Nonpar Item

Definition of 'Nonpar Item'


A check, draft or negotiable instrument that a paying bank honors at a discount when presented by another bank for collection. The discount is deducted from the check's (or instrument's) face value.

Nonpar banking, the practice of charging fees to execute a draft or check drawn from another bank, was commonplace in the U.S. until the Federal Reserve check collection system was created in 1916.

Investopedia explains 'Nonpar Item'


State banking officials were the primary opponents to "par" banking as established by the Federal Reserve System because it would eliminate an important source of revenue – the fees collected to execute the exchange of financial instruments from non-local institutions.

Prior to the Federal Reserve check collection system, banks would charge significant fees to convert paper drafts into currency, typically to enable the draft holder to purchase land. Most land offices accepted only in specie payment for parcels. To avoid nonpar collection charges, banks would send checks to banks with whom they had a "par" relationship for payment, which often began a lengthy process of circuitous routing across the U.S. for final collection. Eliminating nonpar banking through the creation of an efficient collection and clearing system was one of the Federal Reserve System's first goals.



comments powered by Disqus
Hot Definitions
  1. Direct Bidder

    An entity that purchases Treasury securities at auction for a house account rather than on behalf of another party.
  2. Mortgage Modification

    A permanent change in a homeowner's home loan terms that makes the monthly loan payments affordable.
  3. Leveraged Benefits

    The use – by a business owner or professional practitioner – of their company’s receivables or current income to secure a loan whose proceeds then indirectly fund a retirement plan.
  4. Direct Consolidation Loan

    A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.
  5. Through Fund

    A type of target-date retirement fund whose asset allocation includes higher risk and potentially higher return investments "through" the fund's target date and beyond.
  6. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold or disposed of first.
Trading Center