THE LONDON CLEARING HOUSE Probably the most important landmark in the i8th century was the birth of the London Clearing House, and this in its turn marks the growth in the use of the bill, draft, cheque and similar negotiable instruments. Each bank in London employed clerks whose duty was to "walk" round the whole circuit of every other bank and present all cheques, etc. drawn thereon or domiciled there for payment and collect the money so due. This was a wearisome business, and about the middle of that century the walk-clerks gradually agreed to meet and offset all their cheques and bills against each other and pay over the balances. This practice was of course unofficial, but in time it was officially recognized, and in 1810 a house was rented for the clearing.
The system was originally limited to banks in close proximity to the Clearing House, in fact to what to-day is known as the "Town" clearing. "Country" clearing was added in 1858, and "Metropolitan" clearing in 1907. The reader will be familiar with the letters "T," "C" or "M" which appear on all cheques and denote to which clearing they belong.
From this unofficial start, the London Clearing House has grown to its present dimensions, while provincial clearing houses have also been set up in the British Provinces. The expansion in the volume of London clearings, due before the World War mainly to the substitution of ;.heques for notes as a means of payment, is shewn below. The table also shews how the number of clearing banks has been reduced by amalgamations.
Total Number of Clearings Year Clearing Banks f 1839 9,150,269,000 1906 18 1926 10 39,825,000,000 1927 10 41,551,000,00o It will be seen that only a limited number of banks are members of the "London Clearing." Other banks have to "clear" through a member who acts as their agent.
The i8th century also witnessed the coming into universal use of the bank-note. Bank of England notes were received practically everywhere, while the notes of any London or country banker were usually acceptable.
The i8th century closed with the Napoleonic wars. These quickly imposed a severe strain upon the national finances and skewed the weaknesses of the existing British banking system. Its chief defect arose directly from the privilege conferred on the Bank of England by the limitation of joint-stock banking. No strong banking company could be founded in the country districts, but any private individual, whatever his lack of capital, knowledge or experience, could call himself a banker, accept deposits and issue notes. The Napoleonic wars exposed the instability and dangers of the whole system. Following a run upon the Bank of England, in 1797 Parliament suspended specie payments and made the Bank of England notes inconvertible. This was Eng land's first experience of a purely paper currency, and it lasted till 1821. In 1814-16, a severe crisis occurred and many country banks had to suspend payment. Even after the return to gold in 1821, the period of strain was not over. The rapid development of industry at home and the opening up of new countries abroad stimulated a period of speculation which culminated in the crash of 1825. In normal times, the majority of private bankers were perfectly capable of carrying on their business. Despite their lack of experience, they knew their customers, and their customers knew and trusted them. Their notes circulated freely, with the result that they could readily discount their customers' bills, and even participate in the development of local industry. It was only when a general crisis arose that the country banker would realize the danger of his position. The year 1824-25 tells many a tale. First the banker would tentatively "shorten sail" thereby arousing the wrath of his clients. Next a feeling of insecurity would arise, whence no man knew. The banker would quietly seek to get in more of his loans and at the same time apply to his London agents for help. Back would come the reply from the London banker that all his country clients were seeking to rediscount their paper, and that he had to guard his own funds. Money was tight and the Bank of England was discouraging fresh borrowing. Finally came the run on the country banker, the crowd of note holders jostling before his counter, the ever dwindling stocks of gold and Bank of England notes, and the racking suspense which lasted until either the gold held out and the corner was turned, or he was forced to put up the shutters.