Year: 1873

What They Are and How They work


The clearinghouse, as it exists IN
most Of the large cities end IN each OF
the commercial centres OF the country,
is al association OF banks for the pnr-
pose of settling in the most speedy and
accurate method, the accounts which
daily arise between those banks. In
every city eack bank is continually re-
ceiving checks and drafts on the other
banks in the same city. In the great
cities formerly, AMI in the small ones
now, the practice is to send mesSen.
ger from each bank to each bank, and
thus collect or pay the difference. Tins
the clerk of the first national would
take the check which Jones deposited,
and go to the second national and get
the money. Then persuing his travel,
he wou'd go round to each OF the banks
on which the Podunk bank had drawn
or sent drafts, and S't either the money
or collections on the first national there
for. But perhaps when he arrived at
the third national he would find IN that
bank collections against his own
amounting to more than the money he
had with him. He must then either go
back and get the money to pay the
amount, or else the third national must
send the collections by its own messen-
ger to the first and thus get the amount
due. In practice. this latter method
was adopted, and in every large city
there was travelling through the streets
an endless succession of bank messen-
gers, crossing each others path, and
hindering each other and other cnsto-
mers at each bank counter. In New
York and other cities where much bank
business was done on the old "goid
basis" system, the business was further
complicated by the fact that nearly
every city bank WAS the rede.ming
agent of one or more country banks,
so that each country bank sorted its
deposits of paper money, and when a
reasonable sum was accumulated on
any country bank which had redeem
ing agent in New York, or when like
sum was gathered on any New York
bank it was shipped to the correspon-
dent in New York. Then each bank in
New York also sorted its deposits into
as many piles az there were other banks
in New York, and daily sent to each,
and got the gold. This process con-
sumed so much time and produced 30
many mistakes and 80 much confusion.
that finally it was agreed by the banks
in New York to settle among themselves
but once q week, instead OF every day
So then each bank sent ont its ex
changes every day, and on Friday wonld
settle the balances But as the bust
mesa increased, this plan also produced
trouble, and the least of which was that
it gave speculative anc cunning bank
officers an opportunity to keep Away
in debt to others, upon which debt they
did part of their business. Finally.
on Oct. ], 1853, q plan was adopted by
winch the frst clearinghouse in this
country was established, and it has been
in successful and beneficial operation
ever since. The plan then adopted has
been extended with slight and unim-
portant variations to every other city
where q clearing house is established.
and works as follows:


Every day at the day agreed upon by
the rules, each bank sends to the clear
ing. house q messenger with all the
checks and drafts on every other bank
in the association. Each clerk delivers
to the manager of the clearinghouse q
statement showing how much each OF
the other banks should pay his own,
and the footing of this statement shows
of oourse how much all the banks should
pay his own. The amount Of each OF
these statements the messenger enters
on blank prepared for that purpose,
go that il shows when completed the
exact amount which each bank should
receive, and the total shows the amount
which all should receive. Then each
clerk gives TO each of the others the
checks and drafts to be paid, with o
statement of the amount; thus the
first national clerk gives to the second
national the check Jones deposited, to
gether with the drafts from country
banks. The second national clerk gives
to the first national clerk statement
of the sum he desires to collect and the
checks Or drafts which go to make ur
the sum. These statements are copied
by each clerk for himself, SO each in o
very short time knows whether his bank
has to pay ont or will receive money Oh
the whole bulk of the exchange tor that
day, and the manager, BY the use of his
duplicate statement, can tell at glance
the whole of the amount OF the ex-
change for the day, the whole amount
due all the banks, the amount due each,
and the amount due from each, and
these duplica amounts, in the hands
of the clerks and on the desk OF the


manager, must be balanced before any
clerk leaves the room. 30 that all mis-
takes are prevented from getting into
the banks. If any occur in the clearing


house, they are discovered, and in some
associations the person making them is
fined small amount. When the state
ments are completed and proved, each
clerk goes back to his bank, bearing


with him a statement of average cor.


rectness showing the total amount the


bank owes all the others and the amount


owed each, or as the case may be, the


amount drawn from each. Later in the


day, at l p. N. in New York, the debto,


banks begin to send to the clearing


house the amounts they severaly owe


as shown by the statements, and these


are sent in q single sum, SO that the


first national sends in one package all


the money it owes all the other banks


The clearinghouse manager receipt.


for each amount, and then distributes


it, so that when, an hour later, the
clerks of the other banks arrive, each


receives III single pile the amount due


his bank from all others. Thus it hap


pens that for the time being the clear


ing-honse is the common debtor and
common creditor of all the banks. Il
owes the creditor banks the b. lance due
them, and the debtor banks owe the