Okay, here is a dumb question...

If a customer deposits a check into the bank and the check is on another customer of the bank and the check is NSF, then what are the processing procedures of the bank since it knows that the funds are not available? Since the bank is both the depositary and paying bank, do the same rules apply and does the check have to be run through twice? I am sure the answer is obvious but I am stumped.

We would charge the item back to the depositor's account. If the chargeback caused an O/D situation, it would be sent to the account officer.

In many banks, the bank does not know the check is no good at the time it's deposited. For bank using the POD model (checks stay with deposit ticket, deposit balanced and encoded in a Proof & Transit area), the deposited on-us items are not verified until processed in the evening's update. Rubber checks appear on the next morning's reports.

We charge back to the customer account also, and do not process a second time for internal items.

We've taken the stand of "Just because it's bad now doesn't mean it will 10 minutes from now." We let the check flow through normal courses and then not surprised to see it come through the NSF's the following day. But sometimes the drawer makes a deposit before the cut off.
If we do return it for NSF, we'll usually charge it back to the depositor unless we have instructions otherwise.

If the bank is set up to process OTC items at the time of the transaction, it would appear that the best thing to do would be to give the check back to the payee if funds are not available at the time it is presented. After all, even though several customers have yet to grasp this concept, a check should not be written if the funds are not there to cover it...even more so the case in today's environment of electronic banking, where transfers can be made by telephone and/or on-line banking. Just my thought.