The economics of market coordination for the pre-Fed check-clearing system: A peek into the Bloomington (IL) node

On the basis of anecdotes centered on the alleged “circuitous routing of checks,” researchers focusing on the pre-Fed check-clearing system have usually argued that it was inefficient. In this paper we study a 1910 check remittance register from the State National Bank of Bloomington, Illinois-we dissect the way the bank forwarded checks to various destinations for clearing and collection. We find that the bank followed an orderly process of check remittance according to which checks tended to move in the “right direction.” This casts doubts on the alleged pervasiveness of cycling and circuitous routing of an extreme nature in the pre-Fed check-clearing process.