How Does the Check Clearing Process Works in the U.S

In 2000, approximately 70 billion checks were passed in the U.S. alone, which means that about 270 million checks are processed every day. Monitoring all the papers is a very complicated procedure.

Once one have paid their purchases with a check, the first place to which he goes is the bank that the store uses, where it is deposited, but the money is not immediately available – unless shop and customers are of same bank – in fact, approximately 30% of checks are passed and deposited in the same bank, and in these cases the processing is done internally. If the bank is not the same, the bank will check your store probably check with your bank, the paying bank, before converting the value of it in money. Most banks, however, does not communicate directly, instead they use intermediaries, intermediary banks.

There are three types of intermediary banks:

· Central Bank

· Correspondent bank

· Company compensation

The Federal Reserve Bank is the Central Bank of the United States. Branches regional Federal Reserve banks to process checks that have accounts with them, charging a fee for their services. Such services include the collection and air transport checks to the Central Bank and its delivery to paying banks. The banks of the booking process approximately 27% of U.S. checks.

Correspondent banks are those that have formed “partnerships” with other banks to exchange checks and payments directly, avoiding the Federal Reserve and their rates. Foreign banks may use a correspondent bank to exchange checks and payments with one of his partners.

Correspondent banks may also form a company of compensation in which members exchange checks and payments in bulk instead of a check by check, which can be very inefficient when each bank may receive hundreds of checks a day. The clearing banks save the checks drawn from other members and exchanged daily. The payments network of such checks are usually made ​​by FedWire (English site), a system for electronic funds transfer (EFT) processing checks between banks in the United States.

Correspondent banks and clearing firms form the private sector of check clearing and together process approximately 43% of U.S. checks.

There are five basic steps in processing:

1. The store deposits your check in the bank;

2. The bank sends your check, along with a payment request to an intermediary bank to check and process. The intermediary bank identifies the paying bank. To identify the paying bank, the intermediary bank seeks the destination number from your bank, which is the nine-digit number on the bottom left of your check, to the left of your account number. This number identifies the issuing bank check. All U.S. banks have at least one destination number;

3. Once you have identified your bank as the payer, the intermediary bank presents the check you wrote, along with a payment request. If your bank will verify and make the payment;

4. The intermediary bank processes the check, your bank debits and credits of the bank in the amount of the check store;

5. Your bank debits your account.

At the end of this process, the store has access to the full amount of the check you wrote and at the end of the month when your bank statement arrives, that check gets back in your hands.