The New York Clearing-Rouse is by far the most important in the United States. The excel lence of the system embodied in it and the facili ties which it affords to banks have been so gener ally appreciated that the institution has been widely copied, even in some of the smaller cities. (In September 30, 1901, there were in the United States no fewer than ninety clearing-house or ganizations, which had, in the year ending on that (late, transacted clearings to the extent of $114,190,226,021. Tt must be said, however. that five-eighths of the aggregate belonged to New York City. Abroad, the Ch•aring TTouse transaeted business in 1901 to the amount of $9,56L169,000. Clearing-houses exist on the Continent of Europe, though the use of cheeks in daily life is far less frequent there than in England and in the United States, and the clear ings arc not so important. On the other hand. the institution is widely known in Canada. Ans tralia, and ether English colonies.
In the United States. the clearing-house asso ciations not only furnish the facilities for settle ments among banks AvIlieh have been described, but also enable the banks to act as units in mat ters of banking policy. They establish rules of banking practice in the interest of the banks, as a whole, which individual banks would not be strong enough to maintain. Thus, many asso ciations fix the rates to be charged for the col lectbm of out-of-town checks. Certain associa tions prohibit the issue of certified checks by the Alany details of practice are thus regulated by clearing-house rules. These asso ciations, too, foster among the banks a feeling of solidarity of interest. and furnish an organ through which this can find expression. times of financial distress, it may be a matter of supreme importance to all the banks that none go to the wall; for such an occurrence may cause a run upon all the banks and a general catas trophe. The stronger banks. nnder such eiremn stances, come to the aid of their weaker brethren.
Nowhere is the function of the clearing-house it sustaining the interests of the banks, and the general credit of the community, more apparent than in the issue of elearing-house loan certifi cates. The ordinary clearing-house gold certifi cate differs from a Government gold certificate only in the fact that the clearinghouse. and not the Government. is the custodian of the gold. It is preferred over the Government certificate because it can be issued in denominations better suited to the needs of the banks. With these certificates the loan certificates have nothing. in common. They are issued only in times of panic, to meet temporary emergencies, and are called in and canceled as soon as their work is done. In times of panic there is an unusual
demand for means of payment. Under the na tional banking system of reserves, which permits the country hanks to deposit a portion of their legal reserves in the commercial centres, this strain is felt quite severely in the money centres. It is only to a limited extent that such emer gencies can be met by restricting discounts. In preparation for a demand which can be foreseen, this usually takes place; but at the moment of the crisis, credits mast he expanded and loans discounted freely, if the storm is to he weathered. Where free banking exists, this is usually done through increased note issues: hut the banking system of the United States does not admit of such an increase. The clearinghouse loan certifi cate relieves the situation by substituting cer tificates based, not on cash, but on securities for the cash ordinarily used in clearing-house opera tions—thereby placing this Cash at the disposal of the banks for the use of their customers.
The clearing-house requires a deposit of se curities with a committee, and issues certificates bearing a relatively high interest—in New York City. six per cent.. up to a certain per cent. of the securities deposited. generally 75 per cent. It generally provides that any loss arising from the issue of the certificates shall he assessed pro rata. either upon the capital and surplus or upon the average clearings of the banks. Thus the entire credit of the associated banks is pledged for the redemption of the certificates. The inter est charge makes it to the advantage of the banks to redeem as soon as possible the certifi cates issued to them, and they rarely last more than a few months. This expedient was first tried by the New York Clearing-House in 1860, and has heed repeated in 1862, 1863, 1873. 18S4. 1890, and 1893. In the latter year the issue began •1Ille 21 and ceased September 6. The issue, the largest in the history of the clearing house. was $41,490,000. The lost certificate was redeemed November 1, a little more than four months after the first issue. While, since 1860. these issues in New York have amounted to over :q68,000,000, there has been no loss upon them. The example set by New York was pretty gener ally followed by other clearing-houses in 1873, and such issues hare since been authorized by other associations to meet a general financial stringency or a local emergency.
BIBLIOGRAPHY. Ca nnon, Clearing- HousesBibliography. Ca nnon, Clearing- Houses (New York, 1900) ; White. Money and Bunking (New York, 1902) ; Jevons. Money and Mecha nism of Exchange (London, 1875) ; Report of the Comptroller of the Currency (1896).