When we consider what an overwhelming proportion of the monetary payments in this country are made by means of cheques and bills, it becomes evident that the presentation and payment of these documents is a task of no small difficulty. Obviously it has long been impossible to present them at the counter of the bank upon which they are drawn, and demand coin and notes. The proportion of cheques so presented is insignificant; the remainder are paid, directly or indirectly, by means of one of the Clearing Houses, chief among which of course is the London Clearing House in Post Office Court, Lombard Street.

The exact origin of this institution is uncertain. Gilbart in his "Principles and Practice of Banking," says it was founded in 1775, but we find references to a clearing house in London before that date. It is fairly certain that it had a small beginning and was probably at first a voluntary and informal meeting of clerks sent out to collect cheques drawn upon other banks. Some of the London bankers for a time held aloof, but it eventually became rather an exclusive body, slow to admit fresh members. The early joint stock banks were refused membership, and it was not until 1854 that they obtained admittance.

In 1858 the Country Clearing was established. Before that date country cheques were presented directly through the post and a draft on a clearing banker sent in return, but since 1858 the cheques have passed through the Clearing House by means of the clearing agent, of whom every country banker now makes use.

Four years previous to this, in 1854, great improvement in the mechanism of the House was effected. The differences between the various members of the House had hitherto been paid in Bank of England notes and coin, but since 1854 each member of the Clearing House has had to keep an account with the Bank of England, and the differences are now paid by transfers between such accounts.

Each clearing bank sends round to the Clearing House at the times fixed for the clearing, bundles of "articles" called "charges," each "charge" consisting of cheques drawn upon another member of the House, or in the case of the country clearing, drawn upon the country correspondents of another member.

These are exchanged, entered and added by means of automatic machines, and so far as possible the totals are verified. The "charges" received by each bank are then taken round to the bank and examined and paid, or in the case of the country clearing, sorted and posted at the end of the day to the various country correspondents. There are three clearings during the day. The morning clearing, commencing on ordinary days at 10.30 a.m., consists chiefly of drafts on the clearing banks which have been received from the branches and country correspondents of each clearing bank by the morning post, together with a certain number of drafts received on the previous afternoon too late for that day's clearing.

Then there is the country clearing, which commences at the same time. All the drafts which go through the country clearing are drawn upon country bankers, and are sorted according to the clearing agents; each charge is therefore a bundle of miscellaneous cheques which, after they have been exchanged, are taken back, sorted according to the bankers upon whom they are drawn, and despatched by the evening post for payment. The afternoon clearing, which commences at 2.30 p.m., is the busiest of the day. The cheques cleared are those drawn upon members of the Clearing House which have been paid in by customers of other clearing banks during the same day, or have been remitted by such suburban banks or West End banks as are in a position to send a midday remittance to their clearing agent. During the afternoon, fresh "charges" are continually being brought to the House right up to its close at five minutes past four.

As soon as all the charges are entered and agreed, the work of settlement commences. First of all the clearing clerk of each bank strikes a balance between the amounts of his in-clearing and his out-clearing with each other bank; the result is the amount which on the day's working he owes to that other bank, or, as the case may be, the amount which that other bank owes to him.

It must not be supposed that each bank then settles the amount owing to or from each other bank by direct payment. The method pursued is much simpler and more economical than this.

Each bank takes its "summary sheet," which has a column of the names of all the clearing bankers with a column on each side for the amounts owing to or from these banks. These two columns are added up, and the difference between the two represents the total sum owing to or by the bank in question, "on general balance." Each bank keeps an account at the Bank of England, and there is also an account called the Clearing Banker's Account, and the differences are settled by transfers between these accounts. If the X. Bank owes £7,215 on general balance, it authorises the Bank of England to transfer this amount from the account of the X. Bank to that of the Clearing Banker's Account. If, on the other hand, the day's work ends in a balance of £745 owing to the X. Bank, it hands to the Bank of England a request signed by an official of the X. Bank and by a Clearing House inspector, to transfer £745 from the Clearing Bankers' Account to the credit of the X. Bank.

The country clearing is settled in a similar manner, except that the balances are not transferred until the third day, owing to the necessity of sending the cheques into the country to be paid.

