r"" JZ; This book IS uuc on tne lasi uaic aiuiij|j«: SOUTHERN SKANCH, UNIVERSITY OF CALIFORNIA, LIBRARY, 61ST COiNGRESS : : 2d SESSION 1909-1910 SENATE DOCUMENTS Vol. 17 WASHINGTON : : GOVERNMENT PRINTING OFFICE : : 1910 61ST Congress 1 cttivt a ^ir / Document 2d Session ) SE^AiE | No. 491 NATIONAL MONETARY COMMISSION Clearing Houses BY JAMES GRAHAM CANNON Vice-President Fourth National Bank, New York City ^.!l "•^m^ ^ •» ' ' ■> J • • Washington : Government Printing Office : 1910 i l5 i \} NATIONAL MONETARY COMMISSION. Nelson W. Aldrich, Rhode Island, Cliairtnan. Edward B. Vreeland, New York, Vice-Chairman. Julius C. Burrows. Michigan. Jesse Overstreet, Indiana. Eugene Hale, Maine. John W. Weeks, Massachusetts. Philander C. Knox, Pennsylvania. Robert \V. Bonynge, Colorado. Theodore E. Burton, Ohio. Sylvester C. Smith, California. John W. Daniel, Virginia. Lemuel P. Padgett, Tennessee. Henry M. Teller, Colorado. George F. Burgess, Texas. Hernando D. Money, Mississippi. Arsene P. Pujo, Louisiana. Joseph W. Bailey, Texas. Arthur B. Shelton, Secretary. A. Piatt Andrew, Special Assistant to Commission. CONTENTS, Page. Chapter I.— Classes of Clearing Houses. . _ _ i A clearing house defined— Clearing houses ^^ classified with respect to functions— Clear- '^""^ ing houses classified with respect to the funds used in settlements. II.— Clearing-house Terms 3 How usages differ — The meaning of "to clear" — Clearings — Exchange and ex- changes—Bills and bills of exchange- Draft and check — Accounts balanced and balances in accounts — Collections— Items- Clearing matter— Settlements— Out-of-town checks and country checks. III. — Special Functions of a Clearing House 1 1 Primary object — Extension of field — List of special functions— Action of clearing-house banks at outbreak of civil war — Mutual assistance of members — Fixing rates of in- terest on deposits — The practice in Sioux City— Establishing rates of exchange- Some Buffalo history — Rochester — Balti- more — Houston — Toledo — Topeka — St. Louis— West Superior— St. Joseph— Clear- ing-house loan certificates. IV. — Possible Developments of the Clearing- house System 24 New functions to be exercised — Country checks — Transfer of currency from point to point— Possible use of gold certificates- Special examiners— Settlement of bal- ances — Advantages of the cash basis — Clearing-house depositories — The use of de- pository certificates. V. — The Administration of Clearing Houses 30 List of oflficials— Duties of officers— Commit- tees — Annual meetings. National Monetary Commission Chapter VI. — The Settlement of Clearing-House Balances 36 Results accomplished by settlements — Ratio of balances to clearings — Settlements with money — Clearing-house settlements in Can- ada — Money in labeled packages — Objec- tions to silver — Methods of settling balances without money — Advantages of the man- ager's check over settlements in cash. VII. — ClEaring-House Exchanges 47 Location of clearing houses — Arrangement of furniture — Hour of making exchanges — Clearing matter — Character of indorse- ments — Messengers and settling clerks — Conducting the exchanges — Determining balances — Two clearings a day. VIII. — Clearing Country Checks 58 The growing use of checks — The difficulty of country checks — Remedies proposed — State and National clearing houses — The Kansas City, Mo., plan — The Atlanta, Ga., plan. IX. — Typical Journey of a Country Check Remit- ted for a City Account 64 The small amount of work required of payer and payee — The large amount of work re- quired of the bank in which the check is deposited and its correspondent — What the receiving bank does — What its regular cor- respondent in the city nearest the country bank is required to do — What the country bank has to do — An illustrative example. X. — ClEaring-House Loan Certificates 75 What clearing-house loan certificates are — Origin — Interest rates — Uses — First issue in 1860 — The issues of 1861, 1863, and 1864 — Action of various clearing houses in 1873 — New Orleans in 1879 — New York in 1884 — Action of the New York, Boston, and Phil- adelphia clearing-house associations in 1890 — General resort to loan certificates in 1893 — Emergency circulation in the South, Boston, and Philadelphia in 1895 — New Orleans in i8q6 — Calculations of interest. IV Contents, Page. Chapter XL— Clearing-House Loan Certificates of the Panic of 1907 ^^7 Causes of panic— Action of the New York clearing house— Chicago clearing house- Boston clearing house — Philadelphia clear- ing house — Clearing-house checks issued at Canton, Ohio — At Cincinnati and Cleve- land—Certificates at Fargo, N. Dak., and Los Angeles— Plan of group 2, Ohio Bankers' Association — Total of certificates issued. XII.— Clearing-House Bank Examiners i37 - General remarks— Examiner appointed at Chicago in 1906 — Minneapolis and St. Paul— St. Louis— Los Angeles— Kansas City and St. Joseph— Philadelphia— Details of proposed group plan of the California Bank- ers' Association. XiiL The New York Clearing House 148 Origin and early history— Formal organization in 1853 — First location — New York clearing- house building company— Cedar street prop- erty — Constitutional provisions — Commit- tees — Statistics of membership— Clearing for nonmembers— Statements of condition- Capitalization of New York banks— Records of clearing house. XIV— D\iLY Routine of the New York Clearing House ^90 The clearing room— Clerks and messengers— The manager's part— How the exchanges are jnade— The cash balance paid in— The dis- bursements—Clearing-house gold deposi- tory — Restrictive indorsements — Pro rating of expenses— Record of fines— Table of annual clearings— Table of average daily XV.— The Clearing House Association of the Banks of Philadelphia 223 Early history— Runners' exchange— The morning exchange— Gold depository— Clear- ing-house due bills— Settlements without the use of money — Comparison of bank state- ments—Collateral security— Assessments of expenses— Admission of new members- Plan of administration— List of presidents- Failures and resulting litigation. National Monetary Commission Page. Chapter XVI. — The Boston Clearing House 240 Formation and early history — Period of the civil war— Settlement of balances — Borrow- ing and loaning balances — Clearing for out- side banks. XVII. — Foreign Department of the Boston Clearing House 259 Organization and history — Regulations — Two clearing hours — Blanks and forms — Fines — Bookkeeping. XVIII. — The Chicago Clearing House 276 Date and history of formation — Methods of exchange — Preliminary exchanges among members — Kinds of money employed in settling balances — Trading balances — Non member banks that clear — Statements of condition — Expenses and fines — Admissions and expulsions — Volume of clearings — Ad- ministration. XIX. — The St. LouiS Clearing House 298 Early history — Scope of membership — Plan of administration — Management of clearings — Records kept by the manager. VI Contents, ILLUSTRATIONS. Page. Form of receipt used by Buffalo clearing house given by creditor banks on receipt of balances 40 Form of receipt given by Buffalo clearing house to debtor banks on payment of balances 42 Facsimile of the check the journey of which is shown on the map on page 71 69 Map showing the check's itinerary 71 Facsimile of the back of the check, showing the numerous indorse- ments it bore on finally reaching the bank on which it was drawn 73 Form of clearing-house loan certificate used by New York clearing house in 1873; later issues differ from this only in the omission of the restrictive date 84 Form of clearing-house loan certificate used in Philadelphia 87 Form of clearing-house loan certificate used in Boston 97 Form of clearing-house loan certificate used in Baltimore 99 Form of clearing-house loan certificate used in New Orleans 102 Form of clearing-house loan certificate used in Cincinnati 104 Form of clearing-house loan certificate used in Detroit 106 Form of clearing-house loan certificate used in Atlanta, Ga 108 Form of clearing-house loan certificate used in Birmingham, Ala 1 1 1 Form of clearing-house check used in Chicago 120 Form of clearing-house check used at Canton 126 Form of clearing-house certificate used at Fargo, N. Dak 128 Form of check issued by Group 2, Ohio Bankers' Association 130 Resolution authorizing exchanges through a member bank 172 Application to clear for another bank 173 Consent to clear for another bank _- 174 Form of statement of weekly averages of nonmember banks 175 Form of statement of weekly averages for trust companies 176 Form of statement required by the New York Clearing House Association of Trust Companies 180 Form used at clearing house in tabulating national bank state- ments 181 Form used at clearing house in tabulating state bank statements — 182 Skeleton of weekly statement of the associated banks of the city of New York 183 National Monetary Commission Page. Form of statement required of associated banks 184 Form of summary of weekly statement of associated banks Face 184 Skeleton of weekly statement of nonmember banks Face 1 84 Facsimile of "small ticket" deposited by messenger with settling clerk 193 Form of "first" or credit ticket 194 Form of settling clerk's receipts 196 Form of settling clerk's statement 197 Form of "second" ticket 199 Clearing-house proof sheet 201 Form of settling clerk's report to his bank of daily balances 203 Manager' s receipt 205 Form of gold certificate (face) ' 206 Form of gold certificate (back) 207 Clearings for fifty-five years at New York 217 Balances paid in cash for fifty-five years at New York 221 Form of clearing-house due bill 226 Form of weekly statement required of Philadelphia banks 228 Form of daily statement employed by the banks of Philadelphia 230 Form of statement of the average condition of Philadelphia banks Face 230 Form of ticket used by Boston banks in connection with payment of debit balances 246 Form of manager's receipt for debit balances, Boston 248 Form in use in Boston for transfer of balances 250 Statement of weekly averages of the associated banks of Bos- ton Face 252 Form of average weekly return in use by the associated banks of Boston 253 Form of receipt for pro rata charge on account of uncollected checks, Boston 264 Foreign slip and check ticket, Boston clearing house 266 Form of receipt, foreign department, Boston clearing house 268 Exchange ticket, foreign department, Boston clearing house 270 Form of letter of transmission to correspondents, Boston 272 Form of settling sheet, foreign department, Boston clearing house — 275 Forms of reports used in trading balances, Chicago 283 Form of order used in transferring balances that have been loaned, Chicago ^ 287 Form of order on clearing-house manager for balance due Chicago. _ 293 Facsimile of debit list used in St. Louis clearing house 303 Form used for listing balances in St. Louis clearing house 305 Form of manager's report of clearings, balances, etc., St. Louis 307 VIII CLEARING HOUSES. Chapter I. CLASSES OF CLEARING HOUSES. A CI.EARING HOUSE DEFINED CLEARING HOUSES CLASSI- FIED WITH RESPECT TO FUNCTIONS — CLEARING HOUSES CLASSIFIED WITH RESPECT TO THE FUNDS USED IN SET- TLEMENTS. What is a clearing house? The supreme court of the State of Pennsylvania has defined it thus : It is an ingenious device to simplify and facilitate the work of the banks in reaching an adjustment and payment of the daily balances due to and from each other at one time and in one place on each day. In practical operation it is a place where all the representatives of the banks in a given city meet, and, under the supervision of a competent committee or officer selected by the associated banks, settle their accounts with each other and make or receive payment of balances and so "clear" the transactions of the day for which the settlement is made. But we must go farther than this, for though originally designed as a labor-saving device, the clearing house has expanded far beyond those limits, until it has become a medium for united action among the banks in ways that did not exist even in the imagination of those who were instrumental in its inception. A clearing house, therefore, may be defined as a device to simplify and facilitate the daily exchanges of items and settlements of balances among the banks and a medium for united action upon all questions affecting their mutual welfare. N at i 71 a I Monetary Com m i s s i o n The clearing houses in the United States may be di- vided into two classes, the sole function of the first of which consists in clearing notes, drafts, checks, bills of exchange, and whatever else may be agreed upon, and the second of which, in addition to exercising the functions of the class just mentioned, prescribes rules and regulations for the control of its members in various matters, such as the fixing of uniform rates of exchange, interest charges, col- lections, etc. Clearing houses may also be divided into two classes with reference to the funds used in the settlement of balances: First, those clearing houses which make their settlements entirely on a cash basis, or, as stated in the decision of the supreme court above referred to, "by such form of acknowledgment or certificate as the associ- ated banks may agree to use in their dealings with each other as the equivalent or representative of cash;" and second, those clearing houses which make their settle- ments by checks or drafts on large financial centers. Chapter II. CLEARING-HOUSE TERMS. HOW USAGES DIFFER — THE MEANING OF "TO CLEAR " — CIvEARINGS EXCHANGE AND EXCHANGES BII^IvS AND BIIvIvS OF EXCHANGE — DRAFT AND CHECK — ACCOUNTS BALANCED AND BALANCES IN ACCOUNTS — COLLECTIONS — ITEMS — CLEARING MATTER — SETTLEMENTS — OUT-OF- TOWN CHECKS AND COUNTRY CHECKS. Every profession and every line of business, as well as every trade, develops its own peculiar terms and phrases. Those who become familiar with the routine of the business or the profession use these terms among themselves with a degree of precision and certainty of meaning which sometimes is difficult for one outside of the group to comprehend. The usage in this regard by banks and clearing houses is no exception to the general rule. Terms which are current in one part of the country or in one financial center do not always obtain in others, and to a certain extent different terms are sometimes employed in different parts of the country for indicating approximately the same things. For these reasons, and others which the reader will readily apprehend, a brief consideration of a few of the prominent terms employed in clearing-house affairs is appropriate by way of intro- duction to the more important chapters which follow. National Monetary Commission Nothing like a complete list is attempted, and instead of presenting the definitions in conventional dictionary- fashion, the meaning of certain terms and the special uses to which they are applied are laid before the reader in a far less formal manner. The term "clearing house" is defined at some length in another part of this volume, from the standpoints of use and function. The word is also used in the sense of location or place. ytA. clearing house may be described as an office, established by the banks of a city, where their representatives meet daily to exchange drafts and checks and adjust balances. The term "to clear" is popularly defined "to pass through the clearing house." Another definition is, "to settle accounts by exchange of bills and checks, as is done in the clearing house." To clear a check means to pass it from the bank that holds it as a deposit or for collection to the bank on which it is drawn, and to receive payment therefor; but, with the complexities of modern business, a single check is seldom cleared. Instead a multitude of checks and other items are included in each clearing. The term ' ' to clear ' ' therefore takes on a broader meaning, and the only adequate conception of it is afforded by a view of the actual operations of a clearing house, which are set forth in another part of this volume. The word "clearing" designates the settlement of balances between banks, arising from the interchange of checks, drafts, etc., carried on at the clearing house. The term "clearings" signifies the total of differences bal- Clearing-House, Methods anced at a clearing house. Occasionally the words "clearance" and "clearances," which, properly employed, designate space or distance, are used in the place of "clearing" and "clearings." Their employment in the place of the latter is not justified by general usage nor by the real meaning of these forms of the word. The term "exchange," so common in financial and business transactions, has various shades of meaning, ranging from a charge for the transfer of money from one point to another, to the place where business inter- ests of a special class are brought together and where contracts concerning them are made. The word liter- ally means the act of giving one thing as an equivalent for another, or for interchanging two equivalents. From this it comes that the word indicates that which is given or received by an arrangement for mutual interchange, and hence the term "exchanges," frequently employed by those who have transactions with the clearing house, to indicate the items that are to be exchanged, as, for example, in the phrase: "The amount of exchanges." . The term "bill" has several different meanings, rang- ing from a statement of an account, or of money due, to a bank note or government note. Occasionally, in loose usage, it means a promissory note. In Great Britain the term is frequently used to mean a bill of exchange. As used in connection with clearing-house affairs in this country, it usually designates bank notes or government notes. A "bill of exchange" is a written order or request from one person to another, for the payment of money National Monetary Commission to a third, the amount to be charged to the drawer of the bill. This term, therefore, while having a special meaning in some cases, often includes drafts which are drawn by merchants upon their customers in ordinary course and put through bank for collection. The term in this sense, however, is less commonly employed than "draft." A "draft" may be described as an order drawn by one party on another for the payment of money to a third. It is for the most part limited to an order payable at, or collectable through, a bank or other financial agency. A draft made payable at some time other than at sight, and which has been accepted by the party upon whom it is drawn, is known as an "acceptance," and is treated by banks and clearing houses the same as a note. A "check" is an order in writing upon a bank or banker for the payment of a designated amount of money to some designated person or order. Checks vary in form. Those which are current between banks and bankers — as, for example, the checks that would be used by a country bank in drawing against the balance lodged with its New York correspondent — frequently take the form that commonly obtains with drafts. Hence the term "bank draft" or "banker's draft," often employed by those who purchase New York or other exchange of their local banks to designate the character of their remittance. A "center" is described as, in the dictionaries, the place about which things cluster, or to which they con- verge. It is also described as the point of emanation Clearing-House Methods or radiation. With this definition before us, it is easy to perceive what is meant by a "money center" or a "financial center." The term "balance" has two distinct meanings, and the word is used among bankers and business men in a way to indicate two things entirely different from each other. In its simplest form a balance may be declared to be an equality between the credit and debit totals of an account. But it is also used to refer to the difference between such totals, or, in other words, the excess on one side or the other. Thus in the first sense we declare that an account is balanced when it has been closed by securing an equality of the two sides. In the second sense, when we speak of the balance in an account, we mean either the debit or credit amount, as the case may be, that is required to produce an equality of the two sides, or, in other words, to close the account. The balances in a clearing-house statement are the respective differences