Nearly half of banks say their exposure to check fraud has increased since Federal regulations been mandating accelerated availability of funds, according to an American Bankers Association study.

Despite this, most of the 459 banks surveyed are clearing checks a day earlier than they need to under the rules - in order to keep customers happy and to compete with rivals.

The findings make it difficult for the ABA to make a case that the Federal Reserve's controversial Regulation CC has hurt banks, said Robert B. McDonald, executive vice president of Riggs National Bank and a member of the task force that conducted the study.

Competitive Factor

"Reg CC can't really be blamed for the problem when banks aren't using the parameters that it allows them," said Mr. McDonald.

Although the regulation allows banks to put a hold of up to two days on local checks, more than 60% of the banks surveyed said they made funds available the day after deposit.

The study also found that big banks were more likely to be the victims of fraud and less likely to recover funds.

The study also found that many banks still cannot measure the incidence of check fraud. A full 20% of the large banks,defined as banks with assets over $500 million, said they did not know whether fraud was increasing at their banks or not.

Community banks were more likely to have processes in place to measure check fraud, with only 9% saying they had no basis to judge, the survey found.

"I was surprised that more banks weren't fearful about the exposure they face [to check fraud] due to new technologies," such as desktop publishing, Mr. McDonald said. "This is a time bomb ready to explode."

The study was the first detailed look the ABA has taken at check fraud among its members, and the results could not be compared with data culled in previous studies, the ABA said.

The banks reported total losses from check fraud of $568 million in 1991 and cited 536,000 individual cases. The biggest loss reported by a a bank with more than $500 million in assets was $25 million, and the largest loss reported by a community bank with assets less than $500 million was $150,000.

Of those responding to the survey, 75% were community banks with assets of less than $500 million.

Most fraud came from retail or corporate accounts, rather than from crimes involving bank personnel. Forged signatures made up the overwhelming majority of fraud cases, but the largest average losses came from check kiting.

Kiting occurs when a customer with at least two bank accounts uses the float period to write checks against uncollected or nonexistent funds. Eventually, one bank gets stuck with a bad check Average losses in 1991 were $4,335 per bank from check kiting, $3,463 from forged checks, and $4,300 from counterfeit checks.

Forged signatures were the most common type of fraud used for checks presented at the account holder's bank. while counterfeiting was the most common type of fraud for checks cleared through the interbank payment system.

Banks recovered only 13% of the money lost, with large banks less likely to recover funds than community.

Small Banks Lost Little

Slightly more than 200 community banks reported losses, with the average annual loss $5,000. Sixty-nine medium-size and large banks said they had losses averaging $91,500.

Banks took a variety of measures to reduce fraud. The most popular measure was to institute training programs for branch personnel (85%).

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