Industry Begins Major Study Of Check Collection System
For the first time in more than a decade, the banking industry is undertaking a comprehensive study of the nation's check collection system.
The study, overseen by the Bank Administration Institute, is expected to influence how banks organize their check operations in the years ahead and how the government revises processing rules.
The project, scheduled to be completed by late next year, is seeking to determine:
* Whether check volume, estimated at 55 billion items a year, is leveling off.
* How many checks are cleared through the Federal Reserve system and how many by commercial banks.
* How long it takes checks to clear in different regions.
* Whether collection can be accelerated if the check depositor's bank sends payment data to the checkwriter's bank electronically, rather than waiting for the physical item to be presented.
No Collection Data Available
Experts say the study is needed because there is no current data on check collections. Many regulatory changes since the last major study have had a big impact on the clearing system.
"Many of the statistics on check volume and clearing are extrapolated from the 1979 study, and the check collection environment is radically different than it was in 1979," said Louise L. Roseman, assistant director of the division of Federal Reserve bank operations.
Two measures that have affected operations are the Monetary Control Act of 1980, which mandated explicit pricing of Fed processing services, and the Expedited Funds Availability Act of 1987, which required banks to make checking deposits available to customers sooner.
The push for faster availability, implemented by the Fed through its Regulation CC, leaves banks open to the risk of losses from checks not backed by sufficient funds.
The BAI study will provide institutions with detailed information about how long it takes for checks to clear, which could boost efforts to have regulators scale back Reg CC deadlines.
The Bank Administration Institute, with the assistance of the Federal Reserve, the American Bankers Association, and several other trade groups, prepared and mailed out questionnaires this month to 1,800 randomly selected institutions, including commercial banks, savings and loans, and credit unions.
Preliminary results are scheduled to be available in the spring of 1992, with the final report to follow in the fall. The report will be distributed free to participating institutions.
Aid in Planning
The 1979 study, which influenced check-related policy decisions throughout the 1980s, was also coordinated by the institute, a trade group based in Rolling Meadows, Ill. The study was published in 1981 after extensive analysis by the Federal Reserve Bank of Atlanta.
The 1979 research predicted that growth in the number of checks written would slow in the 1980s and eventually stop growing in the early 1990s, but most experts say that has not happened. The new study should confirm whether check volume outstripped the expectations of the earlier research.
The latest effort should also detail how dominate a role the Fed plays in check processing. The 1979 study estimated that one of three checks were cleared by the Fed's district banks.
The new study will help banks plan to move to new technologies in check processing, such as image processing.
"Banks need to know how fast the system is growing in order to determine the kind of investments they should be making and what the industry should be doing as a whole," said David Taylor, executive director of the BAI. "The study will help banks understand where the volume will be by the end of this decade." [Graph Omitted]