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CLEARING-HOUSE

METHODS AND PRACTICES.

Cannon, vice-president of the Fourth National Bank,
New York. (335 pages-) Senate Document 491. Price,
45 cents.
This monograph, which is a continuation of Mr. Cannon's earlier work, offers
much new material in regard to clearing houses. The account of the devices
adopted during the panic of 1907 to tide over the deficiencies in our currency
system gives the book special interest. A description of the clearing-house
system, a history of the clearing-house loan certificates issued in times of panic,
chapters on the clearing houses of New York, Philadelphia, Boston, Chicago,
and St. Louis, and an account of recent developments in the field have been
included by Mr. Cannon in this study. The frequent use of cuts to illustrate
banking devices will be found of great value to the general reader. Mr. Cannon
finds a tendency, very marked in recent years, to include within the legitimate
field of clearing houses all questions affecting the material welfare of the banks
and the community as a whole. He devotes much attention to this subject,
giving an account of such growing practices as the fixing of uniform rates of
interest on deposits, of uniform rates of exchange, and of uniform charges on
collections, and the appointment of special clearing-house bank examiners.

T H E U S E OF CREDIT INSTRUMENTS IN PAYMENTS IN THE

By Dr. David Kinley, of the University
(229 pages.) Senate Document 399. Price,

UNITED STATES.

of Illinois.
25 cents.

This statistical study, based on a special report obtained by the Commission
from all national banks as to the relative use of coin, paper currency, and credit
instruments, shows the preponderant extent to which checks and other "credit
instruments" take the place of cash in the ordinary business of the country.
Doctor Kinley concludes that from 80 to 85 per cent of the total business of the
United States is done by the use of credit instruments—from 50 to 60 per cent
in the case of retail trade and over 90 per cent in the case of wholesale trade. In
the transaction of so large a volume of our business by checks he finds an element
of danger in times of monetary stringency. " I n such times the uncanceled
balance of credit transactions creates a larger demand for money, but the habit
of settling by check has meantime kept the available amount of money at a
minimum. Consequently there ought to be some means of supplying additional
currency when credit as a means of payment diminishes. This currency ought
to be as safe and as uniform as the ordinary currency, and it should be capable
of being quickly emitted and recalled. That is, it should possess elasticity."

PUBLICATIONS OF
NATIONAL MONETARY COMMISSION

VOL. VI

CLEARING HOUSES
AND

CREDIT INSTRUMENTS
INCLUDING

Clearing-House Methods and Practices
By J. G. CANNON

The Use of Credit Instruments in Payments
in the United States

By DAVID KINLEY

WASHINGTON
1911

61ST CONGRESS \

2d Session

]

SENATE

/ DOCUMENT

No. 491

NATIONAL MONETARY COMMISSION

Clearing Houses
JAMES GRAHAM CANNON
Vice-President Fourth National Bank, New York City

Washington : Government Printing Office : 1910

NATIONAL MONETARY COMMISSION.

NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B . VREELAND, New York, Vice-Chairman.
JULIUS C. BURROWS, Michigan.
E U G E N E H A L E , Maine.
PHILANDER C. K N O X , Pennsylvania.
THEODORE E . BURTON, Ohio.
J O H N W . D A N I E L , Virginia.
H E N R Y M. T E L L E R , Colorado.
HERNANDO D . MONEY, Mississippi.
JOSEPH W . BAILEY, Texas.

J E S S E OVERSTREET, Indiana.
J O H N W . W E E K S , Massachusetts.
ROBERT W. BONYNGE, Colorado.
SYLVESTER C. SMITH, California.
LEMUEL P . PADGETT, Tennessee.
GEORGE P . BURGESS, Texas.
ARSENE P . P U J O , Louisiana.
ARTHUR B . SHELTON, Secretary.

A. PIATT ANDREW, Special Assistant to Commission.

CONTENTS.
Page.
CHAPTER I.—CLASSES OF CLEARING H O U S E S

A clearing house defined—Clearing houses
classified with respect to functions—Clearing houses classified with respect to the
funds used in settlements.
II.—CLEARING-HOUSE

TERMS

How usages differ—The meaning of " t o
clear" — Clearings — Exchange and exchanges—Bills and bills of exchange—
Draft and check—Accounts balanced and
balances in accounts—Collections—Items—
Clearing matter—Settlements—Out-of-town
checks and country checks.
I I I . — S P E C I A L FUNCTIONS OF A CLEARING H O U S E

_• -

Primary object—Extension of field—List of
special functions—Action of clearing-house
banks a t outbreak of civil war—Mutual
assistance of members—Fixing rates of interest on deposits—The practice in Sioux
City—Establishing rates of exchange—
Some Buffalo history—Rochester—Baltimore — Houston — Toledo — Topeka — St.
Louis—West Superior—St. Joseph—Clearing-house loan certificates.
IV.—POSSIBLE

DEVELOPMENTS

OF T H E

CLEARING-

H O U S E SYSTEM

New functions to be exercised—Country
checks—Transfer of currency from point to
point—Possible use of gold certificates—
Special examiners—Settlement of balances—Advantages of the cash basis—
Clearing-house depositories—The use of depository certificates.
V . — T H E ADMINISTRATION OF CLEARING H O U S E S

List of officials—Duties of officers—Committees—Annual meetings.
HI

National

Monetary

Commission
Page.

CHAPTER VI.—THE;

SETTLEMENT

CLEARING-HOUSE

BALANCES

Results accomplished by settlements—Ratio
of balances to clearings—Settlements with
money—Clearing-house settlements in Canada—Money in labeled packages—Objections to silver—Methods of settling balances
without money—Advantages of the manager's check over settlements in cash.
V I I . — C L E A R I N G - H O U S E EXCHANGES

Location of clearing houses—Arrangement of
furniture—Hour of making exchanges—
Clearing matter—Character of indorsements—Messengers and settling clerks—
Conducting the exchanges—Determining
balances—Two clearings a day.
V I I I . — C L E A R I N G COUNTRY CHECKS

The growing use of checks—The difficulty of
country checks—Remedies proposed—State
and National clearing houses—The Kansas
City, Mo., plan—The Atlanta, Ga., plan.
I X . — T Y P I C A L J O U R N E Y OF A COUNTRY CHECK R E M I T -

TED FOR A CITY ACCOUNT

The small amount of work required of payer
and payee—The large amount of work required of the bank in which the check is
deposited and its correspondent—What the
receiving bank does—What its regular correspondent in the city nearest the country
bank is required to do—What the country
bank has to do—An illustrative example.
X . — C L E A R I N G - H O U S E LOAN CERTIFICATES

What clearing-house loan certificates are—
Origin—Interest rates—Uses—First issue in
i860—The issues of 1861, 1863, and 1864—
Action of various clearing houses in 1873—
New Orleans in 1879—New York in 1884—
Action of the New York, Boston, and Philadelphia clearing-house associations in
1890—General resort to loan certificates in
1893—Emergency circulation in the South,
Boston, and Philadelphia in 1895—New
Orleans in 1896—Calculations of interest.

Contents.
Page.
CHAPTER X I . — C L E A R I N G - H O U S E
LOAN
P A N I C OF 1907

CERTIFICATES OF THE
117

Causes of panic—Action of the New York
clearing house—Chicago clearing house—
Boston clearing house—Philadelphia clearing house—Clearing-house checks issued at
Canton, Ohio—At Cincinnati and Cleveland—Certificates at Fargo, N. Dak., and
Los Angeles—Plan of group 2, Ohio Bankers'
Association—Total of certificates issued.
XII.—CLEARING-HOUSE

B A N K EXAMINERS

137

General remarks—Examiner appointed at
Chicago in 1906—Minneapolis and St.
Paul—St. Louis—Los Angeles—Kansas City
and St. Joseph—Philadelphia—Details of
proposed group plan of the California Bankers' Association.
X I I I . — T H E N E W Y O R K CLEARING H O U S E

148

Origin and early history—Formal organization
in 1853—First location—New York clearinghouse building company—Cedar street property—Constitutional
provisions—Committees—Statistics of membership—Clearing for
nonmembers—Statements of condition—
Capitalization of New York banks—Records
of clearing house.
X I V . — D A I L Y R O U T I N E OF T H E N E W YORK CLEARING
HOUSE

190

The clearing room—Clerks and messengers—
The manager's part—How the exchanges are
made—The cash balance paid in—The disbursements—Clearing-house gold depository—Restrictive indorsements—Pro rating
of expenses—Record of fines—Table of
annual clearings—Table of average daily
balances.
XV.—THE

CLEARING H O U S E ASSOCIATION
BANKS OF PHILADELPHIA

OF THE

Early
history—Runners'
exchange—The
morning exchange—Gold depository—Clearing-house due bills—Settlements without the
use of money—Comparison of bank statements—Collateral security—Assessments of
expenses—Admission of new members—
Plan of administration—List of presidents—
Failures and resulting litigation.

223

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Monetary

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Page.

CHAPTER X V I . — T H E BOSTON CLEARING H O U S E

240

Formation and early history—Period of the
civil war—Settlement of balances—Borrowing and loaning balances—Clearing for outside banks.
X V I I . — F O R E I G N DEPARTMENT O F T H E BOSTON CLEARING
HOUSE

259

Organization and history—Regulations—Two
clearing hours—Blanks and forms—Fines—
Bookkeeping.
X V I I I . — T H E CHICAGO CLEARING H O U S E

276

Date and history of formation—Methods of
exchange—Preliminary exchanges among
members—Kinds of money employed in
settling balances—Trading balances—Non
member banks t h a t clear—Statements of
condition—Expenses and fines—Admissions
and expulsions—Volume of clearings—Administration.
X I X . — T H E S T . L O U I S CLEARING H O U S E

Early history—Scope of membership—Plan of
administration—Management of clearings—
Records kept by the manager.

298

Contents.

ILLUSTRATIONS.
Form of receipt used by Buffalo clearing house given by creditor
banks on receipt of balances
Form of receipt given by Buffalo clearing house to debtor banks on
payment of balances
_
Facsimile of the check the journey of which is shown on the map on
page 71
Map showing the check's itinerary
Facsimile of the back of the check, showing the numerous indorsements it bore on finally reaching the bank on which it was
drawn
Form of clearing-house loan certificate used by New York clearing
house in 1873; later issues differ from this only in the omission of
the restrictive date
Form of clearing-house loan certificate used in Philadelphia
Form of clearing-house loan certificate used in Boston
Form of clearing-house loan certificate used in Baltimore
Form of clearing-house loan certificate used in New Orleans
Form of clearing-house loan certificate used in Cincinnati
Form of clearing-house loan certificate used in Detroit:
Form of clearing-house loan certificate used in Atlanta, Ga
Form of clearing-house loan certificate used in Birmingham, Ala
Form of clearing-house check used in Chicago
Form of clearing-house check used at Canton
Form of clearing-house certificate used at Fargo, N. Dak
Form of check issued by Group 2, Ohio Bankers' Association
Resolution authorizing exchanges through a member bank
Application to clear for another bank
Consent to clear for another bank
Form of statement of weekly averages of nonmember banks
Form of statement of weekly averages for trust companies
Form of statement required by the New York Clearing House
Association of Trust Companies
Form used at clearing house in tabulating national bank statements
Form used at clearing house in tabulating state bank statements
Skeleton of weekly statement of the associated banks of the city of
New York

Page.

40
42
69
71

84
87
97
99
102
104
106
108
111
120
126
128
130
172
173
174
175
176
180
181
182
183

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M on et ar y

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Page.

Form of statement required of associated banks
Form of summary of weekly statement of associated banks
Face
Skeleton of weekly statement of nonmember banks
Face
Facsimile of "small ticket" deposited by messenger with settling
clerk __
Form of "first" or credit ticket
Form of settling clerk's receipts
Form of settling clerk's statement
Form of "second" ticket
Clearing-house proof sheet
Form of settling clerk's report to his bank of daily balances
Manager's receipt
Form of gold certificate (face)
Form of gold certificate (back)
Clearings for fifty-five years a t New York
Balances paid in cash for fifty-five years at New York
Form of clearing-house due bill
,
Form of weekly statement required of Philadelphia banks
Form of daily statement employed by the banks of Philadelphia
Form of statement of the average condition of Philadelphia
banks
Face
Form of ticket used by Boston banks in connection with payment of
debit balances
Form of manager's receipt for debit balances, Boston
Form in use in Boston for transfer of balances
Statement of weekly averages of the associated banks of Boston
Face
Form of average weekly return in use by the associated banks of
Boston
Form of receipt for pro rata charge on account of uncollected checks,
Boston
h
Foreign slip and check ticket, Boston clearing house
Form of receipt, foreign department, Boston clearing house
Exchange ticket, foreign department, Boston clearing house
Form of letter of transmission to correspondents, Boston
Form of settling sheet, foreign department, Boston clearing house
Forms of reports used in trading balances, Chicago _
Form of order used in transferring balances t h a t have been loaned,
Chicago
Form of order on clearing-house manager for balance due Chicago. _
Facsimile of debit list used in St. Louis clearing house
Form used for listing balances in St. Louis clearing house
Form of manager's report of clearings, balances, etc., St. Louis

VIII

184
184
184
193
194
196
197
199
201
203.
205
206
207
217
221
226
228
230
230
246
248
250
252
253
2 64
266
268
270
272
275
283
287
293
303
305
307

CLEARING HOUSES.
CHAPTER

CLASSES OF CLEARING HOUSES.
A CLEARING HOUSE D E F I N E D — C L E A R I N G HOUSES CLASSIFIED W I T H RESPECT TO FUNCTIONS—CLEARING HOUSES
CLASSIFIED W I T H RESPECT TO T H E FUNDS USED I N S E T TLEMENTS.

What is a clearing house? The supreme court of the
State of Pennsylvania has defined it thus:
It is an ingenious device to simplify and facilitate the work of the banks
in reaching an adjustment and payment of the daily balances due to and
from each other at one time and in one place on each day. In practical
operation it is a place where all the representatives of the banks in a given
city meet, and, under the supervision of a competent committee or officer
selected by the associated banks, settle their accounts with each other and
make or receive payment of balances and so " c l e a r " the transactions of
the day for which the settlement is made.

But we must go farther than this, for though originally
designed as a labor-saving device, the clearing house has
expanded far beyond those limits, until it has become a
medium for united action among the banks in ways that
did not exist even in the imagination of those who were
instrumental in its inception. A clearing house, therefore,
may be defined as a device to simplify and facilitate the
daily exchanges of items and settlements of balances
among the banks and a medium for united action upon
all questions affecting their mutual welfare.

National

Monetary

Commission

The clearing houses in the United States may be divided into two classes, the sole function of the first of which
consists in clearing notes, drafts, checks, bills of exchange,
and whatever else may be agreed upon, and the second
of which, in addition to exercising the functions of the
class just mentioned, prescribes rules and regulations for
the control of its members in various matters, such as the
fixing of uniform rates of exchange, interest charges, collections, etc.
Clearing houses may also be divided into two classes
with reference to the funds used in the settlement of
balances: First, those clearing houses which make their
settlements entirely on a cash basis, or, as stated in the
decision of the supreme court above referred to, " b y
such form of acknowledgment or certificate as the associated banks may agree to use in their dealings with each
other as the equivalent or representative of cash;" and
second, those clearing houses which make their settlements by checks or drafts on large financial centers.

CHAPTER

II.

CLEARING-HOUSE TERMS.
HOW USAGES D I F F E R — T H E MEANING OF " TO C L E A R " —
CLEARINGS
BILLS

EXCHANGE

AND

EXCHANGES—BILLS

AND

E X C H A N G E — D R A F T AND CHECK—ACCOUNTS

BALANCED AND BALANCES I N A C C O U N T S — C O L L E C T I O N S —
ITEMS — CLEARING MATTER — SETTLEMENTS — OUT-OFTOWN CHECKS AND COUNTRY CHECKS.

Every profession and every line of business, as well as
every trade, develops its own peculiar terms and phrases.
Those who become familiar with the routine of the business
or the profession use these terms among themselves with
a degree of precision and certainty of meaning which
sometimes is difficult for one outside of the group to
comprehend. The usage in this regard by banks and
clearing houses is no exception to the general rule.
Terms which are current in one part of the country
or in one financial center do not always obtain in others,
and to a certain extent different terms are sometimes
employed in different parts of the country for indicating
approximately the same things. For these reasons, and
others which the reader will readily apprehend, a brief
consideration of a few of the prominent terms employed
in clearing-house affairs is appropriate by way of introduction to the more important chapters which follow.

National

Monetary

Commission

Nothing like a complete list is attempted, and instead
of presenting the definitions in conventional dictionaryfashion, the meaning of certain terms and the special uses
to which they are applied are laid before the reader in
a far less formal manner.
The term "clearing house" is defined at some length
in another part of this volume, from the standpoints of
use and function. The word is also used in the sense of
location or place. A clearing house may be described
as an office, established by the banks of a city, where
their representatives meet daily to exchange drafts and
checks and adjust balances.
The term " t o clear" is popularly defined " t o pass
through the clearing house/' Another definition is, " t o
settle accounts by exchange of bills and checks, as is
done in the clearing house/' To clear a check means to
pass it from the bank that holds it as a deposit or for
collection to the bank on which it is drawn, and to receive
payment therefor; but, with the complexities of modern
business, a single check is seldom cleared. Instead a
multitude of checks and other items are included in each
clearing. The term " t o clear" therefore takes on a
broader meaning, and tfie only adequate conception of
it is afforded by a view of the actual operations of a
clearing house, which are set forth in another part of this
volume.
The word " clearing" designates the settlement of
balances between banks, arising from the interchange of
checks, drafts, etc., carried on at the clearing house. The
term " clearings" signifies the total of differences bal-

Clearing-House

Methods

anced at a clearing house. Occasionally the words
"clearance" and "clearances," which, properly employed,
designate space or distance, are used in the place of
"clearing" and "clearings." Their employment in the
place of the latter is not justified by general usage nor by
the real meaning of these forms of the word.
The term "exchange," so common in financial and
business transactions, has various shades of meaning,
ranging from a charge for the transfer of money from
one point to another, to the place where business interests of a special class are brought together and where
contracts concerning them are made. The word literally means the act of giving one thing as an equivalent
for another, or for interchanging two equivalents. From
this it comes that the word indicates that which is given
or received by an arrangement for mutual interchange,
and hence the term " exchanges," frequently employed by
those who have transactions with the clearing house, to
indicate the items that are to be exchanged, as, for
example, in the phrase: "The amount of exchanges."
The term "bill" has several different meanings, ranging from a statement of an account, or of money due, to
a bank note or government note. Occasionally, in loose
usage, it means a promissory note. In Great Britain the
term is frequently used to mean a bill of exchange. As
used in connection with clearing-house affairs in this
country, it usually designates bank notes or government
notes.
A "bill of exchange" is a written order or request
from one person to another, for the payment of money

National

Monetary

Commission

to a third, the amount to be charged to the drawer of
the bill. This term, therefore, while having a special
meaning in some cases, often includes drafts which are
drawn by merchants upon their customers in ordinary
course and put through bank for collection. The term
in this sense, however, is less commonly employed than
"draft."
A "draft" may be described as an order drawn by one
party on another for the payment of money to a third.
It is for the most part limited to an order payable at, or
collectable through, a bank or other financial agency. A
draft made payable at some time other than at sight,
and which has been accepted by the party upon whom it
is drawn, is known as an "acceptance," and is treated
by banks and clearing houses the same as a note.
A "check" is an order in writing upon a bank or
banker for the payment of a designated amount of money
to some designated person or order. Checks vary in
form. Those which are current between banks and
bankers—as, for example, the checks that would be used
by a country bank in drawing against the balance lodged
with its New York correspondent—frequently take the
form that commonly obtains with drafts. Hence the
term "bank draft" or "banker's draft," often employed
by those who purchase New York or other exchange of
their local banks to designate the character of their
remittance.
A "center" is described as, in the dictionaries, the
place about which things cluster, or to which they converge. It is also described as the point of emanation

Clearing-House

Methods

or radiation. With this definition before us, it is easy
to perceive what is meant by a "money center" or a
" financial center."
The term "balance" has two distinct meanings, and
the word is used among bankers and business men in a
way to indicate two things entirely different from each
other. In its simplest form a balance may be declared
to be an equality between the credit and debit totals of
an account. But it is also used to refer to the difference
between such totals, or, in other words, the excess on
one side or the other. Thus in the first sense we declare
that an account is balanced when it has been closed by
securing an equality of the two sides. In the second
sense, when we speak of the balance in an account, we
mean either the debit or credit amount, as the case may
be, that is required to produce an equality of the two
sides, or, in other words, to close the account. The
balances in a clearing-house statement are the respective
differences between the debit and credit sides of the
several accounts included in the statement. A bank's
balance in a clearing-house settlement would mean either
the amount that it has to pay or the amount that it is
to receive, according to the excess of debits or credits
shown by the statement.
The dictionaries define the verb " t o collect" as follows:
"To gather money from many people." A collection is
defined as " t h a t which has been gathered or taken u p ; "
but among the banks and in clearing-house circles the
term "collection" is somewhat expanded beyond these
limitations, and is used for designating that which is to

National

Monetary

Commission

be collected. For example, the drafts or bills of exchange
which a bank holds at a given date are frequently designated as its "collections," particularly at the time that
they are being arranged in proper order for transmission
to its correspondents or for delivery to the clearing
house. Sometimes the term employed in such cases is
"collection items," which, of course, means the items
for collection.
An "item," as the term is generally understood, means
a separate article or entry in an account or schedule, or
a sum so entered. The term among banks and in clearing
houses is used in the latter sense almost literally. An
item is that of which an entry has been made, whether
it is a draft, bill of exchange, check, or note.
The word is frequently employed in combination with
a qualifying term, as, for example, "collection items,"
"out-of-town items," "city items," etc.
A term which is as nearly original with and peculiar
to clearing houses as any that might be cited is "clearing
matter." "Matter," in this phrase, is a collective term,
and designates any and all of the items that go into a
clearing house. Clearing matter then means that collection of items, however assorted, which may be cleared.
"Acceptable clearing matter" would designate that which
is acceptable, according to the rules of the clearing house.
There would, of course, be the opposite or negative term;
for example, " unacceptable matter," meaning that which,
while having somewhat of the character of clearing matter,
is not of a kind that is handled by the clearing house in
question, under the rules governing its operation.

Clearing-House

Methods

A settlement, in ordinary commercial affairs, is an
adjustment of accounts. "To settle" means to liquidate,
or to pay, or to adjust differences. A " settlement"
may mean either the act of settling or that which is
accomplished by settling. A bank's clearing-house settlement therefore means an adjustment or payment of the
difference between the debit and credit side of the account
and further designates either a receipt or a disbursement,
as the case may be. Each member bank has a settlement
with its clearing house daily.
In the designation of checks, with respect to the location
of the banks upon which they are drawn, considerable
confusion exists at times in the term employed for the
purpose. "Personal check" and "local check" are terms
occasionally used to indicate out-of-town checks or checks
on country banks. An out-of-town check is one drawn
upon any bank outside of the city in which a given clearing
house is located, or outside of the city in which member
banks of the given clearing house are situated. In other
words, it is one that must be sent away for collection.
The term "country check" has the same general meaning,
but is applied more particularly to checks drawn upon
banks located at a considerable distance from a given
clearing-house center. Referring again to the terms
"personal check" and "local check," above referred to,
it must be evident to everyone who gives the matter the
least thought that a check drawn by a depositor on a
bank in New York would be a local check, and that it
also would be a personal check, and yet such a check,
issued in the regular course of business, is not objection20040—10

National

Monetary

Commission

able from any point of view. On the other hand, a check
drawn by a merchant in an interior town upon a bank in
that town, irrespective of the responsibility of the drawer
or the standing of the bank upon which it is drawn, would
also be a personal check; but the latter would not represent par funds in New York. Out-of-town checks and
country checks, accordingly, are subject to special regulations with respect to costs of collection.

CHAPTER

III.

SPECIAL FUNCTIONS OF A CLEARING HOUSE.
PRIMARY O B J E C T — E X T E N S I O N OF F I E L D — L I S T OF SPECIAL
FUNCTIONS—ACTION

CLEARING-HOUSE

BANKS

OUTBREAK OF CIVIL W A R — M U T U A L ASSISTANCE OF MEMB E R S — F I X I N G RATES OF I N T E R E S T ON D E P O S I T S — T H E
PRACTICE

SIOUX

EXCHANGE — SOME

CITY—ESTABLISHING

BUFFALO

RATES

HISTORY — R O C H E S T E R —

BALTIMORE—HOUSTON—TOLEDO—TOPEKA—ST.
WEST

LOUIS—

S U P E R I O R — S T . J O S E P H — C L E A R I N G - H O U S E LOAN

CERTIFICATES.

The primary object of a clearing house is the exchange
of checks and drafts between the banks associated together for that purpose, and the settlement of balances
resulting from such exchanges; but this is not the only
function exercised. As already shown, this single function constitutes a clearing house of the first class, while the
addition of other functions puts the organization into
another class. The tendency has been marked, especially
in recent years, to include within the legitimate field of
clearing houses all questions affecting the mutual welfare
)f the banks and the community as a whole. The bankers
vest of the Mississippi River have given to the country the
nost striking examples of the possibilities of clearing
Louses exercising various special functions, while the
reat associations of the East, and especially that of New
r
ork, have exemplified the utility and value of clearingouse loan certificates.

National

Monetary

Commission

The most important of the special functions of a clearing house are (a) the extending of loans to the Government, (6) mutual assistance of members, (c) fixing uniform rates of interest on deposits, (d) fixing uniform rates
of exchange and of charges on collections, and (e) the
issue of clearing-house loan certificates.
Less than a decade after the inauguration of the clearing-house system in America the civil war broke out and
threw the Government into a condition of acute financial embarrassment. The ordinary sources of income
were insufficient to meet the demands of the approaching
crisis. Thereupon the banks, members of the clearing
houses in New York and Boston, responded with practical
unanimity to the call of the Government for loans, by
which the latter was enabled to put armies in the field and
maintain the struggle for national unity.
In times of panic it is not infrequently the case that a
bank in good standing becomes temporarily embarrassed.
Unfortunate report may cause a run upon it, and, being
unable to call in a sufficient amount of its outstanding
loans to meet the demands of its frightened depositors, it
must either secure a loan or fail. In such an emergency
the other members of the clearing house are usuall}
willing to render assistance until the strain is relaxed
To secure such aid, however, a bank must be sound in it:
management and of good repute in every respect. Other
wise the members of the clearing house are likely to de
cline assistance, being quite willing to get rid of a wea
and ill-managed member.

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Another of the special functions of a clearing house is
t h e fixing of uniform rates of interest on deposits, and in a
few instances on loans. I n some associations the legality
of such action is still regarded as a moot question, and
hence they are reluctant to enforce such a rule. Other
associations, however, h a v e not hesitated t o regulate t h e
members on these points. As early as 1881 rates of interest were agreed upon in Buffalo, and were observed
practically without fraction or violation for some nine
years thereafter. They were broken at last only because
of their nonobservance b y new banks, which at the outset
refused to become members of t h e clearing-house organization.
The Sioux City Clearing House Association has fixed a
maximum rate of interest of 2 per cent per annum, t o
be paid by the members upon b a n k accounts or balances,
and on time certificates of deposit 3 per cent. Without
any special clearing-house regulation on t h e subject, it is
generally understood b y t h e banks t h a t 6 per cent is t h e
minimum rate t h a t shall be charged on first-class loans,
and t h a t t h e rate shall range from t h a t to 8 per cent, according to t h e character of t h e risk.
At St. Joseph, Mo., t h e clearing-house rules provide
t h a t interest (not naming t h e rate) m a y be paid on balances to banks, bankers, t r u s t companies, the St. Joseph
Cattle Loan Company, deposits of t h e Government, State,
county, city, etc., or to individuals, firms, corporations,
not located or doing business in St. Joseph or Buchanan
County, b u t t h a t no interest m a y be paid to individuals,
firms, or corporations located or doing business in St.

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Joseph or Buchanan County, except by unanimous consent.
Trust companies may pay interest on checking accounts
at the rate of 2 per cent per annum, while savings banks,
trust companies, and savings departments of commercial
banks, on savings accounts, may pay interest at a rate not
to exceed 3 per cent. Interest is not allowed on demand
or time certificates for a less period than six months, and
then at the rate of 3 per cent per annum. No interest is
allowed for any fractional part of a six months' period.
The banks of Savannah, Ga., under clearing-house regulation, may pay interest not to exceed 3 per cent on individual accounts, and then only when the balances in
such accounts exceed $25,000. On bank balances, without
limitation as to amount, they may pay not to exceed 3
per cent.
The question of clearing-house regulation of the rates
to be charged on local loans has been considered by many
associations in different parts of the country, but, generally speaking, has not met with much favor. It is quite
evident that on this one point the individual banks an
jealous of their prerogative to loan their money at what
ever rate they choose. The nearest approach to clearing
house rate regulation of loans seems to be in the arrange
ment in vogue at Chattanooga, Tenn., by which the mini
mum rate to be charged by the banks in making thei
loans is determined from time to time by a committe
appointed by the associate banks for that purpose.
Still another of the special functions of a clearing hous
is the fixing of uniform rates of exchange, and of charge

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on the collection of items. In 1881, the year in which the
clearing house in Buffalo was organized, a prominent
banker in that city succeeded in uniting the banks on
rates. The promoter of the enterprise, though well known
for rate cutting, was a successful banker and had always
been able to meet competition successfully. Hence,
when he proposed a uniform-rate system, the other banks
were only too glad to consider his propositions. Meetings
were accordingly held, schedules of charges were drawn up,
and rules were formulated for the guidance of the banks.
In a short time a schedule was adopted and put in successful operation. The rates were not high, but were arranged so as to do justice, as far as possible, to the banks
on the one hand and the depositors on the other, and so
satisfactory was the new regime that it remained in harmonious operation for nearly nine years. It is said that
the increase in profits or collections, to the 12 banks
interested, over the former method of doing business free
of charge, paid the dividends of all the banks each year,
and whatever profit was made on loans and discounts
was used to build up the surplus. But the formation of
new banks finally played havoc with the uniform-rate
system. While it lasted, it was made obligatory upon
every bank, but in 1891 the newly organized banks began
to cut on rates. The clearing-house members endeavored
to induce the new banks to join the association, but did
not at first succeed. It was regarded as unjust to the
member banks to hold them to the existing agreement
when their competitors were free, and accordingly, in

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June, 1891, the schedule of rates was made no longer
obligatory.
In 1895 the Rochester (N. Y.) Clearing House Association put in operation a schedule of collection charges,
and the results have been most satisfactory. All of the
banks were in favor of it, but there was at first some
complaint on the part of customers. The rates for remittances of city items were fixed at a meeting of the association early in the year 1895, as follows: Minimum
charge, 10 cents; from $100 to $1,000, one-tenth of 1
per cent; from $1,000 to $2,000, $1; over $2,000, onetwentieth of 1 per cent; par remittances to be made
weekly. Provision was made for a fine of $1,000 as a
penalty for any member failing to observe the rates, $250
of which to be paid to the party giving the information.
On the 1st day of February, 1897, a rule went into
force at Baltimore requiring the members to charge and
collect, without rebate, from all individuals, firms, or
corporations residing in the city, who might thereafter
become new depositors or customers of the banks which
are members of the association, such minimum rates of
exchange on checks, drafts, notes, and acceptances, payable out of the city, as are named in schedules to be
furnished from time to time by an exchange committee
of the clearing house. The penalty for violation of this
rule is expulsion from the association, provided a majority
of the members vote in favor thereof.
At a meeting of the Houston (Tex.) Clearing House
Association March 9, 1897, the following resolutions were
unanimously adopted:

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Owing to the fact that banks in certain cities of this State are uniformly
charging the banks of Houston exchange on all collections not reading
" w i t h exchange," bearing indorsements of banks outside the State: Therefore be it
Resolved by the Houston Clearing House Association, That all its members
will hereafter, as a matter of self-protection, charge the current rate of
exchange upon all collections received from banks located in any city
where the foregoing rule is in effect, and which may bear the indorsement
of any bank or banker outside of Texas, or originating outside of the State.
Resolved, That this resolution take effect on and after April i, 1897.

In the articles of association of the Toledo (Ohio) Clearing House it is provided as follows:
I t shall
ment) to
drafts or
revise, or

also be in the power of such committee (the committee of managefix rates of charges on items outside the city and charges for
currency from time to time, if deemed advisable, and change,
suspend the same as circumstances require.

The constitution of the Topeka (Kans.) Clearing House
Association touches on the subject of collection charges,
as follows:
Rates for collections, whether made or not: Collection payment in
advance up to $50, 10 cents each item; $50 to $100, 15 cents each item;
$100 and upward, 25 cents each item. Collections on agricultural implements paper, 25 cents each item. All drafts drawn with bill of lading
attached, whether cash items or not, 25 cents each item; and if cash is
advanced on the same, not less than 10 cents per 100, or $1 per 1,000.
Rates of exchange on drafts and collections drawn with exchange shall be
made at not less than 15 cents up to $50, 25 cents up to $100, and 10 cents
for each additional hundred. The above charges shall not apply to collections not drawn with exchange received from bank correspondents
who do not charge collecting bank on like items.

The clearing-house association at St. Louis has in
force a most successful system of collec ion charges,
which are obligatory upon all the banks members of the
clearing-house association and upon all banks and trust
companies making their clearings through members of
the clearing house.

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The original schedules were adopted in March, 1895,
and served their purpose well for over twelve years. On
the 1st day of March, 1907, however, new schedules were
adopted, a synopsis of which follows:
It is obligatory upon every bank and trust company
connected with the clearing house to charge for all items
received from St. Louis city customers (including all
banks and trust companies connected with the association) and passed direct to their credit or cashed for any
resident of the city on points (except those designated as
discretionary) in certain named States, generally in the
East, not less than 75 cents per $1,000 on the amount of
the item. If this per cent when calculated does not
equal 10 cents, the charge can not be less than that sum,
except on items of $10 or under, when the charge shall be
5 cents. Items received at one time for one customer,
payable at the same collection point, may be treated as
one item, and charge made accordingly.
On certain other designated points, generally in the
Middle States, the rate of collection is not less than $1
per $1,000, and on items drawn on certain States in the
West and extreme South the rate per $1,000 for collection
is not less than $2.
Certain cities are designated whereon the minimun
charge shall be 50 cents per $1,000. Among these ar(
Buffalo, N. Y., Cleveland, Ohio, Indianapolis, Ind., an<
Pittsburg, Pa. Still other cities are specially named a
points whereon the minimum charge shall be $1 per $1,00c
These cities include Denver, Colo., Lincoln, Nebr., an
Omaha, Nebr.

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The rules further name the following cities as points
upon which it is discretionary with each bank or trust
company as to whether or not it shall charge for collecting
items drawn thereon: New York, Brooklyn, Jersey City,
Boston, Philadelphia, Baltimore, Washington, D. C ,
Chicago, Cincinnati, Louisville, and New Orleans.
Each bank and trust company member of or connected
with the clearing house is required to collect the foregoing charges on all items not later than the third day of
the calendar month next following the receipt or handling of the item, or issuance of the draft or check, and no
such bank or trust company is permitted to allow, either
directly or indirectly, any rebate or return of any such
charges, or to make in any form, whether of favor or
otherwise, any compensation therefor.
The violation of any of the rules by any bank or trust
company clearing through a member would deprive the
same of its connection with the association and work the
forfeiture of its rights and privileges in the clearing house.
For a similar offense any member would be expelled on a
three-fourths vote in favor thereof.
Up to a comparatively short time ago no other association in the country had approached that of St. Joseph
in the detail with which it had worked out a system of
regulations governing the conduct of its members in
regard to making collections. In the past few years,
however, considerable attention has been given to the
subject by the several associations, with the result that
between 50 and 60 per cent of all the clearing houses in
the United States are now working under comprehensive

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rules and regulations covering the collection of items
which come under this head.
The same is true, to a somewhat less extent, perhaps,
with regard to the regulation of the premium on exchange,
the cost of transfers by wire, and the limitations to the
deposits of city customers, which further functions may
well and profitably come within the scope of each local
association for regulation.
In this connection each member of the St. Joseph
Clearing House Association is allowed to submit a list of
the wholesale jobbers and manufacturers and live-stock
commission merchants to whom it may sell exchange at
50 cents per $1,000, and the list must be approved by
the association.
St. Louis makes a like charge to any party taking a
draft drawn by any bank or trust company member of
or connected with the clearing-house association on New
York, Philadelphia, or Boston; and if the premium thus
estimated on the amount of any draft or check does not
equal 15 cents, then the charge on the item must be that
sum. This rule, however, does not apply to the purchase
and sale of exchange between members of the clearing
house or institutions clearing through members.
Upon all transfers by telegraph by members of the
Wilmington (N, C.) Clearing House a charge of $1.50
per $1,000, plus the cost of the telegram, is made. Transfers by cable command the premium quoted in New
York at the time, plus the cost of telegraphing. Transfers
by telegraph for banks and city customers, exempt from
paying exchange at not less than $1 per $1,000, and at 2

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minimum of $2 per $1,000 to others; for counter exchange,
10 cents minimum and 5 cents for additional purchases at
the same time.
The position taken by the New York Clearing House
Association in the matter of collecting out-of-town
items should be referred to in this connection. It is
discussed in another chapter, to which the reader is
referred. The same remark applies to the foreign department of the Boston Clearing House, which is likewise
presented in another chapter.
One of the most important of the special functions of
the clearing house, to which attention will be called, is
the issue of clearing-house loan certificates in times of
panic. By this means, in some cases, the specie reserves
of the clearing-house members have been combined in a
way to become a common fund, so that any bank that
experienced an unusual demand for specie was supported
by the combined reserves of all the banks. The bank
thus assisted secures the other members against loss by
depositing with a committee, appointed for the purpose
of receiving them, its securities in the shape of stocks,
bonds, and bills receivable. So important are the history,
methods, and results of this remarkable device that
special chapters are necessary for their exposition.
Various clearing houses in different parts of the country
have incorporated into their rules and regulations certain
special features, some of which are worthy of mention.
For instance, at Altoona, Pa., it is the duty of the associated members to report to the secretary of the association any flagrant violation of commercial or financial

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integrity on the part of anyone having business relations
with them. Furthermore, the solicitation of accounts
of other members is prohibited, and any members having
accounts of the same depositors shall have the right of
ascertaining, each from the other, the extent and character of the loans made to such depositor. It is also
provided that when a depositor of any member bank
applies to another member for a loan, the member so
applied to shall have the right to ascertain from the
applicant's bank whether the loan had been previously
offered there and, if refused, the reason for refusal.
At Philadelphia, Pa., Chester, Pa., and Wilmington,
Del., it is provided that the associated banks shall report
at once to each other the names of individuals, firms, or
corporations whose accounts have been closed on account
of overdrawing, depositing worthless checks, or otherwise
defrauding them.
The associated banks'of Minneapolis, by special agreement, but not by constitutional provision, have appointed
an advertising committee, of which the manager of the
clearing house is the chairman, to which is submitted all
general schemes of advertising. The schemes are submitted in writing to the committee by the solicitor and
action taken thereon. Many of these propositions are rejected, and what is known as clearing-house advertising
appears only in the best mediums. The claim is made
that this concerted action serves to secure much better
rates and does not preclude any bank from placing advertisements in any other direction it desires. Chattanooga, Tenn., and Fort Wayne, Ind., also have made pro-

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vision regulating the placing of advertisements by their
member banks. The regulations of the Portland (Me.)
Association state that no member shall, by advertisement,
circular letter, or publication, reflect unfavorably upon the
responsibility of another member.
The constitution of the Rochester Clearing House Association provides that members are prohibited from
offering a higher rate of interest to induce a customer to
change his account from one bank to another or as an
offset against collection charges.
At Seattle, Wash., a uniform discount rate on Canadian
currency has been agreed upon, as follows: For the first
$100, one-half of i per cent; on any sum in excess of $100,
one-eighth of i per cent.

CHAPTER

IV.

POSSIBLE DEVELOPMENTS OF THE CLEARING-HOUSE
SYSTEM.
N E W FUNCTIONS TO BE E X E R C I S E D — C O U N T R Y C H E C K S —
TRANSFER OF CURRENCY FROM POINT TO P O I N T — P O S SIBLE

USE

GOLD

INERS—SETTLEMENT

CERTIFICATES—SPECIAL
OF

EXAM-

BALANCES—ADVANTAGES

T H E CASH BASIS—CLEARING-HOUSE D E P O S I T O R I E S — T H E
USE OF DEPOSITORY CERTIFICATES.

The clearing-house system is becoming a definitely
recognized power in the financial methods of the United
States. It is as yet in its infancy, and the powers that the
various clearing houses possess are capable of development and expansion to an indefinite degree. The clearing
house, which was begun simply as a labor-saving device,
has united the banking interests in various communities
in closer bonds of sympathy and union and has developed
into a marvelous instrumentality for the protection of the
community from the evil effects of panics and of bad banking. Clearing houses are gradually becoming a welding
force that ultimately will bring to the banking business of
this country the centralization which it so greatly needs.
In the course of time rates for money in the United States
will become more and more on a par with those prevailing
in European money centers, and then the clearing houses

24-

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of the various financial centers of this country will be
obliged to undertake functions which as yet they have
only discussed.
As money rates decrease losses from bad debts must be
brought to a minimum, and the question of a central
agency, which shall disseminate information regarding
paper outstanding among the banks, must and will receive the attention it deserves.
As before stated, the payment of uniform rates of interest on bank deposits has already been taken up by many
of the associations in this country, with the result that fair
and equitable rates have been agreed upon to be paid for
balances. The time is near at hand w^hen all the banks
that are members of clearing houses will be obliged to sink
their differences and by agreement regulate, monthly or
quarterly, the rate of interest to be paid, the rate to be
subject to change according to the varying conditions of
the money market.
More careful supervision over the establishment of new
institutions will be necessary, and the regulations regarding nonmembers clearing through members will also receive closer attention.
The question of collecting country checks is now being
regulated in many clearing houses—a matter which is
specially treated in one of the chapters of this book—and
the time is not far distant when this subject will receive
the consideration from all the clearing houses to which
it is entitled.
The question of shipping currency by express from one
clearing house to another will, in time, be effectively
2 OO4O— IO

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dealt with. By the cooperation of the various associations it is conceivable that the scope of usefulness of the
gold certificates issued by the various assistant treasurers
of the United States, payable to any member of a given
clearing house in the city in which the subtreasury issuing
the same is located, which is now confined to indorsement
and use in the payment of clearing-house balances in the
city of issue, could be enlarged so that the certificates
could be used in the liquidation of clearing-house balances
in any city in which there is a subtreasury, or be sent
through the mails at small rates to the sending bank,
thereby becoming a safe medium of exchange between
large centers, minimizing loss and saving the transportation of great sums of money. The Government might
make a small charge for their redemption if it redeemed
them in any city other than the one of issue.
It is significant of the ever-widening scope of clearinghouse supervision and usefulness that several associations
have in the past few years, after giving careful consideration to the subject, appointed special bank examiners,
assisted, where necessary, by trained experts under rigid
regulation and ready to go to work at a moment's notice.
This departure has been deemed of sufficient importance
to warrant a complete explanation of the conditions under
which these examiners operate, and a special chapter is,
therefore, devoted to it.
The settlement of balances is a matter which should
be most carefully considered by the banking and business
community, for the proper management of settlement
will do a great deal toward enhancing the prosperity o

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t h e community. Bankers some time plead for a more
elastic currency, b u t w h a t is needed is more elasticity in
t h e assets of t h e banks. W h a t is wanted are assets t h a t
are readily converted into cash in times of panic, and
which will pay depositors as well as permit new loans. In
such times banks need expansion in the right direction,
and not contraction. Cash settlements in all the clearing
houses of t h e United States would be conducive t o better
banking, for, under this rule, t h e clearing-house banks
would be obliged t o keep themselves prepared at all
times to meet large drafts upon them through the clearings. On the other hand, when clearings are settled b y
drafts upon financial centers, if the banks are not prepared
for emergencies, they borrow from the institutions in
those centers, and sometimes thereby expand themselves
beyond prudent limits.
Bank officers often loan money t o manufacturing corporations, which invest t h e same in plant, and are for
this reason unable t o meet their notes when due. Such
loans become fixed assets of the bank, and are not available in times of financial stringency. The banks thereby
become, to a certain extent, stockholders in t h e corporations. If t h e banks compel the payment of such loans
in times of trouble, they thereby restrict t h e operations
of t h e manufacturing concerns, throw men out of employment, and thus disarrange t h e entire industrial syst e m of the community.
Banks are often led t o invest their money in unavailable assets, simply because they feel t h a t they will not
be called upon to pay out any large amount of cash, either

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to their depositors direct, or through the clearing house.
Consequently, the settlement of balances in anything but
cash, or its equivalent, is liable at times to affect the
whole economic condition of the community. If a careful study were to be made of the most prosperous of our
interior cities it would be found that the banks in these
cities settle their clearing-house balances on a cash basis.
Cash settlements at the clearing houses of interior
cities would compel the banks to keep more money in
their vaults. This would enable them more readily to
meet the requirements of their customers. The need of
outside assistance would be in a measure removed, and
thereby all the financial institutions of the country would
be kept upon a more even basis.
Some large clearing houses would find it advantageous
to provide depositories in which currency of all denominations could be deposited in vaults, and certificates
issued therefor that could be used in the settlement of
balances. Then, during the crop-moving periods and at
other times when there is a demand for small bills, they
could be supplied from the clearing-house vaults. Bj
such an arrangement the banks would not be obliged
as has often been the case, to give up one form of monej
which they desire to keep for the sake of procuring
another form, and therefore they would be able to worl
to a greater or lesser extent independently of the sub
treasuries.
The New York and Boston clearing house associatior
have recently made provision for their members t
deposit currency, as suggested above, taking clearing

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house currency certificates therefor, which are limited in
their use to the payment of balances in the clearing
house, the same as clearing-house certificates for gold,
and the idea has worked out very successfully. In view
of the success of the idea in these cities, it seems veryprobable that some of the other large clearing houses
will take the matter under advisement.
These and many other matters might be taken up by
clearing houses and brought to the same degree of perfection as the loan certificate, an instrumentality that
has been of inestimable value to the business world.

CHAPTER V.

THE ADMINISTRATION OF CLEARING HOUSES.
LIST OF OFFICIALS—DUTIES OF OFFICERS—COMMITTEES—
ANNUAL MEETINGS.

The government of a clearing-house association in the
United States is, theoretically, vested in a president,
vice-president, secretary, treasurer, manager, and a clearing-house committee, sometimes termed "committee of
management" or "executive committee.'' Not every
association, however, is as completely officered as this; in
fact, there are many associations that do not have the
full list of officials named. A president, a manager, and
an executive committee, however, are found in the organization of nearly every clearing-house association, for
these functionaries are practically indispensable. The
other officials mentioned are lacking in various associations, especially in those located in smaller cities, their
duties being performed by some of the other officers.
It is the duty of the president to preside at all the
meetings of the association. As a rule, he has power to
call special meetings whenever he may deem it advisable,
and must do so upon the request of a specified number of
the members. He exercises a general supervision over
clearing-house affairs, and performs the duties usually
devolving upon an executive officer. In many cases he
is ex officio chairman of the clearing-house committee
and of all standing committees. He is elected annually,
with few exceptions, and serves without compensation.

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The vice-president performs t h e duties of the president
in t h e latter's absence. The duties of secretary and
treasurer are frequently performed by t h e manager. The
secretary keeps t h e record of t h e proceedings of the meetings of t h e association, and performs all t h e duties usually pertaining t o t h a t office.
The treasurer m u s t account for t h e funds intrusted to
his keeping, and m u s t pay out the same upon the written
order of t h e president, countersigned by t h e manager, or
if the latter be a t t h e same time treasurer of the association, then upon the written order of t h e clearing-house
committee, or upon any other authority t h a t t h e association may designate.
The manager is either elected by t h e association or
appointed b y t h e executive committee, to serve, as a rule,
one year, although almost invariably he is reelected from
year to year for an indefinite period. I n some of t h e
large cities a heavy bond, with sureties, is required of t h e
manager, varying in a m o u n t from $10,000 to $20,000, and
in one or two instances t h e requirement is as high as
$50,000. I n cities where no cash is used in t h e settlement
of balances there is, of course, much less opportunity for
fraud on the p a r t of t h e manager, and hence in such cases,
as a rule, no bond is demanded. In m a n y of the smaller
cities, where t h e manager's duties and responsibilities
are light, and where he is regularly employed in some
other capacity, his services are not infrequently gratuitous.
The manager has immediate charge of all business a t
the clearing house, subject to t h e control of the clearing-

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house committee. The employees and the settling clerks
and messengers from the banks, while at the clearing
house, are under his immediate direction. He imposes
and collects fines for violations of the rules of the association, has supervision of all the records of clearances and
settlements, and sees that the clearing house and the
property connected therewith are kept in order. He makes
such annual reports and performs such other duties as may
be required of him.
The clearing-house committee (also called the "committee
of management" and "executive committee") is usually
composed of from three to five members, chosen from the
most capable and experienced bankers in the association.
In one case which has come to notice the membership of this
committee consists of but two members, while it sometimes exceeds five, as at Philadelphia and Pittsburg, where
there are six members besides the president, who is ex
officio a member, and at St. Joseph, where each bank has
a representative on the clearing-house committee, the
number of bank members at the present writing being
eight, thus making eight members of the committee.
The clearing-house committee is elected annually, and
is by far the most important of all the committees. In
it is vested almost absolute power, the direction of practically the whole machinery of the clearing house resting in
its hands. It is empowered by the association to procure
suitable rooms for the clearing house, to provide proper
books, stationery, fuel, furniture, and whatever else may
be necessary for the convenient transaction of business;
to appoint a manager, except where this power is directly

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exercised by the association, and generally to supervise
affairs. It draws on members for their share of the expenses, fixes the salaries of the clerks in the clearing house,
and has the power to remove the same, and the manager
as well, whenever it may deem such action to be for the
best interest of the association.
Not infrequently the clearing-house committee is
authorized to examine a member, whenever it may seem
necessary to it to do so, or whenever requested to do so
by a specified number of other members, and, in case the
member's condition justifies it, to demand sufficient
securities for the protection of its balances resulting from
the exchanges of the clearing house. It also has power,
whenever it may seem necessary for the protection of the
other banks, to suspend a member from the association
until the latter takes action upon it.
The clearing-house committee, in most cases, holds regular meetings monthly, or oftener. Stated examinations of
funds and securities are often required, as, for example,
at San Francisco, where the committee must examine, at
least quarterly, all securities and deposits of the association in its charge.
In addition to the clearing-house committee, there is
frequently a conference committee, a nominating committee, an arbitration committee, a committee on admissions, an exchange committee, and, in special emergencies,
a loan committee. No one association has all of these
committees, but the New York Clearing House has all
but the exchange committee. Most clearing houses are
too small and their duties too simple to require so ex-

National

Monetary

Commission

tensive a division of powers; hence, as a rule, we find only
one or two committees at most, in addition to the clearinghouse committee.
The conference committee is elected annually to serve
in special emergencies, and its duties consist in acting in
conjunction with the clearing-house committee whenever
the suspension of a member becomes a question of expediency. There must be at least a majority of each
committee present to suspend a member, and a unanimous vote is necessary to carry. In case of a suspension
the clearing-house committee must forthwith call a general
meeting of the association to take the matter into consideration.
The nominating committee is elected annually, and is
charged with the duty of presenting to the association
at each annual meeting the names of candidates for
president and secretary and for membership upon the
various committees.
The arbitration committee is elected by ballot at each
annual meeting. Its duty is to decide all disputes that
may be submitted to it by both parties thereto, a member
of the association being one of them. In associations
where no arbitration committee exists its function is
usually performed by the clearing-house committee.
The committee on admissions is also elected by ballot
annually, and the clearing-house committee refers to it
for examination all applications for membership in the
association.
Where an association has an exchange committee, the
committee is elected each year. It is authorized and

Clearing-House

Methods

required from time to time to prepare schedules of rates
of exchange on out-of-town items, including among t h e m
those taken as cash received for collection, or held as
security for loans, or t h a t might be discounted subject to
collection.
The clearing-house association holds an annual meeting
for t h e purpose of electing officers and committees and
for t h e transaction of other business. The quorum is
usually fixed at a majority of all t h e associated banks.
I n some instances, however, it is fixed at two-thirds, and
in a few cases even as low as one-third, of all the members.
Sometimes a specified number is designated as constituting
a quorum. Each b a n k is expected to be represented at
t h e annual meeting b y one or more of t h e officers, b u t
usually is allowed only one vote. An exception to this
rule is the association at Worcester, Mass., where two
votes are allowed. For failure to be represented at an
annual meeting a fine of from $2 to $10 is generally imposed. I t is t h e d u t y of t h e association to fix the salary
of the manager, admit banks to membership, and, when
occasion demands, to suspend or expel members. In
some of the large cities t h e associations receive in special
trust, and issue certificates for, such United States gold
coin as any of the associated banks m a y deposit for safe
keeping for clearing-house purposes.

CHAPTER

VI.

THE SETTLEMENT OF CLEARING-HOUSE BALANCES.
RESULTS

ACCOMPLISHED

BALANCES

CLEARINGS — SETTLEMENTS

MONEY—CLEARING-HOUSE
MONEY

LABELED

SILVER—METHODS

SETTLEMENTS — RATIO

MONEY — ADVANTAGES

WITH

SETTLEMENTS IN CANADA—
PACKAGES — OBJECTIONS

SETTLING
OF

THE

BALANCES
MANAGER'S

WITHOUT
CHECK

OVER SETTLEMENTS IN CASH.

