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(Ten ta t ive D r a f t Only) REGULATION  J .

Ser i e s  of  1923*

(Superseding Regulation  J o f  1920.)

CHECK CLEARING

  AND

  COLLECTION.

SECTION  I .  STATUTORY PROVISIONS,

Sect ion  l 6 o f the  Federal Reserve  A c t  a u t h o r i z e s  t h e  Federal Reserve

Board  t o  r eq ui re each Federal Reserv e Bank  t o  exe r c i s e  t h e  f u n c t i o n s  of a

clear ing house

  f o r i t s

  member banks,

  and

  s e c t i o n

  13 of t h e

  Federal Reserve

A c t , a s

  amended

  b y t h e a c t

  approved June

  2 1 , 1 9 1 7 ,

  author izes each

  F e d -

eral Reserve Bank  t o  receive f rom  a n y  non-member hank  o r  trust company,

s o l e l y  f o r t h e  purposes  of  exchange  or of  c o l l e c t i o n , d e p o s i t s  of  current

funds  i n  la.wful money, na tio na l-b an k no te s, Fe dera l Reserve no te s, checks

and  d r a f t s payab l e upon p r es en t a t i on ,  o r  matur ing notes  and  b i l l s , pr ov i ded

such non-member bank

  o r

  t r u s t company mai nta ins wit h

  i t s

  Federal Reserve

Bank

  a

  b a la n ce s u f f i c i e n t

  t o

  o f f s e t

  t h e

  items

  i n

  t r a n s i t h e l d

  f o r i t s a c -

count

  b y t h e

  Federal Reserve Bank.

SECTION  I I .  GENERAL REQUIREMENTS.

I n  pursuance  o f the  a u t h or i t y ves t ed  i n i t  under these prov i s io ns  of

l a w , t h e  Federal Reserve Board, des i r ing  t o  a f f o r d bo t h  t o t h e  p u b l i c  and

t o t h e  various banks  o f the  country  a.  d i r e c t , e x p e d i t i o u s ,  and  economical

system  of  check co l l ec t i on  a n a  s e t t l emen t  of  ba l ances ,  h a s  a r r anged  t o

have each Federal Reserve Bank exercise

  t h e

  f u n c t i o n s

  of a

  c lear ing house

f o r  such  o f i t s  member banks  as  d e s i r e  t o  avai l themselves  of i t s  p r i v i -

l eges  f o r  such non-member State banks  an d  trust companies  as may  main-

tain wi th  t h e  Fe dera l Reserve Bank balances su f f i c i e n t  t o  q u a l i f y them under

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t h e

  p r ov i s i ons

  o f

  s e c t i o n

  }  t o

  send items

  t o

  Federal Reserve Banks

  f o r

purposes

  o f

  exchange

  o r o f

  c ol le ct io n . Such non-member St at e ta nk s

  and

t r us t companies wi l l her e i na f t er

  "be

  r e f e r r e d

  to a.s

  non-member clearing banks.

Each Federal Reserve Bank shall exercise  t h e  f unc t i ons  of a  c l ea r i ng

house under

  t h e

  general terms

  and

  c o n d i t i o n s h e r e i n a f t e r

  s e t

  f o r t h .

SECTION

  I I I .

  CHECKS RECEIVED

  FOR

  COLLECTION.

( )

  Each Fe de ral Reserve Bank w i l l rece iv e

  a t p a r

  from

  i t s

  member

banks

  and

  f rom non-member cl e a ri n g banks

  i n i t s

  d i s t r i c t , checks'* drawn

o n a l l

  member

  and

  non-member clearing banks

  a n d o n a l l

  other non-member

banks which agree

  t o

  remit

  a t p a r i n

  acc ept abl e fund s through

  t h e

  Federal

Reserve Bank  of  t h e i r d i s t r i c t .

( 2 )

  Each Fe de ra l Reserve Bank wi ll re ce iv e

  a t p a r

  fro m ot he r Fed eral

Reserve Banks,  and  f rom  a l l  member  and  non-member clearing banks  i n  other

Federa l Reserve Dis t r i c t s ,

  f o r ' t h e

  c r e d i t

  of

  thei r accounts wi th thei r

re sp ec ti ve F ed era l Reserve Banks, checks drawn upon

  a l l

  member

  a n d n o n -

member clearing banks  of i t s  d i s t r i c t  an d  upon  a l l  other non-member banks

o f i t s

  d i s t r i c t which agree

  t o

  remi t

  a t p a r i n

  accepta ble fun ds .