between the debit and credit sides of the several accounts included in the statement. A bank's balance in a clearing-house settlement would mean either the amotmt that it has to pay or the amount that it is to receive, according to the excess of debits or credits shown by the statement. The dictionaries define the verb "to collect" as follows: "To gather money from many people." A collection is defined as "that which has been gathered or taken up;" but among the banks and in clearing-house circles the term "collection" is somewhat expanded beyond these limitations, and is used for designating that which is to National Monetary Commission be collected. For example, the drafts or bills of exchange which a bank holds at a given date are frequently desig- nated as its "collections," particularly at the time that they are being arranged in proper order for transmission to its correspondents or for delivery to the clearing house. Sometimes the term employed in such cases is "collection items," which, of course, means the items for collection. An "item," as the term is generally understood, means a separate article or entry in an account or schedule, or a sum so entered. The term among banks and in clearing houses is used in the latter sense almost literally. An item is that of which an entry has been made, whether it is a draft, bill of exchange, check, or note. The word is frequently employed in combination with a qualifying term, as, for example, "collection items," "out-of-town items," "city items," etc. A term which is as nearly original with and peculiar to clearing houses as any that might be cited is "clearing matter." "Matter," in this phrase, is a collective term, and designates any and all of the items that go into a clearing house. Clearing matter then means that col- lection of items, however assorted, which may be cleared. "Acceptable clearing matter" would designate that which is acceptable, according to the rules of the clearing house. There would, of course, be the opposite or negative term; for example, "unacceptable matter," meaning that which, while having somewhat of the character of clearing matter, is not of a kind that is handled by the clearing house in question, under the rules governing its operation. Clearing-House Methods A settlement, in ordinary commercial affairs, is an adjustment of accounts. "To settle" means to liquidate, or to pay, or to adjust differences. A "settlement" may mean either the act of settling or that which is accomplished by settling. A bank's clearing-house settle- ment therefore means an adjustment or payment of the difference between the debit and credit side of the account and further designates either a receipt or a disbursement, as the case may be. Each member bank has a settlement with its clearing house daily. In the designation of checks, with respect to the location of the banks upon which they are drawn, considerable confusion exists at times in the term employed for the purpose. "Personal check" and "local check" are terms occasionally used to indicate out-of-town checks or checks on country banks. An out-of-town check is one drawn upon any bank outside of the city in which a given clearing house is located, or outside of the city in which member banks of the given clearing house are situated. In other words, it is one that must be sent away for collection. The term "country check" has the same general meaning, but is applied more particularly to checks drawn upon banks located at a considerable distance from a given clearing-house center. Referring again to the terms "personal check" and "local check," above referred to, it must be evident to everyone who gives the matter the least thought that a check drawn by a depositor on a bank in New York would be a local check, and that it also would be a personal check, and yet such a check, issued in the regular course of business, is not objection- 20040 — 10 2 9 National Monetary C o m m i s s i o 7t able from any point of view. On the other hand, a check drawn by a merchant in an interior town upon a bank in that town, irrespective of the responsibihty of the drawer or the standing of the bank upon which it is drawn, w^ould also be a personal check; but the latter would not rep- resent par funds in New York. Out-of-town checks and country checks, accordingly, are subject to special regu- lations with respect to costs of collection. Chapter III. SPECIAL FUNCTIONS OF A CLEARING HOUSE. PRIMARY OBJECT — EXTENSION OF FIELD — UST OF SPECIAL FUNCTIONS — ACTION OF CLEARING-HOUSE BANKS AT OUTBREAK OF CIVIL WAR MUTUAL ASSISTANCE OF MEM- BERS — FIXING RATES OF INTEREST ON DEPOSITS — THE PRACTICE IN SIOUX CITY — ESTABLISHING RATES OF EXCHANGE SOME BUFFALO HISTORY ROCHESTER — BALTIMORE — HOUSTON — TOLEDO — TOPEKA — ST. LOUIS — WEST SUPERIOR — ST. JOSEPH — CLEARING-HOUSE LOAN CERTIFICATES. The primary object of a clearing house is the exchange of checks and drafts between the banks associated to- gether for that purpose, and the settlement of balances resulting from such exchanges; but this is not the only- function exercised. As already shown, this single func- tion constitutes a clearing house of the first class, while the addition of other functions puts the organization into another class. The tendency has been marked, especially in recent years, to include within the legitimate field of clearing houses all questions affecting the mutual welfare of the banks and the community as a whole. The bankers west of the Mississippi River have given to the country the most striking examples of the possibilities of clearing houses exercising various special functions, while the great associations of the East, and especially that of New York, have exemplified the utility and value of clearing- house loan certificates. National M o n e t ar y C o mm i s s i o n The most important of the special functions of a clear- ing house are (a) the extending of loans to the Govern- ment, (6) mutual assistance of members, (c) fixing uni- form rates of interest on deposits, {d) fixing uniform rates of exchange and of charges on collections, and {e) the issue of clearing-house loan certificates. Less than a decade after the inauguration of the clear- ing-house system in America the civil war broke out and threw the Government into a condition of acute finan- cial embarrassment. The ordinary sources of income were insufficient to meet the demands of the approaching crisis. Thereupon the banks, members of the clearing houses in New York and Boston, responded with practical unanimity to the call of the Government for loans, by which the latter was enabled to put armies in the field and maintain the struggle for national unity. In times of panic it is not infrequently the case that a bank in good standing becomes temporarily embarrassed. Unfortunate report may cause a run upon it, and, being, unable to call in a sufficient amount of its outstanding loans to meet the demands of its frightened depositors, it must either secure a loan or fail. In such an emergency the other members of the clearing house are usually willing to render assistance until the strain is relaxed. To secure such aid, however, a bank must be sound in its management and of good repute in every respect. Other- wise the members of the clearing house are likely to de- cline assistance, being quite wilHng to get rid of a weak and ill-manacred member. C I e a r i 11 ^ - H u s e Methods Another of the special functions of a clearing house is the fixing of uniform rates of interest on deposits, and in a few instances on loans. In some associations the legality of such action is still regarded as a moot question, and hence they are reluctant to enforce such a rule. Other associations, however, have not hesitated, to regulate the members on these points. As early as 1881 rates of in- terest were agreed upon in Buffalo, and were observed practically without fraction or violation for some nine years thereafter. They were broken at last only because of their nonobservance by new banks, which at the outset refused to become members of the clearing-house organi- zation. The Sioux City Clearing House Association has fixed a maximum rate of interest of 2 per cent per annum, to be paid b}^ the 'members upon bank accounts or balances, and on time certificates of deposit 3 per cent. Without any special clearing-house regulation on the subject, it is generally understood by the banks that 6 per cent is the minimum rate that shall be charged on first-class loans, and that the rate shall range from that to 8 per cent, ac- cording to the character of the risk. At St. Joseph, Mo., the clearing-house rules provide that interest (not naming the rate) may be paid on bal- ances to banks, bankers, trust companies, the St. Joseph Cattle Loan Company, deposits of the Government, State, county, city, etc., or to individuals, firms, corporations, not located or doing business in St. Joseph or Buchanan County, but that no interest may be paid to individuals, firms, or corporations located or doing business in St. 13 National Monetary Commission Joseph or Buchanan County, except by unanimous consent. Trust companies may pay interest on checking accounts at the rate of 2 per cent per annum, while savings banks, trust companies, and savings departments of commercial banks, on savings accounts, may pay interest at a rate not to exceed 3 per cent. Interest is not allowed on demand or time certificates for a less period than six months, and then at the rate of 3 per cent per annum. No interest is allowed for any fractional part of a six months' period. The banks of Savannah, Ga., under clearing-house regu- lation, may pay interest not to exceed 3 per cent on in- dividual accounts, and then only when the balances in such accounts exceed $25 ,000. On bank balances, without limitation as to amount, they may pay not to exceed 3 per cent. The question of clearing-house regulation of the rates to be charged on local loans has been considered by many associations in different parts of the country, but, gen- erally speaking, has not met with much favor. It is quite evident that on this one point the individual banks are jealous of their prerogative to loan their money at what- ever rate they choose. The nearest approach to clearing- house rate regulation of loans seems to be in the arrange- ment in vogue at Chattanooga, Tenn., by which the mini- mum rate to be charged by the banks in making their loans is determined from time to time by a committee appointed by the associate banks for that purpose. Still another of the special functions of a clearing house is the fixing of uniform rates of exchange, and of charges 14 Clearing-House Methods on the collection of items. In 1881, the year in which the clearing house in Buffalo was organized, a prominent banker in that city succeeded in uniting the banks on rates. The promoter of the enterprise, though well known for rate cutting, was a successful banker and had always been able to meet competition successfully. Hence, when he proposed a uniform-rate system, the other banks were only too glad to consider his propositions. Meetings were accordingly held, schedules of charges were drawn up, and rules were formulated for the guidance of the banks. In a short time a schedule was adopted and put in suc- cessful operation. The rates were not high, but were ar- ranged so as to do justice, as far as possible, to the banks on the one hand and the depositors on the other, and so satisfactory was the new regime that it remained in har- monious operation for nearly nine years. It is said that the increase in profits or collections, to the 12 banks interested, over the former method of doing business free of charge, paid the dividends of all the banks each year, and whatever profit was made on loans and discounts was used to build up the surplus. But the formation of new banks finally played havoc with the uniform-rate system. While it lasted, it was made obligatory upon every bank, but in 1891 the newly organized banks began to cut on rates. The clearing-house members endeavored to induce the new banks to join the association, but did not at first succeed. It was regarded as unjust to the member banks to hold them to the existing agreement when their competitors were free, and accordingly, in 15 National M o jt e t ary Commission June, 1891, the schedule of rates was made no longer obligatory. In 1895 the Rochester (N. Y.) Clearing House Asso- ciation put in operation a schedule of collection charges, and the results have been most satisfactory. All of the banks were in favor of it, but there was at first some complaint on the part of customers. The rates for remit- tances of city items were fixed at a meeting of the asso- ciation early in the year 1895, as follows: Minimum charge, 10 cents; from $100 to $1,000, one-tenth of i per cent; from $1,000 to $2,000, $1; over $2,000, one- twentieth of I per cent; par remittances to be made weekly. Provision was made for a fine of $1,000 as a penalty for any member failing to observe the rates, $250 of which to be paid to the party giving the information. On the ist day of February, 1897, a rule went into force at Baltimore requiring the members to charge and collect, without rebate, from all individuals, firms, or corporations residing in the city, who might thereafter become new depositors or customers of the banks which are members of the association, such minimum rates of exchange on checks, drafts, notes, and acceptances, pay- able out of the city, as are named in schedules to be furnished from time to time by an exchange committee of the clearing house. The penalty for violation of this rule is expulsion from the association, provided a majority of the members vote in favor thereof. At a meeting of the Houston (Tex.) Clearing House Association March 9, 1897, the following resolutions were unanimously adopted: 16 Clearing-House Methods Owing to the fact that banks in certain cities of this State are uniformly charging the banks of Houston exchange on all collections not reading "with exchange," bearing indorsements of banks outside the State: There- fore be it Resolved by the Houston Clearing House Association, That all its members will hereafter, as a matter of self-protection, charge the current rate of exchange upon all collections received from banks located in any city where the foregoing rule is in effect, and which may bear the indorsement of any bank or banker outside of Texas, or originating outside of the State. Resolved, That this resolution take effect on and after April i, 1897. In the articles of association of the Toledo (Ohio) Clear- ing House it is provided as follows: It shall also be in the power of such committee (the committee of manage- ment) to fix rates of charges on items outside the city and charges for drafts or currency from time to time, if deemed advisable, and change, revise, or suspend the same as circumstances require. The constitution of the Topeka (Kans.) Clearing House Association touches on the subject of collection charges, as follows: Rates for collections, whether made or not: Collection payment in advance up to $50, 10 cents each item; $50 to $100, 15 cents each item; $100 and upward, 25 cents each item. Collections on agricultural imple- ments paper, 25 cents each item. All drafts drawn with bill of lading attached, whether cash items or not, 25 cents each item; and if cash is advanced on the same, not less than 10 cents per 100, or $1 per 1,000. Rates of exchange on drafts and collections drawn with exchange shall be made at not less than 15 cents up to $50, 25 cents up to $100, and 10 cents for each additional hundred. The above charges shall not apply to col- lections not drawn with exchange received from bank correspondents who do not charge collecting bank on like items. The clearing-house association at St. Louis has in force a most successful system of collection charges, which are obligatory upon all the banks members of the clearing-house association and upon all banks and trust companies making their clearings through members of the clearing house. 17 National Monetary Commission The original schedules were adopted in March, 1895, and served their purpose well for over twelve years. On the ist day of March, 1907, however, new schedules were adopted, a synopsis of which follows: It is obligatory upon every bank and trust company connected with the clearing house to charge for all items received from St. Louis city customers (including all banks and trust companies connected with the associa- tion) and passed direct to their credit or cashed for any resident of the city on points (except those designated as discretionary) in certain named States, generally in the East, not less than 75 cents per $1,000 on the amount of the item. If this per cent when calculated does not equal 10 cents, the charge can not be less than that sum, except on items of $10 or under, when the charge shall be 5 cents. Items received at one time for one customer, payable at the same collection point, may be treated as one item, and charge made accordingly. On certain other designated points, generally in the Middle States, the rate of collection is not less than $1 per $1,000, and on items drawn on certain States in the West and extreme South the rate per $1,000 for collection is not less than $2. Certain cities are designated whereon the minimum charge shall be 50 cents per $1,000. Among these are Buffalo, N. Y., Cleveland, Ohio, Indianapolis, Ind., and Pittsburg, Pa. Still other cities are specially named as points whereon the minimum charge shall be $1 per $1 ,000. These cities include Denver, Colo., Lincoln, Nebr., and Omaha, Nebr. 18 Clearing- House Methods The rules further name the following cities as points upon which it is discretionary with each bank or trust company as to whether or not it shall charge for collecting items drawn thereon: New York, Brooklyn, Jersey City, Boston, Philadelphia, Baltimore, Washington, D. C, Chicago, Cincinnati, Louisville, and New Orleans. Each bank and trust company member of or connected with the clearing house is required to collect the fore- going charges on all items not later than the third day of the calendar month next following the receipt or han- dling of the item, or issuance of the draft or check, and no such bank or trust company is permitted to allow, either directly or indirectly, any rebate or return of any such charges, or to make in any form, whether of favor or otherwise, any compensation therefor. The violation of any of the rules by any bank or trust company clearing through a member would deprive the same of its connection with the association and work the forfeiture of its rights and privileges in the clearing house. For a similar offense any member would be expelled on a three-fourths vote in favor thereof. Up to a comparatively short time ago no other asso- ciation in the country had approached that of St. Joseph in the detail with which it had worked out a system of regulations governing the conduct of its members in regard to making collections. In the past few years, however, considerable attention has been given to the subject by the several associations, with the result that between 50 and 60 per cent of all the clearing houses in the United States are now working under comprehensive 19 National Monetary Commission rules and regulations covering the collection of items which come under this head. The same is true, to a somewhat less extent, perhaps, with regard to the regulation of the premium on exchange, the cost of transfers by wire, and the limitations to the deposits of city customers, which further functions may well and profitably come within the scope of each local association for regulation. In this connection each member of the St. Joseph Clearing House Association is allowed to submit a list of the wholesale jobbers and manufacturers and live-stock commission merchants to whom it may sell exchange at 50 cents per $1,000, and the list must be approved by the association. St. Louis makes a like charge to any party taking a draft drawn by any bank or trust company member of or connected with the clearing-house association on New York, Philadelphia, or Boston; and if the premium thus estimated on the amount of any draft or check does not equal 15 cents, then the charge on the item must be that sum. This rule, however, does not apply to the purchase and sale of