items cleared.
Please give your best estimate.
B.
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Federal Reserve Bank of St. Louis
Regional Clearing Arrangements
1.
Do you actively encourage the development of regional clearing
arrangements?
YES □
NO □
(100)
127
APPENDIX A
2.
3.
4.
V.
Indicate how many such arrangements are active in your
territory and the number of banks which actively participate Number of clearing arrangements
(101)
Number of participating banks
(10 2)
Indicate your estimate, if you are able to make one, of the
number of checks handled in such arrangements daily and the
amount of total daily sendings Number
(103)
Amount
(104)
If there are any practical obstacles to the development of
s uch arrangements in your territory, please describe briefly -
GENERAL MATTERS
A.
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Federal Reserve Bank of St. Louis
Please give the number of member banks and their out-of-town branches
in your territory, classified as follows ~
1.
Number that regularly send checks to you for collection No . of
Branches
No. of
Banks
(a) Only immediate credit items
(excluding remittance and
transfer drafts)
(b) Only deferred credit items
(c) Both immediate and deferred
credit items
2.
(110)
(111)
(11 2)
(113)
( 114)
(11 5)
Number that occasionally send checks to you for collection No. of
Banks
(a) Only immediate credit items
(b) Only deferred credit items
(c) Both immediate and deferred
credit items
3.
No . of
Branches
(120)
(121)
(1 22 )
(1 23)
(1 24 )
(125)
Number that do not send any checks to you for colle c tion No. of
Banks
No. of
Branches
(130)
- - - (131)
128
JOINT STUDY OF CHECK COLLECTION
4.
Total number of banks and out-of-town branches in your
territory No. of
Banks
No. of
Branches
(132)
5-
---
Number of nonmember clearing banks and their out-of-town
branches in above totals No. of
Banks
No. of
Branches
(134)
B.
(133)
---
(135)
Please classify member banks in your territory as to total deposits
and their check sendings to you, as follows (NOTE ; A member bank with branches should be counted as one
bank in answering this question. Base your answer on the check
sending practice of the head office.)
Total
Deposits
as of 6-30-52
Less than
$7. 5 million
$7-5 to $25
million
Over $25
million
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Federal Reserve Bank of St. Louis
That l(a)
or 2(a)
(as in A)
No. of
Banks.
That l(b)
or 2(b)
That l(c)
or 2(c)
That
3
(136)
(137)
(138)
(139)
(140)
(141)
(142)
(143)
(144)
(145)
(146)
(147)
(148)
(149)
(150)
129
APPENDIX A
C.
In order to illustrate fluctuations in work load, please indicate
when the peaks of work load occur and the percentage volume of
checks received during such periods in relation to your average
volume based on a year's operations Volume of checks received as
percent of average monthly volume
Peak months
(i.e . January, July)
___ %
___ %
___ %
___ %
Volume of checks received as
percent of average weekly volume
Peak weeks
(i.e. 1st week, 3d week)
___ %
_ _ _ ·%
Volume of checks received as
percent of average daily volume
Peak days
(i.e. Tuesday, Wednesday)
___ %
___ %
D.
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Federal Reserve Bank of St. Louis
If you regularly process checks on Saturdays, please indicate -
(1) Whether Saturdays are bank holidays in your city YES
□
NO □
(151)
(2) Your hours of operation -
(3) Whether you regularly process and dispatch deferred
credit items (a) Payable in your territory
Process
YES
□
NO
□
(152)
Dispatch
YES
O
NO
□
(153)
130
JOINT STUDY OF CHECK COLLECTION
(b) Payable in other Federal Reserve Districts or in the
territories of other offices of your district
Process
YES
□
NO
Dispatch
YES
D
NO
□
□
(154)
(155)
(4) Whether you process and dispatch return items -
E.
Process
YES
Dispatch
YES
□
□
NO
NO
□
□
(156)
(157)
Please indicate the number of banking offices to which you regularly
send cash letters Number
F.
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Federal Reserve Bank of St. Louis
Member banks and branch offices
(158)
Nonmember banks and branch offices
(159)
Please indicate the approximate number of such banks and branches
which customarily use the forms of remittances specified below Number
1. Member banks and branches which authorize
cha rges to reserve accounts or remit by drafts
on such accounts
(160)
2 . Banks and branches which remit by drafts ·on
correspondents in your city (a) Member banks and branches
(161)
(b) Nonmember banks and branches
(162)
3. Banks and branches which remit by drafts on
correspondents not in your city (a) Member banks and branches
(163)
(b) Nonmember banks and branches
(164)
4. Nonmember banks and branches which remit in whole
or in part by shipments of currency or coin
5. Other forms of remittance (specify)
131
APPENDIX A
G.
