This section is from the "Practical Banking" book, by Albert S. Bolles.
To establish a Clearing-house a number of banks associate themselves together, under certain regulations more or less elaborate, according to circumstances, for the purpose of settling daily, at one lime and place, the mutual demands arising between the banks. The officers of such an association are usually a president, or chairman, a secretary, treasurer and manager, with a Clearing-house committee, and such others as the wants of the association require. At New York, in addition to the Clearing-house committee, there are a committee on conference, a nominating committee, a committee on admissions, and an arbitration committee. The manager is sometimes chosen by the association, usually by the Clearing-house committee, which generally has charge of all matters incidental to the operations of the association not otherwise specially provided for. The larger Clearing-houses have also an assistant manager. The salary of the manager is fixed pursuant to the rules of the association, and he gives bonds with approved sureties for the faithful discharge of his duties. At New York the manager gives bonds for $10,000, clerks for $5,000 each. He has, under the control of the Clearing-house committee, immediate charge of all business at the Clearing-house, so far as relates to the manner in which it shall be transacted; and the clerks of the establishment, if any, as well as the settling clerks and porters or messengers of the associated banks, while at the Clearing-house, are under his direction.
At a fixed hour, each day, representatives of the banks meet at a specified place, called a Clearing-house, and exchange the checks or other paper which they hold against one another. The paper which the banks take to the Clearing-house is called the exchange, and the total amount of paper exchanged is called the clearings, or exchanges. Those banks which bring to the Clearing-house a less amount in checks or other paper than they take away—called debtor banks—pay at a later hour on the same day to the banks which bring more than they take away—called creditor banks—a balance, either directly or through the Clearing-house, in cash or its equivalent. The payment of the balances by the debtor banks, and the receipt of these balances by the creditor banks, complete each day's settlements. As the aggregate amount brought is always the. same as the amount taken away, so the balances due from the debtor banks must be exactly equal to the amount due to the creditor banks. The clearing system is the application on a large scale of the principle of set-off. "Clearing," says Mr. H. D. Lloyd, in the Cyclopedia of Political Science, Political Economy, and the Political History of the United States, " is the settlement of mutual claims by the payment of differences." The saving of time and in the handling of cash is an obvious advantage flowing from the union of banks in a Clearing-house. There are other advantages, not less important, which will appear on further examination.
The mechanical arrangements used by the various Clearing-houses in effecting their settlements differ according to the character and magnitude of the operations carried on. At some of the smaller Clearing-houses there is no permanent place for making the exchanges, the banks taking turns. Where the transactions are 0f large amount, however, it becomes necessary to have a room specially fitted up for the purpose. The New York Clearing-house, long quartered in the building of the Bank of New York, some years ago secured more commodious quarters in a building which is owned by the Association. Desks, one for each bank, are arranged in three parallel rows, each desk having the name of the bank for which it is designed lettered on a silver plate in front, and being numbered with the bank's number. At Boston, the desks in the Clearing-house are arranged in an oval or elliptical form, facing outward, as they were in the old Clearing-house rooms at New York. The method of doing the business is substantially the same in both. The number of banks in the Clearing-house at Boston, December 31, 1883, was fifty-two, and at New York sixty-four, and the capital and profits represented in the former is $50,500,000, against $101,930,700 in the latter; yet the clearings at New York are, on an average, nearly eleven times as great as those of Boston, while the balances are only about four times as great.