exchange between members of the clearing house or institutions clearing through members. Upon all transfers by telegraph by members of the Wilmington (N. C.) Clearing House a charge of $1.50 per $1,000, plus the cost of the telegram, is made. Trans- fers by cable command the premium quoted in New York at the time, plus the cost of telegraphing. Transfers by telegraph for banks and city customers, exempt from paying exchange at not less than $1 per $1,000, and at a Cleari7tg-House Methods minimum of $2 per $1 ,000 to others; for counter exchange, 10 cents minimum and 5 cents for additional purchases at the same time. The position taken by the New York Clearing House Association in the matter of collecting out-of-town items should be referred to in this connection. It is discussed in another chapter, to which the reader is referred. The same remark applies to the foreign depart- ment of the Boston Clearing House, which is likewise presented in another chapter. One of the most important of the special functions of the clearing house, to which attention will be called, is the issue of clearing-house loan certificates in times of panic. By this means, in some cases, the specie reserves of the clearing-house members have been combined in a way to become a common fund, so that any bank that experienced an unusual demand for specie was supported by the combined reserves of all the banks. The bank thus assisted secures the other members against loss by depositing with a committee, appointed for the purpose of receiving them, its securities in the shape of stocks, bonds, and bills receivable. So important are the history, methods, and results of this remarkable device that special chapters are necessary for their exposition. Various clearing houses in different parts of the country have incorporated into their rules and regulations certain special features, some of which are worthy of mention. For instance, at Altoona, Pa., it is the duty of the asso- ciated members to report to the secretary of the associa- tion any flagrant violation of commercial or financial National Monetary Commission integrity on the part of anyone having business relations with them. Furthermore, the soHcitation of accounts of other members is prohibited, and any members having accounts of the same depositors shall have the right of ascertaining, each from the other, the extent and charac- ter of the loans made to such depositor. It is also provided that when a depositor of any member bank applies to another member for a loan, the member so applied to shall have the right to ascertain from the applicant's bank whether the loan had been previously offered there and, if refused, the reason for refusal. At Philadelphia, Pa., Chester, Pa., and Wilmington, Del., it is provided that the associated banks shall report at once to each other the names of individuals, firms, or corporations whose accounts have been closed on account of overdrawing, depositing worthless checks, or otherwise defrauding them. The associated banks of Minneapolis, by special agree- ment, but not by constitutional provision, have appointed an advertising committee, of which the manager of the clearing house is the chairman, to which is submitted all general schemes of advertising. The schemes are sub- mitted in writing to the committee by the solicitor and action taken thereon. Many of these propositions are re- jected, and what is known as clearing-house advertising appears only in the best mediums. The claim is made that this concerted action serves to secure much better rates and does not preclude any bank from placing ad- vertisements in any other direction it desires. Chatta- nooga, Tenn., and Fort Wayne, Ind., also have made pro- Clearing-House Methods vision regulating the placing of advertisements by their member banks. The regulations of the Portland (Me.) Association state that no member shall, by advertisement, circular letter, or publication, reflect unfavorably upon the responsibility of another member. The constitution of the Rochester Clearing House As- sociation provides that members are prohibited from offering a higher rate of interest to induce a customer to change his account from one bank to another or as an offset against collection charges. At Seattle, Wash., a uniform discount rate on Canadian currency has been agreed upon, as follows: For the first $ I GO, one-half of i percent; on any sum in excess of $ioo, one-eighth of i per cent. 23 / Chapter IV. POSSIBLE DEVELOPMENTS OF THE CLEARING-HOUSE SYSTEM. NEW FUNCTIONS TO BE EXERCISED — COUNTRY CHECKS — TRANvSFER OF CURRENCY FROM POINT TO POINT — POS- SIBLE USE OF GOLD CERTIFICATES — SPECIAL EXAM- INERS — SETTLEMENT OF BALANCES — ADVANTAGES OF THE CASH BASIS — CLEARING-HOUSE DEPOSITORIES — THE USE OF DEPOSITORY CERTIFICATES. The clearing-house system is becoming a definitely recognized power in the financial methods of the United States. It is as yet in its infancy, and the powers that the various clearing houses possess are capable of develop- ment and expansion to an indefinite degree. The clearing house, which was begun simply as a labor-saving device, has united the banking interests in various communities in closer bonds of sympathy and union and has developed into a marvelous instrumentality for the protection of the community from the evil effects of panics and of bad bank- ing. Clearing houses are gradually becoming a welding force that ultimately will bring to the banking business of this country the centralization which it so greatly needs. In the course of time rates for money in the United States will become more and more on a par with those prevailing in European money centers, and then the clearing houses Clearing-House Methods of the various financial centers of this country will be obliged to undertake functions which as yet they have only discussed. As money rates decrease losses from bad debts must be brought to a minimum, and the question of a central agency, which shall disseminate information regarding paper outstanding among the banks, must and will re- ceive the attention it deserves. As before stated, the payment of uniform rates of inter- est on bank deposits has already been taken up by many of the associations in this country, with the result that fair and equitable rates have been agreed upon to be paid for balances. The time is near at hand when all the banks that are members of clearing houses will be obliged to sink their differences and by agreement regulate, monthly or quarterly, the rate of interest to be paid, the rate to be subject to change according to the varying conditions of the money market. More careful supervision over the establishment of new institutions will be necessary, and the regulations regard- ing nonmembers clearing through members will also re- ceive closer attention. The question of collecting country checks is now being regulated in many clearing houses — a matter which is specially treated in one of the chapters of this book — and the tirne is not far distant when this subject will receive the consideration from all the clearing houses to which it is entitled. The question of shipping currency by express from one clearing house to another will, in time, be effectively 20040 — 10 3 25 National Monetary Commission dealt with. By the cooperation of the various associa- tions it is conceivable that the scope of usefulness of the gold certificates issued by the various assistant treasurers of the United States, payable to any member of a given clearing house in the city in which the subtreasury issuing the same is located, which is now confined to indorsement and use in the payment of clearing-house balances in the city of issue, could be enlarged so that the certificates could be used in the liquidation of clearing-house balances in any city in which there is a subtreasury, or be sent through the mails at small rates to the sending bank, thereby becoming a safe medium of exchange between large centers, minimizing loss and saving the transporta- tion of great sums of money. The Government might make a small charge for their redemption if it redeemed them in any city other than the one of issue. It is significant of the ever-widening scope of clearing- house supervision and usefulness that several associations have in the past few years, after giving careful considera- tion to the subject, appointed special bank examiners, assisted, where necessary, by trained experts under rigid regulation and ready to go to work at a moment's notice. This departure has been deemed of sufficient importance to warrant a complete explanation of the conditions under which these examiners operate, and a special chapter is, therefore, devoted to it. The settlement of balances is a matter which should be most carefully considered by the banking and business community, for the proper management of settlements will do a great deal toward enhancing the prosperity of 26 Clearing-House Methods the community. Bankers some time plead for a more elastic currency, but what is needed is more elasticity in the assets of the banks. What is wanted are assets that are readily converted into cash in times of panic, and which will pay depositors as well as permit new loans. In such times banks need expansion in the right direction, and not contraction. Cash settlements in all the clearing houses of the United States would be conducive to better banking, for, under this rule, the clearing-house banks would be obliged to keep themselves prepared at all times to meet large drafts upon them through the clear- ings. On the other hand, when clearings are settled by drafts upon financial centers, if the banks are not prepared for emergencies, they borrow from the institutions in those centers, and sometimes thereby expand themselves beyond prudent limits. Bank officers often loan money to manufacturing cor- porations, which invest the same in plant, and are for this reason unable to meet their notes when due. Such loans become fixed assets of the bank, and are not avail- able in times of financial stringency. The banks thereby become, to a certain extent, stockholders in the corpora- tions. If the banks compel the payment of such loans in times of trouble, they thereby restrict the operations of the manufacturing concerns, throw men out of em- ployment, and thus disarrange the entire industrial sys- tem of the community. Banks are often led to invest their money in unavail- able assets, simply because they feel that they will not be called upon to pay out any large amount of cash, either 27 National Monetary Commission to their depositors direct, or through the clearing house. Consequently, the settlement of balances in anything but cash, or its equivalent, is liable at times to affect the whole economic condition of the community. If a care- ful study were to be made of the most prosperous of our interior cities it would be found that the banks in these cities settle their clearing-house balances on a cash basis. Cash settlements at the clearing houses of interior- cities would compel the banks to keep more money in their vaults. This would enable them more readily to' meet the requirements of their customers. The need of outside assistance would be in a measure removed, and thereby all the financial institutions of the country would be kept upon a more even basis. Some large clearing houses would find it advantageous to provide depositories in which currency of all denomi- nations could be deposited in vaults, and certificates issued therefor that could be used in the settlement of balances. Then, during the crop-moving periods and at other times when there is a demand for small bills, they could be supplied from the clearing-house vaults. By such an arrangement the banks would not be obliged, as has often been the case, to give up one form of money which they desire to keep for the sake of procuring another form, and therefore they would be able to work to a greater or lesser extent independently of the sub- treasuries. The New York and Boston clearing house associations have recently made provision for their members to deposit currency, as suggested above, taking clearing- 28 Clearing-House Methods house currency certificates therefor, which are hmited in their use to the payment of balances in the clearing house, the same as clearing-house certificates for gold, and the idea has worked out very successfully. In view of the success of the idea in these cities, it seems very probable that some of the other large clearing houses will take the matter under advisement. These and many other matters might be taken up by clearing houses and brought to the same degree of per- fection as the loan certificate, an instrumentality that has been of inestimable value to the business world. 29 Chapter V. THE ADMINISTRATION OF CLEARING HOUSES. I.IST OF OFFlCIAIvS — DUTIES OF OFFICERS — COMMITTEES — ANNUAL MEETINGS. The government of a clearing-house association in the United States is, theoretically, vested in a president, vice-president, secretary, treasurer, manager, and a clear- ing-house committee, sometimes termed "committee of management" or "executive committee." Not every association, however, is as completely officered as this; in fact, there are many associations that do not have the full list of officials named. A president, a manager, and an executive committee, however, are found in the organi- zation of nearly every clearing-house association, for these functionaries are practically indispensable. The other officials mentioned are lacking in various associa- tions, especially in those located in smaller cities, their duties being performed by some of the other officers. It is the duty of the president to preside at all the meetings of the association. As a rule, he has power to call special meetings whenever he may deem it advisable, and must do so upon the request of a specified number of the members. He exercises a general supervision over clearing-house affairs, and performs the duties usually devolving upon an executive officer. In many cases he is ex officio chairman of the clearing-house committee and of all standing committees. He is elected annually, with few exceptions, and serves without compensation. 30 Clearijig-House Methods The vice-president performs the duties of the president in the latter's absence. The duties of secretary and treasurer are frequently performed by the manager. The secretary keeps the record of the proceedings of the meet- ings of the association, and performs aU the duties usu- ally pertaining to that office. The treasurer must account for the funds intrusted to his keeping, and must pay out the same upon the written order of the president, countersigned by the manager, or if the latter be at the same time treasurer of the associa- tion, then upon the written order of the clearing-house committee, or upon any other authority that the associa- tion may designate. The manager is either elected by the association or appointed by the executive committee, to serve, as a rule, one year, although almost invariably he is reelected from year to year for an indefinite period. In some of the large cities a heavy bond, with sureties, is required of the manager, varying in amount from $10,000 to $20,000, and in one or two instances the requirement is as high as $50,000. In cities where no cash is used in the settlement of balances there is, of course, much less opportunity for fraud on the part of the manager, and hence in such cases, as a rule, no bond is demanded. In many of the smaller cities, where the manager's duties and responsibilities are light,' and where he is regularly employed in some other capacity, his services are not infrequently gra- tuitous. The manager has immediate charge of all business at the clearing house, subject to the control of the clearing- 31 National Monetary Commission house committee. The employees and the settHng clerks and messengers from the banks, while at the clearing house, are under his immediate direction. He imposes and collects fines for violations of the rules of the associa- tion, has supervision of all the records of clearances and settlements, and sees that the clearing house and the property connected therewith are kept in order. He makes such annual reports and performs such other duties as may be required of him. The clearing-house committee (also called the "committee of management" and "executive committee") is usually composed of from three to five members, chosen from the most capable and experienced bankers in the association. In one case which has come to notice the membership of this committee consists of but two members, while it some- times exceeds five, as at Philadelphia and Pittsburg, where there are six members besides the president, who is ex officio a member, and at St. Joseph, where each bank has a representative on the clearing-house committee, the number of bank members at the present writing being eight, thus making eight members of the committee. The clearing-house committee is elected annually, and is by far the most important of all the committees. In it is vested almost absolute power, the direction of practi- cally the whole machinery of the clearing house resting in its hands. It is empowered by the association to procure suitable rooms for the clearing house, to provide proper books, stationery, fuel, furniture, and whatever else may be necessary for the convenient transaction of business; to appoint a manager, except where this power is directly 32 Clearing-House Methods exercised by the association, and generally to supervise affairs. It draws on members for their share of the ex- penses, fixes the salaries of the clerks in the clearing house, and has the power to remove the same, and the manager as well, whenever it may deem such action to be for the best interest of the association. Not infrequently the clearing-house committee is authorized to examine a member, whenever it may seem necessary to it to do so, or whenever requested to do so by a specified number of other members, and, in case the member's condition justifies it, to demand sufficient securities for the protection of its balances resulting from the exchanges of the clearing house. It also has power, whenever it may seem necessary for the protection of the other banks, to suspend a member from the association until the latter takes action upon it. The clearing-house committee, in most cases, holds regu- lar meetings monthly, or oftener. Stated examinations of funds and securities are often required, as, for example, at San Francisco, where the committee must examine, at least quarterly, all securities and deposits of the associa- tion in its charge. In addition to the clearing-house committee, there is frequently a conference committee, a nominating com- mittee, an arbitration committee, a committee on admis- sions, an exchange committee, and, in special emergencies, a loan committee. No one association has all of these committees, but the New York Clearing House has all but the exchange committee. Most clearing houses are too small and their duties too simple to require so ex- 33 National Monetary Commission tensive a division of powers ; hence, as a rule, we find only- one or two committees at most, in addition to the clearing- house committee. The conference committee is elected annually to serve in special emergencies, and its duties consist in acting in conjunction with the clearing-house committee whenever the suspension of a member becomes a question of ex- pediency. There must be at least a majority of each committee present to suspend a member, and a unani- mous vote is necessary to carry. In case of a suspension the clearing-house committee must forthwith call a general meeting of the association to take the matter into con- sideration. The nominating committee is elected annually, and is charged with the duty of presenting to the association at each annual meeting the names of candidates for president and secretary and for membership upon the various committees. The arbitration committee is elected by ballot at each annual meeting. Its duty is to decide all disputes that may be submitted to it by both parties thereto, a member of the association being one of them. In associations where no arbitration committee exists its function is usually performed by the clearing-house committee. The committee on admissions is also elected by ballot annually, and the clearing-house committee refers to it for examination all applications for membership in the association. Where an association has an exchange committee, the committee is elected each year. It is authorized and 34 . Clearing-House Methods required from time to time to prepare schedules of "rates of exchange on out-of-town items, including among them those taken as cash received for collection, or held as security for loans, or that might be discounted subject to collection. The clearing-house association holds an annual meeting for the purpose of electing officers and committees and for the transaction of other business. The quorum is usually fixed at a majority of all the associated banks. In some instances, however, it is fixed at two-thirds, and in a few cases even as low as one-third, of all the members. Sometimes a specified number is designated as constituting a quorum. Each bank is expected to be represented at the annual meeting by one or more of the officers, but usually is allowed only one vote. An exception to this rule is the association at Worcester, Mass., where two votes are allowed. For failure to be represented a't an annual meeting a fine of from $2 to $10 is generally im- posed. It is the duty of the association to fix the salary of the manager, admit banks to membership, and, when occasion demands, to suspend or expel members. In some of the large cities the associations receive in special trust, and issue certificates for, such United States gold coin as any of the associated banks may deposit for safe keeping for clearing-house purposes. ?5 Chapter VI. THE SETTLEMENT OF CLEARING-HOUSE B.