US Payments System

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US Payments System

• Chapter 4

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MICR Line

• Serial Number
• Fed Bank Code
• Fed Office
• Bank Identification Number
• Check Digit
• Payors Account Number
• Encoded Amount of Check

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Clearing Channels

• On Us- involves a single bank
• Clearing Houses- formal or informal associations
  formed by local banks
• Federal Reserve Bank- commercial banks use Fed
  to clear deposited checks

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Clearing Channels

• Correspondent Bank- bank maintains an account
  with another bank

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Direct Send

• Banks arrange to send cash letters directly to
  the paying banks
• Possibility of faster clearing times

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Availability Issues

• City Items
• Regional Check Processing Center
• Country Items
• HDGS

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High Dollar Group Sort

• Presentment of more than 10 Million/day of out
  of Fed-district checks means a second presentment
  by the Fed

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Clearing Factors

• Deposit Deadlines
• Same Day Settlement
• Electronic Check Presentment (ECP)
• MICR Capture via POS

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Ledger Balances

• Bank balances that reflect ALL entries to an
  account
• Important for accounting purposes (YUCK)

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Deposit Float

• Sum of the deposits in the process of being
  collected

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Collected Balances

• The balance that the bank has received settlement
  for
• CB LB-DF

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Available Balances

• Available Balance CB balances that are
  scheduled to be collected by days end
  additional amounts that are due in accordance
  with Reg. CC

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Availability Determinants

• Drawee Location
• Time, Day
• Pre-Encoding
• Reject Items
• As-Of-Adjustments
• Fractional Availability

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Paper Based Instruments

• Checks vs. Drafts
• Checks are drawn on the bank drafts are drawn
  on the payor
• Draft is handled like a check through the
  clearing process

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Paper Based Instruments

• Depository Transfer Check (DTC)
• Sight Draft
• Time Draft

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Regulation CC

• Availability Schedule (Reg. CC)
• Cash, Wire, ACH 1 Day
• Local Check 2 Days
• Nonlocal Check 5 Days

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Automated Clearing House System

• Formats
• PPD
• CCD
• CCD
• CTX
• RCK

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PPD

• Prearranged Payment and Deposit
• Direct deposits and preauthorized consumer debits

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CCD

• Cash Concentration or Disbursement
• Carries MICR line data

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CCD

• A CCD with the capacity for a single addendum
  record

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CTX

• Corporate Trade Exchange
• 9,999 addenda records
• ASC X12 format
• 1 day settlement

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RCK

• Re-Presented Check Entries
• Debit entry used after a paper check has been
  return for insufficient or uncollected funds
• May submit twice after return of paper item

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ACH Return Items

• Payor bank must send the return item back to the
  ACH in time for it to be received by the
  originating bank no later than the opening of
  business on the second banking day following
  presentment

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Wire Systems

• FedWire
• Funds Transfers are Immediate
• Transactions are Irrevocable
• Receiving Institution is Guaranteed Payment by
  the Fed.
• Each Transaction is Handled Separately

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FedWire

• Wire Transfer Classifications
• Repetitive
• Dollar Amount May be changed
• Semirepetitive
• Dollar Amount and Description may be changed.
• Nonrepetitive
• May change the debt and credit parties.
• Drawdown Wire
• Debit Wire

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FedWire

• FedWire Transactions
• Must Specify
• Account from which money is being withdrawn
• Amount of Transfer
• Bank account to which the money is being sent
• Optional Reference or Identifying information
• Initiating firm will be given a Fed. Reference
  number by the Originating Bank.

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CHIPS

• Clearing House Interbank Payments System
• Created on behalf of 12 banks which settled
  almost all of the U.S. dollar foreign exchange
  and Eurodollar transactions between U.S. banks
  and foreign banks.
• 95 of all international U.S. dollar payments.
• Bank to Bank System.

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CHIPS

• 2001 Volume
• 311 trillion total
• Average Day 1.24 trillion
• Daily message Volume 240,000
• Net Settlement System
• Real Time, Multilatteral Netting
• Failure to Settle
• Unwinding a transaction
• NOT ANYMORE!

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S.W.I.F.T.

• Society for Worldwide Interbank Telecommunication
• 7,199 Financial Institutions in 196 countries
• Messages, Information and Instructions
• Average Daily Traffic 6,130,720
• Average daily value of payment messages 6
  trillion