[Federal Register Volume 62, Number 97 (Tuesday, May 20, 1997)]
[Proposed Rules]
[Pages 27547-27554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13028]
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FEDERAL RESERVE SYSTEM
12 CFR Part 210
[Regulation J; Docket No. R-0972]
Collection of Checks and Other Items by Federal Reserve Banks and
Funds Transfers Through Fedwire
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: Effective January 1, 1998, the Reserve Banks will begin to
implement a policy under which each depository institution may maintain
only a single funds account with the Federal Reserve. A single account
will establish a single debtor-creditor relationship between each
institution and a Federal Reserve Bank and will make account management
more efficient for banks with interstate branches. The Board is
proposing amendments to subpart A of Regulation J to conform the
Federal Reserve check collection rules to the single account structure.
DATES: Comments must be submitted on or before July 21, 1997.
ADDRESSES: Comments, which should refer to Docket No. R-0972, may be
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551. Comments addressed to Mr. Wiles also may be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and
to the security control room outside of those hours. Both the mail room
and the security control room are accessible from the courtyard
entrance on 20th Street between Constitution Avenue and C Street, N.W.
Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00
p.m. weekdays, except as provided in Sec. 261.8 of the Board's Rules
Regarding Availability of Information, 12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General
Counsel, (202/452-3625), Stephanie Martin, Senior Attorney (202/452-
3198), or Heatherun Allison, Attorney (202/452-3565), Legal Division.
For the hearing impaired only, contact Diane Jenkins,
Telecommunications Device for the Deaf (TDD) (202/452-3544), Board of
Governors of the Federal Reserve System, 20th and C Streets, N.W.,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
Overview
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (Pub. L. 103-328) made significant changes to various banking laws
to authorize and facilitate interstate banking. Consequently, the
number of depository institutions that operate branches in more than
one Federal Reserve District is expected to increase. On January 1,
1998, the Federal Reserve Banks will begin to implement a new account
structure that will provide a single Federal Reserve account for each
[[Page 27548]]
institution.1 A primary objective of the single account
structure is to establish a single debtor-creditor relationship between
each chartered entity and the Federal Reserve. A single debtor-creditor
relationship is the most effective means for Reserve Banks to manage
their affairs with a depository institution. A single account structure
also may allow depository institutions to manage their overall position
with the Reserve Banks more efficiently.
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\1\ A foreign bank's U.S. branches and agencies and an Edge or
agreement corporation's offices will not be required to adopt a
single account structure.
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The Board has already requested comment on amendments to
Regulations D and I (Reserve Requirements of Depository Institutions
and Issue and Cancellation of Capital Stock of Federal Reserve Banks,
respectively) to define the location of a depository institution for
purposes of reserve accounts and Federal Reserve membership (62 FR
11117, March 11, 1997). The Board is now proposing amendments to
subpart A of Regulation J, governing the collection of checks and other
items by Federal Reserve Banks, to conform the Federal Reserve check
collection rules to the single account structure. The Board does not
believe it is necessary to amend subpart B of Regulation J, which
governs funds transfers through Fedwire, to accommodate the single
account structure. The Reserve Banks will, however, issue revised
operating circulars governing collection of cash items, Fedwire funds
transfers, and other Reserve Bank services to reflect the new account
structure.
Under the proposed Regulation J amendments, all of an institution's
check collection transactions through the Federal Reserve Banks would
be reflected in a single account held at that institution's
``Administrative Reserve Bank'' (or in a correspondent's account at a
Reserve Bank). The proposed amendments to Regulation D provide a means
to determine the location of an institution's reserve
account.2 Proposed Regulation J would provide that the
account location of an institution that sends items to a Reserve Bank
for collection (and the identity of its Administrative Reserve Bank)
would be determined in accordance with the provisions of Regulation D,
even if the institution is not otherwise subject to that regulation.
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\2\ The proposed Regulation D provision would provide that a
depository institution is considered to be located in the Federal
Reserve District specified in the institution's charter or
organizing certificate, or, if no such location is specified, the
location of its head office. If that location, in the Board's
judgment, is ambiguous or would impede the ability of the Board or
the Federal Reserve Banks to perform their functions under the
Federal Reserve Act, the Board could make exceptions to the general
rule for a particular institution after considering certain
criteria.
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Under the proposed amendments, an institution generally would be
permitted to send an item to any Reserve Bank for collection, but the
item will be deemed to have been sent first to that institution's
Administrative Reserve Bank. The proposed amendments would designate
the parties that are deemed to handle the item and the order in which
they are deemed to have handled it. (Although the Administrative
Reserve Bank would be deemed to handle the check, it would not be
considered to have ``received'' the check as that term is used in
subpart A of Regulation J if the check is initially sent to another
Reserve Bank.) The amendments would require a paying bank to settle for
an item with its Administrative Reserve Bank (regardless of whether the
institution received the item from its Administrative Reserve Bank) and
would specify the time and manner in which the paying bank is to make
settlement. The proposed amendments also would make changes in the
rules governing the handling of and settlement for returned checks
parallel to those proposed for cash items.
Section-by-Section Analysis
Section 210.2 Definitions
The Board proposes to add two new definitions to Regulation J.