\LANCES. RESULTS ACCOMPLISHED BY SETTLEMENTS — RATIO OF BALANXES TO CLEARINGS — SETTLEMENTS WITH MONEY CLE-ARIXG-HOUSE SETTLEMENTS IN C.AN'ADA — MON'EY IN L-ABELED PACK,\GES — OBJECTIONS TO SIL\'ER — METHODS OF SETTLING BALANCES \^TTHOUT MON'EY ADVANTAGES OF THE MANAGER'S CHECK 0\^R SETTLEMENTS IN CASH. The exchange of items between the banks accom- plishes two results: First, it places at the proper banks for payment the items to be exchanged which the several banks hold; and, second, it determines the difference between the amoimt of the items held by each bank against all the others and the amomit held by all the other banks against each individual bank. The differ- ence constitutes the balance which is to be settled. A bank can not know whether its exchanges at the clearing house will bring it out a debtor or a creditor imtil the settling clerk returns from the clearing house. It is a ver\- rare occurrence for a complete offset to take place in anv bank's exchanges; that is, for the amounts sent to the clearing house to exactly equal the amounts received, in which case, of course, there would be no balance. Each bank expects a difference one way or the other, ranging from a few cents to a ven.* large amount. In a great city a bank may be a creditor one day to the extent of several hundreds of thousands of dollars and 36 Clearing-House Methods the next day a debtor to a similar amount. It is of the utmost importance, therefore, that each bank should be prepared to meet any balance which may appear against it at the clearing house. The ratio of balances to clearings depends partly upon the number of banks, but much more upon the amount and character of their business and upon their relations one to another. This is illustrated by figures which have just been collected, covering the transactions for the year 1908. At Pittsburg, with 20 members and 128 nonmembers clearing through members, the balances were 16.5 per cent of the clearings; at Buffalo, with 11 members and 7 nonmembers, 12 per cent; at Chicago, with 20 members and 40 nonmembers clearing through members, 7.5 per cent; at Philadelphia, with 31 members and I nonmember, 11.5 per cent; at St. Louis, with 17 members and 35 nonmembers, 9.3 per cent; while in New York, during the fifty-four years of its existence, the percentage of balances to clearings have been only 4.64 per cent, notwithstanding the operation of the United States assistant treasurer, who almost always has a hea\^ debit balance. The more nearly the banks stand on an equality with one another, the more nearly will their transactions approach a complete offset, which, of course, would leave no balance to settle. The methods of settlement of clearing-house balances may be divided in a general way into two classes: First, settlements with money; and, second, settlements with- out money. 37 National M on et ar y Commission A clearing house acts merely as the agent of the banks in the payment of the balances. It pays to the creditor banks the money it receives from the debtor banks. As soon as the result of the exchanges is known the debtor banks may begin the payment of their balances, all of which may be paid in before the expiration of a specified time, usually two or three hours after the exchanges have been completed. Failure on the part of any mem- ber to meet its requirements promptly would subject it to a fine. Any kind of United States money is acceptable in most of the small clearing houses; but in a majority of the large ones certain kinds of money are not acceptable. The following are illustrative examples: At Baltimore gold coin, greenbacks, and certificates, redeemable in coin, are used, and silver is accepted only for fractional parts of thousands; at Buffalo, United States treasury certificates. United States legal-tender notes, national- bank notes, gold and silver certificates, and gold coin are used; at Milwaukee, gold coin and currency; at St. Paul, all forms of currency except silver coins; and at San Francisco, Los Angeles, Cal., and Portland, Oreg., gold coin is used exclusively. About 40 per cent of the clearing houses of the United States settle their balances either in cash or by manager's check payable in cash. In Canada, however, all the clearing houses, except that at Hamilton, settle in gov- ernment legal- tender notes. Settlements in Hamilton are made by drafts upon the head offices or agents of the respective banks, on Montreal, in favor of the clearing 38 Clearing-House Methods bank, which gives its own drafts on Montreal to the banks in credit. Some clearing houses, especially the larger ones, require that money, when paid in by the banks, shall be assorted and put up in packages, each package to contain bills of a given kind and denomination, and when the balances are sufficient, to consist of specified amounts, usually $i,oqo, $5,000, and $10,000, respectively. For instance, at Mil- waukee, all currency paid to the clearing house, when the amounts are sufficient, must be put up in packages of $5,000 or $10,000 each. The inside parcels of the pack- ages must bear the number of the bank putting up the same, with the date thereon. Such packages must be securely bound with twine or tape, with a wide paper band around the center, fastened with wax, bearing the seal of the member putting them up, and the date of sealing. No notes of a less denomination than $5 (except to make change) or over $1,000 can be paid in. Likewise all gold coin must be put up in strong canvas bags, of $5,000 each, and such bags must have suitable labels bearing the name of the sealing member, amount of contents, and date of sealing. For all gold coin or currency paid in, in amounts less than $5,000, the value of the parcel or package must be guaranteed by the bank (whose number it bears) to the bank breaking the package for twenty-four hours after receiving it, but in no case can claims be made after a package has been paid to any party not a member of the association. Silver coin is not excluded from settlements in clearing houses in the United States because of any prejudice 39 National Monetary Commission • . ^ >. c w C3 c< GN CO TJ u - ■ D .^ < O In O m I u 6 U CO 2; K o < C I hJ o ^ u z o DC J < •i3 c o cS ::3 'CJ o ^ CL> J O < T3 > c3 u. C3 tJU D Oi O OQ c "■^•■•-•':^r: E ■^ --^ °"'--.. .E 40 Clearing-House Methods against it as money, but because, owing to the enormous amount of clearing-house transactions, its bulk would render it too cumbersome and inconvenient for handling. For the same reason it is not so desirable as other forms of money in large transactions of any kind. A receipt is given at the clearing house to each debtor bank as soon as its balance is paid. There is presented herewith a reproduction of the form used at Buffalo. This receipt is filled out by the clearing-house clerk showing the amount due from the debtor bank to the clearing house. Its authenticity is established by the signature of the manager at the top. This receipt is taken away by the debtor bank's messengc-, who later returns with the necessary funds. The manager then signs the receipt in the usual place, and in this condition it becomes a voucher to the debtor bank for the payment it has made. The clearing-house clerks of these banks have already carried back a receipt, of which a copy is given herewith, that is likewise " viseed " by the manager at the top. This receipt is then signed by the cashier of the creditor bank and sent at the hands of two trusted messengers, who re- ceive the funds from the clearing-house manager. This receipt in turn is kept by the clearing house as its voucher for the payment made. A receipt is sometimes written by the clerk receiving the balance in a book kept by the manager for that purpose, but a more common method is one similar to that described as given by the bank. There are no less than five different methods of settling balances, in whole or in part, without the use of money 20040 — 10 4 41 n Clea7^ing-House Methods at the clearing house. They are (i) by manager's check on debtor banks given to creditor banks; (2) by borrowing and loaning balances without interest; (3) by borrowing and loaning balances with interest; (4) by the use of one or more of four forms of certificates, viz, gold and cur- rency depository certificates, United States assistant treasurer certificates, and clearing-house loan certificates; and (5) by draft on another city. When money is not used in the adjustment of balances at the clearing house, one of the most common methods of settlement is by manager's check on debtor banks in favor of creditor banks. In such cases the creditor banks send clerks to the clearing house to receive the manager's checks, which may be cashed by the debtor banks, ex- changed for cashier's checks or exchange on another city, or sent through the clearings on another day. Thus, at New Orleans, L-a., Jacksonville, Fla., Kansas City, Mo., and other points, manager's checks are used and are cashed on the afternoon of the same day they are issued, while at Cincinnati, Ohio, Fort Wayne, Ind., and Dayton, Ohio, banks exercise the option of collecting their checks the same day or of sending them through the exchanges on the day following. At Danville, 111., the balances are settled direct between creditor and debtor banks, and not through the clearing house, as is customary. The liability of the clearing house for manager's checks usually ceases at 3 o'clock on the day of issue, so that when they are carried over it is done at the risk of the holder. Where banks contribute to the expense of the clearing house in proportion to their average daily clear- 43 National Monetary Commission ings for a given time, they often prefer to collect on the day of issue rather than increase their exchanges, and thus their expenses, by having the manager's check cleared. With all its various disadvantages there is one important advantage of the manager's check over settlements in cash at the clearing house: By its use only one transfer of cash is necessary in making settlements, and thus the risk is greatly diminished. The second mode of settlement, other than on a cash basis, is by borrowing and loaning balances without interest. At Chicago and Pittsburg this method is practiced as a matter of convenience to the several mem- bers. After the exchanges have been made and the balances determined, a certain length of time is devoted to this transfer. The third method is that of borrowing and loaning balances upon interest, as practiced at Boston. The fourth method is that of employing some form of certificate. Many of the large clearing houses provide for a depository to receive in special trust such United States gold coin as any of the banks belonging to the association may voluntarily deposit with it for safe- keeping, upon which certificates may be issued, to be used in the settlement of clearing-house balances. Such certificates are usually issued in denominations of $5,000 and $10,000, and are negotiable only among the asso- ciated banks. Many of the clearing houses impose a fine for their transfer to any other party than a member of the association. 44 Clearing-House Methods Coin certificates were devised by F. W. Edmunds, of New York, and came into use about 1857. The Bank of America first acted as a depository, but after the beginning of the greenback epoch the associated banks chose the United States subtreasury as such depository for both gold and currency. When the new clearing house in Cedar street was occupied, the gold deposits were trans- ferred to the magnificent vaults with which it is provided, and these at the present time hold a very heavy deposit of gold, as well as a very large amount of currency, against which has been issued clearing-house certificates as before mentioned. The associations in practically all of the large cities of the United States now use these gold de- pository certificates in the settlement of clearing-house balances. Clearing-house loan certificates are issued only in emergencies, as explained in the chapter devoted to that subject. The period during which balances are settled by such instruments lasts usually only three or four months, or until the financial disturbance which called them forth has subsided. The fifth method is by draft on some other city. In some places the option is given of settling in cash or by draft, as at Austin, Tex.; Charleston, S. C; Frederick, Md. ; Jacksonville, Fla. ; Kansas City, Mo.; New Orleans, La. ; Rochester, N. Y. ; and Saginaw, Mich. In others set- tlements are made exclusively by drafts on another city. Among these are Syracuse, N. Y. ; Worcester, Mass.; Fall River, Mass.; Fremont, Ohio; Hartford, Conn.; Holyoke and Lowell, Mass.; and Binghamton, N. Y. Sometimes 45 National Monetary C omm is s io n foreign drafts are used in payments of equal thousands only, as at Wilmington, Del., and Chester, Pa. Generally speaking, about 40 per cent of the clearing houses of the United States use drafts on other cities in paying their balances. About 30 per cent settle by manager's check, and about 25 per cent settle by. cash alone, the remaining 5 per cent settling by a combination of two or more of the foregoing methods. Clearing houses located in New England settle, as a rule, with drafts on Boston or New York, or both. Clear- ing houses in the vicinity of Philadelphia usually set- tle with drafts on that city or on New York, and those located in that part of the country lying east of the Missis- sippi River settle more or less by draft on New York or Chicago. Settlement is also sometimes made by draft on some of the larger cities, such as Baltimore, Washing- ton, Savannah, Kansas City, Detroit, Omaha, and San Francisco. 46 Chapter VII. CLEARING-HOUSE EXCHANGES. IvOCATlON OF CLEARING HOUSES — ARRANGEMENT OF FUR- NITURE — HOUR OF MAKING EXCHANGES — CLEARING MAT- TER CHARACTER OF INDORSEMENTS MESSENGERS AND SETTLING CLERKS — CONDUCTING THE EXCHANGES — DE- TERMINING BALANCES — TWO CLEARINGS A DAY. No city has more than one bank clearing house. The location of the clearing house is always as near the center of the banking district as possible. It is especially impor- tant that this should be so in a large city, where the banks are numerous and often scattered over a considerable area. None of the associations, except the one at New York, owns its clearing-house property. Instead, the various organizations occupy rented quarters, usually in one of the banks belonging to the association, and these they have equipped with the necessary furniture, stationery, and desks for the various members. The desks are sometimes arranged in straight rows, and sometimes in elliptical curves, and in a few cases they are placed like the desks in a schoolroom. It is not uncommon in small places for the clerks to meet and make their exchanges around a table, and occasionally the same rule prevails in large centers. Many ingenious contrivances are wrought out in some of the exchange rooms, as well, also, as unique features of decoration. For example, on the walls of the room 47 National Monetary Commission at Buffalo is an ideal conception of the leading clearing houses of the country, with New York in the center and the large cities grouped around it. At Pittsburg the arrangement of the desks, lights, and manager's quarters jS unexcelled for beauty and artistic taste, except it be at New York. The manager's desk is connected by a pneumatic tube with the bank below, through which small sums of money are blown when needed to make change in the settlement of balances. At Providence there are two rows of desks, with that of the manager at the end. Each bank is represented by a single clerk. Immediately upon his arrival at the clearing house he deposits with the manager's assistant a credit ticket, and then proceeds to deposit his items in stationary boxes, located on the desks of the members. Each clerk has a key to his own box, and after distributing his checks, he takes his place on the inside of the row of desks and there performs the duties of a settling clerk. Many of the smaller clearing houses do not rent perma- nent quarters, but instead the banks belonging to the association act as clearing agents in rotation, the cashier, or some other official of the bank where the clearings for the time being are made, acting as manager. At Hastings, Nebr., for instance, the banks alternate weekly; at Jacksonville, 111., monthly; and at Bay City, Mich., once in two months. At Eowell, Mass., a clearing bank is chosen at each annual meeting of the association. Each clearing house determines for itself the time when its daily exchanges shall be made, and as prac- tically the only criterion in selecting an hour is the con- 48 Clearing-House Methods venience of the several members, it is not surprising that there is a wide diversity among associations in this regard. From 8.30 o'clock in the morning, when the exchanges are made at New Orleans, La., the time varies to 3.15 o'clock in the afternoon, when the exchanges are made at Chattanooga, Tenn. All hours between these are occupied, most of the associations, however, clearing before 12 o'clock. On Saturdays, in a majority of cases, clearings are made at an earlier hour than on other days in order to enable the banks to close their business and take advantage of the short day. When the exchanges take place at 10 o'clock, or earlier, it is customary for the members to clear the items received in the morning mails, or, in some cases, to include only the larger items so received, and to send those received in the afternoon and the smaller amounts, if any, left over from the morning through the exchanges on the following day. But when the exchanges take place as late as 3 o'clock, most of the items received are cleared the same day. The rules regulating the kinds of matter to be cleared are by no means uniform, A number of organizations specify in their articles of association what shall be con- sidered proper clearing matter. Of such rules, the follow- ing, from the by-laws of a prominent western clearing house, is one of the most common: Proper matter for clearing shall consist of checks, drafts, manager's certificates, certificates of deposit, demand or matured, and any other matter specially agreed upon, until notice is given to the contrary, and any bank clearing paper not proper shall be lined. 