A customer recently deposited a large cashier's check (over $50,000) that we subsequently became suspicious of. We contacted the branch of the large bank on which the check was drawn, and they confirmed our suspicious, but would not give us any information. The signature is supposedly consistent with the bank employee's, so we believe the payee may have been altered to be payable to our customer (who is an elderly scam victim). It is now four weeks later, and after repeated attempts to call the large national bank, they still maintain that the cashier's check that was negotiated does not match the original and that they have "flagged the original account for fraud," but they refuse to explain why the check has not been returned, or when it will be returned.

What are the proper procedures for this situation? We placed an extended hold on the customer's savings account where the check was deposited, but how long should we continue to wait?

It's irritating when a paying bank does that. You probably want to check with counsel before proceeding. One approach would be to send a letter to the bank indicating that your institution will release the hold on a specified date unless they assert a warranty/conversion claim before then. If they do, you can address it. If they don't, you could release the hold. If they then came back in the future with a demand for payment, you could provide the letter and tell them they had their opportunity and they cannot now ask for the money that your bank has released in reliance on their failure to make the claim after the letter.

There's a little risk in that approach, but as you note, you can't just hold the funds forever.