Please indicate whether currently you will credit the account of one
member bank with the proceeds of checks sent by another member bank
to you -
YES □
NO □
(166)
If so, explain any limitations which you may impose -
H.
Please indicate whether any recent changes in mail schedules in your
territory have imprDved or hindered check operations for you or for
your member banks, and explain briefly their effects -
I.
If you or your member banks make use of any facility other than mail
or express for ground transportation of · intradistrict items payable
outside your city, please give a brief description of mode of transportation utilized, the approximate number of items sent daily by
such method or methods and the advantages as compared wi th mail or
express -
J.
If you have observed during the past two years any appreciable
change in the form or kinds of items issued (e.g., such as those
not drawn on banks), please give a b rief statement of your observations and of the reasons for such change -
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Federal Reserve Bank of St. Louis
132
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Federal Reserve Bank of St. Louis
JOINT STUDY OF CHECK COLLECTION
K.
Preliminary information received by the Committee indicates that
in certain trade areas and in some suburban sections as many as
25-50 per cent or more of· the checks deposited in local banks for
collection are drawn on banks within a relatively small adjacent
area (25-50 mile radius). At present such checks are often sent
to a correspondent bank or Federal Reserve Bank or Branch many
miles away to be sorted and presented by mail to the respective
drawees. This situation suggests that unnecessary handlings and
delays in presentation might be avoided if a mechanism were provided to clear such checks locally. Please ind~cate (1) Whether there are areas in your territory where such a
situation may exist and, if so, approximately how many -
YES □
NOD
Number
(2) Any suggestion which you may have (other than the use
of a''regional clearing arrangement" as now utilized in
some places) for a practical method of clearing such
items locally which should be acceptable to the banks
involved. (Please attach statement.)
L.
If you have any other suggestions for improvement in check handling
methods (particularly in your own district) which would eXpedite
presentation and collection or eliminate unnecessary handlings or
otherwise contribute to speed and efficiency, please attach a
statement.
APPENDIX B
The Flow of Checks Through the Check Collection System
Below is a schematic outline tracing the flow of checks deposited in
or cashed at the nation's banks on an average day in July 1952, through
the check collection system until all are paid.
Some items were paid on the day they entered the collection system,
some on the next business day, and so on. In the outline, all items entering on the first day, when they were deposited or cashed, were paid
by the close of the seventh business day. Since other checks entered
the collection system by being deposited or cashed on each day subsequent,
the total stock of items in process of collection continued to grow until
the seven day cycle was completed. At that time the inflow of new items
was roughly balanced by the outflow of paid items so that the total stock
of items in the system subsequently remained relatively unchanged from
day to day.
The inflow and outflow are actually not as regular as the outline
indicates; they are affected by seasonal changes in volume, changes in
efficiency of bank work, bad weather, transportation delays, etc. Two
other oversimplifications should be noted. First, the diagram assumes
that all items handled one day are sent on and reach the next processing
point overnight, so that on the following day they will either be paid
or presented locally or they will be sent on to reach the next collecting bank. This assumption is not realistic, since many checks dispatched
in the evening at one point do not reach the place to which they are sent
in time to be presented for payment or processed further on the day following dispatch. Second, no account is taken of return items. Although
relatively few in number, return items add to volume outstanding.
The picture therefore tends to overstate the speed of payment and
to understate the volume of items in process of collection. The indicated stock of items in process of collection according to this picture
is about 30,000,000. The actual figure obtained in the surveys was
38,500,000. The difference represents the influences of slower transportation and of more delays in handling than was assumed for construction of the outline. In other words, the outline shows checks being
collected about 25 per cent faster than they actually are collected.
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Federal Reserve Bank of St. Louis
133
134
JOINT STUDY OF CHECK COLLECTION
The First Day
27,830,000 checks enter the check collection system by being deposited
in (22,978,000 checks) or cashed at (4,852,000 checks) commercial banks.
