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October 28, 2008

Check truncation has not yet resulted in overall gains in economic efficiency for the Federal Reserve or for a sample of banks while Federal Reserve and bank officials expect efficiencies in the future. GAO's analysis of the Federal Reserve's cost accounting data suggests that its costs for check clearing may have increased since Check 21, which may reflect that the Federal Reserve must still process paper checks while it invests in equipment and software for electronic processing and incurs costs associated with closing a number of check offices. However, GAO found that the Federal Reserve's work hours and transportation costs associated with check services declined from the fourth quarter of 2001 through the fourth quarter of 2007. Several of the 10 largest U.S. banks reported to GAO that maintenance of both paper and image-based check processing systems prevented them from achieving overall lower costs, although they had reduced transportation and labor costs since Check 21 was enacted. Check imaging and the use of substitute checks appear to have had a neutral or minimal effect on bank fraud losses.