CLEARING HOUSES Definition of Clearing House Terms The term "clearing house" is used to denote either an asso ciation of banks and financial houses which clear their mutual claims, or the place where this clearing is done. In the latter sense it is simply a central office where messengers from the associated banks meet daily and exchange checks and drafts and adjust their balances. In the former sense it is an institution, an association corporate or voluntary, a group of financial houses closely associated to carry out co-operatively operations which cannot be done so well or economically if the members act in dividually, the chief of these co-operative operations being to clear the mutual obligations of the members.
To clear a check means to send it, usually along with others, to the clearing house, where the sending bank receives credit, against which the drawee bank submits claims by way of checks against the former bank; only the differences, the balances, in these offsetting claims need be paid in cash or otherwise. The term "exchanges" is used to denote either the items sent to the clearing house or the operations at any one clearing hour. The term "clearings" commonly means the sum of the items balanced off, and the term "transfers" means the net balances paid. The balances may be debit or credit, according as they arc payable to or by the bank considered. The payment of these balances is called "settlement." The Place of Clearing and Its Equipment Various expedients arc adopted to provide quarters for the clearing transactions. The size of the total volume of clearings is the chief determinant of the nature of the quarters and of the physical facilities used. In smaller towns and cities a single room with tables is sufficient. This room may be rented by the associa tion or may be a back room of one of the member banks, the member banks agreeing to furnish a room in turn, and the clearing place being then rotated from time to time. The main object in such an arrangement, of course, is to reduce the expense. In larger cities permanent quarters are usually established, but in rented rooms; the only association which is housed in its own building is the New York Clearing House.
The New York association in the early seventies began the accumulation of a building fund and in 1875 purchased and equipped their first building. By 1894 this proved inadequate
and was sold. A new property was then bought, and a separate corporation, known as the "New York Clearing House Building Company," was organized to take title to it. This company drew upon the members of the clearing house association in pro portion to their respective capital and surplus, for funds to pur chase, build, and equip their present domicile. Receipts were issued and the contributing banks were allowed 8 per cent inter est; these receipts are transferable, subject to the prior right of purchase by the association. The capital stock of the building company is practically all in the name of the president of the clearing house association, but a few shares are held by the direc tors of the building company. The building is "of white marble in Italian renaissance style—an adornment to the city and one of the architectural gems of the world." The exchange building contains offices for the manager, secre tary, and other officers of the association, vaults for the storage of deposits by its members, and an exchange room. The exchange room has a manager's desk and a cage for each member, the cages being arranged in parallel rows and according to the clearing house number of the member, thus expediting the exchange of packages of checks. These facilities represent the bare essentials for the operation of a clearing house. Of course, other services may be performed by the clearing house which require additional equipment, such as vaults, offices, a library, and the like.
Administration A completely officered clearing house has a president, vice president, secretary, treasurer, manager, and an executive com mittee, the president, manager, and executive committee being the essential officers. The president is general supervisor over all clearing house affairs; he is usually a member of each committee and chairman of the executive committee. He generally serves without compensation. The treasurer has custody of the funds left with the clearing house and pays out upon the order of the president and manager or executive committee.