( 3 )

  Under th is pl an each Fe de ral Reserve Bank w il l re ce iv e

  a t p a r

from  i t s  member  an d  non-member clearing banks checks  on a l l  member  and  tion-

member clearing banks

  a n d o n a l l

  other non-member banks which agree

  t o

  remit

a t p a r i n

  ac ce pt ab le fu nd s. Member

  an d

  non-member clearing banks will

'•

  1

  A

  check

  i s

  gener a l l y de f i ned

  a s a

  d r a f t

  o r

  order upon

  a

  bank

  c<r

  banking

hous e , pu r por t i ng

  t o b e

  drawn upon

  a

  depos i t

  of

  f u n d s ,

  f o r t h e

  payment

  a t

a l l  svents  o f a  c e r t a i n  sum of  money  t o a  cer tain person therein named,  o r

t o h i m o r h i s

  o r d e r ,

  o r t o

  b e a r e r ,

  and

  payable

  on

  demand.

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b e  r e q u i r e d  t o  prov ide funds  t o  cover  a t p a r a l l  checks re ce iv ed from  o r

f o r t h e

  account

  o f

  t h e i r Federa l Reserve Banks.

(4 ) No  Fed era l Reserve Bank s h a l l re ce iv e  o n  d e p o s i t  o r f o r  c o l l e c t i o n

a n y

  check drawn

  o n a n y

  non-member bank which refuses

  t o

  r e m i t

  a t p a r i n a c -

cep tab le funds .

5 Whenever

  a

  Federal Reserve Bank receives

  on

  d e p o s i t

  o r f o r c o l -

l e c t i o n  a  check drawn  b y ,  endorsed  b y , o r  emanating from,  a n y  nonmember bank

which re fuses

  t o

  r e m i t

  a t p a r i n

  a c c e p t a b l e f u n i s ,

  i t

  sha l l charge

  f o r t h e

s e r v i c e

  o f

  co l lec t ing such check

  a

  co l lec t ion charge equa l

  t o t h e

  exchange

charged

  b y

  such nonmember bank

  f o r

  r e m i t t i n g

  f o r

  checks drawn

  o n i t .

SECTION

  IV .

  TIME SCHEDULE

  AND

 AVAILABILITY

  OF

  CREDITS.

Ea.ch Fe de ra l Reser ve Bank w i l l p ub l is h  a  time schedule showing  t h e  time

a t

  which

  a n y

  i tem sent

  t o i t

  w i l l

  b e

  counted

  a s

  p a r t

  o f t h e

  sending bank 's

r e s e r v e

  a n d

  become available

  t o

  meet checks drawn

  b y

  such bank.

  F o r a l l

checks rece ived ,  t h e  sending bank wil l  be  given immediate credi t ,  o r d e -

f e r r e d c r e d i t ,

  i n

  accordance with such publ ish ed t ime sche dul e ,

  a n d a s p r o -

vided below.

F o r a l l  checks  a s t o  which  t h e  sen din g bank  i s  e n t i t l e d  t o  immediate

c r e d i t , s uc h c r e d i t

  i n t h e

  rese rve account

  o r

  c lea r ing account upon

  d ay o f

r e c e i p t , s u b j e c t  t o  f ina l payment , wi l l  be  given,upon  t h e  books  o f t h e

Federal Reserve Bank

  a t

  f u l l f a c e v a l u e ,

  a n d t h e

  proceeds wi l l

  a t

  once

b e  counted  a.s  p a r t  o f t h e  mimimum reserve  a n d b e  a v a i l a b l e  t o  meet checks

drawn.

F o r a l l  checks  a s t c  which  t h e  sending bank  i s  e n t i t l e d  t o  a e f e r r e d

c r e d i t , s uc h c r e d i t , s u b j e c t

  t o

  f ina l payment , wi l l

  b e

  give n upon

  t h e

  books

o f t h e

  Federal Reserve Bank

  a t

  f u l l f a c e v a l u e ,

  a n d t h e

  proceeds wi l l

  n o t

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be

  counted

  a s

  p a r t

  o f t h e

  minimum reserve

  n o r

  become available

  t o

  meet checks

time

drawn u n t i l such time  as may be  s p e c i f i e d  i n t h e  appropria te / schedule r ef er re

t o

  h e r e i n ,

  a t

  which time credit will

  b e

  t ransfe r red f rom

  t h e

  aeferred account

t o t h e

  reserve account

  o r

  clearing account

  an d

  will t ien

  b e

  counted

  a s

  par t

of the

  minimum reserve

  and he

  a v a i l a b l e

  t o

  meet checks drawn-

SECTION  V.  mmER  OF  COLLECTION.

