drawing against balances credited to uncollected checks. By writing checks drawn on two or more out-of-town banks, a person temporarily short of cash can write an interest-free unauthorized bank loan or temporarily inflate his account balance to improve his chances of getting a loan. For example: a person deposits a $1,000 check in bank ABC, drawn on funds in bank XYZ. Before the first check clears he deposits a $1,000 check in bank XYZ, drawn on the first bank, and a $2,000 check drawn on bank XYZ in bank ABC. By carefully timing the checks, he has accumulated $3,000 in fictitious balances. Check kiting schemes can be very elaborate, and have been known to cause bank failures. Kiting is best controlled by monitoring unpaid checks in the process of collection.
illegal scheme that establishes a false line of credit by the exchange of worthless checks between two banks. For instance, a check kiter might have empty checking accounts at two different banks, Aand B . The kiter writes a check for $50,000 on the bank A account and deposits it in the bank B account. If the kiter has good credit at bank B, he will be able to draw funds against the deposited check before it clears that is, is forwarded to bank A for payment and paid by bank A Since the clearing process usually takes a few days, the kiter can use the $50,000 for a few days and then deposit it in the bank A account before the $50,000 check drawn on that account clears.
