Obligated to Inform Other Bank of Check Kiting?

I'm not aware of any obligation to tell other banks. In fact, if you do tell them based on suspicions, that's a decidedly risky approach to take, both from the perspective of potential damage if you're wrong about the kiting and in relation to the potential for financial loss. Generally speaking, the first bank that takes action responsive to a suspected kite is the one that comes out whole. The other banks generally have some sort of loss.

Typically, the action taken would be to place a hold on all deposited items. That will generally bring the kite crashing down and the other banks will be aware soon enough because they'll be having items drawn against the customer's account at your bank returned for insufficient funds, and when they charge those items back against the customer's account at their bank, they'll be sitting in a negative balance position. Because of the holds you've placed, when those checks are also returned for insufficient funds, your chargebacks won't take your account balance negative.

First published on BankersOnline.com 5/07/07