The exchange of items between the banks accomplishes two results: First, it places at the proper banks
for payment the items to be exchanged which the several
banks hold; and, second, it determines the difference
between the amount of the items held by each bank
against all the others and the amount held by all the
other banks against each individual bank. The difference constitutes the balance which is to be settled.
A bank can not know whether its exchanges at the
clearing house will bring it out a debtor or a creditor
until the settling clerk returns from the clearing house.
It is a very rare occurrence for a complete offset to take
place in any bank's exchanges; that is, for the amounts
sent to the clearing house to exactly equal the amounts
received, in which case, of course, there would be no
balance. Each bank expects a difference one way or the
other, ranging from a few cents to a very large amount.
In a great city a bank may be a creditor one day to the
extent of several hundreds of thousands of dollars and

Clearing-House

Methods

the next day a debtor to a similar amount. It is of the
utmost importance, therefore, that each bank should be
prepared to meet any balance which may appear against
it at the clearing house.
The ratio of balances to clearings depends partly upon
the number of banks, but much more upon the amount
and character of their business and upon their relations
one to another. This is illustrated by figures which
have just been collected, covering the transactions for
the year 1908. At Pittsburg, with 20 members and 128
nonmembers clearing through members, the balances
were 16.5 per cent of the clearings; at Buffalo, with 11
members and 7 nonmembers, 12 per cent; at Chicago,
with 20 members and 40 nonmembers clearing through
members, 7.5 per cent; at Philadelphia, with 31 members
and 1 nonmember, 11.5 per cent; at St. Louis, with 17
members and 35 nonmembers, 9.3 per cent; while in
New York, during the fifty-four years of its existence,
the percentage of balances to clearings have been only
4.64 per cent, notwithstanding the operation of the
United States assistant treasurer, who almost always has
a heavy debit balance.
The more nearly the banks stand on an equality with
one another, the more nearly will their transactions
approach a complete offset, which, of course, would leave
no balance to settle.
The methods of settlement of clearing-house balances
may be divided in a general way into two classes: First,
settlements with money; and, second, settlements without money.

National

Monetary

Commission

A clearing house acts merely as the agent of the banks
in the payment of the balances. It pays to the creditor
banks the money it receives from the debtor banks. As
soon as the result of the exchanges is known the debtor
banks may begin the payment of their balances, all of
which may be paid in before the expiration of a specified
time, usually two or three hours after the exchanges
have been completed. Failure on the part of any member to meet its requirements promptly would subject it
to a fine.
Any kind of United States money is acceptable in
most of the small clearing houses; but in a majority of
the large ones certain kinds of money are not acceptable.
The following are illustrative examples: At Baltimore
gold coin, greenbacks, and certificates, redeemable in
coin, are used, and silver is accepted only for fractional
parts of thousands; at Buffalo, United States treasury
certificates, United States legal-tender notes, nationalbank notes, gold and silver certificates, and gold coin are
used; at Milwaukee, gold coin and currency; at St.
Paul, all forms of currency except silver coins; and at
San Francisco, Los Angeles, Cal., and Portland, Oreg.,
gold coin is used exclusively.
About 40 per cent of the clearing houses of the United
States settle their balances either in cash or by manager's
check payable in cash. In Canada, however, all the
clearing houses, except that at Hamilton, settle in government legal-tender notes. Settlements in Hamilton are
made by drafts upon the head offices or agents of the
respective banks, on Montreal, in favor of the clearing

Clearing-House

Methods

bank, which gives its own drafts on Montreal to the
banks in credit.
Some clearing houses, especially t h e larger ones, require
t h a t money, when paid in by the banks, shall be assorted
and p u t u p in packages, each package to contain bills of a
given kind and denomination, and when the balances are
sufficient, to consist of specified amounts, usually $1,000,
$5,000, and $10,000, respectively. For instance, at Milwaukee, all currency paid to the clearing house, when the
amounts are sufficient, must be p u t u p in packages of
$5,000 or $10,000 each. The inside parcels of the packages must bear t h e number of the bank putting up the
same, with the date thereon. Such packages must be
securely bound with twine or tape, with a wide paper b a n d
around the center, fastened with wax, bearing the seal of
the member putting t h e m up, and the date of sealing. No
notes of a less denomination t h a n $5 (except to make
change) or over $1,000 can be paid in. Likewise all gold
coin must be p u t up in strong canvas bags, of $5,000 each,
and such bags m u s t have suitable labels bearing t h e name
of t h e sealing member, amount of contents, and date of
sealing. For all gold coin or currency paid in, in amounts
less t h a n $5,000, the value of t h e parcel or package m u s t
be guaranteed by the b a n k (whose number it bears) to t h e
bank breaking t h e package for twenty-four hours after
receiving it, b u t in no case can claims be m a d e after a
package has been paid to any p a r t y not a member of the
association.
Silver coin is n o t excluded from settlements in clearing
houses in the United States because of any prejudice

ff BUFFALO CLEARING-HOUSE.
Buffalo, N. Y.,

190^

Received of BUFFALO CLEARING-HOUSE, | | J
_ _

in settlement of balance due NOL

Dollars, $
^ ^ . ^ — ^ h i s day.
CASHIER

FORM OF R E C E I P T U S E D BY BUFFALO CLEARING-HOUSE G I V E N BY CREDITOR B A N K S ON RECEIPT OF BALANCES.

^
,

, „

Clearing-House

Methods

against it as money, but because, owing to the enormous
amount of clearing-house transactions, its bulk would
render it too cumbersome and inconvenient for handling.
For the same reason it is not so desirable as other forms of
money in large transactions of any kind.
A receipt is given at the clearing house to each debtor
bank as soon as its balance is paid. There is presented
herewith a reproduction of the form used at Buffalo.
This receipt is filled out by the clearing-house clerk
showing the amount due from the debtor bank to the
clearing house. Its authenticity is established by the
signature of the manager at the top. This receipt is
taken away by the debtor bank's messenger, who later
returns with the necessary funds. The manager then
signs the receipt in the usual place, and in this condition
it becomes a voucher to the debtor bank for the payment
it has made.
The clearing-house clerks of these banks have already
carried back a receipt, of which a copy is given herewith,
that is likewise "viseed" by the manager at the top. This
receipt is then signed by the cashier of the creditor bank
and sent at the hands of two trusted messengers, who receive the funds from the clearing-house manager. This
receipt in turn is kept by the clearing house as its voucher
for the payment made. A receipt is sometimes written
by the clerk receiving the balance in a book kept by the
manager for that purpose, but a more common method is
one similar to that described as given by the bank.
There are no less than five different methods of settling
balances, in whole or in part, without the use of money
2OO4O— IO

// BUFFALO CLEARING HOUSE.
Buffalo, N. Y
Q>

Received from No

Dollars, I |cj
in settlement of balance due Clearing House this day.
Manager.

11 ^
,

«o
FOEM OF RECEIPT G I V E N BY BUFFALO CLEABING-HOUSE TO DEBTOR BANKS ON PAYMENT OF BALANCES.

Clearing-House

Methods

at the clearing house. They are (i) by manager's check
on debtor banks given to creditor banks; (2) by borrowing
and loaning balances without interest; (3) by borrowing
and loaning balances with interest; (4) by the use of one
or more of four forms of certificates, viz, gold and currency depository certificates, United States assistant
treasurer certificates, and clearing-house loan certificates;
and (5) by draft on another city.
When money is not used in the adjustment of balances
at the clearing house, one of the most common methods
of settlement is by manager's check on debtor banks in
favor of creditor banks. In such cases the creditor banks
send clerks to the clearing house to receive the manager's
checks, which may be cashed by the debtor banks, exchanged for cashier's checks or exchange on another city,
or sent through the clearings on another day. Thus, at
New Orleans, La., Jacksonville, Fla., Kansas City, Mo.,
and other points, manager's checks are used and are
cashed on the afternoon of the same day they are issued,
while at Cincinnati, Ohio, Fort Wayne, Ind., and Dayton,
Ohio, banks exercise the option of collecting their checks
the same day or of sending them through the exchanges
on the day following. At Danville, 111., the balances are
settled direct between creditor and debtor banks, and not
through the clearing house, as is customary.
The liability of the clearing house for manager's checks
usually ceases at 3 o'clock on the day of issue, so that
when they are carried over it is done at the risk of the
holder. Where banks contribute to the expense of the
clearing house in proportion to their average daily clear-

National

Monetary

Commission

ings for a given time, they often prefer to collect on the
day of issue rather than increase their exchanges, and
thus their expenses, by having the manager's check
cleared.
With all its various disadvantages there is one important
advantage of the manager's check over settlements in
cash at the clearing house: By its use only one transfer
of cash is necessary in making settlements, and thus the
risk is greatly diminished.
The second mode of settlement, other than on a cash
basis, is by borrowing and loaning balances without
interest. At Chicago and Pittsburg this method is
practiced as a matter of convenience to the several members. After the exchanges have been made and the
balances determined, a certain length of time is devoted
to this transfer.
The third method is that of borrowing and loaning
balances upon interest, as practiced at Boston.
The fourth method is that of employing some form of
certificate. Many of the large clearing houses provide
for a depository to receive in special trust such United
States gold coin as any of the banks belonging to the
association may voluntarily deposit with it for safekeeping, upon which certificates may be issued, to be
used in the settlement of clearing-house balances. Such
certificates are usually issued in denominations of $5,ooc
and $10,000, and are negotiable only among the associated banks. Many of the clearing houses impose a fine
for their transfer to any other party than a member o
the association.

Clearing-House

Methods

Coin certificates were devised by F. W. Edmunds, of
New York, and came into use about 1857. The Bank of
America first acted as a depository, but after the beginning
of the greenback epoch the associated banks chose the
United States subtreasury as such depository for both
gold and currency. When the new clearing house in
Cedar street was occupied, the gold deposits were transferred to the magnificent vaults with which it is provided,
and these at the present time hold a very heavy deposit
of gold, as well as a very large amount of currency, against
which has been issued clearing-house certificates as before
mentioned. The associations in practically all of the
large cities of the United States now use these gold depository certificates in the settlement of clearing-house
balances.
Clearing-house loan certificates are issued only in
emergencies, as explained in the chapter devoted to
that subject. The period during which balances are
settled by such instruments lasts usually only three or
four months, or until the financial disturbance which
called them forth has subsided.
The fifth method is by draft on some other city. In
some places the option is given of settling in cash or by
draft, as at Austin, Tex.; Charleston, S. C.; Frederick,
Md.; Jacksonville, Fla.; Kansas City, Mo.; New Orleans,
La.; Rochester, N. Y.; and Saginaw, Mich. In others settlements are made exclusively by drafts on another city.
Among these are Syracuse, N. Y.; Worcester, Mass.; Fall
River, Mass.; Fremont, Ohio; Hartford, Conn.; Holyoke
and Lowell, Mass.; and Binghamton, N. Y. Sometimes

National

Monetary

Commission

foreign drafts are used in payments of equal thousands
only, as at Wilmington, Del., and Chester, Pa.
Generally speaking, about 40 per cent of the clearing
houses of the United States use drafts on other cities in
paying their balances. About 30 per cent settle by
manager's check, and about 25 per cent settle* by cash
alone, the remaining 5 per cent settling by a combination
of two or more of the foregoing methods.
Clearing houses located in New England settle, as a
rule, with drafts on Boston or New York, or both. Clearing houses in the vicinity of Philadelphia usually settle with drafts on that city or on New York, and those
located in that part of the country lying east of the Mississippi River settle more or less by draft on New York or
Chicago. Settlement is also sometimes made by draft
on some of the larger cities, such as Baltimore, Washington, Savannah, Kansas City, Detroit, Omaha, and San
Francisco.

CHAPTER

VII.

CLEARING-HOUSE EXCHANGES.
LOCATION OF CLEARING HOUSES—ARRANGEMENT OF FURNITURE—HOUR OF MAKING EXCHANGES—CLEARING MATTER—CHARACTER OF INDORSEMENTS—MESSENGERS AND
SETTLING CLERKS—CONDUCTING THE EXCHANGES—DETERMINING BALANCES—TWO CLEARINGS A DAY.

No city has more than one bank clearing house. The
location of the clearing house is always as near the center
of the banking district as possible. It is especially important that this should be so in a large city, where the banks
are numerous and often scattered over a considerable area.
None of the associations, except the one at New York,
owns its clearing-house property. Instead, the various
organizations occupy rented quarters, usually in one of
the banks belonging to the association, and these they
have equipped with the necessary furniture, stationery,
and desks for the various members.
The desks are sometimes arranged in straight rows,
and sometimes in elliptical curves, and in a few cases
they are placed like the desks in a schoolroom. It is
not uncommon in small places for the clerks to meet
and make their exchanges around a table, and occasionally
the same rule prevails in large centers.
Many ingenious contrivances are wrought out in some
of the exchange rooms, as well, also, as unique features
of decoration. For example, on the walls of the room

N at ton a l M on etary

Commission

at Buffalo is an ideal conception of the leading clearing
houses of the country, with New York in the center and
the large cities grouped around it. At Pittsburg the
arrangement of the desks, lights, and manager's quarters
js unexcelled for beauty and artistic taste, except it be
at New York. The manager's desk is connected by a
pneumatic tube with the bank below, through which
small sums of money are blown when needed to make
change in the settlement of balances. At Providence
there are two rows of desks, with that of the manager
at the end. Each bank is represented by a single clerk.
Immediately upon his arrival at the clearing house he
deposits with the manager's assistant a credit ticket, and
then proceeds to deposit his items in stationary boxes,
located on the desks of the members. Each clerk has a
key to his own box, and after distributing his checks,
he takes his place on the inside of the^ row of desks and
there performs the duties of a settling clerk.
Many of the smaller clearing houses do not rent permanent quarters, but instead the banks belonging to the
association act as clearing agents in rotation, the cashier,
or some other official of the bank where the clearings
for the time being are made, acting as manager. At
Hastings, Nebr., for instance, the banks alternate weekly:
at Jacksonville, 111., monthly; and at Bay City, Mich,
once in two months. At Lowell, Mass., a clearing bank
is chosen at each annual meeting of the association.
Each clearing house determines for itself the time
when its daily exchanges shall be made, and as prac
tically the only criterion in selecting an hour is the con

Clearing-House

Methods

venience of the several members, it is not surprising
that there is a wide diversity among associations in this
regard. From 8.30 o'clock in the morning, when the
exchanges are made at New Orleans, La., the time varies
to 3.15 o'clock in the afternoon, when the exchanges are
made at Chattanooga, Tenn. All hours between these
are occupied, most of the associations, however, clearing
before 12 o'clock. On Saturdays, in a majority of cases,
clearings are made at an earlier hour than on other days
in order to enable the banks to close their business and
take advantage of the short day.
When the exchanges take place at 10 o'clock, or earlier,
it is customary for the members to clear the items received
in the morning mails, or, in some cases, to include only
the larger items so received, and to send those received in
the afternoon and the smaller amounts, if any, left over
from the morning through the exchanges on the following
day. But when the exchanges take place as late as 3
o'clock, most of the items received are cleared the same
day.
The rules regulating the kinds of matter to be cleared
are by no means uniform. A number of organizations
specify in their articles of association what shall be considered proper clearing matter. Of such rules, the following, from the by-laws of a prominent western clearing
house, is one of the most common:
Proper matter for clearing shall consist of checks, drafts, manager's
certificates, certificates of deposit, demand or matured, and any other
matter specially agreed upon, until notice is given to the contrary, and
any bank clearing paper not proper shall be fined.

National

Monetary

Commission

In addition to the regular checks, express money orders
are cleared at Des Moines, Iowa, through a bank designated by the express company as its depository.
At Fargo, N. Dak., the unusual custom prevails of
sometimes clearing, in addition to the checks on city
banks, items for out-of-town correspondents. For instance, Bank A sends through the exchanges to the other
members the items which it has received on their correspondents, and the other members in turn clear the
items which they hold on A's correspondents.
All checks, notes, acceptances, and other items received
by any members at New Haven, Conn., against an associate member are proper matter for clearing. Any member at New Orleans, La., voluntarily accepting a cashier's
check in settlement of a clearing-house balance is not
allowed to pass the check through the clearings, but
must collect it direct from the member who issued it.
Notes and drafts are not sent through the exchanges
at Rockford, 111., nor are notes and bills of exchange at
St. Paul. As a rule, only regular checks are included
in the exchanges at Savannah, Ga., and never drafts,
notes, and bills of exchange. Usually notes, acceptances,
and bills of exchange are certified at Scranton, Pa., on
the morning of the day they are sent through the clearing
house. At Waco, Tex., only checks and manager's certificates, certified, used in settlement of balances at the
clearing house, are passed through the exchanges.
In the exchanges at Washington, D. C , all checks may
be cleared and all sight drafts, certificates of deposit,
matured acceptances payable at the bank, and any

Clearing-House

Methods

other matter certified or specially agreed upon, until
notice is given to the contrary; but promissory notes
can not pass through the exchanges unless certified or
authorized by the member bank where the same are payable. The rule at Youngstown, Ohio, is that only items
which on their face are unconditional demands upon a
bank are payable through the clearing house.
The question of restricted indorsements has been
widely discussed in recent years, and as a measure of selfprotection most of the large clearing houses have adopted
resolutions declaring that items bearing restricted indorsements, such as "For collection," "For account of,"
"For credit of," and "For deposit," shall be considered
as improper matter for clearing unless specially guaranteed by the clearing bank. Items indorsed in blank, or
" Pay to the order of
," or " Pay to
or order,"
are not regarded as bearing restricted indorsements.
Each bank, before sending its exchanges through the
clearing house, is required to indorse them with its number and the words " Received payment through the
clearing house," or such other indorsement as the clearinghouse committee or the association may determine upon.
Evidently it would require a prodigious amount of labor
to write the indorsements upon the items, and, indeed, it
would be a physical impossibility in many of the banks
of the large cities to do so. Hence an official stamp is
used, and the same is usually accepted as a guaranty of
all previous indorsements, whether written or stamped.
It is not construed as supplying or guaranteeing to supply
a missing indorsement.

National

Monetary

Commission

The number of messengers required to transport the
exchanges to and from the clearing house varies widely
in different cities. When the business is light, as in some
of the smaller cities, one person acts as both messenger
and settling clerk, while in some of the larger cities the
exchanges of some of the banks are so heavy that four
or five messengers are necessary to transport them. Each
bank, in addition, is represented by one settling clerk,
who, as a rule, is a young man, quick and accurate in
arithmetical calculations.
Checks are taken to the clearing house bound together with rubber bands or inclosed in large envelopes,
the items that go to each of the members being kept
separate. If the bulk is not too great, they are often
carried in the hand, but it is customary in the large
cities to transport them in leather bags or cases.
The usual rule is that immediately upon his arrival
at the clearing house the settling clerk delivers to the
manager, or the assistant manager, a ticket containing
the amount of the items brought from his bank. An
exception to this rule, in a large clearing house, is found
at Baltimore, where the clerks, instead of delivering
tickets, call off the amounts to the manager, while he
enters them upon his proof sheet. An important exception
is also found at Cincinnati, where no entries of any kind
are made by the manager upon his settling sheet until
the proof has been made. This done, the clerks report
their credit and debit balances, and these alone are
entered.

Clearing--House

Methods

Before the exchanges begin at West Superior, Wis.,
there is a roll call of clerks. The only advantage in this
unusual procedure would be the detection of the absence
of a member, and as this must necessarily appear before
the exchanges are completed, it would seem to be an
unnecessary expenditure of time.
At South Bend, Ind., a half hour before clearing time,
the manager telephones to each of the members, of which
there are eight, and requests from them the total of their
credits for the day and the amount which they hold on
each of the other banks. The figures so secured are
entered upon special sheets, and the debit and credit
balances are computed. The debits are then arbitrarily
distributed to credits, and the debtor banks are informed
by telephone how much they must pay and to whom
they must pay it. When, therefore, the messengers
come to the clearing house, they have only to exchange
their checks and pay envelopes and return.
A fine is usually imposed upon a member for being
late at the clearings, and if the representative fails to
appear before a specified time, the member is excluded
from the exchanges of the day, and must make its clearings at the counters of the other banks. The fines commonly vary from $i to $5, but at Chicago, Milwaukee,
and Minneapolis they are unusually high. For the first
five minutes or part thereof, the fine in those cities is $3;
for the second five minutes or part thereof, $10; and
over ten minutes late, $25.
Two methods of delivering items in the exchange
room are in vogue. In the one case they are delivered

National

Monetary

Commission

by all the clerks simultaneously; in the other by each
clerk as soon as he arrives at the clearing room; but
the exchanges must all be made before a specified time.
When the clerks begin the exchanges at the same
time they all start upon the signal from the manager,
with their items on their arms or in bags or cases strapped
over the back, and proceed in the same direction, passing
along the desks until they have deposited all their paper.
In the large cities, where the clerks are numerous, order
and method are necessary in delivery to prevent confusion
and to save time. But in small cities, where the clerks
usually deliver their items as soon as they arrive, more
liberty is allowed in personal conduct; also by this
method an opportunity is afforded to the less proficient
clerks to arrive early and list their items as fast as they
are delivered to them from the other banks.
Where the exchanges are made around a table, without
any network or division of any kind between the clerks,
it sometimes happens that bundles of items, thrown
carelessly on the table, are entered by the wrong clerk.
To prevent errors of this character, at Cincinnati, four
different colors are used for slips containing lists of items
and attached to the exterior of the bundles, all the slips
on the bundles going to a particular bank being the same
color. Thus, clerks representing members Nos. i, 2, 3,
and 4, sitting alongside of one another at the table, have
different colored slips, and the same colors are used,
correspondingly, by members Nos. 5, 6, 7, and 8, and sc
on around the table. Also the debit and credit slips
brought by the settling clerks are of different colors.

Clearing-House

Methods

The speed with which the business of a clearing house
is transacted seems almost incredible. The actual time
required t o m a k e t h e exchanges varies from one and onehalf minutes t o ten minutes. When t h e exchanges are
m a d e simultaneously, t h e time varies, as a rule, in proportion t o t h e number of members. I n view of the shortness
of time required to make its exchanges, the New York
Clearing House affords, perhaps, the best example in existence of t h e success of modern business methods as compared with t h e old way of doing things. The clearances
exceed on the average $300,000,000, and yet this enormous
amount of paper is exchanged between t h e banks in ten
minutes, and often in less time.
When the clearings have been made, t h e next step is for
each settling clerk t o determine t h e a m o u n t of t h e balance
of his own bank, which is found by taking the difference
between the amount brought to the clearing house and t h e
amount taken away. There is practically no exception
to this rule. A certain amount of time is allowed for t h e
proof, and for each error remaining undiscovered at t h e
expiration of the allotted time a fine is usually imposed.
At the end of a certain time thereafter it m a y be doubled,
and still later it is often quadrupled.
I n some cases t h e settling clerks do not remain until t h e
proof is made, b u t leave for their respective banks as soon
as they make out their tickets for t h e amounts brought,
amounts received, and balances. If t h e manager, or his
assistant in charge of t h e proof sheet, finds, after he has
made all t h e entries and additions, t h a t his work does not
prove, he first determines whether t h e error was m a d e b y

National

Monetary

Commission

one of the settling clerks or by himself. If by one of the
clerks, it is usually discovered in a short time at the bank,
whereupon the latter reports the error to the manager at
the clearing house either by messenger or by telephone.
If the bank fails to report the error in due time, the manager takes the debit and credit slips and finds it.
At Cincinnati no fine is imposed upon a clerk or his bank
for an error in a slip if it is discovered and reported promptly
to the manager. At Louisville, however, a fine of $i is imposed, without regard to time limitations.
All that has been said thus far applies to those clearing
houses that clear only once a day. But there are in the
United States several clearing houses that make practically
two clearings a day, in which latter class are Fall River,
Mass., Detroit, Mich., and Los Angeles, Cal.
At Fall River, Mass., an amendment was made to the
constitution May 27, 1895, as follows:
The cashier of the clearing house shall be the manager of the clearing
house, and the settling clerks shall be under his direction while at the clearing house. An exchange of checks and other items for clearing shall be
made daily at 10.30 o'clock a. m. and the final clearing at 1.30 p . m. The
debtor members shall pay to the manager of the clearing house the balances against them by 2 o'clock p. m., and on or before 2.15 o'clock p. m.
the creditor members shall receive the respective balances due them.

The first clearing at Fall River is made at 10.30 o'clock
in order that the bookkeepers at the banks may have most
of the checks for entry as soon as possible. This is simply
an exchange of checks, notes, and drafts payable at the
bank, and they are thus placed at the bank where they are
payable before noon. The footings of this clearing are
carried on the various slips to the second clearing at 1.3c
o'clock, when balances are settled. This has been the
custom ever since the inauguration of the clearing house.

Clearing-House

Methods

At Detroit the preliminary clearing takes place at 10.30
o'clock a. m. (on Saturdays at 9.30 o'clock a. m.). At
this clearing principally checks are exchanged. Later, at
2.30 o'clock in the afternoon, the final exchange takes
place, which includes the exchangeable matter received up
to that time. The Los Angeles clearing-house banks meet
preliminarily at 9.15 o'clock in the morning and make their
final clearings at 11.30 o'clock.

20040— 1o

CHAPTER

VIII.

CLEARING COUNTRY CHECKS.
THE GROWING USE OF CHECKS—THE DIFFICULTY OF COUNTRY

CHECKS—REMEDIES

TIONAL

CLEARING

PROPOSED

HOUSES—THE

STATE

KANSAS

AND
CITY,

NAMO.,

PLAN—THE ATLANTA, GA., PLAN.

The use of bank checks and drafts in business transactions in the United States is more extensive than in anyother country, and the tendency to such use is constantly
on the increase. So popular have checks and drafts
become that the increase has more than kept pace with
the increase in business, which means that the proportion
of money in use to the volume of business transactions
has been on the decline.
The introduction of the clearing-house system has
greatly facilitated the use of substitutes for money by
furnishing a much safer, more convenient, and more
expeditious method among banks than previously existed
of exchanging items drawn on each other and settling the
balances resulting from the same. With but two exceptions, to be explained in another place, the exchanges
passing through the clearing house are confined to items
drawn upon members or upon nonmembers clearing
through members. That is to say, checks and drafts
received by a bank member of a clearing house in any

Clearing-House

Methods

city drawn upon another member of the same clearing
house, from whatever source the checks may have been
received, are liquidated through the clearing house; but
checks and drafts received by a member of a clearing
house drawn upon some bank located at a distance, and
not a member, nor clearing through a member, are regarded as improper matter for clearing.
Now it is evident that a bank receives from its customers
in the daily course of business checks drawn on banks in
distant towns and cities, but before a bank can realize
any return from such checks it must collect them. That
is, it must send them to the banks upon which they are
drawn, or to some near-by bank, which will act as its
agent, for payment. There could be no objection on the
part of the banks to such business methods if the customers depositing such items did not expect credit therefor
until they were collected and if they were willing to pay
for the trouble and expense of collection.
When A, who lives at a distance from a financial center,
buys a bill of goods from B, living in the city, and sends
a check drawn on his local bank for payment of the
amount, he subjects some one to the expense of collecting
the check, and, further, some one is out the use of the
money until the collection has been made. B deposits
the check in his bank in the city and expects immediate
credit therefor, and the competition among the financial
institutions in the larger cities is so keen that the bank
does not stand upon its rights and insist that the check
shall be held for collection and credited to B's account
only when collected, but passes it to his credit at once,

National

Monetary

Commission

through fear that he will withdraw his account and deposit with some other bank that will extend that accommodation to him. This practice is quite general.
During the past few years great strides have been
made by the clearing houses throughout the country in
the matter of establishing uniform rates for the collection
of country checks, and at the present time there are few
associations in the United States that have not some sort
of a schedule for this purpose, however crude it may be.
The question has been asked, "Why is it that bankers
can not find a way out of this difficulty through a state
or national clearing house? Since it is universally recognized that the clearing house has been a uniform success
in all of the leading cities of the country, not only as a
medium for the exchange of items, but also as a means
of bringing about harmonious action among the banks on
nearly all questions of mutual concern, why is not a
national clearing house feasible ?"
In bankers' conventions and in current bank literature,
particularly in the last decade, many remedies have been
proposed for the difficulty that must be met. In States
where the bank associations are divided upon the group
plan many have favored a clearing house for the banks
of each group. Others have preferred a clearing house
for the banks of all the groups of the State.
Some years ago it was proposed that a clearing hous<
or collection agency should be established in New Yorl
City for all the banks east of Chicago. About the sam<
time a scheme was set forth for the establishment of i
clearing house at Chicago for all the country banks withii

Clearing-House

Methods

a radius of 500 miles, and for all others that might desire
to avail themselves of its facilities. But neither of these
plans was carried into execution. However, several attempts have been put into practical operation to clear
country collections, to two of which we shall give attention in this chapter, viz, that in operation at Kansas City,
Mo., for handling cash items drawn on banks in the States
of Missouri, Kansas, and Oklahoma, and the plan which
has only recently become operative at Atlanta, Ga., to
collect country checks on the State of Georgia.
The bankers of Kansas City, by cooperating through
the medium of the clearing house, were enabled, some
time since, to carry into execution a plan for clearing
country collections in the States of Missouri, Kansas, and
Oklahoma. This department (called the country collection department), as at present existing, is maintained
by the Clearing House Association for the purpose of collecting such items payable outside of Kansas City as the
clearing-house committee may deem it advisable to receive for that purpose. The manager of the clearing
house, from time to time, informs the members of the
association of points upon which the department is prepared to collect, and also of the cost to the department
for making such collections, and all the members of the
association are required to collect through the country
collection department all items upon which such members
would incur an exchange cost of 10 cents per $100 or
more, except items on points at which are located banks
carrying deposit accounts with such members.

National

Monetary

Commission

Upon receipt of items from any member, the manager
of the department issues a due bill to such member,
payable in accordance with the regulations of the Clearing House Association, from time to time, usually on the
fourth day after issue.
The expense of making these collections is met by
each member paying the exact amount of exchange
incurred in the handling of such items by the department for such member. Other expenses are apportioned
among the members in ratio to the aggregate amount of
items handled for the respective members by the department.
Along these same lines, although differing materially
in the method of handling, an arrangement has been
recently consummated in Atlanta, contemplating the
clearing of cash items drawn on banks in the State of
Georgia, and so far as it has been tried out has been declared eminently satisfactory.
The members of the clearing house handle this class of
business the same as they do the city clearings, viz, a
machine list of checks is retained by the banks and a
proof list goes with the checks to the clearing house.
Checks must be sent to the clearing house in the morning
as early as possible, but in no case later than 10.30 o'clock
and the afternoon checks not later than one hour aftei
closing time.
The clearing house issues a receipt covering all item;
deposited for collection, which receipt is payable at ;
later date, the exact time of which is determined by th
length of time it takes to collect the items. In order t

Clearing-House

M et h od s

settle for these receipts, the " Foreign department of the
clearing house" is a member of the clearing house, just as
each of the banks are members, and the receipts held by
the banks are listed against it on their due dates.
The clearing house, in turn, lists to the different banks
such items as it receives drawn on them, and prorates
such other checks as it receives in payment of collections.
In order to settle each day in full for all outstanding receipts, the clearing house charges back to the banks their
pro rata of the uncollected items. The receipt given
therefor is payable the following day through the city
clearing house, the same as other receipts for collections.
Of course the associations in each of these instances
have been obliged to increase their clerical force, but as
this increased expense falls upon the individual members,
and they, in turn, are thereby enabled to reduce their
working staff of clerks, as well as effect what amounts to a
considerable saving in the course of a year in stationery,
postage, and the cost of collection, they can well afford
to pay the increased assessment to the association.
The plan which is in operation in Boston is a further
instance, and will be found described in detail in another
part of this volume.

CHAPTER

IX.

TYPICAL JOURNEY OF A COUNTRY CHECK REMITTED FOR
A CITY ACCOUNT.
THE SMALL AMOUNT OF WORK REQUIRED OF PAYER AND
PAYEE—THE LARGE AMOUNT OF WORK REQUIRED OF
THE BANK IN WHICH THE CHECK IS DEPOSITED AND ITS
CORRESPONDENT—WHAT THE RECEIVING BANK DOES—
WHAT ITS REGULAR CORRESPONDENT IN THE CITY NEAREST THE COUNTRY BANK IS REQUIRED TO DO—WHAT
THE COUNTRY BANK

HAS TO DO—AN

ILLUSTRATIVE

EXAMPLE.

By way of emphasizing the need of the reform that has
taken place in the matter of collecting checks, a brief
glance of the methods current in various directions, at the
present time will be advantageous. A merchant in Massillon, Ohio, buys a bill of goods in New York amounting
to $250, and pays for the same with a check on his local
bank. The New York jobber from whom the goods were
bought makes the proper entries on his books for the check
upon its receipt by him, and deposits the check with his
(New York) bank. The receiving teller of the bank in
which the check is deposited, after checking it off the
deposit slip, enters it, by amount only, in his record of
out-of-town checks.
Another clerk enters the check on a, sheet headed with
the depositor's name, stating date of deposit, place of

Clearing-House

Methods

payment, and amount, for the purpose of making the
proper charge thereon. The slip is sent to the jobber
advising him of the charge. The charge itself is made
through a book known as the " Debits of exchange/' from
which the bookkeeper posts the charge.
A representative of the corresponding department of
the bank receipts for the item on the receiving teller's
record, after satisfying himself that the amount has been
properly listed thereon. Another representative sorts the
check with others on a sorting table, according to the place
of payment, and then stamps the bank's indorsement on
the back of the check.
The check is then laid on the collection inclosure sheet
for transmittal to a Cleveland bank, since all Massillon
items are collected through that channel by this particular
New York bank. The check is next listed by billing
fnachine in duplicate on the remittance letter, which calls
for the name of the drawer, place of payment, and amount,
together with any instructions that are to accompany the
item regarding the handling of the same. The duplicate
of this letter, which, in addition to the information called
for by the original, provides a column under which is
entered the name of the customer for account of whom
the check is received, is retained by the bank as its record
of checks sent.
After all these details have been completed, the name of
the Cleveland bank is filled in on the indorsement stamp.
A record is then made on the letter register, showing the
name of the Cleveland bank, date when the collection
letter is sent, and the total amount of the items contained

National

Monetary

Commission

in the letter. This record is made in order that the work
of the bank may be facilitated in keeping track of its
remittances, so that should an acknowledgment of the
same not be promptly received, a tracer may be sent out
without delay to secure the desired information. Manifestly, it is essential to the bank to know that all letters
containing inclosures are promptly and properly acknowledged. An envelope is then addressed, the letter folded
and inclosed, the envelope sealed and stamped, and finally
examined to see that it is properly addressed, sealed, and
stamped. The letter is then mailed at the New York
post-office.
The Cleveland bank, on receipt of this letter, enters in
detail upon its books those items contained in it which are
payable outside of Cleveland. It then writes a letter to
its Massillon correspondent, inclosing the $250 check for
collection, makes a record of the letter and inclosure,
addresses an envelope, in which are placed the letter and
inclosure, and seals, stamps, and mails the letter.
The Cleveland bank next acknowledges the receipt of
the item by drawing and remitting a check on its New
York correspondent for the amount, less the usual charge
for exchange. It writes a letter inclosing the check, takes
a record of the same, addresses an envelope, puts in the
inclosures, then seals, stamps, and mails the letter.
The check thus received by the New York bank is
checked off the remittance letter, is stamped with the paid
stamp of the collecting bank, is listed upon a slip with the
other items received by the bank the same day upon the
other New York bank on which the check received by it

Clearing-House

Methods

is drawn. The items thus made up are collected through
the clearing house. The paying bank checks off the items
paid through the clearing house from the slip on which
they are listed, examines the check in question to see that
it is properly drawn, dated, and signed, and that the signature is genuine, charges the check to the Cleveland bank's
account on its books, cancels it, enters it on a voucher list,
and at the end of a given period returns the check with
others to the Cleveland bank.
The Cleveland bank, upon receiving its account current,
voucher list, and canceled vouchers, immediately checks
off the vouchers and verifies the statement of account.
It then compares the checks with the stubs in the check
book, and examines the checks themselves to ascertain
if the indorsements are correct or if any alterations have
been made thereon, and at last files the checks away for
future reference, including the one that has been used in
the particular case under consideration.
The letter from the Cleveland bank to Massillon containing the item is mailed the same day that the check
is received from New York. It is received in Massillon
the day following. After carefully examining the check
to see that it is properly drawn and dated and that the
signature is genuine, the Massillon bank charges the check
to its customer's account and then draws its check on
Cleveland, less the usual charge for exchange in payment
of the same. It next writes a letter, inclosing the check,
takes a record of the same, addresses an envelope, puts
in the inclosures, and then seals, stamps, and mails the
letter.

National

Monetary

Commission

The customer in due course has his account made up,
checks off the canceled checks returned by the bank
from the voucher list, compares the checks with the stubs
in his check book, examines the checks to ascertain if the
indorsements are correct or if any alterations have been
made, and finally files them away for future reference.
The Cleveland bank, upon the receipt of the remittance
from its Massillon correspondent, completes its records
by filling in the date of the receipt of the remittance and
the amount of exchange charged by the Massillon bank.
The check thus received is listed by the Cleveland bank
upon a slip containing all the items received by it the
same day upon the other Cleveland bank on which the
check is drawn. The items thus made up are then collected through the clearing house. The paying bank
checks off the itejns paid through the clearing house from
the slip on which they are listed, examines the check in
question to see that it is properly drawn, dated, and signed,
and that the signature is genuine, charges the check to
the Massillon bank's account on its books, cancels the
check, enters it on the voucher list, and at the end of a
given period returns the check to its correspondent, the
Massillon bank.
The Massillon bank, upon receiving its account current,
voucher list, and canceled checks from the Cleveland
bank, immediately verifies the statement of account,
compares the checks with the stubs in the check book, and
examines the checks themselves to ascertain if the indorsements are correct or if any alterations have been made in
them, and, finally, files the checks away for future reference.

go to /fo

I"fikfgijdrbor.pi

lILn^-jmA

* THEfmeoNie §AN^
mL_$jkSs
1 W^
au
CO

^)ollar5

FAC-SIMILE OF THE CHECK THE JOURNEY OF WHICH IS SHOWN ON THE M A P ON P A G E

71.

National

Monetary

Commission

In order to effect the collection of the aforementioned
check, drawn on a country bank and remitted to New
York in payment of an account, two checks had to be
drawn, four letters had to be written, 8 cents in posta g e stamps were used, and seventy-five or more handlings
of the check were involved by a score or so of clerks, in
five different banks, located in three different cities.
Lest the picture should seem to be overdrawn—for, in
fact, that which has been presented is only an average
case—the following account of the actual travels of a
check, of much smaller size and drawn upon a bank much
nearer New York than Massillon, is submitted. It is illustrated by a reduced facsimile of the check itself and the
indorsements that it received in transit.
The check, which was for $43.56, was drawn by Woodward Brothers, of Sag Harbor, N. Y., and paid to Berry,
Ivohman & Rasch, of Hoboken, N. J., who deposited it in
the Second National Bank of Hoboken. This bank sent
it to Harvey Fisk & Sons, of New York, who, having no
regular correspondent in the neighborhood of the bank
on which it was drawn, sent it, along with other collections, to their Boston correspondent, the Globe National
Bank. The Globe National Bank of Boston, for reasons
that are not apparent, sent it, presumably with other
items, to its correspondent at Tonawanda, N. Y., viz, the
First National Bank of that city. The Tonawanda bank,
evidently realizing that the check had wandered far out
of its course, and in an effort to get it nearer home, transmitted it to the National Exchange Bank of Albany,

N E W

|0rq

P E N N S Y L V A N I A

M A P SHOWING THE CHECK'S ITINERARY.

National

Monetary

Commission

which institution, pursuing the same commendable policy,
remitted it to its correspondent at Port Jefferson. The
First National Bank of Port Jefferson, which thus got
possession of the check, again diverted its course by
inclosing it to the Far Rockaway Bank. The Far Rockaway Bank sent it back to New York, to the ChaseNational
Bank, and thus this much-traveled check made its second
call in the metropolis. The Chase National Bank, it
would appear, endeavored to correct the wanderer's
course, and so dispatched it to Riverhead, to H. M.
Reeve. Mr. Reeve, either because he really knew where
to send it for collection, or because of a lucky hit, forwarded it to the Queens County Bank of Brooklyn, which
finally sent it home to the Peconic Bank of Sag Harbor,
on which it was drawn.
The reason why banks forward checks in this apparently
unreasonable way, often getting the items far out of their
regular course, is easy to explain. It sometimes appears
cheaper to the bank which has the check in hand to inclose
it with other items to some regular correspondent, which,
assumedly, is nearer the bank on which the check is drawn
than to hunt up a special correspondent for it alone.
Once started, the poor check gets pushed along from station
to station, on its erratic course, until such time as, by
accident or otherwise, it finds its final lodgment.
The reader may estimate for himself the volume of
correspondence which this one check caused, from the
time it was drawn by Woodward Brothers until it was
paid by the Peconic Bank, and the amount of postage

Clearing-House

Methods

£®sT

fcwfr P. t^n^A^couNT or
\m£L fart<$i BANKER.

fotion, or order,

S^LSONS
H. M. REEVE-j

^O'-inRnrvoRK..
vW'-'gf'HgErt

BAMKERJ|T®;STCO.

••

The *5tfcS>nd National "Bank
'"OF

HOBOKEW.

PRIOR ENDORSEMENI^^CU^MTCED '

ray Any National or State Bank.
OR O R D E R .

GLOBE NATL BANK. BOSTON
FAC-SIMILE OF THE B A C K OF THE
CHECK, SHOWING THE NUMEROUS
INDORSEMENTS IT BORE ON FINALLY
BEACHING THE B A N K ON WHICH IT
WAS DRAWN.

20040— 1 o

National

Monetary

Commission

and cost of clerical work expended upon it. No better
argument than the facts here presented is needed to support the proposition of charging a reasonable sum for
collecting out-of-town checks. No better illustration
than this could be presented to the business man for
demonstrating to him the weight of the burden he puts
on the banking machinery of the community by remitting
his check on a country bank, in payment of an account,
instead of purchasing exchange.

74-

CHAPTER

CLEARING-HOUSE LOAN CERTIFICATES.
WHAT CLEARING-HOUSE LOAN CERTIFICATES A R E — O R I G I N INTEREST

RATES—USES—FIRST

ISSUE

i860—THE

ISSUES OF l 8 6 l , 1863, AND 1864—ACTION OF VARIOUS
CLEARING HOUSES IN 18 73—NEW ORLEANS IN 18 7 9 —
NEW YORK IN 1884—ACTION OF THE NEW YORK, BOSTON,
AND PHILADELPHIA CLEARING-HOUSE ASSOCIATIONS IN
1890—GENERAL

RESORT

1893—EMERGENCY

LOAN CERTIFICATES

CIRCULATION IN THE SOUTH, BOS-

TON, AND PHILADELPHIA IN

1895—NEW

ORLEANS IN

1896—CALCULATIONS OF INTEREST.

Clearing-house certificates are of two kinds—those
issued upon the deposit of gold coin (and in New York
City and Boston on gold and silver certificates and legal
tender notes) and those issued upon the deposit of collateral securities. The former are employed in ordinary
times solely as a method of economizing time and labor
and reducing risk in handling large sums of money. The
latter are employed in times of financial disturbance or
panic, and although both are intended for use solely in the
settlement of balances at the clearing house, the circumstances that call them forth, the results effected by their
use, and the part they play in banking economy have little
or nothing in common. The certificates issued upon the
deposit of gold, etc., are termed "Clearing-house certificates/ ' and those issued upon the deposit of collateral

National

Monetary

Commission

security are very properly termed "Clearing-house loan
certificates/' with which latter only are we here concerned.
Clearing-house loan certificates may be defined as
temporary loans made by the banks associated together
as a clearing-house association, to the members thereof,
for the purpose of settling clearing-house balances. Such
certificates are negotiable, as a rule, only among the members of the association, and are not in any sense to be
regarded as currency. They are riot even seen by the
business community, and do not pass from bank to bank
except in payment of clearing-house balances.
To obtain an intelligent understanding of the real character and purpose of such certificates it will be well to
treat somewhat of the circumstances under which they
are issued. In the course of the present century the
United States has undergone periodical derangements of
business affairs, when confidence was displaced by mistrust, when the payment of debts became difficult, when
property values declined, and business houses failed;
when industry and trade were paralyzed, and general stagnation ensued in all lines of enterprise. In such times
depositors in banks, stricken with fear and sometimes
pressed by need, draw out their deposits, in many cases to
such an extent as to render it difficult or even impossible
for the banks to contract their loans sufficiently to meet
the demands thus made upon them. Under our present
currency system no adequate method is provided for
expanding the money volume as occasion demands,
whereby the banks can continue their usual loans and
discounts, and thus prevent a panic with all its evil con-

Clearing-House

Methods

sequences. Hence it is left in a large measure to the
financiers of each community to work out their own
remedy, supplemented by such mutual assistance as a
courteous regard for each Qther may dictate or as business relations may demand.
Quick to see the defects in our currency system, and
the desirability of in some way supplying it, the bankers
of New York, nearly fifty years ago, devised the scheme
of issuing clearing-house loan certificates as a method of
relief from temporary stringencies. Subsequently, nearly
all the clearing houses in the great centers adopted the
same device, and by their heroic resort to the measure
they have at different times relieved the business community of untold disaster, for which invaluable service they
have justly received the grateful recognition of the entire
country.
The great value of clearing-house loan certificates lies
in the fact that they take the place of money in settlements at the clearing house, and hence save the use of so
much actual cash, leaving the amount to be used by the
banks in making loans and discounts, and in meeting
other obligations. The volume of currency, to all intents
and purposes, is expanded by this means to the full amount
of the certificates issued.
The loan certificates are taken out by the clearing-house
members through loan committees, specially appointed,
and are used, as a rule, only in the payment of balances
among the associated banks. Thus, when the stringency
in the money market seems sufficient to demand it, the
clearing-house association meets and appoints a commit-

National

Monetary

Commission

tee called the "loan committee," consisting usually of
five bank officers, to act in concurrence with the president
of the clearing-house association, who serves ex officio as
a member. It is the duty of such committee to meet each
morning at the clearing house and examine the collateral
offered as security by the banks and issue loan certificates thereon, in such denominations and proportions to
collaterals deposited as may be agreed upon. In the
history of the past the denominations have varied from
25 cents to $100,000 in the different associations and in
proportions varying from $50 to $100 of certificates to
$100 of collateral deposited.
These loan certificates bear interest at rates varying from
5 to 10 per cent per annum, payable by the banks to which
they are issued to the banks receiving such certificates in
settlement of daily balances. Hence the interest charged
against certain banks must exactly equal and offset that
credited to certain other banks. The aim is to fix the
rates sufficiently high to insure the retirement of the certificates as soon as the emergency which called them forth
has passed by. As a rule they are retired by the banks,
which take them out as soon as they have obtained sufficient cash to meet their daily obligations. Notice is given
by the debtor banks to the committee, calling for such
certificates as they wish to retire, and the committee gives
notice to the banks holding the same, stating that the
interest will cease after a specified date. In due course
the holders send-the certificates to the clearing house for
redemption. Upon the retirement of the certificates the
collateral deposited as security is surrendered by the com-

Clearing-House

Methods

mittee in the same proportion to certificates turned in as
was required for deposit at the time of issue.
It is by no means the general practice for all the members to take out loan certificates when issues are arranged
by the association. Some banks are in such condition
as to be able to weather the storm without them, while
others are weak and in great need of relief. Some banks
regard their use of clearing-house loan certificates as a
reflection upon their standing, and hence refuse to apply
for them unless driven to it by sheer necessity. Others
regard it as in no way prejudicial to their interests, but
rather as a patriotic movement in which all the banks
should engage, both for the purpose of assisting their
fellow-members and for the welfare of the community as
a whole.
The members of the New York Clearing House Association especially have distinguished themselves in
this regard. Up to 1907, when only about 60 per cent
of the members found it necessary to take out certificates, it has been the almost universal rule for all the
members to take loan certificates whenever the occasion demanded such action on the part of any of the
banks, and this, too, without regard to how strong they
may have been or how easily they might have gotten on
without using them. In one instance, when a member
bank refused to share the burden of the associated banks,
it was suspended from the privileges of the clearing house
for more than three months.
The total amount of its balances is not always paid
in clearing-house loan certificates by a bank to which

National

Monetary

Commission

such certificates have been issued. Thus, for example, the debit balance of a given bank may be $500,000,
which in ordinary times would be paid in money or gold
certificates. In a time of panic a part of this sum—say,
$300,000—is paid in clearing-house loan certificates and
the remaining $200,000 in currency. Another, with the
same balance, might pay the whole in clearing-house certificates, while still another would pay the full amount
without the use of any certificates whatsoever.
The first issue of clearing-house certificates occurred
in i860. In the autumn of that year there was a rapid
shrinkage in bank deposits and a corresponding contraction in loans and discounts. The situation grew more
and more serious as the end of the year approached.
The presidential election was a disturbing factor of more
than ordinary significance. Immediately succeeding the
election of Abraham Lincoln to the Presidency the situation began to assume a critical aspect. Distrust and uncertainty were universally felt. The banks hesitated to
advance loans, and obtained from their customers as
rapidly as possible the payment of obligations. Call
loans commanded 7 per cent, and paper of some of the
best houses went begging at 24 per cent. In this crisis
a meeting of the New York Clearing House Association
was called, and the following resolution was passed:
In order to enable the banks of the city of New York to expand their
loans and discounts, and also for the purpose of facilitating the settlement
of the exchanges between the banks, it is proposed t h a t any bank in the
clearing-house association may, at its option, deposit with a committee
of five persons—to be appointed for that purpose—an amount of its bills
receivable, United States stocks, Treasury notes, or stocks of the State of
New York, to be approved by said committee, who shall be authorized to
issue thereon to said depositing bank certificates of deposit bearing interest

Clearing-House

Methods

at 7 per cent per annum in denominations of $5,000 and $10,000 each, as
may be desired, to an amount equal to 75 per cent of such deposit. These
certificates may be used in the settlement of balances at the clearing house
for a period of thirty days from the date thereof, and they shall be received
by creditor banks during that period, daily, in the same proportion as they
bear to the aggregate amount of the debtor balances paid at the clearing
house. The interest which may accrue on these certificates shall, at the
expiration of thirty days, be apportioned among the banks which shall
have held them during the time.
The securities deposited with said committee, as above named, shall be
held by them in trust as a special deposit, pledged for the redemption of
the certificates issued thereupon.'
The committee shall be authorized to exchange any portion of said securities for an equal amount of others to be approved by them at the request
of the depositing bank, and shall have power to demand additional security,
either by an exchange or an increased amount, at their discretion.
The amount of certificates which this committee may issue, as above
stated, shall not exceed $5,000,000.°
This agreement shall be binding upon the clearing-house association
when assented to by three-fourths of its members.
Resolved, T h a t in order to accomplish the purpose set forth in this agreement the specie belonging to the associated banks shall be considered and
treated as a common fund for mutual aid and protection, and the committee shall have the power to equalize the same by assessment or otherwise.
For this purpose statements shall be made to the committee of the condition of each bank on the morning of every day before the commencement of business, which shall be sent with the exchanges to the manager
of the clearing house, specifying the following items, viz: (1) Loans and
discounts, (2) deposits, (3) loan certificates, (4) specie.

In accordance with the authority thus given the
first issue of certificates was made November 23, i860,
and the beneficial effect was immediately felt. The
banks rapidly extended their loans, deposits increased,
and commercial paper, which formerly could not be sold
for 20 per cent, was now freely marketed at 7 per cent
and 8 per cent. On December 22 the issue had reached
its maximum limit, viz, $6,860,000; the aggregate issue,
$7,375,000. The last certificate was canceled March 9,
a On December 3, i860, it was voted to increase this limit to $10,000,000.

National

Monetary

C ommis

s ioi

1861, and the total period, from the date of the first issu
to the date of the last issue, was one hundred and si:
days.
But the relief thus afforded was not destined to b<
permanent. The country was soon plunged into th<
throes of civil war, and, consequently, distrust anc
uncertainty as to the future prevailed universally. Busi
ness interests were suspended, trade was hampered
and industry was paralyzed. As a result of the pressun
the association passed a resolution in the following
September, authorizing another issue of loan certificates
and on September 19, 1861, the first issue was made
The maximum of $21,960,000 was reached on Februar)
7, 1862, and, as will be perceived, was more than three
times as much as the maximum amount outstanding
at any one time in the preceding year. The total issue
was $22,585,000, exceeding the previous total issue by
more than $15,000,000. The rate of interest was 6 pel
cent as compared with 7 per cent in the former year3
and the collateral used as security consisted of temporary
receipts of the United States for the purchase of government bonds, as compared with United States stock,
Treasury notes, and stocks of the State of New York,
employed for the same purpose in the preceding issue.
The last certificates were called April 28, 1862, more than
seven months from the date of their first issue.
In 1863 the association issued certificates for the
third time. The first bore the date of November 6, and
the largest amount outstanding at any one time was
$9,608,000, from November 27 to December 1. The

Clearing-House

Methods

total issue was $11,471,000, being a little more than onehalf of the issue of two years before. Interest was
charged at 6 per cent, as in 1861, and United States
or New York State stocks, bonds, etc., or temporary
receipts, as in 1861, were used as security. The last
certificates were redeemed February 1, 1864, four and
one-half months from the date of the first issue.
Owing to the prolongation of the war, with the consequent unrest in business circles, the issue of certificates for the fourth time began March 7, 1864, and
reached its maximum, $16,418,000, on April 20 of the
same year, being an excess of nearly $7,000,000 over
the maximum amount outstanding at any one time
in the previous year. The aggregate issue was $17,728,000,
being less than $1,000,000 in excess of the maximum
amount outstanding at one time. The rate of interest
was 6 per cent, as in 1861 and 1863, and the certificates
were secured by the same kind of collateral as those in
the former issue. The final redemption occurred June
13, 1864, three and one-half months after the first
certificates were issued.
No more loan certificates were issued until the year
1873, when, for the first time, the clearing-house associations of other cities, seeing their great practical
utility, began to avail themselves of their use. In the
year mentioned the association at New York followed
the precedent established in i860, and the same course
was taken by the clearing-house associations at Boston, Philadelphia, Baltimore, Cincinnati, St. Louis,
and New Orleans. The panic which called forth such

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Ouullie surrender of ttiis Certificate by ilie depositing Bank altbve
oaraed, tlic Committee will endorse the amount as a payment ou the
obligation of said Bank, held by them, and surrender a proportionate
abate of the collateral securities held thereior. Tbis Certificate may
alio be redeemed prior to the 1st of November, if desired.

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$10,000.

