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I 195

FEDERAL RESERVE BOARD

WASHINGTON

T O

T H E FEDERAL RESERVE BOARD

X-7108

May 27 , 19 32 .

Dear S i r :

Since

my

let ter

of

December

14, 193 1, I

have received

th e f oll owin g addit iona l l e tt er s from some of the counsel to

th e Federal reserve hanks commenting further upon th e legal

an d

practical problems arising under

th e

hank collection code,

an d

copies

a re

inclosed

f o r

your information:

1 . Letter of November 9, 1931 , from Mr. Robert S.

Parker, Counsel

to the

Federal Reserve Bank

of

Atlanta (X-7108—f)}

2 .

Letter

of

December

30, 1931, and

nine inclosures

from Mr. M. G. Wallace, Counsel to the Federal

Reserve Bank o f Richmond (X-7108-a an d X-7108-ar-l

to X-7108-a-9, inclusive);

3 . Letter of December 16, 1931, from Mr. H. G. Leedy,

Counsel to the Federal Reserve Bank of Kansas City

(X-7108-b);

and

4 . Three le tt er s, on e with an inclosure, from Mr.

A. C. Agnew, Counsel to the Federal Reserve Bank

of San

Francisco, dated December

22, 1931 ,

January

5, 1932, and January 22, 1932 (X-7108-e, X-7108-d,

X-7108-c and X—7108—c—1).

I regret that th e pressure of other and more urgent

matters

has

been

so

great that

i t ha s

been impossible

for me to

reply

to

these letters

and I am no t y e t

able

t o

find time

to

comment upon them i n deta i l . I hope, however, that each of the

counsel who has written to me on th is subject wi ll consider this

\

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10B

i 196

-

-

circular letter

as an

acknowledgment

of MB

lettter ftbd will

par-

dofa toy fai lure t o reply separately and in detail .

Seme of the counsel who have written t o me and some of

the others with whan I have discussed th e subject from time to

time have expressed the view that this subject should be con-

sidered a t a conference of counsel f o r a l l Federal reserve banks,

and I

concur

i n

this view;

but I do no t

believe that

we can con-

veniently hold such a conference until some time after Congress

adjourns. I am writing you a separate letter with reference to

the

poss ib i l i ty

of

holding

a

conference some time t his summer

for the purpose of considering with the Standing Committee on

Collections and the o f f i c i a l s of the Treasury Department c e r -

tain matters pertaining

to the

cashing

of

Government warrants

and checks by Federal reserve banks under the provisions of

Treasury Department Circular No. 176, as requested by the

CDif-

ference

of

Governors

o f a l l

Federal reserve banks;

and we can

consider

the

legal

and

practical problems arising under

the

Uniform Bank Collection Code at the same time.

With kindest personal regards and a l l best wishes, I am

Cordially yours,

Walter Wyatt,

General Counsel.

Inclosures.

(FOR ALL COUNSEL - HEAD OFFICES ONLY)

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C O P Y X-7108-a

mSRAL RESBRVS liHK

OF

RICHMOND

December 30 , 193 1.

Federal Reserve Board,

Washington,

D. C.

Attent ion:

Mr,

Walter Wyatt, General Counsel.

Dear

Mr. % a t t :

I r e f e r t o your le t ter of December 1 4 t h with reference t o t he

handling

of

checks

i n

unpaid cash letters

t o

na t ion al banks

i n

s t a t e s

i n

which

t h e

Bank Collection Code

i s i n

force .

I enclose you herewith a d r a f t of a letter which was sent by

Mr. R. H.

Broaddus, Deputy Governor

of

this bank, under date

of

November

1 0 t h t o t h e Federal reserve banks o f a l l d i s t r i c t s i n which t h e Bank C o l -

lection Code

was in

fo rce

i n

some states

o f t he

d i s t r i c t , excep ting

t he


of

Chicago.

We ha d

already

had

some correspondence

with

t h e

latter Federal reserve bank

and

with

h i s

Counsel.

I

also enclose

copies o f a l l replies which we have received. Our l e t t e r was wri t ten

before t h e telegram sent by Mr. G. F. Await, Deputy Comptroller, under

date of December 2nd , so that t h e enclosed f i le i s no t o f great value.

You

w i l l

s e e ,

however, that practices

and

methods

of

Federal

reserve banks have differed materially

and t he

s i t u a t io n

h a s

created

so

much diff iculty that

I

have

no

very clear idea

a s t o

what

i s t h e

best

method t o fo l low. I n t h e correspondence t o which I r e f e r r ed t h e Federal

Reserve Bank

of

Chicago

had.

advised that they would prove

a

claim unless

ins t ruc ted

t o t h e

contrary

and

proceeded

a s

they

had.

done before

t h e

s ta tu te

except they asked

f o r t h e

re tu rn

of the

check when specifically

so

requested

by t he

endor ser. They

d id no t

give

any

def in i te no t ice

t o t h e

receiver

a s

t o their election except by f il ing claim.

As you know, we have endeavored t o give to our endorsers t h e

benef i t

o f t he

e l ec t io n .

Our

experience

was

tha t

i t was

almost impossible

t o

secure prompt replies from

t h e

endorsers

and

many

o f t he

endorsers

r e -

p l ied in s t ruc t ing

u s t o

treat their checks

a s

dishonored

b u t

f a i l e d

t o

give t h e names o f t h e drawers. As you know, when checks a r e charged t o

t h e accounts of the drawers they a r e f i led a lphabet ical ly under t h e name

of the drawers. I t i s , theref ore , extremely d i f f i c u l t t o f in d a check i n

any

par t i cu l ar cash l e t t e r unless

a l l

cancelled checks

i n t h e

bank

a r e

examined

and the

dates

o f t he

endorsements

on

them in sp ec te d. Even then

i t i s

d i f f icu l t because

t h e

endorsements

a r e

made with rubber stamps

and

f requent ly b lur red or one endorsement i s superimposed upon another so

that they a r e almost i l leg ib le .

Since receivers usually return

t o

depositors

a

statement

of

their

account with cancelled checks many checks were naturally returned

t o d e -

posi tors before

ou r

demand

f o r t h e

re tu rn

o f t h e

checks

was

made

on the

r ece iver . The statute expressly provides that t h e check returned t o t he

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X-7108-a 1 9 0


Washington,

D. Ci

Page

2

December

30 , 1931 .

drawer does

n o t

r e l e a s e

t h e

drawer,

"but i t i s

ex t remely d i f f i cu l t

t o

have

any

sa t i s f ac to ry se t t l emen t

i f t h e

check

i s n o t

re turned

t o t h e

holder .

F o r

example:

The

drawer

may

know that

h e i s

l i a b l e

t o

someone

"but i t

does

n o t

fol low that

h e i s

l i a b l e

t o t h e

original payee

a s t h e

payee

may not

have reimbursed t h e subsequent endorser an d t h e d r a w e r ' s l i a b i l i t y i s t o

t h e

holder .

Since Mr. Await

1

s telegram was sent we have al tered our method.

We now

n o t i f y endor sing banks th at

we

wil l elec t

t o

treat their i tems

a s

dishonored unless defini te instruct ions t o t h e contrary t o prove a claim

a r e i n o u r

hands

on a

date mentioned.

We

wri te

t o t h e

receiver immediately

s ta t ing that

we

wi l l advise

him of our

e l ec t ion

on or

before

a

par t i cu la r

date and ask h im to withdraw from h i s f i l e s a l l checks i n o u r unpaid cash

l e t t e r

and

send them

to us so

that

we may

have photostatic copies made.

Then on the day upon which we have previously named we re tu rn t o endorsing

banks

a l l

checks except those upon which

we

have been instructed

t o

prove

a

claim

and

r e t u r n

t h e

l a t t e r

t o t h e

receiver .

I

have

had bu t one

actual case under

th e

la t ter sys tem.

The

r ece iver was able t o i d e n t i f y and re tu rn t o u s a l l checks b u t three small

ones and so this system h a s worked very well t o da te . The one f a i l u r e ,

however, involved only

a

comparatively small bank.

I n t h e

case

of a

large

bank I am a f r a i d t h e receiver wi l l f ind i t d i f f i c u l t t o locate and return

t h e

checks upon which

w e a r e

unable

t o

give

t h e

names

o f t h e

drawers.

Mr.

Walden recently informed

me

that

t h e

Conference

of

Governors

r e f e r r e d

t o t h e

Collection Committee

a n d t h e

Conference

of

Counsels certain

quest ions re la t ing t o t h e rev i s ion of t r easu re r c i r cu la r No. 176 . I f such

a

conference

i s

held

I

bel ieve

i t

w i l l

b e

advisable

t o

include

o n t h e

agenda

a fu l l d i scuss ion o f t h e problems arising out of the operat ion o f t h e Bank

Collection Code, a n d i t might b e advisable t o have t h e Collection Committee

and

Conference

of

Counsels consider

t h e

problems jointly

and

also with

rep resen ta t ives o f t h e Comptro l ler ' s o f f ice . I doubt i f i t w i l l b e advis-

able

t o

hold such

a

conference immediately

a s I

be l i eve

i t

w i l l

b e

be t t e r

t o wait unt i l we have had more experience i n operation under t h e Code, and

I

imagine that

o ur

f r i e n d s

i n t h e

Comptro l ler ' s o f f ice

and

most

of the

Collection Committee

a r e

like myself,

so

swamped with immediate

and

pressing

problems tha t they wi ll have l i t t l e t ime t o give t o a rather complicated

subject .

Very truly yours,

(Signed)

M. G.

Wallace,

Counsel.

