It is understood, of course, that the practices of the different clearing houses of the country differ from the above New York practices; the greater the volume of clearings handled and the larger the number of members, the greater is the necessity for decorum, precision, system, and speed. The small clearing house is often a scene of rollicking good times.
Making Settlements There is in the records of the New York Clearing House no instance of an exact equality between the debits and credits for any bank; there are always balances to be settled. But the economy of the clearing house method is that only the net bal ances have to be transported to and from the clearing house and not the total receipts for checks, as would be necessary if the checks were presented over the counter at the drawee banks. The percentage of balances to total clearings depends upon several factors: the relative equality in the sizes of the members, the appearance of big and unusual checks, the regularity of the vol ume of transactions from day to day, and the local conditions as to interbank relationships. In the 67 years of its history up to September 3o, 1920, the New York Clearing House had 426 million total clearing transactions and adjusted them by actual payment of average balances of less than 5 per cent of the average amount cleared. The percentages for certain other cities were as follows in 1908: Buffalo 12.0% Pittsburgh 16.5 Chicago 7.5 Philadelphia 11.5 St. Louis 9.3 The records for total daily transactions in the New York Clearing House are $1,519,848,984 on December 16, 1919, and $1,280,733,879 on June 17, 1919; the balances on these days were $235,234,928 and $242,082,763. The other high records of bal ances were $133,761,391 on August 29, and $143,091,143 on November 21, 1917. These high balances and exchanges were occasioned by large single payments in connection with govern ment financing. Also, on August To, 1917, the largest check ever passing through the clearing house was cleared; it was for $96, ; previous record checks were $72,000,000 on April 3, 1916, and $62,075,000 on June I, 1915. Despite those immense sums for settlement, very little cash indeed had to be handled.
To effect the settlement of the balances, various devices are fixed by the rules of the clearing houses. The constitution of the New York Clearing House formerly required the debtor institu tions to pay the manager between 12 :3o and 1:3o P.M. the balances against them, in United States gold coin or gold notes or legal ten ders or clearing house certificates; and, as soon as possible after I :3o and after every member had paid its balance, the manager paid the creditor members the balances clue them respectively. In case a member defaulted or was late in making payment, the manager assessed the unpaid balance on the members exchanging that day, pro rata according to their respective balances, against the defaulting member, and the amounts paid constituted claims thereafter against the defaulting member; this was done so that the general settlement could be accomplished with as little delay as possible. As is explained on page 641, since the establish ment of the federal reserve system, settlement of clearing house balances in New York has been effected by debit and credit book entries in the accounts of the clearing members with the federal reserve bank, the entries being made according to a certified list of the clay's balances furnished by the clearing house manager.
Errors in the exchanges and claims for the return of checks, or from any other cause, arc adjusted directly between the parties and not through the clearing house.
Clearing House Certificates A second method for making settlement of balances is the use of clearing house certificates. The members of the New York Clearing House, even prior to the law compelling members of the federal reserve system to carry their reserves with the federal reserve bank, carried relatively little coin in their own vaults. The gold coin was deposited in the vaults of the clearing house, and against this were issued receipts known as "clearing house gold coin certificates." They were signed by the manager and president of the clearing house, and when properly indorsed were negotiable between member banks and were much used in settle ment of balances. Besides these gold coin certificates, the clear ing house issued other certificates, as follows: clearing house gold currency certificates, against the United States gold bearer certi ficates; clearing house legal tender certificates, against the United States legal tender notes; and clearing house silver certificates, against the United States silver certificates. These certificates were issued only in denominations of $10,000 each and were re deemed in the same kind and denomination of currency for which the certificate was originally issued. All deposits of coin or curren cy lodged with the clearing house remained the absolute property of the banks which from time to time held the certificates, and were subject to withdrawal on presentment of the certificates properly indorsed. The use of these certificates lessened the diffi culty and the risks of transporting large amounts to and from the clearing house daily. Taking the year 1908 as an illustrative year, as all forms were then in use, the amounts of the various forms used in the settlement of balances in New York were: Clearing House Loan Certificates In this list for 1908 appear clearing house loan certificates. These are an expedient adopted in times of tight money or panics, to enable solvent members to provide for themselves a means of settling their balances without using their lawful money. The New York Clearing House resorted to their issue in 186o, 1861, 1873, 1884, 189o, 1891, 1893, 1907, and 1914. Like the clearing house certificates, these loan certificates are for use only among the members of the clearing house and in the settlement of balances; the loan certificates are issued, however, only in emerg encies, whereas the clearing house certificates are issued for every day use, and the loan certificates have very different security and effects. Because of grave defects in our banking system for stemming and meeting panics, our whole financial and commercial structure was exposed to periodic overthrow; the banks affiliated together in the various clearing houses of the country devised, with no small heroism or else in desperation, a co-operative loan to solvent members who had slender reserves but pressing needs, the proceeds of the loan being expressed in clearing house loan certificates and acceptable among the members in the settlement of their clearing house balances.