Most banks are making limited use of new clearing rules for interbank check presentment, a consultant's survey has concluded.
But use of the so-called sameday settlement rules could pick up later this year, according to a survey by Littlewood, Shain & Co., Exton, Pa.
"Although the start has been relatively modest, [banks] should expect to see more," said Ned Miltko, a senior vice president with Littlewood Shain.
Adopted at the beginning of this year, the same-day settlement rules require banks to fund checks presented by other institutions within a day, as long as the checks arrive at a designated presentment point before 8 a.m.
Avoiding the Middleman
Before the rule change, banks could wait an extra day to fund checks or charge fees for sameday funds availability.
The rules are supposed to make it more economical for banks to send checks directly to one another for settlement, bypassing the Federal Reserve's check clearing system as well as rival clearing systems run by large correspondent banks.
The Littlewood Shain survey found that 2-1/2 months after adoption, only 9% of banks with less than $1 billion of assets were sending out checks for same-day settlement, and only 26% of these banks were receiving same-day settlement requests from other institutions.
43 Banks Polled
This conclusion was based on telephone interviews with 43 banks with less than $1 billion in assets in all Federal Reserve districts.
Interviews with 40 larger banks from all the Federal Reserve districts showed that only about half were receiving same-day settlement requests for checks presented by other institutions.
Two thirds said they were sending out same-day settlement requests to other institutions within their district, while only one-third were sending these requests to out-of-district banks.
But the volume of same-day settlement requests was found to be small. The average bank with more than $1 billion of assets was sending only 48 same-day settlement cash letters a day to institutions within their Fed districts, and 35 a day to institutions outside their districts.
This translates into a total of nearly 1,200 same-day settlement cash letters a day for the surveyed banks. Cash letters are invoices that detail the checks in a bundle.
The survey found that large banks were concentrating first on sending same-day settlement requests to a small number of local institutions to fine-tune their settlement procedures, before expanding these operations to other institutions.
The survey also found that some large banks are waiting to finish consolidation of their check processing operations before making a large commitment to same-day settlement.
Improvement in Float
But the large banks surveyed said they plan to nearly double the number of same-day settlement cash letters sent out for collection by yearend.
Not surprisingly, because of the small volumes only 15% of the surveyed banks with more than $1 billion of assets said they had improved float because of same-day settlement.
Float improvements are expected because the rules expedite the release of funds.
The survey also found that just over half of the larger banks surveyed are sharing transportation costs for the delivery of checks for same-day settlement.