THE CLEARING HOUSE 1. Primary functions.—The essential function of a clearing house is to simplify and facilitate the daily exchanges of items between banks and the payments of balances due to and from one another. Other im portant functions have been added gradually until the clearing house is more than a mere collecting machine —it is a cooperative association of banks working for the common good of its members in many different ways.
In Canada both bank notes and checks are sent thru the clearing house. Notes are not cleared in the United States, because the function of issue has had only a rudimentary development in our banking sys tem, and hence little importance is attached to note liabilities. The growth of the deposit business, how ever, has put into circulation an enormous number of checks. Most of these are deposited in banks other than those against which they were drawn. The bank receiving checks naturally wishes to col lect from the drawee banks as soon as possible.
Before the organization of clearing houses, it was necessary for each bank to send by messenger, to all the other local banks, claims to be cashed. Huge sums of money were carried thru the streets at great risk of accident and theft. Two banks would have large sums on the way to each other at the same time when a small remittance one way or the other would have settled the balance. The whole system was cumbersonie and expensive.
2. An illustrate the advantages of a clearing house, suppose four banks in a town send in items as follows: The sum of all the checks sent in is $1,559,410. By crediting each bank with the checks sent in by it, and debiting it with the checks sent in against it, we obtain the following balances: The payment of $73,850 into the clearing house by the debtor banks and out again to the creditor banks saves the exchange of $1,559,410 between the banks. The percentage of cash required to total the clear ings is about 4.76. Imagine fifty banks clearing $300,000,000 by a double transfer of $13,680,000, and you have an idea of the enormous saving in trouble and expense made by the New York Clearing House in a single day.
3. New York Clearing House.—The New York Clearing House was organized in 1853. A descrip tion of its work should be interesting, as it is the most important institution of its kind in America. It was located originally in a basement room at 14 Wall Street. From there it moved from place to place until its present quarters in Cedar Street were com pleted in 1896. Mr. James G. Cannon in his "Clear ing House" describes the interior of the building as follows: The clearing room of the New York clearing house is a beautiful and commodious apartment, 60 feet square, sur mounted by a dome rising 25 feet above the walls. Light' enters through the glass forming the upper part of the dome, and, when necessary, additional illumination is secured by the use of electric lights, which encircle the base of the dome. Four rows of desks occupy the floor, with sufficient space be tween for an easy movement of the clerks in delivering the exchanges. Each member has his own numbered desk, separated from those on the right and left by a network of wire. At the east end of the room is a manager's gallery, elevated sufficiently to command an easy view of the scene of operations. It is made accessible in front by steps, and in the rear by an elevator.
4. Process of clearing.—Mr. Cannon also gives a detailed account of the process of clearing, which may well be quoted here: Each business day, at 10 o'clock, the exchanges take place between the banks. About fifteen minutes before the hour designated, the clerks begin to arrive. Formerly it was the custom for each member to send only two clerks, but so numerous and cumbersome have become the exchanges of many of the banks that it is now necessary to send one and sometimes two extra clerks to assist in transporting the items to and from the clearing house and in delivering the packages.