Thank you, Mr. Chairman.
I'd like to express my appreciation to you and to Ranking Member Sarbanes for agreeing to hold this hearing on the Federal Reserve's proposed Check Truncation Act. Checks have long served a critical function in the U.S. payments system. In 2001, consumers made approximately 41 billion payments by check. However, most checks continue to process as they did 50 years ago, requiring physical presentation of the check at the bank at which the account is held.
This requirement necessitates the physical transportation of millions of checks across the country on a daily basis. According to the Federal Reserve, an estimated 37 million checks were transported every day in 2001. In order to accomplish this tremendous task, the Fed contracts with independent air freight services to fly these checks around the country. After the tragic events of September 11, 2001 halted all air traffic, this critical function of our system of payments ground to a halt and further compounded the crisis which ensued after the attacks.
Because of this weakness in the payment system, and as an effort to improve its efficiency, the Fed has presented Congress with a legislative proposal to transform our check processing system from a physical to an electronic system. These improvements to the system would result in considerable savings throughout the financial system and would also reduce check clearing time for consumers and businesses.
As with any such fundamental change to our system of payments, however, some questions will need to be answered as we move ahead with reform of the process. In particular the anticipated changes in the system may open the door to fraud unless all necessary precautions are taken. It is my understanding that this proposal would require the destruction of the physical check at the bank the check is deposited. Currently, checks contain security devices such as micro-printing and watermarks which would be lost in a digital image. I would be very interested in gaining a better understanding of the new security features which would replace the traditional ones.
I look forward to discussing this issue and others with our distinguished panel of witnesses today. I want to thank you all for taking the time out of your busy schedules to join us here today to share your considerable knowledge on this issue.