5,835,000 of these checks are deposited in or cashed at the banks upon
which the checks are drawn. These are paid and debited to
accounts on the banks' books.
21,995,000 checks must be sent elsewhere for presentation to the drawee
banks. Of these:
8,455,000 checks are on other lo cal banks (including Federal
Reserve offices)
9,063,000 checks are payable at par at banks in the same
Federal Reserve district
3~788,000 checks are payable at par at banks in other
Federal Reserve districts
689,000 checks are not payable at par or are restricted
as to handling
These items received for collection must be sorted and then
either be presented locally (usually through clearings) or
mailed to (a) drawee banks or (b) the next banks in the col lection chain.
The 8 ,455,000 local checks are
held to be presented locally to
drawee banks the
next day. Most of
these go through
clearing arrangements, some (including those on
the Federal Reserve) are presented directly.
(Approximately
1,070,000 of
these items are
payable at or
through Federal
Reserve Banks.)
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Federal Reserve Bank of St. Louis
236,000 intradistrict checks
are held (or
mailed) to be
presented to
drawee banks
through regi onal clear ing ar rangements.
These are local
area items -drawn on banks
near (but not in
the same town as)
the original collecting bank.
7,054,000 checks
are sent to Federal Reserve offices. (This figure does not include the
1,070,000 items
presented locally
to such offices,
included in col umn 1.) Of these,
1,213,000 are payable at the Federal Reserve
Banks, 1,348,000
are payable at
commer c ial banks
in the Federal
Reserve cities,
4,030,000 are
payable at par
elsewhere in the
same Federal Reserve district as
the receiving Reserve Bank , and
463,000 are payable at par in
other districts .
5,053,000 checks
are sent to cor respondent banks.
Of these, 1,299,COO
are drawn on the
correspondents to
which they are
sent, 1,683,000
are payable at
other local banks
(including the
Federal Reserve
in some cases) ,
1,278,000 are payable at par banks
in the same Federal Reserve dis trict as the receiving correspondent ba·nk,
637,000 are payable at par banks
in other districts,
and 156,000 are
nonpar or restricted items.
1,197,000 checks
are sent in special cash letters
directly to outof-town drawee
banks. (Most
cash letters of
this type are sent
by the larger correspondent banks,
and a substantial
part of such sendings are nonpar
i terns . )
135
APPENDIX B
The Second Day
The 8,455 ,000 local
items are presented to
drawee banks.
The 236,000 local
area items are pre sented to drawee
banks.
3,709,000 items reach
drawee banks by direct mail presentation. Of these,
1,197,000 were those
sent in special cash
letters, 1,299,000
were drawn on the
correspondent banks
and were included in
general cash letters
containing items sent
to them for collection, and 1,213,000
were payable by Federal Reserve Banks
and were contained in
cash letters sent
Federal Reserve Banks.
Of items received by
them from first collecting banks, Federal
Reserve Banks present
1,348,000 to local
drawee banks, and correspondent banks present 1,683,000 items
to local drawee banks.
Most of such items are
presented through
clearing houses, although some items payable at Federal Reserve
Banks are presented to
them directly by correspondent ban.ks.
Thus 15,431,000 items are presented to drawee banks for payment on
the second day. But 6,564,000 items still must be sent elsewhere for
presentation to drawee banks. These are the 4,493,000 out-of-town items
received on the second day by the Federal Reserve (of which 4,030,000
items are payable at par at banks in the same district, but not in the
Federal Reserve city, and 463,000 items are payable at par in other districts) and the 2,071,000 out -of-town items received on the second day
by t he correspondent banks (of which 1,278,000 are intradistrict par,
637 ,000 are interdistrict par , and 156,000 are nonpar or restricted items~
The Federal Reserve Banks send 4,030,000 intradistrict par and
24 , 000 interdistrict par items in direct cash letters to drawee banks.
The remaining 439,000 interdistrict par items are sent directly to the
Federal Reserve offices serving the collection zones of the banks on
which the items are drawn.
The correspondent banks send 1,329,000 items to Federal Reserve
Banks (some of which are payable at the Reserve Banks) and 438,000 items
to other correspondents (some of which are payable at these other corre spondent banks). 291,000 items (intra and interdistrict par and nonpar)
are sent directly in special cash letters to drawee banks; 13,000 items
go to drawee banks via regional clearing arrangements.