Under the new account structure, all of an institution's transactions
will be reflected in a single account held at the institution's
Administrative Reserve Bank. The Board is proposing to add a definition
of ``account'' to mean an account with reserve or clearing balances
held on the books of a Federal Reserve Bank. If a depository
institution desires, the Reserve Banks will also keep informational
records, or subaccounts, of certain subsets of transactions that affect
an account (such as the transactions performed by a branch of a bank
that may be in another district from the Administrative Reserve Bank).
The Board proposes to define ``Administrative Reserve Bank'' as the
Reserve Bank in whose District the entity in question is located. An
entity's location would be determined in the same way as location is
determined for purposes of reserve accounts under the Board's
Regulation D. (See footnote 2.)
The Board also proposes to amend the definition of ``bank'' to
conform to the Uniform Commercial Code (Secs. 4-105 and 4-107).
Finally, the Board proposes to amend the definition of ``cash item'' to
provide that, under the new single-account system, the Reserve Bank
that initially receives an item for deposit, rather than the Reserve
Bank in whose District the item is payable, is the Reserve Bank that
decides whether to accept the item as a cash item.
Section 210.3(a) General Provisions
This paragraph provides that the Reserve Banks may issue operating
circulars governing the details of their check collection services and
related matters. The Board proposes to specify that the operating
circulars may allow an Administrative Reserve Bank to give instructions
to other Reserve Banks, such as instructions regarding the handling of
items that would affect an account on its books.
Section 210.4 Sending Items to Reserve Banks
The Board proposes to amend this section to provide that a sender
(other than a Reserve Bank sender) may send an item to any Reserve Bank
for collection, regardless of where the sender or the paying bank is
located. This amendment would provide flexibility for depository
institutions, foster competition among Reserve Banks, and promote
faster collection of checks. For example, a bank with its head office
in Richmond would likely have its account at the Federal Reserve Bank
of Richmond. An Iowa branch of that bank may wish to send its checks to
the Federal Reserve Bank of Chicago or the Federal Reserve Bank of
Kansas City, or both, all of which would be permissible under the
proposed rule. The sender's Administrative Reserve Bank (the Federal
Reserve Bank of Richmond in this example), however, may override this
rule and require the sender to send the item to a particular Reserve
Bank. For example, if a bank is in financial difficulty, the
Administrative Reserve Bank may want to require the bank to deposit all
of its items directly with a particular Reserve Bank in order to retain
closer control over the bank's account.
Section 13(1) of the Federal Reserve Act (FRA) 3
authorizes a Reserve Bank to accept deposits of checks and other items
from its member banks or from other depository institutions and to
accept from other Reserve Banks checks and other items payable within
its District. Under the Board's proposal, if a sender sends a check to
a Reserve Bank other than its Administrative Reserve Bank or the
Reserve Bank in whose District the check is payable, the receiving
Reserve Bank would be
[[Page 27549]]
deemed to be acting as agent of the Administrative Reserve Bank.
Proposed Regulation J would require, however, that such a receiving
Reserve Bank take on additional rights, duties, and liabilities in its
own name that it would not necessarily have as a common law agent of
the Administrative Reserve Bank. For example, the receiving Reserve
Bank would be considered an indorser on the check and would make
warranties on the check under Sec. 210.6, Regulation CC, and the
Uniform Commercial Code in its own name. The Board believes that
requiring such a receiving Reserve Bank to take on these rights,
duties, and liabilities is necessary to preserve a clear chain of
warranties and other claims in the check collection and return system.
Currently, in those limited situations where a Reserve Bank accepts
deposits from institutions other than those located in its District, it
does so under a special agency agreement with the institution's home
Reserve Bank. Rather than perpetuating these special agreements, the
Board proposes to amend Regulation J to establish the terms under which
the receiving Reserve Bank would handle items on behalf of an
Administrative Reserve Bank.
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\3\ 12 U.S.C. 360.
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Specifically, the proposed amendments to Sec. 210.4 would designate
the parties that are deemed to handle an item and the order in which
they are deemed to have handled the item. These amendments would
establish the chain of indorsements on an item under Regulation J,
Regulation CC, and the Uniform Commercial Code, as well as the order in
which the parties are agents or subagents of the owner of an item, as
provided in Sec. 210.6(a). As noted above, the proposal provides that
the sender is deemed to send the item to its Administrative Reserve
Bank, regardless of whether that Reserve Bank actually receives the
item first. The Administrative Reserve Bank is deemed to send the item
to the Reserve Bank that actually receives the item from the sender (if
different from the Administrative Reserve Bank). Any subsequent Reserve
Bank that receives the item from another Reserve Bank is deemed to
handle the item in turn.
In the example from the previous paragraph, where an Iowa branch of
a Richmond bank sends a check to the Chicago Reserve Bank for
collection, the check would be deemed handled in the following order:
the initial sender, the Richmond Reserve Bank (the Administrative
Reserve Bank), and the Chicago Reserve Bank (the first Reserve Bank to
receive the item). If the check in this example were drawn on a banking
office in New York, the Chicago Reserve Bank would send the check to
the Federal Reserve Bank of New York, in which case the New York
Reserve Bank would be the last Reserve Bank to handle the check and
would present the check to the paying bank. No other Reserve Bank would
handle or would be deemed to handle the item. In the example, if the
paying bank's Administrative Reserve Bank is the Federal Reserve Bank
of Boston (which might be the case if the check is payable by a New
York office of a bank headquartered in Boston), the Boston Reserve Bank
is not a party to the check, even though settlement for the check will
ultimately take place by a debit to an account on the Boston Reserve
Bank's books. (See Table 1.)