FORM OF CLEARING-HOUSE LOAN CERTIFICATE USED BY NEW YORK CLEARING-HOUSE IN 1873.
DIFFER FROM THIS ONLY IN THE OMISSION OF THE RESTRICTIVE DATE,

LATER ISSUES

Clearing-House

Methods

united action was one of unusual severity. I t reached
its climax in September, and so severe were its ravages
t h a t the New York Stock Exchange closed its doors
on t h e 20th of t h e same month, for an indefinite period,
b u t reopened t h e m ten days thereafter.
The usual resolutions were passed by t h e clearinghouse association, authorizing the issue of certificates,
and on September 22 t h e first issue was made. The
amount was fixed at the outset at $10,000,000, which,
with t h e announcement t h a t the Government would
purchase t h e same a m o u n t of bonds, caused an immediate subsidence of t h e panic, and in less t h a n three days
its most acute stages were over. The last issue was
made on NovemVber 20, a little less t h a n two months
from the date of the first issue, and t h e last certificates
were redeemed J a n u a r y 14 of t h e following year, the
period covered from t h e date of the first issue to t h e date
of final cancellation having been less t h a n four months.
During the two months referred to certificates to t h e
a m o u n t of $26,565,000 were issued. This was far in
excess of any previous issue, the nearest approach to
it having been in 1861, when, as shown before, more t h a n
$22,000,000 were taken out. The largest amount outstanding at any one time was $22,410,000, which occurred
only eleven days from the date of issue of t h e first
certificates. Interest was calculated at 7 per cent, as in
i860, the rate during t h e intervening time having been
6 per . cent. Bills receivable, stocks, bonds, and other
securities were accepted by the committee as collaterals
for t h e redemption of these certificates.

National

Monetary

Commission

Attempts on the part of the business community were
made in vain to discover what banks had taken out
certificates, but such information was very wisely withheld. For more than two months, covering the worst
period of the panic, no weekly statements of their condition were made to the clearing house by the banks,
the object being to prevent a general knowledge of the
weak condition of some of the members, which condition, if disclosed, would invite runs upon them.
On September 27, 1873, a meeting of the Boston
association was called, and it was voted to suspend
currency payments and appoint a loan committee,
with power to issue loan certificates to the amount of
$10,000,000, upon substantially the same basis as at
New York. The issues were duly made, aijid on October
20 the amount outstanding reached its piaximum of
approximately $4,800,000.
j
In like manner the Philadelphia association now,
for the first time, entered upon the plan so successfully followed in New York since i860, by appointing
a loan committee, with authority to issue clearing-house
loan certificates. Such certificates were authorized by
resolution adopted September 24, 1873, and amended
October 18, 1873, to read as follows:
For the purpose of enabling the banks, members of the Philadelphia
Clearing House Association, to afford proper assistance to the mercantile
and manufacturing community, and also to facilitate the inter-bank
settlements resulting from their daily exchanges, we, the undersigned,
do bind ourselves by the following agreement on the part of our respective banks, namely:
First. That the clearing-house committee be, and t h a t they are hereby,
authorized to issue to any bank, member of the association, loan certificates
bearing 6 per cent interest on the deposits of bills receivable and other

JMI1 ®fo 8294

4M>jOOO#
3

tHiS CERTIFIES, that lke„
^>
has deposited with this Committee, securities in accordance with the agreement of a Meeting of
Bank Officers, held September 24, 1873. ?nts Certificate will be received during the continuance of said,
agreement and of any renewals of the same, in payment of balances at the Clearing House, for the sum of
F I V E T H O U S A N D D O L L A R S , only from a Member of the Clearing House Association,
to whom the same may have been issued, or to whom it may be endorsed by the Manager of tlie Clearing House;.

On the surrender of this Certificate by the Depositing Pank above named.
the Committee win endorse the amoont as a payment 00.the obligation of said
Bank held by them, and surrender a proportionate amount of the collateral
securities; except in case of default onlhe-part of said Bank in its transactions
• through the "Clearing House Association of Philadelphia.?

P:
FORM OF CLEARING-HOUSE LOAN CERTIFICATES USED IN P H I L A D E L P H I A ,

National

Monetary

Commission

securities to such an amount and to such percentage thereof as may i
their judgment be advisable. These certificates may be used in settl
ment of balances at the clearing house, and they shall be received h
creditor banks in the same proportion as they bear to the aggregate amoui
of the debtor balances paid at the clearing house. The interest tfa
may accrue upon these certificates shall be apportioned monthly amor
the banks which shall have held them during that time.
Second. The securities deposited with the said committee shall I
held by them in trust as a special deposit, pledged for the redemptic
of the certificates issued thereupon, the same being accepted by the con
mittee as collateral security, with the express condition t h a t neith(
t h e clearing-house association, the clearing-house committee, nor an
member thereof shall be responsible for any loss on said collaterals arisir
from failure to make demand and protest, or from any other neglect (
omission other than the refusal to take some reasonable step which tl
said depositing bank may have previously required in writing.
Third. On the surrender of such certificates, or any of them, by tl
depositing bank, the committee will indorse the amount as a paymei
on the obligation of said bank held by them, and will surrender a pn
portionate amount of securities, except in cases of default of the bar
in any of its transactions through the clearing house, in which case tl
securities will be applied by the committee, first to the payment of ou
standing certificates with interest; next to the liquidation of any ii
debtedness of such bank to the other banks, members of the clearing
house association.
Fourth. The committee shall be authorized to exchange any portio
of said securities for others, to be approved by them, and shall have pow<
to demand additional securities at their own discretion.
Fifth. That the clearing-house committee be authorized to carry int
full effect this agreement, with power to establish such rules and regt
lations for the practical working thereof as they may deem necessar
and any loss caused by the nonpayment of loan certificates shall be assesse
by the committee upon all the banks in the ratio of capital.
Sixth. The expenses incurred in carrying out this agreement shall t
assessed upon the banks in equal proportion to their respective capitals.
Seventh. T h a t the clearing-house committee be and they are hereb
authorized to terminate this agreement upon giving thirty days' notk
thereof at any stated meeting of the clearing-house association.

The issue of certificates made in conformity with th
foregoing resolution reached the maximum amount out
standing at one time, namely, $6,285,000, on Decembe
1, 1873.

Clearing-House

Methods

At Baltimore, on September 24, the clearing-house
association began the issue of certificates, which amounted
in the aggregate to $1,326,000. The last of these was
retired January 2, 1874, one hundred days after the date
of the first issue.
The first certificates at St. Louis were issued on September 25, and the last of the certificates were canceled
forty-six days thereafter, the aggregate amount having
been $1,472,500.
At New Orleans the maximum amount outstanding
($1,067,000) was attained October 10.
On September 25 the following resolution was adopted
by the association at Cincinnati:
Resolved, That for the protection of our commercial interests and for the
purpose of preventing a drain of currency from the banks and bankers of
this city, the banks and bankers of Cincinnati ,do hereby agree to adopt
substantially the plan adopted in New York City, namely, they will not
pay out currency on checks, except for small sums, to be optional with the
banks and bankers on whom they are drawn; but they will certify checks
drawn on balances in their hands, payable through the clearing house only.
When such checks are drawn in payment of notes or drafts, the bank holding the same shall not be required to deliver said paper until after the
check in payment has been paid to the clearing house.
Resolved, That the above resolution be printed, and slips furnished each
bank and banker.
Resolved, That the clearing-house association will issue not to exceed
$2,500,000 in loan certificates, to be used in settling balances between the
members thereof, and t h a t the same will be furnished to members in the
proportion of securities put up by each as hereinafter provided. Said certificates shall not be negotiable, and shall be used only for the purpose of
settlement between the banks and bankers in the clearing house.
Resolved, T h a t members may deposit as a basis of credit in the association the following-described securities, namely, United States bonds, railroad and other bonds, stocks and bills receivable. The United States
bonds shall be received at their par or face value, and the other securities
shall be valued by a committee of five, who shall be appointed for that purpose, and the same shall be received at 75 per cent of the value so fixed.
Each member shall receive a receipt for the securities deposited. The said
committee shall have charge of-the securities of whatsoever kind deposited
20040—10

National

Monetary

Commission

by the said banks and bankers, and shall place the same with the saf
deposit company for safe-keeping, and the said committee shall sit dail;
at the clearing house a t the hour for clearing and shall personally supervis
the issue of the loan certificates in settlement of balances. The said certifi
cates shall bear interest a t the rate of 8 per cent per annum, whic
interest shall be paid by the banks and bankers using the same and for th
time so used.
Resolved, T h a t these proceedings take effect from and after 9 o'cloc
to-day, and are not to affect currency transactions or obligations betwee
members prior to this day.

In the period from September 25, when the issue of cet
tificates was authorized, to October 9, when a resolutioi
was unanimously adopted in favor of discontinuing thei
issue, a period of only fourteen days, certificates to th
amount of $515,400 were issued, the last of which wer
canceled just six weeks from the date of first issue.
The next report of clearing-house loan certificates wa
in 1879, when the New Orleans association alone issued
small amount ($54,000) to satisfy conditions of a purel;
local character.
In 1884 the New York association stood alone in th
issue of loan certificates. The amount taken out at thi
time was large, and was begun early in the year to preven
a widespread and disastrous panic. The first were take:
out May 15, and reached $21,881,000, their maximur
amount outstanding, on May 24, only nine days from th
date of first issue. The last certificates were issued Jun
6, and the last were retired September 23, more than fou
months from the date on which the issue was begur
The total amount was $24,915,000, being in excess of an
previous issue except that of 1873. The rate of interes
was fixed at 6 per cent, the same as in 1861, 1863, and i86z
and, as security for the redemption of such certificates, bill

llearing-House

Methods

^ceivable, stocks, bonds, and other securities were emloyed.
For t h e next six years t h e country was free from any
nusual financial disturbances, and hence no occasion
rose for extraordinary measures. Finally, however, in
S90, came another period of pressure. U p t o midsummer
I t h a t year t h e country h a d experienced unusual proserity, b u t to t h e observing eye it was apparent t h a t deepiated forces were a t work which would ultimately cause
widespread disturbance in business and financial circles,
not bring about a disastrous panic. This was evident
om consideration of t h e unsatisfactory conditions preailing in agriculture and from t h e unwholesome tendency
) overtrading and expansion on every hand. The extenon of railroads had been prosecuted throughout t h e year
ith more t h a n ordinary vigor, which required t h e extenon of large sums of money upon security. Early in t h e
sar t h e deposits in t h e banks of New York City began t o
II off, and b y May 17 t h e shrinkage had amounted t o
ore t h a n $44,831,000, of which over $13,500,000 consted of balances drawn out by banks in t h e interior and
. other reserve cities. Boston and Philadelphia were also
Lbjected to heavy drains. After careful consideration, it
as decided in each of these three cities t o resort to t h e
sue of clearing-house loan certificates, to be used in t h e
t t l e m e n t of clearing-house balances. New York was
te first to t a k e action, and on November 11, at a meeting
t h e association, t h e following resolution was unaniously adopted:
Resolved, That a committee of five be appointed by the chair, of which the
airman shall be one, to receive from banks, members of the association,

National

Monetary

C ommis

s io

bills receivable and other securities to be approved by said committee, v
shall be authorized to issue therefor to such depositing banks, loan ceri
cates bearing interest at 6 per cent per annum, and, in addition thereto
commission of one-quarter of i per cent for every thirty days such cen
cates shall remain unpaid, and such loan certificates shall not be in exc
of 75 per cent of the market value of the securities or bills receivable so
posited, and such certificates shall be received and paid in settlement of 1
ances at the clearing house.

In pursuance of the authority thus granted, the co
mittee of five was duly appointed, and they proceeded
issue to applying banks loan certificates in form subste
tially the same as that employed in 1873—elsewhere illi
trated—which, in fact, with the exception of the limitati
of time, is the form standard with this association.
The first certificates were issued November 12,1890, a
the issue ceased December 22, amounting in the aggreg;
to $16,645,000; the largest amount outstanding at any c
time was $15,205,000, on December 12, and the last c
tificates were retired February 7, 1891, less than thi
months from the date of first issue. In order to provi
for the retirement of these certificates, in case the collate
should be found insufficient, the boards of directors of 1
several associated banks passed the following resolution
Resolved, T h a t any loss resulting from the issue of loan certificates s
be borne by the banks comprising the clearing house association, pro rat;
capital and surplus, and this resolution shall be ratified by the boards of
respective banks, members of the association, and a certified copy of s
consent delivered to the chairman of the loan committee.

On November 27, five days after special action v
begun by the clearing-house association of New York, 1
clearing-house association at Boston entered upon a simi
course, by passing the following resolution:
Resolved, T h a t a committee of five be appointed by the chair, of wl
committee the chairman also shall be a member, to receive from bai
members of the association, bills receivable, and other securities, to

llearing-House

Methods

)proved by said committee, who shall be authorized to issue therefor, to
Lch depositing banks, loan certificates bearing interest at 7.3 per cent per
mum, and such loan certificates shall not be in excess of 75 per cent of
e market value of the securities or bills receivable so deposited, and such
rtificates shall be received and paid in settlement of balances at the
taring house.

It is worthy of remark that the basis upon which the
ayment of any loss arising from the issue of loan certifiites differed from that at New York, in that in the one
ise it was required to be paid by the banks in proportion
) capital and surplus, and in the other in proportion to the
^erage daily amount of exchanges which each bank had
>nt to the clearing house during the preceding year. The
solution bearing upon this point, adopted at Boston,
as as follows:
Resolved, That any loss arising from the issue of loan certificates shall be
>rne by the banks comprising the clearing-house association pro rata
cording to the average daily amount which each bank shall have sent to
e clearing house during the preceding year.

It was also voted that this resolution should be ratified
Y the'boards of directors of the respective banks, mem*rs of the association, and a certified copy of such consent
divered to the chairman of the loan committee.
Upon deposit of securities with the clearing-house comittee and the receipt of certificates therefor, each bank
as required to execute and deliver an obligation in the
llowing form:
The
Bank has this day received of
loan committee of the
)Ston Clearing House Association, loan certificates issued by said comittee in pursuance of a vote of said association, passed November 17, 1890,
the amount of
thousand dollars, and has deposited with said
mmittee the securities, a statement whereof is hereto annexed, and said
bank has received said loan certificates on the terms set forth in
id vote, and agrees to pay the amount of said certificates, with interest
ereon, as provided in said vote.

National

Monetary

Commis

s to

The first certificates were taken out November 19, t
days after the adoption of the resolution authorizing sn
action, and the last were issued December 6, when i
amount reached its maximum of $5,065,000. The last
the issue were finally canceled January 6, 1891, less th
two months after the first issue.
On November 18, 1890, similar proceedings were h
by the clearing-house association of Philadelphia, at wh:
time the following resolution was passed:
Resolved, T h a t in accordance with resolution of September 24, 1873
amended October 18, 1873, the clearing-house committee will issue 1
certificates to banks applying, and receive them in payment of balance:

The resolution of September 24, 1873, referred to, 1
already been quoted. On November 18,1890, theclearii
house committee passed the resolution which had be
adopted on that day by the clearing-house associate
affirming their purpose to issue clearing-house loan cert
cates as in accordance with the resolution of 1873.
Acting under the authority thus granted, the clearii
house committee began the issue of clearing-house c
tificates, and the banks desiring to take them out w
required to adopt a resolution empowering the hypot
cation of acceptable securities, under which resolution 1
first issue of certificates was made on November 19, 18
and ceased May 22, 1891. The total issue was $9,655,0
and the maximum issue ($8,870,000) was reached J;
uary 9, 1891. The certificates were all retired, except:
$170,000 issued to the Keystone and Spring Garc
National Banks, institutions which were carried down
the panic.

Clearing-House

Methods

In 1891 Louisville, Ky., issued loan certificates to a
small amount, although none were required in the previous
year, when New York, Boston, and Philadelphia were
employing them extensively. This clearing house was
the only one to use certificates that year, and what further
distinguishes this association is that the issue referred to
is the only one it had ever made.
Following the panic of 1890 came a period of prosperity,
which, to all outward seeming, bore the marks of permanence, but it was only temporary. The clouds which
began to appear prior to the advent of the Cleveland
Administration, grew denser as time advanced, until in
April, 1893, it was apparent, even to the superficial
observer, that a storm of unusual severity was approaching. Reports of failures, as given by commercial agencies,
showed a rapid increase as the year advanced, and the
shrinkage in national-bank deposits from May 4 to July 12
exceeded $190,000,000, while the decline in the deposits
in state and savings banks was no less surprising. By
June, banks all over the country were being forced to the
wall. In July 73 national banks failed as compared with
25 in the preceding month, while the state and private
banking houses showed a mortality equally alarming.
By August 1 a panic of great severity was raging throughout the country, and particularly in the great metropolitan
centers.
The only avenue of relief provided by the laws was
the issue of additional national-bank notes, but to
those familiar with the history of the past it was apparent that the national banks were bound hand and foot

National

Mon etary

Commission

by indiscreet legislation, and were therefore unequal
to the task of extending the relief so much needed,
and which, under more favorable laws, might easily
have been supplied. The situation was aggravated
in no small degree in the reserve and central reserve
cities by the urgent demands made for their reserves
by the banks in the interior. So excessive was the drain
upon the resources of the banks in some cities that ir
many cases they positively refused to respond to the
calls of the banks for their reserves unless such cat
was accompanied by the assurance that such assistance was an urgent necessity. Such action was prompted
by the fact 'that in many previous instances packages
had been returned unbroken after the subsidence of E
panic, showing that the contained amounts had beer
withdrawn through fear of loss rather than througl:
the necessity of replenishing reserves.
In the absence of any legal expedient by which the
country could escape from the unprecedented conditio!
into which it had fallen, it was left to the financier:
in the great cities and to the great corporations accus
tomed to wrestle with panics in times past to worl
out the people's salvation. The remedy that was ap
plied affords one of the finest examples the countr
has ever seen of the ability of the people when left t<
themselves to devise impromptu measures for thei
own relief. The most potent factors in staying the fore
of the panic were the clearing-house loan certificate
issued by the clearing-house associations throughou
the country.

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of, five Jtyousagd p o l l a r s , ^ ^ ***. m^mJUc «f t&+ -€L
On the surrender of this Certificate by the depositing (Bank above*
named, the Committee will endorse the amount as a payment on the
obligation of said (Bank, held by them, and surrender a proportionate
share of the collateral securities held therefor,

$5,000.
FORM OF C L E A R I N G - H O U S E L O A N CERTIFICATE U S E D I N B O S T O N .

National

Monetary

Commission

At New York authority was duly given, by resoh
tion of t h e association, for the appointment of a loa
committee for t h e issue of such certificates upon t h
hypothecation of acceptable collaterals. I m m e d i a t e !
upon their appointment, t h e committee proceeded t
issue to applying banks loan certificates upon t h e de
posit of proper securities.
The issue was commenced J u n e 21, 1893, a n d cease
September 6 of t h e same year, t h e total issue havin
been $41,490,000. The largest a m o u n t outstanding a t on
time ($38,280,000) was attained August 20, which amoun
remained unaltered until September 6. The last of th
certificates was retired November 1, more t h a n four month
from t h e d a t e of first issue. These certificates bore interes
at 6 per cent, and were secured b y t h e same kind of co!
lateral as in 1873, 1884, and 1890. T h e aggregate amoun
was far in excess of any previous issue. T h e n e x t larges
a m o u n t was in 1873, t h e aggregate, it will be rememberec
having been less t h a n $27,000,000.
T h e Boston Clearing House Association b y resolt
tion authorized a similar course, and on J u n e 27 th
committee began t h e issue of certificates in denomim
tions of $10,000 and $5,000, respectively, bearing in
terest a t 7.3 per cent, t h e same rates as in 1873 a n ( i x ^ 9 (
F r o m August 23 t o September 1 t h e a m o u n t wa
at its maximum—$11,445,000. T h e aggregate issn
was $11,645,000, which, it will be observed, is some
w h a t in excess of one-quarter of t h e a m o u n t t a k e n or
at New York. F r o m J u n e 27, when t h e first issue wz
made, to t h e end of t h e period balances were paid 2

•

a©

£BaUvmoie,

/<?

S fftts is to &trtifg:
@
22

&3
kg
o

dum of ONE THOUSAND DOLLARS

*u*C4 <£eat tn&t&i'C <i£ *«& <a./e <»£ 4+z Ae* <cen/. 6&1 twttutwi

83 $ 1 0 0 0

tuddw^

u*t€*C 4<z</e<£**te<i, ct+uz «t&c <d<z 1

—•
FORM OP C L E A R I N G - H O U S E LOAN CERTIFICATE U S E D IN BALTIMORE.

*—**' J

National

Monetary

Commission

the clearing house with certificates to the extent of
$43,130,000, which was 38.4 per cent of the total balances at the clearing house during the time the certificates were used. By far the largest amount of certificates was employed in September, and so far as
single days are concerned the maximum was reached
September 7 and 9, the amount on each of these days
having been $1,065,000. By October 21 the certificates had all been retired and canceled.
In pursuance of a resolution of the association at
Philadelphia, a loan committee was appointed, which
issued certificates in denominations of $5,000 only, bearing
interest at 6 per cent, as in 1873 and 1890.
The total amount of the issue was $11,470,000, being
less by only a small amount than the total issue at Boston.
The largest amount outstanding at any one time was
$10,965,000 on August 15, all of which was redeemed
in due time without loss to any of the members.
At Baltimore certificates in denominations of $1,000,
$3,000, and $6,000 were issued, bearing interest at 6
per cent. From August 24 to September 6 the certificates
outstanding were at their maximum of $1,475,000, all
of which were ultimately retired and canceled.
The Clearing House Association at New Orleans followed
the action at New York as closely as possible. On June
22 a resolution was unanimously adopted as follows:
Resolved, That a committee of six banks be appointed by the chair to
receive from banks, members of the association, bills receivable and other
securities to be approved by said committee, who shall be authorized to
issue therefor to such depositing banks loan certificates bearing interest
a t 7 per cent per annum, and such loan certificates shall not be in
excess of 75 per cent of the market value of the securities or bills receivable

100

Clearing-House

Methods

so deposited, the committee reserving the right to call for additional
security as in their judgment the same is required; and such certificates
shall be received and paid in settlement of balances resulting from the
exchanges at the clearing house, and all the rules and regulations heretofore
adopted in the issue of such certificates shall be in force in the present
issue. I t is expressly agreed and understood t h a t no bank which shall
have received certificates shall make any new loans or discounts, but shall
confine its business to the collection of outstanding loans, until all clearinghouse certificates shall have been retired.

Certificates were accordingly issued in denominations
of $500 to $10,000. On the day of the passage of the above
resolution it was also
Resolved, That any members of this association now out of line in their
reserve shall immediately take steps to put themselves in line, and that
any members desiring to avail themselves of the use of clearing-house
certificates shall not be allowed to increase their line of discounts.

Also on June 22 the committee addressed to the cashiers
of the several associated banks the following communication:
The undersigned beg leave to advise you that they have accepted the
appointment extended to them by the meeting of the associated banks,
held at the clearing house this day, to act as a loan committee, and that
as such committee they will meet daily at the clearing house at 11 o'clock
a. m. on and after Thursday, the 226. instant, prepared to issue loan certificates in accordance with the action adopted by the meeting referred to.
Banks desiring to receive loan certificates on pledge of bills receivable
or other securities to be deposited with the committee are requested to
make application for such certificates at or before 11 o'clock a. m., in the
form herewith inclosed, to the chairman of the committee at the clearing
house, with a certified copy of a resolution of the board of directors, in
the form inclosed, authorizing the deposit and pledge of securities for loan
certificates. You are requested to report daily to the manager of the
clearing house each morning at 10 o'clock the amount of certificates held
by your bank.

One striking feature of the above communication
which does not appear in the resolutions and communications in other similar associations is that banks are
referred to as acting in a joint capacity instead of as

IOI

^j~j&*j*^^jr.&*i*4Zfi&^&&&^l&^^^/WJ*&-'*

^^^^^e^^^^^^^^^^^^g^^g^^^^^SH^^^^^^II^jl^Jlj^
w 1TTEE

¥
LOHN * C o ^
-~^% Heui Oilcans Clearing House Association. *r~
THIS CERTIFIES,
o/rftc

d^&/<^

Or<tdecia.f€.'<My &c&~—.

dJiiea.

QgyZtk ^eiUJZcet/e

ttf fine ^^D&a-'lw^

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few

of'#&

a**y

*n**n/et

., <</ia+t w&'cJ!
tpvCCvc

itce^vea

4^ Ac€y'n^erl/<^^k^7.^ces>

THIS CERTIFICATE,

4e4ii&^&jfl4*n>

&€• €<z^€^n^ed^

CLEARINC IJOUSE ASSOCIATION-

)coii<rrTEE.

FORM OF CLEARING-HOUSE LOAN CERTIFICATE U S E D IN N E W ORLEANS.

Clearing-House

Methods

individuals. Soon after t h e above action was taken, a
resolution was passed by t h e boards of directors of t h e
several associated banks as follows:
Resolved, That the president or cashier be and is hereby authorized and
empowered to deposit, pledge, or hypothecate with the loan committee of
the associated banks of New Orleans, United States stocks, bills receivable,
or other securities belonging to this bank as collateral security for any
loan or loans made to the said bank by that committee.

Applications t o the loan committee for
were made by members in form as follows:

certificates

fhe
applies for the issue to them of loan certificates to the amount
$
to foe secured by the deposit of collateral security as per security
herewith sent.

Before taking out loan certificates t h e several members
ratified t h e action of t h e association in authorizing their
issue, in t h e following manner:
Resolved, That as a member of the New Orleans Clearing House Association, the action of said association in the matter of issuing clearing-house
certificates is hereby ratified and confirmed, with all of its provisions.

To intrench themselves against loss in t h e event of failure on t h e p a r t of any member of the association taking
out loan certificates to redeem t h e same, with the stipulated interest, each member was required to execute and
deliver an obligation, of which t h e following is a copy:
This certifies that the
National Bank of the city of New Orleans
is indebted to the New Orleans Clearing House Association in the sum of
dollars, paid by said association to said bank on the faith hereof,
and in consideration thereof said bank hereby agrees to pay said sum, with
interest from the date thereof at the rate of 7 per cent per annum, to the
said association or to its assigns, and said association is hereby authorized,
through its loan committee or otherwise, to sell at public auction or private
sale, on three days' notice to said bank, the securities deposited by said
bank with such association, in accordance with the resolution of such
association, in pursuance of which this certificate is issued.

103

jh.Al.&V

,<OlL„|gl

^^SrJfSJL^S^e^

CLEARING HOUSE CERTIFICATE.-^^
^unom^aii,.
, ,
, , / 893.
T h i s (Certificate *» issued to~~—~~—•.

~ot etdet, fn

TEN THOUSAND DOLLARS,
'against sceuutiw deposited undez an agzcancnt of tfw mcntfoza cftSt C l e a r i n g HOUS©
o

A s s o c i a t i o n of June 16,1893f and is avai(a6U onCy in wttCing @&aiinp cHousc $a(anccs.

4
4

> Committer.

$10,OQOQO
' < $ y ' T y t y s y * ^ mt» v y
FORM OF CLEARING-HOUSE LOAN CERTIFICATE U S E D IN

CINCINNATI.

Clearing-House

Methods

As a further measure of protection to the members in
the event of any emergency arising not otherwise provided for, it was further
Resolved, That any loss arising from the issue of loan certificates shall
borne by the banks comprising the clearing house association, pro rata
capital and surplus; and this resolution shall be ratified by the boards
the respective banks members of the association, and a certified copy
such consent delivered to the chairman of the loan committee.

be
of
of
of

In addition to this, a resolution was passed limiting
the amount of payment by any member of the clearinghouse association to a single person in any one day to $100.
The largest amount of certificates outstanding at any one
time was $998,000, covering one week from September 7
to September 14, all of which were finally retired without
loss to any member.
The Cincinnati clearing house likewise issued loan certificates in 1893, a n d the form employed at that time is
given among the illustrations.
All of the associated banks at Buffalo took out certificates in 1893 m denominations of $5,000 and $1,000, bearing interest at 6 to 8 per cent, but they did not all use
them. The form employed was substantially the same as
that used at previous dates in New York. The sum total
of the issue was $985,000, with which balances were settled to the amount of $2,780,000. In July, 40 per cent
of the balances were paid with these certificates, and 50
per cent in August. From July 9 the amount outstanding reached its maximum, $925,000.
Only 10 out of 19 members of the clearing-house association at Pittsburg took out loan certificates in 1893.
The total amount issued was $987,000, being only $2,000
20040—10

105

National

Monetary

Commission

H
H

O
o
w
a>
P
O

W
6

o
o
fcf

sumnoaaxYKtionz &xo

106

Clearing-House

Methods

more than the issue at Buffalo. The first were taken out
August I I , and the last were retired November 10, the
full amount of the issue having been outstanding on September 15. The certificates bore interest at 6 per cent.
A loan committee was appointed by the chairman of
the clearing-house association of Detroit, upon vote of
the association authorizing such action, and certificates
bearing interest at 7 per cent were issued to members
applying for the same in denominations of $1,000. A
sample of the certificate employed is presented in reduced
facsimile among the illustrations. The amount attained
a maximum of $360,000 on September 11. In section 8
of the constitution, provision in case of loss resulting from
default in payment by a member of the obligation executed and delivered upon receipt of loan certificates and
from failure to realize a sufficient amount from the securities held as collateral to the obligation, is made as follows:
Fifty per cent of the loss shall be prorated among the members on the
amount of the capital stock, and the residue of the balance of loss shall be
assessed pro rata the aggregate amount which the several members have
sent to the clearing house during the time any of such certificates of deposit
may have been outstanding.

The Atlanta Clearing House Association passed a
resolution, August 11, 1893, referring the matter of
issuing clearing-house loan certificates to a special committee, and on August 15 a communication from the
chamber of commerce was entertained, requesting the
issuance of clearing-house loan certificates, whereupon a
committee of three was appointed to act as trustees for
the receipt of collateral securities, and for the issuance
of such certificates to the extent of 6 6 ^ per cent of the
collateral deposited.

107

N°

Atlanta Clearing House
Association Certificate^
+^t»$p4&<&<«

ATLANTA, GA.

(^)hl6

\DeX,tljied
That the Banks composing the Atlanta
Clearing
House Association
have deposited with the undersigned Trustees of
said Clearing House Association, Securities to the value of SEVEN HUNDRED
AND F/FTTrDDitMS.J^secure itothe bjme/tferee&he pwmeeLof tfa&um of

in lawful nTffieyWthwnited Sfdfis, j^(rfe^i4WrfrlkNfaWay*tf
January,
1894. This Certificate is issued in accordance with the proceedings of a meeting
of said Association, held on the Fifteenth day of August, 1893, and will be received
on Deposit or in payment of debts due any bank in said Clearing House.
,

„

.....

£lMMi3J^
FORM OF CLEARTNG-HOUSE LOAN CERTIFICATE USED IN ATLANTA. G A .

TRUSTEES.

Clearing-House

Methods

On August 17 a new manager was appointed, who,
under direction of the trustees, took active charge of
issuing the certificates. The largest amount out at any
one time was $127,000. All were redeemed by November 1, save about $20, which at last accounts were still
outstanding. The denominations were $5, $iQ> $100,
and $500. A sample of the largest denomination is presented on another page.
Two things are characteristic of the Atlanta certifi
cates which are not to be found in any of those heretofore discussed. In the first place they were issued to
the extent of only 66%^ per cent of the collateral deposited
as compared with a minimum of 75 per cent in the other
associations; and in the second place it is to be noted on
the certificates that they "will be received on deposit
or in payment of debts due any bank in said clearing
house"—an implication that they were used for general circulation, which, indeed, is true.
In June, 1893, the clearing-house association at Birmingham, Ala., appointed a committee to inquire into
the best methods for relieving the situation, which was
aggravated by a run on one of its members about a month
previous to that time, and the committee recommended
the use of clearing-house loan certificates. In addition
to this, the association passed resolutions similar to the
one passed at New Orleans, limiting the amount of actual
cash each member should pay to a customer on any one
day to $100, which was afterwards reduced to $50, and
providing a penalty for violation. The denominations
of loan certificates first used were $1,000, $500, $100, $50,
$10, and $5, respectively.

109

National

Monetary

Commission

Like the certificates in Atlanta, they were intended for
general circulation among the customers of the banks,
but unlike any certificates previously mentioned, they
were issued to the extent of only 50 per cent of the collateral required. Customers at first received them with
much reluctance, but they soon found that the merchants
would take them for debts and for merchandise, that the
banks would take them on deposit and accept them in
payment of notes. To obtain cash, persons commenced
to buy small bills of goods with them, expecting to receive
money in change. This checkmated the merchants, and
they called on the association for smaller denominations.
Hence certificates of $2, $1, 50 cents, and 25 cents were
subsequently issued. No other association in the United
States had previously compared with the one at Birmingham in the comprehensiveness of its currency system and
in the extent to which it was projected on this occasion.
A facsimile of one of the smaller certificates is presented
among the illustrations.
On August 22, 1893, the following resolution was
adopted by the clearing-house association at Richmond,
Va.:
Resolved, That the committee have certificates prepared in denominations of $1, $5, and $10 in handsome form, ready for use at such time as this
association may hereafter determine, said certificates to be payable on
demand after ninety days through the clearing house, to bear 3 per cent
interest per annum, and to be secured by deposits of collateral as by
former resolution, interest to cease after ninety days.

The certificates were duly prepared in compliance with
the authority thus given, but were never used.

I BiRflfflQHdn CLEflRINQ HOUSE CERTIFICATE.
%

^°*

Birmingham, Ala.

50c*
.1893.

*£MS CjetttftCS that t h e . .
_
- :
Bank,
of Birmingham, A l a , has deposited with t h e undersigned Committee of the
Birmingham Clearing House, securities to the value of O N E D O L L A R , to secure to
t h e bearer hereof t h e payment of t h e sum of FIFTY
CENTS, in lawful money
of the United States, payable at any time after ninety days f r o m date hereof.
T h i s Certificate will be received on deposit by any B a n k . o r Banker of the
Birmingham Clearing House a t par.
COUNTERSIGNED i

CASHIER.

FORM OF CLEARING-HOUSE LOAN CERTIFICATE U S E D fly BIRMINGHAM, ALA.

^
fc
3

National

Monetary

Commission

The clearing-house association at Chattanooga, Tenn.,
resorted to loan certificates in 1893 (the first time in the
history of that organization that it had done so).
Besides the loan certificates issued in 1893, there was
a considerable amount of emergency circulation taken
out by the banks in the Southeast, under the title of
"Clearing-house certificates,'' in cities where no clearing houses existed. In adopting the name of clearinghouse certificates, it was not the purpose of the banks
to practice deception on the people, but to indicate what
was really true and what the term would seem to imply,
namely, that such certificates were temporary loans made
by the banks associated together, and that the banks
were pledged for their redemption. The denominations
in the cities referred to were: Albany, Ga., $10, $5, and
$1; Chester, S. C , $10, $5, and $1; Columbia, S. C , $50,
$20, $10, $5, $2, and $1; Danville, Va., $100, $50, $20,
$10, $5, $2, and $1; Newman, Ga., $10, $5, and $1; and
Rock Hill, S. C , $5, $2, and $1. There is no doubt that
the relief afforded in this manner was of great public
assistance in the several communities where it was given,
effecting results similar to those accomplished by the
actual clearing-house loan certificates in the great centers.
In 1895 came another period of depression, especially
in certain localities, but by no means so disastrous nor so
permanent as the panic of 1893. Such was the pressure
at Boston, however, that the clearing-house association
authorized the issue of loan certificates, which were taken
out to the extent of $235,000, the last of which were

112

Clearing-House

Methods

retired March 12, 1896. In like manner, at Philadelphia
an issue was made aggregating $8,220,000.
In 1896 at New Orleans, alone, clearing-house loan
certificates were issued, this having been the eleventh
time that resort to such measures had been made since
the history of clearing houses in this country began, less
than a half century ago. The largest amount of certificates outstanding at one time was $399,000, and was
attained on September 4. The last of the certificates
were retired and canceled November 17. The occasion
for the issue at this time was, no doubt, the disturbance
in business circles arising from the presidential contest,
which, always a disturbing factor, was in this year unusually exciting. Thus the New^ Orleans Clearing House
Association enjoys the unique distinction of having on
two occasions—1879 a n < i I ^96—been the only association
to issue loan certificates.
The method of calculating interest on certificates has
been in many associations a source of much difficulty. In
some instances the clearing houses have taken no cognizance of the interest whatsoever, but left the members
free to adjust it for themselves. It is clear that the
interest, like the balances, must consist of credits and
debits which exactly equal or offset each other. That is
to say, the interest charged against certain members for
the certificates taken out by them must exactly equal the
interest paid to the members holding the certificates. It
was not a difficult matter to keep a proper record of the
interest to be charged against the members, for the clearing-house committee knew to whom and in what amounts

113

National

Monetary

Commission

they had issued certificates, and it was necessary only to
calculate the interest at the stipulated rate on the full
amount of the certificates issued to the several members
for the time they were outstanding and to place the
same to their debit; but to know what members held
certificates issued to other banks and in what amounts
after the settlement of balances therewith began was to
many a source of confusion.
The New York plan has been perhaps the most complete
and satisfactory, and was followed by many of the associations. Each member was required to send to the clearing
house each morning a statement of the amount of certificates on hand. In a book kept for the purpose these
amounts were entered to the credit of the banks, each
account being kept on a separate page. At the end of the
month footings were made of the certificates held by each
bank for that time, and the total divided by the number of
days the certificates were outstanding. This gave the
average amount of certificates on hand for the given time,
and upon this amount interest was calculated at the rate
agreed upon and placed to the credit of the bank. Drafts
were then drawn upon the banks to whom certificates had
been issued for the interest due by them. In turn checks
were sent to the banks holding certificates for the interest
due to them.
The same plan was followed at Philadelphia, but at
Boston each member calculated daily the interest due on
the certificates held, and sent to the clearing house with
the certificates to be used in settlement of balances a

114

Clearing-House

Methods

ticket containing a statement of the interest due for the
time the certificates were held.
At Buffalo the interest was calculated daily and settled
weekly by draft of the manager on debtor banks in favor
of creditor banks. At Louisville, Ky., the interest on the
certificates taken out in 1891 was calculated by the bank>
the clearing house taking no cognizance thereof whatsoever. The rate was fixed at 9 per cent for two days—
virtually 18 per cent—and was placed at such an exorbitant figure to prevent the banks which took advantage of
such certificates from expanding their loans at a higher
rate of interest than they were paying on their loan
certificates.
In all such cases the question might arise as to the
disposition of the interest charged against members on
certificates taken out but never used. It is only necessary
to say in reply that it was the common practice to charge
each with the full amount of certificates taken out, and to
credit said bank with the full amount of certificates held,
to whomsoever they might have been issued. The credit
and debit interest, therefore, on certificates issued to any
member, but never used, would exactly balance.
The certificates issued at Wheeling, W. Va., in 1907,
bore no interest, but they were returned, the day following
their receipt by the banks, through the clearing house, with
an exchange charge of 10 cents each added.
Owing to a popular misconception of the character and
purpose of clearing-house loan certificates, much adverse
criticism regarding them has been indulged in, especially
in 1893, on the ground that such issues were made in

115

National

Monetary

Commission

violation of the 10 per cent prohibitive tax on bank-note
currency other than national bank-note circulation.
Such objection was based on the assumption that clearinghouse loan certificates were a form of national bank currency—an assumption which is ill-founded, both in theory
and in fact. The certificates are essentially temporary
loans made by the banks banded together as a clearinghouse association to the members of such association, and
are available to such banks only for the purpose of settling
balances due from and to each other. In the words of a
Comptroller of the Currency, they were but duebills, and
their sole function consisted in discharging the single
obligation at the clearing house. An attempt on the part
of a bank in any of the associations issuing these certificates to use them otherwise would have incurred a fine and
other penalties, provided in the rule governing such associations. In no instance, except those mentioned in the
South, were they designated to serve as money, and
nowhere else did they circulate as money. Hence the
courts of Pennsylvania decided that they should not
be regarded as money. The imposition of a tax upon
them, therefore, would have been not only a serious blow
to one of the most effective and ingenious contrivances
for the deliverance of the country from the throes of panic
that has yet been devised, but would also have been a
direct violation of the spirit of the law.

116

CHAPTER

CLEARING-HOUSE LOAN CERTIFICATES OF THE PANIC
O F 1907.
CAUSES OF P A N I C — A C T I O N OF T H E N E W YORK CLEARING
HOUSE—CHICAGO CLEARING H O U S E — B O S T O N CLEARING
HOUSE—PHILADELPHIA

CLEARING

HOUSE—CLEARING-

HOUSE CHECKS ISSUED AT CANTON, O H I O — A T CINCINNATI
AND C L E V E L A N D — C E R T I F I C A T E S AT FARGO, N . DAK., AND
LOS A N G E L E S — P L A N OF GROUP 2 , OHIO B A N K E R S ' ASSOCIATION—TOTAL OF CERTIFICATES ISSUED.

During the latter half of 1907 a panic of great severity
was experienced in this country, and while many reasons
have been assigned as the cause of the disturbance, there
is, apparently, no one that in itself exactly accounts for
its presence at that time. A prominent banker and
economist has recently stated as follows:
The truth is t h a t responsibility for the panic of 1907 lies at the door of
our currency system. No other adequate cause can be found. We do
business by the modern system of bank credits, but we have failed to supplement this machinery with the means for readily converting bank credits
into cash.

Whatever its causes were, New York banks found
themselves in the fall of that year contending against
rapidly falling bank reserves and runs on one or two
prominent trust companies, both of which facts caused
much uneasiness on the part of the general public.
A meeting of the New York Clearing House Association
was held on October 26, 1907, for the purpose of determining whether the situation was sufficiently serious to

117

National

Monetary

Commission

warrant an issue of clearing-house loan certificates. It
had been hoped for a week previous to the calling of this
meeting that the crisis might be successfully passed over
without the necessity of an issue of loan certificates
arising. The situation, however, grew rapidly worse.
Several of the banks applied for and received assistance
through the joint action of many of the banks, who
advanced cash, receiving therefor participating certificates,
the clearing house holding the collateral security for the
same. The drain upon all the banks was exceedingly
severe, and it soon became apparent that aid would
shortly be solicited by other members of the association.
For this reason the meeting of the associated banks was
called, and as the result of their deliberations a loan committee was unanimously appointed on the above-mentioned date and proceeded to receive and pass on collateral
and issue loan certificates therefor under the terms of the
following resolution:
Resolved, That the clearing-house committee, with the president of the
association, be authorized to receive from banks members of the association bills receivable and other securities to be approved by said committee,
who shall be authorized to issue therefor to such depositing banks loan
certificates bearing interest at 6 per cent per annum, and such loan certificates shall not be in excess of 75 per cent of the market value of the
securities or bills receivable so deposited, and such certificates shall be
received and paid in settlement of balances at the clearing house, and all
rules and regulations heretofore adopted in the issue of such certificates
shall be in force in the present issue. Said committee shall have power
to associate with it such other bank officers as they may judge necessary.

The committee first issued $11,235,000 of certificates to
take care of the aforementioned participating receipts,
given for loans advanced the preceding week.
The date of the first issue was October 26, 1907.

118

Clearing-House

Methods

The date of the first cancellation was November 14,
1907.
The date of the final issue was January 30, 1908.
The date of the final cancellation was March 28, 1908.
The gross issue of certificates was $101,060,000, and
the maximum amount outstanding was $88,420,000 on
December 16, 1907.
During the period of its existence there passed through
the hands of the committee, including original deposits
of securities and substitutions of the same (both withdrawals and deposits), collateral aggregating in amount
the vast total of $453,000,000, of which $330,000,000,
or 72.92 per cent, consisted of commercial paper and
$123,000,000, or 27.08 per cent, of stocks, bonds, and
short-time railroad and other similar notes.
Three thousand five hundred and forty-eight certificates
were issued as follows:
412, at $100,000 each
522, at $50,000 each
1,005, at $20,000 each
1,123, a t $10,000 each
486, at $5,000 each

$41, 200, 000
26, 100, 000
20, ioo, ooo
11, 230, 000
2, 430, 000

The greatest amount of certificates issued to any one
bank was $17,000,000, an amount of certificates greater
than the aggregate issue of any individual clearing house
in the United States, with the exception of Chicago!
The smallest amount issued to any bank was $250,000,
which was done in two instances.
The aggregate amount of the issue, as will be seen by
a comparison of figures, was two and a half times as large
as the issue of 1893, $41,490,000, which was, up to that
time, the maximum amount that had been put out.

119

e&SP

THIS CHECK IS PAYABLE ONLY THROUGH THE CHICAGO CLEARING-HOUSE AND MUST BE COLLECTED THROUGH A BANK.

CHICAGO. NOVEMBER 11 TH

IM^^^^
THIS

1907 N° D 14800 1
||i CHECK jf Chicago Clearing-house Association
IS FOR

TEN
W DOLLARS

$i&

PAY

CONTINENTAL NATIONAL BANK

ORpKAIiER

$ 1 0

i00
00

00 ,
mmmmmmtem T E N AND100.
MANAGER.

THE

F I R S T NATIONAL B A N K
OF

wHICAGO

ASSISTANT S E C R E T A R Y .

THIS CHECK IS PROTECTED BY SECURITIES DEPOSITED WITH THE CHICAGO CLEARING-HOUSE ASSOCIATION,

,*«*
F O W O F CLEARING-HOUSE CHECK USED IN CHICAGO,

Clearing-House

Methods

Beginning with i860 the issues of clearing-house loan
certificates, at New York alone, have amounted to the
enormous aggregate of $269,839,000, all of which have
been redeemed without the loss of a single dollar, and
in periods ranging from three to seven months from the
date of first issue.
The issue of clearing-house loan certificates by the
Chicago Clearing House Association constituted a distinct innovation, since the action was taken for the first
time in the history of the association. In 1893 the subject
of making an issue of certificates was under serious consideration, and a vote was taken which showed a majority
in favor of such action. Considerable aid had, however,
already been given to the needy members, and the crisis
was passed without the necessity for issuing certificates
becoming apparent.
On October 26, 1907, the same day on which the New
York association took its action, the clearing-house
association at Chicago met and passed resolutions authorizing the issue of clearing-house loan certificates, under
conditions very similar to those governing their issue
by other large cities. The certificates were issued under
the supervision of the clearing-house committee to the
extent of 75 per cent of the market value of the collateral
deposited and bore interest at the rate of 7 per cent.
This original action at Chicago was followed on November 6, 1907, by the passing of a supplemental set of
resolutions authorizing the issue of clearing-house checks,
a sample of which is shown among the illustrations, as
follows:
20040—10

121

National

Monetary

Commission

The undersigned members of the Chicago Clearing House Association
do bind themselves by the following agreement supplemental to and in
extension of the mutual agreement which was entered into by them under
the date of October 29, 1907, for the purpose of assisting and protecting
the community and facilitating interbank settlements resulting from
their daily exchanges:
First. Any bank being a member of the Chicago Clearing House Association may at any time surrender to the clearing-house committee any
loan certificate held by it which was issued under said principal agreement
of October 29, 1907, to any other member of the association and receive
in lieu thereof checks to the amount of the principal thereof, in the denominations of $2, $5, and $10, as desired, drawn by or under the direction of the clearing-house committee on the banks to whom the surrendered
certificate was originally issued and made payable through the Chicago
clearing house only to the bank, or bearer, applying therefor, as aforesaid,
which checks shall not draw interest.
Second. The checks so issued in lieu of certificates surrendered shall
run to the bank applying therefor or bearer, and be negotiable like other
bank checks, but neither the clearing-house association, the clearinghouse committee, nor any member thereof shall be liable thereon, in
respect thereto; but the same .shall have the benefit and protection pro
rata of the securities deposited under said principal agreement to the same
extent as the certificates upon the surrender of which they were, respectively, issued, and so far as said securities are concerned shall stand in
the place of such surrendered certificates.
Third. At any time any bank on which said checks are drawn may
present any thereof t h a t may have been paid by it to the clearing-house
committee and surrender the same and receive credit therefor on or against
the principal of the loan certificates in place of which the same were respectively issued. Any interest which may accrue or be allowed on any
of said loan certificates, while the same is held by the clearing-house committee as aforesaid and checks are outstanding against the same, shall
accrue and be allowed and paid to the Chicago Clearing House Association.

The first clause of the foregoing agreement was amended
on November 13 to read as follows:
Any bank, being a member of the Chicago Clearing House Association,
may at any time surrender to the clearing-house committee any loan certificate held by it which was issued under said principal agreement of October 29, 1907, to any member of the association and receive in lieu thereof
checks to the amount of the principal thereof in denominations of $1, $2,
$5, and $10, as desired, drawn by or under the direction of the clearinghouse committee on the following banks designated for that purpose, viz,

122

Clearing-House

Methods

the First National Bank, the Corn Exchange National Bank, the Continental National Bank, and the Commercial National Bank, and made payable through the Chicago clearing house or to the bank, or bearer, applying
therefor, as aforesaid, which checks shall not draw interest.

Thus it will be seen that the Chicago Clearing House
Association issued checks in amounts of $i, $2, $5, and $10
designed for general circulation, to the extent of about
$7,500,000, secured by clearing-house loan certificates,
which in turn were secured by 133 per cent of good collateral. The aggregate amount of clearing-house loan
certificates, issued in Chicago was $39,240,000, and the
maximum amount outstanding was $38,285,000 on December 18, 1907.
The first issue was made on October 28, the last issue
on December 17, 1907. The first cancellation was made
on December 14, 1907, and the final cancellation on January 17, 1908, thus showing the issue to have been of less
than three months' duration.
During the last few days of October the Boston Clearing House Association met and appointed a committee of
six bank officers, of which the chairman of the clearinghouse committee was one, to receive bills and notes receivable and other securities to be approved by the committee, who thereupon issued certificates to an amount
not in excess of 75 per cent of the value of such property
deposited, as determined by the committee, the certificates bearing interest at the rate of 7.3 per cent.
The resolutions further provided that any loss arising
from the issue of the loan certificates should be borne by
the banks of the clearing-house association, pro rata, according to the average daily amount which each bank

123

National

Monetary

Commission

had sent to the clearing house during the twelve months
ending September 30, 1907.
Under these regulations a total issue of $12,595,000
was made. The first certificates were put out on October 28, 1907, and the last were withdrawn and canceled
on January 24, 1908.
The associated banks of Philadelphia issued clearinghouse certificates under an agreement which went into
effect on September 24, 1873, a n ( i has remained substantially without change from that time. In all essential
details it is similar to the regulations at New York, and,
therefore, needs no special comment.
On account of the temporary scarcity of currency
employers found it necessary to make payments of wages
in pay checks, payable through the clearing house,
instead of in cash, and it was deemed important that such
checks should be rendered as readily available as possible.
A special meeting of the clearing-house association was,
therefore, called on November 16, 1907, and the following
resolutions were unanimously adopted:
Resolved, That it is recommended by the clearing house of Philadelphia
t h a t hereafter pay-roll checks made payable through the exchanges of the
Philadelphia clearing house shall be certified before issue by the banks
upon which they may be respectively drawn.
Resolved, T h a t the clearing-house association recommend t h a t no payroll checks be certified by any member of the association unless furnished
by the American Bank Note Company in the form approved by the clearing-house committee.
Resolved, T h a t such pay-roll checks shall only be furnished to members
of the association upon application to the clearing-house committee.
Resolved, T h a t the members of this association before certifying payroll checks shall open a pay-roll account for the depositor to whom such
checks are issued, to which account said pay-roll checks shall be charged
when paid.

124

Clearing-House

Methods

Resolved, That returns of the amount of checks issued and outstanding,
as shown by the balance to the credit of pay-roll account, shall be made
daily to the clearing-house committee by the banks which have accepted
and certified them.

The aggregate issue of clearing-house loan certificates by the Philadelphia banks was $13,695,000, an
amount considerably in excess of that of any previous
issue.
Many of the clearing houses of the country issued
clearing-house checks, or cashier's checks, generally
under proper safeguards, in small denominations, which
were intended for general use, to take the place of cash
temporarily withdrawn from circulation.
Canton, Ohio, is a center of manufacturing interests of considerable magnitude, and, therefore, required large amounts of cash for pay rolls, which was
not available. A consultation was held between the
bankers and their manufacturing clients, with the result
that the use of pay checks was agreed upon. One
general form was used, there being but three denominations—$5, $10, and $20—and each bank provided
its customers with a supply of these. The checks were
made payable to bearer through the Canton clearing
house only, and had to be signed by an authorized
person connected with the firm or corporation issuing
them. These checks, however, were found unsatisfactory,
partly from the fact that when small purchases were
made with them the tradespeople were obliged to make
change with cash, which soon exhausted their supply.
Subsequently, therefore, clearing-house checks, or cashier's checks, payable to bearer through the clearing

125

ati

Canton, Ohio, November 11, 1907.

$5.00
PAY TO THE BEARER
I FIVE DOLLARS FIVE DOLLARS $5.00
SQ{ P A Y A B L E ONLY THROUGH T H E CANTON C L E A R I N G - H O U S E .
CAg
CV/5

TO
tA9

TO
Iftg
TO

TO
TO
fAg
TO

|A3
TO

TO
$AJ

TO
*Ag
TO

TO
TO
TO

Sto

Cashier.

102
TO

FORM OF CLEARING-HOUSE CHECK U S E D AT CANTON.

102
TO
?A2

THE CITY NATIONAL BANK.

o
5s

^
V*

O
o

s
§

* • * •

**•
Q>

1 S

Clearing-House

Methods

house only, in amounts of $ i , $2, $5, and $10, were
issued t o t h e extent of about $200,000. These checks
h a d no collateral security back of them, and were accepted purely on the responsibility of t h e issuing bank.
A specimen of this check is shown herewith.
A special committee was appointed b y t h e Cincinnati clearing house on October 28, 1907, and early in
November of t h a t year checks, printed from steel
plates, in denominations of $2, $5, $10, and $20, were
issued t o each of t h e 14 clearing-house banks. The
committee received from each bank high-class collateral
security of not less t h a n 20 per cent in excess of t h e
face value of t h e certificates delivered t o it, which collateral was held until t h e checks were retired a n d canceled. A list of merchants who had expressed a willingness t o cash these checks, numbering in excess of
300 names, was published in t h e papers, and in several
instances a premium of as high as 5 per cent was allowed for cash purchases made and settled b y these
cashier's checks. The total amount of the checks so
issued was about $2,000,000, and as soon as t h e currency situation again became normal they practically
retired themselves.
The action of t h e Cleveland association in this regard was substantially t h e same as t h a t taken by Chicago, with t h e exception t h a t t h e clearing-house loan
certificates issued b y t h e associated banks of Cleveland were not used in t h e settlement of balances a t
all, b u t were made t h e basis, dollar for dollar, for t h e
issue of clearing-house checks in denominations of $ 1 ,

127

-190-

FARGO, N. D.,-

ON OR BEFORE THREE MONTHS AFTER DATE T H E BANKS OF FARGO AND MOORHEAD COMPOSING THE

(Ebarmg-ijoufl? Aaauriattmt
O F T H E C I T Y O F FARGO

WILL PAY TO T H E BEARER T H E S U M O F FIVE DOLLARS ($5.00)
THIS CERTIFICATE IS ISSUED UNDER AN AGREEMENT BETWEEN THE FIRST NATIONAL BANK OF FARGO, THE MERCHANTS
NATIONAL BANK OF FARGO, THE FARGO NATIONAL BANK OF FARGO, THE COMMERCIAL BANK OF FARGO, THE NORTHERN TRUST
COMPANY OF FARGO, THE NORTHWESTERN MUTUAL SAVINGS ANO LOAN ASSOCIATION OF FARGO, THE FIRST NATIONAL BANK OF
MOORHEAD, THE MOORHEAD NATIONAL BANK OF MOORHEAD, THE FIR8T STATE BANK OF MOORHEAD. BY WHICH ALL SAID BANKS
ARE LIABLE HEREON.

