ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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process checks over $10, 000
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transport checks without security
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replace original checks with “substitute checks” or electronic replicas
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limit check transactions for customers
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Detailed explanation-1: -A federal law, known as Check Clearing for the 21st Century Act (Check 21), makes it easier for financial institutions to electronically transfer check/share draft images, called substitute checks, instead of physically transferring paper checks.
Detailed explanation-2: -Check truncation refers to removing an original paper check from the check collection or return. With Check 21, a substitute check or an electronic image of the original paper check replaces the original check in the collection or return process and is cleared through the check-clearing network.
Detailed explanation-3: -Check 21 is a federal law that is designed to enable banks to handle more checks electronically, which should make check processing faster and more efficient. Today, banks often must physically move original paper checks from the bank where the checks are deposited to the bank that pays them.
Detailed explanation-4: -The major difference between Check 21 and ACH lies in the way the two payments are handled. With Check 21, paper checks are converted to digital format for processing. The substitute checks are then sent to the Federal Banking System for clearing.