created by: laura kinchen. state and federal regulations govern the banking industry 3 key...
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Created By: Laura Kinchen
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State and federal regulations govern the banking industry
3 key legislative acts mainly affect the check processing system
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Federal Reserve Act of 1913 Uniform Commercial Code of 1958 Expedited Funds Availability Act of
1987
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it directs and controls the banking system,
helps with communication, enforces regulations, encourages standardization
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Banks provide regular and special printed check forms. These checks display a series of numbers printed in magnetic ink that make it possible for computers to process the checks quickly and accurately.
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A check is a draft drawn on a bank and payable on demand.
Drawer: person who writes the check Drawee: bank ordered to pay the
money Payee: person the check is made out
to
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DRAWER PAYEE
BNATIONAL
BANK
ANATIONAL
BANK
FEDERAL RESERVE
(or other intermediary)
1
827
6
5b
5a
34
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What Happens to My Check?
Scenario: You write a check for $113.72 for this month’s cell phone bill (Verizon). › You are the drawer or maker of the check. › The cell phone company (Verizon) is the
payee› Your bank, A National Bank, is the drawee.
Beginning
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What Happens to My Check?
The cell phone company deposits your check in its account at B National Bank.
If the drawer (you) and the payee (Verizon) have the same bank, that bank handles it in-house.› ***this happens about 30% of the time and
the process ends here If the banks are different, the
processing continues.
Step 2
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What Happens to My Check?
B National Bank puts a magnetic code on your check showing the dollar amount › Then sends to Federal Reserve or other
intermediary› B National Bank has not credited Verizon
for the $113.72 because the check has not cleared.
Step 3
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What Happens to My Check?
Check is then sorted› Bank ID and dollar amount is read from
magnetic code Federal Reserve clears about 1/3 of nation’s
checks.
Step 4
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What Happens to My Check?
Federal Reserve or intermediary credits B National Bank $113.72 in its Federal Reserve account› All financial institutions using the Fed to clear
checks has an account with it. Your check is then sent to your bank, A
National Bank B National Bank has then been credited with
the $113.72› A National Bank has not paid out anything yet.
For this brief period both banks count the same funds, which are called float Float distorts money supply and reserve figures
Step 5
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What Happens to My Check?
A National Bank pays the Federal Reserve $113.72 and debits your account $113.72.
If your account doesn’t have $113.72 in it, the check is returned unpaid to B National Bank, and ultimately Verizon.› Penalties may be applied by the bank as
well as Verizon
Step 6
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What Happens to My Check?
The canceled check is returned to you› Some banks now send an image of the
check or a transaction summary with your bank statement instead of the actual check. Sending back the actual check is declining
because it costs more money
Step 7
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What Happens to My Check?
B National Bank credits Verizon’s account for $113.72.› Sometime this credit can happen earlier in
the process depending on B National Bank’s deposit policies.
End
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Check Processing Timeline
Process usually take 2 – 5 days Banks are required to make a
depositor’s funds available within 5 days