T H E C L E A R I N G - H O U S E A S S O C I A T I O N O F T H E CITY O F FARGO

PRESIDENT.

1251
FORM OP CLEARING-HOUSE CERTIFICATE U S E D AT FARGO, N. D .

SECBETABY.

Clearing-House

Methods

$2, $5, and $10, of which it is said they performed
nearly all the functions of currency during the brief
period of their existence.
The Fargo (N. Dak.) Clearing House Association
appointed a trustee to receive collateral and issue clearing-house loan certificates in denominations of $5, $10,
$20, $100, and $500. These certificates, a facsimile
of which is presented among the illustrations, were
payable on or before three months after date, were
signed by the president and secretary and attested
by the trustee, and were issued to the extent of only
50 per cent of the collateral deposited—an unusually
low percentage.
In addition to an issue of clearing-house loan certificates made by the Los Angeles association on October 30, 1907, authorization was also given for an issue
of what was termed "clearing-house circulating certificates or scrip/' designed as a circulating medium
for the general use of the public. These "circulating
certificates/' in the regulations governing their issue,
closely resemble the clearinghouse checks issued by
several other associations, and their purpose was identical. In form they were somewhat more elaborate
than were most of such certificates issued during that
period, the idea being to render them as difficult of
counterfeiting as was possible.
Most of the clearing houses that issued both clearing-house loan certificates and clearing-house checks
secured the checks by the deposit of loan certificates,
which were secured by collateral, but at Los Angeles

129

FORM OP CHECK ISSUED BY GROUP 2, O H I O BANKERS ASSOCIATION.

Clearing-House

Methods

both the loan certificates and the scrip were directly
secured by collateral, the former to the extent of 133
per cent, and the latter by securities valued at 200 per
cent of the amount issued.
The loan committee of the Oklahoma City Clearing
House Association adopted resolutions permitting the
banks to take out certificates in the same form as those
used at St. Louis, but provided that no bank should be
required to hold, in the aggregate, an amount of these
certificates that would more than equal 5 per cent of
their deposits on the day the certificates were offered to
them in payment of balances at the clearing house, and
that when a bank having a credit in the clearing house
reached the 5 per cent limit the debit bank should pay
currency or exchange at the option of such bank.
The action taken by the associated banks of group
No. 2 of the Ohio Bankers' Association, which includes
the banks of Allen, Auglaize, Darke, Hancock, Harden,
Logan, Mercer, Miami, Paulding, Putnam, Shelby, and
Van Wert counties in that State, is worthy of comment,
since it offers the first concrete example of the possibilities of the banks of any particular section of any State,
uniting in an effort to overcome the disastrous consequences resulting at times from false rumors in panic
periods. The agreement under which the group above
mentioned operates contains some new and interesting
features, and it is therefore presented in full, viz:
The undersigned associated banks, members of group No. 2 of the Ohio
Bankers' Association, each for itself or himself, as well as mutually with
the others hereto, in consideration of the benefits derived and to be derived
from the following agreements, stipulations, and conditions, agree hereto,

131

National

Monetary

Commission

and each bank or banker affixing it with his name hereto, or by resolution
adopting and confirming these articles, agrees to be bound by each and
all of the provisions hereof.
i. I t is intended hereby to provide protection to the banks and bankers
and the patrons thereof joining herein.
2. Three trustees shall be named and vacancies filled by the executive
committee of group No. 2 of the Ohio Bankers' Association, and these three
shall constitute a board of trustees, hereinafter referred to as " said board,"
for the purposes of carrying out this agreement.
3. Any two members of said board are authorized to act hereunder.
4. Said board shall have full authority to grant relief to any bank o r
banker hereof upon satisfactory assets and the title thereto being transferred and delivered to said board.
5. Said board shall be the sole judges of the necessity, sufficiency, and
deservability of such relief, as well as of the value of such assets, and the
amount advanced to any bank or banker shall in no case exceed 60 per
cent of the cash value of such assets so transferred and delivered to said
board.
6. A member hereof desiring relief in either manner herein named shall
apply and furnish all necessary information and details required by said
board, and comply with all requests of said board and pay all expenses
incident to the entire transaction, whether as to application furnishing
relief or repayment.
7. All advances made under the order of said board to any member
hereof shall, together with 8 per cent interest, be repaid within sixty-five
days from the making of such order by said board.
8. In order to enable said board to act promptly upon any application
for relief, each member hereof shall, on January 1 and July 1 of each year,
furnish to the chairman of said board a detailed statement of the resources
and liabilities of such member, which information is for the sole use of said
board, and the improper disclosure by any member of said board shall be
cause for his removal by the executive committee.
9. In case relief is decided upon to any member hereof, said board having fixed the amount of such relief shall apportion between the members
hereof the amount to be paid by each, based upon its resources, and each
member shall be notified of the fact of relief, the amount to be paid by such
member, and the same shall a t once be sent to such member granted relief,
payable in gold, silver, or currency, as the sending member may elect, and
a failure so to do as provided shall subject such defaulting member to a
forfeiture of his rights hereunder for relief and the surrender of his certificate
of protection hereunder; and each member so advancing shall a t once
notify said board of the date, amount, and manner of such remittance, and
each member so relieved shall not only receipt to each assisting member
b u t shall send a copy of such receipt to said board. Upon assurance of

132

Clearing-House

Methods

such contribution said board shall issue to each contributing member a
certificate of the fact, date, and amount of such contribution.
10. Upon failure of any member so aided to pay any sum, interest, and
expenses as above provided when due, then said board in their names, followed by the word ' ' t r u s t e e s / ' are authorized to sue and recover from
said defaulting member the said amount, interest, and expenses, or convert said assets into money by suit as above or otherwise, or said board
may, at its election, sell a t public or private sale, with or without notice,
the assets so transferred and delivered to it by such defaulting member,
and said board is authorized, by the signature of its chairman, as follows:
" Without recourse
, Chairman"
to indorse, transfer, and deliver upon such sale the full and legal title to the
purchaser of any or all assets so delivered to it by such defaulting member. After closing out the transaction, any balance left in the hands of
said board after paying the amount, interest, and costs as a result of such
relief shall return to said defaulting member any balance in its hands; or,
in case the sale of said assets shall not be sufficient to fully pay said amount
so furnished, together with interest and costs as above provided, said defaulting member shall be liable to said board for such balance, to be collected by suit or otherwise as above provided.
11. All repayments shall be to said board and shall be distributed by it
among the members contributing to such members relieved upon the same
basis that such relief was extended.
12. In case it should be determined by the executive committee of said
group t h a t checks should be used for the relief of any member hereof in
lieu of direct relief as hereinbefore provided, then, and in that event, said
board may receive of the assets to be selected, valued, and determined as
hereinbefore provided, and may furnish blank checks for the use of such
member, to be issued by it to the amount of 60 per cent of the value of the
assets so indorsed and deposited with said board as security against said
checks, and for the purpose of protecting the other members hereof against
loss by reason of the issuance of such checks by such member. Said blank
checks shall be lithographed, and said board shall keep a record of the
numbers and amounts of such checks as to each bank so receiving same
for its benefit. Said checks shall also on their face contain the following
statement:
" I n addition to the liability of this bank, collateral has been deposited
with the board of trustees of associated banks, group No. 2, Ohio Bankers'
Association, as additional security herefor;" and also in the lower lefthand corner the words " Payable in exchange." Upon the acceptance
of the collateral and delivery of said blank checks said member so receiving
the same may issue them, and each member hereto agrees to receive them
in the course of business. Said bank so receiving said checks shall, at the
earliest possible date, redeem them by canceling them and presenting

133

National

Monetary

Commission

them to said board, receiving in return the collateral deposited, b u t such
collateral shall be held and retained as security for the members hereof
until such checks have been canceled and returned, each member hereof
to be notified of the amount of such checks so delivered to each member
upon such collateral. Said board shall have the right in the interest of
all members hereof to call for the cancellation and return of said checks
at such time or times as it deems best, and if, for any reason, said member
so receiving said checks fails to comply with said request, said board may
sell such collateral either at public or private sale, with or without notice,
and transfer to the purchaser thereof perfect title therein in the following
manner, to wit:
" Without recourse
., Chairman"
and use the proceeds of such sale in the redemption of said checks so
received by said bank, the balance, if any, to be delivered to said member;
or, in case the sale of said collateral is not sufficient to redeem said checks,
any balance shall be a claim against such member.
13. Any member having received relief in either manner above named
shall not make any loans or discounts until the relief, interest, and expenses
above named shall have been fully paid or said checks fully redeemed, and
any breach of this clause shall render due the sum so advanced and the
interest thereon, or the immediate rights to sell collateral under the " check"
clause hereof, and said board may proceed as though the full limit of time
had elapsed for repayment of said sum advanced and interest thereon.
14. I t is expressly understood and agreed t h a t said board and its members, when appointed, are the trustees for the members hereof, fully authorized in the premises to do all things, to fully carry out the purposes hereof
and they, by so acting, assume no personal liability.
15. On account of the number of parties hereto this agreement is printed,
and the signature of any member hereof to any printed copy mailed to the
chairman of said board shall bind such member for himself and mutually
with all others.
16. Any member hereof who may engage in what, in the judgment of
said board, is illegal or improper banking shall forfeit its membership
herein when said board in its discretion deems it best to so declare, and
the certificate so issued to such member shall be returned to said board
and all rights of said member hereunder shall cease and determine, except
as to its right to be reimbursed when and as any other members are reimbursed for any advances by it made for the relief of any other member
under the terms hereof. After January 1, 1908, applications for membership hereto shall be upon written application directed to the chairman
of the board of trustees, and membership can be granted upon the approval
of two members of said board.

134

Clearing-House

Methods

The object contemplated by this agreement was t h e
protection of t h e members of t h e group against t h e disastrous results of rumor and consequent " r u n s " by extending t o t h e needy ones, who were worthy t o receive
it, such assistance as they might require to tide t h e m
over their troubles. I n other words, it was a plan for t h e
m u t u a l protection of t h e banks in this particular section,
and was one t h a t might well be emulated, under like
circumstances, by any group of any state association
in t h e country.
During t h e two or three days remaining in October,
after t h e New York Clearing House Association had
taken action, t h e clearing houses of the country, with
practical unanimity, met and m a d e provision, at least,
for t h e issue of some form of instrument t h a t would aid
in relieving t h e existing conditions. A few clearing
houses, prominent among which was t h e association at
Washington, D. C , found no occasion for action at all,
while others met a n d made provision, so t h a t in case of
need there would be no delay in getting t h e machinery
going, b u t in the majority of cases t h e situation was
sufficiently trying to cause t h e immediate issue of such
instruments. These instruments bore rates of interest
varying from 5 to 10 per cent, and were issued for from
50 to 80 per cent of t h e collateral deposited to secure
them.
I t is practically impossible t o estimate t h e a m o u n t
of these instruments outstanding at any one time.
Suffice it so say t h a t it seems safe to assert t h a t in excess
of $250,000,000 of them, in t h e aggregate, were issued

135

National

Monetary

Commission

during the panic by the various clearing houses of the
country, and in addition thereto a few of the railroads
and some of the larger industrial corporations issued
checks of various denominations, which were used in
making payments of wages to their employees during
the period of extreme stringency, which checks passed
current for the time being.
Taken as a whole, these instruments served well the
purpose for which they were issued, and once again the
utility of them as an emergency measure was demonstrated in a practical way, and on a scale the magnitude
of which had never before been approached.

136

CHAPTER

XII.

CLEARING-HOUSE BANK EXAMINERS.
GENERAL R E M A R K S — E X A M I N E R APPOINTED AT CHICAGO I N
1 9 0 6 — M I N N E A P O L I S AND ST. P A U L — S T . L O U I S — L O S ANG E L E S — K A N S A S CITY AND ST. J O S E P H — P H I L A D E L P H I A —
DETAILS OF PROPOSED GROUP PLAN OF T H E CALIFORNIA
B A N K E R S ' ASSOCIATION.

In the first edition of this book, published some nine
years ago, the writer strongly advocated the appointment,
especially by the stronger clearing houses of the country,
of clearing-house bank examiners, whose duty it should
be to make periodical examinations of each bank member
of the associations with which they were affiliated, as a
desirable means by which to reduce to a minimum the
number of bank failures due to mismanagement and bad
judgment.
This recommendation was in no wise intended as a
reflection upon the examinations pursued under national
and state authority. The national and state officers are
limited in their powers of criticism to actual infringements
on the law, and before they can take steps to correct such
infringements capital has often become impaired and
failure is threatened.
Most bank failures are due to the gradual acquirement
of undesirable assets over a period of years, and if some
20040—1 o

137

National

Monetary

Commission

authority exists with power to make recommendations of
a remedial character, with the further power to enforce
such recommendations, if necessary, there is little doubt
that many bank failures would be averted.
The panic of 1907 presented many striking examples of
just what is intended to be emphasized in this chapter,
viz, that under the careful supervision of a competent
and reliable examiner many of the assets of the failed
banks, upon which it was impossible for them to realize
at a time when they needed their funds, would probably
have been liquidated upon his recommendation and advice long before the necessity for such liquidation had
arisen.
Mr. J. B. Forgan, of Chicago, has recently said on this
subject:
A competent examiner—and there are many such now in the government employ—while he can not pass judgment on all the loans in a bank,
can, after a careful examination, or a series of examinations, form a wonderfully correct judgment as to the general character of its assets and as to
whether its management is good.or bad, conservative or reckless, honest
or dishonest. Examinations, as they are now conducted, have a most
beneficial influence on bank management, especially by way of restraint.
The correspondence carried on by the Comptroller, based on the examiners'
reports, does an inestimable lot of good in the way of forcing bank officers
to comply with the law and in compelling them to face and provide for
known losses as they occur. Supervision by examination does not, however, carry with it control of management and can not, therefore, be held
responsible for either errors of judgment or lapses of integrity. Examination is always an event after the act, having no control over a bank's
initiative, which rests exclusively with the executive officers and directors,
and depends entirely on their business ability, judgment, and honesty of
purpose.

The clearing-house association of Chicago was the
pioneer in the establishment of an independent system of
clearing-house bank examinations in this country, its

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system having been inaugurated on June i, 1906, with
results that have, to the present time, more than fulfilled
the expectations of the bankers of that community. The
chairman of the clearing-house committee, speaking in
this connection only recently, said:
The result of our experience in Chicago is most satisfactory and gratifying. The banks have almost unanimously adopted every suggestion made
by the clearing-house committee for their betterment and strength. I n
several instances the committee, from its wider knowledge of the financial
situation, has been able to save some of the smaller institutions from loss
by enabling them to take hold of conditions in time. I can not properly
go into such details as would illustrate the effectiveness of clearing-house
examinations as we have experienced it, and can only say in a general way
that it has been even more satisfactory than I anticipated it would be
before it was undertaken.

In substantially his own words the Chicago examiner
operates under the following conditions: The examinations extend to all the associated banks of Chicago and to
all nonmember institutions. The work is conducted with
the aid of five regular assistants, each fitted by experience
to thoroughly do that part of the work assigned to him.
The examinations include, besides a verification of the
assets and liabilities of each bank, so far as is possible, an
investigation into the workings of every department and
are made as thorough as is practicable. After each examination the examiner prepares a detailed report in duplicate, describing the banks' loans, bonds, investments, and
other assets, mentioning specially all loans, either direct
or indirect, to officers, directors, or employees, or to corporations in which they may be interested. The report
also contains a description of conditions found in every
department. One of these reports is filed in the vaults of
the clearing house, in the custody of the examiner, and

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the other is handed to the examined bank's president for
the use of its directors. The individual directors are then
notified that the examination has been made and that a
copy of the examiner's report has been handed to the
president for their use. In this way every director is
given an opportunity to see the report, and the examiner,
in every instance, insists upon receiving acknowledgment
of the receipt of these notices.
The detailed report retained by the examiner is not
submitted to the clearing-house committee, under whose
direct supervision he operates, unless the discovery of
unusual conditions makes it necessary. A special report
in brief form is prepared in every case and read to the
clearing-house committee at meetings called for that purpose. The report is made in letter form, and describes in
general terms the character of the examined bank's assets,
points out all loans, direct or indirect, to officers, directors,
or employees, or to corporations in which they may have
an interest. It further describes all excessive and important loans, calls attention to any unwarranted conditions,
gross irregularities, or dangerous tendencies, should any
such exist, and expresses, in a general way, the examiner's
opinion of each bank as he finds it.
Less than a year after the Chicago Clearing House Association appointed its special examiner the associated
banks of Minneapolis took similar action. The conditions
under which the Minneapolis examiner operates are substantially the same as those governing the examiner at
Chicago, the principal difference being that instead of the
examiner sending a copy of his report to the president of

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the examined bank and notifying each of the directors of
such bank that he has made such examination and that
the report is in the hands of the president of the institution,
as is the rule of procedure at Chicago, and which, in a
measure, leaves it to the discretion of the directors whether
they examine the report carefully and in detail, the original
report is delivered by the examiner at Minneapolis in person to the board of directors of each bank which he examines, at a meeting convened for that purpose. The report
is read and the criticisms, if any, are fully discussed, and
the recommendations considered. In this way no director
can complain that he had not sufficient opportunity to become fully conversant with all the details of his bank.
This action was taken by the Minneapolis banks on
February i, 1907, and on May 1, 1908, fifteen months
later, the associated banks of St. Paul, recognizing the
utility and value of the plan, joined with the Minneapolis
association in the arrangement for clearing-house examinations, and another assistant examiner was appointed.
Examinations extend to all national, state, and savings
banks and trust companies within the Twin Cities, to the
number of 38 institutions, and the examiner visits each
institution at least twice a year.
At a meeting of the St. Louis Clearing House Association held on October 11, 1907, the committee of management was authorized to devise regulations looking to the
appointment of a clearing-house bank examiner, together
with such assistants as he might require. The panic of
that year, however, intervened, and the appointment of
the examiner was deferred until February 1, 1908, and he

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commenced his work with two capable assistants and a
stenographer on March 15 of that year.
A detailed report is prepared in duplicate of the condition of each bank examined, as at Chicago, setting forth
a description of the bank's assets, including all loans,
direct or indirect, to officers, directors, or employees of the
bank, or to corporations in which they may have an interest
and the nature and value of the collateral held to secure the
same. The reports further detail all loans in excess of the
legal limit, all loans upon which the margins are deemed
insufficient, all past-due paper, and an estimate of the
probable loss, if any is apparent, on all the bank's investments. The reports also include the condition of the
bank's reserve on the date of examination and the general condition of the same for the thirty days immediately
preceding.
The banks are required to have a statement of their
accounts with correspondent banks at the close of business on the day of examination, mailed direct to the examiner, and these statements are reconciled with the
books of the bank. Should errors or discrepancies be
discovered, they, too, are made a matter of special comment in the report. All resource accounts are verified
by an examination of the actual security, ot by correspondence, and all liabilities as shown by the supplemental books of the bank are listed and compared with
the general ledger.
The examiner may insist, if, in his judgment, the conditions warrant it, upon receiving a detailed reply signed
by all the directors of the bank, regarding matters com-

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plained of in his report, and a statement from them as to
what steps will be taken to correct the same.
None of the details of the report are presented to the
committee of management, unless, in the discretion of
the examiner, the facts are such as to require their attention. When, however, a state of affairs exists which is
not in harmony with sound banking, or any infringement
of federal or state laws is discovered, the regulations provide that the report shall be submitted to said committee,
and, after due consideration by that body, the officers
and directors of the bank under criticism shall be brought
before the committee and given a hearing. If the conditions are not corrected and a satisfactory adjustment
made, the bank shall be denied the privileges of the clearing house.
The committee of management of the St. Louis Clearing House Association evidently realized the danger of
having one man so fully conversant with the affairs of all
the banks, as was certain to be the case with an examiner
of this character, and the temptation it might be to any
bank to endeavor to secure the services of a man who
possessed such an intimate knowledge of the affairs of its
competitors, and provided against such a contingency by
contracting with him, and also, with his assistants, not
to accept any position in any financial institution within
a radius of 300 miles of St. Louis, within a period of
three years after severing their connection with the clearing house, unless such connection should be made with the
knowledge and consent of the committee of management.

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The clearing-house associations of Los Angeles and San
Francisco have each provided for examinations of their
respective members by special examiners appointed by
the clearing house. The plan upon which these examiners
operate is modeled closely upon the St. Louis idea, so that
it would be ambiguous to discuss them in detail. Suffice
it to say that they have been operative for a sufficient
length of time to be well tried out, and that no dissatisfaction has become apparent.
In the early part of 1908 the associated banks of Kansas City took under advisement the matter of securing
the services of a special examiner to be in the employ of
the clearing house, and in March of that year entered into
a contract with one of the members of a firm of certified
public accountants of that city to do the work.
In all essential details the operations of the examiner
are along the same lines as are those of other cities. One
striking feature of the plan is the maintenance by the
examiner of a credit record by card-index system, and in
other ways, whereby memoranda are kept of the borrowings of all country banks and large individual firm and
corporation borrowers, together with certain credit information, all of which is at the service of any member of the
clearing house. Information as to the identity of the
bank from which the borrowings have been made is never
given, but a debtor's total borrowings and all other
information, gathered from time to time by the examiner,
are at the service of any bank which indicates a desire to
have it.

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The St. Joseph Clearing House Association, in the early
part of the present year, also entered into a contract with a
prominent firm of certified public accountants to make
examinations of its various affiliated institutions under
constitutional provision. The plan contemplates but one
examination of each institution a year, and much general
satisfaction has been expressed with the examinations
made thus far.
The first and only association in the East to take this
important step was that of Philadelphia. That the recent
panic strongly impressed certain bankers of that city who
served on the clearing-house committee during that trying
period, with the idea that they had assumed an enormous
responsibility in extending credit to the various members
of the association without even the knowledge that their
condition was satisfactory, is undoubtedly responsible for
the unanimous action taken by the association on April 5,
1909, providing for the appointment of a clearing-house
examiner. The plan under which the examiner operates
is the result of a study of all the systems and methods
pursued in the West, and the best features of each have
been adapted to their purposes. Having been thus formulated it is unnecessary to discuss the details, which would
be a duplication of certain features of each of the other
plans touched upon. In this instance, however, the
examiner was obliged to enter into an agreement with
the clearing-house committee not to enter the employ of
any member or nonmember of the association, or any other
bank, banking institution, firm, or individual engaged in the

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business of banking in the city of Philadelphia, or within
a radius of 250 miles thereof, for a period of five years after
the expiration of his services with the association, which,
as will be seen, precludes his acceptance of a position wTith
a bank in the city of New York. The restriction as to the
length of time during which he may not engage in the
banking business within the prescribed radius is two years
longer than that required by the association at St. Louis.
Prior to July 1, 1909, the banking laws of California
did not provide for any state supervision by examination
of its banks; and the bankers of that State, realizing that
public opinion was gradually tending toward a demand
for better supervision of banking institutions all over the
country, and acting on a practical suggestion made by a
visiting banker at one of the group meetings of the California Bankers' Association, started a movement which
had for its purpose the formation of clearing-house associations for each of the state groups, each with proper
officers and a local examiner. The laudable object of
this California plan was " t o improve and strengthen the
banking system of the State; to prevent improper and
unsafe conduct upon the part of officers or directors of
any bank within the State; to provide a system of thorough
and competent examination into the affairs of every bank
belonging to this association by expert examiners; and,
generally, to safeguard the common interests of the
banks and the public/' All banks were eligible to membership, but under the plan no bank could withdraw
unless in good condition, and the associations had power
to expel any member, notice of such expulsion to be sent

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to the national or state banking department, and to each
and every member of the association. The plan contemplated the division of the State into eleven districts, the
clearing-house association of San Francisco being No. i,
that of Los Angeles No. 2, and so on.
The plan was perfected, and nothing remained but to
set it in motion, when the California legislature passed a
new banking law, based upon that of New York, which
provided for the appointment of a competent superintendent of banks, with a liberal allowance for the expenses
of the office. The new superintendent commenced his
duties on July 1 of the present year, and pending an
opportunity to observe the character, efficiency, and
results of his work the group plan of examinations has
been abandoned.
The subject of the appointment of a bank examiner has
been discussed by the associated banks of New York on
one or two occasions, but sufficient opposition has each
time developed to make it impossible of accomplishment.

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CHAPTER

XIII.

THE NEW YORK CLEARING HOUSE.
ORIGIN AND EARLY HISTORY—FORMAL ORGANIZATION I N
1853—FIRST
BUILDING

LOCATION—NEW

YORK

CLEARING-HOUSE

COMPANY—CEDAR S T R E E T P R O P E R T Y — C O N -

STITUTIONAL PROVISIONS—COMMITTEES—STATISTICS OF
MEMBERSHIP—CLEARING

FOR

NONMEMBERS—STATE-

MENTS OF CONDITION—CAPITALIZATION OF N E W YORK
BANKS—RECORDS OF CLEARING HOUSE.

Notwithstanding the magnitude of the transactions
at the New York clearing house, and the important part
that it plays in banking economy, very little is known
about it outside of banking circles. The business community is not familiar with its functions, and the public
in general knows very little of its operations. While the
exchanges are enormous, the method is simple and easy
to comprehend. It is the purpose of this chapter, therefore, to inquire into its origin and trace its growth and constitutional development. To the end that the reader may
be the more fully prepared to comprehend its true significance it is necessary, by way of introduction, to pass in
review the methods of exchange employed by the New
York banks prior to its establishment.
During a comparatively short period immediately following 1849 the number of banks in New York increased
from 24 to 60. In the daily course of business each bank
received checks and other items on each of the other banks,

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which had to be presented for collection. All such items
on hand were assorted and listed on separate slips at the
close of the day, and items coming in through the mail on
the following morning were added at that time. To make
the daily exchanges each bank sent out a porter with a
book of entry, or pass book, together with the items to be
exchanged.
The receiving teller of the first bank visited entered the
exchanges brought by the porter on the credit side of his
book and the return exchanges on the debit side, who then
hurried away to deliver and receive in like manner at the
other banks. It often happened that five or six porters
would meet at the same bank, thereby retarding one
another's progress and causing much delay. Considerable
time was consumed in making the circuit. Hence, the
entry of the return items in the books of the several banks
was delayed until the afternoon, at an hour when the other
work of the bank was becoming urgent.
A daily settlement of the balances was not attempted
by the banks, owing to the time it would have required,
but they informally agreed upon a weekly adjustment, the
same to take place after the exchanges on Friday morning. At that time the cashier of each bank drew a check
for each of the several balances due it, and sent a porter
out to collect them. At the same time the porter carried
coin with which to pay balances due by his bank. After
the settlement had been made, there was a meeting to
adjust differences and bring order out of chaos.
An old bank officer (J. S. Gibbons), in describing the
inconveniences and defects of this system, says that some

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of the more speculative banks took advantage- of the
weekly method of settlements by carrying a line of discounts to an amount greater than their legitimate resources
would allow. Thus, a bank would manage to carry a small
debit balance of $2,000 or $3,000 with thirty or more
institutions, making a total debit balance of, say, $100,000
on which it discounted paper. It was the practice to borrow enough on Thursday to make the settlements on
Friday, and the return of the loan on Saturday threw it
again into the debtor column. Virtually, therefore, the
weekly settlements were nominal only, and to show that
there was no attempt at economy of time and labor in
making them, it is only necessary to say that the cashier
drew a check for every balance due him, whereas a draft
on one bank in favor of another might have settled two
accounts at once.
The banks were at liberty to draw on each other for
their credit balances without waiting for the settlements
on Friday, and hence, when specie was needed, this was
not infrequently done. But so far did many of the banks
extend their loans and discounts that a single small draft
by one bank on another would induce a general drawing
and involve them all in confusion and virtual war on each
other. Three o'clock would arrive, with the line of drafts
incqmplete, thus enabling debtor banks ofttimes to add
$50,000 to their specie, whereas creditor banks would
find themselves at the close of the day depleted in perhaps twice that sum.
The desirability of a substitute for such a system had
long been realized, but as yet no plausible scheme had

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been proposed. As early as 1831 a plan had been suggested by Albert Gallatin, which, to a very remarkable
degree, coincided with the one ultimately adopted. His
proposition occurs in a pamphlet of 124 pages, entitled
1
'Suggestions on the Banks and Currency of the Several
United States in Reference Principally to the Suspension
of Specie Payments," and is so significant that we quote
it in part:
There is a measure which, though belonging to the administration of
banks, rather than to legal enactments, is suggested on account of its
great importance. Few regulations would be more useful in preventing
dangerous expansions of discounts and issues on the part of the city banks
than a regular exchange of notes and checks and an actual daily or semiweekly payment of the balances. I t must be recollected that it is by this
process alone that a bank of the United States has ever acted or been
supposed to act as a regulator of the currency. Its action would not in
that respect be wanted in any city the banks of which would, by adopting the process, regulate themselves. I t is one of the principal ingredients
of the system of the banks of Scotland. The bankers of London, by the
daily exchange of drafts at the clearing house, reduce the ultimate balance
to a very small sum; and that balance is immediately paid in notes of the
Bank of England. The want of a similar arrangement among the banks
of this city produces relaxation, favors improper expansions, and is attended with serious inconveniences. The principal difficulty in the way
of an arrangement for that purpose is the want of a common medium other
than specie for effecting the payment of balances. Those are daily fluctuating; and a perpetual drawing and redrawing of specie from and into
the banks is unpopular and inconvenient.
In order to remedy this, it has been suggested that a general cash office
might be established, in which each bank should place a sum in specie,
proportionate to its capital, which would be carried to its credit in the
books of the office. Each bank would be daily debited or credited in those
books for the balance of its account with all the other banks. Each bank
might at any time draw for specie on the office for the excess of its credit
beyond its quota; and each bank should be obliged to replenish its quota,
whenever it was diminished one-half or in any other proportion agreed on.
It may be that some similar arrangement might be made in every other
county or larger convenient district of the State. I t would not be necessary to establish then a general cash office. Each of the banks of Scotland has an agent at Edinburgh, and the balances are there settled twice

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a week, and paid generally by drafts on London. I n the same manner
the balances due by the banks in each district might be paid by drafts
on New York or any other place agreed on.

These extracts contain the very quintessence of the
clearing-house system. A regulation "belonging to the
administration of banks rather than to legal enactments " comprehends the clearing house constituted as a
private and voluntary association, unchartered, and in
fact unknown to the law. The remedy for the "dangerous expansions of discounts and issues" and for the
"relaxation and serious inconveniences" is afforded by
the very system which he proposed; and the "want of
a common medium other than specie for effecting the
payment of balances/' which was the "principal difficulty in the way of an arrangement for that purpose,"
strikingly suggests the clearing-house gold coin and legaltender certificates in use at the present day. The problem
of the "unpopular and inconvenient system of drawing
and redrawing specie from and into the banks" has met
its solution in the clearing house, and the "general cash
office, in which each bank should place a sum in specie/'
is represented in the present coin depository.
The proposition that the specie deposited by each
bank should " b e carried to its credit in the books of the
office" savors of the London rather than of the American plan. The extension of the clearing-house system
is a partial fulfillment of the remark that "some similar
arrangement might be made in every other county or
larger convenient district of the State," and the absence
of the coin depository in the smaller cities is in keeping
with the idea that " i t would not be necessary to estab-

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lish a general cash office in such places." The payment
of balances in most of the smaller clearing houses, by
drafts on New York and other large centers, is a remarkable confirmation of the idea that "balances due
by the banks in each district might be paid by drafts
on New York or any other place agreed on."
But the times were not ripe for the scheme thus proposed. Mr. Gallatin was thinking in advance of the age.
More than twenty years passed by before his fellowbankers could appreciate the wisdom of his suggestions.
In time, however, the question began to be more generally discussed. For nearly a year it was under consideration, and finally it was deemed advisable to call a
meeting to take decisive action upon it.
On August 23, 1853, 16 presidents, 1 vice-president,
and 21 cashiers, representing 38 banks, assembled in the
directors' room of the Merchants' Bank, and at this
meeting a resolution was passed providing that " a
committee be appointed to procure or hire a suitable
room in or near Wall street, for the purpose of holding
meetings of the officers of the city banks; that the said
committee be requested to submit a plan, at an adjourned
meeting of this body, to simplify the system of making
exchanges and settling the daily balances; and that
when a room is procured or hired for the above purpose, the president or cashiers be requested to meet
weekly until a plan is agreed upon." In compliance
with this request, the committee presented a plan for
the daily settlement of balances, at a meeting held on
August 31, 1853, which plan was amended so as to pro20040—10

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vide "that a room be procured for that purpose, sufficiently large to afford suitable accommodations."
On September 13, 1853, the scheme was adopted
and the committee was "clothed with full power to
hire a room, appoint a manager and clerks, and make
all the necessary arrangements to carry the plan for
a clearing house into effect." On October 4 the date
for beginning operations was fixed for October 11.
Accordingly, on the appointed day, the representatives
of the banks, members of the association, met in a room
which had been procured in the basement at No. 14
Wall street, and made the first exchanges. The total
clearings on that day were $22,648,109.87, and the
balances were $1,290,572.38. These clearings have since
been eclipsed by over $30,000,000 in the totals of a single
bank.
The clearing system in America was thus fairly
launched, and from that time forth its success exceeded
the expectations of even its most ardent projectors.
The association consisted at that time of 52 banks,
banded together for their common good, which, as they
then conceived, consisted solely in the exchange of items
and settlement of balances at a uniform time and place.
For nearly a year the operations were conducted without a constitution. The adoption of such an instrument
was opposed, on the ground that it was not needed and
might lead to a dangerous concentration of power in
the hands of a few managers, who might use it for personal aggrandizement, or for the exercise of an arbitrary supervision. But the need of fixed rules of some

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sort for their guidance became more and more urgent,
and on February 28, 1854, o n e °f the bank officers
"recommended that an act of incorporation be obtained
for the clearing house, or that some other form of organization be adopted, with a constitution and laws
for its government, providing for regular meetings of
bank officers."
A constitution was drafted by George Curtis, and
upon June 6, 1854, it was adopted and ordered sent
to the several banks for their action. Upon August
1 it was signed by each of the members and thereby
put into full force and operation. This instrument,
with the changes that have been made from time to
time by the adoption of amendments and resolutions,
is in force at the present day.
The subject of proper accommodations for the transactions of the clearing house was frequently considered.
As already shown, the original location was fixed at
No. 14 Wall street, but the quarters were not entirely
suitable, and hence, on May 1, 1854, the seat of operations was transferred to No. 82 Broadway. At a
meeting held in May, 1857, a committee was appointed
to consider the subject of removal from that locality.
One month later the committee reported in favor of
occupying a room in the building of the Bank of New
York, at No. 48 Wall street, and their report was adopted.
In March, 1858, the association first met in the new
rooms. At a meeting held five years thereafter, the
question of removing to a more central location was discussed, but it was voted to be inexpedient to consider
the subject of removal at that time.

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At a meeting on the 24th of June, 1868, a committee
was appointed to select suitable rooms for the use of
the clearing house and meetings of bank officers; and
the chairman of the committee, in his report to the
association on October 15, 1869, stated that they "had
been unable to find such rooms; but that the building
then being erected by the Equitable Life Insurance
Company, on Broadway, corner of Cedar street, had
been under consideration, but it was found that sufficient and suitable room could not be had in that building, and recommended that the association purchase
a building and fit it up to meet the wants of the clearing house and the banks." At a subsequent meeting
the committee was requested by resolution to renew
their efforts to procure suitable rooms. Meanwhile
the association had been accumulating a building fund,
which by October, 1874, amounted to over $90,000.
Some time expired before an opportunity offered for
the purchase of available property. Finally, the National
Bank of the Commonwealth Building, on the corner of
Nassau and Pine streets, was advertised to be sold at public auction on October 13, 1874, and the committee was
instructed by a vote of 41 to 5 to. purchase it at any price
that was satisfactory to it. Accordingly, the committee
attended the sale and purchased the property for $215,000.
In payment of this sum, $75,000 was borrowed on the
securities in the hands of the committee, and for the remaining cost and contemplated improvements in the building a draft was made upon the associated banks, at the
rate of twenty-two one-hundredths of 1 per cent on their

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respective capitals. In return therefor each bank received
a certificate from the trustees, with the stipulated agreement that it should receive thereafter a proper consideration for the amount advanced. Subsequent drafts were
made upon the members, in proportion to their capital, as
in the previous instance, for the purpose of defraying the
cost of improvements, including the furniture and fixtures
of the new building. The drafts in total amounted to
three-tenths of i per cent of the respective capitals of the
banks. In return for the amounts so advanced certificates were given as before.
The bank building was properly altered and equipped
for the transactions of the clearing house, and on June 17,
1875, the premises were occupied. Here the clearing house
remained for the next twenty-one years. At a meeting of
the association, April 20, 1892, the attention of the clearing-house committee was called to the probable necessity
of securing before many years a larger and more commodious building for clearing-house purposes. As the result
the committee wTas instructed to consider the matter and
report. The same committee, in conjunction with the
trustees, was authorized at a meeting on December 29,
1893, to acquire for use of the association the property
known as 79 to 83 Cedar street and to sell the property on
the corner of Pine and Nassau streets.
A meeting of the association was held January 16, 1894,
when it was unanimously resolved " that the clearing-house
committee be authorized to organize a corporation to take
title to the property just purchased, to be known as the
New York Clearing House Building Company; to draw

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upon all the banks represented, in proportion to their respective capitals and surplus, for all money needed to pay
for the said property, and for the erection, fitting up, and
furnishing of a building thereon, suitable for the use of
the association; to issue to each of the banks so paying a
receipt for such payment, in such form as shall be approved
by counsel, and to apply the money so received to the purchase of the said land, and to supply the said building company with funds to defray the cost of the erecting and furnishing of the said building. "
A form of receipt was adopted, certifying that the bank
specified therein had paid to the clearing-house association
the sum named toward the purchase of the real estate in
Cedar street for the use of the banks, members of the association, and that the said bank is entitled to interest upon
the said amount at the rate of 5 per cent, and further providing that the bank shall not transfer the certificate while
a member of the association; and if it shall at any time
cease to be a member, then the association shall have a prior
right to purchase the certificate at a price not exceeding the
amount named and interest.
The Cedar street property was duly bought and the
corporation organized to take the title. The capital stock
of the corporation was fixed at $900,000. For this 9,000
shares were issued—8,975 in the name of the president of
the clearing-house association and 25 in the name of the
5 directors of the Clearing House Building Company, who
held the same in trust. The banks paid to the clearinghouse committee the full amount of the shares, for which,
in turn, they received the certificates. In addition, the

158

Clearing-House

Methods

sum of $230,000 was collected from the members as a final
assessment for the erection of the new building, and for
this amount certificates were issued in due form, and these,
with the $900,000 previously issued, made $1,130,000 of
certificates outstanding. The final report of the committee showed that the cost of the building was $1,099,569.72.
The new building, two views of which are given herewith, in which the association took up its abode in the
middle of January, 1896, is built of white marble, in the
Italian renaissance style. It is an adornment to the city
and is one of the architectural gems of the world.
Thus we have seen that the association occupied four
different locations before coming into the structure erected
for its own use; and that after each removal it remained
longer than it had in the quarters just abandoned.
The constitution of the New York clearing house provides in full for the regulation of the affairs of the association and for the guidance of its members. A general
meeting is held annually, and special meetings may be
called by the clearing-house committee whenever it may
deem it necessary, or whenever it is requested to do so by
any seven of the associated banks. A majority of the
whole number of associated banks constitutes a quorum.
Each bank may be represented at all meetings of the association, and is entitled to one vote.
The administration of the clearing house is vested in a
president, secretary, manager, assistant manager, and
five standing committees.
The president is elected by ballot at the annual meeting, to preside at that meeting and all subsequent meet-

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ings during the year. He is ex officio member of all committees except the committee on nominations. In his
absence a chairman pro tempore is appointed.
The secretary is elected at the same meeting, and it is
his duty to record the minutes of each meeting of the association.
The manager, under the control of the clearing-house
committee, has full charge of all business at the clearing
house, but before entering upon his duties he is required
to give bond in the sum of $10,000. The clerks of the
establishment, as well as the settling clerks and porters
of the several associated banks, while at the clearing house,
are under his direction. He superintends the operation
of clearing, the adjustment and settlement of balances,
the keeping of the records of transactions as they take
place from day to day, the preparation and publication of
the weekly bank statements, and, in a word, attends to all
the detail work of the clearing house. He imposes and
collects fines from the members for the violation of clearing-house rules and acts as secretary of all the committees
when they meet at the clearing house.
Although the constitution provides for the appointment
of a manager annually, it is the custom to retain the same
one in office year after year. As a fact, there have been
only three managers in the whole history of the association. The first, George D. Lyman, served until 1864,
when he was succeeded by William A. Camp, who, after
a long and honorable career of twenty-eight years as
manager, resigned in 1892, and William Sherer, who had
been assistant manager, was appointed to succeed him.
The present assistant manager is William J. Gilpin.

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The various committees of the clearing house embrace
the clearing-house committee, the conference committee,
the committee on admissions, the nominating committee,
and the arbitration committee. Each committee consists
of five members. The first three committees were provided for in the constitution originally adopted. The
committee on arbitration was proposed in an amendment
January n , 1855, by George Curtis, who drafted the constitution. This amendment was subsequently adopted.
On September 22, 1871, the nominating committee was
created by resolution. Besides these, a loan committee
has been appointed on special occasions, whose functions
are described in the chapter on clearing-house loan certificates.
The clearing-house committee is clothed with almost
absolute power, being second in authority only to the association itself. The ablest and most experienced bank
officers, therefore, are usually chosen to serve on it. The
committee is elected annually, and is charged with the
responsibility of equipping the clearing house with furniture, providing fuel, stationery, and whatever else is necessary for the convenient transaction of its business, of appointing a manager and his subordinates, of establishing
rules and regulations to be observed at the clearing house
not provided for in the constitution, always, however,
subject to the approval of the association, and of generally
supervising the clearing-house affairs. This committee
has charge of the funds belonging to the association and
draws on each bank for its quota of expenses. At the
first meeting of the association after the election of the

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committee it submits detailed estimates of the expenditures that will be required for the clearing house during
the current year. It fixes the salaries of the clerks and
approves the bonds which are required before they can
enter upon their duties. It has power to remove the manager or any of the clerks whenever it may deem it for the
best interests of the association so to do. The committee
is also empowered to examine, if necessary, any member
of the association, and to require therefrom securities of
such an amount and character as may appear to it to be
sufficient for the protection of the balances resulting from
exchanges at the clearing house. By resolution adopted
October 14, 1890, this committee is empowered to permit
or refuse to any member the privilege of clearing for an
outside institution.
The conference committee is annually elected, and its
function is, in concurrence with the clearing-house committee, to suspend any bank from the privileges of the
clearing house, in cases of extreme necessity, until the
pleasure of the association is ascertained thereon. No
such suspension, however, can take place unless a majority at least of each of these two committees is present
at the ordering thereof, or unless the vote be unanimous.
In case of suspension the committee is required to call a
general meeting of the association to take the matter into
consideration.
The committee on admissions is elected at each annual
meeting, and the clearing-house committee refers thereto
for examination all applications for admission into the
association.

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The nominating committee is also elected annually,
and its duty is to present to the association at each annual
meeting the names of candidates for president and secretary of the association and for members of the clearing
house, nominating, conference, and arbitration committees
and committee on admissions, on the following basis: The
president and secretary are eligible for two successive
years, and after an interval of one year they are again
eligible in like manner. There must be selected every
year at least two new members on each of the committees
(having still three old members), and those who have
been longest on the committees must go off first. If all
have been on the same length of time, then two must go
off by lot. After an interval of one year such members
are again eligible.
The function of the arbitration committee is to hear
and determine all disputes submitted to it by both parties
thereto, one or both of which are members of the association. It is the duty of this committee also to record a
brief abstract of each case referred to it, together with
its decision thereon, in a book provided for that purpose
which is kept at the clearing house, open to the inspection
of all the members.
The association at present (1909) consists of 50 members (32 national banks and 18 state banks) and the
United States subtreasury located at New York. The
latter makes its exchanges only at the clearing house, its
balances being settled at its own counter. It has no
voice in the government of the association, and pays a
nominal sum for actual expenses. The privilege which

163

National

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the subtreasury enjoys of making its exchanges through
the clearing house is a matter of great accommodation
both to the subtreasury and to the banks. The New
York post-office clears through one of the members, but
renders no compensation to the association for the privilege.
The membership of the association since its organization has been constantly changing, owing to the admission and expulsion of members and voluntary withdrawals,
as provided by the constitution.
The association began with 51 members, but by 1858
the list had declined to 46, the lowest number in the history
of the clearing house. A membership of 67 was attained
' in 1895.
On February 28, 1854, the Bank of the Union was expelled and the clearing-house association was authorized
to return to it whatever amount was necessary to offset
its advances toward the expenses of the clearing house.
In the following December the Empire City Bank was
expelled and a similar resolution was passed but in no
case thereafter were any such refunds made.
The association came into existence, as has been stated,
in 1853, hut it was not until February 29, 1856, that the
first additional bank was admitted, four banks having
been expelled in the meantime. The list continued to
vary from time to time at irregular intervals, until at
present there is one less member than when the association started.
The constitution is very explicit in its terms governing
the admission and conduct of members. Applicants are

164

Clearing-House

Methods

first considered by the clearing-house committee and
referred hence to the committee on admissions. The
latter committee, if, in its opinion, after a careful examination, t h e applicants are qualified for membership, refers
them to t h e association for final action, a three-fourths
vote of those present being necessary to admission. Banks
may be elected to membership at any meeting of t h e association, b u t before being considered b y the clearing-house
committee each applicant must be shown t o have an unimp a i r e d capital or an unimpaired capital and surplus of at
least $500,000. E a c h new member is required to signify
its assent to t h e constitution, in t h e same manner as t h e
original members, and pay an admission fee, according t o
capital, as follows: A bank t h e capital of which does not
exceed $5,000,000 m u s t pay $5,000; a b a n k t h e capital
of which exceeds $5,000,000 must pay $7,500. Any
member increasing its capital is required t o pay in accordance with those rates.
The admission charges have not always been t h e same.
The original members paid no admission fee. I n the
constitution, as originally adopted, t h e rate was fixed at
$500. This was raised to $1,000 by an amendment
adopted October n , 1854. Under t h e constitution, as
revised in 1865, t h e fees were based on t h e capital as
follows: For banks whose capital did not exceed $500,000
t h e rate was fixed at $1,000; for those whose capital did
not exceed $1,000,000, at $2,000; for those whose capital
did not exceed $2,000,000, at $3,000; for those whose
capital did not exceed $3,000,000, at $4,000; for those

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National

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whose capital did not exceed $5,000,000, at $5,000; and
for those whose capital exceeded $5,000,000, at $7,500.
On October 3, 1893, the amendment was adopted, fixing
the rates on the present basis.
The power of expulsion is lodged in the association, but
can be exercised only by a majority vote of all the members. The power of suspension is vested jointly in the
conference and the clearing-house committees. Any member may withdraw at pleasure after paying its due proportion of all expenses incurred and signifying its intention
to withdraw to the clearing-house committee.
There were some 57 banks in operation in New York
when the clearing house was organizecj, and all but 5 came
into the association, those remaining outside being small
institutions. Subsequently two or three of these applied
for admission, but inasmuch as they were not deemed
capable of meeting the requirements imposed upon the
existing members, they were rejected. At the present
time only about 45 per cent of the financial institutions of
the city, which included national banks, state banks, and
trust companies, are members or nonmembers clearing
through members of the clearing-house association.
In New York and vicinity are 32 banks and trust companies nonmembers, as compared with the 50 members.
The nature of the business of the nonmembers, however,
quite as much as that of the member banks, demands that
their exchanges go through the clearing house, and hence
each such bank or trust company makes a special arrangement with some member to act as its clearing agent, upon

166

Clearing-House

Methods

such terms of security as they may agree upon. As above
stated, there are 32 outside institutions at the present
time making their exchanges in this way.
At the beginning, the subject of clearing for nonmembers naturally did not attract much attention, but as the
city grew in business importance and its banks increased
in power and numbers, it began to be more seriously considered. Several amendments were made to the constitution, designed to regulate the action of nonmembers and
determine their relation to members. On January 11,
1855, George Curtis, to whom reference has already been
made as the author of the constitution, proposed the first
amendment on this subject, which was subsequently
adopted as follows:
" Whenever exchanges shall have been made at the
clearing house, by previous arrangement between members
of the association, through one of their number and banks
in the city and vicinity who are not members, the receiving bank at the clearing house shall in no case discontinue
the arrangement without giving previous notice, which
shall not take effect until the exchanges of the morning
following the receipt of such notice shall have been completed."
It will be observed that no provision is made for the
protection of banks against the insolvency of nonmembers, but that the clearing member is made responsible for
the items drawn upon the nonmember, and is prevented
from discontinuing such responsibility until the exchanges
are completed on the day following the receipt of such

167

National

Monetary

Commission

notice. The next resolution on the subject was adopted
ten years later, and is as follows:
Resolved, That no member of the clearing-house association shall be
allowed to make the exchanges for or redeem the notes or checks of any
other bank or banks, not members of said association, without first giving
notice, over the signature of one of its officers, of the fact of such redemption; nor shall such redemption be discontinued but upon notice in the
manner prescribed by section 25 of the constitution.

Here for the first time a requirement was made of the
banks that they should give notice of their intention to
clear for nonmembers. Again, in the same year, another
amendment followed. Thus:
Whenever any member of the association shall send through the clearing house, exchanges of any bank or banks in the city or vicinity who are
not members, such sending shall ipso facto and without further notice constitute said member the agent for said bank or banks at the clearing house;
and said member shall be liable in the premises, the same as for its own
transactions, and its liability in all such cases shall continue until after the
completion of the exchanges of the morning next following the receipt of
notice of discontinuance of any such agency.

This virtually repealed the former resolution requiring
notice of the creation of a clearing agency. It continued
the requirement of a previous notice before discontinuing
such agency, and clearly established the measure of liability of the clearing member for the items of the nonmember. As if to reenforce the above resolution, another
was adopted in May of the following year, as follows:
Resolved, That the liabilities of banks in the clearing house doing business for the banks in the vicinity are, under the amendment to the constitution, passed April 26, 1865, the same as for their own transactions.

Clearing for nonmembers continued for nearly a quarter
of a century without further regulation. Finally, in 1890,
new troubles arose from the failures of two small banks
clearing through member banks and the looting of the

168

Clearing-House

Methods

Sixth National Bank, a member. Accordingly, the whole
subject of clearing for nonmembers was most carefully
investigated and considered. Many favored its discontinuance altogether, and finally the subject was referred
to a committee. A majority of the committee reported in
favor of discontinuance, and a minority in support of the
prevailing plan. The association adopted the views of the
minority and voted to continue on the existing basis.
This led to the following resolution, adopted October 14,
1890:
Resolved, That on and after January i, 1891, this association permits its
members to make such exchanges only after the consent of the clearinghouse committee is obtained; and the banks or parties have obligated themselves to pay to the clearing-house association an annual payment of two
hundred dollars, and also to consent to the same examinations as are now
required of its members: Provided, however, T h a t nothing contained in this
resolution is construed as making such banks or parties members of the
association.

Thus, discretion regarding the clearing for nonmembers was taken out of the hands of the members and transferred to the clearing-house committee, and for the first
time nonmembers were required to pay to the association a definite sum in consideration of the privileges extended to them. Again, on December 21, 1896, the constitution was amended as follows:
Resolved, That the amendment to the constitution adopted October 14,
1890, assessing banks and others not members of this association, and
clearing through members, $200 annually, be amended by increasing such
amount to $500 annually, this amendment to take effect on and after
January 1, 1897.

Later, the amount was still further increased to $1,000,
at which figure it still stands.
A resolution was also passed, to take effect on the same
date, requiring all banks, not members of the association,
20040—10

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National

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Commission

whose checks are exchanged at the clearing house, to furnish the manager weekly statements of their condition,
showing the average amount of their loans, discounts,
and investments; specie, legal-tender notes, and bank
notes; deposit with clearing-house agent, deposit with
other New York City or Brooklyn banks and trust companies, net deposits and circulation. These statements
were intended for the records of the clearing house and
not for publication; but a resolution was subsequently
passed requiring that they be published, beginning with
the first Saturday in November, 1897.
Thus it will be seen that- by resolutions and amendments covering nearly the whole period of its history,
the New York Clearing House Association has been
developing the present system, regulating the conduct
of those outside institutions, which enjoy the privileges
of the clearing house.
The relationship of trust companies to the clearing
house, particularly in view of the number of trust companies organized and entering upon business during the
few years prior to, and including, 1899, had been a subject for careful consideration on the part of the management. A subcommittee of the clearing-house committee
was appointed October 26, 1899, to inquire into the matter and make a report. The report of this subcommittee,
the substance of which is given below, was adopted at a
meeting of the association held on the 3d of November, 1899.
The report at the outset recites that the constitution
of the association, particularly the amendment of October
14, 1890, imposes upon the committee the responsibility

170

Clearing-House

Methods

of consenting to the clearings by banks and trust companies not members of the association. The report then
continues, that in the opinion of the subcommittee general and uniform rules should from time to time be
adopted. Therefore, the following were recommended:
No trust company shall be permitted to clear through any member or
nonmember of this association, unless such trust company shall have been
in operation for a t least one year at the time of making the application.
No trust company shall be cleared by any bank or trust company, member or nonmember of this association, until it shall have been examined
by the clearing-house committee or some other committee of the association duly appointed for that purpose.
Every trust company clearing through a member of this association, or
which may hereafter be permitted to clear through such member, shall
furnish a weekly statement of its condition to the manager of this association, in the same manner as weekly statements of nonmember banks clearing through this association are now rendered. Such statements shall
include: Capital; net profits; average amount of loans, bills purchased,
and investments (not real estate); average amount of specie; average
amount of legal-tender notes and bank notes; average amount on deposit
with other New York City banks and trust companies; average amount of
deposits.

