• As with Federal Reserve Banks and branches, Reserve Bank regional offices provide check processing services.

• Regional offices are designed to speed the payments mechanism and check clearing. Processing checks at regional offices results in quicker identification of fraudulent and other invalid items.

• Personal and corporate checks comprise the bulk of items deposited at regional offices.

Depository institutions in the United States may deposit checks for processing at Federal Reserve Bank regional offices just as they do at Reserve Banks or branches.

Depository institutions include member and nonmember commercial banks, savings banks, saving and loan associations, credit unions and certain foreign bank agencies.

The type of institution eligible to deposit checks for collection at Reserve Bank regional offices, Reserve Banks or branches was broadened by the International Banking Act of 1978 and the Monetary Control Act (MCA) of 1980. The MCA mandated Reserve Banks to charge institutions, at explicit prices, for certain services, including check-related operations.

Today virtually any institution may deposit checks for processing at any Federal Reserve office by paying for the items in the deposit.

The Reserve Bank regional offices were proposed in 1971 to help improve the nation's payments mechanism. In 1972, the first regional office, the Baltimore-Washington unit of the Richmond Fed, became fully operational after a one-year test.

Check Flows Determine Boundaries
The regional offices receive deposits of checks from customers around the country and present them to institutions in the area the office serves. The procedure is the same as that followed at the Reserve Banks and branches.

The regional offices occasionally serve depository institutions in areas that may cross Federal Reserve District or state lines. Since the function of the regional offices is to accelerate nationwide check collection, boundaries for the centers are determined by check flows.

Regional offices routinely receive checks from other Reserve Bank regional offices, Federal Reserve Banks and their branches, and "direct-sending" depository institutions.

A direct-sending depository institution sends checks drawn on banks in other Reserve Districts directly to the appropriate Reserve Bank, branch or regional office. For example, some large New York City banks send checks drawn on Chicago banks directly to the Chicago Fed. The direct-sending bank gets credit for those checks in its reserve or clearing account at its Reserve Bank.

Rapid Check Clearing
The primary objective of a regional office is to process overnight checks drawn on financial institutions outside a city with a Federal Reserve head office or branch. To accomplish this, the regional offices sort, clear and deliver checks rapidly.

For example, a Newark corporation deposits a check drawn on a bank in Asbury Park, N.J., to its account at a Newark bank on a Wednesday. Because there is a regional office serving the Asbury Park area (at East Rutherford, N.J.), the Newark bank sends the check to the regional office Wednesday evening.

The check is then processed at the regional center on high-speed equipment and is presented for payment at the Asbury Park bank early Thursday.

The first stage of payment is made by charging the Asbury Park bank's account at the New York Fed.

Simultaneously, the regional office credits the account of the Newark bank. The Asbury Park bank charges the account of its customer—the check writer—and the Newark bank credits the deposit to the account of the Newark corporation.

Personal and corporate checks comprise the bulk of items deposited at Reserve Bank regional offices. These checks are generally delivered to the regional office by private couriers hired by the depository institutions. Other items deposited at Reserve Bank regional offices include checks drawn on the Treasury and postal money orders.

However, most regional offices do not handle cash or securities. Reserve Bank head offices and branches offer a wide range of services.

Finally, in addition to providing speedy clearance, the processing of checks at a regional office results in quicker identification of fraudulent and other invalid items.

July 2004