What are Holdovers?
In finance, the term “leftovers” refers to transactions – usually checks – that have not yet been processed. In most cases, the period of time that checks are held as leftovers generally does not exceed one business day.
Key points to remember
- Holdovers are transactions that have not yet been processed by banks.
- The most common example is that of checks that have not yet been deposited.
- Holdovers can give rise to a phenomenon known as float holdover, during which money temporarily exists in two accounts simultaneously. However, this duplication is quickly corrected by the banks once the associated checks have been processed.
Understanding the remains
Deferrals generally occur when a bank does not have enough time to process all of the payments it has received before the end of a business day. They are usually found in large clearing banks, and they are different from the wedges placed by banks on government or third-party checks. In this case, the check is usually postponed simply because it was received too late for the same day processing.
For example, a customer can bring a large number of checks to deposit towards the end of a business day. Such a situation could produce reserve checks if the bank is unable to process them during the same day. These residual checks would then be consolidated and deposited the next business day.
When a bank has leftovers, it gives the depositor a deposit receipt processed on the date of receipt of the instruments. However, this situation can give rise to a float, where the money represented by the hold checks briefly exists in duplicate: once in the account on which the hold checks are drawn, and a second time in the account in which they are deposited.
To avoid the float of the holdback, some banks will debit the account into which the holdback checks are to be deposited. When the remaining items are processed the next day, this flow will be reset. In addition, some banks will require customers who frequently cause signature delays to sign an agreement specifying their terms and conditions. Other banks, on the other hand, solve this problem by refusing to allow deductions at all. Instead, they simply tell customers that the remaining items will be processed the next business day.
Banks generally allow deferrals only on behalf of customers with good credit ratings. When the bank examiners find that there are still outstanding balances, they generally ensure that the remaining balances are processed the next working day and that the debits to the balances are regularly canceled.
Real example of leftovers
Although holdbacks are generally rare in individual banks, they are relatively common if viewed at the level of the entire financial system. For example, the Federal Reserve observed increased levels of float hold on Tuesday, due to the backlog of checks that were deposited but not processed over the previous weekend.
Likewise, the holding float is generally highest in December and January, due to unprocessed checks deposited during the holiday season. Temporary disruptions to opening hours, such as severe weather events, can also leave floats in their wake.