In the notice sent out by the manager of the clearing
house November 6, 1899, embodying the foregoing, it
was asserted that the statements required of the trust
companies were not for the present intended for publication. The form of statement provided for use in this
connection is given among the illustrations.
At the meeting of the clearing-house committee above
referred to, it was resolved that from that date forward
every statement of averages submitted to the clearing
house by a member or nonmember should be verified and
signed by an officer.
Most of the important trust companies in the city,
under the new provisions, became associated with the
clearing house as nonmembers.

171

National

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Commission

New York,

At a meeting of the * Board of Directors of the

of.

held

the following resolution was adopted:
"Resolved:

That this Board hereby agrees to the

payment of One Thousand

($1000) Dollars per

annum,

for the purpose of making its exchanges through a
member of the New York Clearing-house
"And

Association.

this Board also consents to the same

tions of this

Bank,

examina-

as are now

required of members of the Clearing-house

Association."

* This title may be changed to read
" Board of Trustees, Executive Committee, cfcc," as necessary.

R E S O L U T I O N AUTHORIZING E X C H A N G E S T H R O U G H A M E M B E R

172

BANK.

Clearing-House

Methods

«Yeiv York,

Chairman
Dear

, 19

Clearing-house

Committee

Sir:
live

of,

hereby

for consent of the Clearing-house
Exchanges for^

Committee to make the

0/L^

„

on and after^.

Statement

of its condition

enclosed.

Respectfully,

Approved-

APPLICATION TO CLEAR FOR A N O T H E R

i73

applies

BANK.

National

Monetary

Nos.

Commission

77-83 CEDAR STREET.

jfew York, ..^...^,.....

,_.., _,.

^...^.. w . w

*._

„

„w

...Esq., Cashier.

Dear Sir:
Consent of the Clearing-house
given to the
, of

..^„^..,_

v..,.„.,..>..w,

.,-. ^-..

Committee is h&reby
r

.,. &* make the exchanges at the

New York Clearing-house for the
of..*

„....

on arid after

subject to the rules and regulations of the
I

By,order of

„.

Chairman Clearing-house Committee.

„.

Association.

«,... ,

;
CONSENT TO CLEAR FOR ANOTHER B A N K .

174

Manager.

Clearing-House

Methods

254746

NEW YORK CLEARING-HOUSE.
The Weekly Statement as provided for below must be certified by
an officer and sent to the Clearing-house at the close of business on
Friday of each week.
WILLIAM S H E R E R ,
Manager.
COPY OF STATEMENT
OF T H E

...».
...
y , . -.
for week
ending the
day of
,...
190
as required by Amendment to Section 25 of the Constitution of the
New York Clearing-house Association, adopted February 11th, 1903.

Average Amount of Loans, and Discounts
and Investments (not Real Estate)
Average Amount of Specie
Average Amount of Legal Tender Notes
and Bank N o t e s . . . . .
Average Amount on Deposit with Clearing-house Agent.
Average Amount on Deposit with other
New York City Banks and Trust
Companies
Average Amount of Deposits
Average Amount of Circulation

Correct.
FORM OF STATEMENT OF WEEKLY AVERAGES OF NON-MEMBEK

BANKS.

175

National

Monetary

Commission

254747'

The Weekly Statement as provided for below must be certified by an
officer and sent to the Clearing-house at the close of business on Friday
of each week,
"
WILLIAM SHERER,
Manager.
COPY OF STATEMENT
of THE,.
-. ..
»
for week
ending the.
day o f . . . . . , . . ,
.-190
as required by Amendment^to Section 25 of the Constitution of the
New York Clearing-house Association, adopted February 11th, 1903.

Average Amount of Loans, Bills Purchased and Investments (not Real
Estate)
Average Amount of Specie
Average Amount of Legal Tender Notes
and Bank Notes.
Average Amount on Deposit with other
New York City Banks and Trust
Companies
Average Amount of Deposits

Correct

FORM OF STATEMENT OF WEEKLY AVERAGES FOR TRUST CQMFANIES.

176

Clearing-House

Methods

The arrangement thus consummated, however, was to
last but a few years. The New York state banking law
at that time did not require that trust companies should
carry any cash reserve, while it provided for the keeping
by state banks of a cash reserve in their own vaults of
15 per cent. It was tacitly understood that a cash
reserve of 25 per cent should be maintained by all the
members of the New York Clearing House Association,
although there was then no constitutional provision to
that effect. This understanding did not, however, extend to nonmembers, with the result that the state banks,
generally speaking, merely met the requirement of the
law, viz, 15 per cent, and the trust companies used their
discretion.
As will be readily observed, the trust companies, operating under broad charters which gave them the privilege
of transacting a banking business, of which by far the
greater number took advantage, and with, as before
stated, no reserve requirement, had an immense advantage over the members of the clearing house, and were
thereby enabled to make considerable inroads into their
business.
This condition of affairs caused a great deal of dissatisfaction among the associated banks, which culminated in an effort on the part of the association to more
nearly equalize the position of the banks and trust companies, which took the form of the following resolution,
enacted into law on February 11, 1903:
Every nonmember institution (not a bank required by law to maintain
a specified reserve) now or hereafter sending its exchanges through a
member of the association, shall on and after June i, 1903, keep in its

177

National

Monetary

Commission

vaults a cash reserve equal to 5 per cent of its deposits; and on and after
February 1, 1904, such cash reserve shall be 7 ^ per cent of its deposits )
and on and after June 1, 1904, such cash reserve shall be such percentage
as shall from time to time be fixed by the clearing-house committee, b u t
not less than 10 nor more than 15 per cent of its deposits. The reserve
hereby required shall be an average reserve as against the average deposits
as shown upon its weekly statements.

The trust companies resented 'very strongly this attempt to force them to keep a cash reserve, and during
the next two years, almost without exception, withdrew
from the privileges of the clearing house, rather than
submit to its regulations in this regard, manifestly fair
though they were.
After the panic of 1907, the attitude which the New
York clearing house had assumed on this question was
justified, when the legislature of the State of New York
enacted a law compelling the trust companies in New
York to keep a cash reserve of 15 per cent, thus placing
them on an equal basis, in this respect, with state banks.
In the meantime, on January 13, 1908, the clearinghouse association met and passed the following resolutions, which still obtain and determine the conditions
under which the trust companies may, at the present
time, become full members of the association, the same
as banks:
Trust companies organized under the laws of the State of New York
may be admitted as members of this association in the same manner and
to the same extent as banks may be admitted, and when so admitted
shall be entitled to all the rights and benefits and subject to all the conditions and obligations to which bank members are or shall be entitled or
subject under the provisions of the constitution.
Trust companies, however, becoming members of the association, shall
be required to keep a cash reserve in their own vaults of not less than
25 per cent of their deposits. A failure to keep such reserve shall be
sufficient ground for action under section 6, Article I I I , of the constitution (which provides for expelling members).

178

Clearing-House

Methods

Three days later, viz, January 16, 1908, the association for the first time in its history passed a measure
which thereafter compelled all its members to keep and
maintain in their own vaults a cash reserve of 25 per
cent of their net deposits.
Each bank belonging to the New York Clearing House
Association is required to furnish to the manager weekly,
for publication, a statement of its condition, showing
the average amount of loans and discounts, specie, legaltender notes, circulation, and deposits. The capital and
net profits also are given, this being the only association
which gives the latter item.
The matter of collecting checks and other items outside of the city of New York is a subject that for many
years past has received most careful thought upon the
part of the officers and members of the New York clearing house. An amendment to the constitution was
adopted, March 13, 1899, directly bearing upon this point
and embodying a policy that was so radical as not only
to attract attention throughout the entire financial community, but at the outset to incite more or less opposition.
As time has passed, however, the justness of the provisions has become apparent and the business community
has acquiesced in what is manifestly an entirely reasonable measure.

179

National

Monetary

TRUST COMPANIES.

Commission

RESOURCES.

Bonds & Mortgages
Stocks & Bonds (Market Value):
Public Securities
Other Securities
Loans
Overdrafts
Real Estate, Furniture & F i x t u r e s . .
Due from Trust Cos., Banks and
Bankers
Specie
Legal Tenders and Bank Notes
Other resources
TOTAL

Book Value Stocks and Bonds
LIABILITIES.

Capital
Surplus and Undivided Profits
Due Trust Cos., Banks and Bankers.
Deposits (Not Preferred)
Certificates of Deposit (Not P ' f ' d ) . . .
Preferred Deposits .
.

Other Liabilities
TOTAL

FORM OF STATEMENT REQUIRED BY THE N E W YORK CLEARING-

HOUSE ASSOCIATION OF TRUST COMPANIES.
I 80

Clearing-House

Methods
NATIONAL BANKS

\Ko
254007
LIABILITIES.

Capital
Net Profits
Circulation
Due Banks and Trust Co's
Due other Depositors
Unpaid Dividends
Bonds Borrowed

TOTAL
RESOURCES.

Loans and Discounts
U. S. Bonds on h a n d
U. S. Bonds to secure circulation
Bonds to secure U . S . Deposits
Other Stocks and Bonds and M t g s . .
Premium on U. S. Bonds
Real Estate, Furniture & F i x t u r e s . .
Due from Banks and Bankers
Exchanges for Clearing-house
Cash Items and Bank Notes
i
Specie
i
Legal Tenders
j
Over Drafts
TOTAL

Certified Checks

United States Deposits
-i
FORM USED AT CLEARING-HOUSE IN TABULATING NATIONAL BANK

STATEMENTS.

181

National

Monetary

Commission

STATE.

1 No-

I 254008

LIABILITIES.

Net Profits
Due Trust Cos., Bks., Bkrs. & Broks]
Due other Depositors not Pfd

. .1

'' :

T O T A L . . . . „ . . . . - . . . , . .-.-.-.-... J
|

RESOURCES.

Loans and Discounts

. . . . . . . . ,.j

• •-••.f.-fls

. . .

Stocks, Bonds and Mortgages....... .1 ....-...-..*.. • • r C »7iyiw.-.i • • « . * . i o « r i r . - . - v . . .
Real Estate, Furniture & Fixtures. . . . .:.:.". « .
. . .-»^ ifSZH.*--»: .
Due from Trust Cos., Bks., Bkrs.J
& Broks. not incld'd in next item. . . .-., .-.,: .. . . ...mnsn^^. •> >>&><?JW? "5 p ®
Due from Approved Reserved Depositories. ....'
' - • 'JL-J2W1'
• • . . . , . , . v> : .,«r.
Cash Items including Exchanges for
Clearing-house.
. . , . ...... • • T - . T V , « , * - . , . . . : . . .
Specie.,, . . . . . - . . . . . . .
...... .

... . ..„;,. .-.

Legal Tenders and Bank N o t e s . . . .

1. .

- ....

FORM U S E D AT CLEARING-HOUSE IN TABULATING STATE B A N K

STATEMENTS.
182

STATEMENT OF THE ASSOCIATED BANKS OF THE CITY OF NEW YORK
Froni Reports to the New York Clearing-house, as required uiider Article I I I of its Constitution.
FOR W E E K ENDING SATURDAY, JULY 24, 1909,
•CAPITAL.

*NET PROFITS

L O A N S AND
DISCOUNTS.

Average

SPECIE..

LEGALS.

DEPOSITS.

CIRCULATION

Average

96
97
98

Bank of N„ Y. Nat iBkg.
Assoc'n
Bank of the Manhattan
Company
Merchants' National Bank
Mechanics' National Bank
Bank of America ..
N. Y. Produce Exchange
Bank
State Bank ...... k. .
Fourteenth Street Bank. .
National Copper Bank. • .
TOTAL NATIONAL BANKS]
TOTAL STATE BANKS. *

$110,400,000 $146,067,700
15,950,000
28,382,400

49,398.800
81,5 52. S00 - tl.42(\7S9.900
Totals, A v e r a g e . . . . . . . . . . 126,350,000 174,450,100 1,349,259,700 309,435.900
Increase
Increase
Increase
Increase
Increase
*As per official reports.
31 National, June 23,1909.
»
3,673,200
18 State, Apr. 28, 1909.
139.600
358,100
3,317.100
193.200
Reserve on Average Deposits, Decrease $277,975
Reserve on Average Deposits other than U. S.. Decrease $345,600
fUnited States Deposits included. $1,727,200
Percentage of Reserve to Average Deposits other than U. S.: 27.43
Actual figures this morning:

1,432.787.300|| 49.389.400
83,011.000
1,355,660,200 307,971,100
jfnerease
'Decrease
[Increase
increase
Increase
11,512.200!
15,100
960,800|
791,300
10.944,300

Reserve on Actual Deposits, Decreasev$l,125,950
Reserve on Actual Deposits other than U. S., Decrease $1,126,775
fUnited States Deposits included. $1,733,700
Percentage of Reserve to Deposits other than U. S. on actual figures: 27.31
Clearings for Week ending July 24, 1909,
_
"
"
"
July 17, 1909,
Clearings this Day
July 24, 1909,

^1,891,913,569.68
1,782,988,545.30
290,606,550.94

Balances for Week ending
July 24, 1909,
14
Julv 17, 1909.
Balances this Day
July 24, 1909,

$81,699,967.34
80,569,041.37
10,399,825.53

SKELETON OF W E E K L Y STATEMENT OF THE ASSOCIATED BANKS OF THE CITY OF N E W YORK.

N E W YORK CLEARING-HOUSE.
The Weekly Statement as provided for below must be certified by an officer and sent to t h e Clearing-house before
11 o'clock A. M. on each Saturday.
WILLIAM SHERER,
Manager.
COPY OF STATEMENT
OF THE

ending t h e
day of
as required by Section 16 of t h e Constitution of the New Y o r k Clearing-house Association.
DAILY AVERAGE.

Amount of LOANS AND DISCOUNTS.
(Loans, Discounts and Stocks and Bonds and Mortgages
owned by the Bank.)
Amount of S P E C I E .
(Gold and Silver Coin, United States and Clearing-house
Gold Certificates, and United States Silver Certificates.)
Amount of L E G A L T E N D E R NOTES.
'
(United States Legal Tender Notes of all issues.)
Amount of DEPOSITS, other 1 than United States.
j
(Gross Deposits and Unpaid Dividends, less Exchanges
for t h e Clearing House, Amounts due from other
banks for collection, Notes of other banks, and Checks
on nonclearing institutions in this City.)
Amount of UNITED STATES DEPOSITS
Total of U. S. and OTHER DEPOSITS
Amount of CIRCULATION.
(Amount outstanding.)
Correct.
FORM OF STATEMENT REQUIRED OF ASSOCIATED BANKS.

for week
190...
ACTUAL ON ABOVE DATE.

N E W YORK CLEARING-HOUSE.
SUMMARY OF WEEKLY STATEMENTS.
Week -ending,
CLEARING-HOUSE BANKS, DAILY AVERAGE

Loans,
Specie,
Legal Tenders,
•Deposits,
Circulation,
RESERVE on

crease?
crease,
crease,
crease,
crease.

ALL DEPOSITS,

RESERVE on DEPOSITS OTHER THAN U.
CASH RESERVE

crease,
crease.

*U. S. Deposits included

CLEARING-HOUSE BANKS, ACTUAL CONDITION THIS DAY
Loans,
Specie,
Legal Tenders,
fDeposits,
Circulation,

RESERVE on

ALL DEPOSITS;

RESERVE on

DEPOSITS OTHER THAN U.

CASH RESERVE

$.
S.

Clearings for the week
Balances "

crease,
crease.

t U . S. Deposits included

Clearings this day
"

——:

t
1-

Balances

crease.
crease,
crease,
crease.
crease.

"
k

SUMMARY OF STATE BANKS AND TRUST COMPANIES IN GREATER NEW YORK,
NOT REPORTING TO THE NEW YORK CLEARING-HOUSE
Loans,
$
Specie,
Legal TenderSj
Total Deposits,
Do — Eliminating
amounts due from Reserve
Depositories and from
other Banks and Trust
Companies in New York
City.

crease,
crease.,
crease,
crease.

STATE BANKS

T RUST COMPANIES

RESERVE
PER CENT.

Cash in Vault

PER CENT.

1 Cash in Vault

Deposits in Banks
and Trust Co's,

Total

Aggregate Reserve on Deposits $

20040—10.

Percentage of Legal Reserve
FORM OF SUMMARY OF W E E K L Y STATEMENT OF ASSOCIATED

(To face page 184.)

No. 1.

BANKS.

NEW YORK CLEARING-HOUSE
Weekly Statement of NON-MEMBER BANKS, for Week ending Saturday, July 24, 1909

BANKS

*CAPITAL

*NET
PROFITS

$4,997,000
4,150,000

$7,255,800
5,314,100

9,147,000

12,569,900

Average
Amount on
AVERAGE
Deposit
AVERAGE
with other AMOUNT OF AMOUNT OF |
New York
NET
CIRCULACity Bank DEPOSITS
TION
and Trust
Go's

AVERAGE
AVERAGE
AVERAGE
AMOUNT OF
AMOUNT OF AMOUNT ON
LOANS AND
LEGAL
AVERAGE
DEPOSIT
DISCOUNTS AMOUNT OF
TENDER
WITH
AND
NOTES AND CLEARINGSPECIE
INVESTBANKHOUSE
MENTS
NOTES .
AGENT

NEW YORK CITY.
BOROUGHS OF MANHATTAN AND THE
BRONX.

Bank of Washington Heights.
Century Bank
Colonial Bank
Columbia Bank
Fidelity Bank
Jefferson Bank
Mount Morris Bank
Mutual Bank
Plaza Bank
Twenty-third Ward Bank (Bronx)..
Union Exchange National Bank
Yorkville Bank
Coal and Iron National Bank
New Netherland Bank
Battery Park National Bank
Aetna National B a n k . . .
BOROUGH OF BROOKLYN.

Broadway Bank
Manufacturers' National Bank
Mechanics' Bank
Nassau National Bank
National City Bank
North Side Bank
J E R S E Y CITY.
First National Bank, Jersey City
Hudson Co. Nat. Bank, Jersey City . .
Third Nat '1 Bank, Jersey City
HOBOKEN.
First National Bank, Hoboken
Second National Bank, Hoboken
TOTAL NATIONAL BANKS
"
STATE BANKS.

Totals
*As per official reports.—
32 National Banks, June 23, 1909.
15 State Banks, April 28,1909.
Reserve, $1,546,775 Decrease.
*As of July IB, 1909.

$99,929,800!
Decrease
252,000!

$7,510,900j $10,044,300] $12,147,000! $4,349,000J $116,660,600| $2,448,400 I
Decrease
367,100J

Decrease
531,900!

Decrease

1,031,3001

SKELETON OF W E E K L Y STATEMENT OF NON-MEMBER BANKS.

20040—10.

(To face page 184.)

No. 2.

Decrease

401,100!

3,138,500!

Increase
50,400 !

Clearing-House

Methods

The amendment to the constitution, being an addition
to section 8, was as follows:
The clearing-house committee shall have power to establish rules and
regulations regarding collections outside of the city of New York, by members of the association or banks or trust companies or others clearing
through such members, and the rates to be charged for such collections, and
also providing for enforcement of the same. The committee may from time
to time make any additions to, or changes in, such rules and regulations as it
deems judicious. After any rule or regulation upon the subject has been
once established, it shall not, however, be altered or rescinded until it has
been in force at least three months, except by majority vote of the clearinghouse association.

Under this amendment the following rules and regulations regarding collections outside of the city of New York
were adopted by the clearing-house committee:
Pursuant to authority conferred upon it by the constitution of the New
York Clearing House Association, the clearing-house committee of said
association establishes the following rules and regulations regarding collections outside of the city of New York, by members of the association, or
banks, trust companies, or others clearing through such members, and the
rates to be charged for such collections and also regarding enforcement of
the provisions hereof.
SECTION I . These rules and regulations shall apply to all members
of the association, and to all banks, trust companies, or others clearing
through such members. The parties to which the same so apply are
hereinafter described as collecting banks.
S^c. 2. For [items collected for the accounts of, or in dealings with
the governments of the United States, the State of New York, or the city
of New York, and for items payable in the cities of Boston, Mass.; Providence, R. I.; Albany, N. Y.; Troy, N. Y.; Jersey City, N. J.; Bayonne,
N. J.; Hoboken, N. J.; Newark, N. J.; Philadelphia, Pa.; and Baltimore,
Md., the charge shall in all cases be discretionary with the collecting
bank, and the same shall not be governed by the provisions of these
rules and regulations.
SEC. 3. For all items from whomsoever received (except on those
points declared discretionary in sec. 2), payable at points in Connecticut,
Delaware, District of Columbia, Indiana, Illinois, Kentucky, Maine,
Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia,
West Virginia, and Wisconsin, the collecting banks shall charge not less
than one-tenth of 1 per cent of the amount of the items, respectively.

20040— 1o

'85

National

Monetary

Commission

S E C 4. For all items from whomsoever received, payable at points in
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia,
Idaho, Indian Territory, Iowa, Kansas, Louisiana, Minnesota, Mississippi,
Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota,
Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas,
Utah, Washington, Wyoming, and Canada, the collecting banks shall
charge not less than one-quarter of 1 per cent of the amount of the items,
respectively.
SEC. 5. In case the charge upon any item a t the rates above specified
does not equal 10 cents, the collecting bank shall charge not less t h a n t h a t
sum; but all items received from any one person at the same time and
payable at the same place may be added together and treated as one item
for the purpose of fixing the amount chargeable.
SEC. 6. The charges herein specified shall in all cases be collected a t the
time of deposit or not later than the 10th day of the following calendar
month. No collecting bank shall, directly or indirectly, allow any abatement, rebate, or return for or on account of such charges or make in any
form, whether of interest on balances or otherwise, any compensation
therefor.
SEC. 7. Every collecting bank, trust company, or other corporation
not a member of the association, but clearing through a member thereof,
shall forthwith adopt by its board of directors a resolution in the following
terms, and file a certified copy thereof with the association as evidence
as therein specified:
Whereas this corporation has acquired the privilege of clearing and
making exchange of its checks through the New York Clearing House
Association, and is subject to its rules and regulations: Now, therefore,
Be it resolved, That this corporation hereby in all respects assents to
and agrees to be bound by and to comply with all rules and regulations
regarding collections outside of the city of New York which may be established pursuant to the constitution of said association, and t h a t the president of this corporation is hereby instructed to file a certified copy of this
resolution with the clearing-house association as evidence of such assent
and agreement on the part of this corporation.
SEC. 8. In case any member of the association shall learn t h a t these
rules and regulations have been violated by any of the collecting banks,
it shall immediately report the facts to the chairman of the clearing-house
committee, or, in his absence, to the manager of the association. Upon
receiving information from any source t h a t there has been a violation of
the same, said chairman, or, in his absence, said manager, shall call a
meeting of the committee. The committee shall investigate the facts and
determine whether a formal hearing is necessary. In case the committee
so concludes it shall instruct the manager to formulate charges and present
them to the committee. A copy of the charges, together with written
notice of the time and place fixed for hearing regarding the same, shall

186

Clearing-House

Methods

be served u p o n t h e collecting b a n k charged w i t h such violation, which shall
h a v e t h e right a t t h e h e a r i n g t o i n t r o d u c e s u c h r e l e v a n t e v i d e n c e a n d s u b m i t s u c h a r g u m e n t a s i t m a y d e s i r e . T h e c o m m i t t e e shall h e a r w h a t e v e r
r e l e v a n t e v i d e n c e m a y b e offered b y a n y p e r s o n a n d w h a t e v e r a r g u m e n t s
m a y b e s u b m i t t e d , a n d shall d e t e r m i n e w h e t h e r t h e c h a r g e s a r e s u s tained. I n case it reaches t h e conclusion t h a t t h e y are, t h e c o m m i t t e e
s h a l l call a s p e c i a l m e e t i n g of t h e a s s o c i a t i o n a n d r e p o r t t h e r e t o t h e f a c t s
w i t h i t s c o n c l u s i o n s . If t h e r e p o r t of t h e c o m m i t t e e is a p p r o v e d b y t h e
a s s o c i a t i o n , t h e c o l l e c t i n g b a n k c h a r g e d w i t h s u c h v i o l a t i o n shall p a y
t o t h e a s s o c i a t i o n t h e s u m of $ 5 , 0 0 0 , a n d i n c a s e of a s e c o n d v i o l a t i o n of

1899.
I hereby certify, that, at a meeting of the Board of Directors of.
of
held
.1899, the following preamble and resolution were
adopted:
Whereas this corporation has acquired the privilege of clearing and making exchange of its checks through the New York Clearing House Association, and is subject
to its rules and regulations: Now, therefore,
Be it resolved. That this corporation hereby in all respects assents to and agrees to be
bound by and to comply with all rules and regulations regarding collections outside of the
city of New York which may be established pursuant to the constitution of said association, and that the president of this corporation is hereby instructed to file a certified copy
of this resolution with the clearing-house association as evidence of such assent and
agreement on the part of this corporation.
[SEAL.]

AGREEMENT TO COMPLY WITH R U I . E S AND REGULATIONS REGARDING COLLECTIONS
OUTSIDE OF N E W Y O R K .

t h e s e r u l e s a n d r e g u l a t i o n s a n y c o l l e c t i n g b a n k m a y also, in t h e d i s c r e t i o n of t h e a s s o c i a t i o n , b e e x c l u d e d from u s i n g i t s p r i v i l e g e s , d i r e c t l y o r
i n d i r e c t l y , a n d , if i t is a m e m b e r , e x p e l l e d from t h e a s s o c i a t i o n .

By resolution of the clearing-house committee, the foregoing resolutions went into effect on the 3d day of April,
1899.
Most complete and accurate records are kept at the
New York clearing house of all the transactions, both of
the exchanges between the banks and of all the important
acts relating to the administration. Six permanent employees, subordinate to the manager and assistant man-

187

National

Monetary

Commission

ager, are required to perform these duties, the attention
of the latter two being almost wholly occupied in work of
an administrative character.
There are about twenty-five records, consisting of
ledgers, statements, books, and registers. The most
important are as follows: A record book containing a copy
of the manager's proof sheet, showing the daily exchanges
and balances of the several banks and the totals of the
same; a ledger showing the exchanges and balances of
each bank kept separately; the same being a compilation
from the proof sheet; a registry book showing the balances received at the clearing house each day; a record
of the kinds and amounts of money received in payments
of balances by days, months, and years since 1882; a
weekly statement record showing the weekly statements
required from members for publication; the statements
made in response to the call of the Comptroller of the
Currency and the state superintendent of banks, compiled and recorded for the use of members of the association; an individual weekly bank statement introduced
in 1892, being a compilation of the weekly statement by
banks; a record of the increase and decrease in the items
called for in the weekly statements; an annual record of
comparative statements of footings of weekly statements;
a record for the quarter begun in 1892, showing the resources, liabilities, dividends, and sales and book value
of stock; a record of information, as complete as possible,
regarding all the banks in New York City; a record of the
issue of clearing-house certificates upon the deposit of
gold coin; gold and silver certificates and legal-tender

188

Clearing-House

Methods

notes and also upon the deposit of collateral security, with
the loan committee when in session; a general statement
of fines and corrections of clerks since 1877; a record of
the returns, as far as possible, from the various clearing
houses of the United States.
There are about ten other records of less importance,
besides the usual ledger, journal, and cash-book, in which
the clearing house keeps its own accounts and the records
of the proceedings of the various committees.

189

CHAPTER

XIV.

DAILY ROUTINE OF THE NEW YORK CLEARING
HOUSE.
THE

CLEARING

ROOM—CLERKS

AND

MESSENGERS—THE

MANAGER'S PART—HOW THE EXCHANGES ARE MADE—
THE CASH BALANCE PAID IN—THE

DISBURSEMENTS—

CLEARING-HOUSE GOLD DEPOSITORY—RESTRICTIVE

IN-

DORSEMENTS—PRO RATING OF EXPENSES—RECORD OF
FINES—TABLE OF ANNUAL CLEARINGS—TABLE OF AVERAGE DAILY BALANCES.

The clearing room of the New York clearing house is
a beautiful and commodious apartment, 60 feet square,
surmounted by a dome rising 25 feet above the walls.
Light enters through the glass forming the upper part
of the dome,, and, when necessary, additional illumination is secured by the use of electric lights, which encircle
the base of the dome. Four rows of desks occupy the
floor, with sufficient space between for an easy movement of the clerks in delivering the exchanges. Each
member has its own numbered desk, separated from the
one on the right and left by network of wire. At the
east end of the room is the manager's gallery, elevated
sufficiently to command an easy view of the scene of
operations. It is made accessible in front by steps and
in the rear by an elevator.
Each business day, at 10 o'clock, the exchanges take
place between the banks. About fifteen minutes before

190

Clearing-House

Methods

the hour designated the clerks begin to arrive. Formerly
it was the custom for each member to send only two
clerks, but so numerous and cumbersome have become
the exchanges of many of the banks that it is now necessary to send one and sometimes two extra clerks to assist
in transporting the items to and from the clearing house
and in delivering the packages.
The two essential representatives of each bank are
the "delivery clerk" and the "settling clerk." The
former delivers the packages brought, and the latter
receives the return packages from the messengers of the
other banks.
Each member sends its items for the other banks made
out separately and inclosed in envelopes, with the amounts
listed on the "exchange slip" attached to the exterior.
On their arrival at the house the settling clerks furnish
the proof clerk, sitting at his desk in the manager's gallery, with the "first ticket," upon which is entered the
"amount brought" or "credit exchange," and which
the latter transcribes on the clearing-house proof under
the head of "Banks Cr." The total of the amounts
thus brought by the several clerks constitutes the righthand main column of that sheet. If each messenger
has a package for each of the other banks, there are
2,500 in all to be delivered.
As a fact, in all other respects than the quantity of
packages, this is the number of transactions between the
clerks, for it is found in practice better to use a blank
slip than to omit a slip merely because there is no amount
to put upon it. This plan saves doubt and unnecessary

191

National

Monetary

Commission

searching when looking after the proof. The stationery
used by each of the several banks is put up in sets in
numerical order, and this is a reason why it is easier
to use all the slips than to discard those which happen
to have no items. Accordingly, as the delivery clerks
pass the desks, as is described farther on, it is the rule
to deposit the "small ticket" with the receiving clerk
in each case, whether there is a package corresponding
to it or not. When the settling clerks come to make
their summing up, first checking back by the small tickets,
they find that the blank spaces in their sheets are justified by the blank tickets of corresponding numbers,
and are in this respect assured of the correctness of their
work.
When the hand of the clock points to a fewT minutes
before 10 o'clock the manager appears in his gallery,
usually surrounded by a group of visitors. At one
minute before 10 he sounds a gong as a signal for each
of the clerks to station himself in his proper place. The
settling clerks occupy their separate desks on the inside
of the counter, while the delivery clerks form on the outside with their exchanges either on the left arm or carried in a box or case of some light material. The delivery clerks arrange themselves in the consecutive desk
order, and stand ready for delivery as they pass along
the counter. They carry "delivery clerks' receipts'' containing the amounts for each bank arranged in order,
upon which the several settling clerks, or their assistants,
give receipts for the package delivered.

192

Teller.

No. 1.
BANK OF NEW YORK M L BANKING ASSOCIATION
FROM

No. 6x.

THE FOURTH NATIONAL BANK.
X909

FORM OP EXCHANGE SLIP.

No. 1.

BANK OF NEW YORK
NATIONAL BANKING ASSOCIATION,

From No. 6 i
Fourth National Bank.

FAG-SIMILE OF " SMALL TICKET " DEPOSITED BY MESV

SENGER WITH G>ETTLING CLERK193

se***?
*
*
*

•
a
2

4»

4» o
!*

!+
*

4»

o
>•
^
Hi

*
*
*
*
*
*
*
*
*
*
*
*

No. 61;

j&etojaotft Clearinghouse,
JPO«

Credit Fourth National Bank, &

i+
^%|*ft^3S

^Settling Clerk.
FORM OF " F I R S T " OR CREDIT TICKET.

S
&

Clearing-House

Methods

All are now in position for the exchange. The manager
calls "ready," and promptly at 10 o'clock he sounds the
gong again and the delivery of the packages begins. He
looks down upon four columns of young men moving
simultaneously like a military company in step. At the
start each advances to the desk in front where his first
delivery is to be made. He deposits the package of items
and also the receipt slip on which the assistant of the settling clerk (or, in the case of small banks, the settling
clerk himself) writes his initials opposite the amount of
the package delivered in the blank space provided
for that purpose. At the same time, in an opening
in the desk provided for that purpose, he deposits a " small
ticket" containing the amount of the package. If cor-"
rect, it must agree with the amount listed on the "exchange slip." This process is repeated at the desk of all
the banks, each clerk making the complete circuit in ten
minutes to the point from which he started.
Being now at liberty, each delivery clerk takes back to
his bank the exchanges deposited by the other messengers, while the settling clerks remain until the proof is
made.
The settling clerks, immediately upon the completion
of the exchange of packages, sum up, as quickly as possible, the amounts entered on their statements under the
head of "Banks Dr." Upon ascertaining the total they
make out a "second ticket," containing the credit and
debit exchanges and the balance, and send the same to
the "proof clerk," who transcribes the debit exchange
under the head of " Banks Dr." (the credit exchange hav-

195

No. 61.

THE FOURTH NATIONAL BANK.
SETTLING CLERK'S RECEIPTS,

BANKS.

[

190
BR.

]

SIGNATURES.

1 1

1 Bank of N. Y. Nat'l B'k'g Ass'n,
2 Manhattan Company,
3 'Merchants' National Bank,
4 [Mechanics' National Bank,
6 [Bank of America,
7 Phenix National Bank,
8 ! {National City Bank,
12 Chemical National Bank,
13 Merchants' Exchange Nat'l Bank, j
14 Gallatin National Bank,
85 Seaboard National Bank,
91 Liberty National Bank,
92 N. Y. Produce Exchange Bank,
96 !State Bank,
97
Fourteenth Street Bank,
98 National Copper Bank,
99
100

2
3
4
6
.7
8
12
13
14
85
91
92
96
97
98
99
100

1
FORM OF SETTLING C L E R K ' S R E C E I P T S .

U-n-08-850

No. 61.

THE FOURTH NATIONAL BANK,

SETTLING CLERK'S STATEMENT,
•'"•

No. i

I , II

.'I

.... ,i

^ . n i|

.1 •

[

BANKS.

190
. a .

DEBIT

|i|

DEBIT

Bank of N. Y. Nat'l B'k'g Ass'n, j
Manhattan Company,
Merchants' National Bank,
'Mechanics' National Bank,
j
Bank of America,
Phenix National Bank,
National City Bank,
Chemical National Bank,
Merchants' Exchange Nat'l Bank,
Gallatin National Bank,
Bank of the Metropolis,
West Side Bank,
1
Seaboard National Bank,
Liberty National Bank,
jN. Y. Produce Exchange Bank,
IState Bank,
I jFourteenth Street Bank,
National Copper Bank,

CREDIT

6
7
8
•12
13
14
83
84'
85

91
92
96
97
98
99

ioo I

1
3
4

_.._..

1
2
3
4
6
7
8
12
13
14
83
84
85
91
92
96
97
98
99

j ioo

FOOTINGS,

BALANCES^

[

j
F O E M OF SETTLING C L E R K ' S

STATEMENT.

National

Monetary

Commission

ing been already entered), and the balance on the credit or
debit side, as the case may require.
While this is being done the settling clerks are checking
back from the small tickets to ascertain whether the
amounts agree with the amounts listed on their statements from the exchange slips. By this time the proof
clerk has footed the four columns on his sheet, namely,
the debit and credit exchanges and the debit and credit
balances. If the former two agree with the latter two
the work is correct, and the result is announced by the
manager, who calls off credits and debits.
As he calls off these balances, which are named in thousands of dollars, the hundreds and fractional parts being
omitted, the clerks list the amounts on a special slip provided for the purpose, and thereby secure a general report
of the balances of the day to take back with them for the
inspection of their several cashiers. By these reports the
managers of the several banks are informed of those who
have balances to be paid them by the clearing house, and
also of those who are to pay amounts into the clearing
house.
The time elapsed since the manager sounded his gong
for starting the work up to the completion of the proof
is perhaps forty-five minutes, or possibly a little more.
Three-quarters of an hour is the limit before fines are in
order against those who have made the errors that prolong the work, but it is not often that it becomes necessary to impose fines. The record time is thirty-five minutes, although the dates when the proof has been reached
in thirty-seven to forty minutes from the time the delivery

198

No. 61.

#tf» forh Clearinghouse,
1909.

Debit FOURTH NATIONAL BANK, Am't rec'd, $
Credit

broxiglit,

$..

JDebit Balance Due

Clearing-house.

cr. bai. d« e FOUBTH NATIONAL BANK, $^Settling Clerk.
FORM OF " SECOND " TICKET.

«-3

National

Monetary

Commission

clerks started on their rounds are numerous. When a
particularly good showing in this regard has been accomplished the announcement of the result by the manager
is very likely to be greeted with applause.
But suppose, as not infrequently happens, there is a
discrepancy. The proof sheet does not balance, which
clearly indicates that there is an error in the work of one
or more of the clerks. The manager immediately announces the difference and the clerks proceed to search
for it.
Various methods are resorted to, according to the nature
of the difference. Usually the manager calls for an exchange of sheets, to the right or to the left, for examination
of footings, and in cases of apparent error in entry the
amounts are called back. This is the final method of
revision, and if the additions are correct it must make the
proof.
Thus far no money has entered into the transaction.
Checks, notes, drafts, and other items have passed
through the exchanges, but as yet no occasion has arisen
for the use of a single penny. Evidently, however* the
clearing is not yet complete. Each member has in its
possession paper drawn upon itself which the other members have credited on their books, and likewise each member has given in exchange to each of the other members the
paper drawn upon them, respectively, and which it has
credited upon its own books. But the possibility is very
remote that the amounts of the items delivered by any
member to the other banks will exactly balance the sum
total of the items received from them. Indeed, so slight

200

N E W YORK CLEARING-HOUSE PROOF, ...
No.

2
3
4
6
7
8
12
13
14
15
17
21
23
78
80
gl
82
83
84
85
91
92
96
97
98
99
100

BANKS

DEBIT BALANCES
DUE CLEARINGHOUSE

DEBIT AMOUNTS
RECEIVED BY
BANKS

CREDIT AMOUNTS
C R E D I T BALANCES
BROUGHT BY
DUE BANKS
BANKS

Bank of N. Y. Nat'l Bkg. Assoc'n
Bank of the. Manhattan Company
Merchants' National Bank
Mechanics' National Bank
Bank of America
Phenix National Bank
National City Bank
Chemical National Bank
Merchants' Exchange Nat. Bank
Gallatin National Bank
Nat. Butchers' <fe Drovers' Bank
Greenwich Bank
American Exchange Nat'l Bank
National Bank of Commerce
Germania Bank
Lincoln National Bank
Garfield National Bank
Fifth National Bank
j
Bank of the Metropolis
West Side Bank
j
Seaboard National Bank
j
Liberty National Bank
j
N. Y. Produce Exchange Bank
State Bank
j
Fourteenth Street Bank
j
National Copper Bank
j
Coal and Iron National Bank
i

1
.2
3
4
6
7
8
12
13
14
15
17
21
23
78
80
81
82
83
84
85
91
92
96
97
98
99
100
CLEARING HOUSE PROOF SHEET.

National

Monetary

Commission

is the chance of such an agreement that in the whole history of the association there has not been a single instance
of this kind, although, as we shall see, the approach on one
occasion was within one cent of an exact exchange.
Hence each day after the exchange the general proof will
show a debit on the part of some of the banks and a corresponding credit on the part of others. To complete the
clearings, therefore, it is necessary for the banks to settle
these balances.
Accordingly, before half past i o'clock each debtor
bank, in compliance with the requirement of the constitution, pays into the clearing house the amount of its
debit balance and obtains a receipt for the same, signed
by the assistant manager. After half past i o'clock the
creditor banks receive at the clearing house their respective balances, and give their receipt for the same in a book
provided for that purpose; but in no case can a creditor
bank receive its balance until all the debtor banks have
paid in.
With the exception of fractional amounts, balances
are settled with legal-tender notes, gold coin, United
States and clearing-house gold certificates. All legaltender notes and United States gold certificates are
made up in packages of $1,000, $2,000, $3,000, $4,000,
$5,000, $10,000, $20,000, $50,000, and $100,000 each, and
all notes of a denomination smaller than $500 should be
put up in packages of not over $5,000. All packages should
be sealed and distinctly marked with the name of the
institution, the amount, the date, and the kind of money
contained therein.

202

Clearing-House
I

^ ,. v , : . . . . . . . . . . ,,«-,,,^.~:-t*.- , „ , . . . ... ... . ,, , ^ . , 1 9

No. 1
1
2
3
4

?
7
8
12
13
14
85
91
92
96
97

W
99

—

Methods

BANKS.

Br.

Bank of N. Y. Natl Bkg, Assoc'n
Bank of the Manhattan Company
Merchants' National Bank
Mechanics' National Bank
Bank o^ America
Phenix National Bank
1 National City Bank
Chemical National Bank
Merchants' Exchange Nat. Bank
Gallatin National Bank
Seaboard National Bank,
Liberty National Bank
N. Y; Produce Exchange Bank
State Bafrk
Fourteenth Street Bank
National Copper Bank
The Coal and Iron National Bank

Cr.

Balances,

FORM OF SETTLING CLERK'S REPORT TO HIS. BANK OF DAILY
BALANCES.

203

National

Monetary

Commission

By virtue of their convenience and safety the clearinghouse certificates, elsewhere referred to, are now used
extensively in the liquidation of balances. These are of
two kinds—those issued upon the deposit of gold coin,
gold certificates, silver certificates, and legal-tender notes
in the clearing-house vaults, and those issued upon the
deposit of gold coin with the assistant treasurer of the
United States. Such certificates are issued in denominations of $5,000 and $10,000, corresponding to the full
amount of the gold deposited, and are made negotiable
only among the associated banks by indorsement on the
back.
The holders of these certificates are the absolute owners
of the gold represented by them, and are at liberty to
redeem the same at any time during banking hours. It is
entirely optional with the members to make such deposits
or not. They act according to their pleasure; but any
member holding such certificates, and transferring the
same to any party not a member, is subject to a fine of
$100 for each offense.
The Bank of America was originally constituted a
common coin depository, to hold in special trust and to
issue certificates in denominations of $1,000, $5,000, and
$10,000 upon the deposit of such gold coin as the other
banks might place therein.
\
The clearing house has been its own depository since its
removal to the new location. Sometimes, when gold coin
is in demand or there is a stringency in the money market,
the coin is withdrawn from the depository by presentation
of these certificates in considerable amounts. At other
times the coin is freely deposited.

204

No. 61.

W 1*
mt *

$et» gorft Cleartng^ott^e-

100!)

KecettJCO /wm tA< FOURTH NAT'L BANK.^

We s %

m & % ZDollatd
we

in full fot balance due the (SQddociated

aDank&.

jSQaat.
MANAGER'S RECEIPT.

cJTSanaget.

No-

New York,-

J90

•

Dew Vork Clearinghouse Association
THIS CERTIFIES

thai there have been deposited <with the NEW
CLEARING-HOUSE ASSOCIATION by the

YORK

_., „ „
„
Dollars
in United States Gold Coin, to be held as a special deposit, payable in said coin to the order of
said Bank, on demand, to any Bank member of the New York Clearing-house Association,
only on surrender of this certificate indorsed by the Bank demanding payment of the same*
Registered at Ike
New York Clearing-house*
WM. SHERER* Manager*

NEW YORK CLEARING-HOUSE ASSOCIATION.
Chairman Clearing-house Committee*

THIS CERTIFICATE 18 I88UED FOR CLEARING-HOUSE PURPOSES ONLY.

FORM OF <*OLD CERTIFICATE—FACE.

Clearing-House

Methods

FORM OF GOLD CERTIFICATE—BACK.

207

National

M on e t ar y

Commission

A careful record is kept at the clearing house of the
amounts of money and certificates used in the settlement of
balances. Some idea of the relative proportion of the
various kinds of money and certificates employed may
be gained from the record for the year ending October 5,
1908. The debit balances were paid in as follows:
United States bearer gold certificates
United States order gold certificates
Clearing-house gold certificates
Clearing-house loan certificates
Clearing-house note depository certificates:
Legal tenders
Gold certificates
Silver certificates
United States legal tenders and change

$ i , 755, 781, 000.
296, 210, 000.
752, 420, 000.
528, 710, 000.

00
00
00
00

1, 570, 000. 00
3, 605, 000. 00
3, 020, 000. 00
68, 316, 271.41
#3,409,632, 271.41

The course pursued by the manager, in the event of
failure on the part of any member to appear at the proper
hour to pay the balance against it, differs somewhat from
that followed in many other associations. Article 10,
section III, of the constitution provides that in such
an emergency " t h e amount of that balance shall be
immediately furnished to the clearing house by the several
members exchanging that day with the defaulting member
pro rata, according to their respective balances against
said defaulting member, resulting from the exchanges of
that day, and the manager shall make requisition accordingly, so that the general settlement may be accomplished
with as little delay as possible. The respective amounts
furnished the clearing house on account of the defaulting
member will constitute claims against the defaulting
member in favor of the several banks furnishing the same."

208

Clearing-House

Methods

Thus it will be observed that they shall immediately
furnish the clearing house the amount of that balance in
proportion to their respective balances against the defaulting bank. Most clearing houses in a similar exigency require that a member defaulting in the payment
of a debit balance shall deliver to the manager all the
checks received through the clearing house on the day of
default and that the latter shall return the same to the
members clearing them. Similarly, all the members receiving checks from the defaulting member on that day
are required to surrender the same to said defaulting
member, after which the clearing of the day is readjusted
and a new settlement made the same as if no items had
been sent through by or on the defaulting member. There
have been cases, however, where the insolvency of a bank
was known before clearing hour, whereupon the clearinghouse committee has declined to allow it to clear.
The association is in no way responsible for the balances, except in so far as they are actually paid into the
hands of the manager, and then its responsibility is
strictly limited to the faithful distribution by him among
the creditor banks of the amounts which he has received.
Should any loss occur while the balances are in his custody the associated banks must bear the same in proportion to the other expenses. Any error in the exchanges
and claims arising from the return of checks, or from
any other cause, is adjusted directly between the banks
concerned.
The association is free from responsibility for the contents of sealed bags or packages received at the clearing

209

National

Monetary

Commission

house, and all reclamations for errors or deficiencies in the
contents of said sealed bags or packages must be made
by i o'clock on the following day by the receiving bank
directly against the bank whose mark the sealed bag or
package bears. " All checks, drafts, notes, or other items
in the exchanges returned as not good or missent must
be returned the same day directly to the bank from which
they were received, and the said bank must immediately
refund to the bank returning the same the amount which
it had received through the clearing house for the said
checks, drafts, notes, or other items so returned to it in
lawful money or clearing-house certificates. But checks,
drafts, notes, or other items to be returned for informality
of indorsement may, after being certified by the bank
returning them, be returned through the exchanges the following morning, not exceeding $5,000 in amount to any
one bank."
An amendment to this section was made on June 4,
1884, providing that in case of the refusal or inability of
any bank to refund promptly to the bank presenting
items not good, the bank holding them may report the
amount of the same to the manager, whose duty it shall
be, with the approval of the clearing-house committee,
to take from the settling sheet of both banks the amount
of such items and readjust the clearing-house statement
and declare the correct balance, in conformity with the
change so made, provided such report is given to the
manager before 1 o'clock of the same day.
All checks, notes, drafts, and bills of exchange, when
certified by the banks on the previous day, are considered

210

Clearing-House

Methods

proper matter for clearing. Also, for the convenience of
members, various kinds of money orders, though not authorized by the association, are accepted through the
exchanges.
Clearing items with restricted indorsements are prohibited by a resolution adopted June 4, 1896, as follows:
Resolved, That on and after the 1st day of June, 1896, members of this
association shall not send through the exchanges any checks, sight drafts,
notes, bills of exchange, or other items having thereon any qualified or
restrictive indorsements, such as " F o r collection" or " F o r account of" or
" Pay any bank or banker, or order " or similar indorsements, unless all
indorsements thereon are guaranteed by the bank, member of the association, sending such checks, drafts, notes, bills of exchange, or other items.

In response to many inquiries as to what indorsements are considered restrictive or qualified under the
above resolution, the clearing-house committee replied
that though in its opinion the forms "For deposit" and
"For deposit to the credit of" do not fall under the class
of indorsements within the purview of the clearing-house
resolution, they are to a certain extent considered restrictive when followed by other indorsements, and that inasmuch as the clearing houses of several other cities have
decided not to accept the indorsements "For deposit" or
"For deposit to the credit of," and decline to pay any
item with other than a plain indorsement thereon, members of the association should request their correspondents and depositors to use the following form: " Pay.
Bank, or order, " which, if used, would prevent delay and possible loss in the collection of checks and
other items.
The expenses of the association have not always been
borne by the members in the same proportion. Section

211

National

Monetary

Commission

22 of the constitution, as originally adopted June 6, 1854,
was as follows:
The expenses of the clearing house, not including the expense of printing
for the several banks (which last-mentioned expense shall be apportioned
equally) shall be borne and paid by the several banks belonging to the association, according to their respective capitals, as follows: Banks having
capitals of less than $500,000 shall pay $100 each annually. Banks having
capital of less than $1,000,000, and not less than $500,000, shall pay $200
each annually. Banks having capitals of $1,000,000 and over shall pay
$300 each annually. And in the same proportion if more funds are necessary.

In 1864 the constitution was referred to a committee of
five members for amendment and revision. In due time
they reported the changes they had made, and on January 24, 1865, the constitution was adopted as amended.
It appears that prior to that time the above section was
in force, requiring that members be assessed for expenses
in proportion to capital, but that the change essentially
to the present plan was then introduced.
Prior to 1890 no charge was made upon nonmembers
clearing, but on October 14 of that year a resolution was
passed, fixing an annual assessment of $200 upon each
nonmember. On December 21, 1896, an amendment was
made to this resolution changing such assessment from
$200 to $500. In the latter part of 1903 a further amendment was made to this resolution, to take effect January 1,
1904, stating that on and after that date every nonmember
sending its exchanges through a member of the clearing
house should pay to the association the sum of $1,000 annually, at which figure it still stands. Original members
paid no admission fee.
Since the revision of 1865 the printing expenses have
been divided equally, and each bank has paid an annual

212

Clearing-House

Methods

assessment of $200, and, in addition, its portion of any
other sum necessary rated on the amount of exchanges
which it has brought to the clearing house during the preceding year. The proportions are made out from the
records at the clearing house, after deducting the fixed
annual assessment upon nonmembers and members and
rents due the association.
There is another important feature entering into the
element of expenses which must not be overlooked. In
associations where the clearing house is rented property
it is comparatively easy, in fixing upon newly elected
members their proportionate share of the current expenses,
to do justice to all concerned. But in New York the situation is unique. The association owns its own clearing
house, for the erection of which a heavy draft was made
upon the members. Clearly, therefore, banks subsequently joining should in some way render to the other
members a just compensation for the privileges they acquire.
Such compensation is duly provided for in the following
plan: Preliminary to the erection of a clearing house 9,000
shares were issued—8,975 in the name of the president of
the clearing-house association and 25 in the names of the
five directors of the Clearing House Building Company,
who held the same in trust. Certificates to the value of
the shares were then issued to the banks in proportion to
their respective capital and surplus, and they in turn advanced the money for the erection of the clearing house.
Each bank advanced an amount of money equal to the
face value of the certificates it held. This was done under

213

National

Monetary

Commission

an agreement that it should receive a stipulated rate of
interest on its certificates, such interest to be raised by
assessment upon the members according to capital. These
certificates are not transferrable so long as the holder is a
member of the association, but if at any time it should
cease to be a member the association is given the preference in their purchase.
The fines collected are applied to the reduction of the
expenses. The following table shows the amounts of fines
for each year from 1885 to 1908, and will be of interest;
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897 _-_
1898
1899
1900
1901
1902
1903
1904
_,
1905
1906
1907
1908

.
-__

____

$1,015
1, 002
1,422
1,398
1, 121
1,046
885
__
749
989
538
.
521
: —
535
542
407
562
362
338
335
296
280
397
589
650
563

The maximum for this period, $1,422, which is also
the maximum for the whole history of the clearing house,
was attained in 1887, and the minimum in 1904. It will
be noted that the decline was nearly uniform between

214

Clearing-House

Methods

1887 and 1904. The falling off from year to year has
been due in the main to improvement in the discipline
of the clerks, and the increase in the last few years has
undoubtedly been brought about by the largely increased
volume of business.
The following gives the scale of fines in force at the
clearing house:
Forty-five minutes from the hour of commencing—
viz, 10 o'clock—will be allowed for a proof. For all
errors remaining undiscovered at 11.15 o'clock the fines
will be doubled, and at 12 o'clock quadrupled.
1. All errors on the credit side of the settling clerk's
statement (i. e., in the amount brought) whether of
footing or entry, and all errors causing disagreement
between the credit entries, the check tickets, and the
exchange slips, each $3.
2. Errors in making the debit (i. e., amount received)
entries, each $2.
3. Errors in tickets reported to the clearing house,
causing disagreement between the balances and aggregate, each $2.
4. Errors in footing the amount received, $1.
5. Disorderly conduct of the settling or delivery clerk
at the clearing house or disregard of the manager's instructions, each offense, $2.
6. Settling or delivery clerk failing to attend punctually
with statements and tickets complete, at the morning
exchanges, each $2.
7. Debtor banks failing to appear to pay their balances before half past 1 o'clock, $3.

National

Monetary

Commission

8. Errors in delivery or receipt of exchanges, each $ i .
It remains in this connection to give a table of figures
showing the clearings for each year, from the establishment of the clearing house in 1853 to the present time;
also the balances for the same period, with other important statistics:

216

CLEARINGS FOR 55 YEARS.

1 FISCAL YEARS
1
ENDING
1
SEPT. 30.

No. of
Members.

Clearings for Year.