We have hitherto supposed that all cheques presented through the clearing have been paid, but there are usually a number of cheques unpaid, either through want of funds or because of some irregularity in the drawing or endorsement; "returns" as they are called.

All returns must in the case of the town clearing be received back at the Clearing House by 5 o'clock on the day of presentation, though this hour is slightly extended on certain days when the work is especially heavy, and they must bear a written answer upon them stating the reason of non-payment.

In the case of the country clearing, each country banker must, by return of post on the day of receipt, advise its London agents of the amount of the cheques received and paid, enumerating the returns deducted, if any. All cheques presented through the clearing must bear across their face the name of the presenting bank, and in the country clearing the name of the London agent also, and, according to the rules of the House, it is the duty of "any country bank not intending to pay a cheque sent to it for collection, to return it direct to the country or branch bank, if any, whose name and address is across it." Such returns must in every case be sent back on the same day on which they are received.

In the case of the town clearing it may be mentioned, bills and various orders to pay which are not cheques are presented through the Clearing House; but in the country clearing, bills, promissory notes and cheques with documents attached are not received, and must be presented through other channels.

When returns are received at the Clearing House they are treated just as if they were cheques drawn upon the bank by whom they were presented, and are entered at the end of the summary sheet before the general balance is struck.

The following bankers are members of the London Clearing House:

Bank of England.

Barclay and Company.

Capital and Counties Bank.

Glyn, Mills and Company.

Lloyd's Bank.

London and County Bank.

London and South Western Bank.

London and "Westminster Bank.

London, City and Midland Bank.

London Joint Stock Bank.

Martin's Bank.

Metropolitan Bank.

National Bank.

National Provincial Bank of England.

Parr's Bank.

Robarts and Company.

Union of London and Smiths Bank.

Williams Deacon's Bank.

Besides this several of the more important city branches of the above banks clear direct without the intervention of their head office.

The total amounts cleared are enormous, exceeding in 1902 the sum of ten thousand millions. Certain days are always busier than usual, and on some of these days some extension of hours is allowed. Such days are the first of January, April, July, and October, on which many dividends are payable, Stock Exchange settling days, and the fourth day of each month. The reason for the pressure on these last-mentioned days is that in those trades in which the retailer pays the wholesale dealer by means of bills of exchange, it is generally customary to draw on the first of the month, and these bills, drawn at one, two, or three months after date, mature, when the three days' grace is added, upon the fourth day of the month.

The London Bankers' Clearing House is by far the most important of the English clearing houses. There are, however, local houses at several of the more important provincial towns, notably Manchester, Liverpool, Birmingham, Newcastle, and Bristol. These, however, are not in any way rivals of the central Clearing House. They are used for the collection of purely local cheques; which in smaller towns would not be sent to London for collection, but presented directly over the counter of the local banks, and be paid by a draft on a London clearing banker. Instead of this, in the towns above mentioned and a few others, these local cheques are presented through the local clearing house, usually conducted on a similar plan to the London House, and the balances are transferred through the local branch of the Bank of England. Cheques drawn upon banks in towns other than that in which the collecting banker resides would, however, be collected through the London Clearing House in the usual way.

Cheques drawn upon the numerous West End and suburban banks in London are not collected directly through the Clearing House, but their totals nevertheless eventually appear in the Clearing House returns. These cheques are presented at the counter of the banks upon which they are drawn by "walk clerks" and messengers, who are paid by drafts upon a clearing banker, and these drafts are in turn collected through the London Clearing House.

Although our system of clearing cheques is complete and far-reaching as regards each of the three kingdoms, it is to be regretted that there is no central institution for international clearings between England, Scotland and Ireland.

Dublin, Edinburgh and Glasgow each have their own Clearing House, but to none of the central clearing houses do the banks of any of the other kingdoms belong. Thus, if a banker in, say, Nottingham receives for collection a cheque drawn upon a banker in, say, Inverness, he must present it directly through the post with a request for a draft on London in return, which is usually sent, less a small charge for commission. Some of the larger banks have, however, made mutual arrangements to collect each other's cheques through their London offices, but this is, of course, simply a private arrangement. Attempts have been made to admit the Scotch and Irish banks to the London Clearing House, but there are many difficulties in the way, and such attempts have hitherto been unsuccessful.