MGW/gr

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C O P Y

X - 7 1 0 8 - a - l ^ g g

I am

informed that

t h e

tihiform Batik Collection Code

i s i n

force

i n a t l e a s t one s t a t e i l l yotil* district , and I would like t o have y o u write

me giving me your expe rie nce i n handling unpaid cash letters i n s t a t es

where this code

i s i n

force .

The

code appears

t o

give

u s a

r igh t

t o

e l e c t

t o

treat checks

i n

unpaid cash let ters

t o

drawee banks

a s

dishonored

o r to

e l ec t

t o

prove

a claim on behalf o f the owners against t h e fai led bank. The code provides

that th i s la t ter c la im

i s a

p re fe r red

one , bu t our

counsel

h a s

advised

u s

that

i n h i s

opinion

t h e

sect ion

o f the

code which gives

t h e

agent co l lec t -

i n g bank t h e option t o t r e a t t h e checks a s dishonored or to f i l e a claim

i s probably applicable t o national banks, b u t tha t t h e section which d e -

clares that

t h e

claim when established shall

b e

p r e f e r r e d

i s

probably

no t

appl icab le t o national banks.

I n t h e

case

of

state banks

we

have exercised

t h e

r igh t

of

e l ec -

t ion vested

i n u s an d

have proceeded

a s

under

t h e

former

l a w ;

tha t

i s t o

say , we n o t i f y o u r endorsing banks that we will prove a claim unless i n -

s t ruc t ed

t o t h e

contrary, except that

i n t h e

case

of

Federal reserve

banks

who

have directed

u s n o t t o

prove such claims without express

i n s t r u c t i o n s we advise them that we wi l l awai t ins t ru ct ion s , but in no

case do we demand o r attempt t o secure t h e re tu rn of checks,

I n t h e case of national banks, thinking that since we could no t

secure t h e allowance o f t h e claims a s p r e f e r r e d , we considered that i t would

b e

wiser

t o

consult

o u r

endorsing banks before making

a n

e l ec t ion .

We

have, therefore , i n a l l such cases immediately notified a l l endors ing banks

and asked f o r i n s t r u c t i o n s as to whether we should elect t o f i l e a claim

upon their items

o r

treat them

a s

dishonored.

We

fi nd th at

ou r

endorsing

banks

d o n o t

give

a

prompt reply

t o o u r

requests

f o r

i n s t r u c t i o n s

and in

many cases i t i s almost impossible t o obta in re p l ie s .

When instructions

t o

tha t e f f ec t

a r e

received ,

we

demand from

t h e

r ece iver s

t h e

r e t u r n

o f the

checks which

our

endorsing banks request

u s t o

t r e a t a s dishonored. We understand t h e Comptroller o f t h e Currency lias

in s t ruc t ed t h e r e c e i v e r s n o t t o r e t u r n t h e checks themselves b u t t o have

photostatic copies made

i f we a r e

w i l l i n g

t o

bear

t h e

expense

of

malting

such copies and to send such copies t o u s .

Our

counsel

h a s

advised

u s

that under

t h e

code fa i lu re

t o

obtain

possession o f t h e check does n o t impair t h e r i g h t o f t h e holder t o proceed

o n th e drawer and endorsers, b u t na tu ra l ly i n p r a c t i c e o ur f a i l u r e t o obtain

t h e

checks causes much confusion among

our

endorsing banks

an d t h e

large

number

of

inquiries received makes

t h e

correspondence exceedingly burdensome.

I

would

b e

greatly obliged

i f y o u

would write

me

t e l l i n g

me how

you

proceed

i n

such cases

and

what your experience

h a s

been.

I

should

especia l ly l ike t o know:

Do you

exerc i se

t h e

r igh t

of

election without consulting endorsing

banks an d , i f so , do y o u e l ec t t o t r e a t t h e checks a s dishonored o r to

establ ish claims?

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t 200

X-7108-a-l

Do you

make

a

di st in ct io n between st at e

and

na t io na l banks

i n

making your election t o e s t a b l i s h a claim or to t r e a t t h e checks a s

dishonored?

I f you

co ns ul t your endorsing banks before making your e le c t i on ,

do you in

your advice

se t a ny

time

i n

which

a

reply mast

"be

received

"by

y o u , a n d , i f s o ,

what course

do you

follow

i f no

reply

i s

received within

that time?

I f you

e lec t

t o

t r e a t

any

checks

a s

dishonored, have

y o u

been

able t o secure t h e r e t u rn of the checks; o r , i f n o t , d o y o u take any steps

t o

requ i re

t h e

r e c e i v e r s

t o

return them?

Very truly yours,

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X-7l08-a-2

5 .0 i : i

i 2Q±

FEDERAL BESMS S

of

PHILADELPHIA

November

14, 1931

MB. B. H.

BROADDUS, Deputy Governor,

Federal Reserve Bank,

Richmond, Virginia.

Dear

M r.

Broaddus:

I am extremely sorry that your l e t t e r of

November

10 ha s no t

been acknowledged be fo re t h i s ,

and

trust that

you will accept my apology f o r t h e delay.

The subject of yor.r let ter , t h e Uniform Bank

Collection Code

of 1931, has

been re ce iv in g

t h e

consideration

of

t h e

o f f i c e r s

of

this bank,

and we

have been

i n

conference with

our cou nse l. Your l e t t e r embodies t h e questions upon which we

have been conc ent rat ing our study, and a t th is s tage of the

ana lys i s ,

we

would

n o t

f e e l j u s t i f i e d

i n

venturing

any

decisions

u n t i l

we

re ce iv e fu rt he r word from counse l. There

a r e s o

many

angles to be considered with regards t o t h e provis ion of Section 11

(Election t o Treat a s Dishonored Items Presented by Mail) and our

experience

i n t h e

co l lec t ion

of

checks under

ou r

present arrange-

ments, that we f e c i any opinions we might offer i n t h e absence of

specific experience, would

be

more

o r

less conjectural .

Assuring

you of our

will ingness

t o

confer with

you as

soon

as we are in

possession

of

su f f ic ien t da ta ,

and

appreci-

ating your inquiry i n th is mat ter , I am

Very truly yours,

JMT G

(Signed) James

M. Toy

Assistant Cashier.

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X-7108-a-3

c o p x . * S O S

Federal ftSBerve Bank

of

Cleveland

November

19, 1931

Mr. R. E.

Broaddus, Deputy Governor,


of

Richmond,

Richmond, Virginia.

Dear

M r.

Broaddus:

I am i n

r e c e i p t

of

your le t te r

of

November

1 0 t h

with respect

t o t h e

operat ion

o f the

Uniform Collection Code which

i s i n

fo rce

in a

number o f the s t a t e s , and asking f o r o u r experience i n t h e method of

handling items involved

i n

hank fa i lures

:'n

t h i s d i s t r i c t .

The Uniform Bank Collection Code h a s been adop ted "by Kentucky,

West Virginia and Pennsylvania i n t h i s d i s t r i c t . I t wa s before t h e

Legis la ture

of

Ohio

tw o

years

ago, "but was not

enacted.

I n t h e

three

s t a t e s i n which i t h a s been enacted i n t h i s d i s t r i c t , i t h a s n o t been i n

fo r c e a suf f i c ien t t ime to properly judge i t s merits o r to permit t h e

development

of a

definite scheme

of

handling items involved

i n

bank

f a i l u r e s . I t h a s been our view from t h e beginning that Section 13 of the

Uniform Bank Collection Code providing f o r preferences on behalf of the

owners

of

unremitted

f o r

collection items upon

a

fa i led bank,

i s no t

appl icable

t o

national banks

a n d t h e

s ta te bank ing o f f i c ia l s

of

Pennsyl-

vania and Kentucky have no t a s ye t committed themselves t o recognize t h e

Section

i n

dealing with insolvent s ta te banks under the ir j ur is di ct io n.

We are confident, however, that i n d u e course t h e s ta te banking off ic ia ls

of

these s tates wil l recognize

t h e

r i g h t

t o a

preference under

t h e c i r -

cumstances recited

i n

Section

13 of t h e

Code.

We

have

had a

very similar provision

i n t h e

Ohio General Code

f o r a

number

of

years which

h a s

g r e a t l y f a c i l i t a t e d

t h e

set t lement

of

col lec t ion i tems i n t h e l iqu ida t ion of an insolvent bank*s assets, and we

believe that when Section

1 3 i s

fully recognized

b y t h e

state banking

o f f i c i a l s

o f t h e

var ious s ta tes

i n

which

t h e

Code

h a s

been enacted, that

i t

w i l l

be of

cons iderable benef i t

i n

s impl i fy ing

t h e

handling

of

col lec t ion

items which have been drawn

on a

state bank which becomes insolvent before

paying t h e items a nd w i l l b e resor ted t o genera l ly b y t h e owners of such

items rather than seeking t h e remedy prescribed i n Section 11.

Section

11 of the

Uniform Collection Code, which provides

an

e lec t ion on the pa r t of the agent collecting bank t o treat i tems a s d i s -

honored which have been sent

t o a

drawee bank

f o r

c o l l e c t i o n

b u t

which

a r e unremitted f o r a t t h e time of f a i l u r e , i s we bel i eve , ap pl icable t o

na t iona l a s well a s state banks.

Since

t h e

adoption

o f the

Uniform Bank Collection Code

i n t h e

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Mr. R. H- Broaddus, Deputy Governor - 2 -

X-7108-a-3

o n o

November

19 , 1931 °

t h ree s t a t es

i n

t h i s d i s t r i c t r e f e r r e d

to , we

have followed

t h e

p rac t i ce

of immediately notifying t h e receiver o r examiner i n charge o f the fa i l ed

hank that

a l l

unpaid items received from

u s f o r

co l l ec t ion sha l l

h e

held

"by him and not re turned t o t h e makers until we have advised h im whether

or not we

e l ec t

t o

t r e a t

any of

said items

a s

dis hono red . Upon r ec ei pt

of such ins t ruct ions on any check we immediately notify t h e rece iver o r

examiner

i n

charge

of our

in t en t ion

t o

t r e a t

t h e

item

a s

dishonored

and

demand i t s re tu rn .

