WASHINGTON - Sometime after sundown most nights, a fleet of Learjets and Mitsubishi turboprops begins warming up at 18 airports around the country.
On quiet corners of the tarmac, the planes are loaded with bags bearing billions of dollars in checks before taking off on nightly sorties vital to the American economy.
This is the Federal Reserve Board's air force, a little-known armada of chartered planes whose mission is to see that about one-third of the 60 billion checks Americans write every year get to the bank as quickly as possible.
Along with managing the nation's money supply, regulating banks and its other better-known duties, the Federal Reserve spent $35 million last year flying checks around the country with a fleet of 47 planes.
Even in this era of electronic funds transfer and Internet commerce, most financial transactions are handled by paper checks. And paper checks still have to be processed the old-fashioned way: Somebody has to take them to the bank they were written on to get the money.
Sometimes an easy job
It's an easy enough job when the check is written on one local bank and deposited in another bank across town. Those banks get lots of each other's checks every day, and they can simply swap them directly or through a local clearinghouse.
But when the banks are thousands of miles apart and want to get their money as quickly as possible, the Federal Reserve's air force is needed.
The Federal Reserve's check-flying system does not use tax funds, but any waste in the program ultimately costs taxpayers. The profits of the Federal Reserve system are turned over to the U.S. Treasury at the end of each year, so greater efficiency means more money to give to the government.
Like movie stars and millionaire moguls, checks fly on chartered jets because of one of the basic principles of business: Time is money.
As most people with a checking account understand, there is a "float" between the time a check is written and the time when the money is deducted from the account.
Reducing that float saves the banks money. The faster a bank can get a check cleared, the sooner it can get the cash. While the money is "floating," the bank loses interest on it because it can't invest it.
The Federal Reserve processes about $10 billion worth of checks every day. Even at today's low interest rates, the interest on $10 billion amounts to more than $1.5 million a day. That's how money can be earned every day if those checks are jetted directly to the banks overnight instead of taking a two-day trip on trucks or airline flights.
The plane rides account for less than 10 percent of the 2.7 cents it costs the Federal Reserve to process a check. The costs are passed on to banks and end up as part of the fees charged for checking accounts.
Spending $550 million to process checks last year, the Federal Reserve handled about 35 percent of all checks, serving mostly smaller banks. The regional Fed banks gather up checks from the rest of the banks in their area, process them and redistribute them.
The Fed once dominated the check-clearing business, but its share of the market is steadily declining. Because of bank consolidation, more and more checks are being deposited in an account in the same bank they were written on. When a NationsBank customer in Florida deposits a check written on a NationsBank branch in Washington, the operation is handled internally.
And the big banks have found it's cheaper to process and fly their own checks, creating several rivals to the Fed's air force. The biggest of them is U.S. Check of Columbus, Ohio, which has a fleet of 27 Learjets and 50 prop planes used just to fly checks for private banks.
The checks fly on a tightly timed schedule Monday through Thursday nights. Over the weekends, they take more leisurely trips that get them to their destinations well before the banks open Monday.
Baltimore-Washington International Airport is the regular airport used by checks from the Washington area, said Jack Davis, president of Santa Express, the Massachusetts firm that manages the Fed's flights.
Most nights, a twin-engined turboprop stuffed with bags of canceled checks takes off from Baltimore-Washington bound for Teterboro, N.J. The airport there, near Giants Stadium in the Meadowlands, is the hub for the Fed's flight operations in the Northeast.
Rendezvous in New Jersey
Before midnight, half a dozen more turboprops from other cities in the region will rendezvous at Teterboro with the fleet of Learjets that flies checks to the Fed's other regional hubs.
Coded by color, checks are quickly sorted: Those bound for Cleveland, Atlanta, Chicago and Dallas are loaded on the jets headed for those cities; checks from other Northeastern cities that were written on banks in the Baltimore-Washington region go into the Baltimore turboprop; checks on New York banks are trucked to a nearby Federal Reserve processing center in East Rutherford, N.J.
The Baltimore flight is back at its home field by 2 a.m. - in time to pick up another load that wasn't processed in time for the first flight.