50
48
50
50
46
47
50
50
50
50
49
55
58
58
59
59
61
62
61
59
59
59
59
58
57
59
59
61
62
64
62
64
64
65
64
64
65
64
65
65
66
67
66
66
65
64
64
62
60
57
54
54
55
54
50

$5, 750,455, 987. 06
5, 362, 912, 098. 38
6, 906, 213, 328. 47
8, 333, 226, 718. 06
4, 756, 664, 386. 09
6,448,005,956.01
7,231,143,056.69
5, 915, 742, 758. 05
6, 871,443, 591. 20
14, 867, 597, 848. 60
24, 097,196, 655. 92
26, 032, 384, 341. 89
28, 717,146, 914. 09
28, 675,159, 472. 20
28, 484, 288, 636. 92
37,407, 028, 986. 55
27, 804, 539, 405. 75
29, 300, 986, 682. 21
33, 844, 369, 568. 39
35, 461, 052, 825. 70
22, 855, 927, 636. 26
25, 061, 237, 902. 09
21,597, 274, 247. 04
23, 289, 243, 701. 09
22, 508, 438, 441. 75
25,178, 770, 690. 50
37,182,128, 621. 09
48,565, 818, 212. 31
46, 552, 846,161. 34
40, 293,165, 257. 65
34, 092, 037, 337. 78
25, 250, 791, 439. 90
33,374, 682, 216. 48
34, 872, 848, 785. 90
30, 863, 686, 609. 21
34, 796, 465, 528. 87
37, 660. 686, 571. 76
34, 053, 698, 770. 04
36, 279, 905, 235. 59
34, 421, 380, 869. 50
24, 230,145, 367. 70
28, 264, 379,126. 23
29, 350, 894, 883. 87
31, 337, 760, 947. 98
39, 853, 413, 947. 74
57, 368, 230, 771. 33
51,964,588, 564. 31
77, 020, 672, 493. 65
74,753,189, 435. 86
70, 833, 655, 940. 29
59, 672, 796. 804. 41
91, 879, 318; 369. 00
103, 754,100, 091. 25
95, 315, 421, 237. 96
73, 630, 971, 913.18
$1, 930, 248,133 ? 349.14

1854
1855
1856
1857
1858
1859
1860
1861
1862
1863
1864
1865
1866
1867
1868
1869
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908

Totals,
2 OO4O

217

|
Average
Daily Clearings.

$19,104,504.94 |
17 412 052.27
22 278 107.51
26 968 371.26
15 393 735.88
20 867 333.19
23 401 757.47
19 269 520.38
22 237 681.53
48 428 657.49
77 984 455.20
84 796 040.20
93 541 195.16
93 101 167.11
92 182 163.87
121 451 392.81
90 274 478.59
95 133 073.64
109 884 316.78
115 885 793.58
74 692 573.97
81 899 470.26
70 349 427.51
76 358 176.06
73 785 746.54
. 82 015 539.70
121 510 224.25
159 232 190.86
151 637 935.38
132 543 306.76
111 048 981.55
82 789 480.38
109 067 588.94
114 337 209.13
101 192 415.11
114 839 820.23
123 074 139.12
111 651 471.39
118 561 781.82
113 978 082.31
79 704 425.55
92 670 095.49
96 232 442.24
103 424 953.62
131 529 418.97
189 961 029.04 1
170 936 146.61 1
254 193 638.59
245 898 649.46
233 005 447.17
195 648 514.11
302 234 599.89
342 422 772.57
313 537 569.86
241 413 022.66
$114 765 927.42

National

Monetary

Commission

One trillion nine hundred and thirty billion two hundred and forty-eight million one hundred and thirtythree thousand three hundred and forty-nine dollars and
fourteen cents! It is difficult to comprehend the magnitude of such a sum. This is sufficient to run the
whole machinery of our Government for about three
thousand years, and is two hundred and seventy-five times
as great as all the gold and silver money in the world. If
put up in 8-ounce duck bags in the form of silver dollars,
it would require 16,006,778 cubic yards for storage; and
to count it all in a single year, it would take more than
20,000 men, counting at the rate of $175 a minute, day
and night without intermission.
These figures distance the transactions of all the other
clearing houses of the United States combined, whether
we consider the sum total of the exchanges since the inauguration of our clearing system or the current transactions.
It will be noted that the increase in clearings from
year to year has not been uniform. The decrease was
nearly 50 per cent from 1857-58, due in a large measure
to the panic of 1857. Thence the increase was normal
until the outbreak of the civil war, when business interests throughout the country received a severe blow, and
the clearings declined till 1863, when there was a sudden
turn, followed by an increase for the next three years.
The requirements of the new system soon exposed a
weakness in the management of eight banks, and in
consequence of their inability to meet the demand upon
them for daily settlements, they were forced into Jiqui-

218

Clearing-House

Methods

dation. As a result, the second year shows a reduction
in the total business of the clearing house, followed by
a gradual increase, till the panic of 1857. The decline
in the volume of exchanges was nearly 50 per cent from
1857-58, as before stated, but by the following year the
recovery was nearly complete, due in a large measure
to the passage by Congress of the national currency act,
which immediately expanded the circulation. At this
point came another change, and there was a slight decrease in the clearings until 1869. This year was followed by an increase to nearly $9,000,000,000 above
the record of any previous year.
A gradual decline set in again, from which the business of the clearing house did not recover fully for the
next twelve years. Meanwhile the clearings had gone
down in 1876 nearly $16,000,000,000 below the total for
1869. The resumption of specie payments by the United
States Government on the 1st of January, 1879, wrought
a salutary change in the business and commercial interests
of the country, and the consequent effect upon the business of the clearing house was wonderful. For the year
1878 the total exchanges of $22,500,000,000, in round
figures, increased to the prodigious sum of $48,565,000,000
for 1881, or over 100 per cent in three years, when the
high-water mark was reached in the association's history,
the exchanges for that year running far above the record
for any previous year.
The failure of two or three banks in 1884, notably
the Marine Bank and the Wall Street Bank, produced
a condiderable reduction in the amount of clearings,

219

National

Monetary

Commission

but the increase was rapid after 1885 until 1892, when
the volume of exchanges was again reduced, owing to
the general stagnation in business and trade. In 1896
the volume of business was nearly twenty billions of
dollars below the record of 1881. In considering this
decline, it must not be forgotten that the establishment
of the Stock Exchange Clearing House in 1892 has detracted very greatly from the volume of the exchanges.
It has been estimated that to this fact is due a reduction
of from $40,000,000 to $60,000,000 a day.
The figures of 1881 continued as the high-water mark
for annual clearings until 1899, when they suddenly
leaped from $39,000,000,000 in 1898 to $57,000,000,000,
an increase of nearly 50 per cent in a single year, and in
1901 to $77,000,000,000, a further increase of nearly 40
per cent. The next three years, however, showed declines,
and in 1904 the clearings had again fallen to something
over $59,000,000,000. Following that year the United
States entered upon a period of prosperity far greater than
had ever before been experienced, and in 1906 the clearings
reached the unprecedented total of $103,754,100,000, thus
making it the banner year in the history of the association
and showing average daily clearings of over $342,000,000,
By 1908, the year in which the effects of the panic of the
previous year were felt, the clearings had dropped back to
$73,000,000,000, thus indicating as strikingly as any figures
could the extent of the retrenchment in business that
occurred in the country during and following the panic.
The variation in the ratio of balances to clearings during this period has not been, as a rule, abnormal. The

220

1
1
1
1
1

1
1
1
1
1
1
1
1
1
1
1
1
1

1
I

BALANCES PAID IN CASH FOR 55 YEARS
FISCAL
YEARS
ENDING
SEPT. 30.

No. of
Members.

Balances for Year.

Average Daily
Balances.

50
48
50
50
46
47
50
50
50
50
49
55
58
58
59
59
61
62
61
59
59
59
59
58
57
59
59
61
62
64
62
64
64
65
64
64
65
64
65
65
66
67
66

$297, 411,493. 69
289 , 694,137.14
334 , 714, 489. 33
365 , 313, 901. 69
314 , 238, 910. 60
363 , 984, 682. 56
380 693, 438. 37
353 383, 944. 41
415 530, 331. 46
677 626, 482. 61
885 719, 204. 93
1,035 765,107. 68
1,066 135,106. 35
1,144 963, 451.15
1,125 455, 236. 68
1,120 318, 307. 87
1,036 484, 821. 79
1,209 721, 029. 47
1,428 582, 707. 53
1,474 508, 024. 95
1,286 753,176.12
1,408 608, 776. 68
1,295 042, 028. 82
1,373 996, 301. 68
1,307 843, 857. 24
1,400 111, 062. 86
1,516 538, 631. 29
1,776 018,161. 58
1,595 000, 245. 27
1,568 983,196.15
1,524 930, 993. 93
1,295 355, 251. 89
1,519 565, 385. 22
1,569 626, 324. 77
1,570 198, 527. 78
1,757 637,473. 47
1,753 040,145. 23
1,584 635,499. 88
1,861 500, 574. 56
1,696 207,175. 52
1,585 241, 633. 52
1,896 574, 349. 11
1,843 289, 238. 66
1,908 901, 897. 67
2,338 529, 016. 43
3,085 971, 370. 53
2,730 441, 810. 27
3,515 037, 741. 05
3,377 504,072.11
3,315 516,487. 48
3,105 858, 575. 60
3,953 875, 974. 80
3,832 621, 023. 87
3,813 926,108. 35
3,409 632, 271. 41
$89,694 759,171. 06

$988,078. 06
940, 565. 38
1, 079, 724. 16
1,182, 245. 64
1, 016, 954. 40
1,177, 943. 96
1, 232, 017. 60
1,151, 087. 77
1, 344, 758. 35
2, 207, 252. 39
2, 866, 405.19
3, 373, 827. 71
3, 472, 752. 79
3, 717, 413. 80
3, 642, 249. 95
3, 637, 397. 10
3, 365, 210. 46
3, 927, 665. 68
4, 638, 255. 54
4, 818, 653. 67
4, 205, 075. 73
4, 603, 296. 65
4, 218, 377. 94
4, 504, 905. 90
4, 273, 999. 53
4, 560, 622. 35
4, 956, 008. 60
5, 823, 010. 36
5,195, 440. 54
5,161,128. 93
4, 967, 201. 93
4, 247, 069. 39
4, 965, 899. 95
5,146, 315. 82
5,148,191. 89
5, 800, 783. 74
5, 728, 889. 36
5,195, 526. 21
6, 083, 335. 18
5, 616, 580. 05
5, 214, 610. 63
6, 218, 276. 55
6, 043, 571. 27
6, 300, 006. 26
7, 717, 917. 54
10, 218, 448. 24
8, 981, 716. 48
11, 600, 784. 62
11,110, 210. 76
10, 906, 304. 23
10,183,142. 87
13, 006,170. 97
12, 648, 914. 27
12, 545, 809. 56
11,179,122. 20
$5, 332, 942. 45

65
64
64
62
60
57
54
54
55
54
50

TotalsI

Balances
to
Clearings.
PerCent.
5 17
5 40
4 83
439
666

5 64
5 26
5 97
604

4 55
3 67
3 97
3 71
3"
395

2"
372
412
422

415 1
562
562

5"
589
5 81
556
407
366

389

447

5 12
455
49

4 08 1
5

505
465
65

4 13 1
5

492

654
671
628

601
587
537
525

456

451
468

j
J

433
3 69
400
63

J
|
I

464

National

Monetary

Commission

maximum was reached in 1895, when the per cent was
6.71, and the minimum in 1869, when it reached the low
mark of 2.99 per cent.
The largest transactions for any one day since the clearing house was organized were on January 3, 1906, when
they reached the prodigious sum of $686,844,890.58.
The smallest transaction for any one day was on October
30, 1857, amounting to $8,357,394.82.
The largest total balance resulting from any one
day's exchanges was on October 3, 1905, amounting to
$42,331,709.02. The smallest tdtal balance on record
was on October 30, 1857, amounting to $489,720.32.
The greatest amount of exchanges brought to the clearing house by any one bank was on January 3, 1906,
amounting to $111,833,131.31. The greatest amount of
exchanges taken away from the* clearing house by any
one bank was on February 28, 1905, $125,954,496.61.
The largest balance ever paid by the clearing house to
any one bank was on September 30, 1905, $27,355,290.85.
The largest balance ever paid by a single institution to
the clearing house was paid on October 3, 1905, and
amounted to $37,661,685. The smallest balance ever
paid by the clearing house to any one bank was on December 16, 1873, amounting to 10 cents. The smallest
balance ever paid to the clearing house by any one bank
was on September 22, 1862, amounting to 1 cent.
Such is the history of the New York clearing house.
Standing foremost among the financial institutions of the
ccmntry, we may well forecast for it a future of still greater
importance to the business world.

222

CHAPTER

XV.

THE CLEARING-HOUSE ASSOCIATION OF THE
BANKS OF PHILADELPHIA.
EARLY HISTORY—RUNNERS' EXCHANGE—THE MORNING EXCHANGE—GOLD

DEPOSITORY—CLEARING - HOUSE

DUE-

BILLS—SETTLEMENTS WITHOUT THE USE OF MONEY—
COMPARISON OF BANK STATEMENTS—COLLATERAL

SE-

CURITY—ASSESSMENT OF EXPENSES—ADMISSION OF NEW
MEMBERS—PLAN OF ADMINISTRATION—LIST OF PRESIDENTS—FAILURES AND RESULTING LITIGATION.

The clearing-house association of Philadelphia is a voluntary unincorporated association of certain banks of
that city, its chief object being to effect, at a central point
called the " clearing house," the daily exchanges of items
between the associated banks. It was established in
1858, five years after that of New York, and with essentially the same rules and by-laws. Prior to this, the
cashiers met at a central point and adjusted the balances
in the morning exchanges, which were afterwards collected
in cash by the runners of the creditor banks at the counters
of the debtor banks. In this exchange were included all
items received in the morning mail.
The banks of Philadelphia are not so concentrated in
location as are those of New York or Boston, and this very
greatly enhanced the labor of the runners, who had to
make the interchange of items. They called those banks
most remote from the banking center "the extremities/'

223

National

Monetary

Commission

and it was indeed a most unenviable task to make the
rounds of these daily. Accordingly, the feeling early prevailed that the exchanges would be greatly facilitated if
only the items of the previous day were included in that
day's exchange. In 1862, only four years after the establishment of the clearing house, William H. Rhawn, who
for a long time was president of the National Bank of
the Republic, proposed the introduction of a second exchange, and after a year's discussion by the clearing-house
committee it was adopted. This was called the " runners'
exchange," and it was so named because it was in a large
measure a substitute for the work previously performed
by the runners.
This runners' exchange included all notes and acceptances due that day and all items in the morning mail
made payable at the banks. Through it were nearly
always returned the items not good that were included in
the morning exchange.
The morning exchange took place at 8.30 o'clock and
included only the items of the previous day. The method
was essentially the same as that of New York, and differed
from that of Boston only in the requirement of a receipt
for packages as delivered. The runners' exchange was
fixed at 11.30, so that the clerks from the debtor banks at
the morning exchange could pay their debts before the
runners' exchange, and the clerks from creditor banks
could receive the amounts of their credits after the ex
change.
The method of the runners' exchange differed somewhat
from that in the morning exchange. Only one clerk from

224

Clearing-House

Methods

each bank was employed, whereas two were required in
the earlier clearings. Each clerk upon his arrival first
deposited the items which he held on the other banks and
then took his position at the desk of his own bank.
Promptly at 11.30 o'clock each clerk began to list and add
the items deposited for his bank. The balances were
then adjusted by duebills or checks, after which the
clerks repaired to their several banks.
The method of settling balances at these two exchanges
differed from that pursued in various other clearing-house
associations. The Farmers and Mechanics' National Bank
received in special trust such gold coin as any of the
members voluntarily deposited with it for safe-keeping
for clearing-house purposes. Against such deposits certificates in denominations of $5,000 and $10,000 were
issued to the depositing banks, signed by the manager of
the clearing-house association or by his assistant, or by
some other person designated by the association for the
purpose, and countersigned by the Farmers and Mechanics'
National Bank. These certificates were negotiable only
among the associated banks, and were receivable by them
in the payment of balances at the cleaning house for the
morning exchange. The coin thus placed on deposit was
the absolute property of such of the associated banks as
were for the time the holders of the certificates, and was
held by the depository subject to withdrawal on presentation of the properly indorsed certificate at any time during
banking hours.
Hence it will be seen that these certificates were issued
under about the same conditions as are the clearing-house

225

gzz

Icun/eui't/nef/

7L
C

° S
oo

77*i'x 7?«e 'Bill is only good when signed by one and countersigned by another authorized person and is pcuyable only in the
Exchanges through the Clearing-house the day after issue.

5*
ft*

c
I—r-i

1 @
d>o

UOl S SI1U1U0 Q

6UV }d U0 ]ft[

fVUOllVftl

Clearing-House

Methods

certificates of New York and other cities, with the exception that the gold coin deposited as security therefor was
placed in the vaults of the Farmers and Mechanics' National Bank instead of in the clearing house, which at that
time had no adequate facilities for the handling of the
same. This arrangement has since been changed, and the
gold is now deposited in the vaults of the clearing house,
in the same manner as at New York.
The runners' exchange has since been abolished by
constitutional amendment, and there is now but one
exchange a day, which takes place at 10 o'clock in the
morning.
There is also a constitutional provision that the manager of the clearing house shall receive the certificates
issued by the Treasurer of the United States for clearinghouse purposes under any act of Congress, in settlement
of balances due from the morning exchange. These
certificates, it is provided, must be indorsed, " P a y to
the order of a bank, member of the clearing-house association of the banks of Philadelphia/' The certificates
are issued in denominations of $5,000 and $10,000. Inasmuch as these certificates are issued only in the large
denominations above mentioned, some other medium
must be employed in the payment of balances and parts
of balances under $5,000. This is done with clearinghouse duebills (see form on another page) issued by
the debtor banks to the clearing-house manager, who
deposits them in the clearing-house depository bank,
which, in turn, sends them through the exchanges against
the debtor banks on the following day. These clearing-

227

WEEKLY

STATEMENT.

Average Condition for the Week preceding Monday,
tlANK.

CAPITAL
STOCK

LOANS AND
DISCOUNTS.

LAWFUL
MONEY
RESERVE.

DUE FROM
OTHER
BANKS.

Due by

DUE TO
OTHER
BANKS.

190
DEPOSITS.

CIRCULATION.

PERCENTAGE O F
RESERVE.

Due to
New York, C
^Cashier.

F O R M OF W E E K L Y

STATEMENT R E Q U I R E D

OF PHILADELPHIA

BANKS.

Clearing-House

Methods

house duebills can be used only on the day of issue, and
are payable only in the exchanges through the clearinghouse the day after issue.
The manager issues to creditor banks manager's
checks on the clearing-house depository bank for the
amount of their credit, under $5,000, being the amount
of the duebills deposited with that bank. Banks are
required to give duebills to the other banks upon demand,
in payment of items at their counters, where the amount
exceeds $>ioo. They are also required to furnish to each
other and to the manager of the clearing house the names
and signatures of all persons authorized to sign or countersign duebills.
By this means the" balances are settled from day to
*day without the use of a single penny of money. The
risk attending the transfer of large sums of money
through the streets of the city is obviated, and the greatest
possible ease is secured in the receipt and disbursement
of balances.
The provision of the constitution regarding statements is as follows: " Each bank shall furnish on Mondays,
for publication, a statement of its average condition for
the previous week, after deducting the daily exchanges
from the gross figures of the preceding day. To each
statement shall be appended the state of the account of
the bank with New York on the day of report. These
statements shall be certified to by the president, cashier,
or assistant cashier."
Each bank is also required to furnish a daily statement to the manager, but not for publication, certified

229

National
.

Monetary
'

I 2 6

DAILY

Commission
-

S T A T E !K E N T
r i o N A L

B A N K ,

1 a t the close of business ^ ^ — w » . . < ~ _ ~ . n
1 This S t a t e m e n t ' s to be sent with the Exchangfes, to the Clearing-house,
I a t or before 10 o'clock, A. M., on the folio wing business day.
Loans and Discounts, including all Interest
Bearing Securities of the United States.
Individual Deposits ^ * ^ . ^ ^ . ^ r » ^ ^ , « » ^ ^ r .
Banks' and Bankers' Deposits..*

^,„_«

Total Deposits c ^w . . . ~*. ~». - —.
due from Banks and Bankers (exclusive
I

of Reserve A gents), >.,•,- ~ » ^ , ^ * >* * «.
Net Deposits. ^ _ ^ ^ - ,„.,«—-»—^
S p e C i e o w O - ^ t T w i » . « « * « K . - ^ ~ - y - ' ( ^ » - . — . wm r » . . • * » » ?

U. S. Legal Tender N o r e s ^ . ^ ^ . ^ - ^ - * *
U. S. Treasury Gold Certificates.o^^r-*,.
Clearing-house Gold Certificates « ^ » ^ - ^
Cash Reserve. ***-. „m r „ , , ~ ~«
Due by Reserve Agents* ««*».«_».»..•.»**

Circulation c^*-**-**.^, . . , . „ . . * > * . w ^ v
National Bank Notes.*,.*. . ^ s > w * ~ - « - .
7 certify that- the above statement is correct as shoivn b\f the books of 1
the Bank.
General Bookkeeper.
F O R M OF DAILY STATEMENT EMPLOYED BY THE B A N K S O P

PHILADELPHIA.
230

AVERAGE CONDITION OF T H E BANKS IN PHILADELPHIA,
For the Week preceding Monday, July 26th, 1909,
As furnished by JOHN C. BOYD, Manager Philadelphia Clearing-house.

CAPITAL
STOCK

BANKS

No. 1
2
3
6
7
8
9
10
11
13
14
18
19
20
21
23
25
26
28
29
30
33
34
36
37
39
40
42
43
44
45

Philadelphia National
,
North America
Farm's & Mech's National.
Nat. Bk. of N. Liberties...
Southwark N a t i o n a l . . . . . . . .
Kensington National
Penn National
. .,
Western N a t i o n a l . . . . — .
Manufacturers Nat'l
„..
Girard National,
.......,,..,
Tradesmens National,
Corn Exchange National.1*'.
Union National
,.„.
First National.
Third National
.,...
Sixth N a t i o n a l —
Eighth National. . . . , . .
-.
Central N a t i o n a l . . . . . . . .
National Security
Centennial National
Merchants' National.
,
Ninth National..,....
Tenth N a t i o n a l . . .
Northwestern N a t i o n a l . . . .
Southwestern National.
Fourth Street N a t i o n a l . . .
Market Street N a t i o n a l . . .
Quaker City National;
Northern N a t i o n a l . . . . . . .
Franklin National
Textile National, v.•-..

I LOANS AND
! DISCOUNTS

Lawful
Money
Reserve '

Due fr. Bks, Due to Blq?v

DEPOSITS

500,000| $37,696,000 $12,048,000 $6,714,000 $25,702,000 $24,604,000
13,082,GC.O
1,682,000 [
! 3,233,000
000,000
3,497,000
10,730,000
3,559,000
000,0004,940,000!
3,488,000
10,214,000
13,338,000
439,000
500,000 J
583,000i
806,000
2,920,000
.3,834,000
200,000
250,000:
495,000
478,000
1,787,000
1,383,000
250,000
106^000 j!
22,000
342,0001
1,699,000
1,360,0C0
500,000
705,000]
5,266,0001
1,697,000
5,444,000
523,000
600,000
834,000
3,562,000
2,319,000
866,000
1,971,000
500,000
334,000
1,535,000
2,125,000
544,000
532,000
,000,000
5,354,000
16,965,000
23,201,000
31,472,000; 10,319,000
500,000
1,281,000
3,560,000
2,455,000
4,994,000; '1.438,000
,000,000
3,544,000
7,016,000
12,351,000
14,365,000
4,464,000
500,000
742,000
5,343,000
972,000|
5,589,000
1,619,000
,000,000
1,824,000
6,342,000
4,261,000
9,185,000
2,321,0001
600,000
•969,000
4,468,000
566,000
1,111,000
4,355,000
150,000
195,000
1,445,000
412,000
1,356,000
275,000
167,000
2,585,000
675,0001
78,000
3,057,000
750,000 J 13,491,000
1,058,000
11,180,000
4,707,000
3,750,000!
250;000
198,000
2,906,000
33,000j
744,000
3,241,000
300,000
3,242,000
338,000
190,000
961,000]
2,969,000
,000,000
6,609,000
1,741,000
6,176,000
10,507,000
2,646,0001
300,000
3,120,000
28,000
225,000
3,350,000
729,0001
200,0001
990,000
76,000
94,000
057,0001
249,000:
200,000
2,773,000
14,000
155,0001
852,000
647,000
200,000]
786,000
76,000!
884,000
149,0001
,000,000
24,672,000
7,254,000 j 24,021,000;
38,231,000
14,786,000j
,000,000
4,985,000
3,404,000!
1,258,000 J
7,950,^00]
l,926,000i
500,000
1,822,000
43,C00j
155,000 J
2,652,C00
430,000]
200,000
1,844,000
6,000!
73,000i
l.te.ooo
432,000
,000,000
20,272,000
25,142,000
4,376,000 j 12,749,000
7,503,000]
200,000
98,000!
82.9,000
1,058,000
91,000 j
225,000

Circulation

$1,129,000
496,000
1,956,000
200,000
246,000
144,000
142000
443,000
126,000

27.6
28.4
30.0
26.3
28.6
26.8
32.2
25.
30.
1,069,000
29.
496,000
30.
814,000
28.
440,000
29;
1,000,000 26.4
347,000] 27.3
148,000! 32.
274,000] 27.
378,000 j 25.
247,000! 27.
100,000
31.
401,000j 24.0
104,000] 24.9
97,000
25.6
199,000 24.6
50,000
20.9
2,808,000 35.7
1,000,000 27.0
496.000
25.1
195,000
24.3
542,000
26.1
198,000
26.9

$22,225,000 $271,989,000 $81,290,000 $45,750,000| $133,442,000! ,$194,263,0001 $16,285,000

TOTAL.

Increase.
$99,000

COMPARISONS

Increase.
$257,OOo

Decrease.
$1,194,000

Decrease.
$296,000

Decrease.
$501,000

Percentage of
Reserve

28.8

Increase.
$251,000

CLEARINGS AND BALANCES.
July 19th.,
44
20th..
" 21st..

$16,068,176 55
23,924,108 45
22,343,605 12

$1,020,819 21
2,005,900 00
1,912,332 99

Julv 2 2 d . . .
"
23d...
"
24th..

19,755,588 38
20,582,065 20
17,827,577 00

1,264,080 89
1,492,122 36
2,098,263 58

$120,501,120 70

$9,793,519 03

WEEKLY STATEMENT FOR TRUST COMPANIES.
Average, Condition for the Week preceding Monday, July 26th, 1909.
TRUST COMPANY

LAND T I T L E

& TRUST

CO..

Capital

Surplus
Fund a n d
Undivided
Profits

Loans and
Invest-

Specie

$2,000,000

$3,042,000

$8,501,000

'$59,000

[On Deposit
;On deposit with other
Legal
with. Clear- Approved
Tender
ing-house
Notes and
DepositoAgent
Bank-Notes
ries

$420,000

$841,000

$1,241,000

FORM OF STATEMENT OF THE AVERAGE CONDITION OF P H I L A D E L P H I A BANKS.

20040—10.

(To face page 230.)

Deposits

$8,148,000!

Clearing-House

Methods

by the general bookkeeper. Such statement is to be
made before the commencement of business and sent
to the clearing house with the morning exchanges.
Thus the Philadelphia association is more rigid even
than New York in this particular, and, indeed, more
exacting than any other clearing-house association in
the country. In many cases, especially in the larger
cities of the country, a weekly statement is required,
but in no city except Philadelphia is a statement required oftener than once a week.
Philadelphia reports eight items, while New York
reports but seven. Both give " capital stock," " circulation," " loans and discounts," and " deposits," but
Philadelphia differs in that they report " lawful money
reserve" in one item, and include "due from banks,"
"due to banks," and "percentage of reserve," which are
not given in the New York reports.
In addition to the protection afforded each member
by these statements, each bank, upon becoming a member, is required to deposit collateral with the clearinghouse committee, as security for its daily settlements,
in the following proportion to capital: Banks with capitals
of $800,000 and over, 10 per cent. Banks with capitals
of $500,000 and under $800,000, 14 per cent; but not to
be required to deposit over $80,000. Banks with capitals
of $250,000 and under $500,000, 20 per cent; but not to
be required to deposit over $70,000. Banks with capitals
of under $250,000 shall deposit not less than $50,000.
The rules of the association further provide that if,
after any bank shall have become a member of the asso-

231

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Commission

ciation, the clearing-house committee shall deem the
collaterals deposited by such bank to be insufficient
security for its daily transactions, the committee may
from time to time require such bank to deposit additional
collateral security therefor. It is understood by all
banks making such deposits that they alone are responsible for any loss on their collaterals deposited resulting
from the failure to make demand and protest, or from
any other neglect or omission other than the refusal to
take such reasonable steps as may have been previously
requested in writing.
In case of default by any member, the clearing-house
committee is instructed to apply their deposit of collateral
" t o the payment of any balances due by such bank at
the clearing house or to the reimbursement pro rata of
the several banks furnishing any such balance, and the
surplus, if any, shall be held by the committee as collateral
security for any indebtedness of such defaulting bank to
the clearing-house committee, or to the association or
any of its members, and also as security for all costs,
expenses, and counsel fees, paid by the clearing-house
committee, for the collection of the security representing
the deposit, or which the committee may be compelled
to pay by reason of holding the same." The committee
may be required to determine the time when exchanges
or deliveries of collateral security shall be made.
The constitution further provides that—
Bills receivable deposited as such security shall in no case be received
a t more than 75 per cent of their face value, unless accompanied by collateral security of greater value, when, in the discretion of the committee,
such bills may be received to an amount not exceeding their face value.
It shall be the privilege of each bank to examine twice a year, or oftener,

232

Clearing-House

Methods

at its option, the securities in the custody of the clearing-house committee,
deposited by it, as collateral security, to compare the same with the receipt
given by the committee, and if found correct, to execute to the committee
a certificate setting forth the different kinds and amounts thereof, and
that the same are in the possession and custody of the committee at the
date of such certificate. Such examination may be made by an officer of
such bank or nonmember, or by a committee of directors duly appointed
for the purpose.

As in New York and Boston, the expense of printing
is apportioned equally; but while other associations require that each bank shall be assessed a stated sum and
pay the remainder thereafter in proportion to its exchanges for a given period, the Philadelphia Association
requires that all such expenses shall be borne by the
several members, according to capital, as follows: Banks
having a capital of less than $500,000 shall pay $100
each annually. Banks having a capital of $500,000 and
less than $1,000,000 shall pay $200 each annually. Banks
having a capital of $1,000,000 and upward shall pay
$300 annually, and in the same proportion if more funds
become necessary. The expenses are much lower than
at New York, Chicago, or Boston.
The fines, amounting to from $300 to $400 annually,
have always been donated to the Bank Clerks' Beneficial
Association. In the last few years the disorder fines
have amounted to but a very small sum. None of the
fines are high comparatively. For no offense is it greater
than $1 except for failure to attend exchanges promptly
and to be punctual in the payment of debtor balances,
in which case it is $2 for each offense.
Banks may be admitted from time to time to membership in the association, but the requirements are more
rigid than in any other city. Applications must be made
20040—10

233

National

Monetary

Commission

to the clearing-house committee and upon a favorable
report by them to the association the applicant may be.
admitted by an affirmative vote of three-fourths of all
the members and by paying an admission fee of $10,000
and certifying assent to the articles of association. In
no other city is the admission fee so high, and in only a
few is more than a majority vote of the members necessary for admission.
The power of suspension is lodged in the clearinghouse committee, but no suspension can take place unless a majority of the committee are present and vote
unanimously in favor thereof. In the event of such
action, it is the duty of the committee to call a meeting
of the association immediately to take the matter into
consideration.
The administration of the clearing house is vested in
a president, secretary, manager, assistant manager, committee of arbitration, and clearing-house committee.
The latter committee, consisting of six bank officers, is
elected annually, and in it is vested almost absolute
power. This committee appoints the manager and
assistant manager, establishes rules to be observed at
the clearing house, subject to the approval of the association, and generally supervises clearing-house affairs.
It has charge of the funds belonging to the association,
draws on each bank for its quota of expenses, and submits to the association detailed accounts of expenditures.
It takes into its custody the collateral securities required
to be deposited by the banks. This committee has
power to remove the manager or any of the assistants

234

Clearing-House

Methods

whenever, in its opinion, the interests of the association
require it. The committee can examine the books and
assets of any member of the association whenever it
shall deem it necessary.
The committee of arbitration is also elected annually
and is composed of six bank officers. Upon it devolves
the duty of hearing and determining disputes between
members of the association when submitted to it by either
party. The duties of this committee, however, are not
very arduous, as the records show that it is rarely called
upon to meet.
The president is elected annually by ballot and presides at all meetings of the association. He is ex officio
a member of each *of the standing committees and in his
absence a president pro tempore is appointed.
At the beginning of the organization it happened that
the man who had been longest president of a bank was
made president of the association. He was repeatedly
reelected, his final term expiring after ten years of service.
The precedent of electing and reelecting to the presidency of the association the one who has been longest
president of a bank has since been adhered to, so that in
the history of the association there have been only five
presidents, as follows: Joseph B. Mitchell, Joseph Patterson, James V. Watson, J. H. Michener, and the present
incumbent, F. B. Reeves, who assumed office on January
7, 1907.

The secretary is elected at the annual meeting by ballot.
It is his duty to keep correct minutes of the proceedings,
of the association in a book provided for the purpose.

235

National

Monetary

Commission

The manager has immediate charge of all business at
the clearing house; under clerks and messengers from the
banks are under his direction. His decisions concerning
details at the clearing house are binding, until modified
by the clearing-house committee. It is his duty to impose and collect fines fixed by the association for the violation of rules at the exchanges. With the assistance of
the clerks, he performs the duties connected with the operation of clearing, the adjustment and payment of balances, the keeping of records, the preparation of weekly
statements, and, in a word, all the details of clearing.
His salary is fixed by the association and he is required to
give bond with sureties in the sum of $50,000, subject to
the approval of the clearing-house committee. In this
connection it may be remarked that at Chicago a bond
is required in the same amount, but at Boston and New
York it is fixed at $10,000.
Permanent clerks are also required to give bond in
such sums as the clearing-house committee shall determine, with approved sureties. Such bonds must be examined by the clearing-house committee at least once a year.
In the history of the Philadelphia clearing house four
of the member banks have failed, viz, the Fourth National
in 1874, the Spring Garden and the Keystone National in
1891, and the Chestnut Street National in 1897. The failure of the Keystone National Bank involved the receiver
thereof and the seven members of the clearing-house committee in litigation. The facts connected with the case
and the result of the trial are very interesting and important to all clearing-house associations. The circumstances
were briefly as follows:

236

Clearing-House

Methods

On March 20, 1891, the Keystone National Bank
made its regular exchanges at the clearing house, bringing
items to the amount of $70,005.46, and receiving $117,035.21. The debtor balance of this bank, therefore, was
$47,029.75. The bank failed to pay its balance at 12
o'clock, in accordance with the rules, and it was not subsequently paid. In compliance with a previous agreement between the associated banks and the Keystone
National Bank, the manager was allowed to hold the
exchanges received by the latter until the payment of the
balance. Accordingly he retained the packages in his
possession, and, after 12 o'clock on the day of failure,
notified the banks which had sent the exchanges that they
must make them good by the payment into his hands of
that amount of money. With this request they immediately complied and took away the packages.
In addition to the debit balance of $47,029.75 on the
morning of failure, the Keystone National Bank owed
$41,197.36, for which it had issued clearing-house duebills in payment of its balance on the preceding day, and
which duebills, according to the common rule, were payable in the exchanges on the following day, which in
this case was the day of failure. Further, it owed $335,000
on clearing-house loan certificates, issued to it by the
association on the deposit of collateral security in obedience to the terms of a special agreement entered into
between said bank and the clearing-house association.
Acting under the instructions of the clearing-house committee, the manager appropriated the sum of $117,035.21,
furnished him by the banks, to the payment of the obliga-

237

National

Monetary

Commission

tions of the Keystone National to the association, as follows: In payment of the debit balance of the Keystone
National Bank in that morning's exchanges, $47,029.75;
to make good the duebills given by the bank for its debtor
balance on the preceding day, including duebills given to
the several banks, $41,197.36; and the remainder, amounting to $28,808.10, to the cancellation of a part of the
$335,ooo in clearing-house loan certificates issued to that
bank.
Upon a bill brought by the receiver of the defaulting
bank against the seven members of the clearing-house
committee, the circuit court rendered a decree for $70,005.46, with interest from March 20, 1891, against the
defendants, on the ground that after the known insolvency
of the named bank they applied its funds in their hands or
under their control to the payment of its debts to the
clearing-house association and to members thereof, with a
view of giving them unlawful preference over other creditors.
The circuit court of appeals, to whom the case was
appealed by the clearing-house committee, reversed this
decree, on the ground that a bona fide exchange of items
had taken place between the Keystone National Bank and
its clearing-house association before the bank examiner
had acted, and when the clearing-house association had
no reason to suspect the impending failure. The transaction was in the regular course of business and with a
view to continuing operation. The exchange was an
accomplished fact, and the only thing remaining to be
done was the payment by the Keystone National Bank

238

Clearing-House

Methods

of its debtor balance in the morning exchange. It failed
to do this, and hence the action of the clearing-house
manager in appropriating the money received from the
various banks holding exchanges on the Keystone National
Bank to the payment of the latter's obligations to the
association was a justifiable procedure. The receiver of
the Keystone National Bank finally appealed the case to
the Supreme Court of the United States, and in March,
1897, a decision was rendered in favor of the clearinghouse committee.

239

CHAPTER

XVI.

THE BOSTON CLEARING HOUSE.
FORMATION AND EARLY HISTORY—PERIOD OF THE CIVIL
WAR—SETTLEMENT

BALANCES—BORROWING

AND

LOANING BALANCES—CLEARING FOR OUTSIDE BANKS.

Only three years after the establishment of the. New
York clearing house a similar association was formed in
Boston—namely, in 1856—for the purpose, as specified in
the constitution, of effecting a more perfect and satisfactory settlement of the daily exchanges of checks and other
items, and of the balances resulting therefrom. The constitution was modeled very closely on that of New York,
and, although important changes have since been wrought
in both, Boston still remains more nearly on the New York
model than does any other important association in the
United States. This is so, for the most part, because the
New York clearing house was the only one at that time in
the United States; and hence to it alone could Boston look
for a model.
The history of the association has been both eventful
and interesting. Prior to its establishment there was
much opposition to it, on the ground that it was an " innovation upon the established order of things and of doubtful
expediency," but when the pressure in favor of its establishment became so great that opposition on the part of
a few was no longer of any avail and it became an established fact, its great practical utility was quickly demonstrated and the opposing banks soon came into it.

240

Clearing-House

Methods

In less than two years after its formation the panic of
1857 burst upon the country, and in that crisis its usefulness was severely tested. In New York specie payments
were suspended, whereupon the Boston banks immediately took action, and a committee was appointed to
report to the association what course should be followed,
in view of the action at New York. Upon the recommendation of that committee that Boston should follow
the lead of New York, specie payments were suspended.
It thus became necessary to provide some substitute for
specie. Clearing-house loan certificates, based upon collateral as security, did not come into use until i860, and
hence a different course was taken from that generally
pursued by clearing houses in similar emergencies since
that time.
The association voted to permit its members to use
their own circulating notes in the settlement of balances
to a limited amount, based upon the capital of each bank,
in no case exceeding 5 per cent, except in the case of the
Suffolk Bank, which was allowed 10 per cent, it at the time
being the redeeming agent for the note circulation of
nearly all the New England banks. These bills thus
received at the clearing house were to be returned to the
next day's settlement, and were to be at the joint risk of
the banks in proportion to the amounts of their respective
capitals; and the clearing-house committee were authorized to demand at their discretion satisfactory collateral
security for such bills. The banks using their notes at
the clearing house were required to pay one day's interest
at a time.

241

National

Monetary

Commission

The association, on the day following that upon which
this plan was adopted, having been addressed by a committee representing the merchants of the city, who expressed their desire for an expansion of the bank loans,
voted that the amount of circulating notes that may be
used in settlements at the clearing house be doubled. At
a subsequent meeting, in order to encourage the use of
specie, it was voted that the manager keep an account of
the specie paid in by each bank, and in subsequent settlements repay to such bank, when a creditor, specie, this
reimbursement to be in the order of payment by the banks.
A few weeks later the association voted that the amount
for which the bills of the associated banks may be used in
the liquidation of balances at the clearing house, be reduced 50 per cent, and on December 14, 1857, just two
months after suspension, a unanimous vote was cast in
favor of the resumption of specie payments. It is probable that for a short time thereafter the use of bank notes
was continued, but within a week it was voted to discontinue altogether their further use at the clearing house.
From this time on the exchanges took place with little
interruption till the outbreak of the civil war, when anxiety and distrust again seized upon the country. In the
latter part of i860 it was voted to permit the banks to
settle their balances at the clearing house with their own
circulating notes to the extent of 10 per cent of their capital, it being voted at the same time that it was the duty of
the banks to maintain specie payments in that crisis.
There was much disturbance in financial circles from that
time forward, and on August 27, 1861, the association

242

Clearing-House

Methods

voted that any bank that had agreed to the arrangement
entered into by the banks in New York, Boston, and Philadelphia, with regard to the national loan, could deposit
with the clearing-house committee treasury notes of that
loan and receive certificates to an amount not exceeding
90 per cent of the par value of such treasury notes. These
certificates were to be known as loan certificates and were
to be receivable at the clearing house in the settlement of
balances. These were the first certificates of the kind
issued by the Boston association.
Not long thereafter the New York clearing house again
suspended specie payments and was followed almost
immediately by Boston, in a resolution declaring that
they had suspended specie payments until such time as
they could with safety resume their legitimate basis for
circulation and deposit. That time did not, in the course
of events, arrive until seventeen yea/s had passed by.
Affairs drifted on from bad to worse until the panic
of 1873, when the association again authorized the issue
of clearing-house loan certificates, secured by collateral,
on substantially the same basis as the issue by the banks
in New York. No further action of this kind was taken
by the association until seventeen years later, when, in
1890, certificates were again issued, and these were followed by similar issues in 1893 and 1895. Such are the
important features of the association's history.
The Boston clearing house is located at a central point
in State street. Here, at 10 o'clock in the morning of
each business day, the representatives of eighteen banks,
members of the association, meet and exchange the items

243

National

Mon etary

Commission

which they hold upon each other. The process of exchanging items is precisely the same as at New York,
except that in Boston they have abandoned the practice
of receipting for exchanges as delivered on the ground
that it is a useless expenditure of time.
In the settlement of balances Boston has a system
peculiarly its own. The constitution declares that " t h e
debtor banks shall pay to the manager at the clearing
house the balances due from them respectively, either
in coin or in such other currency as the laws of the association shall require, or in such certificates as shall be
authorized by the clearing-house association, excepting
sums less than $1,000, which may be paid in nationalbank bills." .Although coin is specified as acceptable in
the payment of balances, it is tacitly agreed that no silver
will be Used, owing to its great bulk and consequent
inconvenience.
All gold paid into the clearing house in payment of
balances must be put up in strong canvas bags, each
containing $5,000, all coins contained in any one bag
to be full weight and of one denomination, the bags
to be securely fastened with a seal (bearing the name
of the member putting up such package) in such
manner that in the opinion of the manager of the
clearing house the fastenings can not be sufficiently
released to allow of the removal of any of the contents
without mutilating the seal. Every such package must
have a suitable label or tag attached bearing the name of
the sealing member, the amount of the contents, denomination, date of sealing, and signature of the person or
persons sealing the same.

244

Clearing-House

Methods

All packages containing legal-tender notes or United
States gold certificates, for use in payment of balances
a t the clearing house, must be made up in even amounts
of $1,000, $2,000, $3,000, $4,000, $5,000, $10,000, $20,000,
$50,000, or $100,000 each. Notes of smaller denominations t h a n $500 must be p u t u p in packages containing
notes of b u t one denomination and not more t h a n one
hundred notes each.
All packages m u s t be distinctly marked with the
name of the bank, the date, and the amount of money.
Reclamations for errors and deficiencies in coin received a t the clearing house contained in bags or other
packages, sealed and marked in conformity with rules
which m a y be established by the committee, are to be
made b y the receiving banks directly against the banks
whose marks they bear, the clearing house not being
responsible for the contents of such sealed bags or packages, and such reclamations shall be made not later t h a n
2 o'clock p. m. on the day next following receipt.
Each debtor bank, a t t h e hour for making its settlement a t t h e clearing house, sends a ticket with an itemized
statement of its balance, as shown in the illustrations.
On t h e back of the receipt which t h e manager gives the
b a n k for its balance, copy of which is also shown among
t h e illustrations, is a similar blank, and upon this, after
counting each balance as it is paid in, he itemizes it, and
if he finds t h a t his statement agrees with the one sent in
b y t h e b a n k he makes out a receipt for the whole, being
satisfied t h a t his work is correct. H e retains any orders
received from creditor banks as his receipts for their balances.
245

National

Monetary

Commission
•

Boston,

BALANCE PAID CLEARING-HOUSE IRIS DAT BY

FIRST NATIONAL BANK.
I
Be sure and itemize your balance.
I properly strapped and distinctly marked.

Have bills I
I

Change -

Bills

Legal Tenders - I

C.H. Gold Ctfs. -

J Coin - - - - -

I Gold Certificates-

Orders - - - -

Amount - - - i

Fj^HM O F T I C K E T U S E D BY BOSTON BANKS IN CONNECTION

WITH pAYxMENT OF DEBIT BALANCES.

246

Clearing-House

Methods

Many years ago the custom sprang up at Boston of borrowing and loaning balances at the morning exchanges,
and the settlement of the same by orders on the clearing
house, and at one time this practice was an important
feature of the clearing system. During the past few years,
however, the practice has been largely discontinued, and
only occasionally does one bank now borrow from another
on account of its debit balances. Groups of officers may
still be found at the clearing house each morning, but generally for the purpose of buying and selling New York exchange, and not for borrowing and loaning balances, as
heretofore, although occasionally a debtor bank or banks
still borrow from a creditor bank or banks for the purpose
of paying clearing-house balances.
The borrowing and loaning of balances had its inception in a small way some thirty years since, as a matter of
convenience to debtor banks, and is quite unlike anything
else in the clearing houses of the United States. Before
its adoption debtor banks which found their balances at
the morning exchanges too great for convenient settlement with cash, but which could easily call in the necessary amount later in the day, were accustomed to send
their representatives through the streets to borrow from
neighboring banks. Owing to the inconvenience and
risk of this practice, the presidents and cashiers of the
banks began to meet at the clearing house, and then, after
the exchanges had taken place, to borrow and loan their
balances. The custom found favor with the banks, and
at one time had grown to such considerable proportions
that some 60 per cent of the total balances were settled in

247

No. 2.
H
W

BOSTON CLEARING-HOUSE,

Efrciurft from National Union Bank,

H
H

Dollars in full for balance due the Clearing-house.

I-*

u
w
a:

JVIanager,
FORM OF MANAGER'S RECEIPT FOR D E B I T BALANCES.

Clearing-

use

Methods

that way. On the floor of the clearing house at each morning exchange could be seen a busy group of bank officials,
some borrowing balances, others negotiating loans.
A may find himself a heavy debtor and may desire to
borrow of B, whose balance is a heavy credit. If B wishes
to loan to A, he gives him an order on the clearing house,
and the latter uses it the same day in the settlement of his
balance. All orders, therefore, on the clearing house are
accepted by the manager in the settlement of balances to
the full extent of their face value. But A may not desire
but a small part of B's balance, in which event B may
find a dozen other banks anxious to borrow, to each of
whom he may loan a portion. Again, some, not finding
it advantageous either to borrow or loan, settle their balances by the usual cash payments at the clearing house.
In practice, some banks habitually loan, but never borrow. Others habitually borrow, but seldom or never loan.
Although no direct losses have ever occurred from* this
practice, it is strenuously opposed by conservative bankers on the ground that it is dangerous for banks to borrow
so heavily when they may be called upon for the full
amount of the loan without a moment's warning. For
example, A loans B $75,000 to-day, and the latter uses it
in the settlement of his balance. B does not find it convenient to return the loan to-morrow, and A, finding an
opportunity a day or two later for a better investment,
sends through the clearing house a check on B for the full
amount. The latter is left with no alternative but to pay
the balance or fail. Any objection, therefore, to such a
custom seems on its face plausible, but in practice, as
20040—10

249

Boston^

en
Transfer

to the Credit of

TEE-

~.or order,

SHOUSAND

or
UJ
~J

\
And Charge the satrve in Settlement

DOLLARS,

oftJte balance due to

THE„

To C. A RUGGLES,
Manager.

O
JJashier.
CO

FUKM IN USE ra BOSTON FOB TRANSFER OF BALANCES,

Clearing-House

Methods

is claimed, a severe check is placed upon the borrower
by the discretion of the loaner. It is practically impossible for any member to be a habitual borrower without
its being known to the other members. Thus creditor
banks are enabled to exercise proper care in making loans,
and thereby to avoid loss.
The rate of interest on such loans corresponds very
closely with the rate on call loans. The newspapers regularly report the clearing-house rate, and this doubtless
has some influence on the rate in the market. A prominent banker has said that the effect of this custom is to
make the rate higher than it otherwise would be, as the
banks needing the money must have it, no matter what the
rate may be, but in a weak market it has the effect of
making the rate lower, since banks having a surplus will
accept a low rate rather than hold cash over.
One important disadvantage of this plan of borrowing
and loaning balances, and one which has come into prominent notice in certain instances of late, should be mentioned
in this connection. A bank that is a borrower of clearinghouse balances is thereby deprived of the assistance in
time of distress afforded by clearing-house loan certificates. As before mentioned, the members of the clearing
house who are lenders of balances are very sure to know
of a given bank that is an habitual borrower, and accordingly they are on their guard, watching for the opportunity to call for the amounts they have loaned whenever
it would seem that the debtor bank could pay the same.
As soon, therefore, as the debtor bank arranges for clearing-house loan certificates, its fellow-members, who are its

251

National

Monetary

Commission

creditors, hold out their hands for them, thereby exchanging unsecured claims against the bank for the very best
security that it can put up. The debtor bank then is
deprived of the advantage of clearing-house loan certificates up to the amount of its indebtedness to its fellowmembers.
To put it otherwise, the act of borrowing balances in
the clearing house anticipates the help that otherwise the
clearing house could and would be to the bank when it
really needed assistance. It is, of course, impossible to
eat the cake and have it too. During the time this custom
has prevailed in Boston, many banks, first and last, have
found themselves embarrassed thereby, and have been
compelled to struggle along in seasons of stringency without the help that clearing-house loan certificates would
have afforded them, simply because to have asked for
them would have advertised their condition in a manner
to bring one class of their creditors down upon them in a
way to nullify all the assistance they had obtained, and
perhaps also draw the attention of the business public to
their embarrassed condition, after they had exchanged
their good bills receivable for clearing-house loan certificates.
The plan of borrowing and lending balances, although
very generally acquiesced in by the banks of Boston,
would seem to be fraught with danger. It would be less
alarming, in the estimation of many conservative bankers,
if the creditor banks were obliged by clearing-house rules
to report from day to day to what institutions they have
loaned their balances, either in whole or in part. Trans-

252

STATEMENT

ASSOCIATED

O FT H E

BANKS OF BOSTON,

As returned to the Clearing-house, for t t t e ^ g e k ending Saturday, A u g u s t 14, 1909.

CAPITAL.

BANKS.

LOANS.

National Union
Old Boston National

1,000,000
900,000

9,637,000
2,674,000

4 State National
5 New England National . .
12 Atlantic National
,
13 Merchants National
17 Second National

2,000,000
200,000
750,000

10,163,000

2
3

20
22
25
26
32
39
46
51

National Shawmut
Nat'l B ' k of Commerce..
Webster a n d Atlas Nat' 1.
Eliot National
Boylston National
First National
National Security ,
Fourth National

53
56

W i n t h r o p National
Commercial N a t i o n a l . . . .
AGGREGATES.

3,000,000
2,000,000
3,500,000

CIRCULATION.

668,000
3,633,000
16,449,000
20,882,000

INDIVIDUAL
DEPOSITS.

147,000
49,000
223,000

8,370,000
2,018,000
7,662,000

99,000
207,000

• 530,000
3,791,000
9,916.000

1,000

271,000
1,343,000

1,000
1,000

387,000
1,472,000
93,000

2,964,000

101,000
1,000

3,944,000

548,000

12,003.000

50,000

11,886,000

181,000

4,041,000

1,781,000
649,000

1,000
1,000

2,381,000
582,000

7,192,000
2,692,000

4,482,003
272,000

34,721,000
1,803,000
7,176,000

28,680,000
153,000
1,233,000
1,045,000

700,000
2,000,000

3,052,000
44,030,000

250,000
4,000.000
300,000
250,000

2,382,000

990,000'
149,000
800,000
248,000

6,890,000
3,293,000

389,000
298,000

1,951,000

148,000

2,509,000
1,922,000

21,350,000

216,846,000

7,555,000

183,738,000

Decrease, 158,571.

1,446,000

240,000
3,522,000

1,192,000

5,380,000
10,753,000

Reserve excess, Boston, 986,000.

2,839,000

5,478,000
29,089,000

1,000,000
1,000,000

403,000

D U E FROM
EXCHANGES FO,R
DUE
FIVE
BANKS OTHER
CLEARINGFROM RESERVE
THAN
RESERVE P E R C E N T .
HOUSE.
F
UND.
AGENTS.
AGENTS,

21,139,000
56,335,000

1,500,000

COMPARISONS,

UNITED
STATES
DEPOSITS.

1,426,000
697,000
-454,000

63,874,000
11,135,000

DEC.

D U E TO
OTHER BANKS.

84,224,000

DEC.

11,000

1,615,000

497,000

16,000
302,003
1,350,000
1,603,000
4;354,000
958,000.
168,000

1,898,000
7,624,000
580,000

(To face page 252.)

185,000

11,650

393,000

5,000
10,350

63,090
M7,00C
185,000

901,000
35,000

76,000
35,250
74,000
2,500

36,809,000

14,072,000

24,099,000

INC.

DEC

INC.

995,000

1,000

436,000

384,000

2,560,000

154,000

236,000

7,500
40,000
12,500

639,000
,076,000
259,000
38,000
329,000
29,000

376,000
950,000
2,201,000
7,610,000
1,260,000
483,000
1,085,000
352,000

635,000
132,000
455,000

6,000,000
101,000
477,000

15,000
7,500

107,000

348,000

46r000

180,000

386,500

4,735,000

23,599,000

20,000

DEC.

2,000

DEC.

129,000

DEC.

53,000

Increase, 407,429.

E x C HANGES.

B ALA N C E S.

