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was deposited in the east coast account, boosting the east coast account's balance from which real money could be withdrawn.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.
These days when cheques are electronically processed and never even leave the bank where they have been deposited, the only ones who are still "flying a kite" are the banks themselves: following St George's disappointing customer service, I have been transferring each maturing term deposit by immediately drawing a cheque on it and depositing it with the Commonwealth Bank.
On the very same day the Commonwealth Bank received my St George cheque, my bank balance with St George was debited. But my Commonwealth Bank balance didn't go up! Yes, they did acknowledge that a deposit had been made but the balance of 'Funds available' excluded the deposit for another three days.
Three days for what had taken no more than a split-second to register on a computer screen! Multiply that by the total of the transactions that daily churn through our banks, and you get some idea of the BILLIONS of dollars which are in the banks' 'no-man's land', earning interest for them but for no-one else. What a giant kite!
