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9-1580

RETURN-ITEM FLOAT

Float associated with interterritory returned items amounted to $150 million on a daily average basis in 1982. This float arises because current System procedures specify that payor institutions receive immediate credit for returned items. Reserve Banks, however, are operationally unable to debit immediately the original depositing institution’s account for returned items drawn on an institution located in another Federal Reserve territory.
The Board has decided to adopt an approach whereby credit for interterritory returned items would be deferred one day. This deferral of credit on interterritory returned items would eliminate $130 million of return-item float.2 Deferring credit by one day for interterritory returned items will be implemented in August 1983 in order to provide Reserve Banks and depository institutions sufficient time to make operational changes.3 Since this procedure may affect local clearinghouses that require immediate credit for returned items, Reserve Banks will consult with local clearinghouses to ensure orderly implementation of the procedures.
2
It was suggested that credit for interterritory returned items be provided based upon a fixed availability schedule depending upon the location of the depositing bank. The Board does not believe that such a schedule is necessary or appropriate, since most returned items are delivered to the depositing bank’s Federal Reserve office within one day.
The remaining $20 million of return-item float arises from a variety of other reasons, including a Reserve Bank’s inability to return the item to the depositing institution on a timely basis or the fact that it has sent the item to the wrong payor. This “holdover” float will be priced in the same manner as other holdover float; that is, the value is to be added to the cost of the check-collection service.
3
This one-day deferral generally would apply to interterritory and intraterritory returned items that are commingled. However, if intraterritory returned items are separated by the paying bank, credit for such items would not be deferred since the items can be returned to the depositing bank the same day and no Federal Reserve float would be created. Reserve Banks that are able to process commingled returns in a timely fashion could give immediate credit for such intraterritory returned items when no Federal Reserve float would arise from such a practice.
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