What does the Federal Reserve Bank Operating Circular 4 (OC 4) govern?

Federal Reserve Bank Operating Circular 4 (OC 4) specifically governs the clearing and settlement processes for Automated Clearing House (ACH) items. This means it outlines the procedures and regulations that financial institutions must follow when processing ACH transactions, ensuring consistency, efficiency, and security in the settlement of these payments.

The establishment of reserve requirements pertains to the regulations set by the Federal Reserve concerning the amount of funds that banks must hold in reserve, which is distinct from the functions described in OC 4. Handling of EFT tax payments refers to electronic funds transfer processes, which, while important, fall under different guidelines. Credit transactions involving wire transfers are governed by other operating circulars and policies that deal specifically with wire transfer systems like Fedwire.

Thus, OC 4 is focused exclusively on ACH item clearance and settlement, making it the correct answer in this context.