CLEARING-HOUSE. Clearing-house asso ciations are unions of banks, for the purpose of securing a speedy settlement of the claim« of banks against one another. The oldest of these is the London Clearing-House. which appears to have been established about 1775. The most important clearing-house in the United States is that of the city of New York, milk]) was estab lished in 1853. Before the establishment of clearing-houses, the process of settling the mutu al claims of hanks upon one another was cum bersome and tardy. Each bank was forced to send out runners, carrying to every other hank the cheeks and claims that it upon them. As each bank settled periodically its bills with every other bank, there was a continual inter change of money between them. All this has been obviated by the cgtablishment of clearing houses, in which representatives of the several banks meet daily. for the purpose of adjusting the claims of the banks upon one mother.
An insight into the workings of clearing houses can best be obtained by a brief descrip tion of the methods pursued in the New York Clearing-House, which may be taken as typical of all the rest. The banks represented send daily to the clearinghouse at least two clerks— a delivery-clerk and a settling-clerk. At the clearing-house, each bank has a desk at which the settling-clerk or clerks are seated. They bring to the clearinghouse in bundles the checks, drafts, and other obligations due them from other banks. each bank being represented by a separate package. They bring also a list of the amounts due them from each of the banks in question. Before clearing begins. transcrip tions of these lists are handed to the inspec tor. The sum total represents the aggregate amount to be settled for the day. Promptly at 10 o'clock, the delivery-clerks begin passing from one desk to another, delivering to each the pack age of claims of all sorts that their banks have against other banks. These claims are accepted in bulk, without examination of the items. As soon as all of the packages have been delivered. they are carried back to the banks, where an examination of the items takes place: and if there are any that are not valid, the adjustment takes place between the bank which has received them and that which presented them, without intervention of the clearing-house or rectifica tion of the accounts drawn up there. \\Then all of the packages have been received by the set tling-clerks at the clearing-house, the latter draw up a statement of the demands made upon them. As these never balance the clahns made by their banks, it is obvious that at the close of each day's business some of the banks will be en titled to receive money and others obliged to make payments, to settle the accounts. When
each clerk has made up his account. he forwards a statement of the aggregates, with the amount of the balance to be paid or to be received. When all have forwarded their accounts to the manager, and the accounts are proved by the equality of the debit and credit aggregate,; and balances, the manager certifies the amounts which each bank owes to the associated banks, or is entitled to receive from them.
In the London Clearing-House. for the settle ment of balances a different rule prevails. Debit balances are settled by checks on the Bank of England in favor of the associated banks, and credit balances by :similar cheeks drawn by the associated banks in favor of the creditor banks. In New York the amounts due by debtor banks are paid in cash to the clearing-house manager, who in turn pays the creditor banks. For this purpose gold certificates issued by the United States Government are used. and also clearing house gold certificates. which represent gold coin deposited with the clearinghouse. and xvhiell are valid only in the settlement of clearinghouse balances.
By the aid of the clearing-house, each bank can settle all of its relations to the banks of the city by a single payment, instead of adjusting its relations with each bank separately. Further more, settlements are effected by the transfer of a much smaller quantity of cash than would be otherwise required. Thus, in the first year of the New York Clearing-House, average daily clearings of $19.104,594.94 were effeetM by average daily payments of $988,078.06—but 5.17 per cent. Tn some years the percentage of bal ances paid in money has fallen as low as 3 per cent., and during the entire history of the New York Clearing-House has never reached so much as 7 per cent. The aggregate New York clear ings were $5.750,455,987 in 1854. and $77,020, in 1901—the year of maximum ex changes. The aggregate exchanges reflect not only the growth of the city in importance as a commercial centre, but also the business condi tions throughout the country—rising in times of notable prosperity and sinking in eras of de pression. Thus, we may contrast the clearings of 835,461,052,826 in 1873, $48,565,818,212 in 1881, and $37,660,686,572 in 1890, with clearings of $22,000,000,000 in 1874. $25,250,791,440 in 1885, and $24,230,145,368 in 1894.