The Washington herald., 1918-03-16
CLEARINGHOUSE
STATUS ASKED.
Holland Wonders if Fed
eral Reserve Has
Superseded.

ed-for which earnest attempts ahS
to be made by the government ana
by the clearing house associations OF
the United States to find satisfactory
answers-than the one which Is now
occupying the attention OF the Fed
eraI Reserve Board and bankers OF
New York City which refers TO the
adoption Of regulations respecting the
payment Of interests by rival banks
and trust institutions upon deposits.
One of the questions sure to arise
Of which some hint has already been
made In the press is this:
Has the Federal Reserve system
with It's vast obligatory and discre-
tionary powers really superseded the
clearing house associations OF the
United States?
The contention has been seriously
made that the Federal Reserve sys-
tenn has made the clearing house
obsolete because Federal Reserve Dis
trfct banks are now performing the
work of clearing houses.
II is now regarded as inconceivable
that the clearing house associations
OF the United states will look with
any favor upon a proposition that
they be abandoned and that all their
responsibilities be taken over by the
Federal Reserve Bank.
Different Methods Followed.
There are different methods char
acteristic Of one or another OF
the various Clearing House asso-
Citations in the United States. For
instance the Clearing House asso-
citation of Boston and. it is under
stood in some OF the other cities,
have not enlarged upon the original
function of the clearing houses At
FIRST these associations were organ
ized by voluntary agreement simply
for the purpose of perfectinG ex-
changes of checks each day. They
were able to do in an hour what
formerly had required a day or two
to accomplish. In plain English
their function was simply to swap
checks" each bank receiving its
own checks in return for those OF
>other banks that had been depos-
tied with 1t, When the exchanges
were in that way made there re-
mained a balance which was paid
IN cash. And the gigantic volume
of barter and the domestic as well
as international trade passed swift
" through these clearing houses 50
that credit was utilized to its ut
most capacity.
Not So, the Reserve Bank
The Federal Reserve banking
system can not do this. Some of
the clearing house associations, no
tabIy that of New York, gradually
went farther than the perfection
each day of exchanges of the banks
and the collection of debit balances.
The New York clearing house be-
came an influential regulating body.
IL. used its power several times to
the end that panic might be stayed.
1t was able to give mOnitory words
to a member bank. in care it was
deemed certain that the bank was
straying from the path OF honor
able and sound banking. 1t is able
TO enforce penalties 1t has no ls-
gal power. but its moral power is
very great 1t may be possible for
the Federal Reserve system to alb
sorb some of these powers although
in the case of several of the clear
ing house associations, notably that
of Boston. the business done in them
is confined almost exclusively to
the original purpose of facilitating
exchange of checks and the payment
of balances.
There is now, however. an undercur-
rent. of feeling that some ef the in
stitutions take undue advantage of
their position so that they exact more
than reasonable returns for services
and are at times very arbitrary. They
have been talking in the financial dis
trict for instance. of an experience
Just after the war began. which was
the unpleasant lot for a few hours
Of a man of large wealth. He was
notified one day that a loan of some
$4,000 was to be called Immediately.
Call was Embarrassing.
This call greatly embarrassed him
for it was at the time when the stock
exchange was closed in the early
months Of the war He appealed to
friends, only one Of whom was able
to give him advice that proved to be
Of avail. This friend suggested that
the embarrassed man call upon ]. p.
Morgan, who had few weeks earlier
demonstrated his leadership through
the successful organization of two Jn-
derwriting syndicates which sub
scTibed each of them, 800. 900. 100 in gold
whereby a desperate situation was re-
heved. This advice was adopted.
The interview with Mr.. Morgan was
very. brief. but 1t was as satisfactory
as it was laconic The call was in
stantly withdrawn. No longer was
the man embarrassed. What course
Mr.. Morgan took was known to no
one but himself and to the officers of
the trust institution which called the
loan. but it was a matter Of inference
that Mr.. Morgan had suggested that
1t was no time for banks or trust
institutions to take advantage of Sc
rious pressure in the money market
with intent to gain thereby great
profits.
story of c. p. Huntington.
Recently there has been revived an
snecdote which refers to action TAX
en- by c. p. Huntington at the time
one Of the leading trust companies of
New York notified him that unless he
took up on the instant his loan, which
was a large one, the trust institution
would sell the securities that lay be-
hind the loan. The president Of this
trust company was a very able bank
er; his management of the institution
was such as to bring great profits to
IT and he was found to be a broad
minded man not disposed usually to
take undue or drastic advantage Of a
situation. Therefore Mr.. Huntington
was astonished when he received no.
,tiieation that unless his loan was
paid Immediately the trust company
would sell his securities.
II was time Of panic. There was