COUNTRY COLLECTIONS Transits and Collections Defined In foregoing chapters has been treated the handling of : r. Items drawn on or payable at the bank itself, by the tellers and the check desk department.
2. Clearing house items, by the tellers and assembly rack department and the clearing house.
3. City collection items, by the city collection department.
4. Coupons and matured bonds, by the coupon department.
There remains for consideration the collection of items pay able outside the city collection district. Such items are fre quently, though inadvisedly, called "foreign" items; this name is confusing, and so throughout this discussion they will be called "country" items. In a large city they include items on up-town institutions too distant for collection by messenger.
Country items are of two classes: transit items and collection items. The distinction between the two is not finely drawn; both arc collected, both require time for collection, both occasion remittances, etc. The differentiation as commonly given is that transit items are given immediate credit in account and are treated as cash; they are commonly spoken of as "cash" items, and consist almost exclusively of checks, whereas collection items are received from customers or others for collection only; im mediate credit upon them is not asked or given; they are credited only when, as, and if, collected; the collecting bank acts only as agent and does not regard the collection items as its own, and no liability attaches to the bank in their handling except the use of due care and diligence in their collection.
Country collections include time items and others for which the collecting bank is unwilling to give immediate credit; they include special advice items and items requiring special attention and care, such items comprising notes, drafts, bills of exchange, documentary bills, bonds, or mortgages to be delivered upon receipt of money, etc.
Transit and collection items are ordinarily handled by the same department of the bank; probably the most common name for such department is the "correspondence" department. In large banks the operations are split among several departments called the "transit" department to handle transits, the "country collection" department to handle country collections, the "code" department to handle the telegraphic communication with coun try customers, and the "analysis" department to analyze ac counts and determine their profitableness.
Collections Through Correspondent Banks The common arrangement throughout the United States for collecting country items, which antedated the federal reserve system and which still continues with lessened scope, was that banks formed mutual connections with correspondent banks to which they sent and from which they received items for collec tion; these agreements specified exchange rates at which each would remit for items sent to it. Another arrangement was for one bank to carry an account of a certain average size with a sec ond bank, in return for which it secured favorable collection rates, interest on the balance, and other concessions. These accounts might be temporary or permanent; if temporary, the accounts were cleared by having the collecting bank remit the proceeds of collections; if permanent, the agreement might pro vide for clearance fortnightly, monthly, or on demand, either by remitting or placing the accumulated proceeds to the credit of the collecting bank The scheme was intimately connected with the system of re deposited reserves of national and state banks, for the balances carried on account with reserve city banks counted also as re serves of the depositing bank. The reserve and central reserve city banks acted as collection agents for the country banks whose balances they carried; and to secure these accounts, both for the use of these deposited balances and for the ancillary business which was derived through these accounts, the reserve city banks competed keenly and agreed, in consideration of a proper size of balance carried, to pay interest on the balance, to perform a variety of services, and to send to the country banks items which they had for collection in the vicinity of the correspondent. In some cities where competition for accounts was very keen the re serve city bank might agree to collect without charge the items sent by the correspondent, that is, to absorb the expense of col lection and credit the items at par. Such a city was known as a "par point." Ordinarily the common object of the two contracting banks was to make these agreements mutually profitable, but unre strained competition at one of the places tended to make the bargain one-sided. The collections proved so expensive in certain cases that the accounts were carried at actual loss. The estimated cost to New York banks of collecting checks on New Jersey banks in 1899 was $1.66 per $1,000.