Table 1
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This table illustrates the following example:
A Richmond-based bank has its account at the Federal Reserve Bank of
Richmond (Richmond Fed), its Administrative Reserve Bank. An Iowa
branch of the bank sends a check to the Federal Reserve Bank of Chicago
(Chicago Fed) for collection. The check is payable by a New York office
of a Boston-based bank, which has an account at the Federal Reserve
Bank of Boston (Boston Fed). The Chicago Fed sends the check to the
Federal Reserve Bank of New York (NY Fed), which presents the check to
the New York office of the paying bank.
Path of physical check
Initial sender Chicago Fed NY Fed Paying
Bank
Parties deemed to have handled the check (Chain of indorsements)
Initial sender Richmond Fed Chicago Fed NY
Fed Paying Bank
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Section 210.5 Sender's Agreement; Recovery by Reserve Bank
Paragraph (a) of Sec. 210.5 sets forth the terms and warranties to
which a sender agrees when it sends an item to a Reserve Bank. The
Board is proposing to amend this paragraph to conform with the
provisions of Sec. 210.4. Specifically, a sender would authorize its
Administrative Reserve Bank, as well as any other Reserve Bank to which
the item is sent, to handle an item and would authorize the Reserve
Banks to make the appropriate accounting entries in settlement for the
item. The Board proposes to make minor amendments to paragraph (c) (and
parallel amendments to Sec. 210.12(f)), which would simplify the
provisions describing how settlements occur between Reserve Banks. The
Board also proposes to redesignate the paragraph numbers in paragraph
(c).
Paragraph (d) of Sec. 210.5 requires a sender to grant a security
interest in all its assets held by a Reserve Bank to secure any of its
obligations related to items collected through the Reserve Banks. The
Board proposes to amend this section to provide that the security
interest is granted to the sender's Administrative Reserve Bank.
Section 210.6 Status, Warranties, and Liability of Reserve Bank
Paragraph (a) of this section provides that Reserve Banks act as
agents or subagents of the owner of an item. The Board proposes to
modify the reference to a Reserve Bank in the first sentence with the
phrase ``that handles an item'' to clarify that this paragraph refers
to the Reserve Banks that are identified in proposed Sec. 210.4. The
current language provides that the agency terminates when a Reserve
Bank receives final payment for the item and makes the proceeds
available for use by the sender. The Board proposes to amend this
provision by stating that the agency status will not end unless the
time for commencing all actions against the Reserve Bank has expired.
This amendment would ensure that the agency and subagency relationships
between Reserve Banks regarding a particular item, as set forth in
proposed Sec. 210.4, will continue until the statute of limitations has
run on claims regarding any dispute concerning the item. The Board also
proposes to reorganize the numbering in paragraphs (a) and (b) of this
section.
Section 210.7 Presenting Items for Payment
This section provides rules regarding the presentment of items for
payment. The Board proposes to make minor changes to paragraphs (c) and
(d). Rather than referring to an item that is
[[Page 27550]]
``payable'' in a certain Federal Reserve District, the Board proposes
to refer to items that may be ``sent to the paying bank or nonbank
payor'' in a certain Federal Reserve District. The Board believes the
proposed language is more precise that the current provision.
Section 210.8 Presenting Noncash Items for Acceptance
Similar to the proposed changes to Sec. 210.7, the Board is
proposing to replace the term ``payable elsewhere'' with the term ``may
be presented elsewhere.'' The Board also proposes to reorganize the
paragraph numbering in this section.
Section 210.9 Settlement and Payment
This section sets forth the time and manner by which a paying bank
must settle for items it receives from a Reserve Bank. The Board
proposes to add a new paragraph (a) (and to redesignate the following
paragraphs accordingly) to provide that a paying bank must settle for
an item with its Administrative Reserve Bank, whether or not the paying
bank actually receives the item from that Reserve Bank. By settling
with its Administrative Reserve Bank, the paying bank would meet any
settlement obligation it may have under Regulation CC and the Uniform
Commercial Code. For example, the Uniform Commercial Code (Secs. 4-301
and 4-302) requires a paying bank to settle with the presenting bank by
midnight on the day of presentment if it wants to preserve its right to
return the check by its midnight deadline on its next banking day. By
settling with its Administrative Reserve Bank, a paying bank would
satisfy this obligation to a presenting Reserve Bank.
The new paragraph (a) would also provide that a paying bank may
settle through a correspondent account, with the agreement of its
Administrative Reserve Bank, the Reserve Bank (if different) that holds
the correspondent's account, and the correspondent. The paying bank
would remain responsible for settlement if for some reason settlement
does not occur through the correspondent account. The Board proposes to
make a conforming change to paragraph (c) (as redesignated) related to
payment for noncash items.
