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APPENDIX

The Subcommittee's letter to the Bank Board, dated March 28, 1984, asks four questions relating to delayed funds availability, and requests that the Bank Board provide its responses with reference to federally chartered or insured thrifts. Although the Bank Board has not conducted formal surveys addressing the questions, it does have some information on the subjects as a result of discussions with

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1. Please provide specific estimates of the time intervals between the date a customer deposits funds (in check form) into a transaction account and the date when an institution receives

provisional credit for the deposit.

Generally, one business day is the time interval between a customer's deposit of a check into an account at a thrift and the thrift's receipt of a provisional credit for the deposited check. The depositary thrift will receive a provisional credit from the intermediary bank to which it transfers the check when the intermediary sorts and posts the check. However, commonly where a customer deposits a check after 2 p.m. on day one, that check will not be sent to an intermediary until the evening of day two, and therefore, the thrift may not receive provisional credit until 36 to 48 hours after the customer's deposit.

2. What is the percentage of check deposits into transaction accounts that are returned for reasons of "non-sufficient funds"?

Approximately one percent of all deposited checks are returned (dishonored) for all reasons, e.g., non-sufficient funds, uncollected funds, and stop payment orders. Studies conducted by the United States League of Savings Institutions and others indicate that the vast majority of this one percent is made up of checks returned due to non-sufficient funds.

3. What is the cost of processing an NSF item?

The Bank Board lacks adeguate data to respond in detail to this question; however, our review of available materials indicates that intermediary banks on average charge thrifts one dollar for each returned check. Perhaps the Federal Reserve of the Bank

Administration Institute have more data about this area.

4. What percentage of deposited checks actually result in thrift losses?

Our review of available information indicates that approximately 0.7 percent of all checks deposited into thrifts ultimately are returned unpaid. However, because thrifts place "holds" on deposited checks, the institutions currently suffer losses with respect to a small portion of the total number of returned checks. A study conducted by the United States League of Savings Institutions tends to indicate that the amount of actual thrift losses depends on two factors: (1) the length of an institution's check "holds," and (2) whether or not the institution is located in an urban area.

Chairman ST GERMAIN. Let me ask you a question, Mr. Gray. You did, indeed, as a result of your testimony when I received it yesterday, analyze the legislation that was introduced last Thursday.

Did you have any problem analyzing that and getting that statement ready quickly, and sending it up here yesterday?

Mr. GRAY. I don't think we had any problem. I wish it had been done sooner.

Chairman ST GERMAIN. You wish that the statement went up sooner or that I had introduced the bill sooner?

Mr. GRAY. That the statement had come to you sooner. I like to be in first place, not in third place.

Chairman ST GERMAIN. See, we have a new contest going henceforth.

Mr. GRAY. I would recall, though, that 5 months ago we may well have been first.

Chairman ST GERMAIN. Oh, for sure. We're just starting the awards now, but we're going to take note of your previous perform

ance.

Mr. Conover, did you have any problem getting the statement up to us? Obviously not.

Mr. CONOVER. No.

Chairman ST GERMAIN. Obviously not. You had it here in a timely fashion. My introduction of the bill didn't shake you up, get you all upset?

Mr. CONOVER. No.

Chairman ST GERMAIN. Give you difficulty with your statement? Mr. MCKINNEY. Would the Chair yield?

Chairman ST GERMAIN. No. I'm not finished.

Mr. Callahan, how about you, did you have any problem?
Mr. CALLAHAN. No problem, Mr. Chairman.

Chairman ST GERMAIN. My having introduced the bill, did that throw you off course?

Mr. CALLAHAN. Not at all.

Chairman ST GERMAIN. That's good to know, gentlemen. I'm most appreciative.

By the way, Mr. Gray, when you compare your staff to that of the Fed here in Washington, how do you compare staffwise, numerically speaking? You've heard me refer to the monastic Fed.

Mr. GRAY. I'm sorry. I didn't hear the question.

Chairman ST GERMAIN. Number of employees-writers, researchers, consultants, economists, attorneys, you name it; they are in the Fed-compared to your shop. How do your shops compare staffwise? Do you have any idea? Are you outnumbered 2 to 1?

Mr. GRAY. This is the former Chairman of the Home Loan Bank Board and he's also a dear personal friend. [Laughter.]

Chairman ST GERMAIN. I'm not asking you about friendship. I'm asking you how your staffs compare.

Mr. GRAY. I suspect that the staff of the Federal Home Loan Bank Board is rather substantially less than that of the Fed. I don't know whether I'm right on that.

Chairman ST GERMAIN. ÖK. That's good.

The same for you, Mr. Conover?

Mr. CONOVER. Yes, Mr. Chairman.

Chairman ST GERMAIN. And Mr. Callahan.

Mr. CALLAHAN. Yes, Mr. Chairman.

Chairman ST GERMAIN. You're the new kid on the block. You can't help it, OK? [Laughter.]

Chairman ST GERMAIN. The Federal Reserve Board's prepared statement will be placed in the record and, Mr. Martin, you may proceed.

[The prepared statement of Vice Chairman Martin on behalf of

the Board of Governors of the Federal Reserve System follows:]

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Statement by

Preston Martin

Member, Board of Governors of the Federal Reserve System

I am pleased to appear before this subcommittee to present the views of the Federal Reserve Board on the issue of delayed availability--the practice of Some depository institutions (and other intermediaries such as money market funds) to impose "holds" on funds representing checks deposited by customers. There is no subject in consumer banking today that has generated more consumer interest and controversy. This topic is an extremely complex cne, and has been the subject of several Congressional hearings in the past few years. While there are no easy solutions to this sometimes frustrating problem, I believe that we have begun to see some progress in the area, as witnessed by the recently issued joint policy statement of the federal regulators and our own recent experience in experimenting with ways to speed up the return of dishonored checks. Recent legislation in the states of New York and California, as well as proposed legislation now pending before both Houses of Congress have also addressed this problem.

We at the Federal Reserve recognize that delayed availability can be a source of confusion, annoyance, inconvenience and even embarrassment to consumers. Let me reaffirm our position that we do not sanction the practice of undue delays in providing collected funds to depositors. We are concerned, however, that some solutions proposed to date may have results that could be conceivably worse than the

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