49 National Monetary Commission In addition to the regular checks, express money orders are cleared at Des Moines, Iowa, through a bank desig- nated by the express company as its depository. At Fargo, N. Dak., the unusual custom prevails of sometimes clearing, in addition to the checks on city banks, items for out-of-town correspondents. For in- stance. Bank A sends through the exchanges to the other members the items which it has received on their corre- spondents, and the other members in turn clear the items which they hold on A's correspondents. All checks, notes, acceptances, and other item.s received by any members at New Haven, Conn., against an asso- ciate member are proper matter for clearing. Any mem- ber at New Orleans, La., voluntarily accepting a cashier's check in settlement of a clearing-house balance is not allowed to pass the check through the clearings, but must collect it direct from the member who issued it. Notes and drafts are not sent through the exchanges at Rockford, 111., nor are notes and bills of exchange at St. Paul. As a rule, only regular checks are included in the exchanges at Savannah, Ga., and never drafts, notes, and bills of exchange. Usually notes, acceptances, and bills of exchange are certified at Scranton, Pa., on the morning of the day they are sent through the clearing house. At Waco, Tex., only checks and manager's cer- tificates, certified, used in settlement of balances at the clearing house, are passed through the exchanges. In the exchanges at Washington, D. C, all checks may be cleared and all sight drafts, certificates of deposit, matured acceptances payable at the bank, and any 50 Clearing-House Methods other matter certified or specially agreed upon, until notice is given to the contrary; but promissory notes can not pass through the exchanges unless certified or authorized by the member bank where the same are pay- able. The rule at Youngstown, Ohio, is that only items which on their face are unconditional demands upon a bank are payable through the clearing house. The question of restricted indorsements has been widely discussed in recent years, and as a measure of self- protection most of the large clearing houses have adopted resolutions declaring that items bearing restricted in- dorsements, such as "For collection," "For account of," "For credit of," and "For deposit," shall be considered as improper matter for clearing unless specially guaran- teed by the clearing bank. Items indorsed in blank, or " Pay to the order of ," or " Pay to or order," are not regarded as bearing restricted indorsements. Each bank, before sending its exchanges through the clearing house, is required to indorse them with its num- ber and the words " Received payment through the clearing house," or such other indorsement as the clearing- house committee or the association may determine upon. Evidently it would require a prodigious amount of labor to write the indorsements upon the items, and, indeed, it would be a physical impossibility in many of the banks of the large cities to do so. Hence an official stamp is used, and the same is usually accepted as a guaranty of all previous indorsements, whether written or stamped. It is not construed as supplying or guaranteeing to supply a missing indorsement. 51 National Monetary Commission The number of messengers required to transport the exchanges to and from the clearing house varies widely in different cities. When the business is light, as in some of the smaller cities, one person acts as both messenger and settling clerk, while in some of the larger cities the exchanges of some of the banks are so heavy that four or five messengers are necessary to transport them. Each bank, in addition, is represented by one settHng clerk; who, as a rule, is a young man, quick and accurate in arithmetical calculations. Checks are taken to the clearing house bound to- gether with rubber bands or inclosed in large envelopes, the items that go to each of the members being kept separate. If the bulk is not too great, they are often carried in the hand, but it is customary in the large cities to transport them in leather bags or cases. The usual rule is that immediately upon his arrival at the clearing house the settling clerk delivers to the manager, or the assistant manager, a ticket containing the amount of the items brought from his bank. An exception to this rule, in a large clearing house, is found at Baltimore, where the clerks, instead of delivering tickets, call off the amounts to the manager, while he enters them upon his proof sheet. An important exception is also found at Cincinnati, where no entries of any kind are made by the manager upon his settling sheet until the proof has been made. This done, the clerks report their credit and debit balances, and these alone are entered. 52 Clearing-House Methods Before the exchanges begin at West Superior, Wis., there is a roll call of clerks. The only advantage in this unusual procedure would be the detection of the absence of a member, and as this must necessarily appear before the exchanges are completed, it would seem to be an unnecessary expenditure of time. At South Bend, Ind., a half hour before clearing time, the manager telephones to each of the members, of which there are eight, and requests from them the total of their credits for the day and the amount which they hold on each of the other banks. The figures so secured are entered upon special sheets, and the debit and credit balances are computed. The debits are then arbitrarily distributed to credits, and the debtor banks are informed by telephone how much they must pay and to whom they must pay it. When, therefore, the messengers come to the clearing house, they have only to exchange their checks and pay envelopes and return. A fine is usually imposed upon a member for being late at the clearings, and if the representative fails to appear before a specified time, the member is excluded from the exchanges of the day, and must make its clear- ings at the counters of the other banks. The fines com- monly vary from $i to $5, but at Chicago, Milwaukee, and Minneapolis they are unusually high. For the first five minutes or part thereof, the fine in those cities is $3 ; for the second five minutes or part thereof, $10; and over ten minutes late, $25. Two methods of delivering items in the exchange room are in vogue. In the one case they are delivered 53 National Monetary Commission by all the clerks simultaneously; in the other by each clerk as soon as he arrives at the clearing room; but the exchanges must all be made before a specified time. When the clerks begin the exchanges at the same time they all start upon the signal from the manager, with their items on their arms or in bags or cases strapped over the back, and proceed in the same direction, passing along the desks until they have deposited all their paper.. In the large cities, where the clerks are numerous, order and method are necessary in delivery to prevent confusion and to save time. But in small cities, where the clerks usually deliver their items as soon as they arrive, more liberty is allowed in personal conduct; also by this method an opportunity is afforded to the less proficient clerks to arrive early and list their items as fast as they are delivered to them from the other banks. Where the exchanges are made around a table, without any network or division of any kind between the clerks, it sometimes happens that bundles of items, thrown carelessly on the table, are entered by the wrong clerk. To prevent errors of this character, at Cincinnati, four different colors are used for slips containing lists of items and attached to the exterior of the bundles, all the slips ' on the bundles going to a particular bank being the same color. Thus, clerks representing members Nos. i, 2, 3, and 4, sitting alongside of one another at the table, have different colored slips, and the same colors are used, correspondingly, by members Nos. 5, 6, 7, and 8, and so on around the table. Also the debit and credit slips brought by the settling clerks are of different colors. 54 Clearing-House Methods The speed with which the business of a clearing house is transacted seems ahnost incredible. The actual time required to make the exchanges varies from one and one- half minutes to ten minutes. When the exchanges are made simultaneously, the time varies, as a rule, in propor- tion to the number of members. In view of the shortness of time required to make its exchanges, the New York Clearing House affords, perhaps, the' best example in ex- istence of the success of modem business methods as com- pared with the old way of doing things. The clearances exceed on the average $300,000,000, and yet this enormous amount of paper is exchanged between the banks in ten minutes, and often in less time. When the clearings have been made, the next step is for each settling clerk to determine the amount of the balance of his own bank, which is found by taking the difference between the amount brought to the clearing house and the amount taken away. There is practically no exception to this rule. A certain amount of time is allowed for the proof, and for each error remaining undiscovered at the expiration of the allotted time a fine is usually imposed. At the end of a certain time thereafter it may be doubled, and still later it is often quadrupled. In some cases the settling clerks do not remain until the proof is made, but leave for their respective banks as soon as they make out their tickets for the amounts brought, amounts received, and balances. If the manager, or his assistant in charge of the proof sheet, finds, after he has made all the entries and additions, that his work does not prove, he first determines whether the error Avas made by 55 National Monetary Commission one of the settling clerks or by himself. If by one of the clerks, it is usually discovered in a short time at the bank, whereupon the latter reports the error to the manager at the clearing house either by messenger or by telephone. If the bank fails to report the error in due time, the man- ager takes the debit and credit slips and finds it. At Cincinnati no fine is imposed upon a clerk or his bank for an error in a slip if it is discovered and reported promptly to the manager. At Louisville, however, a fine of $i is im- posed, without regard to time limitations. All that has been said thus far applies to those clearing houses that clear only once a day. But there are in the United States several clearing houses that make practically two clearings a day, in which latter class are Fall River, Mass., Detroit, Mich., and Los Angeles, Cal. At Fall River, Mass., an amendment was made to the constitution May 27, 1895, as follows: The cashier of the clearing house shall be the manager of the clearing house, and the settling clerks shall be under his direction while at the clear- ing house. An exchange of checks and other items for clearing shall be made daily at 10.30 o'clock a. m. and the final clearing at 1.30 p. m. The debtor members shall pay to the manager of the clearing house the bal- ances against them by 2 o'clock p. m., and on or before 2.15 o'clock p. m. the creditor members shall receive the respective balances due them. The first clearing at Fall River is made at 10.30 o'clock in order that the bookkeepers at the banks may have most of the checks for entry as soon as possible. This is simply an exchange of checks, notes, and drafts payable at the bank, and they are thus placed at the bank where they are payable before noon. The footings of this clearing are carried on the various slips to the second clearing at 1.30 o'clock, when balances are settled. This has been the custom ever since the inauguration of the clearing house. 56 Clearing-House Methods At Detroit the preliminary clearing takes place at 10.30 o'clock a. m, (on Saturdays at 9.30 o'clock a. m.). At this clearing principally checks are exchanged. Later, at 2.30 o'clock in the afternoon, the final exchange takes place, which includes the exchangeable matter received up to that time. The Los Angeles clearing-house banks meet preliminarily at 9. 1 5 o'clock in the morning and make their final clearings at 11.30 o'clock. 20040— 10 5 57 Chapter VIII. CLEARING COUNTRY CHECKS. THE GROWING USE OF CHECKS — THE DIFFICULTY OF COUN- TRY CHECKS — REMEDIES PROPOSED STATE AND NA- TIONAL CLEARING HOUSES — THE KANSAS CITY, MO., PLAN — THE ATLANTA, GA., PLAN. The use of bank checks and drafts in business transac- tions in the United States is more extensive than in any other country, and the tendency to such use is constantly on the increase. So popular have checks and drafts become that the increase has more than kept pace with the increase in business, which means that the proportion of money in use to the volume of business transactions has been on the decline. The introduction of the clearing-house system has greatly facilitated the use of substitutes for money by furnishing a much safer, more convenient, and more expeditious method among banks than previously existed of exchanging items drawn on each other and settling the balances resulting from the same. With but two excep- tions, to be explained in another place, the exchanges passing through the clearing house are confined to items drawn upon members or upon nonmembers clearing through members. That is to say, checks and drafts received by a bank member of a clearing house in any 58 Clearing-House Methods city drawn upon another member of the same clearing house, from whatever source the checks may have been received, are Hquidated through the clearing house; but checks and drafts received by a member of a clearing house drawn upon some bank located at a distance, and not a member, nor clearing through a member, are re- garded as improper matter for clearing. Now it is evident that a bank receives from its customers in the daily course of business checks drawn on banks in distant towns and cities, but before a bank can realize any return from such checks it must collect them. That is, it must send them to the banks upon which they are drawn, or to some near-by bank, which will act as its agent, for payment. There could be no objection on the part of the banks to such business methods if the cus- tomers depositing such items did not expect credit therefor until they were collected and if they were willing to pay for the trouble and expense of collection. When A, who lives at a distance from a financial center, buys a bill of goods from B, living in the city, and sends a check drawn on his local bank for payment of the amount, he subjects some one to the expense of collecting the check, and, further, some one is out the use of the money until the collection has been made. B deposits the check in his bank in the city and expects immediate credit therefor, and the competition among the financial institutions in the larger cities is so keen that the bank does not stand upon its rights and insist that the check shall be held for collection and credited to B's account only when collected, but passes it to his credit at once, 59 National Monetary Commission through fear that he \\\\\ withdraw his account and de- posit with some other bank that will extend that accom- modation to him. This practice is quite general. During the past few years great strides have been made by the clearing houses throughout the country in the matter of establishing uniform rates for the collection of country checks, and at the present time there are few associations in the United States that have not some sort of a schedule for this purpose, however crude it may be. The question has been asked, "Why is it that bankers can not find a way out of this difficulty through a state or national clearing house? Since it is universally recog- nized that the clearing house has been a uniform success in all of the leading cities of the country, not only as a medium for the exchange of items, but also as a means of bringing about harmonious action among the banks on nearly all questions of mutual concern, why is not a national clearing house feasible?" In bankers' conventions and in current bank literature, particularly in the last decade, many remedies have been proposed for the difficulty that must be met. In States where the bank associations are divided upon the group plan many have favored a clearing house for the banks of each group. Others have preferred a clearing house for the banks of all the groups of the State. Some years ago it was proposed that a clearing house or collection agency should be established in New York City for all the banks east of Chicago. About the same time a scheme was set forth for the establishment of a clearing house at Chicago for all the country banks within 60 Clearing- House Methods a radius of 500 miles, and for all others that might desire to avail themselves of its facilities. But neither of these plans was carried into execution. However, several at- tempts have been put into practical operation to clear country collections, to two of which we shall give atten- tion in this chapter, viz, that in operation at Kansas City, Mo., for handling cash items drawn on banks in the States of Missouri, Kansas, and Oklahoma, and the plan which has only recently become operative at Atlanta, Ga., to collect country checks on the State of Georgia. The bankers of Kansas City, by cooperating through the medium of the clearing house, were enabled, some time since, to carry into execution a plan for clearing country collections in the States of Missouri, Kansas, and Oklahoma. This department (called the country col- lection department), as at present existing, is maintained by the Clearing House Association for the purpose of col- lecting such items payable outside of Kansas City as the clearing-house committee may deem it advisable to re- ceive for that purpose. The manager of the clearing house, from time to time, informs the members of the association of points upon which the department is pre- pared to collect, and also of the cost to the department for making such collections, and all the members of the association are required to collect through the country collection department all items upon which such members would incur an exchange cost of 10 cents per $100 or more, except items on points at which are located banks carrying deposit accounts with such members. 61 National Monetary Commission Upon receipt of items from any member, the manager of the department issues a due bill to such member, payable in accordance with the regulations of the Clear- ing House Association, from time to time, usually on the fourth day after issue. The expense of making these collections is met by each member paying the exact amount of exchange incurred in the handling of such items by the depart- ment for such member. Other expenses are apportioned among the members in ratio to the aggregate amount of items handled for the respective members by the depart- ment. Along these same lines, although differing materially in the method of handling, an arrangement has been recently consummated in Atlanta, contemplating the clearing of cash items drawn on banks in the State of Georgia, and so far as it has been tried out has been de- clared eminently satisfactory. The members of the clearing house handle this class of business the same as they do the city clearings, viz, a machine list of checks is retained by the banks and a proof list goes with the checks to the clearing house. Checks must be sent to the clearing house in the morning as early as possible, but in no case later than 10.30 o'clock, and the afternoon checks not later than one hour after closing time. The clearing house issues a receipt covering all items deposited for collection, which receipt is payable at a later date, the exact time of which is determined by the length of time it takes to collect the items. In order to 62 Clea7'ing-House Methods settle for these receipts, the " Foreign department of the clearing house" is a member of the clearing house, just as each of the banks are members, and the receipts held by the banks are listed against it on their due dates. The clearing house, in turn, lists to the different banks such items as it receives drawn on them, and prorates such other checks as it receives in payment of collections. In order to settle each day in full for all outstanding re- ceipts, the clearing house charges back to the banks their pro rata of the uncollected items. The receipt given therefor is payable the following day through the city clearing house, the same as other receipts for collections. Of course the associations in each of these instances have been obliged to increase their clerical force, but as this increased expense falls upon the individual members, and they, in turn, are thereby enabled to reduce their working staff of clerks, as well as effect what amounts to a considerable saving in the course of a year in stationery, postage, and the cost of collection, they can well afford to pay the increased assessment to the association. The plan which is in operation in Boston is a further instance, and will be found described in detail in another part of this volume. 