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Clearing

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CLEARING HOUSE—Banking.—The London Clearing House is the name given to an institution in London to which are attached all the leading London bankers. Such bankers are known as clearing bankers, and in addi tion to their own business they generally act as agents for those banks who do not belong to the Clearing House. Many of the large provincial towns have their own clearing houses for local purposes. The London Clearing House was first established by the private bankers in 1770, and the joint stock banks were admitted in the year 1854. To state it briefly, the object of the Clearing House is to establish a centre at which the various banks may exchange their bills and cheques and settle the differences in money or balances representing money. The Bank of England is the ultimate banker of all the English banks, and all those banks connected with the Clearing House are bound to have accounts there, the Clearing House becoming in effect a clerical assistant to the Bank of England.

The principle upon which the operations of the Clearing House are based is that of set-off—the reduction of all the transactions of the banks, one with another to a final account and balance. The object is to minimise as much as possible the actual use of money, and to make entries in account equi valent to the exchange of coin. That this is not only a possible, but even the most practical system, will be appreciated upon the consideration of a simple case. Suppose a monopolist bank to have fifty customers, each of which is actively operating his account and freely paying away crossed cheques to other persons, including the rest of the customers and also people who are bound to negotiate with customers of the bank the cheques they have received and which they wish cashed. These cheques are paid into the bank day by day, but the bank would not go to the bullion store, and from time to time allocate to each customer a varying amount thereof according to the monetary effect of the cheques ; on the contrary, since the whole of the operation ultimately subsists between and affects the bank and its customers only, the bank confines its attention to the ledgers, and leaving the bullion alone, merely varies as occasion requires the different customers' balances.

These balances will represent the position of each customer with regard to the bank—whether he is entitled to take money from the bank or whether he must pay in. Extend the example to the London Clearing House, which may be taken to be banker for all the other banks. These latter attend there, and each presents its parcels of cheques—one parcel payable by one bank oil banks for which it is agent, another parcel payable by another, and so on. The result is a mutual presentation by the clearing bankers of cheques upon one another, and all that remains is for accounts to be taken and balances to be struck. The balances are given to the banks to which they respectively belong in the form of transfer tickets which are taken to the Bank of England, and are the authority for the adjustment there of the accounts of its clearing-banker customers.

By this means, without the interchange of a single coin, large sums of money, 200 or 300 millions, will change hands in the course of a week, and represent the ultimate transaction of the main financial movement of the country. In London there are three clearings every (lay—one in the morning for bills, another at noon for country cheques, and the third in the afternoon for bills and cheques. If Smith, whose bank is at Liverpool, pays Jones, whose bank is at Norwich, by sending to him a cheque, the method according to which that cheque is dealt with would he as follows. The Norwich banker does not post it direct to the Liverpool banker, but sends it to his London agents, who present it through the Clearing House to the London agents of the Liverpool bank, to which bank it is forwarded by the next post. The result would be that if the cheque were paid into the Norwich bank on a Tuesday, it would not he presented at Smith's bank until Thursday. If, therefore, Jones desires the cheque to be presented without delay, he should require his bank to clear it direct to Liverpool, and not through the London Clearing House. Sometimes a day is of great importance in the matter of a cheque.

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