A t t h e

same time

we

charge

t h e

items hack

t o o u r

endorsers

and

reques t thei r ins t ruct ions a s t o whether we should treat t h e items a s

dishonored,

o r

fi le claim against

t h e

insolvent hank.

Upon receipt

of

the i r r ep l i es

o r i n t h e

event

no

rep ly

i s r e -

ceived and a su f f i c i en t l eng th of time h a s elapsed i n which t h e endorsers

could have notified

u s ,

claim

i s

prepared against

t h e

insolvent hank

f o r

a l l items except those upon which we have been sp ec i f ic a l ly ins t ruc ted t o

e lec t

t o

t r e a t

a s

dishonored.

In

n o t i f y i n g

o ur

endorsers

no

time limit

i s

f ixed f o r t h e i r r e p l i e s . We d o , however, cal l their at tent ion t o t h e

sta tut ory provis ion req uir i ng reasonable di l i genc e .

Up to th e

present date

we

have

no t had

suff ic ien t exper ience

t o

determine t h e exact ef fect o f the treatment of items a s dishonored. The

l eg i s l a t ion be ing

new,

apparent ly

t h e

s ta te hanking of f ic ia l s , inc lud ing

t h e rece iver s of failed hanks, have no def in i te po l icy wi th respect t o t h e

operat ion

of

Section

11 as in

some cases

t h e

Receivers have returned

t h e

dishonored items t o u s while i n other instances they have either refused t o

r e tu rn

t h e

items

o r

have advised

u s

tha t

t h e

matter will

h e

taken under

c o n -

s ide ra t ion .

I n t h e case of fai led nat ional hanks we have n o t been able t o

secure

t h e

r e t u r n

of any

items

nor any

evidence that

t h e

Comptroller

of the

Currency o r t h e Receiver o r Examiner i n Charge o f t h e bank recognized any

con t ro l l i ng e f fec t

o f t h e

Uniform Bank Co ll ec ti on Code othe r tha n

a n

offer

t o f u r n i s h u s with ph oto st at ic copies of items which we elected t o t r e a t a s

dishonored, provided

we

w6a?e willing

t o p a y f o r

such copies.

P r io r

t o t h e

adoption

o f the

Uniform Bank Co ll ec ti on Code, pr a c -

t i c a l l y a l l o f o u r endorsers were content t o fi le claims against t h e i n -

solvent bank,

b u t

s ince

t h e

adoption

o f the

Code

a

very considerable

p e r -

centage of our endorsers have been instructing u s t o treat their i tems a s

dishonored when

t h e

bank upon which they

a r e

drawn fails before payment.

We have f e l t that th er e was a p o s s i b i l i t y of i n c u r r i n g l i a b i l i t y t o t h e

owners

of

collection items where

we d id no t

seek in st ru c ti on s from them

before present ing claim, so as to give them an opportunity t o have t h e

items dishonored

i f i t

were

t o

their advantage

t o

have

t h e

items

so

t r ea t ed .

Consequently, t h e correspondence incident t o this procedure h a s been

immeasurably increased over

t h e

s i t u a t i o n

a s i t

ex is ted pr i o r

t o t h e

enact-

ment o f the Code.

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X-7108-a-3

, 20

Mr. E. H.

BroadduSj Deputy governor

- 3 -

November

19, 1931

With respect t o fai led state banks i n t h i s d i s t r i c t we have felt

j u s t i f i e d i n discouraging t h e p r a c t i c e of dishonoring t h e unpaid items and

have t r ied

t o

point

out to our

endorsers

t h e

more desirable course

o f e s -

t a b l i s h i n g

a

p re fe rence

i n t h e

a s s e t s

o f the

failed bank through

t h e

f i l i n g

of

claim against

t h e

bank.

As to

nat ional banks,

we

have likewise

d i s -

couraged t h e dishonoring of unpaid checks, by poin t ing ou t to the endorsers

that t h e con t ro l l i ng e f fec t of the Uniform Collection Code h a s n o t been

recognized b y t h e Comptroller o f the Currency and t h e i r r i g h t s t o proceed

thereunder wil l very l ikely b e contested by the Comptroller. The r igh t t o

treat such items a s dishonored appears t o appeal t o a great many of ou r

endorsers, both

a s to

s t a t e

and

national banks

and we

have

no

doubt that

before many months

t h e

scope

and

e f f e c t

of

Section

11 of the

Uniform

Collection Code will have

t o b e

determined

by

l i t i g a t i o n , e i t he r

i n

t h i s

o r

some other dist r ict .

Very truly yours,

(Signed)

M. J .

Fleming

Deputy Governor

MJT:H

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C O P Y

X-7108-a-4

205

FIDSRAL RESERVE 3A21K

OF

ST. LOUIS

November

13, 1931.

Mr. R. H.



of

Richmond

#

Richmond, Virginia.

Dear M r. Broaddus:

The l e g i s l a t u r e s of the Sta tes of Missouri , I l l i no is , Ind iana and Kentucky

i n t h e

Eighth District have passed what

i s

termed

t h e

Uniform Bank Co ll ec ti on

Code

a s

f o s t e r e d

b y t h e

American Bankers Association.

Several questions present themselves f o r in terpre ta t ion when t h e various

phases

o f the

code

a r e

considered.

The

American Bankers Association explana-

t i o n o f the code indicates a l l banks a r e affected which would include National

hanks. There

i s a

quest ion

in ou r

opinion, whether

i t

w i l l

be so

upheld

a s

t h e

obta in ing

o f

preference against National banks

on

claims covering

i n -

volved transit checks

i s a

question which

h a s

already been decided

by the

Supreme Court

and as you

know

i t h a s

always been denied, except

i n

those

cases where checks on other them t h e closed bank a r e involved a nd the claim

i s divided into tw o p a r t s , one of which covers checks drawn o n t h e other banks

col lected through t h e def unc t Na tio nal bank which ite ms i t i s t h e custom

f o r t h e Comptroller o f the Currency t o allow a s prefer red , p rov ided t h e assets

of the

closed bank were augmented

by

such col lec t io n. Therefore , that par t

of

Sect ion

13

which defines claims under

a

c e r t a i n s t a t e

of

f a c t s

a s

prefer red

would seem

to be in

c on fl ic t with past decisions inso far

a s i t

r e l a t e s

in a

general way to National banks and w i l l no doubt have to be fu r the r t e s t ed i n

order that a def in i te course of procedure may be adopted i n respect t o those

st at e s tha t have passed

t h e

code.

Another fact

to be

considered

i s t h e

blanket a uth ori za tio ns which were in te r-

changed

b y t h e

Federal reserve banks

in 1922 .

They were founded upon

the

then pr ev ai li ng c ond iti ons , which under the new codes, appear to be changed.

Therefore i t i s poss ib le that th e blanket authorizat ions may have t o b e r e -

d r a f t e d so as to contemplate t h e e f f e c t of the new codes.

The

Missouri Code does

n o t

give

t h e

endorsing bank

o r

holder

t h e

option

of

t r e a t i n g

a

check

a s

dishonored

o r t h e

e l e c t i o n

t o

f i l e c l a im

b u t

provides that

(Section 11-Paragraph

2 )

When

a

drawee

or payor bank h a s presen ted t o i t f o r

payment an item o r items drawn on or

payable by or a t such bank a nd a t t h e time

has on

deposi t

t o t h e

c r e d i t

of the

maker

o r

drawer,

an

amount equal

t o

such item

o r

items

and

such drawee

o r

payor shal l fai l

or

close

f o r

business

a s

above (under

c i r -

cumstances

a s

out l ined

i n

paragraph

1 ,

sect ion

11) after having charged such item o r items

t o the account o f the maker o r drawer thereof.

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2

Mr. R. H. Broaddus, Deputy Governor,

Federal keserve Bank of Richmond,

Richmondj Virginia.

o r

otherwise discharged

h i s

l i ab i l i t y t he reon ,

b u t without such item o r items having been paid

o r s e t t l e d f o r b y t h e drawee o r payor, ei ther i n

money or by an uncondit ional cr ed it given o n i t s

books

o r on the

books

of any

other bank which

h a s

been requested

o r

accepted

so as to

c o n s t i -

tute such drawee o r payor, or any other bank

debtor therefor , t h e a s s e t s of such drawee

o r payor shall b e impressed with a t r u s t i n

favor

o f the

owner

o r

owners

of

such item

o r

items

f o r t h e

amount thereof

o r f o r t h e b a l -

ance payable upon a number of items which have

been exchanged and such owner o r owners shall

b e e n t i t l e d t o a preferred claim upon such

a s s e t s , i r r e s p e c t i v e

of

whether

t h e

funds

r e p -

resenting such item

o r

items

can be

t raced

and

i d e n t i f i e d

a s

p a r t

of

such as se ts

o r ha s

been

intermingled with o r converted into other assets

of such fa il e d bank. (Underscoring i s ours) .

Since

t h e

passage

o f the

code some

two and

one-half years

a g o ,

every claim

we have f i l e d again st Sta te banks i n Missouri have been given preference.

