Since it was established the federal reserve has

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Since it was established, the Federal Reserve has worked with the private sector to improve the efficiency and cost-effectiveness of the check-collection system. Toward that end, the Federal Reserve and the banking industry developed bank routing numbers in the 1940s. These numbers are still printed on checks to identify the institution on which a check is drawn and to which the check must be presented for payment. In the 1950s, the magnetic ink character recognition (MICR) system for encod-ing pertinent data on checks was developed so that the data could be read electronically. The MICR system contributed significantly to the automa-tion of check processing. In the 1970s, the Federal Reserve introduced a regional check-processing program to further improve the efficiency of check clearing, which resulted in an increase in the number of check-processing facilities throughout the country. In response to the recent decline in overall check usage, the 91
The Federal Reserve System: Purposes and Functions Reserve Banks began an initiative to better align Reserve Bank check-processing operations with the changing demand for those services. As part of the initiative, the Reserve Banks standardized check processing, consolidated some operations, and reduced the overall number of their check-processing sites. Other improvements in check collection have focused on when a customer has access to funds deposited in a bank. Until the late 1980s, depository institutions were not required to make funds from check deposits avail-able for withdrawal within specific time frames. In 1988, the Federal Reserve Board adopted Regulation CC, Availability of Funds and Collec-tion of Checks, which implemented the Expedited Funds Availability Act. Regulation CC established maximum permissible hold periods for checks and other deposits, after which banks must make funds available for with-drawal. It also established rules to speed the return of unpaid checks. In late 1992, the Federal Reserve Board amended Regulation CC to permit all depository institutions to demand settlement in same-day funds from paying banks without paying presentment fees, provided presenting banks meet certain conditions. Substitute check In addition to processing paper checks more efficiently, the Federal Reserve has also encouraged check truncation, which improves efficiency by elimi-nating the need to transfer paper checks physically between institutions. To that end, the Federal Reserve worked with Congress on the Check Clear-ing for the 21stCentury Act, commonly known as Check 21, which be-92

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