Thus, as of the close of the second day:
439,000 items are sent
1,329,000 items are
4,358,000 items are
by Federal Reserve ofsent by correspo ndmailed direct to
fices to other Federal
ent banks to Federal
drawee banks ,
Reserve offices.
Reserve offices.
4,054,000 in Federal
Reserve cash letters
Of these, 338,000 are payable at the Federal
and 304,000 in corre Reserve Banks; 350,000 are payable locally at
spondent bank direct
commercial banks in the same city as the recash letters (includceiving Reserve Bank, 975,000 are intradising regional cleartrict par and 105,000 are interdistrict par
ings).
i terns .
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Federal Reserve Bank of St. Louis
438,000 are sent by
correspondents to
other correspondents .
Of these, 112,000 are
payable at the receiving banks; 146,000
are payable at other
banks in the same
city as the receiving
bank; 111,000 are intradistrict par;
55 ,.000 are interdistrict par , and 14,000
are nonpar or restricted items.
136
JOINT STUDY OF CHECK COLLECTION
The Third Day
4,808,000 items mailed reach
drawee banks: 4,358,000
items mailed direct to
drawee banks by Federal Reserve and correspondents,
plus 450,000 items on Federal Reserve Banks or correspondent banks, reaching
them in regular cash letters containing a variety
of items.
496,OOO items payable locally are presented (mostly through clearings) by
Federal Reserve or correspondent banks receiving
them in the morning mail.
(Some of these items are
presented by correspondent
banks to Federal Reserve
Banks.)
Thus 5,304,000 items are presented to the drawee banks
for payment on the third day.
But, as of the third day,
1,260,000 items still remain
to be paid and must be sent
elsewhere for presentation
to drawee banks .
The 1,260,000 unpaid items consist of l,O8o,OOO items received on
the third day by Federal Reserve Banks (of which,975,OOO are intradistrict par and 105,000 interdistrict par) and 180,000 received on the
third day by correspondent banks (of which, 111,000 are intradistrict
par, 55,000 are interdistrict par, and 14,000 are nonpar or restricted
items).
The Federal Reserve Banks mail the 975,000 intradistrict par and
5,000 interdistrict par items in direct cash letters to drawee banks.
The remaining 100,000 interdistrict par items are sent directly to the
Federal Reserve offices serving the collection zones of the banks on
which the items are drawn.
The correspondent banks send 115,000 items to Federal Reserve Banks
(some of which are payable at the Reserve Banks) and 38,OOO items to
other correspondents (some of which are payable at these other correspondent banks). 27,000 items (par and nonpar) are sent directly in special
cash letters to drawee banks.
Thus, as of the close of the third day:
1,007,000 items are
mailed direct to
drawee banks, 980,000
in Federal Reserve
cash letters and
27,000 in correspondent bank direct cash
letters.
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Federal Reserve Bank of St. Louis
100,000 items are sent
by Federal Reserve offices to other Federal
Reserve offices.
115,000 items are sent
by correspondent banks
to Federal Reserve offices.
Of these, 46,OOO are payable at the Federal Reserve Banks; 41,000 are payable at commercial
banks in the receiving Federal Reserve Bank
cities; 116,OOO are intradistrict par; and
12,000 are interdistrict par.
38,000 items are sent
by correspondents to
other correspondents.
Of these, 10,000 are
payable at the receiving banks; 12,000
are payable at other
banks in the same
city as the receiving
bank; 10,000 are intradistrict par; and
6,000 are interdistrict par.
137
APPENDIX B
The Fourth Day
1,063,000 items mailed reach
drawee banks: 1,007,000
mailed direct to drawee banks
by Federal Reserve and correspondents, plus 56,000 items
on Federal Reserve or correspondent banks, reaching them
in regular cash letters containing a variety of items.
53,000 items payable locally are presented (mostly through clearings) by
Federal Reserve or correspondent banks receiving
them in the morning mail.
Thus 1,116,000 items are prepresented to drawee banks for
payment on the fourth day.
But, on the fourth day,
144,000 items still remain to
be paid and must be sent elsewhere for presentation to
drawee banks.
The 144,000 unpaid items consist of 128,000 items received on the
fourth day by Federal Reserve Banks (116,000 intradistrict par and 12,000
interdistrict par) and 16,000 items received on the fourth day by correspondent banks (10,000 intradistrict and 6,000 interdistrict par).