Currently, Regulation J requires the paying bank to settle so that
funds are available to the presenting Reserve Bank by the close of
Fedwire on the day of presentment. The Board proposes: (1) amendments
to paragraph (b) (as redesignated) of Sec. 210.9 to clarify that
settlement funds must be made available to the paying bank's
Administrative Reserve Bank, rather than the presenting Reserve Bank;
(2) to change the references to a Reserve Bank's operating circular to
include all of the Reserve Banks' operating circulars, as those
circulars will be uniform as of January 1, 1998; (3) to clarify
paragraph (b)(3) to refer to days the paying bank is closed voluntarily
``so that it does not receive a cash item'' (the provisions of this
paragraph would not apply if the paying bank's head office were closed
for business but a branch still received presentment of cash items from
the Reserve Banks); (4) to replace references to ``one hour after the
scheduled opening of Fedwire'' with ``9:30 a.m. Eastern Time'' so that
this time will remain unchanged when the Fedwire opening hour is moved
to 12:30 a.m. in December 1997; (5) to add paragraph headings
throughout paragraph (b); and (6) to make conforming changes to cross-
references throughout Sec. 210.9 in light of the paragraph
redesignations.
Section 210.10 Time Schedule and Availability of Credits for Cash
Items and Returned Checks
This paragraph provides that a Reserve Bank shall make proceeds
available for cash items and returned checks according to its published
time schedules. The proposed amendments to this section would clarify
that the Reserve Bank that holds the settlement account will make
credit available according to the time schedule of the Reserve Bank
that first receives the cash item (or returned check) from the sender
(or the paying or returning bank). The Board also proposes a conforming
amendment to Sec. 210.11(b) regarding credit for noncash items.
Section 210.12 Return of Cash Items and Handling of Returned Checks
This section sets forth the rules governing handling of and
settlement for returned checks. The rules for returned checks are
generally parallel to the rules for cash items, and the Board is
proposing amendments that are parallel to the amendments for cash items
discussed above. Under the proposal, a paying bank or returning bank
may send a returned check to any Reserve Bank, unless its
Administrative Reserve Bank directs it to send the returned check to a
specific Reserve Bank. As with cash items, the paying or returning
bank's Administrative Reserve Bank would be deemed to have handled the
item first, prior to the Reserve Bank that actually received the item,
for purposes of determining the relationships, rights, and liabilities
of the parties (see discussion of Sec. 210.4). Also similar to cash
items, a paying or returning bank would authorize the handling of a
returned check by its Administrative Reserve Bank, as well as by any
other Reserve Bank to which a returned check is sent, and would
authorize the Reserve Banks to make the appropriate accounting entries
in settlement for the returned check (see discussion of Sec. 210.5). A
subsequent returning bank or depositary bank would be required to
settle for a returned check with its Administrative Reserve Bank,
whether or not the bank actually receives the returned check from that
Reserve Bank. By settling with its Administrative Reserve Bank, the
subsequent returning bank or depositary bank would meet its settlement
obligations under Regulation CC and the Uniform Commercial Code (see
discussion of Sec. 210.9(a)). Finally, a paying or returning bank would
grant a security interest in all its assets held by its Administrative
Reserve Bank to secure any of its obligations related to returned
checks it sends to a Reserve Bank (see discussion of Sec. 210.5(d)).
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish an initial regulatory flexibility analysis with any
notice of proposed rulemaking. Two of the requirements of an initial
regulatory flexibility analysis (5 U.S.C. 603(b)), a description of the
reasons why action by the agency is being considered and a statement of
the objectives of, and legal basis for, the proposed rule, are
contained in the supplementary material above. The proposed rule
requires no additional reporting or recordkeeping requirements and does
not overlap with other federal rules. Regulation J bears a close
relationship with the Board's Regulation CC (12 CFR part 229), and that
relationship is explained in the supplementary information above as
well as in the provisions of the two regulations.
Another requirement for the initial regulatory flexibility analysis
is a description of and, where feasible, an estimate of the number of
small entities to which the proposed rule will apply. The proposal will
apply to all institutions, regardless of size, that send checks,
returned checks, or other items to a Reserve Bank or receive items from
a Reserve Bank. In 1996, subsidiaries of the 100 largest bank holding
companies deposited approximately 46 percent of the Federal Reserve
Banks' check volume, and all other banks deposited 54 percent. The
Reserve Banks presented approximately 31 percent of their check volume
to subsidiaries of the 100 largest bank holding companies,
[[Page 27551]]
and 69 percent to all other banks. The proposed rule sets out the terms
under which the Reserve Banks handle items and do not impose
significant burdens on small institutions.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the proposed rule
under the authority delegated to the Board by the Office of Management
and Budget. No collections of information pursuant to the Paperwork
Reduction Act are contained in the proposed rule.
List of Subjects in 12 CFR Part 210
Banks, banking, Federal Reserve System.
For the reasons set out in the preamble, the Board proposes to
amend part 210 of chapter II of title 12 of the Code of Federal
Regulations as set forth below:
PART 210--COLLECTION OF CHECKS AND OTHER ITEMS BY FEDERAL RESERVE
BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE (REGULATION J)
1. The authority citation for part 210 continues to read as
follows:
Authority: 12 U.S.C. 248(i), (j), and (o), 342, 360, 464, and
4001-4010.
