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Source: Encyclopedia of Banking & Finance (9h Edition) by Charles
(We recommend this as work of authority.)
This term has two meanings:
To market securities; to
offer for sale an issue of bonds or stock to investors for the purpose
of raising capital. Securities
may be floated by an underwriting syndicate or securities company
or by the issuing organization directly, i.e., over the counter.
U.S. government issues are floated through the agency of the
Federal Reserve banks.
An account (also known as
floating account) which holds the out-of-town checks outstanding in
the process of collection. Banks
forward out-of-town checks for collection through either correspondent
banks or Federal Reserve banks as collecting agents.
While such checks are in transit, i.e., in the process of becoming
collected and converted into cash, they are known as the float and
represent contingent rather than actual assets.
They cannot be counted as reserve and must be segregated from
cash balances. The float
or aggregate of out-of-town items in process of collection is held
in two general ledger accounts entitled "due from banks, collections"
and "Federal Reserve bank, collections."
The Federal Reserve banks also have a float account consisting
of the aggregate of out-of-town items which are in the process of
collection for member banks.
Before the FEDERAL RESERVE CHECK COLLECTION SYSTEM was in operation,
the float for the country as a whole amounted to a very large figure,
because checks were often out a month or moe before presented for
final payment. The Federal
Reserve check collection system has greatly reduced the outstanding
float and accelerated the collection of checks by ensuring prompt
presentation and because of the quick availability made possible by
settlement through the two-day deferred availability schedule and
the INTERDISTRICT SETTLEMENT ACCOUNT.
The Federal Reserve check collection system has also reduced
the loss in the use of funds and consequently secured greater economy
in the employment of bank funds for exchange purposes, which has been
reflected in lower exchange rates.
Federal Reserve pricing
for float: The Monetary Control
Act of 1980 specified that fees will be set for the types of services
provided by Federal Reserve banks, which include Federal Reserve float. The Federal Reserve's August, 1980, pricing proposal suggested
a three-phase effort to reduce and/or price Federal Reserve float.
Phase I would reduce float through operational improvements which
would speed up the collection process and thus debit payor banks more
promptly, phase II would adjust availability schedules for depositing
banks to reflect actual collection time more closely, and phase III would
price any remaining float and incorporate this charge into the price of
the service creating the float.
The BASI Survey of the Check Collection System.
Bank Administration Institute, Rolling Meadows, IL, 1987.
Over 'Float." The Morgan Guaranty Survey, December, 1983.
"The Rise and Fall of Federal Reserve Float."
Economic Review, February, 1986.
"The Rise and
Fall of Federal Reserve Float."
Federal Reserve Bank of Kansas City Economic Review, 1986.
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