The items deposited by the members may be those only which are payable by a listed institution. They must be enclosed in sealed envelopes, or packages, one for each listed institution which is to pay. The contents of these envelopes are not examined by the department. The envelopes must be listed on deposit letters in the order given in the department lists, and subtotals shown for each route. The totals of each deposit letter are entered on a due bill, or receipt, accompanying the deposit, and these are verified and signed by the manager and returned to the messenger. This due bill is payable through the exchanges of the next business day. The deposited items are sent out for collection the same day by messengers, and the returns made to the department are put through the exchanges the next day to offset the due bills of that day. The deposits must be made before To o'clock; only one deposit may be made each day by each member. The items must bear a stamped indorsement: The clearing house is exempt from all liability for the contents of the envelopes, for lost or missing items, or for claims therefrom.
Statistical Work It is the practice of the clearing houses to publish statistical reports of the clearings and balances; the larger houses issue these reports weekly, and cover the condition of the clearing banks as to reserves, resources, liabilities, and other features. The volume of clearings is one of the best barometers of business activity, since over 90 per cent of the country's business is done by checks and the fraction of the checks cleared is fairly constant; and when coupled with the condition of the clearing banks in the great cities, especially New York, the clearings afford the most valuable information as to the money market. Such reporting is a public function, in addition to giving the members a better insight into the drift of their competitors' businesses. In analyzing the growth of the clearings they must always be corrected for changes in the price level, for clearings are likely to increase with the rise of the price level and in the same proportion. It is also necessary to note that local conditions may result in very local and spasmodic fluctuations in the clearings; for instance, a speculative boom in the speculative exchanges of a city or the occurrence of a large exposition increases the clearings greatly.
Examination Department A department late to develop but one which bids fair to be come very important in clearing house functions is the examina tion department. The bank examinations conducted under the Comptroller of the Currency and the state bank superintendents are designed to see that the law regarding the conduct of banks is obeyed, that their banking practices conform to the legal re straints, and that their reports are correct and truthful. In
fractions of the law may be leniently or summarily dealt with by these authorities; if the offender persists in offending, its charter may be annulled and the bank liquidated. These examinations are highly serviceable, but they serve by punitive action, after the law has been violated. A bank may progress toward insol vency and keep within the law, and yet the public examiners be helpless to remedy the situation. The clearing house examinations are designed to supplement the public examinations by inquiring into, correcting, and making recommendations with respect to minor irregularities, which if unchecked are destined to wreck the bank or impair the faith of the public in the clearing house members.
These examinations are conducted by a special committee of the clearing house, composed of active officers of member banks, who employ competent examiners and auditors and examine at will any and all the member banks. This committee proves the assets and liabilities and looks into the operations of each depart ment of the bank, although it may not audit all the accounts. Its report covers in detail the nature of their assets and of their loans, featuring the loans to officers and directors of the bank and to corporations in which these parties have an interest. One copy of the report is filed with the president of the bank examined, and the directors are requested to peruse it personally. A brief of the report is submitted to the clearing house executive committee, which considers the examiners' findings and recommendations. This executive committee advises the cashier or other officer of the bank as to what action in its opinion is expedient.
The recommendations of the clearing house committee are in general carefully followed, and the member banks strive to con duct their banks in ways that "will invoke compliments rather than criticisms from the committee." The great function of these examinations is to discover and eradicate in their incipiency prac tices which if let run may precipitate failure. Their discipline is a moral one, but no less effective than if backed by punitive legis lation. They make for conservative and sound banking and a high plane of competition and business ethics; their influence extends beyond the banks and into the operations of their cus tomers, promoting the conduct of legitimate business and dis suading from wrongful practices. There are (1921) twenty clearing houses conducting examination departments. The New York Clearing House provided such an examination department in 1911.