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Tuesday, June 30, 2015

Flying a kite


There was a time when it took several days for a cheque deposit to be cleared because the cheque had to be physically taken from the bank where it had been deposited to the bank on which it had been drawn.

Banks in each locality would "exchange cheques" on a daily basis, taken in cheques from other banks which were drawn on them and swapping them for cheques taken in by them but drawn on other banks. Then, within their own branch network, they would once more send off the cheques which were drawn on them but on a different branch.

All this could take several days; precious days which were used by some clever bank customers to artificially inflate their bank balance by "flying a kite", as the practice was called. It may go like this: a customer has two accounts, each one in a different location. Distance does matter - the farther apart, the better - , so let's assume the 'ideal' situation of one account on the east coast and the other on the west coast.

A cheque drawn on the west coast account was deposited in the east coast account, boosting the east coast account's balance from which real money could be withdrawn. At about the time when the west coast's account could be expected to be 'hit' with the cheque in transit from the east coast, an east coast cheque was deposited in the west coast account to cover it, and ad infinitum.

As a young ledger-keeper with the ANZ Bank in the 60s, I was trained to look out for a pattern that might suggest that someone was "flying a kite" and to bring it to the bank manager's attention. Once discovered, such customer was politely asked to take his business elsewhere.