Evening star., 1903-08-22
THE CLEARING HOUSE
New York Bank CIearings
Exceed Those of London.
PLAN OF OPERATION
LOAN CERTIFICATES NOT TO BE
ISSUED HEREAFTER.
Weekly Statements Are Carefully
Studied and Have Wide
Effect.

| Written for The Evening Star by Serene s. Pratt
associate editor Wall Street Journal.
| Fifty years ago-to be exact. on the 23d
| of August 1S53-a number of New York
| bankers assembled in the Marchants Bank
| and appointed committee to draft a plan
| for a clearing house. At another meeting,
| held September 13, the plan was adopted,
| and on October II this plan went into eff
| feet. The clearing house was first estab-
| lished at IA Wall street, with fifty-two
| banks as members, and the first days
| clearances amounted to s22,64S, 100, which
| were settled by payment of balances of
| 81, ,29O, ,572.3S Last year the average daily
clearances amounted to s245, ,S9s, ,649. and the
| average daily balances to $1,11o,2lO. So
great have become the transactions of the
New York clearing house that, COM
pared with those of the London clearing
house during 1902 they stood in the ratio
of ST., 600 900 to SAG. 900 0O0 showing that in
this respect at least the business of New
York exceeds that of London.
Clearing Houses in Seventy Cities.
So universally recognized has become the
value Of the clearance system that 1t has
resulted in the establishment of clearing
houses in more than seventy cities Of the
United States, and the total exchanges
(clearances) of all these clearing houses in
1pU2 amounted TO WHICH IS
over fifty times as great as the total
amount OF money in circulation. This Is
striking illustration Of the expansive power
Of the check system by which the great
bulk of the business of the country Is trans
acted OF these exchanges $74, ,0O0, ,OOO, 900
were in New York.
The clearance system was devised to re-
duce the labor OF making exchanges be-
tween banks. Each bank is a small clear
Ing house in itself. 1t facilitates the ex-
changes of its customers. But in the old
times before the clearing system was es-
tablished each bank was Obliged to send
messengers to the other banks to make
collections. For instance. the Chemical
Bank might, in the course Of a day, re-
ceive checks and drafts upon forty other
banks. and in order to make collections
have to send messengers with these checks
to the other banks. The other banks SINH
larly had checks upon the Chemical Bank
and had to send messengers with them to
1t. So the operation of effecting the ex-
changes between banks was laborious,
expensive and perilous process But even
now many of the trust companies In New
York transact their business IN this way,
preferring to do so, in fact, rather than
submit to the clearing house rule that any
trust company clearing through member
bank must keep in its vaults a cash reserve
equal to per cent of it's deposits.
Small Cash Balances.
But while 1t is possible to do business on
the old ex-clearing house plan. the trans
actions of the banks are immense that
it would produce the utmost decentralization
II the clearing house were abolished. Not
only are fifty-six of the banks members of
the clearing house, but the subtreasury is
also represented, and large number of
banks and trust companies that are not
members clear their business through
member banks. Instead OF each institution
sending messengers to the others to make
collections the member banks send one or
two clerks each to the clearing house, and
there at regular hour in the morning
there is an exchange of checks between the
banks. BY a simple system what each
bank owes the others Is quickly ascertained
and balances struck. 1t takes less than an
hour to effect all the clearances and n
bank may. be able to settle all of its ex-
changes by the payment or receipt of a
comparatively small sum of money. For
instance. the exchanges of 1902, amounting
to 4753, 1S9. 436. were cleared by the pay
ment in money of only $3,377 5O4 O72 The
percentage of balances to clearances was
only 4,51. In one year 1t was as low as 8
per cent. Exchanges amounting to 1.323-
6si have been settled by a payment of
only 10 cents. This elimination Of unnec-
essary payments greatly reduces the risk
of business and the perils of panic
The clearing house now occupies costly
and beautiful building in Cedar street.
This is architecturally an adequate repre-
sentative in stone of the banking power In
New York.
Clearing House Fiat Money.
But the clearing house at times performs
more important services than even that of
providing facilities for clearing the daily
business of the banks. Beginning late In
1860, when the country was on the brink of
civil war. the clearing house has. by the
issuance of loan certificates. greatly dimin-
ished the evil effects Of panics Not only
during the civil war, but in 1873, 1884 1880
and 1888 did the clearing house issue loan
certificates. In 1S93 by so doing, 1t practi- |
<~<xd I.atw - kI,< t.x,s.
country and general bankruptcy Hun
dreds OF reputable mercantile houses and
Industrial concerns were saved from fail
ure because their banks, aided by the clear
ing house. were able to extend the usual |
and normal credit to them. In that year
"a, ,196000 Of clearing house loan certificates
standing ct one TINA The loan certificates |
were issued to banks ON deposit OF secu-
rfttee and mercantile paper. and as they
bors Per cent interest no bank applied for !