What Are Holdovers?
Holdovers, in finance, represent transactions, typically checks, that have not yet been processed by banks. The period during which checks are designated as holdovers usually spans a single business day.
Apart from financial transactions, holdovers can also refer to tenants who continue to occupy a property after the lease has ended, potentially leading to eviction proceedings.
Understanding Holdovers
Holdovers typically arise when a bank receives payments close to the end of a business day, leading to delays in processing these transactions. This delay commonly occurs in large clearinghouse banks and is distinct from holds on out-of-state or third-party checks. Holdovers occur due to the timing of check deposits, often received too late for same-day processing.
For instance, if a customer submits a substantial number of checks for deposit near the end of a business day, the bank may be unable to process them promptly, resulting in holdover checks. These checks are then collectively processed on the subsequent business day.
Special Considerations
Banks issue deposit tickets reflecting the date of receipt for holdover instruments. However, holdover float, where funds temporarily exist in two accounts concurrently, can occur. To mitigate this, banks may post a temporary debit on the receiving account of holdover checks, correcting the balance upon processing the following day. Some banks may require agreements for frequent holdover occurrences, while others disallow holdovers entirely, opting for next-day processing.
Banks tend to allow holdovers for customers with good credit standing, with examiners ensuring timely processing to eliminate holdover debits.
Holdover Timing
While individual banks experience holdovers infrequently, they are prevalent within the broader financial landscape.
The Federal Reserve has noted increased holdover float on Tuesdays due to check backlogs from weekends. Additionally, holdover float peaks in December and January, driven by holiday-related deposits. External factors like severe weather can also impact holdover floats.
Scammers exploit check clearing holdovers for fraud, like check kiting, where bad actors utilize bad checks drawn on multiple accounts to deceive banks or retailers.
Reducing Holdovers
To prevent misuse of holdover funds, the Monetary Control Act of 1980 introduced measures to curb holdovers, such as charging banks for manual check processing and promoting electronic payment networks. These advancements enhance check processing efficiency, shrinking holdovers and float times.
What Does Floating Mean in Banking?
Float in banking denotes payments pending clearance, essentially representing money counted twice. Stringent regulations govern bank float to deter fraud.
What Are the Risks of a Floating Check?
Floating checks, those yet to clear, can facilitate fraudulent activities like check kiting, where scammers exploit the float duration to make unauthorized transactions or withdrawals. This misuse can cause substantial financial losses annually.
Is Floating a Check Illegal?
While writing checks without sufficient funds can result in bounced checks—legal actions are taken if the situation arises due to fraudulently exploiting float intervals.
What Is Concentration Banking?
Concentration banking refers to a core bank branch that centralizes funds from satellite branches to streamline payments and transfers.