THE Clearing-House was established in 1775, by several of the London private bankers, for the purpose of facilitating their exchanges with one another. Every London banker having claims against others, and they against him, used to send out clerks daily to collect the debts due to them, which were settled in cash or notes. The inconvenience of this clumsy method of transacting business, and the necessity it involved of keeping cash in their tills to meet demands made upon them for settlement of these exchanges, led to the formation of this establishment, the example of which had been previously set by the Edinburgh banks; indeed, a similar plan seems to have been adopted, as early as the sixteenth century, by the merchants who met at the great annual fair held in the city of Lyons. They made their bills payable at this fair only. By this means they were relieved from the necessity of keeping coin or bullion to discharge their bills had they been drawn at the usual dates; meanwhile the bills went into circulation, got covered with endorsements, and were yearly set off against each other when adjusting their mutual accounts, so that, as we learn from Bois-guillebert, by this means transactions to the amount of .£80,000,000 were settled without the need of a single sou in coin.
The Clearing-House was at first by no means generally approved, and some of the principal bankers refused to have recourse to it. After the number of clearing bankers had increased, a committee was formed for its government. This committee is composed of a representative of each of the leading bankers, and any new bank that desires to have the privilege of clearing must now apply for permission to the committee.
The object the clearing bankers had in view was to exchange bills and cheques against bills and cheques, and thus be enabled to carry on their business with a less amount of capital. But while the bankers endeavoured to promote their own interest, they promoted at the same time the interest of the public. The sums liberated from employment in this way became available for employment in agriculture, manufactures, and commerce. Whenever any banker, therefore, is excluded from the Clearing-House, and is, consequently, obliged to keep a larger amount of cash in his coffers, his available capital is so far reduced, and thus the agriculture, manufactures, and commerce of the country receive less encouragement.
The establishment of the Clearing-House has led to new arrangements in several branches of business. The stockbrokers, for instance, now settle all their receipts and payments by cheques to be paid through the Clearing-House. The cheques a broker draws on his banker are paid at the Clearing-House by cheques of other brokers, which he lodges to his credit. The Colonial brokers also, and other classes of commercial men, have fixed days for settling their accounts, and on these days draw cheques on their bankers in the morning, and pay in cheques to meet them at a subsequent part of the day. Thus the institution of the Clearing-House has become entwined with the commerce of the country, and could not be discontinued without deranging every branch of business. It has also received the sanction of the law of the land, the courts of law having decided that the presentment of a bill of exchange at the Clearing-House is a legal presentment. In this case, as in many others, the custom of bankers and merchants has become law. Many of our commercial laws have had the same origin. They have at first been mere regulations established by merchants for their own convenience; these regulations have been adopted by other classes of the community; they have been followed for a number of years, and then the law has recognized them as a portion of the commercial institutions of the country. Such was the origin of allowing three days' grace upon bills of ex-chancre, and such has been the case with the Clearing:-House. The Clearing-House is no longer, therefore, a private subscription room, from which the parties admitted may exclude whomsoever they please at their own caprice. They may exclude improper banking companies, as the Edinburgh banks refuse to exchange with any bank that is not respectable; but they are bound in justice to admit all respectable banks who may apply for admission.
"Another amendment which I would propose as connected with the currency of London, would be a regulation of the Clearing-House by the Legislature. Although the Clearing-House was a voluntary association of bankers at first, yet it has now existed for sixty years, and has become interwoven with several branches of London trade; it is therefore, for all practical purposes, a public institution, and like a market or any other public institution, might become the subject of legislative interference. The exclusion of banks in London from the Clearing-House, whose capital now amounts to about £2,000,000 sterling, and who have about 2,000 partners, is not only a great inconvenience and great loss to those banks, but is a great inconvenience also to the public in general, and such an interference with the freedom of trade as carried on by individual companies in London, as alone would justify the interference of the Legislature; and besides, it is quite unreasonable that an association of omnibus proprietors should be indicted and tried for a conspiracy because they have tried to run a rival omnibus off the road, and yet that a body of bankers may conspire for a similar object without any interference of the Legislature at all." 1
1 The extract here given is taken from Mr. Gilbart"s evidence before the Committee on Banks of Issue in March. 1841. Although the immediate cause of these animadversions has long since been removed by the admission of the London and Westminster (of which bank Mr. Gilbart was the manager) and other joint-stock banks to the clearing in 1854. they are applicable even with greater force at the present day. Unfortunately the same exclusive spirit still seems to govern the committee of the Clearing-House. Of late years applications for admission have been made by some seven banks, and of these five have been refused. One of the applications was by a private bank; another by a London joint-stock bank possessing numerous country branches; and the remainder by three of the Scotch banks, having an aggregate capital of four and a quarter millions, with deposits of over thirty millions, and some 320 branches. It was understood that the committee's reason for refusing to admit the private bank alluded to, was that its head office was not in London. Against the Scotch banks it was urged that they were banks of issue, as well as that their head offices were not in London. It is impossible to see the force of these objections. With regard to the first: there is no remedy in law which one clearing banker could have against another whose head office is in London, which he could not have were that other banker's head office in Manchester or in Scotland. And with regard to the question of issue : as Scotch bank notes could not legally circulate in England, and could not therefore find their way into the hands of London bankers for settlement in the clearing, the question of risk in connection with them could never arise. It would perhaps be doing an injustice to the clearing bankers to suppose that the exclusion of the Scotch banks is due to a jealousy of the privilege of issue possessed by the latter. The issue is undoubtedly a privilege to a certain extent, but it is one the advantages of which are usually very much exaggerated, and one which could not for a moment place the pos