It is now necessary to take another step in depicting the clearing-house system of the United States. As explained elsewhere in this volume, every national bank and all of the more important state banks and trust companies are now members of the Federal Reserve system, and as such each bank maintains a specified balance on the books of the Federal Reserve bank in the district in which it is situated. In order to re-establish such a balance it may send in checks or drafts upon other banks which have agreed not to make any charge to the Federal Reserve bank for collection. These checks or drafts are credited to the account of the member bank so sending them, but only after enough time has been given to transmit them to the banks upon which they are drawn and to receive back funds as the proceeds of the item thus assumed. The member bank is supplied with a schedule showing how soon it will have credit for the items drawn on the different points, and it can thus keep very close track of the balance with the Reserve bank from day to day. It is then able to draw upon any accumulation it may have in excess of required reserve, and thus to furnish remittances to its customers. Such checks drawn upon a Reserve bank are of course acceptable remittances anywhere.

It will be noted, however, that a Reserve bank which thus accepts checks and drafts indiscriminately from its customers will probably get a good many such items drawn on banks in its own district and a good many drawn on banks outside of its district. Those drawn on banks within its own district it can largely clear upon its own books by mere bookkeeping entries, or through a local clearing house of which it is a member. Those drawn on banks in other districts it can clear by sending them to the banks in the other districts for remittances of similar kind, or by putting them through the Reserve bank of any other districts and leaving it then to make the collection. This latter process is facilitated by what is called the gold-settlement fund at Washington, which is a fund in gold deposited with the Treasury Department by each Federal Reserve bank. Daily transfers through this fund are made by telegraph, each Reserve bank wiring the amount of its debits and credits and these being then offset on the books at Washington, so that the relative ownership of the fund varies from day to day, but without the necessity of actually shipping gold at all. Thus the transfers of the country are effected by simply an easy bookkeeping process which practically clears between clearing houses. It is still true that a good many checks go through the local clearing house and are collected by it either directly through city members or, through its country department, from out-of-town banks, but an increasing volume of checks have gone through the Reserve banks and by them have been cleared on their own books or through the gold-settlement fund. The technic of clearing, as already explained, is simple and may be summed up in the statement that it is nothing more than a bookkeeping process in which plus and minus items are canceled and the balance is paid in some form.