2. Section 210.2 is amended by redesignating paragraph (a) and
paragraphs (b) through (p) as paragraph (b) and paragraphs (d) through
(r), respectively; adding new paragraphs (a) and (c); and revising
newly redesignated paragraphs (d), (g) introductory text, and (g)(2) to
read as follows:
Sec. 210.2 Definitions.
* * * * *
(a) Account means an account with reserve or clearing balances on
the books of a Federal Reserve Bank. A subaccount is an informational
record of a subset of transactions that affect an account and is not a
separate account.
* * * * *
(c) Administrative Reserve Bank with respect to an entity means the
Reserve Bank in whose District the entity is located, as determined
under the procedure described in Sec. 204.3(b)(2) of this chapter
(Regulation D), even if the entity is not otherwise subject to that
section.
* * * * *
(d) Bank means any person engaged in the business of banking. A
branch or separate office of a bank is a separate bank to the extent
provided in the Uniform Commercial Code.
* * * * *
(g) Cash item means--
* * * * *
(2) Any other item payable on demand and collectible at par that
the Reserve Bank that receives the item is willing to accept as a cash
item. Cash item does not include a returned check.
* * * * *
3. In Sec. 210.3, the last sentence of paragraph (a) is revised to
read as follows:
Sec. 210.3 General provisions.
(a) General. * * * The circulars may, among other things, classify
cash items and noncash items, require separate sorts and letters,
provide different closing times for the receipt of different classes or
types of items, provide for instructions by an Administrative Reserve
Bank to other Reserve Banks, set forth terms of services, and establish
procedures for adjustments on a Reserve Bank's books, including
amounts, waiver of expenses, and payment of interest by as-of
adjustment.
* * * * *
4. Section 210.4 is revised to read as follows:
Sec. 210.4 Sending items to Reserve Banks.
(a) Sending of items. A sender, other than a Reserve Bank, may send
any item to any Reserve Bank, whether or not the item is payable within
the Reserve Bank's District, unless the sender's Administrative Reserve
Bank directs the sender to send the item to a specific Reserve Bank.
(b) Handling of items. (1) The following parties, in the following
order, are deemed to have handled an item that is sent to a Reserve
Bank for collection--
(i) The initial sender;
(ii) The initial sender's Administrative Reserve Bank;
(iii) The Reserve Bank that receives the item from the initial
sender (if different from the initial sender's Administrative Reserve
Bank); and
(iv) Another Reserve Bank, if any, that receives the item from a
Reserve Bank.
(2) A Reserve Bank that is not described in paragraph (b)(1) of
this section is not a party that handles an item and is not a
collecting bank with respect to an item.
(3) The identity and order of the parties under paragraph (b)(1) of
this section determine the relationships and the rights and liabilities
of the parties under this subpart, part 229 of this chapter (Regulation
CC), and the Uniform Commercial Code. An initial sender's
Administrative Reserve Bank that is deemed to handle an item is also
deemed to be a sender with respect to that item. The Reserve Banks that
are deemed to handle an item are deemed to be agents or subagents of
the owner of the item, as provided in Sec. 210.6(a) of this subpart.
(c) Checks received at par. The Reserve Banks shall receive cash
items and other checks at par.
5. In Sec. 210.5, paragraphs (a)(1) and (c) and the first sentence
of paragraph (d) are revised to read as follows:
Sec. 210.5 Sender's agreement; recovery by Reserve Bank.
(a) * * *
(1) Authorizes the sender's Administrative Reserve Bank and any
other Reserve Bank or collecting bank to which the item is sent to
handle the item (and authorizes any Reserve Bank that handles
settlement for the item to make accounting entries), subject to this
subpart and to the Reserve Banks' operating circulars, and warrants its
authority to give this authorization;
* * * * *
(c) Methods of recovery. (1) The Reserve Bank may recover the
amount stated in paragraph (b) of this section by charging any account
on its books that is maintained or used by the sender (or by charging a
Reserve Bank sender), if--
(i) The Reserve Bank made seasonable written demand on the sender
to assume defense of the action or proceeding; and
(ii) The sender has not made any other arrangement for payment that
is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or
proceeding before using this method of recovery. A Reserve Bank that
has been charged under this paragraph (c) may recover from its sender
in the manner and under the circumstances set forth in this paragraph
(c). A Reserve Bank's failure to avail itself of the remedy provided in
this paragraph (c) does not prejudice its enforcement in any other
manner of the indemnity agreement referred to in paragraph (a)(3) of
this section.
(d) Security interest. When a sender sends an item to a Reserve
Bank, the sender and any prior collecting bank grant to the sender's
Administrative Reserve Bank a security interest in all of their
respective assets in the possession of, or held for the account of, any
Reserve Bank to secure their respective obligations due or to become
due to the Administrative Reserve Bank under this subpart or subpart C
of part 229 of this chapter (Regulation CC). * * *
6. In Sec. 210.6, paragraphs (a)(1) and (b) are revised to read as
follows:
[[Page 27552]]
Sec. 210.6 Status, warranties, and liability of Reserve Bank.
(a)(1) Status and Liability. A Reserve Bank that handles an item
shall act as agent or subagent of the owner with respect to the item.
