National Check Professional (NCP) Certification Practice Test

Which regulation provides a legal framework for financial institutions to clear checks via the Federal Reserve Bank?

1. Reg CC

2. Reg J

3. FRB Regulation X

4. Check Processing Regulation

The correct answer is: Reg J

The regulation that provides a legal framework for financial institutions to clear checks via the Federal Reserve Bank is Reg J. This regulation specifically governs the collection of checks and the payment system involving the Federal Reserve Banks. It outlines the responsibilities and rights of banks and the roles that the Federal Reserve plays in the check collection and clearing process. Reg J also details the rules regarding the handling of checks that are presented for payment and outlines how these checks are processed through the Federal Reserve's system. This ensures that transactions are conducted efficiently and consistently across the banking landscape. In contrast, while Reg CC deals with the availability of funds and the collection of checks, it does not specifically govern the operational aspects of clearing via the Federal Reserve. Other options like FRB Regulation X and the Check Processing Regulation do not directly pertain to the legal framework for clearing checks, making Reg J the most relevant regulation in this context.