Smaller financial institutions used to have only a few choices for clearing and settling checks. They could transport the paper checks to the nearest Federal Reserve or to a larger correspondent bank in their area for processing. But remote capture and check imaging enable institutions to truncate the check at the branch and electronically send the check image for clearing and settlement. Since it costs the same to send an electronic check image 1,000 miles as it does 10 miles, the proximity of a correspondent bank becomes moot. A community bank can choose to do business with the correspondent down the street, or the one across the country. Price and service replace geography as the deciding faptor.
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