I n t h e case o f the I l l i n o i s A c t , Section 11 es t ab l i shes t h e r igh t of the

agent collecting bank

t o

t r e a t

a s

dishonored checks which

a r e

presented

by

mail

t o t h e

drawee

o r

payor

and not

f i n a l l y s e t t l e d

for in any one of

four

methods outlined

i n

that sect ion

and in

Section

1 3 , i t i s

provided that

a

pr ef er re d claim ex is ts under cer tai n condit i ons. Sect ion

11 of the

code

i s worded a s fol lows:

Wherean item i s duly presented b y mail t o

t h e

drawee

o r

payor whether

o r n o t t h e

item

h a s

been charged

t o t h e

account

of the

maker

or

drawer thereof

o r

re turned

t o

such maker

or drawer, t h e agent collecting bank s o p r e -

sen t ing may a t i t s elect ion exercised with

reasonabl e di lig enc e, tr ea t such item a s d i s -

honored by nonpayment and recourse may be had

upon pri or pa rt ie s ther eto

in any of the

fol low-

i n g

cases:

(1 ) Where t h e check o r d r a f t o f the drawee or

payor bank upon another bank received i n p a y -

ment therefor shall n o t b e paid in due course;

( 2 )

Where

t h e

drawee

o r

payor bank shall with-

o u t reques t o r authori ty tender a s payment i t s

own check or draf t upon i t se l f o r o ther ins t ru-

ment upon which i t i s pr imar i ly l iab le ;

(3 )

Where

t h e

drawee

o r

payor bank shall give

a n

unrequested

o r

unauthorized credi t therefor

o n i t s books o r the books of another bank; or

X-7108-a-4

, 306

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X-7108-a-4

3 3 0 ^

Mr. H. H.

Broaddus, Deputy Governor*


of

Richmond,

Richmond, Virginia.

(4 ) Where th e drawee o r payor shall retain such

items without remitting therefor o n t h e date of

r ece ip t

or on th e day of

matur i ty

i f

payable

otherwise than on demand and received by i t

p r i o r

to or on

such date

of

matur i ty .

Provided, however,' that

in a ny

case where

t h e

drawee

o r

payor bank s ha l l r e t ur n

any

such item unpaid n o t la ter than t h e date of

r ece ip t or of maturi ty a s a f o r e s a i d i n t h e

exercise o f i t s r igh t t o make payment only

a t i t s own counter, such items cannot b e

t r e a t e d

a s

dishonored

by

nonpayment

a nd the

delay caused thereby shall

n o t

re l ieve pr io r

par t i e s f rom l i ab i l i t y .

Provided further that

no

agent col lect ing

bank shall be l i a b l e t o t h e owner of an

item where i n t h e exerc i se of ordinary care

i n t h e i n t e r e s t of such owner i t makes o r

does n o t make t h e election above provided

or

takes such steps

as i t may

deem necessary

i n

cases

( 2 ) , ( 3 ) a nd ( 4 )

above.

Our experience since t h e passage o f the code i n Il l inois l ias been rather

l imi ted

due to the few

number

of

banks that have closed

on

which claims

have been filed. We expect t o have more experience i n tha t s t a t e a s time

goes

o n .

Sect ion

13 of the

I l l in oi s code provides tha t :

Except

i n

cases where

a n

item

o r

items

i s

dishonored

b y

nonpayment,

a s

provided

i n

Section

11

**** such owner

o r

owners shall

b e e n t i t l e d t o a preferred claim upon such

a s s e t s , i r r e s p e c t i v e of whether t h e funds

representing such item o r items c a n be traced

and i d e n t i f i e d a s par t of such as se ts or has

been intermingled with

o r

converted into

o ther asse ts

of

such f a i l ed bank.

The codes, a s passed b y t h e Indiana and Kentucky legislatures, a r e p rac t i ca l ly

s imi l a r t o that passed i n t h e Sta te of I l l i n o i s , a s outlined above and several

claims f i led recent ly against State banks i n those states have been taken

up by rece iver s and paid promptly.

We

have

no t up to

this time changed

our

method

of

procedure

i n t h e

charging

back

and

f i l i ng c l a im

on

involved checks, which briefly

i s a s

fol lows:

When

any

bank located

i n t h e

Eighth Di s t r i c t , S ta te

o r

National , closes

t h e

outstanding checks that

a r e n o t

f inal ly paid , whether d raf t

h a s

been remitted

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X-7108-a-4

4

S O Q

Mr. B. H.

Brcaddus, Deputy Governor,


of.

Richmond^

Richmond, Virginia*

o r n o t , a r e

charged back

to- the

endorsing banks

and

they

a r e

requested

t o

n o t i f y

u s

whether

o r no t

they desir e claim f i l e d .

I n t h e

case

of our own

members

we

f u r n i s h

a n

au thor iza t ion

t o

file claim covering their respective

items an d a sk that i t b e completed f o r such checks a s they want included.

A sample o f the au tho r i za t ion i s enclosed.

The blanket authoriz at ion s a s exchanged b y t h e Federal reserve banks i n

1922 govern such checks a s were deposited by then o r their direct sending

members.

We

hope

t h e

above information will

be of

some value

t o y o u an d a r e

pleased

t o

make

t h e

following comment

i n

specific answer

t o t h e

questions mentioned

i n t h e

seventh paragraph

of

your let ter :

(1 ) We do n ot

make

any

e l ec t ion

as to

whether

checks

a r e t o b e

t r ea t ed

a s

dishonored

o r

cla im f i led an d merely request t h e endorsing

bank t o n o t i f y u s whether o r n o t they desire

c la im f i led i n thei r behal f .

( 2 )

Answer

No. 1 we

be li ev e wi ll al so answer

Question

Ho. 2.

(3 ) We do n ot

e s t a b l i s h

a

time limit

i n

which

t o receive instruct ions from t h e endorsing banks

unless

t h e

time limit

of

f i l ing c la ims

a s f u r -

nished b y t h e Examiners of Receivers i s drawing

near , i n which event we endeavor t o expedite

t h e

rece ip t

of

in s t ruc t ions .

(4) We

have

no t up to

this time made

any

e f fo r t

t o have t h e Examiners o r Receivers return checks

which have been stamped o r cancelled paid and

charged t o t h e accounts o f t h e drawers with t h e

exception of banks located i n t h e S ta t e of Ar-

kansas which operate under a s t a tu t e tha t r e -

quires Receivers

o r

Examiners when tairing charge

of a

closed bank

t o

re tu rn

t o t h e

last endorser

a l l

checks which have

n o t

been f inal ly paid

or

s e t t l e d

f o r b y t h e

closed bank, i rrespect ive

o r

whether

t h e

checks have been charged

t o t h e a c -

counts

of the

makers, provided they

a r e

s t i l l

on

t h e bank premises. I f they have been cancelled

paid., charged t o t h e accounts of and delivered

t o t h e makers. t h e Receivers o r Examiners a r e n c

:

required t o reverse entry o r return them.

We

sha l l

b e

very glad

t o

have

t h e

b e n e f i t

of

your further experience

i n t h e

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X—710 8—sl

,

'4

5

. 209

Mr. 2. H.

Broaddus, Deputy,

Federal 2eserve Bank

of

Richmond,

Richmond, Virginia.

co l l ec t ion of your data, assuming that y o u a r e obtaining i t from t h e other

Federal reserve banks also,

a s i t i s

possible that laws

a s

recently passed

i n

th i s d i s t r i c t wi l l r equ i re

a

change

i n o u r

procedure.

If we ca n be of a ny fur ther serv ice t o y o u in so fa r a s t h e Eighth Distr ict

i s

concerned, please

do no t

h e s i t a t e

t o

c a l l

o n u s .

Yours very truly,

(Signed) 0 . M. Attebery,

Deputy Governor.

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X-7108-a-5

C O P t

FEDERAL RESERVE BAxTK

OF

MiiWiPOtis

December 2, 1931

Mr. B. H.



Richmond, Virginia.

My

dear

M r.

Broaddus:

I do not know just why reply t o your l e t t e r o f November 1 0 th

h a s been delayed and I ask you to pardon me for no t giving t h e matter

ea r l i e r a t t en t i on .

The

only s ta te

i n t h e

Ninth Federal Reserve District which

has

adopted

t h e

bank collection code

i s

Michigan.

The

upper peninsula

of

Michigan

i s

wi th in

o u r

d i s t r i c t .

The a c t was

adopted this year

and i s

found a t #240 Michigan Public Acts 1931 .

This bank has had no experience a t a l l i n making claims against

Michigan banks and par t i cu la r ly none s ince th i s ac t w as adopted May 29, 1931.

When t h i s code was f i r s t prepared b y t h e a t t o rney f o r t h e American

Bankers Association

we

presented

t h e

same

t o o u r

counsel

who was of

opinion

that numerous embarrassing questions would arise

i f

adopted.

Our

counsel

without having gone very deeply into

t h e

matter

i s o f t h e

opinion that this

legis la t ion would

n o t

have

t h e

e f f e c t

of

giving

a

preferred claim

i n t h e

l i q u i d a t i o n

of a

national bank under circumstances where

no

preferred claim

would

b e

allowed

i n t h e

absence

of

such leg i s la t ion .

As to state banks t h e a c t gives a preference under certain circum-

stances t o t h e owner o r owners of items n o t f i na l l y r emi t t ed f o r . I n view

of this language there i s serious question i n t h e mind of our counsel whether

o ur bank should assume t h e burden of attempting t o e s t a b l i s h a prefer red

claim i n an y case . To counsel and to ourselves i t seems more i n accordance

with t h e theor ies indica te# b y Regulation J tha t o u r bank, where final

remit tance i s n o t received, should treat t h e items a s dishonored i n a l l

cas es excep t where w e a r e able t o receive prompt instructions from our

endorsers t o t h e contrary.

I n t h e

l i g h t

o f the

foregoing

I

cannot specifically answer

any of

your questions.

