Households and businesses in the U.S. prefer to use checks over less costly means of payment. Earlier studies have focused on check “float” as an explanation for the continued popularity of this seemingly inefficient technology. We construct a general equilibrium model of check payment and show that the presence of float does not necessarily lead to inefficiency. However, we also identify two potential sources of inefficiency associated with check float: (1) if float is not always priced, then it acts as a distorting tax, and (2) inefficiencies can result if people engage in costly activities designed to accelerate check presentment. Journal of Economic Literature Classification Numbers: E58, G21, G28.

Banks are modeled as Bryant/Diamond-Dybvig "insurers" against the risk of early consumption. Consumption claims must be verified by clearing and settlement. A clearinghouse does this efficiently as long as banks are sufficiently liquid. If liquidity requirements cannot be enforced against all banks then the threat of panics is necessary to induce banks to hold sufficient liquidity. If the clearinghouse can issue emergency currency, then banks can coexist with less liquid institutions. However, if banks′ return to holding reserves is low during "normal times," then there must be times when the return to liquidity is abnormally high. We associate these episodes with the panics of the National Banking Era. Journal of Economic Literature Classification Numbers: 042, 311, 314.

Intrastate branching deregulation allowed correspondent banks to enter downstream retail deposit markets. Integrated correspondent banks may engage in vertical foreclosure, raising prices to downstream rivals or extracting valuable competitive information. The Federal Reserve would then tend to gain market share from private correspondent banks. Deregulation of restrictions on the formation of multibank holding companies, in contrast, allowed other correspondents to enter, increasing competition. We test these hypotheses using a panel data set of respondent account balances. We find that the Federal Reserve became a more important supplier of correspondent services following branching deregulation and that market power in the correspondent market declined following multibank holding company deregulation. Journal of Economic Literature Classification Numbers: D43, G21, G28, L11.