Week ending August 14, 1909
Corresponding week 1908

149,210,030
141,234,242

9,773,688
8,393,710

Week ending August 7, 1909

171,902,286

11,090,558

STATEMENT OF W E E K L Y AVERAGES OP THE ASSOCIATED BANKS O F BOSTON.

20040—10.

1,055,000

28,000

263,000

1,000

2,062,000
92,000
575,000

Excess with Reserve Agents, 9,461,000.

572,000

201,000

33S,000

8,896,000
232,000

9,000

984,030

SPECIE,

7,500
2,500

148,000
149,000

708,000

DEC.

67,000
1,592,000
252,000

9,250
50,000

714,000
134,000

2,009,000

660.000

314,000
684,000
149,000
,167,000
339,000
715.,000

1,373,000
320,000

183,000

DEC.

1,438,000

703,000
183,000
561,000

LEGAL
TENDERS.

COLLECTIONS FOREIGN DEPARTMENT.

11,072,516
10,810,682
10,287,694

BANKS.

National Union
Old Boston National
State National
New England National
Atlantic National
Merchants National
Second National
National Shawmut
Nat'l B ' k of Commerce
Webster and Atlas Nat'l
EliotNational
Boylston National
First National
National Security
Fourth National
W i n t h r o p National
Commercial National

2
3
4
5
12
13
17
20
22
25
26
32
39
46
51
53
56,

Average Weekly Return
To the CLEARING-HOUSE ASSOCIATION, from the

BANK

in the City of Boston, made up at the close of business on Saturday,
CAPITAL.

LOAN.

CUHCVLAr'
TION.

INDIVIDUAL

DF.P'R.

UNITED
STATES
DEPOSITS.

D U E TO
BANKS.

D U B FROM
RESERVE
AGENTS.

EXt:HANGKBFOR CLEARING-HOUSE.

D U E FROM
BANKS
|
FIVE
OTH ER
PER C E N T .
THAN
FUND.
RESERVE
A CENTS*.

Qrq

LEGAL
TENDERS.

SPKCIK.

Qstahior,
FORM OF AVERAGE WEEKLY RETURN IN U S E BT? T H E ASSOCIATED B A N K S OK BOKTON>

National

Monetary

Commission

actions of this kind, it would seem, ought to be noted in
the clearing-house records.
A special committee has in charge the deposits of gold
coin and gold, silver, and legal-tender notes, by member
banks of the Boston clearing house as a special trust fund,
against which negotiable certificates are issued. The gold
coin and various kinds of notes are stored in rented vaults,
the clearing house occupying leased quarters and therefore having no accommodations of its own suitable for the
purpose. The fund so deposited at the present time
amounts to about $3,000,000 in gold coin and about
$4,250,000 in notes, and certificates to a like amount have
been issued against it.
On obtaining the written assent of the clearing-house
committee, members of the association are allowed to
clear for outside banks and trust companies; but any
bank, member of the association, making such exchanges,
is liable therefor, and in the same manner as for its own
exchanges and until at least one day's notice in writing
is given to the clearing-house committee. Accordingly,
in Boston and vicinity, and within a radius of ten miles
from State street, are no less than 24 banks and trust
companies making their exchanges through members of
the association, upon such terms of security as are agreed
upon between them and the clearing members. Full responsibility for their acts is placed upon the members
through which they clear.
No statements whatsoever are required by the association from such outside institutions, it being left wholly to
the members to determine their condition. Members,

254

Clearing-House

Methods

however, are required to furnish the manager weekly statements of condition. An example of the form employed is
given among the illustrations. A statement is also submitted of the condition of the associated banks of Boston,
as returned to the clearing house for a given week.
It will be noted further that there is a wide difference
in the items included in the two statements. At Boston
they are given under 12 heads, and at New York under 7.
The only item called for by the New York statement,
not included in the same at Boston, is "Net profits,"
while the item of " L o a n " in the Boston statement is
reported as "Loans and discounts" in New York. "Deposits," as reported at New York, is given in Boston under
three heads, "Individual deposits," "Due to banks," and
"United States deposits." "Bills payable," which formerly appeared in the Boston statement, has been
omitted for several years past. The requirement of the
items, "Due from reserve agents," "Exchanges for clearing house," " Due from banks other than reserve agents,"
and "5 per cent fund," is not made by the New York
association.
In addition to the protection furnished by these
statements, the clearing-house committee is empowered
to examine any bank belonging to the association, and
to require from said bank securities of such an amount
and character as the committee may deem sufficient for
the protection of the balances at the clearing house,
whenever it shall be for the best interests of the association. Thus a member may be found to be weak and
in danger of failure. If it is unable to pay its balances

255

National

Monetary

Commission

at the clearing house, these securities will be appropriated
for that purpose.
The expense of printing is borne equally by the
members, and all other expenses are defrayed by an
annual assessment of $125 upon each member, and the
remainder after that amount pro rata the average daily
amount which each bank has sent to the clearing house
during the preceding year.
Upon each nonmember clearing through the association an assessment is made as follows: Four hundred
dollars per annum on institutions whose capital is $500,000
or less; $600 on institutions whose capital is over $500,000
and less than $1,000,000, and $800 on all whose capital
exceeds $1,000,000.
Admissions to membership may be made from time
to time according to the following rule:
New members may be admitted to this association on the recommendation of the clearing-house committee, by an affirmative vote of threefourths of all the members of this association, at a meeting called for t h e
purpose, such vote to be taken by ballot; and each member thus elected
shall, before admission, pay an admission fee of $5,000 and assent a n d
subscribe to this constitution in the manner hereinafter provided.

For cause deemed sufficient, any member may be
expelled from the association by a majority vote of
all the members. The constitution declares that before
withdrawal a member must pay its due proportion of
all expenses for the current year and give three months'
-notice in writing of such intention to the secretary.
In practice, however, if a member desiring to withdraw pays its expenses, in compliance with the above
requirement, and there is no objection on the part of
the association, it may withdraw in less than the speci-

256

Clearing-House

Methods

fied time, as was true of the Hancock Bank, which withdrew on thirty days' notice. The power of suspension
is lodged with the clearing-house committee, but at least
four of the five members of the committee must be in
favor of such suspension, and the committee must forthwith call a meeting of the association to take the matter
into consideration.
As shown before, the clearing-house association at
New York was the only one in America when the bankers
at Boston founded their clearing house. In nearly all
the details of method and administration the rules
established at New York were taken as a basis. As
time went by a few changes were found necessary, particularly in reference to administration, and hence it is
unnecessary here to deal elaborately with this phase of
the subject.
The usual meetings of the association are held once
each year, and at such other times as the clearing-house
committee may designate on their own responsibility or
when requested to do so by any five of the associated
banks. Owing to the difficulty of obtaining a quorum,
the required number was fixed at one-third instead of
one-half of all the members, as in most associations.
At each annual meeting a chairman and a secretary
are chosen by ballot, to hold office for one year or until
their successors are chosen. At the same meeting a
nominating committee of three persons is selected, whose
duty it is to present to each bank belonging to the association a list of nominees for officers for the succeeding year,
such list to be presented at least two weeks before the

257

National

Monetary

Commission

meeting next after their election. A standing committee
of five bank presidents or other directors of banks, members of the association, to be called the " clearing-house
committee," is elected annually, to serve for one year,
and to their care most of the important interests of the
association are intrusted, as at New York and elsewhere.
They appoint the manager, whose salary is fixed by the
association, and who is required to give bond in the sum
of $20,000, such bond to be approved by the clearinghouse committee. The duties of the manager consist
in supervising the exchanges between the banks and the
settlements of balances. He is in immediate control of
all the business transactions of the clearing house, discharging all the duties usually incumbent upon such
officers.
In another chapter is given an account of the foreign
department of the Boston clearing house, being the
outgrowth of an experiment which was commenced in
June, 1899.

258

CHAPTER

XVII.

FOREIGN DEPARTMENT OF THE BOSTON CLEARING
HOUSE.
ORGANIZATION AND HISTORY—REGULATIONS—TWO
ING

HOURS — BLANKS

AND

CLEAR-

FORMS — FINES — BOOK-

KEEPING.

The Boston Clearing House Association has had in
operation for several years past a plan of making collections in the territory naturally tributary to that city
but outside of the city itself. It is known as the "foreign department of the clearing-house association," and
is conducted independently of the regular clearings of
that organization.
The question of collecting out-of-the-city checks had
been discussed by members of the Boston Clearing House
Association for a long time, and finally, early in the
year 1899, a special committee was appointed to which
the whole subject of collecting checks throughout the district known as New England was referred. This committee, after careful deliberation, reported that in its
judgment it was advisable and practicable for the clearing
house to undertake the collection of such checks and to
distribute the proceeds thereof. The committee advised
beginning with the State of Massachusetts, and adding
the other New England States one by one, as soon as
the proper provision for the same could be made.

259

National

Monetary

Commission

The report of the committee further recommended
that the work be done at the clearing house by the manager, under the supervision of the clearing-house committee. It nominated the following routine:
Those banks which choose to avail themselves of this method of collecting their checks shall deposit them at some fixed hour, say at i o'clock, of
each day. The checks are then to be assorted and the checks on each
out-of-town bank made up in a separate package. To this package a
slip shall be attached bearing a list of the checks, and, further, a complete list is to accompany the checks, showing the total of the amount on
each bank, respectively. The clearing-house employees assigned to t h a t
duty shall send the checks forward to the banks on which they are drawn,
so far as such banks will undertake to remit for checks on themselves by
drafts on their Boston or New York correspondents.

It was further suggested that in some cases checks on
all the banks in one town or city might be collected
through a single bank. The checks were to be sent by
mail or by express, as found desirable.
The report further set forth that the manager of the
clearing house should have a desk and number assigned
to him, and should take part in the morning settlements,
collecting through such settlements the various checks on
Boston banks received by him, and paying in the same
way to the Boston banks their respective proportions of
the checks forwarded two days previously, as might be
arranged. Each day's settlements by the manager, the
report continued, should represent the amount of foreign
checks received on a certain previous day, and the debits
and credits should be equal in amount. In case, however,
remittances should be delayed so that the manager was
without sufficient funds to meet the charges against him,
he would charge against the several banks, through the
morning settlements, their respective amounts of such

260

Clearing-House

Methods

delayed remittances, or settle with the banks in their
respective proportions of such delayed remittances in the
payment of balances by the debtor banks and the distribution of balances to the creditor banks. The report was
accompanied by various forms which were subsequently
adopted for use.
This report was approved, and at a meeting held December 18, 1899, the following amendment to the constitution, which had been recommended by the clearinghouse committee, was adopted:
The clearing-house association shall have the power to establish rules
and regulations regarding collections by members of the association, or
banks, or trust companies, or others clearing through such members, and
the rates to be charged for such collections, and also to provide for the
enforcement of the same. The association may from time to time make
any additions to or changes in such rules and regulations as it deems
judicious. Any rule or regulation upon the subject can be established
only by a vote of the majority of all the members of the association, and
when once established it shall not be altered until it has been in force at
least three months, and then only by a majority vote of all the members
of the association.

Under this provision rules and regulations were adopted
at a meeting held December 27, as follows:
SECTION I . These rules and regulations shall apply to all members of the
association and to all banks or trust companies or others clearing through
such members. The parties to which the same so apply are hereinafter
described as collecting banks.
SEC. 2. For all checks and drafts from whomsoever received, drawn
upon any New England bank or trust company or banking house or other
banking institution, which does not pay checks and drafts drawn upon
itself and sent through the Boston clearing house by remitting therefor
on receipt thereof promptly at par checks upon some member of the
Boston or New York clearing house, or upon a banking institution clearing
through some such member, the collecting banks shall charge not less
than one-tenth of 1 per cent of the amount of such checks and drafts,
respectively.
SEC. 3. In case the charge upon any check or draft at the rate above
specified does not equal 10 cents, the collecting bank shall charge not less
than that sum; but all checks and drafts received from any one depositor

261

National

Monetary

Commission

or correspondent on the same day, and payable by the same institution,
may be added together and treated as one item for the purpose of fixing
the amount to be charged.
SEC. 4. The charges herein specified are in all cases to be collected a t
the time of deposit or not later than the tenth day of the following calendar
month. No collecting bank shall directly or indirectly allow any abatement, rebate, or return for or on account of such charges or make in any
form any compensation therefor.
SEC. 5. In case any member of the association shall learn t h a t these
rules and regulations have been violated by any of the collecting banks, it
shall immediately report the facts to the .chairman of the clearing-house
committee or, in his absence, to the manager of the clearing house. Upon
receiving information from any source that there has been a violation of
the same, said chairman or, in his absence, said manager shall call a meeting
of the committee. The committee shall investigate the facts and determine whether a formal hearing is necessary. In case the committee so
concludes, it shall instruct the manager to formulate charges and present
them to the committee. A copy of the charges, together with written
notice of the time and place fixed for hearing regarding the same, shall be
served upon the collecting bank charged with such violation, which shall
have the right at any hearing to introduce such relevant evidence and
submit such argument as it may desire. The committee shall hear whatever relevant evidence may be offered by any person and whatever arguments may be submitted, and shall determine whether the charges are
sustained. In case it reaches the conclusion t h a t they are, the committee
shall call a special meeting of the association and report thereto the facts,
with its conclusions. If the report of the committee is approved by the
association, the collecting bank charged with such violation shall pay to
the association the sum of $1,000; and in case of a second violation
of these rules and regulations, any collecting bank may also, in the discretion of the association, be excluded from using its privileges, directly
or indirectly, and, if it is a member, expelled from the association.
SEC 6. Every collecting bank, as defined in section 1 of these rules and
regulations, shall forthwith adopt, by its board of directors, a resolution in
the following terms, and file a certified copy thereof with the association
as evidence as therein specified:
Whereas this corporation has acquired the privilege of clearing and
making exchange of its checks through the Boston Clearing House Association, and is subject to its rules and regulations: Now, therefore,
Be it resolved, T h a t this corporation hereby in all respects assents to
and agrees to be bound by and to comply with all rules and regulations
regarding collections outside of the city of Boston which may be established
pursuant to the constitution of said association, and t h a t the president of
this corporation is hereby instructed to file a certified copy of this resolution with the clearing-house association as evidence of such assent and
agreement on the part of this corporation.

262

Clearing-House

Methods

It was provided that the above should go into effect
on January i, 1900. In putting the plan into operation,
the manager of the clearing house prepared two lists
of banks, one comprising those banks the location of which
with respect to the closing of mails, etc., required that
checks should be deposited with the manager not later than
1 o'clock and the other permitting the deposit of checks not
later than 3 o'clock of each business day, in order to be
sent in the mail of the same day. This resulted in what is
in effect two clearing hours for the foreign department.
Saturdays are exceptions to the general rule, and with
respect to that day it is provided that all checks shall be
deposited not later than 1 o'clock. These requirements
were later changed so that the checks to be so cleared shall
be deposited not later than 3.30 o'clock on each business
day, except Saturday, when it is provided that they shall
be received not later than 1.15 o'clock, thus giving the
banks from fifteen to thirty minutes more leeway than was
originally provided.
The regulations for the collection of out-of-town checks,
formulated by the manager of the clearing house, include
the following:
Every check must be stamped by the bank depositing
it, according to the following form:

Received payment through the
Boston Clearing House.
Prior indorsements guaranteed.
Bank
of Boston
by
...
Cashier,
263

Form I.

BOSTON CLEARING-HOUSE.
FOREIGN

DEPARTMENT.

ReceivedfromNational Union Bank, No. 2,
Proportion of collections on sundry New England banks
for which remittances have not been received • .
•

-| | ^
^

Charge this receipt

to No. ioo

through

the exchanges of day following above date.

FORM OF RECEIPT FOR PRO RATA CHARGE ON ACCOUNT OF UNCOLLECTED CHECKS.

Manager*

Clearing-House

Methods

The checks on each bank must be placed in a separate
package, with a slip attached containing a list of the
checks, the name of the bank on which they are drawn,
and a footing; and the check ticket attached to the slip
must also be filled out and the name of the bank and the
footing of the checks placed thereon. Whenever there is
but one check on a bank it will still be necessary to have
the clearing-house slip attached, with the name of the
bank and the amount of the check placed upon both slip
and check ticket. These packages must be assorted alphabetically, according to the names of the respective
towns in which the banks are situated, and must be delivered by the messengers of the banks at the proper desks for
the respective letters.
By 1.15 o'clock p. m. on Saturdays, and on other days
before 3.30 o'clock p. m., each bank must send to the
clearing house, by its messenger, a ticket showing the total
amount of checks left for collection that day, and receive
a charge ticket showing the date on which it is to be
charged into the regular morning settlements against the
manager. The manager is known as No. 100, and joins
in the settlements on the same footing as any one of the
banks.
Banks are requested to see that all indorsements are in
order. No examination of packages or checks will be
made by the officers or employees of the clearing house.
If the remittance from any Massachusetts bank shall not
have been received on the morning on which the charge
tickets are to be charged against the manager of the clearing house, the manager will charge against each Boston
20040— 1 o

265

National

Monetary
Boston

Commission

Clearing-house.

Gloucester Safe Dep. & Tr. Co,,
Gloucester, Mass.
FROM

OATS-

Gloucester Safe Dep, & Tr. Co.,
Gloucester, Mass.
FROM

DATE..

J__L_L
266

Clearing-House

Methods

b a n k its proportionate amount of such delayed remittance,
as well as t h e a m o u n t of any protested or unpaid checks
received from any Boston bank.
New York exchange and currency received in payment
of collections will be charged at par against t h e several
Boston banks from time to time, under t h e direction of
t h e clearing-house committee, in proportion t o t h e business of each bank, and t h e amounts of any such charges
will be reported to t h e president, cashier, or other representative of each b a n k a t t h e 1.15 o'clock clearing.
A fine of $2 will be collected from any b a n k which is late
at either the 1.15 o'clock or the 3.30 o'clock settlement,
and its checks m a y be refused by t h e manager, a t his discretion, if presented more t h a n ten minutes late. Any b a n k
not sending to t h e manager of the clearing house by 1.15
o'clock on Saturdays, and on other days before 3.30
o'clock, a ticket showing t h e total amount of out-of-town
checks it has deposited at the clearing house t h a t day
will be fined $4. A fine of $4 will also be imposed for
any mistake in t h e amount of such deposit so reported.
An incomplete or incorrectly filled slip or check ticket is
fined $1.
The forms used by t h e foreign department of t h e Boston
Clearing House—in fact, the actual stationery—have been
largely borrowed from t h e forms employed in t h e regular
clearings. Minor adaptations have been made in certain
forms, and in cases where absolutely necessary new forms
have been designed and printed. The deposit ticket, a
sample of which is shown among the illustrations, contains
little more t h a n t h e name of the b a n k making t h e deposit,

267

FORM

l £>

Boston Clearing-house.

II J

FOREIGN DEPARTMENT.

| | fe

Received from National Bank of the Republic*
New England Checks said to amount to . « - . . .

No* 4 1 ,
$-

Payable if good on . .
or when a remittance shall have been received.

I I^

Manager, j t **.
FORM OF RECEIPT, FOREIGN DEPARTMENT, BOSTON CLEARING-HOUSE.

Clearing-House

Methods

the date, and the amount of checks left for collection.
The receipt corresponding to this, which is also reproduced among the illustrations, is likewise very simple in
its details. There is the name of the bank, the reported
amount of the checks, the date at which the amount is
payable, if the checks prove good, and the signature of
the manager.
The detailed statements of checks deposited for collection, known as foreign slips, a sample of one of which is
shown herewith, are of different colors of paper, thereby
readily distinguishing the items of one State from those of
another. Rhode Island, for example, is straw color,
Connecticut blue, etc. This slip gives the name and the
location of the bank on which the checks are drawn and
the name of the bank depositing them for collection.
There is a coupon at the bottom which recounts the name
of the bank making the deposit, the date, the name of the
bank on which the checks are drawn, its location, and the
amount.
The letter form used in transmitting the checks for
collection to the several banks on which they are drawn
is presented among the illustrations. In the blank space
below the signature of the manager the footings of the
several slips prepared by the banks are inserted. As
this account is made up, the stubs from the foreign-slip
tickets (see previous illustration), being that part designated as the foreign-check ticket, is detached and is
retained by the clearing-house manager as evidence of
the amount that is inserted in the letter. The coupon
at the bottom of the letter itself is likewise retained for

269

FORM A,

Boston Clearing-house.
FOREIGN DEPARTMENT.

Maine.
From National Bank Commonwealth,
Vt,_

—~

]s[ew England Checks left for collection on

Mass.
Amount, $

•R-L.
Conn.-

EXCHANGE T I C K E T

FOREIGN DEPARTMENT

BOSTON CLEARING-HOUSE.

No. 4S,

Clearing-House

Methods

bookkeeping purposes and is the basis for charging the
account with the bank. The amount represented by it
is the aggregate of all of the stubs of the slips inclosed
with the letter.
For the purpose of making up the accounts—that is,
filling out the letters of transmission and otherwise completing the work—a number of Burroughs's arithmometers are employed. In other words, the machine that
is largely in use among banks throughout the United
States for listing vouchers returned, etc., is used in making up the records of remittances. Enough of these
machines are used, and so skillful are the employees in
their manipulation of them, that in a surprisingly short
period of time after the exchanges have been completed
the lists for the individual banks are made up and the
matter placed in the mails or the hands of the express
companies, as the case may be.
The settling clerk's statement, also shown in the illustrations, has five columns. The first records debit
remittance checks; the second column contains debit of
uncollected checks; the third records credit checks for
collection; the fourth, credit adjustments; and the fifth,
credit receipts. This sheet in use is of the conventional
size, with the names of the banks printed down the lefthand margin and numbered, and corresponding numbers
placed at the ends of the lines on the right-hand margin.
The bookkeeping employed in the foreign department
of the Boston clearing house is very simple in character.
The outward posting mediums, as already explained, are
the stubs of the letters. The inward posting mediums

271

National

Monetary

Commission

C A . RUGGLES, Manager,

BOSTON CLEARING-HOUSE.
Boston,..
T o the Cashier of the
National Bank of

Dear Sir:
i
Enclosed find checks on your Bank as listed below,
for the amount of which please remit by return mail
a draft on your Boston correspondent, payable to the
order of the Manager of the Boston Clearing-house*
Please do not aelay the protest or return of any
check not good, but return it, under protest if necessary {deducting check and fee from remittance)* Any
special instructions on slip or check should be observed. Do not protest checks of ten dollars or
under unless requested to do so.
Yours truly,
C. A* RUGGLES, Manager.

Date,

National Bank.
Adiiount*—

Foim OF LETTER OF TRANSMISSION ' TO CORRESPONDENTS:

272

Clearing-House

Methods

are the letters from the out-of-town banks inclosing
remittance checks. Of necessity, an account is opened
with each bank to which collections are forwarded. At
the outset it is charged with the amounts sent to it for
collection, and in turn, as remittances are received, it is
credited.
With respect to the inward posting mediums, it sometimes transpires that the banks making returns send
back the original letter inclosing collections. This, of
course, answers every purpose in the clearing house.
The ledger at present in use has the names of the
various out-of-town banks printed down the left-hand
margins of the page, there being a line to each. There
is a debit and a credit column for each day occupying
the space to the right of the names. The ledger is similar in form to certain varieties of deposit ledgers in use
among banks, and is of a variety that is sometimes
described as a progressive ledger. As already mentioned, the banks are debited with the items sent out
and credited with the remittances. The debits, of
course, precede the credits by one, two, three, or four
days, according to the location of the banks. Whereever the remittances come in promptly, the columns, taking the banks collectively on a page, balance. Whereever one or more remittances are delayed, the columns,
of course, are out of balance, thereby directing attention
instantly to the delinquent.
The following is a memorandum of the volume of business in round figures, handled annually by this department of the clearing house:

273

National
1900
1901
1902
1903
1904
1905
1906
1907
1908

Monetary

Commission

._ $541,000,000
565,000,000
607,000,000
658,000,000
594,000,000
595,000,000
635,000,000
633,000,000
564,000,000

The cost of collecting these items has averaged about
7 cents per $1,000, the total cost of the maintenance
of the department, including rent, clerk hire, and all
expenses of every character, being about $42,000
annually.
Six hundred and forty-one New England banks and
trust companies are corresponded with at the present
time, and the average number of packages handled daily
during the year 1908 was 5,491. The average daily
remittances by correspondents during that period has
been 94 per cent, which means that only 6 per cent of
the amount due daily was charged back pro rata, through
the clearings, to the banks, in order that the manager's
payments and receipts would each day exactly balance.
The necessity for this charge back of 6 per cent is due
to the fact that it is impossible to receive returns in less
than three days from banks located in the northern part
of the States of New Hampshire, Vermont, and Maine.
It is stated for this system, by those who are in close
touch with it, that it accomplishes all and more than was
expected of it, and that it has been the means of a big
saving of money to the banks. That the banks have
supported it loyally would seem to be indicated by the volume of business annually turned over to it for collection.

274

BOSTON CLEARING-HOUSE SETTLING SHEET.

32
4
•5
12
13
17
20
22
24
25
26
32
39
46
51
52
53
56

DEBIT
REMITTANCE
CHECKS.

BANKS.

No.

National Union
Old Boston National
j State National
iNew England Nation*'
j
I Atlantic National
Merchants National
1
Second National
National Shawmut
[
Nat'I B'k of Commerce |
Faneiiil Hall National
Webster and Atlas Nat'I
Eliot National
j
Boylston National
First National
[National Security
j
Fourth National
Metropolitan National
1
Winthrop'National
r
Commercial National

DEBIT
|
CREDIT
1
D I T CHECK
j
OREDIT •
UNCOLLECTED J C R EFOR
COLL. Ij ADJUSTMENTS.
RECEIPTS.
CHECKS.

1!! "

| - 1

32
4
13
17
20
22
24
25

32
39
46
51
52
53
56

|) — ,

"""- -

No.

5
12

FOOTINGS
_
„

•

FORM OF SETTLING S H E E T , F O R E I G N DEPARTMENT, BOSTON CLEARING-HOUSE.

1
1
1
1

XVIII.

CHAPTER

THE CHICAGO CLEARING HOUSE.
DATE

AND

HISTORY

FORMATION—METHODS OF

CHANGE — PRELIMINARY

EXCHANGES

AMONG

EXMEM-

B E R S — K I N D S OF MONEY EMPLOYED I N SETTLING BALANCES—TRADING BALANCES—NONMEMBER BANKS THAT
CLEAR—STATEMENTS

CONDITION—EXPENSES

F I N E S — ADMISSIONS

AND

EXPULSIONS — VOLUME

AND
OF

CLEARINGS—ADMINISTRATION.

The practical utility of clearing houses had been
attested in the United States by more than ten years
of successful operation, when Chicago, in April, 1865,
formed an association on lines substantially identical
with those of the leading cities of the East. Although
the Chicago clearing house performs essentially the
same functions as do the clearing houses of other important centers, yet in the course of time circumstances
have wrought many changes in its constitution which
have tended to give it a character peculiarly its own.
The membership (now 20 in number) at the date of
the organization embraced nearly all the banks and
bankers in the city. Although at one time the list went
up to 30, there are at the present time only 20 members,
the vicissitudes of the banking business in Chicago in the
interval accounting for the increase and subsequent
decrease. The membership as at present made up

276

Clearing-House

Methods

embraces 9 national banks, 7 trust companies, 2 state
banks, the Chicago branch of the Bank of Montreal, and
the subtreasury of the United States at Chicago.
The requirements for membership at the outset were
not so rigid as they are at present. No minimum limit
was placed upon the capital necessary for membership.
As a fact, many of the members had but small capital
and limited experience. Further, at that stage of the
development of the clearing system experience did not
demand what has since been found to be very essential.
The Chicago clearing house progressed with uniform
success from the date of its organization in 1865 until
1871, when all the interests of the city sustained a severe
shock by the great fire which swept over the city. In
that fire some portion of the records of the clearing house
was lost. Soon after the fire the panic of 1873 occurred,
and in that crisis a number of the members fell out of line.
Still other vicissitudes, some of which were peculiar to
the organization itself, served still further to retard its
growth and progress. In 1882 the Chicago clearing
house was formally incorporated under the laws of the
State.
The failure of members in this organizatfon has never
given occasion for litigation. Those members who have
been so unfortunate as to fail have seldom attempted to
clear on the day erf their failure. In most cases they
have given notice of their condition in ample time for
their exchange to be withdrawn. When, however, a
failing bank has attempted to make its regular clearings
and has not been able to pay the balance against it at

277

National

Monetary

Commission

the clearing house, all the exchanges presented by and
against it have been returned and a new settlement
made, the same as if it had not participated in the exchanges of the day. In this way those who had presented checks against the failing member were enabled
to return them to their customers, thereby intrenching
themselves against loss. No formal provision was made
for such action at the outset, but as time passed on this
course was found to be the best means by which to avoid
serious complications. Accordingly, the rule has been
embodied in the constitution. It is similar in its provisions to that existing in the constitutions of nearly all
the clearing-house associations of the country.
The history of this organization shows comparatively
few failures. The membership, however, has been repeatedly reduced by consolidations.
We now come to an analysis of the methods of exchange
pursued by this body, and, as we proceed, we shall find
that in these details Chicago, quite as much as any of
the larger cities of the East, presents certain striking
features of its own which are not to be found in the
others.
The exchanges in Chicago are made on each business
day at 11 o'clock, except Saturday, when they are made
at 10 o'clock.
Each bank sends from two to three representatives to
the clearing house, with its claims separately made out
against each of the other members. One of the representatives of each bank stations himself immediately
opposite the desk bearing the number of his bank, first

278

Clearing-House

Methods

having deposited with the manager a ticket which states
the amount of the exchanges that his bank has sent to
the clearing house. On receipt of the ticket the manager
immediately enters in the credit column of the sheet
before him the amount stated thereon. This sheet is
ruled in four columns, for the entry of the credit and
debit exchanges and for showing the credit and debit
balances. Standing in front of each of the representatives of the banks above mentioned is the messenger
from the same bank, with a bundle of exchanges ready
to be delivered at the desk of each of the other banks.
Precisely at n o'clock, or as soon as all are present,
a gong is struck, and thereupon the messengers begin
the delivery of the checks, passing around the double
row of desks and depositing with the clerk of each of the
banks the exchanges drawn upon it. While delivering
the checks the messenger passes from clerk to clerk a
sheet containing the amounts to the debit of each, and
upon this the several clerks receipt for the checks they
receive.
When the packages have all been delivered and receipted for, they are taken to the several banks by messengers, the sheets being passed around by other messengers, who, with the clerks, remain at the clearing house.
As the sheets are thus being passed along, each clerk
enters the amount charged to his bank on the debit side
of the page in a book which he has brought with him for
that purpose.
These books are ruled in four columns, for the entry of
the amount brought, the amount received, the credit

279

National

Monetary

Commission

balance, and the debit balance, respectively. One
column is filled out before the messenger comes to the
clearing house, and that is the amount brought, or, as
described above, the credit column.
When the debit entries have all been made from the
sheets, the balance is struck by taking the difference
between the total of the amount brought and the amounts
received. Each clerk now makes out, as quickly as
possible, a ticket showing the total amount brought, the
amount received, and the balance, and hands the same
to the manager.
It is clear in each case that if the amount brought
exceeds the amount received, the balance will be in his
favor and vice versa. The manager, upon receiving
these tickets, immediately enters the amounts in the
debit column of his sheet, and the balances shown in the
credit balance column, or the debit balance column, as
the case may be. It now remains to foot up the columns.
If the amounts brought and the amounts received agree,
and if the debit and credit balances likewise agree, the
manager announces that the work is correct, and thereupon the several clerks immediately return to their banks.
If, on the other hand, these amounts do not agree, the
discrepancy is announced by the manager, whereupon the
clerks proceed to search for the error. A search of this
kind requires skill and accuracy at figures, for it is frequently necessary to foot up long columns of figures and
even to call back the entries between banks in order to
locate the error. If the mistake is not soon found, the
anxiety becomes apparent, for a fine of $2 is imposed upon

280

Clearing-House

Methods

the unfortunate member whose error has caused the
trouble if the mistake is not located in twenty minutes.
The custom of exchanging checks and other items
among themselves before the hour for exchanging at the
clearing house has grown up among the members of this
organization. For example, members A, B, C, and D
may be located in close proximity. Therefore, for convenience in making early entries of items, they exchange
among themselves the checks which they hold against
each other. The settlement of balances arising in this
way is made at the same time and in the same manner as
if the exchanges had taken place at the clearing house.
All banks which find themselves debtors in the exchanges are allowed from 12 to 12.30 o'clock to settle
their balances with the manager at the clearing house.
The creditor banks receive their balances between 12.30
and 12.45 o'clock. On Saturdays these transactions are
one hour earlier.
The method of settlement in Chicago differs materially
from that which prevails in New York, Boston, and
Philadelphia, and, indeed, from that of all other important clearing houses in this country. Less than 25 per
cent of the balances are settled with currency and gold
coin. The latter is used only to a very limited extent.
The following is the substance of the by-law of this
organization relating to kinds of money to be used in
settlement of balances, as amended in October, 1899:
All payments to the Chicago clearing house by the
different members of said association shall be made in
United States gold coin or United States Treasury certifi20040—10

281

National

Mon

etary

Commission

cates therefor payable in Chicago, in United States legal
tender notes or Treasury notes, or United States Treasury
certificates therefor payable in Chicago, and in United
States gold and silver certificates.
All gold paid to the clearing house in settlement of
balances shall be put up in strong canvas bags, each containing $5,000; all coins in any one bag to be full weight
9,nd of one denomination; the bags to be securely fastened with a lead seal bearing the name and clearinghouse number of the member putting up such package, in
such manner that in the opinion of the manager of the
clearing house the fastenings can not be sufficiently
released to allow of the removal of any of the contents
without mutilating the seal. Every such package shall
have a suitable label or tag attached, bearing the name of
the sealing member, the amount of the contents, denomination, date of sealing, and signature of the person or persons duly authorized to date or seal the same.
All currency other than coin paid to the clearing house
in settlement of balances, except notes of the denomination of $50 or larger, shall be put up in packages, each
containing $5,000 or $10,000. All the notes included in
any package shall be of one denomination, inclosed in
bands containing each 100 notes and no more. The denomination, kind of currency, and amount shall be plainly
marked on the cover of the package, with the name of the
member of the association putting up the same, date of
sealing, and signature of the person or persons duly
authorized to d^fte or seal the same. Every such package
shall be inclosed between cardboards of the full width and

282

aring-House

Methods

REPORT TO MANAGER.
C. H.

BANK NO._...

..._..

TRADES WHOLE BALANCE.
PAYS IN S

_.............„..._.__...._„,

COLLECTS $

,™ » ~

REPORT TO BANK.
C. H. BANK

N O — _

' PR. SAL. S
CR.

I
FORMS OF REPORTS USED JN TRADING BALANCES,

283

National

Monetary

Commission

length of the notes, placed on the upper and lower sides
thereof, and shall be tied with twine and securely sealed
with wax seals bearing the imprint of the member putting
up the same. All notes included in such package shall be
in good condition and fit for circulation and of the denomination of either $5, $10, or $20.
For each and every violation of any of the regulations
contained in the paragraphs relating to gold and currency
above, the manager shall impose a fine of $5 on the offending member.
The value of every package of gold or currency put up
in accordance with the provisions of this by-law shall be
guaranteed by the member whose seal it bears, until and
including the 15th day of March, June, September, or
December, whichever month shall come next after its
authorized date, or redate, and in case of any shortage,
either in count or weight, the member putting up the
same shall on demand immediately make good any such
shortage to the member breaking the seal. This guaranty shall not extend to any package which shall have
passed into the hands of any person or corporation not a
member of the association.
Chicago has developed a peculiar custom of trading
balances, and so extensive has this practice become that
perhaps 75 per cent of the balances are disposed of in this
way. It began many years ago, and originated in a desire
to avoid the counting and carrying of so much money
through the streets as would be necessary to settle the balances. The trading is done mainly by the clerks at the
clearing house. As soon as they strike their balance, and

284

Clearing-House

Methods

while the manager is entering upon his sheet the amounts
and balances, and footing the columns, the clerks representing the creditor banks engage in loaning balances to
the representatives of the debtor banks. The clerks are
not given full liberty of action, but are very generally
instructed by their banks regarding the amounts to be
traded and the members with which trades may be made.
Any member may trade its whole balance, or any part
thereof. It may trade its balance to a single member, or
to two or more members.
A notable example of this kind occurred in August,
1897, when the Northwestern National Bank traded its
balance to 15 different banks. The credit balance of this
bank was $2,622,000, which amount was more than 98
per cent of the credit balance of all the banks, there being
on that day only two other creditor banks out of the whole
list of 22 members.
Some banks do not find it to their advantage to trade,
and hence adjust their balances by cash settlements. At
the conclusion of the trades, the representatives of the
banks make out and hand to the manager reports of the
tradings, as shown by the accompanying form. This
form, it will be noticed, is provided with a coupon which
embodies a report to the bank.
The formal order by which the transfer is made is shown
in the second of the accompanying forms. Manifestly, it
would be impossible for the manager of the clearing house
to ascertain from the reports just illustrated whether a
given bank had traded to a single bank or to a number of
banks, and also with what bank or banks the trade had

285

National

Monetary

Commission

been negotiated. This fact is determined by an order or
orders upon the manager of the clearing house from the
cashier of each creditor bank which has negotiated a trade,
to pay to a specified bank or banks certain portions of its
balances each, such sum to be deducted from the balances
due from the exchange of that day. For example, B, a
creditor bank, gives an order on the manager of the clearing house, signed by the cashier, to pay C, D, or E, or any
one of them, a part of its balance, or the whole of the sum
which it may have traded to them at the clearing house.
The manager deducts such an amount from the debit balances due the clearing house by C, D, and E, respectively.
Hence they are required to pay to the clearing house only the
difference between such orders and their debit balances.
The manager also obtains another kind of receipt—
namely, the orders to the clearing-house manager to pay
to the authorized messengers the balances in cash due
from the exchanges of that day. The form of this order
is also shown in facsimile herewith.
The settlements of the amounts of all orders are made
between the banks concerned, the debtor banks giving to
the creditor banks cashiers' checks, currency, or exchange
for the amount of the trade, such checks always going
through the exchanges on the following day. Suppose,
for example, B's debtor balance is $75,000 to-day, and
that this amount is settled by a trade with some creditor
bank. B gives to the creditor bank a cashier's check for
$75,000, which the latter will send through the exchanges
to-morrow against B. Suppose also that in addition to
the $75,000, B's debit balance goes on increasing each day.

286

BANK N O .
W. D. C. STREET, Manager.

Chicago,.

.190.

CHICAGO CLEARING HOUSE,
Pay.

Qrq

.or order, $_

.Dollars.
and deduct from balance due us this day.
CASHIER,

FQRTU OF O R P B R USSR 42* TRANSFERRING BALANCES THAT H A V E B E E N LOANED.

National

Monetary

Commission

It is evident that in that case B must cease to postpone an
actual settlement by trading and instead make a cash
payment at the clearing house.
This practice, it will be perceived, differs materially
from that in vogue in Boston with respect to borrowing
and loaning balances. In one case trades are made by
the clerks; in the other they are restricted to one or
another of the principal officials of the bank, who appears
at the clearing house simply for that purpose. In the one
case interest is required; in the other it is not. In the one
case the checks on the debtor members go through the
exchanges on the following day; in the other they do not
so pass through at once, but may be held over indefinitely.
In the one case the trading is solely an element of mutual
convenience to members; in the other case it is an element
of gain to the creditor bank.
Besides the regular members, there are about forty
nonmember banks clearing through the Chicago clearing
house. In other words, there is an average of two to each
member. Most of those clearing in this way are private
banks and trust companies. Since Illinois heads the list
of States in number of institutions in this class, it is not
surprising that the number in Chicago is so large, or that
it should represent such a large fraction of the clearinghouse business. Some comparisons may be interesting:
In Boston the members exceed the nonmembers by about
33 per cent; in Philadelphia there is at the present time
but one nonmember bank, while in New York the list of
members and nonmembers is nearly even, there being a
few less nonmembers than members.

288

Clearing-House

Methods

Up to January, 1907, the Chicago clearing house exacted
no compensation for permitting outside institutions to
clear through its members, but about that time an amendment was added to the constitution making it imperative
for a member bank to first obtain the consent of the
clearing-house committee before it could clear for an outside
institution, and further obligated such member to pay
the association annually for each of such outside banks,
as follows:
For each bank
More than
More than
More than
More than
More than
Exceeding

having a capital of—
$25,000 and less than $50,000
$50,000 and less than $200,000
$200,000 and less than $400,000
$400,000 and less than $600,000
$600,000 and less than $1,000,000
$ 1,000,000

$150
250
350
450
600
750

The amendment further provided that such banks and
bankers should, under proper authority, consent to the
same examinations and render the same statements of
their condition as are required of the members of the
association, and be subject to all such rules and regulations in matters of common interest arising from or affecting relations with banks in other localities, and the fostering of sound and conservative methods of banking, as
have been or may from time to time be adopted by the
association, and sign an agreement so to do in such form
as the clearing-house committee may require.
Members of the association are required to furnish the
manager statements of their condition, in accordance with
the following rule: "Each member of this association
shall furnish the manager, as often as five times yearly,
a sworn statement of its condition, at such times as may
be designated by the Comptroller o4 the Currency for

289

National

Monetary

Commission

statements from national banks; and at such other times
and on such other dates as the clearing-house committee
may require. Said statements shall be made in form and
manner prescribed by the clearing-house committee.
Said statements shall be open to the inspection of the
members of this association, but otherwise shall be held
strictly confidential.'' Many of the Chicago banks voluntarily publish their statements, though no requirement
of the kind is made by the clearing-house association.
The daily clearings are the only regularly published
statistics of the association.
No items with restricted indorsements are allowed
to go through the exchanges, the rule requiring that all
checks and other paper for deposit shall be indorsed in
blank, or simply " P a y to
or order/' without
qualification.
The expenses of the Chicago clearing house are met
by an annual assessment of $750 upon each of the members, and the payment of the balance after that amount
pro rata, according to the daily average of exchanges
sent to the clearing house for the months of October,
November, and December immediately preceding. The
fines upon the members are devoted to the payment of
expenses. The total annual appropriation for this purpose for many years was in the neighborhood of $8,000,
but the increase in expenses incident to the occupation of
new quarters has made a considerably larger appropriation necessary.
The fines enforced by the Chicago clearing house
are unusually heavy: For failure to be represented punc-

290

Clearing-House

Methods

tually at the morning exchanges for the first five minutes,
or part thereof, the fine is $3; for the second five minutes,
or part thereof, $10; and for tardiness exceeding ten
minutes, $25. So prompt, however, have been the
members that the $25 fine has never been imposed, and
in only a few instances has the $10 fine been assessed.
Banks desiring to become members make a formal
application to the clearing-house committee. The latter
thoroughly examines their condition and standing and
makes a report to the association. The applicant then
may be admitted on receiving the affirmative vote of
three-fourths of the members of the association. The
members are required to pay an admission fee of $1,000,
and to assent to the articles of incorporation and by-laws,
thus being put upon the same footing as the original
members. The by-laws provide that no new members
shall be admitted except banks having their principal
office located in the city of Chicago, organized under the
laws of the United States or under the laws of the State
of Illinois, and having done business therein, with their
subscribed capital stock fully paid in, for a period of at
least six months prior to the application for membership.
It is further provided that no new member shall be
admitted except banks having a paid-in capital of at
least $500,000, which capital shall be kept intact during
the membership. The assistant treasurer of the United
States located in Chicago may, upon application, be
admitted to membership without the payment of an
admission fee, but shall have no voice in the management. Any member may withdraw at pleasure, first

291

National

Monetary

Commission

paying its due proportion of all expenses incurred and
signifying its intention to the clearing-house committee
to withdraw.
In many clearing-house associations it is easier to
expel members than to admit them, the vote being
a majority for expulsion and three-fourths for admission. At Chicago, however, the conditions of admission
and expulsion are the same, the requirements in each
case being a vote of three-fourths of all the members.
In many of the most important cities of the country
clearing-house loan certificates have been issued from
time to time in seasons of great pressure—for example,
as in the panics of 1873 a n < i ^93—thus giving elasticity
to the currency in times of greatest need and affording
relief to the banks from the terrific strain upon them.
In Chicago, however, up to 1907, such action had never
been taken, although in 1893 the subject was under
serious consideration and a vote of 15 to 9 was cast in
favor of an issue. At this time extensive loans were
made to the members who were most in need, the loans
amounting to $1,745,000. This represents the largest
amount ever loaned in Chicago in this manner, and it
was all repaid within sixty days from date. On other
occasions banks that have been temporarily embarrassed,
and which upon the careful examination by the clearinghouse committee were found to be solvent and in possession of collateral sufficient to secure their loans, have
been promptly assisted by their fellow-members in the
clearing house, each furnishing aid in proportion to its
capital and deposits. In 1907, however, the conditions

2 2

ISSUING C. H. BANK No..
_
W. D. C. STREET, Manager.

.3m.
O

Ch i c a g o , „

.,, . .

19(L
3
oq

CHICAGO CLEARING HOUSE.
Pay___

when accompanied by

_ o u r authorized messenger,

H
>

_.__..

„„_ . .2
I

Being the Balance due us from the Associated Banks in to-day's Exchanges.
Orders (if any) given to other banks this day will be received in part payment.

„

—

„

.DOLLARS,
100

| | |
*

<>*.

Cashier.
FORM OF QRDER ON C L E A R I N G - H O U S E MANAGER FOR BALANCE D U E .

| |
|

National

Monetary

Commission

were such that the issue of loan certificates seemed a
desirable step to take, and they were accordingly put
out under the resolutions, and in the amounts, described
in a special chapter on the subject.
The Chicago clearing house has experienced various
changes in the number of its members. The membership at one time was as high as 30, and, as already stated,
is at present only 20; yet the record of clearings shows
an almost uninterrupted increase from the beginning of
the organization.
No losses have ever occurred from the enormous transactions which have been repeated from day to day
during the thirty-two years of the history of the association. These exchanges are conducted by two men—
the manager and one assistant—and their record is embodied in four books. One contains simply the copy of
the manager's proof sheet, showing the debit and credit
exchanges and balances of each bank, and the total of
the same for all the banks. Another book, the items in
which are posted from the first, contains a record of the
daily debits, credits, and balances of each bank, kept
apart from a similar record of each of the other banks.
The third book contains a transcript of the total clearings
and balances by days, weeks, and months. The fourth
book is a record of the amount and kind of money paid
by and to the several banks in settlement of balances.
From these records the total transactions of each bank
with the clearing house for a given period may be readily
ascertained. The annual transactions beginning with
1865 have been computed and posted in this manner.

294

Clearing-House

Methods

In the rules of the Chicago clearing house due provision is made for the administration of its affairs in all
details. The several powers are lodged in a president,
vice-president, manager, secretary, treasurer, and clearinghouse committee. In addition, five directors are charged
with the responsibility of attending to all matters pertaining to the corporate existence of the association,
the Chicago clearing house being the only incorporated
clearing house at present existing in America.
The annual meeting is held on the third Tuesday in
January, when the officers, directors, clearing-house
committee, and manager of the clearing house are elected
by ballot. A majority vote of a quorum determines
the result, a quorum being a majority of all the associated banks. At this meeting each member of the
association must be represented by one or more duly
authorized persons, and is entitled to one vote. Besides
the general meetings, the president is required to call
special meetings whenever he may deem it necessary, or
whenever he is so requested by five members of the
association, or by the clearing-house committee.
The president and vice-president are constituted the
officers of the association and must be elected from among
the officers of members of the association. Upon the
president, and in his absence upon the vice-president, devolves the duty of presiding at all meetings of the association and of calling the special meetings under the conditions named above. The manager has immediate charge
of all the business of the clearing house, subject to the control of the committee. He supervises and directs the

295

National

Monetary

Commission

work of the clerks and messengers while in the clearing
house, and, in addition, is ex officio secretary and treasurer
of the association. As treasurer, he has charge of the
funds belonging to the association and disburses the same
on the order of the clearing-house committee. He is
required to keep a correct record of all the money received
and disbursed on account of the association, and to submit a detailed statement of the same at the annual meeting and whenever requested by the clearing-house committee. As secretary, he keeps the minutes of the proceedings
of the association in a book provided for that purpose.
His salary is fixed by the association and he is required to
give a bond with sureties in a sum of not less than $20,000,
to be approved by the clearing-house committee. He is
required to report to the committee all violations of the
charter or by-laws that may come to his notice. He
holds office until the next annual election, but is liable to
suspension by the clearing-house committee or expulsion
by the association.
The clearing-house committee consists of. five members
and is elected by majority vote by ballot at the annual
meeting of the association. Upon this committee devolves the chief responsibility for the successful conduct
of the affairs of the association. It is its duty when occasion demands to procure a suitable room or rooms for the
clearing house, with all necessary articles for the convenient transaction of its business. The committee appoints the necessary clerks, establishes rules to be observed
at the clearing house in cases not provided for in the con-

296

Clearing-House

Methods

stitution, but subject to the approval of the association,
and has general supervision of clearing-house affairs.
The clearing-house committee determines the assessment of each member for its quota of expenses, and orders
the payment of bills by drawing on the treasurer for the
same. The committee hears and determines all disputes
arising between members of the association, when submitted to it by the parties in dispute, thus performing a
function sometimes discharged by a separate committee
known as the " arbitration committee." A record of each
case of dispute is kept in a book provided for that purpose,
which book is kept at the clearing house and is open to the
inspection of all the members. The committee fills vacancies in the offices or other committees, and has power to
suspend the manager or any clerk, and any member of
the clearing house, whenever such action is deemed advisable. Finally, it is the duty of the committee, whenever it may seem to be necessary, to examine any member
of the association and establish a scale of fines for errors,
disorderly conduct, or other irregularities of the representatives of the members.

20040—10

297

CHAPTER

XIX.

THE ST. LOUIS CLEARING HOUSE.
EARLY HISTORY—SCOPE

OF MEMBERSHIP—PLAN

MINISTRATION—MANAGEMENT

OF AD-

CLEARINGS—RECORDS

KEPT BY THE MANAGER.

The members of the St. Louis Clearing House Association have stood together with remarkable unanimity on
the uniform rates of collection which were introduced on
March i, 1895, and their success is justly attracting the
attention of similar associations throughout the country.
The St. Louis association was organized in 1868, in the
midst of the period of reconstruction and when the country
was slowly recovering from the blight of civil war. At
the beginning there were 35 members, and in five years the
list had grown to 41. This was in the troublous time of
1873, when the institution of clearing-house loan certificates first became general, and which has since proved
invaluable in similar crises. St. Louis joined the other
leading associations at that time in the issue of these
certificates, but to what extent it is not known, the records,
unfortunately, having been lost in a fire. In subsequent
periods of financial stringency, except in 1907, the association has not found it necessary to resort to the issue
of such certificates, although in 1893 some of the members were hard pressed and obtained relief through the
association. The membership has greatly diminished
since the date of organization, and, strange to say, is not

298

Clearing-House

Methods

half as great now as in 1873. Some failures have occurred,
but the change has been due, in the main, to consolidation and to voluntary liquidation.
Originally the membership embraced private banks,
savings banks, and state and national banks, but now no
private institutions are included. The present list comprises 17 members, there being 9 state banks and trust
companies, 6 national banks, and the German Savings
Institution. Besides these, the post-office clears without
the full power of members, and is assessed not in proportion to clearings, but for a definite amount, fixed at $40 a
year.
Banks may become members of the association by a
two-thirds vote of all the members and by the payment
of an admission fee of $1,000 in addition to the annual
assessment for expenses; but, before applicants can be
referred to the association for admission, their merits
must be passed in review by the committee of management, and they must have a paid-up capital of not less
than $500,000. Any member may be expelled by a
three-fourths vote of the members for violation of any
of the articles, by-laws, or rules of the association. Likewise, any member may be suspended by the committee
of management, provided a majority at least of the committee is present, and that the vote of those present is
unanimous. It will be noted that the vote for expulsion
is greater than that required for admission. This is the
reverse of the rule in most associations, for, ordinarily, it
is easier to get rid of a member than it is to admit him to
membership.

299

National

Monetary

Commission

Besides the members, there are 35 outside institutions
clearing through the association, 9 of which are trust
companies, 16 are state banks, 1 is a savings bank, and 9
are national banks. The members clearing for outside
banks and trust companies are liable for their checks and
certificates of deposit, the same as for their own; and
" their liability continues until after the completion of the
exchanges of the morning next following the receipt of
notice of discontinuance of such agency."
1 Section 3 of article 1 of the constitution provides as
follows:
The officers of the association shall consist of a president and vicepresident, who shall be selected from among the members of the association, and elected by ballot at a stated meeting in January, annually, and
shall hold their offices until their successors are chosen and qualified, b u t
shall not be eligible for reelection for more than two consecutive years.

Most clearing houses have embodied in their constitutions similar provisions, except that it is unusual to provide that members shall not be eligible for reelection for
more than two consecutive years. There are also elected
at the same annual meeting a manager and committee of
management, as opposed to the usual custom of appointment of the manager by the clearing-house committee,
and the election of the latter. In the hands of the committee of management is placed the power to examine the
books and accounts of any member of the association,
whenever they may deem it necessary, and to employ accountants to aid in such examination. They are authorized to suspend any bank from the privileges of the clearing house until the association has an opportunity to act
upon it.

300

Clearing-House

Methods

The president or, in his absence, the vice-president
presides at all meetings of the association. He is required to call meetings of the same whenever, in his
opinion, the interests of the association require it, or
whenever requested to do so by the committee of management or any three members of the association. The
manager, in addition to the usual duties falling to his
office, acts as secretary and treasurer of the association.
Each member is required by the constitution to furnish
the manager, for publication, " a sworn statement of its
condition at such times as may be designated by the
Comptroller of the Currency or the Secretary of State for
statements from national or state banks, and at such
times and dates as the clearing-house committee may require. Such statements are made in the form and manner
prescribed for statements from national and state banks,
and are open to the inspection of members of the association.* ' This provision applies with equal force to all
banks not members of the association clearing through
members, but not to trust companies enjoying such privileges. Such statements are now published in the daily
press.
The expense of printing is not borne equally by the
members, but is apportioned in the same manner as the
other expenses. Each bank pays $250 annually in advance, and the expenses necessary after that amount are
assessed quarterly upon the members according to the
average daily amount of exchanges which each has sent
to the clearing house during the preceding three months.
Each nonmember clearing through a member pays $250

301

National

Monetary

Commission

a year in advance, the manager, in January, sending a
draft for this amount through the clearing bank against
said nonmember.
The fines, which amount to from $256 to $850 a year,
are collected from the banks by the manager and are paid
by the offending clerks or by their banks, according to the
nature of the offense. The total expenses of the association average about $25,000 a year.
We have now to analyze the operations as they take
place at the clearing house from day to day, and in this
we shall find that St. Louis differs in some important details from associations in the East. The clearing room is
a beautiful, centrally located apartment, and sufficiently
elevated to command a delightful view of the city. Outside of New York, it is the most commodious and bestlighted clearing room in the United States, but it is not
so artistically equipped as the clearing room at Pittsburg.
On each business day the clerks appear at the clearing
room at 10.30 o'clock, except on Saturdays, and then at
9 o'clock, with their demands separately made out against
each of the other banks, and with their items bound with
a rubber band—not placed in envelopes, as is the case in
most large cities. A facsimile of one of the lists used for
the purpose is given in the illustration. Immediately
upon his arrival each clerk delivers his items at the desks
of the several members upon which they are drawn. The
settling clerks sort, according to the number of the banks,
the packages as they are deposited by the delivery clerks.
In five minutes after the hour appointed for the exchanges the settling clerks are in position, and at the tap

302

DEBIT LIST.