Checks received  b y a  Federal Reserve Ba'ik  o n i t s  member  o r  nonmember

clear ing banks wil l

  b e

  forwarded direct

  t o

  such banks,

  and

  such banks will

b e

  requ i red

  t o

  remi t the re for

  i n

  funds acceptable

  t o t h e

  Federal Reserve

Bank  o r t o  a u th o r i z e  t h e  Federal Reserve Bank  t o  charge their reserve  a c -

counts

  o r

  c le ar in g accounts ; provi ded, however , tha t

  i n

  case such

  r e -

mit tance

  o r

  a u t h o r i z a t i o n

  i s n o t

  received

  b y t h e

  Federal Reserve Bank from

any  such bank,  t h e  Federal Reserve Bank reserves  t h e  r i g h t  t o  charge such

items

  t o t h e

  reserve account

  o r

  clear ing account

  o f

  such bank

  a t t h e e x -

p i r a t i o n

  o f t h e

  agreed transit t ime between

  t h e

  Federal Reserve Bank

  and

such bank.

I n  handling items  f o r  member  a n d  nonmember clearing banks,  a  Federal

Reserve Bank will  a c t a s  agent only.  The  Federal Reserve Board hereby

a u t h o r i z e s ,

  an d

  each member

  an d

  nonmember clearing bank shall authorize,

t h e

  Federal Reserve Bank

  t o

  send checks received

  f o r

  c o l l e c t i o n

  t o t h e

banks  on  which such checks  a r e  drawn  o r a t  which they  a r e  payab le ,  or to

a n y

  o ther su i ta b ly se lec te d sub-agen t ,

  an d to

  r ec ei ve from drawee banks

acceptable exchange draf ts  i n  se t t l e me n t  f o r a n y  c o l l e c t i o n .  The  Federal

Reserve Bank shall assume  no  l i a b i l i t y ex ce pt  f o r i t s own  neg l igence  and

i t s  guaranty  of  prior endorsements.

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SECTION  V I .  PENAlfi'IgS  FOB  DEFICIENCIES  IN  RESERVES-

)

1 .  S ta tu to ry Prov is io ns . Sec t ion  15 o f the  Federal Reserve  Act

prov ides tha t  -

"The . requ i red ba lance c a r r ied  b y a  member bank with  a

Federal Reserve Bank

  may ,

  •under

  t h e

  r e g u l a t i o n s

  and

  su b je c t

t o  su c h p e n a l t i e s  as may be  p re sc r ib e d  b y t h e  Federal Reserve

Board,  b e  checked against  and  withdrawn  b y  such member bank*

f o r t h e  purpose  of  m ee ti ng e x i s t i n g l i a b i l i t i e s : P r o v i de d .

however, That

  no

  bank shall

  a t a n y

  time make

  new

  lo a n s

  o r

s h a l l

  p a y a n y

  dividends unless

  and

  u n t i l

  t h e

  t o t a l b a l a n c e

  r e -

qui red

  b y l a w i s

  f u l l y r e s t o r e d .

2 .  Computation  o f  Reserv es. I tems  c a n n o t b e  counted  a s  p a r t  of

t h e  minimum reserve balance  to be  c a r r i e d  b y a  member bank with  i t s

Fed er al Reserve Bank u n t i l such time  a s may be  s p e c i f i e d  i n t h e  appro-

pr ia te t ime schedu le re fe r r ed

  t o i n

  Sec t ion

  I V .

  There fore , should

  a

member bank draw against items before such time,

  t h e

  dra f t would

  b e

charged against  i t s  rese rve ba lance  i f  such ba lance were s u f f i c i e n t  i n

amount  t o p a y i t ; b u t a n y  resul t ing impairment  o f  reserve balances would

b e

  su b je c t

  t o a l l t h e

  pena l t ies p rov ided

  b y t h e A c t .

Bach In de ra l Reserve Bank w i l l deter mine  b y  a n a l y s i s  t h e  amounts  of

uncollected funds appearing

  o n i t s

  books

  t o t h e

  c r e d i t

  of

  each member bank.

Such analysis will show  t h e  t ru e s t a tu s  o f t h e  r e se rv e h e ld  b y t h e  Federal

Reserve Bank  f o r  each member bank  a n d  wi l l enab le  i t t o  app ly  t h e  penal ty

f o r

  impairment

  o f

  r e se rv e .

3 .  Bas ic Pe na lt y. Inasmuch  a s i t i s  e s s e n t i a l t h a t  t h e l a w i n

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r e s p e c t  t o t h e  maintenance  b y  member banks  o f t h e  re qu ir ed minimum re se rv e

b a l a n c e s h a l l

  b e

  s t r i c t l y co mp li ed w i t h ,

  t h e

  Federal Reserve Board, under

a u t h o r i t y v e s t e d  i n i t b y  S e c t i o n  1 9 o f t h e  Federa l Reserve  A c t ,  hereby

p r e s c r i b e s  a  b a s i c p e n a l t y  f o r  d e f i c i e n c i e s  i n  r e s e r v e s , a c c o r d i n g  t o t h e

fo l l o w i n g ru l e s :

( a )  D e f i c i e n c i e s  i n  rese rve ba lances  o f  member banks  i n  c e n t r a l  r e -

se rve

  and

  r e s e r v e c i t i e s w i l l

  b e

  computed

  o n t h e

  b a s i s

  o f

  average da i ly

n e t  depos i t ba l ances cover ing  a  weekly period  of 7  d a ys . D e f i c i e n c i e s  i n

r e s e rv e b a l a n c e s  o f  ot he r member ban ks w i l l  be  computed  o n t h e  b a s i s  o f

average da i ly  n e t  depos i t ba l ances cover ing  a

  semi

-monthly per iod .