This agency terminates when a Reserve Bank receives final payment for
the item in actually and finally collected funds, a Reserve Bank makes
the proceeds available for use by the sender, and the time for
commencing all actions against the Reserve Bank has expired. A Reserve
Bank shall not have or assume any liability with respect to an item or
its proceeds except--
(i) For the Reserve Bank's own lack of good faith or failure to
exercise ordinary care;
(ii) As provided in paragraph (b) of this section; and
(iii) As provided in subpart C of part 229 (Regulation CC) of this
chapter.
* * * * *
(b) Warranties and liability. (1) By presenting or sending an item,
a Reserve Bank warrants to a subsequent collecting bank and to the
paying bank and any other payor--
(i) That the Reserve Bank is a person entitled to enforce the item
(or is authorized to obtain payment of the item on behalf of a person
who is either entitled to enforce the item or authorized to obtain
payment on behalf of a person entitled to enforce the item); and
(ii) That the item has not been altered.
(2) The Reserve Bank also makes the warranties set forth in
Sec. 229.34(c) of this chapter, subject to the terms of part 229 of
this chapter (Regulation CC). The Reserve Bank shall not have or assume
any other liability to the paying bank or other payor, except for the
Reserve Bank's own lack of good faith or failure to exercise ordinary
care.
* * * * *
7. In Sec. 210.7, paragraph (c) introductory text and paragraph (d)
are revised to read as follows:
Sec. 210.7 Presenting items for payment.
* * * * *
(c) Presenting or sending direct. A Reserve Bank or subsequent
collecting bank may, with respect to an item that may be sent to the
paying bank or nonbank payor in the Reserve Bank's District--
* * * * *
(d) Item sent to another district. A Reserve Bank receiving an item
that may be sent to a paying bank or nonbank payor in another District
ordinarily sends the item to the Reserve Bank of the other District,
but with the agreement of the other Reserve Bank, may present or send
the item as if it were sent to a paying bank or nonbank payor in its
own District.
8. Section 210.8 is revised to read as follows:
Sec. 210.8 Presenting noncash items for acceptance.
(a) A Reserve Bank or a subsequent collecting bank may, if
instructed by the sender, present a noncash item for acceptance in any
manner authorized by law if--
(1) The item provides that it must be presented for acceptance;
(2) The item may be presented elsewhere than at the residence or
place of business of the payor; or
(3) The date of payment of the item depends on presentment for
acceptance.
(b) Documents accompanying a noncash item shall not be delivered to
the payor upon acceptance of the item unless the sender specifically
authorizes delivery. A Reserve Bank shall not have or assume any other
obligation to present or to send for presentment for acceptance any
noncash item.
9. Section 210.9 is amended by redesignating paragraphs (a) through
(e) as paragraphs (b) through (f); adding a new paragraph (a); revising
newly redesignated paragraphs (b) and (c); and in newly redesignated
paragraph (f) removing the references ``paragraphs (a), (b), and (c)''
and adding in their place ``paragraphs (b), (c), and (d)''.
Sec. 210.9 Settlement and payment.
(a) Settlement through Administrative Reserve Bank. A paying bank
shall settle for an item under this subpart with its Administrative
Reserve Bank, whether or not the paying bank received the item from
that Reserve Bank. A paying bank's settlement with its Administrative
Reserve Bank is deemed to be settlement with the Reserve Bank from
which the paying bank received the item. A paying bank may settle for
an item using any account on a Reserve Bank's books by agreement with
its Administrative Reserve Bank, any other Reserve Bank holding the
settlement account, and the account-holder. The paying bank remains
responsible for settlement if the Reserve Bank holding the settlement
account does not, for any reason, obtain settlement in that account.
(b) Cash items--(1) Settlement obligation. On the day a paying bank
receives 2 a cash item from a Reserve Bank, it shall settle
for the item such that the proceeds of the settlement are available to
its Administrative Reserve Bank by the close of Fedwire on that day, or
it shall return the item by the later of the close of its banking day
or the close of Fedwire. If the paying bank fails to settle for or
return a cash item in accordance with this paragraph (b)(1), it is
accountable for the amount of the item as of the close of its banking
day or the close of Fedwire on the day it receives the item, whichever
is earlier.
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\2\ A paying bank is deemed to receive a cash item on its next
banking day if it receives the item--
(1) On a day other than a banking day for it; or
(2) On a banking day for it, but after a ``cut-off hour''
established by it in accordance with state law.
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(2) Time of settlement. (i) On the day a paying bank receives a
cash item from a Reserve Bank, it shall settle for the item so that the
proceeds of the settlement are available to its Administrative Reserve
Bank, or return the item, by the latest of--
(A) The next clock hour that is at least one hour after the paying
bank receives the item;
(B) 9:30 a.m. Eastern Time; or
(C) Such later time as provided in the Reserve Banks' operating
circulars.
(ii) If the paying bank fails to settle for or return a cash item
in accordance with paragraph (b)(2)(i) of this section, it shall be
subject to any applicable overdraft charges. Settlement under paragraph
(b)(2)(i) of this section satisfies the settlement requirements of
paragraph (b)(1) of this section.
(3) Paying bank closes voluntarily. (i) If a paying bank closes
voluntarily so that it does not receive a cash item on a day that is a
banking day for a Reserve Bank, and the Reserve Bank makes the cash
item available to the paying bank on that day, the paying bank shall
either--
(A) On that day, settle for the item so that the proceeds of the
settlement are available to its Administrative Reserve Bank, or return
the item, by the latest of the next clock hour that is at least one
hour after it ordinarily would have received the item, 9:30 a.m.