63 Chapter IX. TYPICAL JOURNEY OF A COUNTRY CHECK REMITTED FOR A CITY ACCOUNT. THE SMAIvIy AMOUNT OF WORK REQUIRED OF PAYER AND PAYEE — THE LARGE AMOUNT OF WORK REQUIRED OF THE BANK IN WHICH THE CHECK IS DEPOSITED AND ITS CORRESPONDENT — WHAT THE RECEIVING BANK DOES — WHAT ITS REGULAR CORRESPONDENT IN THE CITY NEAR- EST THE COUNTRY BANK IS REQUIRED TO DO — WHAT THE COUNTRY BANK HAS TO DO — AN ILLUSTRATIVE EXAMPLE. By way of emphasizing the need of the reform that has taken place in the matter of collecting checks, a brief glance of the methods current in various directions, at the present time will be advantageous. A merchant in Mas- sillon, Ohio, buys a bill of goods in New York amounting to $250, and pays for the same with a check on his local bank. The New York jobber from whom the goods were bought makes the proper entries on his books for the check upon its receipt by him, and deposits the check with his (New York) bank. The receiving teller of the bank in which the check is deposited, after checking it off the deposit slip, enters it, by amount only, in his record of out-of-town checks. Another clerk enters the check on a sheet headed with the depositor's name, stating date of deposit, place of 64 Clearing-House Methods payment, and amount, for the purpose of making the proper charge thereon. The slip is sent to the jobber advising him of the charge. The charge itself is made through a book known as the " Debits of exchange," from which the bookkeeper posts the charge. A representative of the corresponding department of the bank receipts for the item on the receiving teller's record, after satisfying himself that the amount has been properly listed thereon. Another representative sorts the check with others on a sorting table, according to the place of payment, and then stamps the bank's indorsement on the back of the check. The check is then laid on the collection inclosure sheet for transmittal to a Cleveland bank, since all Massillon items are collected through that channel by this particular New York bank. The check is next listed by billing machine in duplicate on the remittance letter, which calls for the name of the drawer, place of payment, and amount, together with any instructions that are to accompany the item regarding the handling of the same. The duplicate of this letter, which, in addition to the information called for by the original, provides a column under which is entered the name of the customer for account of whom the check is received, is retained by the bank as its record of checks sent. After all these details have been completed, the name of the Cleveland bank is filled in on the indorsement stamp. A record is then made on the letter register, showing the name of the Cleveland bank, date when the collection letter is sent, and the total amount of the items contained 65 National Monetary Commission in the letter. This record is made in order that the work of the bank may be facilitated in keeping track of its remittances, so that should an acknowledgment of the same not be promptly received, a tracer may be sent out without delay to secure the desired information. Mani- festly, it is essential to the bank to know that all letters containing inclosures are promptly and properly acknowl- edged. An envelope is then addressed, the letter folded and inclosed, the envelope sealed and stamped, and finally examined to see that it is properly addressed, sealed, and stamped. The letter is then mailed at the New York post-office. The Cleveland bank, on receipt of this letter, enters in detail upon its books those items contained in it which are payable outside of Cleveland. It then writes a letter to its Massillon correspondent, inclosing the $250 check for collection, makes a record of the letter and inclosure, addresses an envelope, in which are placed the letter and inclosure, and seals, stamps, and mails the letter. The Cleveland bank next acknowledges the receipt of the item by drawing and remitting a check on its New York correspondent for the amount, less the usual charge for exchange. It writes a letter inclosing the check, takes a record of the same, addresses an envelope, puts in the inclosures, then seals, stamps, and mails the letter. The check thus received by the New York bank is checked off the remittance letter, is stamped with the paid stamp of the collecting bank, is listed upon a slip with the other items received by the bank the same day upon the other New York bank on which the check received bv it 66 Clearing-House Methods is drawn. The items thus made up are collected through the clearing house. The paying bank checks off the items paid through the clearing house from the slip on which they are listed, examines the check in question to see that it is properly drawn, dated, and signed, and that the signa- ture is genuine, charges the check to the Cleveland bank's account on its books, cancels it, enters it on a voucher list, and at the end of a given period returns the check with others to the Cleveland bank. The Cleveland bank, upon receiving its account current, voucher list, and canceled vouchers, immediately checks off the vouchers and verifies the statement of account. It then compares the checks with the stubs in the check book, and examines the checks themselves to ascertain if the indorsements are correct or if any alterations have been made thereon, and at last files the checks away for future reference, including the one that has been used in the particular case under consideration. The letter from the Cleveland bank to Massillon con- taining the item is mailed the same day that the check is received from New York. It is received in Massillon the day following. After carefully examining the check to see that it is properly drawn and dated and that the signature is genuine, the Massillon bank charges the check to its customer's account and then draws its check on Cleveland, less the usual charge for exchange in payment of the same. It next writes a letter, inclosing the check, takes a record of the same, addresses an envelope, puts in the inclosures, and then^ seals, stamps, and mails the letter. 67 National Monetary Commission The customer in due course has his account made up, checks off the canceled checks returned by the bank from the voucher hst, compares the checks with the stubs in his check book, examines the checks to ascertain if the indorsements are correct or if any aherations have been made, and finally files them away for future reference. The Cleveland bank, upon the receipt of the remittance from its Massillon correspondent, completes its records by filling in the date of the receipt of the remittance and the amount of exchange charged by the Massillon bank. The check thus received is listed by the Cleveland bank upon a slip containing all the items received by it the same day upon the other Cleveland bank on which the check is drawn. The items thus made up are then col- lected through the clearing house. The paying bank checks off the items paid through the clearing house from the slip on which they are listed, examines the check in question to see that it is properly drawn, dated, and signed, and that the signature is genuine, charges the check to the Massillon bank's account on its books, cancels the check, enters it on the voucher list, and at the end of a given period returns the check to its correspondent, the Massillon bank. The Massillon bank, upon receiving its account current, voucher list, and canceled checks from the Cleveland bank, immediately verifies the statement of account, compares the checks with the stubs in the check book, and examines the checks themselves to ascertain if the indorse- ments are correct or if any alterations have been made in them, and, finally, files the checks away for future reference. 68 Clearing-House Methods 69 National Monetary Commission In order to effect the collection of the aforementioned check, drawn on a country bank and remitted to New York in payment of an account, two checks had to be draAyn, four letters had to be written, 8 cents in post- age stamps were used, and seventy-five or more handlings of the check were involved by a score or so of clerks, in five different banks, located in three different cities. Lest the picture should seem to be overdrawn — for, in fact, that which has been presented is only an average case — the following account of the actual travels of a check, of much smaller size and drawn upon a bank much nearer New York than Massillon, is submitted. It is illus- trated by a reduced facsimile of the check itself and the indorsements that it received in transit. The check, which was for $43.56, was drawn by Wood- ward Brothers, of Sag Harbor, N. Y., and paid to Berry, Lohman & Rasch, of Hoboken, N. J., who deposited it in the Second National Bank of Hoboken. This bank sent it to Harvey Fisk & Sons, of New York, who, having no regular correspondent in the neighborhood of the bank on which it was drawn, sent it, along with other collec- tions, to their Boston correspondent, the Globe National Bank. The Globe National Bank of Boston, for reasons that are not apparent, sent it, presumably with other items, to its correspondent at Tonawanda, N. Y., viz, the First National Bank of that city. The Tonawanda bank, evidently realizing that the check had wandered far out of its course, and in an effort to get it nearer home, trans- mitted it to the National Exchange Bank of Albany, 70 Clearing-House Methods 71 National Monetary Commission which institution, pursuing the same commendable policy, remitted it to its correspondent at Port Jefferson. The First National Bank of Port Jefferson, which thus got possession of the check, again diverted its course by inclosing it to the Far Rockaway Bank. The Far Rock- away Bank sent it back to New York, to the Chase National Bank, and thus this much-traveled check made its second call in the metropolis. The Chase National Bank, it would appear, endeavored to correct the wanderer's course, and so dispatched it to Riverhead, to H. M. Reeve. Mr. Reeve, either because he really knew where to send it for collection, or because of a lucky hit, for- warded it to the Queens County Bank of Brooklyn, which finally sent it home to the Peconic Bank of Sag Harbor, on which it was drawn. The reason why banks forward checks in this apparently unreasonable way, often getting the items far out of their regular course, is easy to explain. It sometimes appears cheaper to the bank which has the check in hand to inclose it with other items to some regular correspondent, which, assumedly, is nearer the bank on which the check is drawn than to hunt up a special correspondent for it alone. Once started, the poor check gets pushed along from station to station, on its erratic course, until such time as, by accident or otherwise, it finds its final lodgment. The reader may estimate for himself the volume of correspondence which this one check caused, from the time it was drawn by Woodward Brothers until it was paid by the Peconic Bank, and the amount of postage 72 Clearing-House Methods or Port ""^'JllQ'i«\l a,, A^/Kf/- ^ 1:\\^4iw«.{':ouNT or HOrTcLf- t^?'«/?.e);c. BANKER Boston, or ordtr. »««y„?»« SONS rMftttOMAL 8A '^"^ Of wmt^. ^. HASfH. ^-.^ ^~.'^:^ PAY mTb^O®ER OF The 5^cond Hationdl BanK. OF HOBOKEM. PR^OR ENl>ORSEMENtS^C Uar];n^7^ED ' ray Any Natiorjal or State Bank. OR ORDER. GLOBE NAT L BA>JK. BOSTON .: A i II- Fac-simile of the Back of the CriECK, Showing the NuMERorg Indorsements it bore on Finally Reaching the Bank on which it WAS Drawn. 20040 — 10- 73 National Monetary Co m m is s i o n and cost of clerical work expended upon it. No better argument than the facts here presented is needed to sup- port the proposition of charging a reasonable sum for collecting out-of-town checks. No better illustration than this could be presented to the business man for demonstrating to him the weight of the burden he puts on the banking machinery of the community by remitting his check on a country bank, in payment of an account, instead of purchasing exchange. 74 Chapter X. CLEARING-HOUSE LOAN CERTIFICATES. WHAT CI.EARING-HOUSE LOAN CERTIFICATES ARE — ORIGIN — INTEREST RATES — USES — FIRST ISSUE IN 1860 — THE ISSUES OF 1 86 1, 1863, AND 1 864 — ACTION OF VARIOUS CI^EARING HOUSES IN 1 8 73 NEW ORLEANS IN 1 8 79 NEW YORK IN 1884 ACTION OF THE NEW YORK, BOSTON, AND PHILADELPHIA CLEARING-HOUSE ASSOCIATIONS IN 1890 GENERAL RESORT TO LOAN CERTIFICATES IN 1893 — EMERGENCY CIRCULATION IN THE SOUTH, BOS- TON, AND PHILADELPHIA IN 1 895 — NEW ORLEANS IN 1896 — CALCULATIONS OF INTEREST. Clearing-house certificates are of two kinds — those issued upon the deposit of gold coin (and in New York City and Boston on gold and silver certificates and legal tender notes) and those issued upon the deposit of col- lateral securities. The former are employed in ordinary times solely as a method of economizing time and labor and reducing risk in handling large sums of money. The latter are employed in times of financial disturbance or panic, and although both are intended for use solely in the settlement of balances at the clearing house, the circum- stances that call them forth, the results effected by their use, and the part they play in banking economy have little or nothing in common. The certificates issued upon the deposit of gold, etc., are termed "Clearing-house certifi- cates," and those issued upon the deposit of collateral 75 National Monetary Com m is s i o n security are very properly termed "Clearing-house loan certificates," with which latter only are we here concerned. Clearing-house loan certificates may be defined as temporary loans made by the banks associated together as a clearing-house association, to the members thereof, for the purpose of settling clearing-house balances. Such certificates are negotiable, as a rule, only among the mem- bers of the association, and are not in any sense to be regarded as currency. They are not even seen by the business community, and do not pass from bank to bank except in pavment of clearing-house balances. To obtain an intelligent understanding of the real char- acter and purpose of such certificates it will be well to treat somewhat of the circumstances under which they are issued. In the course of the present century the United States has undergone periodical derangements of business affairs, when confidence was displaced by mis- trust, when the payment of debts became difficult, when property values declined, and business houses failed; when industry and trade were paralyzed, and general stag- nation ensued in all lines of enterprise. In such times depositors in iDanks, stricken with fear and sometimes pressed by need, draw out their deposits, in many cases to such an extent as to render it difficult or even impossible for the banks to contract their loans sufficiently to meet the demands thus made upon them. Under our present currency system no adequate, method is provided for expanding the money volume as occasion demands, whereby the banks can continue their usual loans and discounts, and thus prevent a panic with all its evil con- 76 C I e a r i n g - H u s e Methods sequences. Hence it is left in a large measure to the financiers of each community to work out their own remedy, supplemented by such mutual assistance as a courteous regard for each other may dictate or as busi- ness relations may demand. Quick to see the defects in our currency system, and the desirability of in some way supplying it, the bankers of New York, nearly fifty years ago, devised the scheme of issuing clearing-house loan certificates as a method of relief from temporary stringencies. Subsequently, nearly all the clearing houses in the great centers adopted the same device, and by their heroic resort to the measure they have at different times relieved the business commu- nity of untold disaster, for which invaluable service they have justly received the grateful recognition of the entire country. The great value of clearing-house loan certificates lies in the fact that they take the place of money in settle- ments at the clearing house, and hence save the use of so much actual cash, leaving the amount to be used by the banks in making loans and discounts, and in meeting other obligations. The volume of currency, to all intents and purposes, is expanded by this means to the full amount of the certificates issued. The loan certificates are taken out by the clearing-house members through loan committees, specially appointed, and are used, as a rule, only in the payment of balances among the associated banks. Thus, when the stringency in the money market seems sufficient to demand it, the clearing-house association meets and appoints a commit- 77 National Monetary Commission tee called the "loan committee," consisting usually of five bank officers, to act in concurrence with the president of the clearing-house association, who serves ex officio as a member. It is the duty of such committee to meet each morning at the clearing house and examine the collateral offered as security by the banks and issue loan certifi- cates thereon, in such denominations and proportions to collaterals deposited as may be agreed upon. In the history of the past the denominations have varied from 25 cents to $100,000 in the different associations and in proportions varying from $50 to $100 of certificates to $100 of collateral deposited. These loan certificates bear interest at rates varying from 5 to 10 per cent per annum, payable by the banks to which they are issued to the banks receiving such certificates in settlement of daily balances. Hence the interest charged against certain banks must exactly equal and offset that credited to certain other banks. The aim is to fix the rates sufficiently high to insure the retirement of the cer- tificates as soon as the emergency which called them forth has passed by. As a rule they are retired by the banks, which take them out as soon as they have obtained suffi- cient cash to meet their daily obligations. Notice is given by the debtor banks to the committee, calling for such certificates as they wish to retire, and the committee gives notice to the banks holding the same, stating that the interest will cease after a specified date. In due course the holders send the certificates to the clearing house for redemption. Upon the retirement of the certificates the collateral deposited as security is surrendered by the com- 78 Clearing-House Methods mittee in the same proportion to certificates turned in as was required for deposit at the time of issue. It is by no means the general practice for all the mem- bers to take out loan certificates when issues are arranged by the association. Some banks are in such condition as to be able to weather the storm without them, while others are weak and in great need of relief. Some banks regard their use of clearing-house loan certificates as a reflection upon their standing, and hence refuse to apply for them unless driven to it by sheer necessity. Others regard it as in no way prejudicial to their interests, but rather as a patriotic movement in which all the banks should engage, both for the purpose of assisting their fellow-members and for the welfare of the community as a whole. The members of the New York Clearing House As- sociation especially have distinguished themselves in this regard. Up to 1907, when only about 60 per cent of the members found it necessary to take out certifi- cates, it has been the almost universal rule for all the members to take loan certificates whenever the occa- sion demanded such action on the part of any of the banks, and this, too, without regard to how strong they may have been or how easily they might have gotten on without using them. In one instance, when a member bank refused to share the burden of the associated banks, it was suspended from the privileges of the clearing house for more than three months. The total amount of its balances is not always paid in clearing-house loan certificates by a bank