If Megan writes a check on her San Francisco bank to Aaron, who deposits it in his Cleveland bank, how does the Cleveland bank collect the money represented by the check drawn against the San Francisco bank?

Question

Multiple choice question.

Using the National Banks

Using the Federal Reserve Banks

The Cleveland bank is unable to collect money from the San Francisco bank

Using the Department of Treasury

Answer 1

The correct answer is:

Using the Federal Reserve Banks

When a check is deposited in one bank and drawn on another bank, the collecting bank (Cleveland bank, in this case) typically goes through the Federal Reserve System to settle the transaction and collect the funds from the paying bank (San Francisco bank).