I t would seem from your le t t e r th at yo u have probably written other

Federal Reserve Banks along t h e same lines. I f so , and you have h ad repl ies

from them, we would much appreciate copies thereof.

Very truly yours,

210 .

HY:20

(Signed) Harry Yaeger,

Deputy Governor.

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t

211

X-7108-a-6

C O P Y

FEDERAL RESERVE SAUK OF KANSAS CITY

December

1 , 1931.

Mr. R. H. Broaddus, Deputy Governor,

Federal Reserve Bank of Richmond,

Richmond, Virginia.

Dear M r. Broaddus:

Your le t ter of November 1 0 , with reference t o o u r pol icy

i n connection with t h e handling of t ransi t c la ims i n states where

t h e Uniform Bank Collection Code h a s been adopted, was r e f e r r e d t o

our Counsel with t h e request that h e l e t me have a memorandum thereon

and in some way i t became sidetracked and has just come t o l ight

Up to this t ime, we have n o t formulated an y de f in i t e po l i cy

i n this mat ter f o r t h e reason th at have been awai tin g t h e ru l ing

of the

Comptroller

o f t h e

Currency. There

h a s

been considerable

di scuss ion

a s t o

whether

o r no t the

provis ions

o f the

Uniform Bank

Collection code apply

t o

national banks

and the

Comptroller,

as I

understand

i t , h a s n o t y e t

agreed that they have

an y

app l i ca t i on .

Our

last informat ion

w as t o t h e

e f f ec t t ha t

he was

giving thorough

cons idera t ion t o t h e mat ter an d , i f h e concludes that t h e s t a t u t e i s

app l i cab l e ,

i t i s t h e

opinion

of our

at torney that

i t

will then

b e

proper

f o r u s t o

ascer ta in f rom

t h e

endorsers

of

items involved

i n

recent nat ional bank fai lures

i n

Nebraska whether

o r n o t

they desire

t h e

items

t o b e

t r e a t e d

a s

dishonored.

I t i s

a l so

our

opinion that ,

even though

t h e

Comptroller 's conclusion

may be

adverse,

we may,

never-

t he l e s s

,

conclude that

we

should treat

t h e

items

a s

dishonored

i f our

endorsers

so

de si re . Unti l such t ime

a s t h e

Comptroller

h a s

d e t e r -

mined

h i s

posi t ion, however ,

we see no

necess i ty

f o r

taking

t h e

matter

u p

with

our

endorsers .

The

code

was

only recently enacted

i n

Wyoming

and Hew Mexico, and while i t w as enacted a year ago in Nebraska, there

have been only three o r four nat ional bank fai lures i n that s ta te

s ince

i t s

enactment

a n d a l l o f

these have occurred within

t h e

las t

couple

of

months.

I n

these cases ,

we

have not i f i ed

t h e

rece ivers

tha t

we may

later determine

t o

e lec t

t o

t r e a t

t h e

items

a s

dishonored,

and

tha t

we

wi l l i nd i ca t e

our

pos i t i on

a s

soon

a s t h e

Comptroller

h as

reached

a

decis ion.

I n a l l t h e

s t a t e s

i n

t h i s d i s t r i c t , w i t h

t h e

exception

of

Oklahoma,

t h e

state laws provide that

w e a r e

e n t i t l e d

t o

prefer red

claims

on

t r a ns i t i t ems .

Our

method

of

procedure

i n t h e

f i l i n g

of

claims up to this t ime i s out l ined i n a memorandum from o u r Transit

Manager

a s

fol lows:

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FEDERAL EESSBVE BAM OF ICAUSAS CITH?i

212

X-7108-a-6

—2—

Whenever either

a

s t a t e

o r a

na ti ona l bank cl os es ,

items involved i n d r a f t s on which payment h a s been

re fused

a r e

immediate ly charged back

t o

endorsers,

t h e

advice

of

such ac ti on being giv en thr ough

t h e

medium

of our

form le t ter

817, a

copy

of

which

i s

at tached . This le t t e r ,

you

wi l l note,

i s

accom-

panied "by Form 214 , which i s t h e au tho r i ty to "be

signed "by the endorser o r owner of t he i t an i n t h e

event they wish

us to

represent them

i n

f i l ing c la im.

The

endorser

i s

advised that

i f

they des ire

we

v i l l

represent them i n f i l i ng c l a im, and that i f they

d e s i r e u s t o represent them t h e enclosed form

of authority should b e signed i n dup l i ca t e a n d r e -

turned

to us no t

later than sixty days from

t h e

date

of the

insolve ncy. Shortly a f t e r tha t t ime, while

our

l e t t e r s t a t e s t h a t

we

w i l l

no t

f i l e claim unless

t h e au tho r i za t ion i s received by such time, we t race

any outstanding items on which we have n o t received

author iza t ion , g iv ing

ou r

endorsers

a

fur ther oppor-

tun i ty

t o

handle

t h e

matter through

u s .

Af te r

a

l apse of a week o r t e n days from t h e date of t rac ing ,

un less r ep l i es a r e received , we proceed t o prepare

and f i l e o u r claim, omitting items n o t authorized.

"The

claim

i s i n a l l

cases f i led

f o r

preference,

although

i n t h e

case

of

national banks

we, of

course,

have never been able a s y e t t o obtain preference and

must accept a common claim.

I

rea l i ze tha t t h i s

i s a

rather poor

and

belated answer

t o

your inquiry,

b u t

s ince

we

have

n o t y e t

es tab l i shed

a

def in i t e po l i cy ,

based on the new col lect ion code, i t seems to be the bes t I can do at

th is t ime. Our at torney advises that he has had some correspondence

with your M r. Wallace on the subject and that i t h a s been suggested

that there should

be an

effort made

t o

have these matters handled

i n

a

uniform manner

i n a l l

d i s t r i c t s

a nd i n a l l

states where

t h e

uniform

code

h a s

been adopted.

I f ,

a f t e r

y ou

have completed your study

of

th is

quest ion,

you

have

an y

suggestions which

you

think would

be of

value

t o

u s , I wil l appreciate hearing from you a t your convenience.

With kind pers ona l re ga rds ,

I am

Very truly yours,

(Signed) C. A. Worthington

L .

Deputy Governor.

CAW: I ,

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X-7108-a

FEDERAL RESERVE BAM OF KANSAS CITY

December

1 , 1931.

Mr. R. H. Broaddus,

Deputy Governor,


of

Richmond,

Richmond, Virginia.

Dear M r. Broaddus:

Since writing to you on November 1 7 t h , r e l a t i v e t o

o u r

procedure

i n

regard

t o

f i l ing c la ims per ta in ing

t o

checks

on

banks which have failed, Deputy Comptroller o f t h e Currency Await

wired

t h e

General Counsels

o f a l l

Federal Reserve Banks submitting

a proposal under date of November 20th, of which no doubt you

have seen

a

copy.

On November 2 3 d , t h e Twin Fa l l s Nat iona l Bank,

Twin Fa ll s, Idaho, fa il e d

t o

open

f o r

business .

We

wired Deputy

Comptroller Await t o request t h e Examiner i n charge t o surrender

t o t h e


of San

Francisco checks contained

i n

a cash l e t t e r f o r which we held a dishonored remittance draft .

The

Examiner promptly received such instructions,

an d t h e

checks

a r e

being returned

t o

endorsers

a s

dishonored.

This procedure we shal l fol low i n t h e f u t u r e , i n t h e

case

of

suspended National banks

i n

Washington, Oregon

and

Idaho,

which States have adopted t h e Uniform Collection Code.

Yours very truly,

(Signed)

N .

Clerk

Deputy Governor.

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I 814

X-7108-a-8

(C O H )

M e s i a l kESEEvn BANK

OF DALLAS

December 9, 1931

Mr. R. H.

Broaddus, Deputy Governor


Richmond, Virginia

Dear M r. Broaddus:

We have delayed rep lyin g t o your le t ter of November 10 un t i l th i s

time f o r t h e reason that i t was handed t o ou r Counsel f o r a t t e n t i o n and he

h a s

been away from

t h e

c i t y un t i l

now.

Our Counsel advises u s tha t t h e State of New Mexico h a s adopted

t h e

Uniform Bank Col le c ti on Code. Thus

f a r ,

however,

we

have

had no

experience

i n

connection with

t h e

same except

i n t h e

case

of one

f a i l ed

national hank

i n t h e

Sta te

of New

Mexico, which

was

subsequently reopened.

As an

actual case

ha s no t ye t

presented i t se l f

t o u s , w e

have

no t a s ye t

formulated

a

de f in i t e po l i cy

t o b e

pursued.

I t h a s

always been

our p r a c t i c e i n connection with t h e f i l i n g of claims against insolvent banks

t o jus t no t i fy ou r endorser banks and then upon receipt of au thor i t y t o

proceed accordingly

t o

f i l e claim against

t h e

insolvent bank.

We are inc l ined t o t h e view that i n t h e case of state banks located

i n t h e states where t h e uniform bank co ll ec ti on code h a s been adopted our

usual practice should

b e

followed, with addit ional advice

t o ou r

endorsers

of

t h e fact that such s ta te h a s adopted t h e Uniform Bank Co ll ec ti on Code, wi th

du e reference t o t h e provis ions o f t he code i n respect t o t h e establishment

of a

preferred claim.

I n t h e case of national banks, we f e e l as you do tha t t h e claim

could

n o t b e

es tabl i shed

a s a

p re f e r r ed

o n e .

