Bank Collections -- The Direct Routing Practice

Abstract

The establishment of the Federal Reserve system gave promise of sweeping aside a half century of unsound bank collection practices. The most spectacular of these, the one which largely preoccupied the economists interested in banking, was that of circuitous routing.l Under this practice items on relatively close points were often shunted back and forth across the country for days and even weeks before finally being presented for payment, and then, in event of dishonor, were sent back through the same devious route to reach the depositor again. The method was slow, costly, and fraught with risk. The additional handling increased the chance of error, the delay increased the risk of non-payment, and, even when payment was made, the multiplication of banks increased the risk of loss through bank failure.