7. Charges for was stated in Section :3 that the service charge made by reserve banks to member banks during the first three months of operation ran from one to two cents per item. In addition, the bookkeeping of member banks has been materially simplified. It is to be expected that mem ber banks would lower their exchange charges to customers. In fact, the Federal Reserve Board is empowered by law to fix, not only the service charge to be made by reserve banks, but also the exchange charge made by member banks. There is a provision that the member banks must not be forced to carry on the collecting business at a loss. Presumably the charges will be fixed ultimately at a figure just about equal to the cost involved, with perhaps a small margin of profit.
Many banks have voluntarily lowered the charges. In the larger cities, it is customary for the clearing house banks to agree upon uniform rates; Some of the clearing houses have already reduced the rates to be charged by their members without waiting for ac tion by the Reserve Board.
8. Rates of New York Clearing House banks.— The new ruling of the New York Clearing House As sociation may be cited as an example. This went into effect on January 1, 1917. Under the old ruling, items on certain points were made discretionary, that is, the banks were permitted to charge any or no rate as they chose. In practice, they made no charge. Items on certain other points were charged for at the rate of not less than one-tenth of one per cent and on others, farther away, not less than one-fourth of one per cent. If any charge was made, it could not be less than ten cents. The ten-cent rule is abolished.
The new ruling contains about the same list of dis cretionary points, except that Boston, Providence, Al bany, Troy, Bayonne, Newark, Philadelphia and Baltimore are omitted. These cities are covered in a new ruling which is quoted below. The old list of points, items on which are charged at rates of not less than one-tenth and one-fourth of one per cent re spectively, is kept the same. Many items on these points, perhaps a majority of them, soon will be cov ered in the following new ruling: Sec. 3. For all items (whether such items are col lected thru the Federal Reserve Bank of New York or otherwise) which the Federal Reserve Bank of New York shall have notified the Manager of the New York Clearing House Association it will re ceive from its members, the collecting banks shall charge as follows : (a) For all items available one day after receipt —pursuant to said notification—discretionary with the collecting bank.
(b) For all items available two days after receipt —pursuant to said notification—not less than one fortieth of one per cent (3/40 of 1%) of the amount of the items. (Except as to items referred to in Secs. 4 and 5.) (c) For all items available four days after re ceipt—pursuant to said notification—not less than one-twentieth of one per cent (%o of 1 % ) of the amount of the items.
(d) For all items available eight days after re ceipt—pursuant to said notification—not less than one-tenth of one per cent of 1 %) of the amount of the items.
Eight days is sufficient time to allow for collection on any part of the country. It appears, then, that the new ruling applies to checks drawn on all member banks and on all par-remitting nonmember banks, wherever located, the old ruling applies only to non member banks which do not remit at par. Even a cursory examination reveals an enormous drop in ex change charges.
9. An to the grape fruit transaction described in the preceding chapter, let us suppose that Jones sends his check• on a Denver bank to Swann in Tampa. If the Denver bank is a member of the Federal Reserve system or if it is a nonmember bank which has agreed to remit at par to the reserve bank of its district, the check will be received by the Federal Reserve Bank of Atlanta at par. Swann may deposit it with his Tampa bank, which will then send it for clearing to the reserve bank if it wishes. The service charge to the bank will be probably one and one-half cents ; the exchange charge to Swann more than that by an amount sufficient to pay book keeping expenses, etc. The cost of currency ship ment does not enter into the extra exchange above the service charge, inasmuch as this is borne by the re serve bank and is presumably included in the service charge.
Suppose the check gets to the reserve bank. It is credited to the account of the Tampa bank, but is not available for withdrawal or as reserve until sufficient time has elapsed for collecting it in Denver. The check is immediately sent to the Federal Reserve Bank of Kansas City. There it is credited to the Atlanta reserve bank, debited to the Denver bank, and for warded for collection—either to the Denver bank di rectly or to it indirectly thru some other bank in the vicinity, which has been designated by the Kansas City Reserve Bank as a collection agent. Within possibly four days, certainly not over eight days, the whole transaction is settled. As compared to the old col lection system, there is a great saving in time, labor and expense.