While,

as we

have stated,

we

have

had no

experience

i n

connection with such ma tt er s,

we

a n t i c i p a t e

t he

same trouble which y o u have experienced i n t h e endorsing banks fai l ing t o

reply promptly t o ou r reques t s f o r i n s t r u c t i o n s . I n this connection we

a r e

consider ing

t h e

a d v i s a b i l i t y

of

providing

i n

such not ice t hat

a

f a i l u r e

t o

reply wi l l cons t i tu te au thor i ty

t o

t r e a t

t h e

item

a s

dishonored,

and to

accordingly authorize

us t o

demand

t h e

r e tu rn

of

such checks from

t h e

rece ivers .

While

we

have received

no

def in i t e advice

, we now

unders tand t ha t

t h e Comptroller o f t he Currency h a s reversed h i s former ruling concerning t h e

r e tu rn

o f t he

checks themselves

and now

i n s t r u c t s

t h e

rece ivers

t o

make return

However, i n a n y event, a t present we fe e l tha t i n t h e case of

national banks, i n t h e absence of author i ty t o t h e cont ra ry , ou r action should

be to t r e a t t h e items a s dishonored.

Yours very truly,

(Signed) R. R. Gilbert

Deputy Governor

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X - 7 1 0 8 - a - 9 ^ - ^

( C O P Y )

FEDERAL RESERVE BANK OF SA2J FRANCISCO

November

17 , 1931 .

Mr. B. E.

Broaddus,

Deputy Governor,

Federal Reserve Bank of Richmond,

Richmond, Virginia.

Dear

M r.

Broaddus:

I n your le t ter of November 1 0 t h , inqui ry was made relative

t o t h e

s t a t u s

o f t h e


i n t h e

Twelf th Di s t r i c t ,

and

a l so

a s t o o u r

procedure

i n

regard

t o

f i l ing c la ims per ta in ing

t o

checks

sent f o r c o l l e c t i o n t o banks which suspended without making settlement.

The


i s i n

e f f e c t

i n t h e

States

of Washington, Oregon and Idaho, a n d , i n add i t ion , t h e S ta t e of Utah has a

code granting a p re fe rence on draf t s i ssued f o r t h e set t lement of checks

and

other col lect ion i tems.

We

have experie nced

no

d i f f i c u l t y

i n

Oregon

o r

Utah

i n

es tab l i sh ing prefer red c la ims

f o r

dishonored drafts .

Our

f i r s t e f f o rt

t o

f i l e

a

claim under

t h e

amended code

i n

t h e

Sta te

of

Washington

m et

with some opposition.

I t d i d n o t

take long,

however, t o convince t h e Bank Commissioner of our r i g h t t o a p re fe rence . The

Spokane Clearing House and the Washington State Bankers Association were very

much exercised over

t h e

dispute which arose between ourselves

an d t h e

State

Banking Department,

and

were anxious that

t h e

Federal Reserve Bank make

a

t es t case . The p o s i t i o n was taken, however, that t h e Federal Reserve Bank

was no t i n t e r e s t e d i n prosecut ing an y cases excepting those which might b e -

come necessary

t o

defend

i t s

rights under Regulation

J and i t s own

ci rcu lar

governing check-col lect ing operat ions.

Our

endorsers were notified that

a

preference would b e asked a n d , i n t h e event o f i t s r e f u s a l , o u r claim would

b e assigned t o whomsoever t h e endorsers might elect, thus giving t h e State

Banking Department

o r t h e

Clearing House Association

a n

opportuni ty

f o r

t e s t i n g

t h e l aw .

We now

have

i n t h e

course

of

f i l i n g

i n

Idaho

ou r

f i r s t

claim under

t h e

Uniform Bank Collection Code.

I t i s o u r

opinion that

we

have a pr ef er en ce . However, t h e quest ion i s before t h e Banking Department

and w i l l b e decided i n t h e near f u t u r e . Should t h e p re fe rence b e n o t granted,

we

shal l fol low

t h e

same course

we

suggested

i n

Washington, that

i s , t h e

endorsers will

b e

given

a n

opportunity

t o

arrange among themselves

t h e

appointment of an assignee who ^ i l l receive ou r claim and prosecute i t t o

a conclusion.

As to National banks, i t i s o u r opinion that t h e Uniform

Bank Collection Code does n o t apply, inasmuch a s t h e provis ions of the

National Bank

A ct

s p e c i f i c a l l y

s e t

f o r t h

t h e

manner

i n

which claims against

insolvent National banks shall

b e

f i l e d .

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I 2 1 6

X-7108-&-9

Mr. R. E.

Broaddus

— 2

During

t h e

year ,

a

Nati onal bank f a i l e d

i n t h e

Sta te

of

Washington,

and our

endorsers were quite insistent that

we

should f i le

f o r

a preference under t h e Uniform Bank Co ll ec ti on Code. The question was sub-

mit ted

t o t h e

Comptroller

who

r e j e c t e d

t h e

idea

of a

pref ere nce; conse-

quently, we again informed o ur endorsers that i f they des ire d t o t e s t t h e

case

o u r

claim would

"be

assigned

t o

whomsoever they elected.

We

have taken

t h e

pos i t i on

i n t h e

S ta t es

o f

Idaho, Oregon

and Washington that we should n o t demand t h e r e t u r n of items whenever a

d r a f t

h a s

been is su e d,

"but

should stand

o n t h e

advantage

of a

preference

based

o n t h e

unpaid draf t .

I n

following this course,

we

assume

a

minor

r i s k i f i t later should "be found that t h e suspended bank had i n s u f f i c i e n t

good assets

out of

which

t o

meet

t h e

pr ef er re d claim. Under such

a

circum-

stance ,

we

might have done better

t o

t r e a t

t h e

items

a s

dishonored, because

t h e

holder

of

such check

may

have

had a

be t t er opportuni ty

t o

recover from

t h e

makers than from

t h e

tr us t . There

is no way of

determining these

mat ters i n advance, so we place ou r reliance upon t h e preference and assume

t h e

very remote risk

of

having

an

endorser claim that

t h e R e s e r v e

Bank

had

se lected t h e course leas t benef ic ia l to h im.

When charging

o u r

endorsers

f o r

unpaid checks involving

collection through State banks

i n

Idaho, Utah, Oregon

and

Washington,

we

notify them that

i t i s o u r

opinion

a

preference wi l l

b e

granted

( s e e

Form

Mis. 108H enclosed); a n d , i n t h e case of items involving t h e suspension

of

National banks

and

State banks

i n

Arizona, Cal ifornia

and

Nevada,

we say

that claims will b e f i l ed un less w e a r e n o t i f i e d t o t h e contrary before a

speci f ied date ( n o t later than f i f ty days af ter suspension). See Form Mis .

108K

enclosed. Also,

s ee o u r

l e t t e r

t o y o u

dated October

28 , 1931 .

Answering your questions se ri at im :

We exercise t h e r igh t of election without consulting e n -

dors in g ban ks. Where

an

option

i s

given (Washington, Oregon

and

Idaho)

t o

f i le p refer red c la im o n t h e bas i s o f the dishonored draft , o r t o regard t h e

items covered

b y t h e

d r a f t

a s

dishonored,

t h e

former course

i s

adopted.

A

d i s t i n c t i o n

i s

made between State

and

National banks

i n

making election

t o

establ ish claims

o r to

t r e a t

t h e

checks

a s

dishonored.

I n t h e case of National banks and State banks i n Arizona, Cal ifornia and

Nevada, where

no

p re fe rence

f o r a

dishonored remittance draft

i s

given,

we

make

a

demand

f o r t h e

r e t u r n

of

checks merely

t o

show that

t h e

'Reserve Bank

h a s exhausted i t s e f f o r t s on behalf of endorsers. A s t h e request i s i n -

variably denied,

o u r

e f fo r t s s top

a t

that po in t ,

and we do no t a sk f o r

copies o f t h e checks.

I t i s o u r

p r a c t i c e

t o

enclose with cash letters sent

t o

member and no.i-member clearing banks, a form of set t lement draft , which may

or may not be

used

b y t h e

remitting bank.

I n t h e

event

of a

suspension

of

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I % %

X-7108-a-9

Mr. R. H. Broaddus — 3

t h e

drawer

of

such

a

d r a f t ,

we

charge

i t t o t h e

hank's account provided

t h e

hank

i s i n

funds

an d t h e

d r a f t

i s i n o u r

possession before

we

have of f i c i a l

no t ice

o f the

suspension

o f t h e

bank.

I f t h e

draft comes into

o ur

possession

a f t e r we have of f ic ia l no t ice of suspension, i t i s dishonored. We have f e l t

that

t h e

p o s i t i o n

o f t h e

Federal Reserve Bank should

"be

unequivocal when

a

dr af t drawn against su ff ic ie nt funds

i s

presented

t o i t f o r

payment.

I n

other words, t h e draft ei ther should b e paid o r dishonored on presen ta t ion ,

depending upon

t h e

s t a t u s

o f t h e

drawer. This

h a s t h e

same effect

a s

though

t h e settlement draft weye drawn on a correspondent bank.

F o r your information, t h e fol lowing i s a l i s t of copies of

correspondence herein enclosed, which may be of i n t e r e s t t o y o u :

Let t e r t o Spokane Branch, March 23 , 1931 .

L e t t e r

t o A l l

Branches, June

10 , 1931 .

L e t t e r t o Spokane Branch, June 11 , 1931 .

Telegram

t o

Comptroller

o f the

Currency,

May 27, 1931.

Telegram from Comptroller,

May 28 , 1 93 1.

Telegram t o Comptroller, June 2 , 1931.

Telegram from Comptroller, June

4 , 1931 .

Telegram t o Comptroller, June 4 , 1931 .

Telegram from Comptroller, June

5 , 1931 .

L e t t e r

to Mr .

Thomas

B .

Paton,

Oct . 15 , 1931 .

L e t t e r t o Federal Reserve Bank of Richmond, Oct . 28 , 1931 .

