3. Settlement by Draft. Probably the most common device, taking the clearing houses of the country as a whole, is to settle by drafts on some acceptable city or institution. This method prevails in the small local clearing houses. New York funds are quite generally acceptable among banks of the greater part of the United States, and clearing house balances are adjusted by the debtor bank giving the creditor bank a draft on New' York. The ultimate settlement of the balance, therefore, is among the cor respondent banks in New York, which, as we have just seen, is by hook entries at the Federal Reserve hank of New York. Un doubtedly the federal reserve banks of the respective federal reserve districts will tend to become the settling point for clearing houses of their districts.
Items that May Be Cleared Each clearing house defines the items which may be cleared through it. The regulations laid by the New York Clearing House include the following: I. All checks, drafts, notes, bills of exchange, and other items sent through the exchanges are to bear stamped or written re ceipts as follows: Received payment through New York Clearing House: Date Name of institution Number if desired 2. Errors in the exchanges, and claims arising from the return of checks, or from any other cause, are to be adjusted directly between the members which are parties thereto, and not through the clearing house.
3. Items to be returned for indorsement or because of infor mality, after being certified by the member returning same, may be returned through the exchanges the following morning, in an amount not exceeding $5,000 to any one member.
4. All checks, drafts, notes, or other items in the exchanges, returned as "not good" or missent, are to be returned the same day directly to the member from whom they were received.
5. Members may not send through the exchanges any checks, drafts, notes, bills of exchange, or other items having thereon any qualified or restrictive indorsement, such as "for collection," "for account of," "pay any bank or banker or order," or other similar indorsements, unless all indorsements are guaranteed by the sending member.
6. Items drawn upon institutions not connected with the clearing house and made payable, "if desired," by some clearing house bank, are not clearable.
7. No member may send or pay through the exchanges items drawn on non-members, by customers thereof in Greater New York, and made payable at a member bank unless the same shall first be accepted and made payable at a member bank by the non-member bank upon which they are drawn. This rule applies
also to non-members making their exchanges through members.
S. Items should not be presented through the clearing house on the day of their date.
9. Documentary instruments are not proper items for the exchanges.
10. Notes and bank acceptances may be sent through the clearings on the day of their maturity.
City Collection Department In 1917 the New York Clearing House organized a city collec tion department. While its use by the members is entirely op tional, practically all of them collect their items through the department. It has proved advantageous both to the members and to the paying institutions. The department was established to collect the city items not collectible through the regular ex changes. To date it limits itself to the collection of checks and clean drafts. Until 1919 the collection area was restricted to Manhattan south of 14th Street; it now reaches to 59th Street.
A list was prepared by the department of the banks, financial houses, insurance, steamship, railroad, mercantile, and other companies of this district, which desired to have checks and drafts drawn on them presented through the department. Instead of having runners from each bank and trust company in the clearing house that had checks or drafts payable by any such institution deliver them from time to time during the day, thus necessitating individual payments by check or cash to each respective runner, the department agreed to deliver to the messenger of an institu tion, at one time, all the items on it which the 53 members might elect to collect in this manner; and in this way the paying institu tion might settle by one check or cash payment instead of by 53. Part of the convenience and economy of this arrangement is lost because the notes, coupons, and items other than checks and clean drafts arc collected as before by messengers from the col lecting banks. It is arranged that the items are ready for delivery to the paying institution at io o'clock, and the institution agrees to pay by certified check to the order of the clearing house by r :3o o'clock. The check must be accompanied with the return items, properly marked with the reasons for returning each. The re turned items may then be sent to the clearing house members before 3 o'clock, the hour of closing. The paying institutions are grouped in routes on the list.