DEFINITION of 'Bank of First Deposit - BOFD'

The bank of first deposit (BOFD) is a bank where someone first deposits a check to an account. If someone subsequently draws the check on the same bank, it is an "on-us" item. If the check is drawn on another institution, the bank considers it a transit item.

BREAKING DOWN 'Bank of First Deposit - BOFD'

As noted above, a depositor may draw the same check at the same institution; this is called an “on-us” item. An on-us item may be in check or draft form. The depositor can cash this immediately or deposit it into another account for safekeeping. The drawing account must have a sufficient balance to pay the check. On-us items can also be in the form of electronic debits or transfers. On-us items can benefit banks as they often obtain revenue from both the acquiring and issuing sides.

In contrast transit items are checks or drafts, which an institution that is separate from its original place of deposit issues. During processing, a bank separates transit items from checks that its own customers write. Transit items are submitted to the drawee bank through either direct presentation or via a local clearing house.

Bank of First Deposit and the Federal Reserve System

The U.S. Federal Reserve System originated during the financial panic of 1907 at a time when many banks were failing to clear checks drawn on other banks. During this time in U.S. history there was a lack of dependable credit, which stunted growth in many sectors, particularly agriculture and industry. Many began to fear that the U.S. banking and trust industries were experiencing liquidity issues and thus starting to perform bank runs.

The development of the U.S. Federal Reserve from this panic solidified the position of the bank of first deposit in commercial banking.

In the 1940s Industry routing numbers (which appear at the bottom of checks) helped banks of first deposit facilitate a growing volume of transactions. A routing transit number is the nine-digit numerical code, which identifies a banking or other U.S. financial institution in order to clearing funds or processing checks. The first four digits of any routing code will designate the Federal Reserve Bank of the district where the bank is located. The next four digits denote the specific financial institution, while the last digit is a classifier for the check or negotiable instrument.

RELATED TERMS
  1. Check Hold

    A check hold denotes the maximum number of days that a bank can ...
  2. Available Balance

    The available balance is the balance in checking or on-demand ...
  3. Routing Transit Number (RTN)

    A routing transit number is a nine-digit numerical code used ...
  4. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  5. Book Balance

    Book balance is a term used to describe money available after ...
  6. Availability Schedule

    The availability schedule is the number of days it takes a third-party ...
Related Articles
  1. Personal Finance

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  2. Investing

    Introduction To The Chinese Banking System

    As China steps into a greater role in the global economic system, their banking system continues to evolve.
  3. Tech

    New Bank Account? Don't Be Without These 6 Features

    Certain banking features can make managing your finances easier, so it's important to choose carefully when opening a new checking or savings account.
  4. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  5. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  6. Personal Finance

    The 8 Best Bank Perks

    Many banks are now offering free perks to entice new customers.
  7. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  8. Tech

    The Future Of Mobile Banking (JPM, BAC)

    Typically slow to react to technological change, retail banks are finally recognizing the benefits it provides to consumers as well as the cost savings it gives the firm.
  9. Investing

    JPMorgan Anticipates More Midsize Bank Mergers

    Now that the Fed's quantitative easing program is over, deposits once booming in retail banks' coffers are draining.
  10. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
RELATED FAQS
  1. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  2. How must banks use the deposit multiplier when calculating their reserves?

    Explore the relationship between the deposit multiplier and the reserve requirement, and learn how this limits the extent ... Read Answer >>
  3. When do checks expire?

    There is a legal grace period for cashing checks, but depositors and issuers may risk overdraft fees if a late check is presented ... Read Answer >>
Trading Center