Each large city has its clearing-house system. To establish a
clearing-house a number of banks associate themselves together, under
certain regulations, for the purpose of exchanging daily at one time
and place the cheques and other commercial paper which they hold
against each other. The usual officers are a president, a secretary, a
treasurer, and manager, and a clearing-house committee. The cheques,
etc., which the banks take to the clearing-house are called the
clearing-house exchanges, and the total amount of paper exchanged is
called the day's clearings. Those banks which bring a less amount than
they take away are obliged to make the difference good in cash or its
equivalent within a fixed time upon the same day. Suppose, for
illustration, that a clearing-house association consists of five
banks--A, B, C, D, and E--and that Bank A took to the clearing-house
cheques against B, C, D, and E amounting to $20,000, and that B, C, D,
and E took to the clearing-house cheques against A amounting to
$21,000. Then A is on this particular day a debtor bank, and owes the
clearing-house, or the other banks through the clearing-house, $1000.
The payment of the balances by the debtor banks and the receipt of the
balances by the creditor banks complete each day's transactions. As
the total amount brought to the clearing-house is always the same as
the amount taken away, so the balances due from the debtor banks must
be exactly equal to the amounts due the creditor banks. The clearings
in New York City in one day amount to from $100,000,000 to
$200,000,000, and the actual cash handled, if any, need only be for
the actual debit balances. Usually once a week (in some cities
oftener) the banks of a city make to their clearing-house a report,
based on daily balances, of their condition. The clearing-house
establishes a fellowship among banks that has already proved in times
of money panics of the greatest service to themselves and the
community.