St. Louis Clearing-House,

190
ON

3
6
7
11
13
14
15
16
19
21
22
26
27
28
29
32
38

Boatmen's Bank
3
Central National B a n k
6
Commonwealth Trust Co
7
Franklin Bank
11
German American Bank
13
German Savings Institution
14
St. Louis Union Trust Co
15
International B a n k
16
Merchants' -Laclede Nat. Bank
19
Mercantile T r u s t Company
21
Mississippi Valley Trust Co
22
National Bank of Commerce
26
South Side Bank
27
State National B a n k of St. Louis
28
T h i r d National Bank
29
Mechanics American National Bank
32
Post Office
38
Checks or other items cleared t h r o u g h a Member of this Association
on a Bank or o t h e r Institution not a Member thereof shall be listed
on and fastened to a separate slip, and t h e total footing of t h e slip
entered as one item on t h e regular clearing slip. T h e clearing of such
items loosely or in a n y other m a n n e r t h a n herein provided is prohibited.
BANKS AND TRUST COMPANIES.

CLEARING THROUGH MEMBERS.

Bremen Bank
Broadway Savings Trust Co
Cass Avenue Bank
Chippewa Bank
City National Bank
Commercial Trust Co
East St. Louis, Illinois State Trust Co.
Bank
East St. Louis, Southern Illinois National Bank
East St. Louis, Union Trust a n d Savings
Bank
Farmers' & Merchants' Trust Co
Grand Avenue Bank
Granite City, First National Bank
Granite City,Granite City National Bank.
Jefferson Bank
Jefferson & Gravois Trust Co
Lafayette Bank
Lemay Ferry Bank
Lowell Bank
Madison, Ills. First National Bank
Manchester Bank
Mercantile National Bank
Northwestern Savings Bank
Savings Trust Co
Scruggs, Vandervoort & Barney B a n k . . .
Southern Commercial and Savings
Bank
St. Louis County Bank
Trust Company of St. Louis County
Union Station Bank
Vandeventer Trust Co
Washington National Bank
Webster Groves—Bank of
Wellston—First National Bank
Wellston—State Bank
West St. Louis Trust Co
Broadway National Bank

IB
26
29
26
32
32

German American Bank.
National Bank of Commerce.
Third National Bank.
National Bank of Commerce.
Mechanics-American National Bank.
Mechanics-American National Bank.

29 Third National Bank.
32 Mechanics-American National Bank.
29
32
7
26
29
29
26
3
29
32
26
29
21
29
29
3

Third National Bank.
Mechanics-American National Bank.
Commonwealth Trust Co.
National Bank of Commerce.
Third National Bank.
Third National Bank.
National Bank of Commerce.
Boatmen's Bank.
Third National Bank.
Mechanics-American National Bank.
National Bank of Commerce.
Third National Bank.
Mercantile Trust Co.
Third National Bank.
Third National Bank.
Boatmen's Bank.

13
21
11
26
32
29
26
26
29
16
29

German American Bank.
Mercantile Trust Co.
Franklin Bank.
National Bank of Commerce.
Mechanics-American National Bank.
Third National Bank.
National Bank of Commerce.
National Bank of Commerce.
Third National Bank.
International Bank.
Third National.

FAC-SIMILE OF DEBIT LIST USED IN S T . LOUIS CLEARING-HOUSE.

303

National

Monetary

Commission

of the bell the distributing clerks proceed in line around
the room, passing along the sheet containing a list of
their exchanges, to be receipted for by the settling clerks.
The credit and debit exchanges and the balances are listed
by the manager in the usual way on his proof sheet.
After striking the balance he calls off the credit and debit
balances and they are listed by the clerks on sheets prepared in blank form for that purpose and taken back to
their banks. The taking of such copies is optional with
the members, it being intended for the information of any
banks that may desire them. Hence the representatives
of some of the smaller members do not remain to take
them, but return to their banks immediately after the
proof.
One hour after the exchanges the creditor members
return to receive their balances, whereupon the manager
issues to them his certificates of indebtedness by the
debtor members, payable on demand to said creditor
members " without recourse upon any member of the
association after 2 o'clock p. m. of the same day, except
the debtor members named in such certificates, and except on half-holiday Saturdays, on which days the certificates of indebtedness are issued without recourse upon
any member of the association after 11 o'clock a. m. of
the same day, except the debtor members named in such
certificates."
Usually the manager's certificates are cashed at the
counter of the debtor bank upon presentation of the same
by the creditor bank, but sometimes they are certified by
the latter and sent through the exchanges against them

304

[ ST. LOUIS CLEARING HOUSE. 1
Date
Total Clecipinas S

190

BALANCES.
Cr.

Bank No

Dr
|

Boatmen's*

Central National,
,7
Commonwealth Tr, Co.
It
Franklin,
13
German American,
14
i
German Savings,
j
15
St. Louis Union Tr. Co.
16
International,
19
Merchants'-Laclede,
21
Mercantile Trust,
22
Mississippi Valley Tr. Co.

•

26
, Nat'l Bank Commerce,
27
;
South Side,
28
State Nat. Bank,
1
29
!
!
Third National,
32
Mechanics* Am. Nat*l,
38
Post Office,
TOTAL,

[

1
1.
L

1
1

FORM U S E D , FOR LISTING BALANCES IN S T . LOUIH Ci<tiAi£rN';~Houtfi:»

305

National

Monetary

Commission

on the following day. Some banks, however, refuse to
certify, but give a cashier's check to a creditor member
in exchange for a manager's check held against them, and
the former is sent through the exchanges on the following day. Manifestly there is no occasion for the appearance of the debtor members at the clearing house in the
settlement of balances. Immediately, however, after issuing his checks to creditor members the manager fills out a
blank giving the clearings and balances, as shown in the
illustration, and delivers the same to the debtor bank.
In this way the member banks know whether the
amount of their balance, as reported to them by the clerk
on his return from the exchanges, proves with that listed
by the manager, and also what banks hold the manager's
certificates of indebtedness upon them and in what amount.
If the total of the manager's checks issued against them
agrees with the amount of their balance, they know that to
be correct the manager's checks presented at their counter by the creditor members must agree with the amounts
of the same as listed on the card by the manager. This
custom of delivering cards is practically unknown to other
associations.
The by-laws define proper matter for clearing as
follows:
i. All checks or drafts upon or certificates of deposit,
demand or matured, of any member of the clearing house
or any bank or trust company clearing through any
member.
2. Any other matter specially agreed to by any member or any bank or trust company clearing through it
until notice is given to the contrary.

306

Clearing-House

Methods

ST. LOUIS CLEARING HOUSE.

|
iOOI 1

Clearings,
1 Balance,

$ .,

•

Nn.

nfihit,

1 .Checks Favor.
1 Nft.

1 "
I *'
•
1

••

1 «
i

1 ((
1 **
1 **
1 "
FORM OF MANAGER'S .REPORT OF CLEARINGS, BALANCES, ETC,

307

National

Monetary

Commission

3. Mercantile or other paper payable at any bank or
trust company when such clearance shall have been authorized by the said bank or trust company, but not otherwise.
All unstamped and illegibly stamped items shall be considered improper matter for clearing. Express money
orders, railroad and other pay checks are not, by the
rules of the association, proper matter for clearing, but
their clearing is allowed by consent of the banks at which
they are payable, and only on conditions prescribed by
such banks. Such orders and pay checks "must be listed
on separate slips, fastened together firmly with the slips,
and the full amount of them entered as one check upon
the regular clearing slip." For violation of this rule
any member is liable to a fine of $2 for clearing improper
matter.
The manager keeps the following records of transactions:
1. A record of daily clearings and balances of each member. The same, by addition, is found for weeks, months,
or years.
2. The clearings register showing the daily clearings,
debits, and credits of each member.
3. A record of total credit clearings of each member
by months.
4. A record of the clearings, debit and credit, by months
for each member, a total of the same being made at the end
of the year.
5. A monthly and annual total of the clearings of all
the members.
6. A condensed record of the published bank statements.

308

Clearing-House

Methods

Although, as we have seen, there has been a great decrease in the membership from the original number, the
volume of exchanges has gone on increasing, and the association now takes fifth rank among the clearing houses of
the country.
Thus we have reviewed the methods and manner of
administration of our five largest clearing houses, and
with a few minor exceptions, designed generally to meet
some local condition, the conduct of the other clearing
houses of the country is along very similar lines.

309

INDEX.
" Acceptable m a t t e r " for clearing, 8, 49-51, 58.
at New York, 210-211.
at St. Louis, 306, 308.
Administration of clearing house, 30-35.
at Boston, 257-258
at Chicago, 295-297.
at New York, 159-163.
at Philadelphia, 234-236.
at St. Louis, 300-301.
Admission to membership. (See Membership.)
Admission charges, at New York, 165.
Admissions, committee on, ^T» 34at New York, 162, 165.
Advertising, clearing house, 22.
Agreement, New York clearing house, regarding outside collections, form
of, 187.
Ohio Bankers' Association, No. 2, for mutual protection in panic,
I3I-I35Altoona, Pa., reports on financial integrity at, 21-22.
Application to clear for another bank, New York clearing house, form of,
173.
Arbitration committee, 34.
at New York, 163.
at Philadelphia, 235.
functions of, discharged by clearing-house committee at Chicago, 297.
Arithmometer, use of, in foreign department of Boston clearing house, 271.
Assessment, at Boston, for printing and on nonmembers, 256.
at Chicago, for expenses, 290.
at New York, 211-213.
Assets, need of elasticity in, of banks, 27.
unavailable, cash settlements to counteract maintenance of, 27-28.
Atlanta, Ga., clearing-house loan certificates issued at, 1893, 107, 109.
clearing-house loan certificates, 1893, form of, 108.
use of in general circulation, 109.
plan for clearing country checks, 62-63.
Austin, Tex., settlement of balances at, by option of cash or draft, 45.
Authorization. (See Resolutions.)

3ii

National

Monetary

Commission

Average condition, weekly statement of, form of, at Boston clearing house,
for associated banks, to face 252.
at New York clearing house, for associated banks, 183.
for nonmember banks, No. 2, to face 184.
at Philadelphia clearing house, for banks and trust companies, to face
230.

Average daily clearings, at New York for fifty-five years, table, 217
at New York in 1906, 220.
Averages, weekly statement, form of, at Boston, used by associated banks,
253at New York, used by associated banks, 184.
by nonmembers, 175.
by trust companies, 176.
at Philadelphia, by banks, 228.
Balance, definition of, 7, 36.
Balances, borrowing and loaning of, at Boston, 247-252.
borrowing and loaning of, at Boston, form used in transfer, 250.
See also Balances, trading of.
debit, manager's receipt for, at Boston, form, 248.
ticket used in connection with payment of, at Boston, form, 246.
listing, in St. Louis clearing house, form used in, 305.
method for determining at New York, 55.
paid in cash at New York for fifty-five years, 221.
ratio of, to clearings, at New York, 220-221.
settlement of. {See Settlement of balances.)
striking instances of large and small amounts of, New York, 222.
trading of, at Chicago, 284-288.
orders used in transfer, 287, 293.
report used in transfer, 283.
Baltimore, clearing-house loan certificates, issued at, 1873, 83, 89.
clearing-house loan certificates issued at, in 1893, 100.
minimum rates of exchange established at, 16.
settlement of exchanges in money at, 38.
settling clerks' methods at, 52.
Bank Clerks' Beneficial Association, clearing-house fines at Philadelphia
donated to, 233.
" B a n k draft," or "banker's draft," definition, 6.
Bank examiners, clearing house, 137-147.
Bank, national. (See National bank.)
Bank of America, depository for New York clearing-house, 204.
Bank of the Union, expulsion of, from the New York clearing house, 164.
Banks, associated, of Boston, statement of weekly averages of, form, to face
252. See also Boston clearing house.
Bay City, Mich., alternation of clearing bank at, 48.
"Bill," definition, 5.

312

Clearing-House

Methods

" Bill of exchange," definition, 5.
Binghamton, N. Y., settlements at, by drafts on another city, 45.
Birmingham, Ala., clearing-house loan certificates issued at, 1893, 109-110.
clearing-house loan certificates at, 1893, form, i n .
Bond, given by clearing-house manager at Philadelphia, 236.
Bookkeeping, Boston clearing house, foreign department, 271-273.
calculating interest on loan certificates, 113-115.
Chicago clearing house, 279-280, 294.
"debits of exchange," and treatment of checks, 65.
Borrowing and loaning of balances, at Boston, 44, 247-252.
at Chicago, 44, 284-288.
a t Pittsburg, 44.
comparison of methods of, at Boston and Chicago, 288.
Borrowing, information concerning, secured by clearing-house bank examiners, 144.
Boston clearing house, 240-274.
administration, 257
borrowing and loaning of balances, 247-252, 288.
clearing-house loan certificates, of 1861, 242-243.
of 1873, 83, 86, 243.
of 1890, 92, 93, 243.
of 1893, 98-100, 243.
of 1893, form of, 97.
of 1895, 112, 243.
of 1907, 123-124.
of 1907, method of calculating interest on, 114-115.
foreign slip and check ticket, form, 266.
described, 269.
foreign department, exchange ticket, form, 270.
letter of transmission, form of, 272.
receipt, form of, 268.
receipt for pro rata charge on account of uncollected checks,
form, 264.
routine of clearing out-of-town items, 263, 265.
settling sheet, form, 275.
volume of business, 274.
receipt, manager's, for debit balances, form, 248.
national loan and, 243.
outside banks and trust companies, rules, concerning, 254.
routine, 243-245, 263.
settling balances, method of, 44, 244.
foreign, 263-265.
ticket used with payment of debit balances, form, 246.
weekly statement of averages by, form, to face 252.
weekly statement to clearing house, by associated banks, form, 253.
20040—10

3*3

National

Monetary

Commission

Buffalo clearing house, decorative scheme of room of, 48.
clearing-house loan certificates, of 1893, 105.
method of calculating interest on, 115.
kinds of money acceptable in making settlements, 38.
ratio of balances to clearings, 37.
receipt, given by creditor banks on receipt of balances, form, 40.
given to debtor banks on payment of balances, form, 42.
uniform rates of exchange fixed at, 15.
Building company, New York clearing house, 157-158.
Building fund, New York clearing house, 156-157.
Burroughs' s arithmometer, in foreign department, Boston clearing house, 271.
California, contemplated plan of clearing-house bank examiners, 146-147.
Camp, William A., manager of New York clearing house, 160.
Canada, settlements in government legal-tender notes, 38.
Canadian currency, uniform discount agreed on at Seattle, 23.
Canton, Ohio, clearing-house check, form, 1907, 126.
p a y c h e c k s used at, 1907, 125.
Cash balances paid in at New York clearing house for fifty-five years, 221.
Cash settlements, recommended, 27, 28.
Center, financial, defined, 6.
Central agency, need of, to disseminate information regarding outstanding
paper, 25.
Centralization of banking, clearing houses a means to, 24.
Certificates, building, of New York clearing house, 157-158.
clearing house. (See Clearing-house certificates.)
four kinds, 43.
gold. (See Gold certificates.)
issued by Treasurer of United States for clearing-house purposes, a t
Philadelphia, 227.
manager's, at St. Louis, 304-306.
of indebtedness at St. Louis, 304, 306.
participating, New York, 1907, 118.
Chairman of Clearing House Association, Boston, 257.
Charge ticket, Boston clearing house, foreign department, how used, 265.
Charleston, settlement optional by cable or draft at, 45.
Chattanooga, advertising through clearing house at, 22.
clearing-house loan certificates, 1893, 112.
hour of exchanges, 49.
Chester, Pa., reports on fraud required at, 22.
Check, definition, 6.
back of, showing indorsements after typical journey, 73.
clearing house. (See Clearing-house check.)
country, argument for charge for collection of, 74.
collection of, 59-63.
collection, typical procedure showing need of reform in, 64-74.

314

Clearing-House

Methods

Check—Continued.
country—continued.
difficulties of handling, 59, 60.
plans for clearing of, 60, 61.
typical journey of a, 64-74.
uniform rates for collection of, 60.
employer's pay. {See P a y checks.)
face of, after typical journey, 69.
itinerary of, shown by map, 71.
"local," definition, 9.
manager's. {See Manager's check.)
methods of transport to clearing house, 52.
Ohio Bankers' Association No. 2, agreement relating to, 133-134.
Check ticket and foreign slip, Boston clearing house, form, 266.
Chicago clearing house, 276-297.
clearing-house bank examiners at, 138-140.
clearing-house check, form, 120.
clearing-house loan certificates, 1907, 121-124.
fines for tardiness at exchanges, 53.
settling balances, method of, 44.
order on manager for balance due, form, 293.
ratio on balances to clearings, 37.
trading balances at, 284-288.
reports used in, form, 283.
transferring balance at, form of iprder, 287.
Cincinnati clearing house, clearing-house checks of, 1907, 127.
clearing-house loan certificates, 1873, 83, 89-90; 1893, 105.
form of, 1893, 104.
errors in exchanges, method of preventing at, 54.
no fine if reported immediately, 56.
settling, time of, at, 43.
exceptional rule for, 52.
Circulating certificates, or "scrip," use of, at Los Angeles, 1907, 129-130.
Civil war, clearing houses in, 12.
Boston clearing house in, 242.
effect on clearings at New York, 218.
"Clearance," definition, 5.
"Clearing," definition, 4 - 5 .
Clearing, for nonmembers. {See Nonmembers, regulations concerning.)
by telephone, at South Bend, Ind., 53.
hours, at various clearing houses, 49,
two, of Boston foreign department, 263.
improper matter for, 51, 59.
matter, 8,49-51,58, 59.
at New York, 210-211.
at St. Louis, 306, 308.

315

National

Monetary

Commission

Clearing—Continued.
room, at New York, 190.
at St. Louis, 302.
Clearing house, definition, 4, 11.
Clearing-house association, annual meeting, and representation in, 35.
See also Administration and under names of cities.
Clearing-house associations of California, plan for cooperation of, 146-147.
Clearing-house bank examiners, 137-147.
Chicago, 138-140.
Kansas City, 144.
Los Angeles, 144.
Minneapolis, 140-141.
New York, opposition to, 147.
Philadelphia, 145.
St. Louis, 141-143.
St. Paul, 141.
San Francisco, 144.
Clearing house, building of New York, 213.
Clearing House Building Company, New York, 213.
Clearing-house certificates, circulating or "scrip," 129-131.
gold coin and legal tender, suggested by Gallatin, 152.
gold, New York, form of, face, 206.
New York, form of, back, 207.
Philadelphia, 225.
kinds of, 75, 204.
*
negotiable a t Boston, 254.
used in liquidation of balances, New York, 202, 204.
Clearing-house check, Canton, Ohio, 1907, 125, 127.
Canton, Ohio, form, 126.
Chicago, 1907, 121-123.
form of, 120.
Cincinnati, 1907, 127.
Cleveland, 1907, 127, 129.
Clearing-house circulation certificates, 129-131.
Clearing-house committee. 'See Committee, clearing-house.)
Clearing-house due bills, a t Philadelphia, 226, 227-229.
Clearing-house gold certificates. (See Clearing-house certificates, gold.)
Clearing-house loan certificates, 75-136.
circulation of, not currency, 76.
not used as money, except in South, 116.
criticism of, met, 115-116.
definition of, 75-76.
effect of borrowing balances on, at Boston, 251-252.
emergency circulation under this title in Southeast, 112.

316

Clearing-House

Methods

Clearing-house loan certificates—Continued,
how used, best illustrated in East, n .
as protection in panic, 21, 45.
in saving use of cash, 77.
beneficial effects of first issue of, 81.
interest on, method of calculating, 113-115.
rates of, 78.
rates of, on issues of 1860-1864, 81-83.
rate of, at New York in 1873, 85.
rate of, at New York, 1884, 90.
Clearing-house loan certificates, issues, of 1860-1896, 80-113.
of 1907, 117-137.
Atlanta, 108.
Baltimore, of 1873, 83, 89.
form of, 99.
Birmingham, Ala., i n .
Boston, of 1873, 83, 243.
of 1890, 92, 93, 94, 98.
of 1893, form of, 97.
of 1895, 112.
of 1907, 123-124.
of various dates, 243.
Chicago, of 1907, 121-123, 2 9 2 Cincinnati, of 1873, 83, 89, 90.
of 1893, form of, 104.
Cleveland, of 1907, 127-129.
Detroit, form of, 106.
Fargo, N. Dak., of 1907, 129.
form of, 128.
Los Angeles, of 1907, 129.
Louisville, of 1891, 95.
New Orleans, of 1873, 83, 89.
form of, 102.
of 1879, 90.
of 1893, I O °New York, of i860, 80, 81.
of 1861, 1863, 1864, 82, 83.
of 1873, 83.
of 1873, form of, 84.
of 1884, 90.
of 1890, 91, 92.
of 1891, 92.
of 1893, 98.
of 1907, 117-121.

317

National

Monetary

Commission

Clearing-house loan certificates—Continued.
New York—Continued.
aggregate amount of since 1860, 121.
amount of used in settling balances in 1908, 208.
attitude of members toward, 79.
Oklahoma, of 1907, 131.
Philadelphia, of 1873, 83, 86.
of 1873, form of, 87.
of 1890, 94.
of 1893, 100.
of 1907, 124-125.
St. Louis, of 1873, 83, 89.
of various dates, 298.
redemption of, 78.
in 1873, collaterals for, 85.
smallest denominations issued, n o .
Clearing-house loan committee. (See Committee, loan.)
Clearing-house note depository certificates, proportion of used in settling
balances at New York, 208.
Clearings at New York, amount of first, 154.
at New York, average daily, 220.
for fifty-five years, 217.
volume of, 217, 222.
ratio of balances to, 220, 221.
two a day, 50, 57.
Cleveland, loan certificates and clearing-house checks issued at, 1907, 127.
Coin certificates, 45.
Coin, use of in settling balances at Boston, 244.
Collateral, amount deposited to secure loans in panic of 1907, 135.
Collecting. (See Collection.)
Collection, definition, 7.
charges, 15-20.
See also Collection of items,
cost of, Boston foreign department, 274.
inclosure sheet, use of, 65.
items, definition, 8.
of checks, routine of handling, 64-74.
of items, regulation of, 15-20, 25, 179, 185-187.
uniform rates of, at St. Louis, 298.
Collections, country or outside, Boston, 261-262.
Kansas City, plan for, 61, 62.
New York, 179, 185-187.
Committee,
arbitration, 33, 34.
at Philadelphia, 235.
at New York, 163.

318

Clearing-House

Methods

Committee—Continued.
clearing house, 30, 32-33.
a t Boston, 257, 258.
at Chicago, 140, 296-297.
a t New York, 161-162, 169.
at Philadelphia, 234-235.
reports of clearing-house bank examiners to, at Chicago, 140.
conference, 33, 34.
a t New York, 162.
exchange, 34-35executive, 30, 32.
loan, 33, 78.
at Detroit, 107.
at New Orleans, 101.
at New York, 118, 161.
nominating, 33, 34.
at Boston, 257.
at New York, 163.
of management, 30, 32.
at St. Louis, 300.
on admissions, 33, 34.
at New York, 162, 165.
Committees, 32-35.
Conference committee, duties and election of, 33, 34.
at New York, 162.
Consent to clear for another bank, form of, 174.
Constitution of New York clearing house, drafting of, 154-155.
provisions of, 159-179.
Cost of collecting, Boston clearing house, foreign department, 261-262.
Creditor banks, receipt given by, at Buffalo on receipt of balances, form, 40.
" Credit ticket," of New York clearing house, 194.
Country collections. (See Collections.)
Courts, Pennsylvania, decision, t h a t loan certificates are not money, 116.
decree in Keystone National Bank case, 238.
Currency certificates, 43, 44.
Boston clearing house, 28-29.
New York clearing house, 28-29.
Currency, depositories for, 28.
shipped by express, 25.
system, defects of, cause of panic of 1907, 117.
clearing-house loan certificates as a remedy for, 77.
use of, in settlements at Chicago, 282.
Curtis, George, drafting of constitution of New York clearing house by, 155.
proposes committee on arbitration at New York, 161.
amendment concerning nonmembers, 167.

3i9

National

Monetary

Commission

Daily clearings, average at New York for fifty-five years, 217.
at New York in 1906, 220.
Danville, 111., settlement of balances direct between banks, 43.
Dayton, Ohio, cashing manager's checks at, 43.
Debit balances, form of ticket used in connection with payment of, at
Boston, 246.
list used in St. Louis clearing house, 303.
"Debits of exchange/' 65.
Debtor banks, form of receipt given to on payment of balances at Buffalo,
42

1
.
.
Defaulting members, at New York, action regarding, 208, 209.
at Philadelphia, rule concerning use of collateral security of, 232.
Ohio Bankers' Association No. 2, treatment of, 133.
Delivery clerk, duties of, at New York, 191, 195.
"Delivery clerk's receipts," 192.
Depository, coin, for clearing house indicated in Gallatin's "cash house,"
152.
of Boston clearing house, 254.
Depository certificates, 44, 45.
Deposits, of city customers, clearing-house rules concerning limitations, 20
Deposit ticket, Boston clearing house, foreign department, form, 266.
Des Moines, Iowa, express money orders cleared at, 50.
Detroit, appointment of loan committee, 1893, 107.
clearing-house loan certificates used at, 106.
two clearings a day at, 56, 57.
Draft, defined, 6.
Drafts, use of, in United States extensive, 58.
use of, by smaller clearing houses foreshadowed by Gallatin, 153,
growing, 58.
Due bills, clearing-house, employed at Philadelphia, 227-229.
form of, used at Philadelphia, 226.
in Keystone National Bank failure, 237.
loan certificates regarded as, 116.
Edmunds, F . W., devised coin certificates, 45.
Empire City Bank, expulsion of, from New York clearing house, 164.
Employers' pay checks, use of, in Philadelphia panic of 1907, 124-125.
Errors, adjustment of, at New York, 209.
Cincinnati method to prevent, in exchanges, 54.
fines for, at New York, 215-216.
in exchanges, checking of, at New York, 200.
reclamations for, at Boston, 245.
at New York, 210.
Examination of banks by Boston clearing-house committee, 255.
Examiners, clearing-house bank, 26, 137-147.

320

Clearing-House

Methods

Exchange, charges for sale of, 20.
definition of, 5.
of drafts, daily at London, Gallatin on, 151.
of items, results of, 36.
premium on, a t St. Joseph, 20.
Exchange committee, 34-35.
Exchanges, before clearing, at Chicago, 281.
hour of making, 48.
method of making, 48-49, 53, 54.
at Chicago, 278-280, 281.
a t New York, prior to establishment of clearing house, 148-150.
at New York, 190-202.
at Philadelphia, 224.
at St. Louis, 302-304.
time taken to make, 55.
volume of a t New York, 217-222.
See also Clearing, and Settlement of balances.
Exchange slip, at New York, form of, 193.
use of, 191, 195.
Exchange ticket, Boston foreign department, 270.
"Executive committee," 30, 32.
Expenses, at Boston, for printing, 256.
at Chicago, how met, 290.
at New York, 211-212, 213.
at Philadelphia, apportionment of, for printing, 233.
at St. Louis, 301-302.
Express money orders cleared in Des Moines, 50.
Expulsion, at Boston, rules concerning, 256.
a t Chicago, rules concerning, 292.
at New York, 164, 166.
at St. Louis, 299.
Failure, action of Boston clearing house in cases of, 255-256.
provision for protection against, by Ohio Bankers' Association No. 2,
133.
Failures, in history of Philadelphia clearing house, 236.
of Marine Bank and Wall Street Bank in 1884, effect on clearing house
a t New York, 219.
result of, in regulations for nonmembers at New York clearing house,
168-169.
treatment of, by Chicago clearing house, 277, 278.
use of clearing-house bank examiners to prevent, 137.
Fall River, Mass., draft, 45.
two clearings a day, method described, 56.
Fargo, N. Dak., items for outsiders cleared at, 50.
clearing-house loan certificates at, form, 128.
in 1907, 129.

321

National

Monetary

Commission

Farmers and Mechanics' National Bank, depository for Philadelphia clearing house, 225.
Financial depression of 1890, forces leading to, 91.
stringency. {See Panic.)
Fines, abuse of loan certificates restricted by, 116.
for failure of bank to meet its requirements, 38.
lateness at clearing, amounts of, 53.
mistakes, 55.
in Boston clearing house, foreign department of, 267.
in Chicago, 290, 297.
for errors, 280.
for violation of regulations, 284.
in Cincinnati, none for mistakes if reported at once, 56.
in New York, 198, 214, 215, 216.
collected from 1885 to 1908, 214.
for transferring loan certificates to nonmembers, 204.
in Philadelphia, 233.
in St. Louis, 302.
for clearing improper matter, 308.
" First ticket," at New York, 191.
form of, 194.
Foreign department of Boston clearing house, 259-275.
See also Boston, foreign department.
Foreign slip and check ticket, Boston clearing house, form, 266.
description, 269.
Forfeiture of privileges at St. Joseph, Mo., 19.
Forgan, J. B., on clearing-house bank examiners, 138.
Forms:
agreement to comply with rules regarding outside collections, New
York, 187.
application to New York clearing house to clear for another bank, 173.
check, after typical journey, back, showing indorsements, 73.
after typical journey, face, 69.
issued by group 2, Ohio Bankers' Association, 130.
clearinghouse, Canton, Ohio, 126.
clearing house, Chicago, 120.
clearing-house loan certificates, Atlanta, 108.
Baltimore, 99.
Birmingham, Ala., i n
Boston, 97.
Cincinnati, 104.
Detroit, 106.
Fargo, N. Dak., 128.
New Orleans, 102.
New York, 84.
Philadelphia, 87.

322

Clearing-House

Methods

Forms—Continued.
consent of New York clearing house to clear for another bank, 174.
debit list, St. Louis, 303.
due bills, Philadelphia, 226.
exchange slip, New York, 193.
exchange ticket, Boston, foreign department, 270.
foreign slip and check ticket, Boston, 266.
gold certificate, New York, back, 207.
face, 206.
letter of transmission, Boston, foreign department, 272.
listing balances, form used in, at St. Louis, 305.
National bank statements, form used in tabulating at New York, 181.
order used in transferring balances t h a t have been loaned, Chicago, 287.
on Chicago clearing-house manager for balances due, 293.
proof sheet, New York, 201.
receipt, given by foreign department, Boston, 268.
given for pro rata charge on account of uncollected checks, Boston
foreign department, 264.
given by creditor banks on receipt of balances, Buffalo, 40.
given to debtor banks, on payment of balances, Buffalo, 42.
manager's, for debit balances, Boston, 248.
manager's, New York, 205.
settling clerk's, New York, 196.
report, manager's, of clearings, balances, etc., St. Louis, 307.
settling clerk's, of daily balances, New York, 203.
used in trading balances, Chicago, 283.
resolution authorizing exchanges through a member bank, New York,
172.

settling sheet, Boston foreign department, 275.
settling clerk's statement, New York, 197.
State bank statements, form used in tabulating, at New York, 182.
statement required of trust companies, New York, 180.
statement, required of trust companies by New York Clearing House
Association, 180.
statement, daily, by banks of Philadelphia, 230.
statement, weekly, of average condition, Boston, of the associated
banks, to jace 252.
New York, of the associated banks, 183.
New York, of nonmember banks, to jace 184, No. 2.
New York, summary of, to face 184, No. 1.
Philadelphia, of banks and trust companies, to jace 230.
of averages, Boston, used by associated banks, 253.
New York, required of associated banks, 184.
New York, required of nonmember banks, 175.
New York, required of trust companies, 176.
Philadelphia, required of banks, 228.

323

National

Monetary

Commission

Forms—Continued.
ticket, first or credit, New York, 194.
second, New York, 199.
small, New York, 193.
used in connection with payment of debit balances, Boston, 246.
Fort Wayne, Ind., advertisements, 22.
cashing manager's checks at, 43.
Fourth National Bank, failure of, in Philadelphia, 236.
Fraud, cooperation to prevent, 22.
Frederick, Md., option of cash or draft in settlements at, 45.
Fremont, Ohio, draft, 45.
Furniture, arrangement of, in clearing house, 47.
Gallatin, Albert, suggestion for clearing house, 151-153.
Gibbons, J. S., on early exchange methods in New York, 149-150.
Gilpin, William J., manager New York clearing house, 160.
Gold certificates, clearing house, on sub treasuries, recommendation for enlargement of, restriction of, 26.
clearing house, at New York, 202, 204.
form of, face 206.
form of, back 207.
settling balances with, 202, 208.
United States, used in settling balances in New York, 202, 208.
Gold coin and notes, fund of, at Boston, 254.
handling of, in settling balances at Boston, 244.
method of handling, a t Chicago, 282.
packages of, rules concerning, at Milwaukee, 39.
used in settlements at New York, 202.
depository certificates, 45.
Hamilton, Canada, money acceptable in clearing house at, 38.
Hartford, Conn., draft, 45.
Hastings, Nebr., banks alternate weekly as clearing house, 48.
History of clearing houses in United States. (See under names of cities.)
Holyoke, Mass., draft, 45.
Houston, Tex., regulation of rates of exchange by clearing-house association
of, 16, 17.
Inclosure sheet, collection, use of, 65.
Indorsements, facsimile of, on check after typical journey, 73.
requirements for, 51.
restricted, 51.
at Chicago, 290.
at New York, 211.
Insolvency, action in case of, of members at New York, 209.
Interest, method of calculating on clearing-house certificates, 113-115.
rates of. {See Rates of interest.)

324

Clearing-House

Methods

" Item," definition of, 8.
Items, included in statements at Boston and New York, difference in, 255.
number reported at New York and Philadelphia, 231.
Itinerary of a check on a typical journey, 70-72.
Jacksonville, Fla., option of cash or draft in settlements at, 45.
cashing manager's check at, 43.
Jacksonville, 111., banks alternate monthly as clearing house, 48.
Kansas City, Mo., option of cash or draft in settlement at, 45.
cashing manager's checks at, 43.
plan for clearing country checks, 61, 62.
system of clearing-house bank examiners at, 144.
Keystone National Bank and loan certificates in 1890, 94.
failure of and litigation of clearing house at Philadelphia over, 236-239.
Law, New York State banking, as affecting relation of trust companies to
clearing house, 177-178.
Ledger, progressive, use of, in Boston foreign department, 273.
Legal tenders, clearing house, used in settling balances at New York, 208.
United States, used in settling balances at New York, 208.
Letter of transmittal, form of, of foreign department of Boston clearing
house, 272.
Liability, for manager's check, 43.
Liquidation of balances, action on, by Boston clearing house in 1857, 242.
use of clearing-house certificates in, at New York, 204.
Listing balances, form used at St. Louis clearing house, 305.
Loan certificates. (See Clearing-house loan certificates.)
Loaning and borrowing of balances. (See Borrowing and loaning of
balances.)
Loan committee. (See Committee, loan.)
Loans, clearing-house bank examiners' reports on, at Chicago, 139.
" Local check," definition, 9.
London, system of exchange of, referred to by Gallatin, 151.
Los Angeles, clearing-house bank examiners at, 144.
issue of loan certificates and circulating certificates at, 1907, 129-131.
gold acceptable in settlement, 38.
two clearings a day at, 56, 57.
Loss, provision in case of, at Boston, in issuing loan certificates in 1907,
123-124.
provisions against, by New Orleans banks, 103.
Losses, absence of, at Chicago, 294.
usefulness of clearing-house bank examiners in providing for, 138.
Louisville, Ky., fine for mistakes, 56.
loan certificates, issue of, 1891, 95.
method of calculating interest on loan certificates at, 115.

325

National

Monetary

Commission

Lowell, Mass., bank to act as clearing house chosen at annual meeting, 48.
draft, 45.
Lyman, George D., manager of New York clearing house, 160.
Manager of clearing house, 31.
a t Boston, 258.
foreign department, 260.
a t Chicago, 295-296.
a t New York, 160.
a t Philadelphia, 236.
a t St. Louis, 300, 301.
Manager's check, liability for, 43.
settlement by, 43-44.
a t Philadelphia, 229.
Manager's certificates, a t St. Louis, 304-306.
Manufacturing concerns, compelled payment of loans, 27.
Massachusetts and foreign department of Boston clearing house, 259.
Matter for clearing, 8, 49-51, 58, 59.
a t New York, 210-211.
a t St. Louis, 306-308.
Meetings of clearing-house association, annual, at Boston, 257.
at Chicago, 295.
a t New York, 159.
Membership, clearing-house association, Boston, 256.
Chicago, 276-277, 291.
changes in size of, 294.
New York, 163-166.
table of 1854-1908, 217.
Philadelphia, 234.
St. Louis, 299.
Middle States, rate of collection in, 18.
Milwaukee, fines for being late at clearing, 53.
kinds of money acceptable in settlement at, 38
packages of currency, rules for handling of, 39.
Minneapolis, advertising committee, 22.
clearing-house bank examination at, 140-144.
fine for being late at clearing at, 53.
Money, labeled packages, rules concerning, 39.
Montreal, Canada, drafts on, 39.
Morning exchange, a t Philadelphia, 224.
National bank notes, shortcomings of, in panic of 1893, 95.
National bank statements, tabulation of, at New York, form, 181.
National clearing house, argument for, 60.
National currency act, 1859, effect on clearings at New York, 219.
National loan and clearing houses in 1861, 243.

326

Clearing-House

Methods

New England, and Boston clearing house, 259.
banks, and Suffolk Bank in panic of 1857, 241.
correspondents of Boston clearing house, 274.
drafts on Boston clearing house, 46.
New Haven, Conn., matters cleared at, 50.
New Orleans, clearing-house loan certificates, of 1873, 83, 89.
clearing-house loan certificates of 1879, 90.
of 1893, 100-105.
of 1893, form of, 102.
of 1896, 113.
hours of exchanges, 49.
manager's checks at, 43.
matter cleared at, 50.
settlement of balances at, by option of cash or draft, 45.
New York clearing house, 148-179.
and national loan, 243.
application to clear for another bank, form, 173.
balances paid in cash at, in fifty-five years, 221.
bank examiners, clearing house, proposed, 147.
building company, 157-158.
clearing-house loan certificates, of i860, 80, 81
of 1861, 1863, 1864, 82, 83.
of 1873, 83.
of 1873, form, 80, 81, 84.
of 1884, 90.
of 1890, 91-92.
of 1891, 92.
of 1893, 98.
of 1907, 117-121.
clearings for fifty-five years at, 217.
collections, outside, rules for, 185-187.
. consent to clear for another bank, form, 174.
building, cost of, 159.
committees, S3f I I 8 , 161-163, 169.
exchange and currency of, how treated at Boston, 267.
exchanges through a member, text of resolution authorizing, 172.
time taken to make, 55.
exchange slip, form, 193.
expenses, 211, 213.
fines, amounts of, collected from 1885 to 1908, 214.
locations of, 155-159.
manager's receipt, form, 205.
national bank statements, tabulation of, form, 181.
nonmembers, regulations concerning, 166-178.
origin, I53~i54proof sheet, form, 201.

327

National

Monetary

Commission

New York clearing-house—Continued,
ratio of balances to clearings, 37
records, kinds kept, 187-189.
"second ticket," form, 199.
settling balances, proportion of money and certificates used in, 208.
settling clerk's receipts, form, 196.
settling clerk's report of daily balances, form, 203.
"small ticket," form, 193.
State bank statements, tabulation of, form, 182.
trust companies, relationship to, 170-178.
form of statement required from, 180.
weekly averages, statement of, required, from associated banks,form, 184.
from nonmembers, form, 175.
from trust companies, form, 176.
weekly statements of average condition, for associated banks, form, 183.
for nonmember banks, to face 184, No. 2.
summary of, for associated banks, to face 184, No. 1.
New York State banking law, effect on relation of trust companies to
clearing house, 177-178.
New York Stock Exchange, closing of, in 1873, 85.
Nominating committee, 33, 34.
at Boston, 257.
at New York, 163.
Nonmembers, regulations concerning, 25.
assessment on, at Boston, 256.
New York, 212-213.
bank examiner's operations extended to, at Chicago, 139.
Boston, 254, 288.
Chicago, 288-289.
New York, 166-178, 288.
application to clear for another bank, form, 173.
consent to clear for another bank, form, 174.
resolutions authorizing exchanges through a member bank, 172.
Philadelphia, 288.
St. Louis, 300-302.
weekly statement of average condition of, by New York clearing house,
form of, to face No. 2, 184.
weekly statement of averages, made to New York clearing house, form,
175.
Notes, deposit of, at Boston clearing house, 254.
in the settlement of balances at Boston, 241
Northwestern National Bank, trading of balances by, 285.
Obligation, delivered by banks at New Orleans in return for loan certificates, 103.
Officers of clearing house, at Philadelphia, 234-236.
enumerated, 30.

328

G'learing-House

Methods

Ohio Bankers' Association No. 2, agreement to provide for protection
against " r u n s , " 131-135.
check issued by, form, 130.
Oklahoma, loan certificates, 1907, 131.
Order used in transferring balances that have been loaned, Chicago, form,
287.
on manager of Chicago clearing house for balance due, foim, 293.
Out-of-town checks, provisions for handling, at Boston, 259, 260.
See also Checks, country.
Out-of-town collections, amendment of constitution of New York clearing
house concerning, 179.
Out-of-town items, schedules of rates of exchange on, fixed by exchange
committee, 35.
See also Collections.
Outside institutions. See Nonmembers.
Packages, rules concerning, at Boston, 245.
of checks in foreign department, at Boston, 265.
of money, at Chicago, 282, 284.
at Boston, 244.
transferred a t New York, 202.
Panic, clearing-house loan certificates as protection in, 12, 21, 116.
assistance by clearing houses in, 24, 76.
of 1857, at Boston, 241-242.
of 1861, at New York, 218, 219.
of 1873, 83, 85.
at Boston, 243.
at Chicago, 277.
of 1884, at New York, 90.
of 1893, 95-112.
at Boston, 112.
at St. Louis, effect at, 298.
of 1907, effect a t New York, 117-118.
at Chicago, 292-294.
at St. Louis, 298.
clearing-house loan certificates in, 117-136.
illustrating need of clearing-house bank examiners, 138.
currency system as cause of, 117.
attitude of clearing houses in, 135.
pay checks, issue of, by railroads, 136.
Ohio Bankers' Association, No. 2, agreement for mutual protection in, 131-135Participating certificates, used at New York, 118.
Pay checks, a t Canton, Ohio, 1907, 125-127.
employers' use of, at Philadelphia, 1907, 124-125.
use of, by railroads, 1907, 136.
20040—10

329

National

Monetary

Commission

Penalties. See Fines.
"Personal checks," definition of, 9.
Philadelphia clearing house, 223-239.
clearing-house bank examiners installed, 145-146.
clearing-house loan certificates of, 1873, 83-87.
of 1890, 94.
of 1893, 100.
of 1907, 124-125.
method of calculating interest on, 114.
daily statement employed by banks of, form, 230.
due bill issued at, form, 226.
national loan and, 243.
ratio of balances to clearings at, 37.
reports on fraud, 22.
weekly statement of average condition of banks, to face 230.
weekly statement required of banks, 228.
Pittsburg clearing house, arrangement and furniture of, 48.
clearing-house loan certificates of, 1893, 105.
committees of, 32.
mode of settling balances at, 44.
ratio of balances to clearings at, 37.
Portland, Me., clearing house, advertising, 23.
Portland, Oreg., clearing house, kinds of money acceptable in settlement
of balances at, 38.
Post-office, New York, clearings by, 164.
St. Louis, clearings by, 299.
President of clearing house, duties of, 30.
at Chicago, 295.
at New York, 159-160.
at Philadelphia, 235.
at St. Louis, 301.
Printing expenses, at Boston, 256.
at New York, how met, 212, 213.
at Philadelphia, how apportioned, 233.
a t St. Louis, 301.
Progressive ledger, use of, in foreign department of Boston clearinghouse,
273.
Proof, method of arriving at, a t Chicago, 280.
at New York, 198.
at St. Louis, 306.
"Proof clerk," 195.
Proof sheet, clearing house, a t New York, form, 201.
Protection, measures for, at Altoona, Pa., 21-22.
at New York, against insolvency of nonmembers, 167-168.
a t New Orleans, in connection with loan certificates, 105.

330

Clearing-House

Methods

Providence, furnishings of clearing house at, 48.
Rate of collection, in Middle States, 18.
uniform, clearing houses fix, 2.
at St. Louis, 298.
Rates of exchange, schedules adjusted by exchange committee, 35.
Rates of interest, clearing-house regulations of, on local loans, 14.
agreements concerning, 25.
on borrowing balances, at Boston, 251.
on loan certificates in panic of 1907, 135.
uniform, 13, 25.
Ratio of balances to clearings, at Buffalo, 37.
at Chicago, 37.
at New York, 37, 220-221.
at Philadelphia, 37.
at Pittsburg, 37.
at St. Louis, 37.
what it depends on, 37.
Receipt, forms of. (See Forms, receipts.)
Reports, forms of. (See Forms, reports.)
at Philadelphia and New York, 231.
of clearing-house bank examiners at Chicago, 139-140.
at Minneapolis, 140-141.
a t St. Louis, 142-143.
Reclamations for errors and deficiencies, at Boston, 245.
at New York, 210.
See also Errors.
Records, kept, at New York, 187, 208.
at Chicago, 294.
at St. Louis, 308-309.
Relief, provisions for, in panic, by Ohio Bankers' Association No. 2, 131-135.
See also Protection; Panic.
Reserves, bank, form of, a t New York, in 1907, 117.
cash, regulations concerning, of nonmembers at New York, 177-178,
179.
Resolutions, authorizing clearing-house checks, Chicago, 1907, 121-123.
authorizing clearing-house loan certificates, Boston, 1890, 92-93.
New Orleans, 1893, 100-103.
New York, 1907, 118.
Philadelphia, 1890, 94.
authorizing exchange through a member bank at New York, 172.
regarding pay-roll checks, Philadelphia, 124-125.
relating to nonmembers, New York, 168-178.
Responsibility, of New York clearing house, 209.
Restricted indorsements, at Chicago, 290.
at New York, clearing items with, 211.

331

National

Monetary

Commission

Resumption of specie at Boston, 1857, 242.
effect of, in 1879, on clearings at New York, 219.
See also Specie payments.
Richmond, Va., clearing-house loan certificates at, 1893, n o .
Rochester, N. Y., collection charges, 16.
prohibition against inducing customers to change accounts, 23.
option of cash or draft, in making settlements, 45.
Rockford, 111., matters cleared at, 50.
Routine, daily, of clearing house at Boston, 243.
at Chicago, 278-284.
at New York, 190.
at St. Louis, 302-306.
suggestions afforded by, in foreign department of Boston, 260.
"Runners," at Philadelphia, 224.
Runners' exchange, at Philadelphia, 224-227.
Saginaw, Mich., option of cash or draft in settlements, 45.
St. Joseph, Mo., clearing house, committee, 32.
bank examiners, 144-145.
rules concerning collection, 19, 20.
interest, 13.
persons to whom exchange may be sold, 20.
premium on exchange, 20.
St. Louis clearing house, 298-309.
bank examination at, system of clearing house, 141-143.
collection charges, 17, 18.
debit list, 303.
issue of loan certificates, 1873, 83, 89.
listing balances at, form used in, 305.
manager's report of clearings, balances, etc., form, 307.
ratio of balances to clearings at, 37.
rules concerning charges for exchange, 20.
St. Paul clearing house, clearing-house bank examination at, 141.
matters cleared at, 50.
money acceptable in settlements at, ^.
San Francisco clearing house, clearing-house bank examination at, 33, 144.
money acceptable in settlements at, 38.
Savannah, Ga., clearing house, matters cleared by, 50.
rates of interest, 14.
Scotland, banks of, system of clearing of, referred to by Gallatin, 151.
Scranton, Pa., clearing house, matters cleared at, 50.
"Scrip," or clearing-house circulating certificates, use of, at Los Angeles,
129-131.
Seattle, Wash., clearing house, discount on Canadian currency at, 23.
"Second ticket," 195, 199.

332

National

Monetary

Commission

Sioux City Clearing-House Association, maximum rate of interest, 13.
Sixth National Bank, effect of looting of, on regulations for nonmembers at
New York, 169.
Slip, foreign and check ticket, of Boston clearing house, form, 266.
"Small ticket," use of, a t New York, 192, 198.
facsimile of, New York, 193.
South Bend, Ind., clearing house, telephone method used in clearing at, 53.
Specie, encouragement to use of, by Boston clearing house, in 1857, 242.
management of, in exchanges, in early New York banking, 150.
payments, resumption of, in 1879, effect on clearings at New York, 219.
suspension of, at New York and Boston, 1857, 241, 243.
Spring Garden National Bank, and issue of loan certificates in 1890, 94.
Statements. (See Forms, statements.)
Stock Exchange clearing house, establishment of, a t New York and effect
on clearings, 220.
Sub treasuries, 28.
Subtreasury, United States, membership of, in New York clearing house
association, 163, 164.
Suffolk Bank and Boston clearing house in panic of 1857, 241.
Superintendent of banks, California, appointment of, supersedes plan for
clearing house bank examiners, 147.
Suspension of members, at Philadelphia, 234.
power of, at Boston, 257.
of specie payments, at New York and Boston, 1857, 241, 243.
Syracuse, N. Y., clearing house, draft used in settlement at, 45.
Tables:
balances paid in cash at New York in fifty-five years, 221.
clearings for fifty-five years at New York, 217.
fines collected by New York clearing house association from 1885 to
1908, 214.
volume of business handled annually by foreign department of Boston
clearing house, 274.
Ticket. (See Forms, ticket.)
Trading of balances. (See Borrowing and loaning of balances.)
Transfer of balances. (See Borrowing and loaning of balances.)
Transfers by cable or telegraph, charges for, 20.
Transmittal, letter of, Boston foreign department, form, 272.
Treasurer of clearing house, duties of, 31.
duties of, vested in manager, at Chicago, 296.
at St. Louis, 301.
of the United States, certificates issued by for clearing house purposes
at Philadelphia, 227.
Trust companies, on requirement of cash reserve by New York clearing
house, 178.
statement required of, by New York clearing house association, form
of, 180.

334

Clearing-House

Methods

Secretary of clearing house, duties of, 31.
at Boston, 257.
at Chicago vested in manager, 296.
at New York, 160.
at Philadelphia, 235.
a t St. Louis, vested in manager, 301.
Settlement of balances, clearing houses divided according to methods of, 2.
definition, 9.
by cash, recommended, 28.
by circulating notes, Boston, 1857, 241.
by currency certificates, 28.
by manager's check, 43.
methods of, 37-46.
with money, 38-41.
without money, 41-46, 229.
suggestions for improvement in, 26, 27.
a t Boston, 44, 244, 260-274.
a t Chicago, 44, 281-284.
a t New York, prior to establishment of clearing house, 149-150.
details of, 202.
first plan for, 153-154.
a t Philadelphia, 225, 229.
at Pittsburg, 44.
at St. Louis, 304-305.
out of town, by Boston foreign department, 260-274.
record of money and certificates used in, kept at New York, 208.
in trading balances a t Chicago, 286.
Settling clerks, rules concerning, at Baltimore, 52.
at Cincinnati, 52.
at New York, 191, 195, 198.
fines for mistakes of, 55.
methods of, in making exchanges, 52-53.
receipts, at New York, form, 196.
reports of, at New York, form, 203.
statement, a t New York, form of, 197.
at Boston, foreign department, 271.
at Boston, foreign department, form, 275.
Settling sheet, at Boston, form, 275.
See also Settling clerks, statement.
Sherer, William, manager of New York clearing house, 160.
Silver, clearing-house certificates, used in settling balances a t New York
208.
coin, objections to, 39-41.
use of, in settling balances, at Boston, 244.

333

Clearing-House

Methods

Trust companies—Continued.
statement of weekly averages required of, at New York clearing house,
form, 176.
relationship to New York clearing house, 170-178.
''Unacceptable m a t t e r " for clearing, 8, 51, 59.
See also Clearing matter.
Uncollected checks, receipt for pro rata charge on account of, at Boston
foreign department, form, 264.
United States bearer gold certificates, proportion of, used in settling balances at New York, 208.
legal tenders and change, proportion of, used in settling balances at
New York clearing house, 208.
order gold certificates, proportion of, used in settling balances at New
York, 208.
subtreasury, membership of, in New York clearing house, 163-164.
use of checks in, more extensive than in any other country, 58.
Vice-president of clearing house, duties of, 31.
at Chicago, 295.
at St. Louis, 301.
Volume of business handled annually by foreign department of Boston
clearing house, 274.
of exchanges at New York clearing house, 217-222.
at St. Louis, 309.
Voluntary association, the clearing house a, 152.
Waco, Tex., clearing house, matters cleared at, 50.
Washington, D. C , clearing house, matters cleared at, 50.
Weekly statements. {See Forms, statements.)
Weekly returns, average, in use by associated banks of Boston, form of, 253.
West Superior, Wis., clearing house, roll call of settling clerks, method at, 53.
Wheeling, W. Va., clearing house, loan certificates without interest, 115.
Wilmington, Del., clearing house, foreign drafts, used in settlement, 46.
reports on fraud, 22.
Wilmington, N. C , clearing house, charges for transfers by wire, 20.
Withdrawal from membership, conditions of, at Chicago, 291.
Worcester, Mass., clearing house, settlement by draft, 45.
rule regarding votes, 35.
Youngstown, Ohio, clearing house, matters cleared in, 51.

335

Full text of Clearing House Methods and Practices

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