This section is from the book "Elementary Banking", by John Franklin Ebersole. Also available from Amazon: Elementary Banking.
Out-of-town cash checks go to the "transit department," where they are assorted as to place payable and forwarded for collection and returns, probably through the Federal Reserve bank if the bank in question belongs to the System. If the bank is small, the receiving teller may handle all these various checks in his own department, but ordinarily they will be distributed to other departments which are really subdivisions of the receiving teller's department. The most important of these departments in point of size and responsibility is the transit department. Let us consider such a department in a city bank. It so happens that out-of-town or "country checks" can be handled and collected more economically in quantities, hence country banks and many city trust and savings institutions send these items through the Federal Reserve bank or in some cases to a city commercial bank which may make a specialty of collecting them. The receiving teller, theoretically at least, will receive these items through the mail, although when so deposited they actually do not leave the hands of the transit clerks who open and prove the incoming remittances or deposits. The teller may add the figures of the mail deposits to those of counter or "window" deposits. The transit clerks assort the checks geographically, placing together checks that are payable in the same part of the State or country. They are then indorsed with the bank's stamp and listed on letters addressed to the bank's correspondents. At the end of the day the totals of the outgoing letters must equal the total of the checks which are charged to the transit department by the receiving teller. The bookkeeper charges the total of each individual outgoing letter to the bank to which sent, and the grand total increases the general ledger item "due from banks" by that amount. Before the adoption of the Federal Reserve System, the operations of the transit department were highly important, and transit arrangements played a large part in the relations which banks had with each other. The Federal Reserve banks can now collect so many checks at par that these former relations have been largely changed and are of secondary importance. The law requires a bank to use reasonable care in selecting a responsible correspondent, and to forward items promptly with "due diligence." It is, of course, important that checks be sent forward promptly and accurately, and care is necessary. For instance, a bank might cause loss to its depositor by sending a check payable in Portland, Maine, out to Portland, Oregon, by mistake. The "due from banks" ledger largely represents outstanding transit items in the process of collection and is charged with the amounts of items sent and credited with remittances in payment. It is often termed the collection ledger and were a bank to stop sending out items for collection this entire ledger would probably have all charges liquidated in a few days.