Federal Reserve Float

The Federal Reserve float refers to the over-estimation of the U.S. money supply due to uncleared checks showing as an asset at two institutions. This "double accounting" for a check occurs because the Federal Reserve generally credits a bank's account for the amount of a check within one to two days of that check being presented. However, it often takes slightly longer than that time for the same check to be presented to the issuing bank for actual payment of the funds. The result is that the check amount shows as an asset on the books of both the receiving and sending institution.

The amount of float in the Federal Reserve System changes daily, weekly and monthly. Typically, the first few banking days after the weekend, the end of the month and the holidays all experience a higher level of float due to an increased volume in processed checks. One way to understand the delay in processing is the negative float of a personal checking account. The amount of checks sent doesn't necessarily match the bank account record until the checks have cleared. So an online checking balance may show funds that haven't cleared, but will shortly.

One of the goals of an efficient banking system would be zero float, meaning that all money is withdrawn from one account and deposited into another the moment a check is presented. While this is not currently the case, it is important to note that the amount of float in the system has been cut dramatically over the last few decades due to active anti-float programs from the Federal Reserve and an increasing move towards the electronic transfer of funds. It's not unreasonable to expect that Federal Reserve float will be virtually eliminated in the next few decades.