account of the depositor and charged to the drawer's account. The method of handling checks upon out-of-town banks will be explained later.

To simplify the process of collecting checks which each bank receives drawn upon other banks in the same city, the clearing house was devised. In the absence of some clearing house arrangement, each bank would have to present for payment to every other bank in the city the checks which its customers deposit and receive the money in payment. This would involve a great waste of time, much inconvenience, and some risk of losing the money. In all cities having several banks, and even in the smaller towns with but few banks, the daily exchange of checks and the settlement of balances between banks is now made through the clearing house. Where no clearing house arrangement exists and in those cases where for some reason a bank is not a member of the clearing house association, all city collections must be made by messenger or runner.

103. Clearing. Before describing the process of clearing checks, mention should be made of the preparations at the bank. During the day as checks are received, those drawn upon city banks are placed in pockets or pigeon-holes marked with the clearing house number of the several banks. At the close of business each day these checks are entered or listed on a "settlement sheet." Items received in the early mail the following morning are added to this sheet and the totals are entered as debit items on the settling clerk's statement which he takes to the clearing house. The checks are put up in envelopes for the respective banks on which they are drawn and these are arranged in consecutive order corresponding to the clearing house numbers of the banks. A "delivery sheet" is prepared on which each of these envelope totals is entered opposite the name of the bank on which the checks are drawn. This sheet also has a column for the amount of checks presented for settlement and a space for the signature of the settling clerk of each bank. The footing of the settlement sheet showing the total amounts of the checks

against each bank is entered on a "credit ticket" which the settling clerk delivers to the clearing house manager.

The settling clerk and the delivery clerk now proceed to the clearing house and take their places at the desk belonging to their bank, the settling clerk inside the inclosure, the delivery clerk outside. In the larger cities each of these clerks may have an assistant to facilitate the work. Generally the arrangement of desks is oval or circular to permit of easy passage from one desk to another. At the appointed hour the manager appears at his desk and rings a bell as a signal to begin. Instantly the line of delivery clerks outside the cage or oval begins to move. The clerk of bank No. 1 steps forward to the desk of No. 2, delivers the envelope marked No. 2, and places his delivery sheet in front of the settling clerk who receipts for it by writing in the proper place his initials or name. No. 1 clerk passes on to No. 3, and so continues the operation until he has delivered all his envelopes and reaches his own desk again. In the same way the other delivery clerks follow, delivering their packages and getting their sheets receipted. In some places it is the rule to deliver a blank ticket to any bank against which any other bank may not have collections on a particular day. This may simplify the correction of errors as it shows that no item has been lost or mislaid. The delivery clerk having completed his deliveries

is now free to return to his bank taking with him the envelopes containing the checks which have been presented against his bank by the other banks.

As soon as the deliveries have been completed each settling clerk enters on his settlement shect the amounts of the checks presented by each of the othe banks and ascertains the total. Where the volume of exchanges is large the settling clerk has an assistant, in which case the entries are made at once upon delivery of the envelopes and the settling clerk can begin his additions immediately upon receipt of the last envelope. The settling clerk already has upon his sheet the total of the checks brought by him to the clearing house. As soon as he determines the total amount of the checks brought by other banks against his bank, he strikes a balance. This balance is the actual amount to be "settled."

If this is a credit balance it will be paid over to his bank by the clearing house; if it is a debit balance his bank must pay it into the clearing house before a certain hour of the same day. Each settling clerk makes out a balance ticket, showing the amount brought to the clearing house, the amount received and the balance. These tickets go to the desk of the manager where the proof clerk enters all the debits, credits and balances of the several banks. His balance totals should correspond to those of the settling clerks, and the balance for each bank should correspond to that appearing upon its ticket; otherwise there is some error which must be found and corrected. The manager calls off the balances of the several banks for verification and for the information of the banks. If there is an error the clerks go over their sheets again to discover the mistake. In most clearing houses a certain time, thirty or forty-five minutes, is allowed for completing the proof, and, usually, fines are imposed upon the clerks responsible for error or delay.

104. Settlement. The method of settling balances varies in different cities. The banks which have debit balances against them are required to send to the clearing house

before a certain hour, usually twelve or one o'clock, the amount due from it. These balances are generally paid in clearing house certificates, United States gold certificates, legal tender notes or gold coin.1 Sometimes settlement is made by cashier's check. In most cities each member of the clearing house has on actual deposit in the vaults of the clearing house, or some bank agreed upon as depository, gold coin for which clearing house certificates are issued. These certificates save the actual handling of the gold but can be used only in settling balances between the banks. After the time specified for the payment of debit balances the creditor banks can receive from the clearing house the balances due them. The clearing house manager receipts for all debit balances paid in and in turn requires a receipt for each credit balance paid out. When the day's settlement is completed not a dollar remains in the clearing house as the money paid in by debtor banks is all paid out again to the creditor banks.

The principle of the clearing house and the method of making the exchanges is substantially the same everywhere, though slight differences in detail obtain in different cities. In small towns with only a few banks the process is very simple, the clearing house being merely a convenient meeting place for representatives of the several banks to exchange checks one against the other. In New York the Sub-Treasury and the Federal Reserve Bank have the privilege of clearing through the clearing house. A peculiar system of settlement is used in the Boston Clearing House, and, in a modified form, in Pittsburgh and some other cities. At the close of the morning exchange in Boston representatives of the various banks borrow and lend balances and settle them by orders on the clearing house. Cannon says that sixty per cent of the total balances of the Boston Clearing House are now settled in this way. Thus bank A may find itself a heavy debtor to the clearing house while bank B has a large balance to its credit. A may then borrow from B, which gives him an order on the clearing 1 Cannon: Clearing Houses, pp. 36–42.

house, and A turns in this order in the settlement of his balance later in the day. This, of course, amounts to a loan of money and rates of interest about equal to call money rates are charged.

The New York Clearing House, which was organized in 1853, is of course the largest and most important in the country. Its volume of exchanges for the year 1916 averaged over $526,000,000 a day, and yet the cash required to handle this enormous total averaged only about $28,000,000 a day, or a little over five per cent of the totals involved. The actual clearing in New York ordinarily takes less than a half hour's work. In other cities with a smaller volume of exchanges even less time is required.

105. Other functions. In recent years clearing houses, especially in the West, have extended the scope of their original function so as to include all questions affecting the mutual welfare of banks Some clearing house associations have rules providing for uniform action among their members in regard to rates of interest on deposits, rates of exchange and charges for collection. Quite generally these associations issue clearing house loan certificates in exchange for deposits of funds by the member banks. These certificates are drawn for large amounts usually and reduce to a minimum the carrying of actual cash to and from the clearing house. In times of panic or of financial stress when most or all banks have difficulty in securing funds to meet the demands made upon them, the clearing house associations often provide for additional issues of loan certificates based upon approved securities deposited by the banks. At such times a special loan committee is appointed to issue certificates and pass upon the securities which may include not only stocks and bonds but also bills receivable. In order to insure the withdrawal of these certificates when the emergency has passed, interest is charged upon them. They can be used only in the settlement of balances between banks, but by lessening the amount needed for this purpose they release so much currency for general circulation.