Year: 1877

| ALE hANAo ANu 1aE ELEAHlNE-dVu5E


In these times, when banking institutions


are forced to contend against general sus-


picion, it is proper that they should be pro-


tected from unjust aspersions, and the


community will serve its own interests by


not laying hold Of every circumstance and


event for the purpose of putting upon it


some construction unfayorable to banks.


For instance, there is popular misappre~


hension in regard to the significance Of the


Clearinghouse differences. The Clearing


House is merely an expedient for the prompt


settlement of the interchange of business
between the various banks;. by thus settling
the aggregate of every days business instead
OF each individual transaction, much time,
| expense, and annoyance are saved. But it
IS very general mistake made by those


outside of the banking business that bal


ance against any particular bank in the
Clearing House on a certain day is al
indication of q shrinkage in its deposits


and corresponding loss of confidence.
Such and such bank has been beat in the


Clearing House today" is the usual an


nouncement, to which q false significance is


given. This passes from mouth to mouth as


indicating disposition to run on the bank


in every case where the checks against it in


the Clearing House amount to more than


the checks it holds against other banks


Thus, during the furry consequent upon the


suspension OF tho Third National and Central
National, the status in the Clearing House of


two or three banks under suspicion WIS
watched with general interest as means of
ascertaining whether there was u run on
them or not. As matter of fact, balance
for or against bank in the Clearing House
is no indication whatever of the condition of
its deposits; indeed, balance against a
bank is as likely to bo m Indication of in
creased business Us Of q loss of business.


4 few instances will serve to show the
actual working Of these clearings. Bank A
may receive deposit of 100000 in cur
rency today, out Of which the depositor
may Immediately check $3.50, 900; the checks
he gives pass through the other banks, and
so into the Clearing House. If all the other
transactions of Bank 4 with other banks are
about balanced in the clearings, then Bank
A will apparently be $15o,00o behind in the
days operations. As matter of fact, how
ever, Bank A will have increased its deposits
by $4,000 by the transaction, notwith- |
standing the showing in the Clearing- House |
that it 81 had been beat $15o,o0o." So in
the matter of exchanges Bank A may pur-
chase 100000 of New York exchanges and !
give its checks for the amount, which pass
through the Clearing House against it, while
the exchanges for this amount may already !
have been sold at profit. The balance
against Bank in the Clearing House, which |
is apparently relative decrease of business, is
in this case sereally indicative OF increased bust
ness. The same is truo in the case of ex-
changes deposited and checked against By
the depositor. So, when bank advances
money on grnin-receipts or other collateral,
the borrower leaves the money on deposit
and checks against it; these checks 90 into
the Clearing g-House and are counted against
The bank, while they actually indicate that
The bank has been doing the legitimate bust
ness for which it is operated, but furnish
not the slightest cue to an increase or de-
crease Of the deposits Of said bank.


These instances will suffice to demonstrate
The injustice of drawing any conclusions
rom the daily record Of the clearinghouse
Is to the actual status Of bank, and they
nay effect change in commercial practice
which does great injustice and occasions un-
necessary apprehensions. The status of q |
'ank eau only be determined by knowl-
'dge of the average amount Of its deposits
md the value Of its Investments, and in this
aspect the daily record of the Clearing
douse is utterly meaningless.