To All Depository Institutions in the Second Federal Reserve District:
In this Bank's Circular No. 10882, issued on October 18, 1996 -- which notified you of our policy of no longer handling large-value checks (i.e., checks valued at $100 million or more) as cash items -- we recognized as an exception checks drawn on accounts at this Bank, when presented over-the-counter at the sixth floor window at our Head Office at 33 Liberty Street, New York, N.Y. Such checks are commonly known as "Federal Funds Checks."
At this time, we are amending our earlier statement to indicate that, effective August 1, 1997, Federal Funds Checks, for which credit availability is immediate, will be received for current day processing only until 3:00 p.m. Eastern Time, our official closing time. Checks in any amount presented at the sixth floor window after 3:00 p.m. Eastern Time will be processed for next day credit. Thus, we will discontinue receiving such checks after the close of Fedwire, even in those exceptional circumstances when, in the past, a check was presented to eliminate an overdraft or reserve deficiency in the reserve account of the payee depository institution. The Bank's Discount Window remains a source of funds for eliminating such shortages under appropriate circumstances.
We are announcing this initiative as another of the measures implemented to reduce risk in the payments system, as well as with the intent of supporting the standard close of Fedwire and the firm end to the intra-day movement of reserve balances between account holders at that time.
Also effective August 1, 1997, this Bank will raise to $10 the fee that it charges a depository institution for the use of a Federal Funds Check. This will be the uniform charge assessed by all Reserve Banks.
The recurrent use of Federal Funds Checks in any dollar amount is inconsistent with the Federal Reserve's strategy to promote efficient payments, and we continue to strongly encourage depository institutions and their customers to use secure electronic payment mechanisms to achieve the desired immediate or same-day finality.
Questions regarding this matter may be directed to Roseann Stichnoth, Vice President, Accounting Function.