This section is from the "Practical Banking" book, by Albert S. Bolles.
The exchanges being completed, the next step is the payment of balances. At New York the balances must be paid by the debtor banks to the Clearing-house between 12½ and 1½ o'clock, p. m., either in actual coin, United States legal-tender notes, or in United States or Clearing-house certificates, At 1½ o'clock, or as soon thereafter as the accounts can be made up, the creditor banks receive the balances from the manager at the same place, provided all the balances due from the debtor banks have been paid. Should any bank make default in the payment of its balances at the proper hour, the amount of that balance must be immediately, on requisition from the manager, furnished to the Clearing-house by the several banks exchanging with the defaulting bank in proportion to their respective balances against that bank resulting from the exchanges of the day. The amounts so furnished constitute claims against the delinquent bank only, the Clearing-house being in no way responsible. The defaulting bank is immediately suspended from the Clearing-house. At several of our American Clearing-houses the regulations provide that until the settlement is completed and balances are paid the exchange shall be in trust only, that the vouchers delivered at the Clearing-house shall, until that time, remain the property of the bank presenting them, and that in case of default by any member in paying its balances, such vouchers shall be returned unmutilated to the banks from which they were received. Some recent complications at New York, arising from the failure of the Marine National Bank and of Grant and Ward, suggest the advisability of some similar regulation there. It may be stated here that the operations of the Clearing-house have received legal recognition, and a presentation of a demand through the Clearing-house is a legal presentation by virtue of custom among bankers and merchants.
Errors in the exchanges, and claims arising from the return of checks, or from any other cause, are adjusted directly between the banks who are parties to them, and not through the Clearing-house, the association being in no way responsible for them.
As the banks severally pay their balances the manager gives each a receipt in the following form:
No. 6. New York Clearing-house,
January 17, 1884.
Received from the Bank of America Two hundred and forty thousand one hundred and sixty-six 60/100 dollars in full for balance due the associated banks. $ 240,166.60. ............................Manager.
Sometimes a current ledger account is kept with the Clearing-house, charging it with all money or vouchers sent, and crediting it with all that is returned; and this receipt is charged as a voucher on the books of the paying bank. The messengers also give to the manager, in a book with suitable forms prepared for that purpose, receipts for all balances delivered to them. It is only for a period of about one hour, while receiving and paying the balances, that the Clearing-house has the custody of any money, and during that time only as trustee, receiving from one to pay another.
Reclamations for errors and deficiencies, in specie or United States legal-tender notes, received at the Clearing-house, contained in bags or packages, sealed and marked in conformity with the rules of the Clearing-house, must be made by one o'clock on the following day by the receiving bank against the bank whose mark the sealed package bears. Notice of such error must be sent immediately upon discovery, the Clearing-house not being responsible for the contents of such bags or packages. Serious difficulties recently arose at New York in a matter of this kind, growing out of the failure of the Marine National Bank. On the sixth of May, 1884, this bank enclosed in the usual manner in a sealed envelope, marked with the aggregate amount, containing as items constituting its claims upon the First National Bank for exchange through the Clearing-house,, three checks drawn by Ferdinand Ward upon the First National Bank, amounting together to $215,000. As Ward at that time had in the First National Bank only $2,213.98, the latter refused the checks. The Marine National Bank having in the meantime failed,, after paying its balance of $550,000 at the Clearing-house, the First National Bank informed the Clearing-house that the checks were not good and claimed to be reimbursed by the associated banks or the Clearing-house.
A special committee of the Association, appointed to consider the subject, decided against this claim, but the affair resulted in the adoption, June 4, 1884, of two amendments to the Constitution of the Association. One of these authorizes the Clearing-house committee to examine any member of the Association, and to require security for the payment of its balances to the Clearing-house; the other provides that in case of refusal or inability of any bank to refund the amount of checks, drafts, or other items returned as not good, the bank holding them may, before one o'clock, report to the manager the amount of the same, and the manager, with the approval of the Clearing-house committee, is to take from the settling sheet of both banks the amount of such checks or other items so reported. This will, of course, increase any balance due from the presenting bank, for which all the banks having balances against it are responsible. The Clearing-house has also recently taken action on another matter which has been agitated for many years, namely, the payment of interest on deposits. On the recommendation of a committee appointed June 4, and subsequently increased, the associated banks on July 29, 1884, adopted, subject to the ratification of the banks individually, two amendments, one forbidding any member to pay interest on, or allow compensation for, deposits after January 1, 1885, the other providing that no checks shall pass through the Clearing-house except those drawn on members. Under this amendment, if it shall come in force, banks outside could still clear on one side through members—that is, the checks and other claims on the members—but the Clearing-house would be closed against checks drawn on banks outside, and these checks would be less current. The outside banks may thus be forced to become members, and bear a share of the expense from which they have hitherto, to the prejudice of the members, escaped.