AVAILABILITY

1
AVAILABILITY

• Techniques necessary to ensure the availability
  of exchanging financial consideration.

2
Consideration

• The inducement, price or motive that causes a
  party to enter into an agreement or contract.
• In contract law, there are three elements that
  must be present for a contract to exist
• an offer,
• acceptance, and
• consideration

3
Financial Consideration

• In the majority of contracts, consideration is
  financial in nature.
• The presence of consideration distinguishes
  contracts from gifts.
• Promises to exchange money, goods, or services
  are forms of consideration

4
Perfecting Consideration

• Given the importance of consideration in contract
  law, availability plays a significant role in its
  perfection.
• Lack of availability of consideration can render
  a contract void.
• Timeliness from the aspect of a financial
  institution is paramount in contracts
• You guessed it

5
Regulation CC

• Availability of Funds Collection of Checks

6
Availability Reg CC

• The Expedited Funds Availability Act (EFAA),
  enacted in 1987, addresses the issue of delayed
  availability of funds by banks. The EFAA requires
  banks to (1) make funds deposited in transaction
  accounts available to their customers within
  specified time frames, (2) pay interest on
  interest-bearing transaction accounts not later
  than the day the bank receives credit, and (3)
  disclose their funds-availability policies to
  their customers.

7
Specified Time Frames

• proceeds of local and nonlocal checks must
  generally be made available for withdrawal by the
  second and fifth business day following deposit,
  respectively.
• A local check is a check deposited in a
  depositary bank that is located in the same
  Federal Reserve check-processing region as the
  paying bank, and
• a nonlocal check is one deposited in a different
  check-processing region than the paying bank.

8
Large Items

• Paying banks are required to provide notice of
  nonpayment to the depositary bank on all returned
  checks of 2,500 or more. This notice is to be
  received by the depositary bank no later than
  400 p.m. local time on the second business day
  following presentment.

9
Exceptions

• Certain safeguard exceptions to the availability
  schedule for new accounts, large deposits,
  repeatedly overdrawn accounts, emergency
  conditions, and other circumstances.
• A depositary bank that invokes one of the
  exceptions to extend the availability schedule
  generally must provide notice to its customer.

10
Availability FAQs

• Your institution is open for all business
  functions on Saturday. Customer Jones deposits a
  4,000 U.S. Treasury check payable to him with a
  teller on Saturday. When must the funds be made
  available?
• Answer  Tuesday. Saturday is not a banking day
  because it is not a business day, so the deposit
  is considered to have been received on Mondaythe
  next banking day. Because the funds are from a
  U.S. Treasury check, they must be made available
  by the first business day following the day of
  deposit.

11
FAQs p2

• Customer Palmer deposits a 10,000 nonlocal check
  payable to him with a teller at 1000 a.m. on
  Monday the 1st. When must the funds be made
  available?
• Answer  The first 100 must be available by
  Tuesday the 2nd. Because the check is nonlocal,
  the remaining amount must be available by the
  fifth business day, which is Monday the 8th
  however, you may choose to hold the amount over
  5,000 under a large deposit exception. If you
  choose this option, you must give the customer a
  hold notice when the deposit is received (or not
  later than the close of the business day on
  Tuesday if the decision to delay availability is
  made after the time of deposit), and you must
  provide 100 by Tuesday the 2nd, an additional
  4,900 by Monday the 8th, and the remaining
  5,000 by Tuesday the 16th.

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FAQs p-3

• Customer Washington deposits a 400 local check
  payable to her at 300 p.m. on Monday. The banks
  cut-off hour for the days transactions is 200
  p.m. When must the funds be available?
• Answer  Because the deposit was made after the
  banks cut-off hour, it is considered received on
  Tuesday. The first 100 must be made available by
  Wednesday and the remaining 300 must be made
  available by Thursday.

13
Other Mediums

• The following types of deposits must be made
  available on the first business day following the
  banking day of deposit (next-day availability)
  
• Cash U.S. Treasury Checks U.S. Postal Money
  Orders FRB Checks State Government Checks
  Local Government Checks Cashiers Checks
• AND Electronic Payments

14
Amending the Regulation

• To date, there has been 13 major amendments to
  Regulation CC since July of 2003.
• To a large part this is due to the infusion of
  technology.
• None larger than Check 21

15
Check 21

• Check Clearing for the 21st Century

16
What is Check 21 and what is its basic purpose?

• Check 21 is a federal law that is designed to
  enable banks to handle more checks
  electronically, which should make check
  processing faster and more efficient. Today,
  banks often must physically move original paper
  checks from the bank where the checks are
  deposited to the bank that pays them. This
  transportation can be inefficient and costly.
  Check 21 became effective on October 28, 2004.

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How will Check 21 make check processing more
efficient?

• Instead of physically moving paper checks from
  one bank to another, Check 21 will allow banks to
  process more checks electronically. Banks can
  capture a picture of the front and back of the
  check along with the associated payment
  information and transmit this information
  electronically. If a receiving bank or its
  customer requires a paper check, the bank can use
  the electronic picture and payment information to
  create a paper substitute check. This process
  enables banks to reduce the cost of physically
  handling and transporting original paper checks,
  which can be very expensive.

18
Is electronic check processing secure?

• Electronic check processing is not new to the
  financial industry and is a safe and reliable way
  of processing payments. It uses technology that
  has been developed and tested to process your
  check information securely.

19
Will Check 21 increase the speed with which
checks are cleared between banks?

• The speed of check-processing already has
  increased in response to check-system
  improvements other than Check 21. Thus, even now,
  once a check is deposited with a bank, it is
  almost always delivered overnight to the paying
  bank and debited from the checkwriter's account
  the next business day. Check-processing speeds
  should continue to increase, over time, as banks
  make further operational changes in response to
  Check 21.

20
Availability vs. Availability

• From the banking perspective, we have just
  discussed availability. It deals with when funds
  are available in an account.
• But, in the security world it is one of the six
  dimensions of security, with integrity,
  nonrepudiation, authenticity, confidentiality,
  and privacy.
• Is the site operational? Can it be accessed?

21
Bankers Dilemma

• Is the money there?
• Are we in compliance with Reg CC?
• Is availability served?
• Is the bank online and operational?
• Is the site secure?
• Is availability served?

22
When is an Availability Policy not an
Availability Policy

• Confusion reigns supreme
• Integrity for the most part means integrity
• Nonrepudiation means nonrepudiation
• Authenticity pretty well means authenticity
• Same for confidentiality and privacy
• But availability in the secure sense is a
  different dimension then availability in the
  financial world.

23
Making Available funds Available

• Reg CC takes care of the obligation of banks in
  making funds available.
• Check 21 has addressed the need for speed, and
  has addressed the characteristics of the paper
  check, making it more like the electronic
  transaction.
• That leaves the third leg, that being the
  security piece.

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The Availability Triangle

• Security
  Check 21
• Reg CC

25
Up and Running

• Availability ensures that a systems authorized
  users have timely and uninterrupted access to the
  system.
• Availability also guarantees that the security
  services that the bank needs are in working
  order.
• It is a fundamental principle of all forms of
  information security

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So.. is Availability

• A Business Continuity Issue??
• http//www.ffiec.gov/ffiecinfobase/booklets/bcp/bu
  s_continuity_plan.pdf
• Or maybe an E-Banking issue??
• http//www.ffiec.gov/ffiecinfobase/booklets/e_bank
  ing/e_banking.pdf
• Perhaps an overall Information Security issue??
• http//www.ffiec.gov/ffiecinfobase/booklets/inform
  ation_security/information_security.pdf

27
You tell me
Where should the Bank begin with availability??