MINIMUM RATES OF NEW YORK CLEARING HOUSE MEMBERS FOR CHECKS AND DRAFTS * Discretionary.
All notes or other time obligations purchased by member or non-member institutions payable elsewhere than in New York City shall be subject to a charge of not less than 1/ io of 1%, except that in the States of Florida, Louisiana, Mississippi, New Mexico, North Carolina, and South Carolina the charge shall be not less than i/8 of 1%, provided, however, that for notes or other time obligations purchased or discounted by any collecting bank, payable elsewhere than in New York City, but with respect to which the maker, indorser, or guarantor, or any bank, banker, or trust company maintaining an account with the collecting The minimum charges fixed at other clearing houses differ, of course, from these, but these will illustrate the system of charges prevailing at a date when the federal reserve collection system was being extended.
Defects of the Former System of Country Collections The defects of the system described above may be summarized as follows: i. Excessive collection charges, burdening commercial and
industrial operations.
2. The absorption of collection charges by the collecting banks.
3. The indirect routing of checks to avoid collection charges, chiefly caused by clearing houses fixing different collection charges and causing the "float." 4. The maintenance of reserve balances with banks for the sole purpose of getting items on which to charge exchange.
5. The carrying of compensating balances with collecting banks solely for the purpose of obtaining par territory.
6. Paying interest on uncollected funds.
7. Paying checks drawn against uncollected funds.
8. Padding of reserves with items in transit, that is, the "float" under the national bank system could be regarded as reserves.
The federal reserve collection system corrects most of these defects.