Federal Reserve Bank of New York, in an effort to reduce payment system risk, said it no longer will process paper checks that exceed $100 million.

The Fed also recommended in an announcement last week that any transaction in excess of $1 million be conducted via electronic channels like the Fed's real-time electronic funds transfer network, Fed Wire. Such channels are more efficient and secure than the check system.

"Transfers of very large value should not be subject to the delays and uncertainties of the paper check collection system," Paul L. McEvily, vice president of check function at the Federal Reserve, wrote in a notice of the policy change sent to banks.

"We strongly encourage depository institutions and their customers to use secure electronic payment mechanisms with immediate or same-day finality."

John R. Mohr, executive vice president of New York Clearing House, said such large-dollar checks are not uncommon.

Typical issuers of such items include lawyers, who prefer paper checks when negotiating large purchases, and broker-dealers, who sometimes use them to settle securities trades, he said.

Private check clearing organizations like New York Clearing House will continue to process large-dollar items.

But Mr. Mohr said he supports the Fed's efforts to encourage use of the industry's electronic payment systems.

"Hopefully over time, we'll see how (the $100 million limit) can be lowered, making more of these payments over wire systems, which is where they belong," he said.

However, he added, "There will still be the odd check going through."

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