The employees and agents of the federal reserve banks have encountered various obstacles in making presentment of checks, such as the tender of payment in a manner calculated to take as much time as possible, or the refusal of payment in reliance on the inability of the agent to find a notary public willing to make protest. The Federal Reserve Board was advised of one in stance where a duly appointed agent had within a few days after appointment given notice to the federal reserve bank that he would no longer act as agent for fear of injury to his business. Other banks, including some member banks, have resorted to the device of stamping legends on their blank checks to the effect that the check is not valid if presentation is made through the federal reserve banks. In New York for a short period of time certain recalcitrant banks stamped their checks as not payable through the express companies.
The Federal Reserve Board, in its annual report for 192o, ar gued as follows upon the possibility of the federal reserve banks paying to cents per $roo on collections made through them: The total volume of transactions through the gold settlement fund in the year 1919 was approximately $74,000,000,000, and the total cost, including the expense of the leased wires, was about $250,000. This cost was borne by the Federal Reserve Banks and does not represent any expense whatever to the member banks or their customers. Thus it will be seen that the basic cost of making domestic exchange in the year 1919 was o.3 of a cent for each $1,00o transferred. A charge of to cents per $ too on the amount cleared through the gold settlement fund would have in volved an expense of $1 for each $1,000 transferred, or about $74,000,000 for the entire amount.
The intradistrict clearings made by the Federal Reserve Banks, eliminating duplications, amounted to about $135,000, 000,000, and the total expense of these transfers was borne by the Federal Reserve Banks. Had the Federal Reserve Banks been obliged to pay for these transfers at the rate of 10 cents per $ too, it will be seen that the total expense would have been $13J,000, 000, which amount is far in excess of the total earnings of the Federal Reserve Banks and therefore could not have been ab sorbed by them. If not absorbed, the charge would have had to have been transferred to the depositors of the checks, so it will be seen that a charge of 10 cents per $100 upon the business handled by the Federal Reserve Banks would have involved last year a cost to the commerce and industry of this country of at least $135,000,000.
2. In May, 192o, there was organized the National and State Bankers' Protective Association, to combat the efforts of the Federal Reserve Board for the enforcement of universal par clearance of out-of-town cash items. Its membership includes both the non-assenting banks and the members who have joined reluctantly. They are pressing Congressional legislation to remedy their grievance.
3. The legislatures of six states, namely, Mississippi, Louisiana, South Dakota, Georgia, North Carolina, and Alabama, have en acted laws for the express purpose of preventing the federal reserve banks from collecting, at par, checks drawn on banks located in those states. The Mississippi law purports to require all banks within the state, including national banks, member banks, and non-mem ber banks, to make charges collecting and remitting" cash items which "are presented to the payer bank for payment through or by any bank, banker, trust company, federal reserve bank, post office, express company, or any collection agency, or by any other agency, whatsoever." The laws of the five other states are not mandatory, but merely purport to give all banks within the re spective state the right to make similar charges. The laws of Mississippi, Louisana, South Dakota, Alabama, and North Caro lina prohibit any officer of the respective state from protesting any check for non-payment, when such non-payment is on ac count of the refusal of any such agency to pay exchange, and the laws of Mississippi, Louisiana, North Carolina, and South Dakota further provide in terms that "there shall be no right of action, either at law or in equity, against any bank in this State for a refusal to pay such cash item, when such refusal is based alone on the ground of the non-payment of such exchange." The North Carolina law further authorizes the banks to pay checks drawn upon them in exchange on their reserve deposits when any such checks are presented by or through any federal reserve bank, post-office, or express company, or any respective agents thereof, unless it is specified on the face of the checks that they are not so payable.
The Federal Reserve Board has taken the position that these laws are clearly unconstitutional in so far as they purport to require national banks, and state banks which have joined the federal reserve system, to make exchange charges against federal reserve banks. The enactment of these laws has necessitated that the federal reserve banks notify their members that checks on banks in the states that deny the right of protest will be for warded by the reserve banks subject to the omission of protest; and that the time required for collecting such checks may be slower for the reason that they may have to be presented in an unusual manner. The Federal Reserve Bank of Richmond at tempted to collect checks on the non-par North Carolina banks over their counters; but the non-par banks procured a temporary restraining order completely tying the reserve bank's hands, for the time being, and forced it to notify the banks of its district that it could no longer handle checks on North Carolina banks that charged exchange. Many banks of the district thereupon refused to receive checks on such banks for collection.