to which National Monetary Commission such certificates have been issued. Thus, for exam- ple, the debit balance of a given bank may be $500,000, which in ordinary times would be paid in money or gold certificates. In a time of panic a part of this sum — say, $300,000 — is paid in clearing-house loan certificates and the remaining $200,000 in currency. Another, with the same balance, might pay the whole in clearing-house cer- tificates, while still another would pay the full amount without the use of any certificates whatsoever. The first issue of clearing-house certificates occurred in i860. In the autumn of that year there was a rapid shrinkage in bank deposits and a corresponding contrac- tion in loans and discounts. The situation grew more and more serious as the end of the year approached. The presidential election was a disturbing factor of more than ordinary significance. Immediately succeeding the election of Abraham Lincoln to the Presidency the situa- tion began to assume a critical aspect. Distrust and un- certainty were universally felt. The banks hesitated to advance loans, and obtained from their customers as rapidly as possible the payment of obligations. Call loans commanded 7 per cent, and paper of some of the best houses went begging at 24 per cent. In this crisis a meeting of the New York Clearing House Association was called, and the following resolution was passed: In order to enable the banks of the city of New York to expand their loans and discounts, and also for the purpose of facilitating the settlement of the exchanges between the banks, it is proposed that any bank in the clearing-house association may, at its option, deposit with a committee of five persons — to be appointed for that purpose — an amount of its bills receivable, United States stocks, Treasury notes, or stocks of the State of New York, to be approved by said committee, who shall be authorized to issue thereon to said depositing bank certificates of deposit bearing interest 80 Clearing-House Methods at 7 per cent per annum in denominations of $5,000 and $10,000 each, as may be desired, to an amount equal to 75 per cent of such deposit. These certificates may be used in the settlement of balances at the clearing house for a period of thirty days from the date thereof, and they shall be received by creditor banks during that period, daily, in the same proportion as they bear to the aggregate amount of the debtor balances paid at the clearing house. The interest which may accrue on these certificates shall, at the expiration of thirty days, be apportioned among the banks which shall have held them during the time. The securities deposited with said committee, as above named, shall be held by them in trust as a special deposit, pledged for the redemption of the certificates issued thereupon. The committee shall be authorized to exchange any portion of said securi- ties for an equal amount of others to be approved by them at the request of the depositing bank, and shall have power to demand additional security, either by an exchange or an increased amount, at their discretion. The amount of certificates which this committee may issue, as above stated, shall not exceed $5,000,000.^^ This agreement shall be binding upon the clearing-house association when assented to by three-fourths of its members. Resolved, That in order to accomplish the purpose set forth in this agree- ment the specie belonging to the associated banks shall be considered and treated as a common fund for mutual aid and protection, and the com- mittee shall have the power to equalize the same by assessment or other- wise. For this purpose statements shall be made to the committee of the con- dition of each bank on the morning of every day before the commence- ment of business, which shall be sent with the exchanges to the manager of the clearing house, specifying the following items, viz: (i) Loans and discounts, (2) deposits, (3) loan certificates, (4) specie. In accordance with the authority thus given the first issue of certificates was made November 23, i860, and the beneficial effect was immediately felt. The banks rapidly extended their loans, deposits increased, and commercial paper, which formerly could not be sold for 20 per cent, was now freely marketed at 7 per cent and 8 per cent. On December 22 the issue had reached its maximum limit, viz, $6,860,000; the aggregate issue, $7,375,000. The last certificate was canceled March 9, a On December 3, i860, it was voted to increase this limit to $10,000,000. National Monetary Commission 1 86 1, and the total period, from the date of the first issue to the date of the last issue, was one hundred and six days. But the relief thus afforded was not destined to be permanent. The country was soon plunged into the throes of civil war, and, consequently, distrust and uncertainty as to the future prevailed universally. Busi- ness interests were suspended, trade was hampered, and industry was paralyzed. As a result of the pressure the association passed a resolution in the following September, authorizing another issue of loan certificates, and on September 19, 1861, the first issue was made. The maximum of $21,960,000 was reached on February 7, 1862, and, as will be perceived, was more than three times as much as the maximum amount outstanding at any one time in the preceding year. The total issue was $22,585,000, exceeding the previous total issue by more than $15,000,000. The rate of interest was 6 per cent as compared with 7 per cent in the former year, and the collateral used as security consisted of temporary receipts of the United States for the purchase of gov- ernment bonds, as compared with United States stock, Treasury notes, and stocks of the State of New York, employed for the same purpose in the preceding issue. The last certificates were called April 28, 1862, more than seven months from the date of their first issue. In 1863 the association issued certificates for the third time. The first bore the date of November 6, and the largest amount outstanding at any one time was $9,608,000, from November 27 to December i. The 82 Clearing-House Methods total issue was $11,471,000, being a little more than one- half of the issue of two years before. Interest was charged at 6 per cent, as in 1S61, and United States or New York State stocks, bonds, etc., or temporary receipts, as in 1861, were used as security. The last certificates were redeemed February i, 1864, four and one-half months from the date of the first issue. Owing to the prolongation of the war, with the con- sequent unrest in business circles, the issue of certifi- cates for the fourth time began March 7, 1864, and reached its maximum, $16,418,000, on April 20 of the same year, being an excess of nearly $7,000,000 over the maximum amount outstanding at any one time in the previous year. The aggregate issue was $17,728,000, being less than $1,000,000 in excess of the maximum amount outstanding at one time. The rate of interest was 6 per cent, as in 1861 and 1863, and the certificates were secured by the same kind of collateral as those in the former issue. The final redemption occurred June 13, 1864, three and one -half months after the first certificates were issued. No more loan certificates were issued until the year 1873, when, for the first time, the clearing-house asso- ciations of other cities, seeing their great practical utility, began to avail themselves of their use. In the year mentioned the association at New York followed the precedent established in i860, and the same course was taken by the clearing-house associations at Bos- ton, Philadelphia, Baltimore, Cincinnati, St. Louis, and New Orleans. The panic which called forth such 83 National Monetary C o m m is s io n O . V o = ^ ■tR .•«^ en -^ 1 ^ i^ 1 ^ ^ (fommitUr. 1 ^ ^ «^! -bx &^ •saTi^o.c[ ciiiTsaoa-jQ k^^ Jk o > SP5 O o so fc O W 5 -< o o as ^« O 84 Clearing-House Methods united action was one of unusual severity. It reached its climax in September, and so severe were its ravages that the New York Stock Exchange closed its doors on the 2oth of the same month, for an indefinite period, but reopened them ten days thereafter. The usual resolutions were passed by the clearing- house association, authorizing the issue of certificates, and on September 22 the first issue was made. The amount was fixed at the outset at $10,000,000, which, with the announcement that the Government would purchase the same amount of bonds, caused an imme- diate subsidence of the panic, and in less than three days its most acute stages were over. The last issue was made on Novemeber 20, a little less than two months from the date of the first issue, and the last certificates were redeemed January 14 of the following year, the period covered from the date of the first issue to the date of final cancellation having been less than four months. During the two months referred to certificates to the amount of $26,565,000 were issued. This was far in excess of any previous issue, the nearest approach to it having been in 1861, when, as shown before, more than $22,000,000 were taken out. The largest amount out- standing at any one time was $22,410,000, which occurred only eleven days from the date of issue of the first certificates. Interest was calculated at 7 per cent, as in i860, the rate during the intervening time having been 6 per cent. Bills receivable, stocks, bonds, and other securities were accepted by the conunittee as collaterals for the redemption of these certificates. 85 National Monetary Commission Attempts on the part of the business community were made in vain to discover what banks had taken out certificates, but such information was very wisely with- held. For more than two months, covering the worst period of the panic, no weekly statements of their con- dition were made to the clearing house by the banks, the object being to prevent a general knowledge of the weak condition of some of the members, which condi- tion, if disclosed, would invite runs upon them. On September 27, 1873, a meeting of the Boston association was called, and it was voted to suspend currency payments and appoint a loan committee, with power to issue loan certificates to the amount of $10,000,000, upon substantially the same basis as at New York. The issues were duly made, and on October 20 the amount outstanding reached its maximum of approximately $4,800,000. In like manner the Philadelphia association now, for the first time, entered upon the plan so success- fully followed in New York since i860, by appointing a loan committee, with authority to issue clearing-house loan certificates. Such certificates were authorized by resolution adopted September 24, 1873, and amended October 18, 1873, to read as follows: For the purpose of enabling the banks, members of the Philadelphia Clearing House Association, to afford proper assistance to the mercantile and manufacturing community, and also to facilitate the inter-bank settlements resulting from their daily exchanges, we, the undersigned, do bind ourselves by the following agreement on the part of our respec- tive banks, namely: First. That the clearing-house committee be, and that they are hereby, authorized to issue to any bank, member of the association, loan certificates bearing 6 per cent interest on the deposits of bills receivable and other 86 Clearing-House Methods o f=4 87 National Monetary Commission securities to such an amount and to such percentage thereof as may in their judgment be advisable. These certificates may be used in settle- ment of balances at the clearing house, and they shall be received by creditor banks in the same proportion as they bear to the aggregate amount of the debtor balances paid at the clearing house. The interest that may accrue upon these certificates shall be apportioned monthly among the banks which shall have held them during that time. Second. The securities deposited with the said committee shall be held by them in trust as a special deposit, pledged for the redemption of the certificates issued thereupon, the same being accepted by the com- mittee as collateral security, with the express condition that neither the clearing-house association, the clearing-house committee, nor any member thereof shall be responsible for any loss on said collaterals arising from failure to make demand and protest, or from any other neglect or omission other than the refu.sal to take some reasonable step which the said depositing bank may have previously required in writing. Third. On the surrender of such certificates, or any of them, by the depositing bank, the committee will indorse the amount as a payment on the obligation of said bank held by them, and will surrender a pro- portionate amount of securities, except in cases of default of the bank in any of its transactions through the clearing house, in which case the securities will be applied by the committee, first to the payment of out- standing certificates with interest; next to the liquidation of any in- debtedness of such bank to the other banks, members of the clearing- house association. Fourth. The committee shall be authorized to exchange any portion of said securities for others, to be approved by them, and shall have power to demand additional securities at their own discretion. Fifth. That the clearing-house committee be authorized to carry into full effect this agreement, with power to establish such rules and regu- lations for the practical working thereof as they may deem necessary; and any loss caused by the nonpayment of loan certificates shall be assessed by the committee upon all the banks in the ratio of capital. Sixth. The expenses incurred in carrying out this agreement shall be assessed upon the banks in equal proportion to their respective capitals. Seventh. That the clearing-house committee be and they are hereby authorized to terminate this agreement upon giving thirty days' notice thereof at any stated meeting of the clearing-house association. The issue of certificates made in conformity with the foregoing resolution reached the maximum amount out- standing at one time, namely, $6,285,000, on December I, 1873. 88 Clearing-House Methods At Baltimore, on September 24, the clearing-house association began the issue of certificates, which amounted in the aggregate to $1,326,000. The last of these was retired January 2, 1874, one hundred days after the date of the first issue. The first certificates at St. Louis were issued on Sep- tember 25, and the last of the certificates were canceled forty-six days thereafter, the aggregate amount having been $1,472,500. At New Orleans the maximum amount outstanding ($1,067,000) was attained October 10. On September 25 the following resolution was adopted by the association at Cincinnati: Resolved, That for the protection of our commercial interests and for the purpose of preventing a drain of currency from the banks and bankers of this city, the banks and bankers of Cincinnati do hereby agree to adopt substantially the plan adopted in New York City, namely, they will not pay out currency on checks, except for small sums, to be optional with the banks and bankers on whom they are drawn; but they will certify checks drawn on balances in their hands, payable through the clearing house only. When such checks are drawn in payment of notes or drafts, the bank hold- ing the same shall not be required to deliver said paper until after the check in payment has been paid to the clearing house. Resolved, That the above resolution be printed, and slips furnished each bank and banker. Resolved, That the clearing-house association will issue not to exceed $2,500,000 in loan certificates, to be used in settling balances between the members thereof, and that the same will be furnished to members in the proportion of securities put up by each as hereinafter provided. Said cer- tificates shall not be negotiable, and shall be used only for the purpose of settlement between the banks and bankers in the clearing house. Resolved, That members may deposit as a basis of credit in the associa- tion the following-described securities, namely, United States bonds, rail- road and other bonds, stocks and bills receivable. The United States bonds shall be received at their par or face value, and the other securities shall be valued by a committee of five, who shall be appointed for that pur- pose, and the same shall be received at 75 per cent of the value so fixed. Each member shall receive a receipt for the securities deposited. The said committee shall have charge of the securities of whatsoever kind deposited 20040 — 10 7 89 National M on et ar y Commission by tlie said banks and bankers, and shall place the same with the safe deposit company for safe-keeping, and the said committee shall sit daily at the clearing house at the hour for clearing and shall personally supervise the issue of the loan certificates in settlement of balances. The said certifi- cates shall bear interest at the rate of 8 per cent per annum, which interest shall be paid by the banks and bankers using the same and for the time so used. Resolved, That these proceedings take effect from and after 9 o'clock to-day, and are not to affect currency transactions or obligations between members prior to this day. In the period from September 25, when the issue of cer- tificates was authorized, to October 9, when a resolution was unanimously adopted in favor of discontinuing their issue, a period of only fourteen days, certificates to the amount of $515,400 were issued, the last of which were canceled just six weeks from the date of first issue. The next report of clearing-house loan certificates was in 1879, when the New Orleans association alone issued a small amount ($54,000) to satisfy conditions of a purely local character. In 1884 the New York association stood alone in the issue of loan certificates. The amount taken out at this time was large, and was begun early in the year to prevent a widespread and disastrous panic. The first were taken out May 15, and reached $21,881,000, their maximum amoimt outstanding, on May 24, only nine days from the date of first issue. The last certificates were issued June 6, and the last were retired September 23, more than four months from the date on which the issue was begun. The total amount was $24,915,000, being in excess of any previous issue except that of 1873. I'he rate of interest was fixed at 6 per cent, the same as in 1861, 1863, and 1864, and, as security for the redemption of such certificates, bills 90 Clearing-House Methods receivable, stocks, bonds, and other securities were em- ployed. For the next six years the country was free from any unusual financial disturbances, and hence no occasion arose for extraordinary measures. Finally, however, in 1890, came another period of pressure. Up to midsummer of that year the country had experienced unusual pros- perity, but to the observing eye it was apparent that deep- seated forces were at work w^hich would ultimately cause a widespread disturbance in business and financial circles, if not bring about a disastrous panic. This was evident from consideration of the unsatisfactory conditions pre- vailing in agriculture and from the unwholesome tendency to overtrading and expansion on every hand. The exten- sion of railroads had been prosecuted tliroughout the year with more than ordinary vigor, which required the exten- sion of large sums of money upon security. Early in the year the deposits in the banks of New York City began to fall off, and by May 17 the shrinkage had amounted to more than $44,831,000, of which over $13,500,000 con- sisted of balances drawn out by banks in the interior and in other reserve cities. Boston and Philadelphia were also subjected to heavy drains. After careful consideration, it was decided in each of these three cities to resort to the issue of clearing-house loan certificates, to be used in the settlement of clearing-house balances. New York was the first to take action, and on November 1 1 , at a meeting of the association, the following resolution was unani- mously adopted: Resolved, That a committee of five be appointed by the chair, of which the chairman shall be one, to receive from banks, members of the association, 91 w^uuuMwu wlf vM\«^ vj\»rtvtfv *vf > jH^r w»U t\xv <*\Try t\\htY xlrtv;* ?i\>oh o<>rii«\' vN\lt\* )iU«UJ vr^wVviiu \»\^v»Ul» rtUvl j^uv^l^ Uvuv vH^uU\v\vt jvv vvut wC the \uUvt^ v^f iho sts^\uUitv* \m UU\s vtsvh ;>hW s\^ kl«^- \\\ piusiuuuv of tho ;u»U\o\itv ihns \;n\nttsl. tho v\mu wwiUv vv( t\vc wUvS duly appv^movL aiul ihcy puK\\\U\l lo . issut^ to «)>plyhvg h\tvks Uvxu cvrtvtWales in fwu\ s\iKsti\iv- tittUv ttve S4\tu<' «s UuU onn>U\vi;Hl \\\ u^j^v-^l^^^wheiv \U\is tmtt^\u\l XovtMwhor \,\ iSvxv and tho isswo oc*\sovi IVwnubov ,*,\ 4U\unmti\v< i»» the {V^\i>;vx^^i\ic to 5\^v^4^'^AXX>; tho l«i^x\\mt out^stj^udii^ «t ««y one timo w^«}4 $\5viv>5Avx\ on Wwnvlver 13» and tt\o kst oor« titWattx^ wt^rt^ i>?ti»xM WUvmvry 7^ i$it \ss\h\ In onlor to pvxwivlo fvM t\\o tYtit^\nont of t\kso wrtitk^uos, in caw tho v\nUatoral stuMtKl tv (onnd insvvtVvoiont, tho t>o;u\ls of vhvxvtoi^^ of tho i^vti^l «sj^viato\i \>«nks jik^Ss^ovt tho following ix'^s^Mntion^ «kNA^\iU) «XV.t ?