October 5, 2017

911 Unveiled the Enormity of the Float – and Other Story Ideas

By Doyne Phillips, Managing Editor for Southern Writers Magazine

The tragedy of 911 brought to light weaknesses and flaws in our finance system. Many institutes fell after the flow of money slowed or stopped altogether. The reserves companies depended on were found to be not enough or in some cases reserves had been exaggerated or did not exist. One of the largest accounting firms failed due to discrepancies in their bookkeeping methods.  

Living near Memphis TN, the world hub for FedEx, the shutdown of air traffic was obvious. The quietness of the sky was eerie. The quietness meant the economy had slowed down to a trickle. The flights carrying goods from the thousands of warehouses surrounding the world’s largest carrier had stopped. Everything from car parts to the Pottery Barn and Williams Sonoma were at a standstill. 
Goods were not the only things that weren’t being transported.

Financial documents were also at a standstill. Puzzled? Don’t be. Financial documents were not being faxed, emailed, scanned or even imaged as they are today. Each day billions of such documents were transported by mail. Mail was carried by truck, train and plane. This normal way of doing business was disrupted. Business was not getting done. The largest number, of daily transactions in our economy, was that of the written check. Each day billions of written checks were not getting to their destination. Thus we had another flaw unveiled, that being the float.

The float is described as such: Money in the banking system that is briefly counted twice due to delays in processing checks. Float is created when a bank credits a customer’s account as soon as a check is deposited. However, it takes some time for the check to be received from the payer’s bank. Until the check clears from the payer’s bank, the amount of the check appears in the accounts of both the recipient’s and payer’s banks. The problem here is other checks may be written prior to the payer’s bank transferring the funds and the account is overdrawn. Also checks are written with the hope funds will be deposited in the payer’s account prior to the recipient’s bank demanding the funds. A greater length of time it takes to process the checks the greater chance of abuse and the greater the amount of time the money is being counted twice.

With that in mind you can see 911 extended the time money was counted twice. With this accounting nightmare something had to be done. The Federal Reserve, which had done a great job in the 80’s reducing the float, stepped in and handled the billions of dollars in the float until business was back to normal. As successful as they were they recognized more was needed and in 2003 it occurred.

Congress passed the Check Clearing for the 21st Century Act or Check 21 Act in 2003 and on October 28, 2004 it became effective. This made it easier for financial institutes to electronically transfer check or draft images instead of physically transferring paper checks. At the time it was almost considered futuristic but today it is commonplace. It has indeed been successful in speeding up the process so be sure you have the money when you write the check.

It has been so accepted it now extends to the acceptance of all legal documents and very seldom do we need original signatures. We are now scanning and depositing checks using our cell phones. I am sure most of us have seen on our bank statements in recent years use the term “substitute check” which refers to the image.

Writers looking back, as we have with the Check 21 Act, can have a viewpoint of 20/20 hindsight. From that view we can write with the knowledge of what is ahead. But even better we can look back and see the fragility of what was thought to be a sound system but failed. From there we can look around us today and see the cracks forming in our current system. One that quickly comes to mind is the everyday occurrence of being hacked. That is an idea you can take and run with.

Have you noticed similar occurrences in the past and potential problems with current circumstances? Would you want to share those? Please feel free to do so. 


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