The Federal Reserve Banks mail the 116,000 intradistrict par items
in direct cash letters to drawee banks, and mail the 12,000 interdistrict par items to the Reserve offices serving the collection zones of
the banks on which these items are drawn. The correspondent banks send
11,000 items to Federal Reserve Banks, 4,000 items to other correspondents, and 1,000 items direct to drawee banks.
Thus, as of the -close of the fourth day:
117,000 items are
mailed direct to
drawee banks, 116,000
in Federal Reserve
cash letters and
1,000 in correspondent bank direct cash
letters.
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Federal Reserve Bank of St. Louis
12,000 items are sent
by Federal Reserve offices to other Reserve
offices.
11,000 items are sent
by correspondent banks
to Federal Reserve offices.
Of these, 5,000 are payable at the Reserve
Banks; 4,000 are payable at co:rmrercial banks
in the receiving Federal Reserve Bank cities;
12,000 are intradistrict par, and 2,000 are
interdistrict par.
4,000 items are sent
by correspondents to
other correspondents.
These are divided
about equally: 1,000
are on receiving
banks; 1,000 are on
other local banks in
receiving bank cities;
1,000 are intradistrict and 1,000 are
interdistrict.
JOINT STUDY OF CHECK COLLECTION
The Fifth Day
123,000 items mailed reach
drawee banks: 117,000
mailed direct to drawee
banks by Federal Reserve
and correspondent banks,
plus 6,000 items on Federal Reserve or correspondent banks, reac h ing them in
regular cash letters containing a variety of items.
5,000 items payable locally are presented by Federal Reserve and correspondent banks receiving them
in the morning mail.
Thus 128,000 items are presented to drawee banks for
payment on the fifth day.
But, as of the fifth day,
16,000 items still remain to
be paid.
The Federal Reserve has 14,000 of these items; the correspondent
banks 2,000. 12,000 intradistrict par items are mailed by the Reserve
Banks direct to drawee banks; 2,000 interdistrict par are sent by the
Reserve Banks to other Federal Reserve offices; the 2,000 items in cor res pondent banks are sent to the Federal Reserve.
The Sixth Day
12,000 items reach drawee banks in Federal Reserve cash letters
and are paid.
4,000 items reach Federal Reserve offices.
drawee banks.
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Federal Reserve Bank of St. Louis
These are sent on to
The Seventh Day
The 4,000 items reach drawee banks and are paid.
APPENDIX C
at least one business day in presentation
and payment of the items, items returned
unpaid are received at least two business
days earlier, several hundred miles of travel are avoided and at least one unnecessary
handling is eliminated.
Following is a description of several
arrangements for regional clearing of
checks, which are currently in operation.
Rio Grande Valley, Texas
In the extreme southern tip of Texas,
there are 15 banks participating in a regional clearing arrangement, the Rio Grande
Valley Clearing House Association, which
has been functioning successfully for about
15 years .
Worcester County, Massachusetts
Worcester County is in central Massachusetts, surrounding the City of Worcester.
Eighteen banks with a total of 28 banking
offices situated in 16 different towns participate in a regional clearing arrangement
organized about two years ago by the Worcester County Trust Company.
The participating banks are located in
12 different towns between Brownsville on
the east, and Mission and Edinburg about 70
miles to the north and west . Each participant separately sorts and lists items drawn
on each of the other participants. The outgoing packages to the c learing house are
picked up b y a truck at the end of each business day and delivered to the clearing house,
which is at the First National Bank of Harlingen, a central point in the area.
The towns in which the participating
banks are situated are within a radius of
42 miles from the Trust Company, which is
in the City of Worcester. Each of the
participants has an account with the Trust
Company.
On the day of delivery of the items to
the drawee banks, the net balances result ing from the exchanges as shown on the
settlement sheet are mailed by the clearing
house to the National Bank of Commerce in
San Antonio for settlement . All but two of
the participants maintain accounts with
that bank; the other two participants have
accounts with other banks in San Antonio,
which either make payment to, or receive
payment from, the National Bank of Commerce
in order to settle the balances of their
de positors.
