[Biff-1955-Tannen]

I understand conceptually what kiting is, but I’m hoping somebody can shed some light on how it is done. Specifically, I don’t understand how the receiving bank can record the receipt before the original bank records its disbursement. Is this a delay in the disbursement date, or is it recording the receipt early? / what causes that?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Anonymous]

Well I work in a bank. There is still a delay between when you deposit funds and when the funds “clear” the payments system. You can essentially take advantage of the float time to get credit for a check even though you didn't have the money in the account the check was drawn on. You can then write a check off the second account back to the first account and receive credit there as well. You have essentially increased the balances in both accounts temporarily.

When the first check clears, it will take the first account down to nothing again. Kind of hard to explain without pictures.

[Biff-1955-Tannen]

Ok I think I get it… so the receiving bank is just giving you credit for the check even though they don't actually have the money yet, and the distributing bank doesn't actually show the distribution until the money actually leaves. Which would explain the overlap Right?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Anonymous]

Yep. Checks still aren't instantaneous – getting a bad check back can take up to several days depending on the banks involved. So, you can essentially be using “credit” extended by the banks that are taking your deposits on faith, as long as you keep the timing right. This is why many banks have a limit on the portion of a check deposit which is immediately available. When I worked in banking (about 3 years ago) the Feds were working in trying to make these restrictions more relaxed, but my bank was something like $100 the first day, $200 the 2nd day, and the full deposit the 3rd day (speaking in business days) for new accounts, then full check available the next day for established accounts that hadn't had issues.

[Author]

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