Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1923-06-12
RESERVE BANKS WIN
IN PAR CLEARANCE
IN HIGHEST COURT
Country Banks Of Georgia
and North Carolina Lose
Long Fight for Right to
Collect Exchange

WASHINGTON. June 11-MetA.
DDS used by Federal Reserve banks
in Georgia and Virginia to compel
banks not members of that system
to cash at par checks drawn upon
them by their depositors which reach
Federal Reserve banks for collection
or clearance. were approved by the
supreme court today in cases brought
against the Federal Reserve haEl1s
at Atlanta Ga, and Richmond, Va.
Justice Brandeis, delivering the
opinion, stated that congress had
not imposed upon the federal re
serve banks the duty to collect all
checks at par, and did not impose
upon such banks a duty to intro
duce par clearance against the
wishes of some of the banks affected.
Justice Van Deventer and Suther-
land dissented.
The American Bank and Trust
company and other banks Of Geor-
Il
Bank of Monroe, and other banks
Of North Carolina, contested the au-
thority of the federal reserve banks
at Atlanta and Richmond to require
them to cash checks drawn upon
them without charging any commits
sion or exchange for their services.
FoIo iy1 nd
the state courts in North Carolina
decided that under the federal re-
serve act the federal reserve banks
had ample authority to sustain the
position they had taken, and that
the so-called country" banks, not
members of the federal reserve
system, must cash at par all
checks drawn upon them and cleared
through the federal reserve banks.
Justice Brandeis declared in de-
livering the opinion that in the
North Carolina case the law of that
state with regard to method of pay
ment was valid, and that the state
statute was constitutional.
The effect of the decision was to
affirm the decision of the federal
courts in Georgia. and to reverse the
decision of the state courts in North
Carolina.
History of Case
The right of banks to charge a
small exchange or commission for
cashing checks drawn upon them
was challenged in the supreme court
in cases growing out of the policy
OF the federal reserve board to in
sist that all clearances made
through its bank should be at par.
The federal courts in Georgia sus-
tanned the Federal Reserve Bank of
Atlanta in insisting that checks
sent it for clearance should be paid
their full face value, and the state
courts of North Carolina, when the
Federal Reserve Bank of Richmond
insisted that all banks in its district
should clear checks at par, held
that the law of that state which pei
mitted banks to charge an exchange
Tor cashing checks was invalid
The controversy was considered of
vital Importance to the smaller
banks. which insisted that the ex-
change they charged for their serv-
ices in cashing checks drawn upon
them formed a material part of their
income. The federal reserve banks
denounced the practice as petty
graft" declaring that its customers
and clients were entitled to receive
in settlement the full amount for
which the check was written.
Regional banks created by the fed
eral reserve act were required, those
banks commended, to collect at par
oil checks deposited with them,
whether drawn upon so-called mem
Der banks or non-member banks.
They emphasized that there was no
provision in the law which authoriz-
ed them to pay commission or ex
change in the collection of checks.
The fact that par clearance would
cause the loss of revenue which
might be a material factor in the
welfare of The smaller banks could
not affect the right OF the federal
reserve banks to insist upon it.
Banks Charge Coercion
The federal reserve banks were
''arrogating' to themselves the duty
of a clearing house, ard were d.
recting a financial warfare" upon
non member banks to force them
into the federal reserve system, it
was contended by those insisting
upon deducting a commission or ex-
change for cashing checks. The
policy Of the federal reserve board,
they declared. was in defiance of
well-established banking practices.
which IN many circles was consi6,