Each participant sorts into one package all items drawn on other participants
in the county. After the close of business
on each day, a contract motor carrier picks
up from each participant the separate package of Worcester County items as well as
any ·other transit items which it may send
to the Trust Company for collection . The
packages are all delivered to the Trust
Company, where an evening force fine sorts
the Worcester County items to the various
drawee banks . Outgoing packages and list ings are prepared for delivery by the carrier to the drawee banks before the opening
of business on the following morning . On
the day of presentation of the items, the
Trust Company settles_ the balances resulting from the exchanges by entries in the
accounts of the participants on its books.
The average number of items cleared each
night is somewhat in excess of 6 , 000 .
Prior to the time when the Rio Grande
Valley Clearing House Associati on was organized, checks received by one of the present
members drawn on one or more of the others
were as a rul~ sent to a correspondent bank
in San Antonio, nearly 300 miles distant,for
collection . By establishing the regional
clearing arrangement, the participants gain
One feature of this arrangement is
that the carrier has installed outside
each banking office a steel and concrete
reinforced vault. The carrier and the
banking office each has a key. Th is permits the carrier to pick up work after the
bank has closed in the evening and to
deliver in the morning before it opens .
When all of the wo rk arrives at the
clearing house, the packages are sorted to
the various drawee banks and a settlement
sheet is prepared. The packages are delivered by truck to the drawee banks early on
the following morning .
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Federal Reserve Bank of St. Louis
139
140
JOINT STUDY OF CHECK COLLECTION
Before Worcester County Trust Company
established this clearing arrangement, most
checks which one bank in the county had to
collect from another were sent to a bank in
Boston, about 40 miles east of Worcester.
By clearing such items in the county, the
banks obtain presentation and payment at
least one business day earlier, and return
items are received at least two business
days sooner, than before.
Rockland County, New York
Rockland County is a small, predominantly rural area with several centers of
industrial development, situated about 40
miles north of New York City. The county
contains 11 banks located in seven different towns. Each of the towns is within a
radius of 35 miles from Passaic, New Jersey.
The Passaic-Clifton National Bank and
Trust Company conducts a regional clearing
arrangement for 10 of the 11 banks in Rockland County, much in the same manner as the
Worcester County Trust Company. Checks to
be cleared are picked up from each participant at the close of the day by a contract
motor carrier and taken to the Passaic-Clifton National Bank and Trust Company. Many
of the participants send other transit work
to Passaic as well. The Passaic Bank fine
sorts the Rockland County items during evening hou1·s, and the carrier delivers the
packages to the various drawee banks before
the opening of business on the following
morning. All of the participants carry accounts with the Passaic Bank, and balances
resulting from the exchanges are settled by
entries on its books on the day the items
are delivered to the drawee banks. The carrier has installed safes outside each banking office as in Worcester County.
Prior to the establishment of this regional clearing arrangement, Rockland County
banks collected items drawn on other banks
in the county by sending them to ·banks in
New York City. With the clearing arrangement in effect, checks are presented and
paid at least one business day earlier and
items returned unpaid are received at least
two business days earlier. Check "kiting"
operations wM.ch formerly occurred in the
county with some frequency have been eliminated.
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Federal Reserve Bank of St. Louis
Although no formal clearing arrangement exists, the Passaic-Clifton National
Bank and Trust Company also affords local
collection facilities to many banks in
Passaic and Bergen Counties, New Jersey.
A number of such banks send local transit
items to the Passaic Bank by contract
motor carrier. Items drawn on other banks
in the area which maintain accounts with
Passaic-Clifton National Bank and Trust
Company are sent by it directly to the
drawee banks by carrier. In substance,
this aspect of the collection facilities
afforded by the Passaic Bank is the same
as numerous direct sending arrangements
made by correspondent banks in other areas
of the country.
Suburban Philadelphia
A regional collection arrangement
operates among banks in the suburban areas
around Philadelphia, Pennsylvania. The
banks in counties ad j acent to the city are
divided into four regional groups. A bank
in one group separately lists and packages
all items drawn on other banks in its grO'l..1µ
If volume warrants, it may also make a separate package of checks drawn on banks in
one of the other groups. The items so
packaged (along with other transit work in
most instances) are sent to the correspondent bank of its choice in the City of
Philadelphia, by depositing them in an outside safe at the end of the day from which
they are collected later by a contract
motor carrier.
The correspondent banks in Philadelphia
receive items from participating banks v~a
motor carrier in the early evening hours.
