The Pricing of Float and an Efficient Payments Mechanism

Most checks are deposited in a bank other than the one on which they are drawn. In such instances, the bank in which the check is deposited (the payee bank) must collect the funds from the bank on which the check is drawn (the payor bank). In the United States, check collection services are provided by both private and public institutions. The private sector collects checks via local clearinghouses, bank service corporations, and an extensive network of correspondent banks; the public sector is represented by the Federal Reserve System, which, until this year, provided check collection services, free of charge, to its member banks.