Yours very truly,

(signed)

I r a Clerk

Deputy Governor

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i, 2 1 8

C O P Y X-7108-b

FEDERAL RESERVE BANK

OF

KANSAS CITY

December 16 , 1931 .

Hon.

Walter Wyatt, General Counsel,


Washington,

D. C.

My

dear

M r.

Wyatt:

I am j u s t i n rece ip t of your le t ter of Decem-

b e r 1 4 ,

with which

y ou

sent

me

copy

of

le t ter quot ing

a

telegram which

M r.

Await, Deputy Comptroller

o f the

Currency, sent t o t h e Receiver o f t h e Peoples National

Bank

of

Pu lask i ,

New

York,

on

December

3 , 1 9 3 1 ,

which sets

f o r t h t h e a t t i t u d e o f h i s Department with reference t o

t h e r igh t o f forwarding banks t o exercise an e l e c t i o n t o

treat items dishonored pursuant

t o t h e

provis ions

of

Section

11 of th e

Uniform Collection Code

i n

those instances

i n

which

a

f inal ly co l lec ted remi t tance

h a s n o t

been made

b y th e

drawee banks.

I t seems to me highly desirab le th at a l l o f

t h e

Federal reserve banks follow

a

uniform pract ice

i n

exercis ing t h e election which i s given under t h e Code,

and I

consider your suggestion

a

good

one

that

t h e

check

co l l ec t ion c i r cu la r s o f a l l of t h e banks b e amended b y

adding

a

r e c i t a l

o f t h e

kind that

you

mention.

Yours very truly,

(Signed)

H. G.

Leedy

HG1:FH

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C O M

2 1 9 .

X-7108-c

FEDERAL RESERVE %AM OF SA2T FRAUCISCO

January 22, 1932.

Walter Wyatt,

Es q . ,

General Counsel,


Washington, D. C.

Dear M r. Wyatt:

As an

example

o f t h e

kinds

of

practices which

a r e

creeping into t h e Federal Reserve System, resulting from t h e

va ri ou s methods being pursued under

t h e

so -c al le d Bank

Collection Code , I hand you herewith copy of a l e t t e r a d -

dressed

t o

this hank

"by the


of S t .

Louis

which recently happened t o come to my a t t en t ion .

You wi l l note that t h e check was drawn on a s ta te

bank located

i n

Indiana, which state

h a s

adopted

t h e

Bank

Collection Code. You wi ll a ls o observe th at t h e S t . Louis

Bank, i n s p i t e o f the fac t tha t a preference could undoubtedly

b e

obtained, requests instructions from

u s a s i t s

endorser

whether o r no t to f i l e f o r a preference o r to t r e a t t h e item

a s

dishonored pursuant

t o t h e

provis ions

of

Section

11 .

I

cannot

see any

reason

f o r

this procedure

a n d i t s

p u r s u i t , i t seems to me, wi l l r e su l t i n great confusion.

L e t u s suppose, i n th is ins tance , tha t par t of the

endorsers

o n t h e

items involved decide that they prefer

t o

t r e a t t h e checks a s dishonored and pass t h e r e s p o n s i b i l i t y

back through

t h e

chain

of

endorsers, while others

o f the

pa r t i e s

i n i nt er es t determine th at they would pr ef er t o f i l e f o r a

pre fe rence .

The

rece iver

of the

insolvent bank,

i f t h e

same

course i s pursued a s i n some o f th e s t a t e s i n t h i s d i s t r i c t ,

would refuse

t o

acknowledge

t h e

claim because

i t wa s no t

predica ted

o n t h e

d r a f t

b u t

only

on

certain items embraced

th er ei n. Moreover, ther e i s a ser ious r i sk tha t b y t h e delay

necessary

i n

order

t o

obta in def in i te ins t ruc t ions f rom

t h e

endorsers t h e Federal Reserve Bank o f S t . Louis will b e unable

t o

obtain

t h e

r e t u r n

o f the

checks, they having been handed

back b y t h e o f f i c e r s i n charge o f the insolvent bank t o t h e

makers th er eo f. There

i s t h e

fu r the r r i sk tha t

a

delay

of two

o r three weeks, during which instructions a r e being obtained,

w i l l

b e

t r e a t e d

as an

unreasonable delay

a nd the

r e t u rn

of the

i tems refused.

I cannot f o r t h e l i f e of me see why, under circum-

stances such

a s

t h i s ,

t h e

Federal Reserve Bank should hesitate,

without

an y

ins t ruc t ions whatever ,

t o

f i l e

f o r a n d

accept

a

preferred,claim, excepting extraordinary cases where even

preferred claims would

not be

paid

i n

f u l l .

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i 330

X-7108-c

Walter ly&tt, Bsqi - 2 - January 22 1932.

Of

course,

i n t h e

instan ce under d iscus sion ,

t h e

Federal

Reserve Bank

o f S t .

Louis asks

f o r

ins t ruc t ions f rom

i t s

endorser

an d that endorser probably asks f o r ins t ruc t ions f rom i t s customer

-and so on ad l i b .

I become more strongly convinced a l l t h e time that t h e

procedure under t h e Check Collection Code should b e uniform

throughout t h e System and tha t t h e v ario us c ourses which wi ll be

pursued

b y t h e

Federal Reserve Banks

,

under given condit ion s,

i n

those states where

t h e

Bank Collection Code

h a s

been adopted,

should

b e

c l e a r l y

s e t

f o r t h

i n a

uniform Ci rc ul ar . Otherwise,

confusion, delay

and

l i t i g a t i o n

a r e

inevi tab le .

I would like very much t o have your observations i n

regard

t o

th i s mat te r .

\

Cordially yours,

(Signed) Albert

C.

Agnew

Counsel.

\

Enclosure.

ACA:MA

\

\

\

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c

X-7108-o-l

0

P

Y

FEDERAL RESERVE BAM OF ST. LOUIS

January 12, 1932


San

Francisco,

Cal i forn ia .

Gentlemen:

On 1-11-32 we sent our advice of no return regarding items

on

Evansv i l le , Ind iana l i s t ed

i n

cash l e t t e r s

a s

fol lows:

Date & Tota l

Sending Bank Cash Le t te r Amount

Yoursel ves 1- 4- 32 $42.32 1 7 . 3 2

The check was l i s t e d i n regular cash le t ter t o t h e Central Union

Bank, Eva nsv ill e, Indiana and d r a f t was remit ted b u t remains unpaid

an d

p ro tes t ed

d u e t o t h e

closing

o f t h e

Central Union Bank, Evans-

v i l le , Ind iana.

Since

a l l

checks

a r e

credi ted subject

t o

final payment

we

have

deducted from your cr ed it s $17.32 t o cover. We a re informed that

under

t h e

Bank Collection Code which

i s i n

fo rce

i n t h e

s t a t e

of

Indiana,

we

have

an

option

t o

treat such checks

a s

dishonored

o r

t o f i l e a claim against t h e failed hank.

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232

X-7108-c-l

— 2 —

January 12, 1932

I f you

des i r e

t o

t r e a t

t h e

checks

a s

dishonored,

y ou

should give

not ice of dishonor t o a l l prior endorsers an d t h e drawers and

look

t o

them

f o r

payment;

and i f you

reques t ,

we

will demand

an d

endeavor

t o

obtain

t h e

re tu rn

o f t h e

checks.

I f

claim

i s

f i l ed aga ins t t h e fai led hank, yo u wil l probably release t h e

drawers from

an y

f u r t h e r l i a b i l i t y

and

will receive dividends

o n t h e amount o f t h e checks a s declared b y t h e Receiver . I f you

e lec t

t o

f i l e c l a im,

i t may be

pos sib le, according

t o

Sect ion

13

of the Bank Collection Code, t o obtain a p r e f e r r e d c l a s s i f i c a t i o n

of the

claim.

As we

must notify

t h e

Receiver promptly whether

we

e l ec t

t o

prove

a claim against t h e fai led bank o r to t r e a t t h e checks a s dishonor-

e d ,

p lease no t i fy

u s a s

soon

a s

poss ib l e ,

b u t i n an y

event

n o t

l a t e r

than January

28 , 1932 ,

using

t h e

enclosed form

and

giving

t h e

name o f the drawers o f the checks i f obta inab le . I f you des i r e our

serv ices

i n t h e

matter

of

f i l ing c la im, p lease

so

ind ica t e

on the

enclosed form and re tu rn t o u s a s soon a s poss ib l e , and claim will

b e

fi led under

t h e

terms

of

your General Authorization dated April,

12 , 1922 as amended October 28, 1931.

I f we do not receive your instruct ions t o t h e contrary on or before

t h e

date mentioned

i n t h e

foregoing paragraph,

t h e

checks will

b e

t r e a t e d a s dishonored and a demand made upon t h e Receiver f o r t h e

r e t u r n

of

them. Whether

o r n o t t h e

checks

a r e

subsequently obtain-

ed , no claim will b e f i l e d b y u s a f t e r t h e demand f o r t h e re tu rn of

t h e

checks

i s

made.

Kindly acknowledge receipt

o f

t h i s l e t t e r .

Very truly yours

P. N .

Hall

F. N.

Hall

Controller

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C O P Y

223

X-7108-a

FEDERAL RESERVE BANK OF S0 ERAHCISCO

January 5 , 1932.

Walter Wyatt,

E s q . ,

General Counsel,


Washington, D. C.

SUBJECT: Legal and Practical Problems

aris ing under

t h e

Bank

Collection Code.

