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One of the goals of an efficient banking system would be zero float, meaning that all money is withdrawn from one account and deposited into another the moment a check is presented.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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