Someone I know told me recently about a business problem they had–a check for just over $100 million (lots of zeroes on the page!) was presented to and initially accepted by their bank but later rejected by the Fed for being too big. They had to set up an alternative method of transferring the funds. Is $100M the largest check that can be written and processed in the US?
192 views and no Fed experts, eh? Bumping off the second page.
What does the Fed have to do with it, anyway? The check was presented to their bank. Their bank accepted it (presumably for deposit). At that point, their bank requests payment from the bank it was drawn on. At no point does the Federal Reserve get involved.
Besides they could always write two checks. You say but we have to pay 25 cents for each check. That will cost us an extra quarter.
I could be wrong, but by “fed” I would assume they meant “Federal Reserve Bank.”
But the Federal Reserve Bank has nothing to do with the transfer of funds between two banks.
You couldn’t be more wrong.
The Federal Reserve is basically the bank of banks. Banks deposit the checks they receive on a daily basis with the FRB, who then credit their accounts with the funds represented by those funds. They also debit the accounts of the various banks on which those checks are drawn, when they send those checks to that financial institution. Rejected and returned items are adjusted on an as needed basis. While I don’t know if there is an amount limit to which the FRB will reject an item, I do work for a bank, and know the process. I started in the proof department and we used to send the actual checks to the FRB at the end of every day, though now, thanks to Check 21, we send and receive image files instead.
Domestic and International wires are treated in the same manner. The FRB is the hub of the banking industry.
I don’t know the answer, but I’d sure like to have your friend’s problem.
Sorry, missed the edit window.
Here’s a link with a quick overview…FRB Website
One of my employees had their payroll check bounce off the FRB. Took about 20 minutes and a couple of calls from US Bank (both the issuing and deposting bank in this case) to the FRB to get it sorted out. US Bank was VERY confused as they’ve never seen a check get bounced by the FRB. BTW there was plenty of money in our bank account to cover the check.
ETA, the check wasn’t anywhere near $100 million. I think it was about $200.
Every transaction between 2 banks is handled through the Federal reserve. That’s why you have routing numbers printed on your checks. Every bank has a unique routing number that identifies it to the federal reserve.
When I write a check from my account at bank X, and send it to someone who takes it to bank Y and cashes it, what actually happens is bank Y sends the check to the federal reserve, who figures out that its drawn on bank Y and shoots it over to them.
Given the sheer number of different banks in the country, it saves the trouble of having to track down the location of every non internal transaction by having one agency keep track of all of them, and route the transactions accordingly.
Anyhow, I don’t know anything about an upper limit on single checks. I could see an amount that large being a problem though. Most of the funds a bank has are electronic, that is, if a bank has, say 40 million dollars in peoples accounts, most of it is going to be invested rather than just paper bills sitting in a vault somewhere. Banks take into account the fact that most customers keep their money in their accounts, so they just need a certain amount of funds on hand to cover day to day transactions. Pulling that much money out of a bank account is going to require some serious internal paperwork, and I could see a bank rejecting someone walking in and trying to cash a check that big. The money would most likely have to come out in bonds and such.
Hopefully that clears it up a bit!