( b )

  P e n a l t i e s

  f o r

  d e f i c i e n c i e s

  i n

  r e s e rv e s w i l l

  b e

  assessed monthly

o n t h e  b a s i s  o f  average da i ly de f i c i enc ies du r ing each  o f t h e  r e s e r v e  com -

pu ta t ion pe r iods end ing  i n t h e  preceding month. '

( c ) A

  b a s i c r a t e

  o f 2 p e r

  cen t

  p e r

  annum above

  t h e

  Federal Reserve

Bank d is cou nt r a te  on  90-day commercial paper will  b e  a s s e s s e d  as a

p e n a l t y  on  d e f i c i e n c i e s  i n  r e s e rv e s  o f  member banks.

4 .  P ro g re s s i v e P e n a l t y .  The  Federa l Reserve Board wi l l a l so  p r e -

s c r i b e  f o r a n y  Federa l Rese rve D i s t r i c t , upon  t h e  a p p l i c a t i o n  o f t he

Federal Reserve Bank

  o f

  t ha t d i s t r i c t ,

  a n

  a d d i t i o n a l p ro g re s s i v e p e n a l t y

f o r  c o n t i n ue d d e f i c i e n c i e s  i n  r e s e r v e s ,  i n  accordance wi th  t h e  fo l lowing

r u l e s :

( a )

  When

  a

  member bank

  i n a

  c e n t r a l r e s e r v e

  o r

  r e s e r v e c i t y

  h a s

h a d a n  a v e r a g e d e f i c i e n c y  i n  r e s e r v e s  f o r s i x  consecu t ive week ly pe r iods ,

a  p r o g r e s s i v e p e n a l t y , i n c r e a s i n g  a t t h e  r a t e  o f l / 4 o f 1 p e r  c e n t  f o r

each week thereaf ter during which  t h e  average re se rv e ba lance  i s  d e f i c i e n t ,

w i l l

  b e

  a s s e s s e d

  o n

  we ek ly d e f i c i e n c i e s u n t i l

  t h e

  r e q u i r e d r e s e rv e

  h a s

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been res to red  and.  main ta ined  f o r  fo ur conse cut iv e weekly pe r i od s ,

provided that

  t h e

  maximum pe na lt y char ged s h a l l

  n o t

  exceed

  1 0 p e r

  cent .

Ob)  When  a  member bank  n o t  l o c a t e d  i n a  c e n t r a l r e s e r v e  o r  rese rve

c i t y

  h a s h a d a n

  a v e ra g e d e f i c i e n c y

  i n

  r e s e rv e s

  f o r

  th ree consecu t ive

semi-monthly per iods ,

  a

  p ro g re s s i v e p e n a l t y , i n c re a s i n g

  a t t h e

  r a t e

  o f

l / 2 o f 1 p e r

  cent

  f o r

  each ha l f month th er ea f t er du ring which

  t h e

  average

rese rve ba lance

  i s

  d e f i c i e n t , w i l l

  b e

  assessed

  o n

  semi-monthly

  d e -

f i c i e n c i e s u n t i l  t h e  r e q u i r e d r e s e rv e  h a s  been res to red  a n d  mainta ined

f o r t w o  consecut ive semi-monthly pe r i od s , provided th a t  t h e  maximum

penal ty charged wi l l

  n o t

  exceed

  1 0 p e r

  cent .

SECTION  V I I .  OTHER RULES  AMD REGULATIONS.

Any

  fu r t h e r r e q u ir e m e n ts t h a t

  t h e

  Board

  may

  deem necessary wi l l

  b e

s e t

  f o r t h

  b y t h e

  Federal Reserve Banks

  i n

  t h e i r l e t t e r s

  o f

  i n s t r u c t i o n

t o

  their member

  a n d

  nonmember c l e a r i n g ba nks . Each Fed er al Res erv e Bank

wil l a l so promulgate ru les  a n d  r e g u l a t i o n s g o v ern i ng  t h e  d e t a i l s  o f i t s

o p e ra t i o n s

  a s a

  c l ea r i ng house , such ru l e s

  a n d

  r e g u l a t i o n s

  t o b e

  b ind ing

upon  a l l  mamber  a n d  nonmember banks> which  a r e  c l ea r ing th rough  t h e

Federal Reserve Bank.

JUNE  2 7 , 1 9 2 3 -