Check Processing with the Federal Reserve Bank

As we mentioned in last week’s post about The Federal Reserve, one of the key responsibilities is the processing of checks.  Checks used to be processed all over the United States, with the Chicago Fed being a major hub site processing over 4 million checks a day but since the 90s, usage has been on the decline due to electronic payments.  Now all paper checks are processed in Cleveland and all electronic checks are processed in Atlanta.

Paper checks are still a commonly used form of payment so let us follow the trail…You write your check to pay for the merchandise

  • The store deposits your check in their bank
  • The store’s bank passes the check on to The Fed with a payment request
  • The Fed takes the information from your check to identify your bank
  • Your bank is presented the check and payment request for approval
  • Upon approval, The Fed settles the check by processing the transfer of funds from your account to the stores account
  • The check is now cashed

As we mentioned electronic payments are now very popular.  The steps are similar to above, but instead of having to transport each check to Cleveland for processing, which is usually done by airplane, checks are imaged and then electronically processed.  Check 21 is a large part of this which enhanced the usage of electronic check imaging.  This speeds up processing and makes for more efficient handling of your payments.  Checks have truly taken a step into the 21st century!

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