Eastern Time, or such later time as provided in the Reserve Banks'
operating circulars; or
(B) On the next day that is a banking day for both the paying bank
and the Reserve Bank, settle for the item so that the proceeds of the
settlement are available to its Administrative Reserve Bank by 9:30
a.m. Eastern Time on that day or such later time as provided in the
Reserve Banks' operating circulars and compensate the Reserve Bank for
the value of the float associated with the item in accordance with
procedures provided in the Reserve Bank's operating circular.
(ii) If a paying bank closes voluntarily so that it does not
receive a cash item on a day that is a banking day for a Reserve Bank,
and the Reserve Bank makes the cash item available to the
[[Page 27553]]
paying bank on that day, the paying bank is not considered to have
received the item until its next banking day, but it shall be subject
to any applicable overdraft charges if it fails to settle for or return
the item in accordance with paragraph (b)(3)(i) of this section. The
settlement requirements of paragraphs (b)(1) and (b)(2) of this section
do not apply to a paying bank that settles in accordance with paragraph
(b)(3)(i) of this section.
(4) Reserve Bank closed. (i) If a paying bank receives a cash item
from a Reserve Bank on a banking day that is not a banking day for the
Reserve Bank, the paying bank shall--
(A) Settle for the item so that the proceeds of the settlement are
available to its Administrative Reserve Bank by the close of Fedwire on
the Reserve Bank's next banking day, or return the item by midnight of
the day it receives the item (if the paying bank fails to settle for or
return a cash item in accordance with this paragraph (b)(4)(i)(A), it
shall become accountable for the amount of the item as of the close of
the its banking day on the day it receives the item); and
(B) Settle for the item so that the proceeds of the settlement are
available to its Administrative Reserve Bank by 9:30 a.m. Eastern Time
on the Reserve Bank's next banking day or such later time as provided
in the Reserve Bank's operating circular, or return the item by
midnight of the day it receives the item. If the paying bank fails to
settle for or return a cash item in accordance with this paragraph
(b)(4)(i)(B), it shall be subject to any applicable overdraft charges.
Settlement under this paragraph (b)(4)(i)(B) satisfies the settlement
requirements of paragraph (b)(4)(i)(A) of this section.
(ii) The settlement requirements of paragraphs (b)(1) and (b)(2) of
this section do not apply to a paying bank that settles in accordance
with paragraph (b)(4)(i) of this section.
(5) Manner of settlement. Settlement with a Reserve Bank under
paragraphs (b) (1) through (4) of this section shall be made by debit
to an account on the Reserve Bank's books, cash, or other form of
settlement to which the Reserve Bank agrees, except that the Reserve
Bank may, in its discretion, obtain settlement by charging the paying
bank's account. A paying bank may not set off against the amount of a
settlement under this section the amount of a claim with respect to
another cash item, cash letter, or other claim under Sec. 229.34(c) of
this chapter (Regulation CC) or other law.
(6) Notice in lieu of return. If a cash item is unavailable for
return, the paying bank may send a notice in lieu of return as provided
in Sec. 229.30(f) of this chapter (Regulation CC).
(c) Noncash items. A Reserve Bank may require the paying or
collecting bank to which it has presented or sent a noncash item to pay
for the item in cash, but the Reserve Bank may permit payment by a
debit to an account maintained or used by the paying or collecting bank
on a Reserve Bank's books or by any of the following that is in a form
acceptable to the collecting Reserve Bank: bank draft, transfer of
funds or bank credit, or any other form of payment authorized by State
law.
* * * * *
10. Section 210.10 is revised to read as follows:
Sec. 210.10 Time schedule and availability of credits for cash items
and returned checks.
(a) Each Reserve Bank shall include in its operating circulars a
time schedule for each of its offices indicating when the amount of any
cash item or returned check received by it is counted as reserves for
purposes of part 204 of this chapter (Regulation D) and becomes
available for use by the sender or paying or returning bank. The
Reserve Bank that holds the settlement account shall give either
immediate or deferred credit to a sender, a paying bank, or a returning
bank (other than a foreign correspondent) in accordance with the time
schedule of the receiving Reserve Bank. A Reserve Bank ordinarily gives
credit to a foreign correspondent only when the Reserve Bank receives
payment of the item in actually and finally collected funds, but, in
its discretion, a Reserve Bank may give immediate or deferred credit in
accordance with its time schedule.
(b) Notwithstanding its time schedule, a Reserve Bank may refuse at
any time to permit the use of credit given by it for any cash item or
returned check, and may defer availability after credit is received by
the Reserve Bank for a period of time that is reasonable under the
circumstances.
11. In Sec. 210.11, the last sentence of paragraph (b) is revised
to read as follows:
Sec. 210.11 Availability of proceeds of noncash items; time schedule.
* * * * *
(b) * * * A Reserve Bank may, however, refuse at any time to permit
the use of credit given by it for a noncash item for which the Reserve
Bank has not yet received payment in actually and finally collected
funds.
