created by: laura kinchen. state and federal regulations govern the banking industry 3 key...
TRANSCRIPT
Created By: Laura Kinchen
State and federal regulations govern the banking industry
3 key legislative acts mainly affect the check processing system
Federal Reserve Act of 1913 Uniform Commercial Code of 1958 Expedited Funds Availability Act of
1987
it directs and controls the banking system,
helps with communication, enforces regulations, encourages standardization
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.
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
DRAWER PAYEE
BNATIONAL
BANK
ANATIONAL
BANK
FEDERAL RESERVE
(or other intermediary)
1
827
6
5b
5a
34
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
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
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
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
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
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
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
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
Check Processing Timeline
Process usually take 2 – 5 days Banks are required to make a
depositor’s funds available within 5 days