The work of the government in examining banks is sometimes supplemented by the co-operation of the clearing houses. Since the members of these associations are daily receiving obligations due from one another, they all have a common interest in knowing the true condition of their associates. This thought was deeply impressed upon Chicago banks in 1906 when several local institutions failed, and a consequent panic was averted only through the efforts of the other members of the clearing house in sustaining the losses themselves. Subsequent investigations showed that the failures were the result of irregular practices which had escaped the notice of government examiners. To prevent a recurrence of this condition the Chicago Clearing House Association introduced its own system of examining member banks. Similar action was taken by the clearing houses of other large cities throughout the country, and in sections where no clearing-house associations are organized, banks of several cities have combined into a group system for retaining jointly the services of examiners to analyze the condition of members.

The expenses incurred in undertaking these examinations are defrayed in various ways. The method of the Comptroller may be followed by levying an assessment upon each member bank in proportion to its total resources. This charge may also be prorated according to the total clearings of each bank throughout the year. A third plan is to impose the same fee upon all banks irrespective of the amount of their resources or clearings.

An examination by a clearing house is thus independent of those undertaken by the government, and also by the individual banks. The investigation may be conducted by the clearing-house manager himself or he may delegate this task to a special examiner, and in a large city this service may be performed by a firm of accountants. These examinations are directed by a special committee of the clearing house. Acting on orders of this body, the examiner may enter any bank without giving it previous notice. He analyzes its condition and presents his findings in two separate reports. A complete statement is forwarded to the directors of the bank under examination. If its condition is satisfactory a brief report is submitted to the clearing-house committee, but this body is given a detailed survey of the bank's status if in any way it endangers the interests of the other members. The plan of clearing-house examination has been criticized on the ground that it may disclose to competitors of the bank confidential information regarding its credits and loans. On the other hand, the system of clearing-house examination is free from some of the restrictions which limit the work of government agencies. In the first place, the examiner, acting in behalf of the clearing house, does not confine his analysis merely to violations of the law, but may also take into consideration practices which may be legal, but nevertheless dangerous to the welfare of the banking community. Nor is the clearing-house association compelled to wait until the bank is driven into insolvency, but instead this status may be averted by the prompt application of remedial measures.