NOTE

To illustrate the working of the Clearing-House system, we will suppose the case of six banks carrying on business in the same town. On a given morning we will suppose the messengers of these banks to meet at the Clearing House, each bringing the checks received by his bank in deposit on the previous day, as follows:

No. 1, checks on No. 2, $ 6,500

"

"

"

3,

9,200

"

"

"

4,

7,100

"

"

"

5,

6,250

"

"

"

6,

4,500

$33,550

No. 4, checks on No. 1, $ 8,750

"

"

"

2,

4,700

"

"

"

3,

6,740

"

"

"

5,

5,820

"

"

"

6,

5,140

$31.150

No. 2, checks on No. 1, $ 7,800

"

"

"

3,

4,100

"

"

"

4,

5,76o

"

"

"

5,

6,340

"

"

"

6,

5,870

"

$29,870

No. 5, checks on No. 1, $ 8,740

"

"

"

2,

4,620

"

"

"

3,

9,250

"

"

"

4,

7,680

"

"

"

6,

5,940

$36,230

No. 3, checks on No. I, $ 6,750

"

"

"

2,

4,270

"

"

"

4,

5.900

"

"

"

5.

6,400

"

"

"

6,

5,940

$29,260

No. 6, checks on No. I, $ 3,700

"

"

2,

4,100

"

"

3,

6,740

"

"

"

4,

9,250

"

"

5,

7.850

$31,640

The sum of all the checks brought in is $191,700. If, now, we credit each bank with the checks which it presents against the others, and charge it with the checks presented by them against it, we shall find that No. 1 is charged with $35,740 and credited with $33,550, that No. 2 is charged with $24,190 and credited with $29,870, and so for the others, and, therefore, that,

No. I owes a balance of

$2,190

No. 2 is owed

"

"

$ 5,680

No. 3 owes

"

"

6,770

No. 4 owes

"

"

4.540

No. 5 is owed

"

"

3.570

No. 6 is owed

"

"

4.250

$13.500

$13,500

If, then, the debtor banks, Nos. 1,3, and 4, pay into the Clearing House the sums due from them amounting to $13,500, and the Clearing House pays out to the creditor banks, Nos. 2, 5, and 6, the sums due to them, of like amount, the result will be that every bank will, in effect, have collected payment of all the checks which it had received, and will have made payment of all the checks drawn against it. This settlement of checks amounting in all to $191,700 will have been made by the payment of $13,500, and transactions apparently involving thirty separate demands, each bank being the creditor of five others, will have been settled by a series of additions made at a central office, followed by three payments to and three payments from a common fund.

In 1915 the New York Clearing House, one of the two largest in existence, settled the balances of sixty-two banks and trust companies, and of the Assistant Treasurer of the United States. During the year ended Sept. 30, 1915, the average daily exchanges were $299,810,917; and these exchanges were settled by the payment of balances averaging daily only $17,626,557. Since the foundation of the establishment in 1853, the balances actually paid have amounted on the average to only 4.73 per cent, of the exchanges effected. For further details regarding Clearing House activities in this and in other countries see J. G. Cannon, Clearing Houses, one of the publications of the National Monetary Commission.