The separately packaged work containing
items drawn on participating suburban banks
is fine sorted by the correspondent banks
during the evening and outgoing packages
are prepared for each of the drawee banks
in each of the groups. The correspo~dent
banks may also include in the packages
items drawn on the participating banks
which the correspondent banks have received
in late deposits of customers or from other
sources. By arrangement with the Federal
Reserve Bank of Philadelphia, correspondent
banks may deposit such packages with the
Reserve Bank at any time until 2 a.m. The
Reserve Bank consolidates the packages with
its outgoing cash letters to the respective
APPENDIX C
drawee banks and adds the amounts of the
packages to the amounts of its cash letters.
The cost of transportation to the drawee
banks is paid by the Reserve Bank. The
contract motor carrier delivers the combined work to the drawee banks by depositing it in the outside safes prior to the
opening of business.
This arrangement is essentially a collection arrangement rather than a "clearing"
arrangement, and balances are not settled on
the basis normally associated with a clearing house operation. The su9urban bank receives book credit at its correspondent bank
on the day following the day on which it
sends the items to the correspondent bank.
The Reserve Bank gives credit to the correspondent bank on the second day. Because in
this arrangement the correspondent banks provide facilities for sorting the items during
evening hours and the Reserve Bank is willing to accept packaged items for consolidation with its cash letters until 2 a.m. and
for delivery by motor carrier, items drawn
on suburban banks are presented and _paid at
least one business day earlier than was the
case prior to the establishment of this arrangement. Sixty-five suburban banks, operating 72 banking offices in 47 different
towns within a radius of 65 miles from Philadelphia, participate in the arrangement.
It is estimated that the daily volume of
items handled may be as high as 100,000.
141
participants, and at the end of each business day these groups of checks are delivered by contract motor carrier to the
Clearing Bureau. During evening hours,
the staff at the Clearing Bureau sorts the
checks according to the various drawee
banks and prepares an outgoing package and
listing addressed to each participant.
The contract motor carrier delivers the
packages to the drawee banks prior to the
opening of business on the following morning. Outside safes are used as in Worcesier
and Rockland Counties. The average number
of checks cleared daily is in the neighborhood of 50,000.
The final net debit and credit balances resulting from the exchanges are
settled by entries in the accounts of the
participants on the books of the Federal
Reserve Bank of New York, in accordance
with a settlement sheet prepared by the
manager of the Clearing Bureau. All banks
in the county are members of the Federal
Reserve System.
The Clearing Bureau was organized and
its operations were established with active
technical assistance by the Federal Reserve
Bank of New York. Following the organization period, the Clearing House Association
assumed full responsibility for and control
of the operations of the Bureau. The Federal Reserve Bank contributes a share of the
operating expenses.
Nassau County, New York
Nassau County, which is adjacent to
New York City, is a compact area of less
than 300 square miles with a population of
nearly one million. On July 1, 1953, the
Nassau County Clearing House Association,
Inc., established a Clearing Bureau for
clearing checks between its members, including a few banks in adjacent counties .
Participants in the Clearing Bureau
include 40 commercial banks with 76 banking offices located in 53 different communities. No participant is located more
than 20 miles from the Clearing Bureau,
which is situated at a central point in
the county.
Each participant sorts into a single
group of items all checks drawn on other
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Federal Reserve Bank of St. Louis
As the result of having organized the
Clearing Bureau, the participating banks
have expedited by at least one business
day the presentation and payment of Nassau
County items; they have gained at least
two business days in availability of the
proceeds; and they receive return items at
least two business days earlier than under
earlier collection methods.
Vicinity of Denver, Colorado
Three correspondent banks in the City
of Denver have cooperated in the establishment of a regional check clearing service
for banks located on certain bus routes
radiating from Denver. The bus routes run
from Denver to Sterling, Fort Collins,
Boulder and Pueblo, all in Colorado, and
142
JOINT STUDY OF CHECK COLLECTION
to Cheyenne in Wyoming. The most distant
point is about 125 miles from Denver. Each
of the participating banks located along
the bus routes maintains a correspondent
account with one or another of the three
sponsoring banks in Denver; in each case,
the Denver bank sends to the participants
maintaining accounts with it daily cash
letters containing items drawn on them.
