Federal Reserve Float

DEFINITION of 'Federal Reserve Float'

Refers to the over-estimation of the country's money supply due to uncleared checks showing as an asset on the books of both the receiving and sending institution. This "double accounting" for a check occurs because the Federal Reserve generally credits a bank's account for the amount of a check within one to two days of that check being presented. However, it often takes slightly longer than that time for the same check to be presented to the issuing bank for actual payment of the funds, hence the double accounting of the amount.

The amount of float in the Federal Reserve System changes daily, weekly, and monthly. Typically, the first few banking days after the weekend, the end of the month and the holidays all experience a higher level of float due to an increased volume in processed checks.

BREAKING DOWN 'Federal Reserve Float'

One of the goals of an efficient banking system would be zero float, meaning that all money is withdrawn from one account and deposited into another the moment a check is presented. While this is not currently the case, it is important to note that the amount of float in the system has been cut dramatically over the last few decades due to active anti-float programs from the Federal Reserve and an increasing move towards the electronic transfer of funds. It's not unreasonable to expect that Federal Reserve float will be virtually eliminated in the next few decades.

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RELATED FAQS
  1. In what ways has technology helped to reduce float?

    Learn more about the impact of float on the U.S. monetary system and how technology has changed the amount of float as measured ... Read Answer >>
  2. How does float affect the nation's money supply?

    Learn how float affects the appearance of the nation's money supply, and receive a brief lesson on how the U.S. government ... Read Answer >>
  3. Why does float usually increase at the beginning of the week?

    Find out more about float and how checking float is created in the American banking system. Learn more about why the Federal ... Read Answer >>
  4. What months of the year typically have the highest float?

    Learn more about how float occurs within the United States and how it is monitored. Find out why float frequently happens ... Read Answer >>
  5. What is the difference between holdover float and transportation float?

    Find out about float, which may become a thing of the past due to the steady decline of check writing and new services in ... Read Answer >>
  6. What does floating stock tell traders about a particular stock?

    Learn about what floating stock tells a trader about a particular stock. One commonality of the biggest winners in stock ... Read Answer >>
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