* * * * *
12. Section 210.12 is amended by revising paragraphs (a), (b), and
(c)(1), the first sentence of paragraph (d), paragraphs (f) and (h),
and the first sentence of paragraph (i); and by removing the last
sentence of paragraph (g), to read as follows:
Sec. 210.12 Return of cash items and handling of returned checks.
(a) Return of items--(1) Return of cash items handled by Reserve
Banks. A paying bank that receives a cash item from a Reserve Bank,
other than for immediate payment over the counter, and that settles for
the item as provided in Sec. 210.9(b) of this subpart, may, before it
has finally paid the item, return the item to any Reserve Bank (unless
its Administrative Reserve Bank directs it to return the item to a
specific Reserve Bank) in accordance with subpart C of part 229 of this
chapter (Regulation CC), the Uniform Commercial Code, and the Reserve
Banks' operating circulars. A paying bank that receives a cash item
from a Reserve Bank also may return the item prior to settlement, in
accordance with Sec. 210.9(b) of this subpart and the Reserve Banks'
operating circulars. The rules or practices of a clearinghouse through
which the item was presented, or a special collection agreement under
which the item was presented, may not extend these return times, but
may provide for a shorter return time.
(2) Return of checks not handled by Reserve Banks. A paying bank
that receives a check as defined in Sec. 229.2(k) of this chapter
(Regulation CC), other than from a Reserve Bank, and that determines
not to pay the check, may send the returned check to any Reserve Bank
(unless its Administrative Reserve Bank directs it to send the returned
check to a specific Reserve Bank) in accordance with subpart C of part
229 of this chapter (Regulation CC), the Uniform Commercial Code, and
the Reserve Banks' operating circulars. A returning bank may send a
returned check to any Reserve Bank (unless its Administrative Reserve
Bank directs it to send the returned check to a specific Reserve Bank)
in accordance with subpart C of part 229 of this chapter (Regulation
CC), the Uniform Commercial Code, and the Reserve Banks' operating
circulars.
(b) Handling of returned checks. (1) The following parties, in the
following order, are deemed to have handled a returned check sent to a
Reserve Bank under paragraph (a) of this section--
(i) The paying or returning bank;
(ii) The paying bank's or returning bank's Administrative Reserve
Bank;
(iii) The Reserve Bank that receives the returned check from the
paying or returning bank (if different from the
[[Page 27554]]
paying bank's or returning bank's Administrative Reserve Bank); and
(iv) Another Reserve Bank, if any, that receives the returned check
from a Reserve Bank.
(2) A Reserve Bank that is not described in paragraph (b)(1) of
this section is not a party that handles a returned check and is not a
returning bank with respect to a returned check.
(3) The identity and order of the parties under paragraph (b)(1) of
this section determine the relationships and the rights and liabilities
of the parties under this subpart, part 229 of this chapter (Regulation
CC), and the Uniform Commercial Code.
(c) Paying bank's and returning bank's agreement. * * *
(1) Authorizes the paying or returning bank's Administrative
Reserve Bank, and any other Reserve Bank or returning bank to which the
returned check is sent, to handle the returned check (and authorizes
any Reserve Bank that handles settlement for the returned check to make
accounting entries) subject to this subpart and to the Reserve Banks'
operating circulars;
* * * * *
(d) Warranties by Reserve Bank. By handling a returned check under
this subpart, a Reserve Bank makes the returning bank warranties as set
forth in Sec. 229.34 of this chapter, subject to the terms of part 229
of this chapter (Regulation CC). * * *
* * * * *
(f) Methods of recovery. (1) The Reserve Bank may recover the
amount stated in paragraph (d) of this section by charging any account
on its books that is maintained or used by the paying or returning bank
(or by charging another returning Reserve Bank), if--
(i) The Reserve Bank made seasonable written demand on the paying
or returning bank to assume defense of the action or proceeding; and
(ii) The paying or returning bank has not made any other
arrangement for payment that is acceptable to the Reserve Bank.
(2) The Reserve Bank is not responsible for defending the action or
proceeding before using this method of recovery. A Reserve Bank that
has been charged under this paragraph may recover from the paying or
returning bank in the manner and under the circumstances set forth in
this paragraph. A Reserve Bank's failure to avail itself of the remedy
provided in this paragraph does not prejudice its enforcement in any
other manner of the indemnity agreement referred to in paragraph (c)(3)
of this section.
* * * * *
(h) Settlement. A subsequent returning bank or depositary bank
shall settle with its Administrative Reserve Bank for returned checks
in the same manner and by the same time as for cash items presented for
payment under this subpart. Settlement with its Administrative Reserve
Bank is deemed to be settlement with the Reserve Bank from which the
returning bank or depositary bank received the item.
(i) Security interest. When a paying or returning bank sends a
returned check to a Reserve Bank, the paying bank, returning bank, and
any prior returning bank grant to the paying bank's or returning bank's
Administrative Reserve Bank a security interest in all of their
respective assets in the possession of, or held for the account of, any
Reserve Bank, to secure their respective obligations due or to become
due to the Administrative Reserve Bank under this subpart or subpart C
of part 229 of this chapter (Regulation CC). * * *
By order of the Board of Governors of the Federal Reserve
System, May 14, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-13028 Filed 5-19-97; 8:45 am]
BILLING CODE 6210-01-P