Participating banks send cash letters
by bus to one or more of the three sponsoring banks in Denver at the close of business
on each day. Each Denver bank, after receiving checks addressed to it, clears to
each of the other two Denver banks items
drawn on the participating banks with which
such Denver bank has a direct sending arrangement. After these exchanges have taken
place, each of the Denver banks prepares
cash letters to the various participating
banks which maintain accounts with it. The
Denver banks also include in the outgoing
cash letters checks drawn on the various
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Federal Reserve Bank of St. Louis
participating banks which the Denver banks
have received in deposits of customers. The
outgoing cash letters are dispatched by buses
leaving Denver starting at 5 a.m . , and are
received by the respective participants prior
to 9 a.m. on the same day.
Receipts are issued for checks exchanged between the Denver banks during
the night. On the following morning each
bank issues cashiers' checks in exchange
for receipts given during the night, and
the cashiers' checks are cleared in the
regular exchanges through the Denver
Clearing House for settlement at 11 a.m.
As the result of establishing this
clearing arrangement, a check received by
one participant drawn on another is presented for payment on the morning after
receipt. Items are thus collected substantially faster than was possible prior to
the institution of the regional check clearing service.
APPENDIX D
Summary of Recommendations of Committee on Bank Management ( 1951-1952),
Illinois Bankers Association, regarding "Check Paying Procedures and Return Check Practices''
Date of Checks
1.
2.
2.
Treat as "stale dated" any check
dated more than twelve months previously. (To avoid receipt of
stop-payment orders on old items,
consider notification of business
accounts that bank will not pay
without question stale dated
items.)
*(Bank should set amount, which
should be at least $1. 00.)
Signature Irregularities
(Missing Signature)
For efficiency, keep stop-payment
orders active for a reasonable*
period from date of item and refer
older items to a transfer file of
stop orders until item would be
stale dated.
1.
Contact maker (unless out-of-town
depositor) for approval to pay
check without missing signature.
2.
Return check when unable to make
contact or maker so instructs.
*(Reasonable period of time can
be determined in each bank by
study of own situation.)
3.
4.
NO'IE:
Contact maker, unless out-of-town
depositor, before returning checks
for reason "stale date".
Return post-dated checks without
reference to maker, unless you
have·established practice of contacting on such items.
1.
Contact maker (unless out-of-town
depositor) before returning checks
for reason "Alteration of ____ "
or "Guarantee Alteration of
"
Consider having maker confirm approval to pay item
in writing, or supply authorized signature.
Signature Irregularities Compares
Unfavorably with One on File
When figure amount differs from
amount in words by$
* or
less disregard discrepancy and
pay figure amount.
----
1.
Contact maker (unless out-of-town
depositor) for approval to pay check.
2.
Return check when unable to make
contact or maker so instructs.
NO'IE:
*(Bank should set amount, which
should be at least $1.00.)
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Federal Reserve Bank of St. Louis
Contact maker (unless out-of-town
depositor) for approval to pay
check, and return only when unable
to make contact or maker so instructs.
NOTE:
Amount Variation
1.
Consider having maker confirm approval to pay item
in writing or supply missing signature.
Signature Irre ularities
Unauthorized Signature
Altered Checks
1.
Contact maker (unless out-of-town
depositor) when figure amount differs from amount in words by
$___* or more.
143
When great dissimilarity
exists, consider having
maker confirm approval to
pay item in writing.
144
APPENDIX D
Indorsements (Of Payee)
1.
Disregard inspection of reverse
side of check for indorsement of
payee when amount of check is
$100.00 or less.
NOTE:
Banks having adopted higher amount because risk is
commensurate with costs
saved should continue present practice.
Indorsements (Of Collecting Banks)
1.
Disregard inspection of reverse
side of check for clearing house
stamp or indorsement of collecting
bank when amount of item is $100.00
or less.
NOTE:
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Federal Reserve Bank of St. Louis
Banks having adopted higher
amount because risk is commensurate with costs saved
should continue present
practice.
Indorsements (Requested by
Depositor, When Missing)
1.
When forwarding items which have
already been paid and cancelled,
for payee's indorsement, and it
can be clearly determined that bank
of deposit is situated in Illinois,
send item direct to bank of deposit
for "Attention of Cashier".
2.
When name of bank of deposit cannot
be clearly determined, send item to
last indorsing bank, without entry.
3. When bank is situated outside Illinois, send item to last indorsing
bank, without entry.
NOTE:
Regardless of how item is
forwarded, bank shoµld retain complete description
in writing or on micro-film.
@FedFRASER