Dear M r. Wyatt

I

have

n o t

r ep l i ed ea r l i e r

t o

your l e t t e r

of

November

6

t ransmit t ing copies

of

your correspondence with counsel

t o t h e

Federal Reserve banks

and

with

t h e

Comptroller

o f t h e

Currency

r e l a t i v e t o t h e above subject , f o r t h e reason that I wanted t o

f i rs t thoroughly discuss t h e matter with th e o f f i c e r s of th i s

bank. This h a s been delayed, b u t I t ru s t tha t my observations

wi l l

b e

none

t h e

l e s s

of

value

t o y o u .

I

bel ieve that

t h e

posi t ion taken

b y t h e

Comptroller

of

t h e Currency t o t h e e f f ec t t ha t t h e provis ions o f t h e Uniform

Check Collection Code providing f o r preference on dishonored drafts

given

i n

purported set t lement

of

cash le t t e r s

do no t

apply

t o

National Banks,

i s

sound.

I do no t

believe that Section

13 of th e

Uniform Code

i s

app l i cab l e

t o

National Banks.

I am f u r t h e r of the opinion that t h e procedure now

adopted b y t h e Co mp tro lle r's o f f i c e her eby , upon demand made

with reasonable promptness, t h e checks involved i n a dishonored

remi t tance draf t

a r e

re turned

t o t h e

collecting Federal Reserve

bank

so

that they

may be

returned

t o t h e

indorsers

o f t h e

Federal

Reserve bank

and

t r e a t e d

a s

dishonored, will

i n t h e

great major i ty

of

cases work

o u t t o t h e

bene f i t

o f t h e

owners

of

such items.

I am

f i rmly

of the

opinion that

i t i s

highly expedient

th at some uni for m pro cedu re

b e

evolved

i n

connection ™ith

t h e

handl ing

of

t r ansac t i ons

of

this character

b y a l l t h e

Federal

Reserve banks. I am informed that i t i s t h e present prac t i ce o f

some o f the Federal reserve banks, before requesting t h e re turn

of the or ig ina l i t ems , t o communicate wit h th e ir in do rs er s and

a s k

i n s t r u c t i o n s

a s t o

whether

or not a

general claim shall

b e

f i l e d

o r

whether

t h e

r e t u r n

of the

item shall

b e

demanded. This

i t

seems

to me

wi l l in evi tab ly resu l t

i n

considerable delay

and

i n

many instances

i n

delay

t o a

point where

t h e

r e t u r n

o f the

i tem will n o t b e demanded with reas on ab le pro mptnes s . I t also

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>, 8 8 4

X-7108-d

Walter Wyatt» Esq*, General Counsel

-»-•* 3i

seems

to me

tha t pursuing th is policy wi ll re su lt

i n

confusion

i n

tha t i n a given case some o f the indorsers o f the Federal Reserve

bank will desire t h e re tu rn o f t h e items while others will prefer

that a general claim "be f i l e d . I f such a situation were presented

i t

might occur that

t h e

receiver

o f the

insolvent national bank

would refuse t o accept a claim predicated upon t h e unpaid remittance

d r a f t

i f

par t

o f the

items embraced within that draft were

no t to be

made

t h e

subject

of a

claim

b u t

were

t o b e

returned.

Moreover,

i n

matters

of

th is character

t h e

pursu i t

of one

method

of

operations

b y

some

o f t h e


and the

pursu i t

of

another

b y

other such banks, re s ul t s

i n

confusion within

t h e system. Items which come t o a Federal Reserve bank from another

d is t r ic t should b e t r e a t e d i n t h e same manner a s t h e treatment accorded

them i n t h e di s t r i c t from which they come. Otherwise, di s sa ti s fa ct io n,

misunderstanding

and

endless confusion

i s

bound

t o

r e s u l t .

I

feel very strongly that

i t may be

advisable

t o

consider

a n

amendment

t o

Regulation

" J " i n

r e l a t i o n

t o t h e

manner

i n

which

items involved i n unpaid remi tta nce d r a f t s drawn upon na ti on al banks

located i n those states which have adopted t h e Uniform Code, will b e

t rea ted . Personal ly , I feel that a uniform pr ac ti ce should b e ei ther

incorporated i n Regulation " J " o r i n t h e Uniform Check Collection

c i r c u l a r s , and I am of t h e opinion that every Federal Reserve bank

should state

i n i t s

check co ll ec ti on c ir cu l a r, among

t h e

terms

and

conditions upon which items will

b e

received

f o r

co l lec t ion , that

i n

every instance where items drawn

on a

national bank

i n a

s t a t e

which

h a s

adopted

t h e

Uniform Code become involved

i n a n

unpaid

remi t tance draf t , t h e Federal Reserve bank will pursue t h e uniform

pol icy of demanding t h e re tu rn o f the items immediately, treating

t h e

same

a s

dishonored

and

charging

t h e

amounts thereof back

t o t h e

indorsers

o f t h e

Federal Reserve bank.

I n t h e

great majori ty

of

cases

I

bel iev e tha t such uniform pr ac ti ce would re su lt

i n a

greater

recovery t o t h e owner o f t h e item than would result through filing

a claim a s a general credi tor .

As

long

a s

the re

i s an y

con t ra r i e ty

of

procedure

a s

between

Federal Reserve banks,

or as

long

a s t h e


c o n -

cerned adopt

a

pol icy

of

asking

f o r

advice from th ei r i ndo rs ers ,

confusion wi l l r es ul t

and I

f e a r

i n

some instan ces, l i t i ga t io n.

To the end that this matter b e thoroughly discussed and

se t t led bo th a s between t h e Federal Reserve banks an d t h e Board and

a s between t h e banks an d t h e Comptro l ler ' s o f f ice , I think that a

conference

i s

advisab le .

If no

such conference

i s

he ld ,

i t

seems

t o

me

that

i t

w i l l

b e a

long time before

t h e

uniform pr ac t i ce wi l l

b e

adopted.

With kin des t per sona l rega rd s,

Very truly yours,

(Signed) Albert

C.

Agnew

Counsel

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I 8 3 5

C O P Y X-7108-e

FEDERAL RESERVE BANK OF SAN FRA2ICISCO

December

22, 1931.

Walter Wjratt,

E s q . ,

General Counsel,


Washington, D. C.

Dear

M r.

Wjratt:

I have received and discussed with t h e o f f i c e r s

of

th is bank your le t t e r

of

December

1 4 ,

transmitting copy

of a

telegram which

Mr.

Await sent

t o t h e

Receiver

of the

Peoples National Bank, Pulaski, New York, and copy of a

l e t ter addressed to you by Mr. Wallace, Counsel to the


of

Richmond, under date

of

November

21, 1931.

We agree with you that any pract ice involving

delay

i n a n

e l e c t i o n

t o

treat checks involved

i n

unpaid

remi t tance draf t s

a s

dishonored unt i l af ter

t h e

owners

thereof have been consulted

a s t o

thei r des i res wi l l

no t

only b e unduly burdensome t o t h e Federal Reserve Banks,

b u t wil l lead t o endless disputes over t h e quest ion of

whether Federal Reserve Banks have notified

t h e

receivers

of

th ei r el ec t io n within

a

reasonable t ime .

We

also

fee l t ha t any p r a c t i c e i n handling such checks, under

which t h e owners thereof a r e given t h e opportunity o f i n -

s t r u c t i n g

t h e


not to

demand

t h e r e -

tu rn

o f the

i tems, wil l resul t

i n

endless confusion.

We th ink i t i s essen t i a l t ha t a uniform pract ice

s imi l a r t o th at alrea dy esta bl ish ed with ref ere nce t o t h e

p r o t e s t i n g

of

checks

b e

adopted

and

incorporated

in the

check co l le ct ion ci rc ul ar s . This could eas i ly

b e

done

b y

inc lud ing

i n

such circulars

a

statement

t o t h e

ef fect that

t h e Fed era l Reserve Bank wi ll el ec t t o t r e a t a s dishonored

a l l

checks

on

insolvent national banks

i n

states which

have adopted Section

11 of the

Uniform Bank Collection Code,

an d which have been functioned by the drawee banks without

final payment therefor having been made. We have adopted

th i s p rac t i ce

i n

t h i s d i s t r i c t

and

have

so

n o t i f i e d

a l l

other Federal Reserve Banks.

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k

236

X-7108-e

Walter W^att, E s q . - 2 - December 22 , 1931.

I t

seems

t o u s

tha t

t h e

policy adopted

"by the

Office

of t he Comptroller of the Currency, a s out l ined in Mr . Await 's

telegram

of

December

2

(X-7043),

i s

f a i r

and

o f f e r s

t o t h e


a

c lear

and

expeditious method

of

handling

such, transactions. I t may a l so b e advisable t o amend Regulation

J i n

this regard, provided

a

uniform policy

can be

agreed upon

a s among a l l Federal Reserve Banks. Ho one can claim that h i s

i n t e r e s t

h a s

been jeopardized

by

t r e a t i n g

t h e

items

a s d i s -

honored, a s t h e r i g h t s o f a l l p r io r pa r t i e s a r e preserved.

Uniformity

of

ac t ion among

a l l t h e

Federal Reserve

Banks seems quite essential i n order t o avoid confusion and

possible disputes leading

t o

l i t i g a t i o n .

We,

therefore , fee l

that such

a

uniform policy involving either

t h e

amendment

of

Regulation

J or th e

check co ll ec ti on circ ul ar s should

be

adopted

a t t h e ea r l i e s t p r ac t i cab l e da t e . I do no t agree with Mr.

Wallace that

a

conference

of

counsel , together with

t h e

operating

o f f i c e r s

o f t he

banks involved,

t o

discuss

and

se t t l e t h i s

matter would

b e

amiss.

Yours very truly,

(Signed) Albert C. Agnew

Counsel.

ACA:MA

frsbog_mim_v36_0195.pdf

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