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April 06, 2011


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Jacqui Lipton

Do any American banks do this in a "first presented, first paid" way? My recollection from the dim dark recesses of my banking lawyer days in Australia was that a lot of banks did it that way there, and possibly in the UK as well?

Tim Zinnecker

I don't know. The answer may depend on whether checks are processed in "real time," rather than at designated times as they accumulate.

Jacqui Lipton

Does it really depend on that? Don't the banks log the times at which checks are presented so wouldn't it be easy to program the system to process them in that order?

Tim Zinnecker

Perhaps, but I'm guessing that checks just don't trickle in, but rather arrive "in bulk" (either physically, or electronically). And if they arrive in bulk, and are machine-processed, the bank's software must be programmed to address daily overdraft concerns. You suggest that perhaps banks just pay until the account balance hits zero (or, if permitted by contract, overdraft protection is available). Banks certainly could pay "in order" of presentment (even if presented nano-seconds apart). Maybe in the long run that would make both the drawer and the drawee happy. But if a bank is looking for a way to generate additional fee income ....

Also, I'm wondering how much check processing is "farmed out" and no longer done in-house. I don't know the answer to that. But it seems that banks within a particular geographic area could achieve some economic efficiency if they utilized the services of a central check processing entity (or maybe the Fed does this for its member banks).

I'd welcome insights (from Jacqui or others) on the technical details of check processing.

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