^«>\tx^^ s^tht t W.< ^VSV^v ,■, 5s\ 0><^ KvAWb \vf th<> »\v^ -. ^. - .v',n<\«^K^^^^Y v^( «*K^h VNv; . . . ^ . . - . . . ,,vV. v^\\ \vwx>n\l>or ^^x t\\^ ocial action was l>ogun by tho oloantxg-hoxiso assvxnatiwx of Non\ Vovkv tho olo^uitv< hv>wso ass^x^iativ^n at l\vtton ontorxxl \hxm\ a sinwlai cxMnso. l\Y \\Kssing tho tolKwvi\v< rw^^huion: UVsfwW^^ V\< iW >;vv,s ., , yxN,*.,.Ssv\ ., O) • •• i ; »••« • o CO •^ £ -^ aj £ i i ^ : o 0) 00 ! ! 1- s • jift CC S ii > o c See- rt cQ i i 1 : I : 1 1 1 1 S m o Z * ttj £ < .5 "^ ^ I ! ^ ?^ 2 o j I * bf •OQl?;'^ c S ^ "^ c i • i : 1 ; : lu : tu < CD <4- ^ ^ nl :o ii7 E ct x: b. c "i ^ Q) £ c t« £ 413 o 1 1 : b2 ir a T3 ^ O .- u ^ o : ^ • -J £ en 3 '" > ^ Q 00 c « S ffi a> "> ® S a as I « O • • ^ - S i.1 '■ o :i7 ty x: o t^ 3 O X : ^ c ^ < "C "i:: -►-' <^ ; erf ^ £ -O •- 2.£^ 2 ^O 'si o O £ •#• •• • •• • ••< M s 2 \ ^ £ i • 1" ••• CO I »•••• n O National Monetary Commission The clearing-house association at Chattanooga, Tenn., resorted to loan certificates in 1893 (the first time in the history of that organization that it had done so) . Besides the loan certificates issued in 1893, there was a considerable amount of emergency circulation taken out by the banks in the Southeast, under the title of "Clearing-house certificates," in cities where no clear- ing houses existed. In adopting the name of clearing- house certificates, it w^as not the purpose of the banks to practice deception on the people, but to indicate what was really true and what the term would seem to imply, namely, that such certificates were temporary loans made by the banks associated together, and that the banks were pledged for their redemption. The denominations in the cities referred to were: Albany, Ga., $10, $5, and $1; Chester, S. C, $10, $5, and $1; Columbia, S. C, $50, $20, $10, $5, $2, and $1; Danville, Va., $100, $50, $20, $10, $5, $2, and $1; Newman, Ga., $10, $5, and $1; and Rock Hill, S. C, $5, $2, and $1. There is no doubt that the relief afforded in this manner was of great public assistance in the several communities where it was given, effecting results similar to those accomplished by the actual clearing-house loan certificates in the great centers. In 1895 came another period of depression, especially in certain localities, but by no means so disastrous nor so permanent as the panic of 1893. Such was the pressure at Boston, however, that the clearing-house association authorized the issue of loan certificates, which were taken out to the extent of $235,000, the last of which were Cle a ring-House Methods retired March 12, 1896. In like manner, at Philadelphia an issue was made aggregating $8,220,000. In 1896 at New Orleans, alone, clearing-house loan certificates were issued, this having been the eleventh time that resort to such measures had been made since the history of clearing houses in this country began, less than a half century ago. The largest amount of certifi- cates outstanding at one time was $399,000, and was attained on September 4. The last of the certificates were retired and canceled November 17. The occasion for the issue at this time was, no doubt, the disturbance in business circles arising from the presidential contest, which, always a disturbing factor, w^as in this year unu- sually exciting. Thus the New Orleans Clearing House Association enjoys the unique distinction of having on two occasions — 1879 ^^^ 1896 — been the only association to issue loan certificates. The method of calculating interest on certificates has been in many associations a source of much difficulty. In some instances the clearing houses have taken no cog- nizance of the interest w^hatsoever, but left the members free to adjust it for themselves. It is clear that the interest, like the balances, must consist of credits and debits which exactly equal or offset each other. That is to say, the interest charged against certain members for the certificates taken out by them must exactly equal the interest paid to the members holding the certificates. It was not a difficult matter to keep a proper record of the interest to be charged against the members, for the clear- ing-house committee knew to whom and in what amounts 113 N at 10 n a I Monetary Com m i s s i o n they had issued certificates, and it was necessary only to calculate the interest at the stipulated rate on the full amount of the certificates issued to the several members for the time they were outstanding and to place the same to their debit; but to know what members held certificates issued to other banks and in what amounts after the settlement of balances therewith began was to many a source of confusion. The New York plan has been perhaps the most complete and satisfactory, and was followed by many of the associa- tions. Each member was required to send to the clearing house each morning a statement of the amount of certifi- cates on hand. In a book kept for the purpose these amounts were entered to the credit of the banks, each account being kept on a separate page. At the end of the month footings were made of the certificates held by each bank for that time, and the total divided by the number of days the certificates were outstanding. This gave the average amount of certificates on hand for the given time, and upon this amount interest was calculated at the rate agreed upon and placed to the credit of the bank. Drafts were then drawn upon the banks to whom certificates had been issued for the interest due by them. In turn checks were sent to the banks holding certificates for the interest due to them. The same plan was followed at Philadelphia, but at Boston each member calculated daily the interest due on the certificates held, and sent to the clearing house with the certificates to be used in settlement of balances a 114 Clearing-House Methods ticket containing a statement of the interest due for the time the certificates were held. At Buffalo the interest was calculated daily and settled weekly by draft of the manager on debtor banks in favor of creditor banks. At Louisville, Ky., the interest on the certificates taken out in 1891 was calculated by the bank> the clearing house taking no cognizance thereof whatso- ever. The rate was fixed at 9 per cent for two days — virtually 18 per cent — and was placed at such an exorbi- tant figure to prevent the banks which took advantage of such certificates from expanding their loans at a higher rate of interest than they were paying on their loan certificates. In all such cases the question might arise as to the disposition of the interest charged against members on certificates taken out but never used. It is only necessary to say in reply that it was the common practice to charge each with the full amount of certificates taken out, and to credit said bank with the full amount of certificates held, to whomsoever they might have been issued. The credit and debit interest, therefore, on certificates issued to any member, but never used, would exactly balance. The certificates issued at Wheeling, W. Va., in 1907, bore no interest, but they were returned, the day following their receipt by the banks, through the clearing house, with an exchange charge of 10 cents each added. Owing to a popular misconception of the character and purpose of clearing-house loan certificates, much adverse criticism regarding them has been indulged in, especially in 1893, on the ground that such issues were made in "5 National Monetary Commission violation of the lo per cent prohibitive tax on bank-note currency other than national bank-note circulation. Such objection was based on the assumption that clearing- house loan certificates were a form of national bank cur- rency — an assumption which is ill-founded, both in theory and in fact. The certificates are essentially temporary loans made by the banks banded together as a clearing- house association to the members of such association, and are available to such banks only for the purpose of settling balances due from and to each other. In the words of a Comptroller of the Currency, they were but duebills, and their sole function consisted in discharging the single obligation at the clearing house. An attempt on the part of a bank in any of the associations issuing these certifi- cates to use them otherwise would have incurred a fine and other penalties, provided in the rule governing such asso- ciations. In no instance, except those mentioned in the South, were they designated to serve as money, and nowhere else did they circulate as money. Hence the courts of Pennsylvania decided that they should not be regarded as money. The imposition of a tax upon them, therefore, would have been not only a serious blow to one of the most effective and ingenious contrivances for the deliverance of the country from the throes of panic that has yet been devised, but would also have been a direct violation of the spirit of the law. ii6 Chapter XI. CLEARING-HOUSE LOAN CERTIFICATES OF THE PANIC OF 1907. CAUSES OF PANIC — ACTION OF THE NEW YORK CIvEARING HOUSE — CHICAGO CI^EARING HOUSE — BOSTON CI.EARING HOUSE PHII^ADElvPHIA CLEARING HOUSE CLEARING- HOUSE CHECKS ISSUED AT CANTON, OHIO — AT CINCINNATI AND CLEVELAND — CERTIFICATES AT FARGO, N. DAK., AND LOS ANGELES — PLAN OF GROUP 2, OHIO BANKERS' ASSO- CIATION — TOTAL OF CERTIFICATES ISSUED. During the latter half of 1907 a panic of great severity was experienced in this country, and while many reasons have been assigned as the cause of the disturbance, there is, apparently, no one that in itself exactly accounts for its presence at that time. A prominent banker and economist has recently stated as follows: The truth is that responsibility for the panic of 1907 lies at the door of our currency system. No other adequate cause can be found. We do business by the modern system of bank credits, but we have failed to sup- plement this machinery with the means for readily converting bank credits into cash. Whatever its causes were. New York banks found themselves in the fall of that year contending against rapidly falling bank reserves and runs on one or two prominent trust companies, both of which facts caused much uneasiness on the part of the general public. A meeting of the New York Clearing House Association was held on October 26, 1907, for the purpose of deter- mining whether the situation was sufhciently serious to 117 National Monetary Com ni is s i on warrant an issue of clearing-house loan certificates. It had been hoped for a week previous to the calling of this meeting that the crisis might be successfully passed over without the necessity of an issue of loan certificates arising. The situation, however, grew rapidly worse. Several of the banks applied for and received assistance through the joint action of many of the banks, who advanced cash, receiving therefor participating certificates, the clearing house holding the collateral security for the same. The drain upon all the banks was exceedingly severe, and it soon became apparent that aid would shortly be solicited by other members of the association. For this reason the meeting of the associated banks was called, and as the result of their deliberations a loan com- mittee was unanimously appointed on the above-men- tioned date and proceeded to receive and pass on collateral and issue loan certificates therefor under the terms of the following resolution: Resolved, That the clearing-house committee, with the president of the association, be authorized to receive from banks members of the associa- tion bills receivable and other securities to be approved by said committee, who shall be authorized to issue therefor to such depositing banks loan certificates bearing interest at 6 per cent per annum, and such loan cer- tificates shall not be in excess of 75 per cent of the market value of the securities or bills receivable so deposited, and such certificates shall be received and paid in settlement of balances at the clearing house, and all rules and regulations heretofore adopted in the issue of such certificates shall be in force in the present issue. Said committee shall have power to associate with it such other bank officers as they may judge necessary. The committee first issued $11,235,000 of certificates to take care of the aforementioned participating receipts, given for loans advanced the preceding week. The date of the first issue was October 26, 1907. 118 Clearing-House Methods The date of the first cancellation was November 14, 1907. The date of the final issue was January 30, 1908. The date of the final cancellation was March 28, 1908. The gross issue of certificates was $101,060,000, and the maximum amount outstanding was $88,420,000 on December 16, 1907. During the period of its existence there passed through the hands of the committee, including original deposits of securities and substitutions of the same (both with- drawals and deposits), collateral aggregating in amount the vast total of $453,000,000, of which $330,000,000, or 72.92 per cent, consisted of commercial paper and $123,000,000, or 27.08 per cent, of stocks, bonds, and short-time railroad and other similar notes. Three thousand five hundred and forty-eight certificates were issued as follows : 412, at $100,000 each $41, 200, 000 522, at $50,000 each 26, 100, 000 1,005, at $20,000 each 20, 100, 000 1,123, at $10,000 each u, 230, 000 486, at $5,000 each 2, 430, 000 The greatest amount of certificates issued to any one bank was $17,000,000, an amount of certificates greater than the aggregate issue of any individual clearing house in the United States, with the exception of Chicago! The smallest amount issued to any bank was $250,000, which was done in two instances. The aggregate amount of the issue, as will be seen by a comparison of figures, was two and a half times as large as the issue of 1893, $41,490,000, which was, up to that time, the maximum amount that had been put out. 119 National Monetary Commission 1^ CD OO o a ea % O © ^ s O *^ o (A o &4 69 'I .*•••■.••■.■••?.•::•.■.■.••;• .*v»-.f.-:.;».*-» ■;••: :■•■■• ' :•*••« •.-""■ vg^l S H ^ W ^ tt^W-Hg ^:r;l ^ ;a X.»; ! »■; ;*^^-^--.v;;f..^:*y::^:-:«;-^;»^ •*«■ o Clearing-House Methods Beginning with i860 the issues of clearing-house loan certificates, at New York alone, have amounted to the enormous aggregate of $269,839,000, all of which have been redeemed without the loss of a single dollar, and in periods ranging from three to seven months from the date of first issue. The issue of clearing-house loan certificates by the Chicago Clearing House Association constituted a dis- tinct innovation, since the action was taken for the first time in the history of the association. In 1893 the subject of making an issue of certificates was under serious con- sideration, and a vote was taken which showed a majority in favor of such action. Considerable aid had, however, already been given to the needy members, and the crisis was passed without the necessity for issuing certificates becoming apparent. On October 26, 1907, the same day on which the New York association took its action, the clearing-house association at Chicago met and passed resolutions author- izing the issue of clearing-house loan certificates, under conditions very similar to those governing their issue by other large cities. The certificates were issued under the supervision of the clearing-house committee to the extent of 75 per cent of the market value of the collateral deposited and bore interest at the rate of 7 per cent. This original action at Chicago was followed on No- vember 6, 1907, by the passing of a supplemental set of resolutions authorizing the issue of clearing-house checks, a sample of which is shown among the illustrations, as follows : 2C040 — 10 — —9 121 National Monetary Commission The undersigned members of the Chicago Clearing House Association do bind themselves by the following agreement supplemental to and in extension of the mutual agreement which was entered into by them under the date of October 29, 1907, for the purpose of assisting and protecting the community and facilitating interbank settlements resulting from their daily exchanges: First. Any bank being a member of the Chicago Clearing House Asso- ciation may at any time surrender to the clearing-house committee any loan certificate held by it which was issued under said principal agreement of October 29, 1907, to any other member of the association and receive in lieu thereof checks to the amount of the principal thereof, in the de- nominations of $2, $5, and $10, as desired, drawn by or under the direc- tion of the clearing-house committee on the banks to whom the surrendered certificate was originally issued and made payable through the Chicago clearing house only to the bank, or bearer, applying therefor, as aforesaid, which checks shall not draw interest. Second. The checks so issued in lieu of certificates surrendered shall run to the bank applying therefor or bearer, and be negotiable like other bank checks, but neither the clearing-house association, the clearing- house committee, nor any member thereof shall be liable thereon, in respect thereto; but the same shall have the benefit and protection pro rata of the securities deposited under said principal agreement to the same extent as the certificates upon the surrender of which they were, respec- tively, issued, and so far as said securities are concerned shall stand in the place of such surrendered certificates. Third. At any time any bank on which said checks are drawn may present any thereof that may have been paid by it to the clearing-house committee and surrender the same and receive credit therefor on or against the principal of the loan certificates in place of which the same were re- spectively issued. Any interest which may accrue or be allowed on any of said loan certificates, while the same is held by the clearing-house com- mittee as aforesaid and checks are outstanding against the same, shall accrue and be allowed and paid to the Chicago Clearing House Association. The first clause of the foregoing agreement was amended on November 13 to read as follows: Any bank, being a member of the Chicago Clearing House Association, may at any time surrender to the clearing-house committee any loan cer- tificate held by it which was issued under said principal agreement of Octo- ber 29, 1907, to any member of the association and receive in lieu thereof checks to the amount of the principal thereof in denominations of $1, $2, $5, and $10, as desired, drawn by or under the direction of the clearing- house committee on the following banks designated for that purpose, viz, Clearing-House Methods the First National Bank, the Corn Exchange National Bank, the Conti- nental National Bank, and the Commercial National Bank, and made pay- able through the Chicago clearing house or to the bank, or bearer, applying therefor, as aforesaid, which checks shall not draw interest. Thus it will be seen that the Chicago Clearing House Association issued checks in amounts of $i, $2, $5, and $10 designed for general circulation, to the extent of about $7,500,000, secured by clearing-house loan certificates, which in turn were secured by 133 per cent of good col- lateral. The aggregate amount of clearing-house loan certificates issued in Chicago was $39,240,000, and the maximum amount outstanding was $38,285,000 on De- cember 18, 1907. The first issue was made on October 28, the last issue on December 17, 1907. The first cancellation was made on December 14, 1907, and the final cancellation on Jan- uary 17, 1908, thus showing the issue to have been of less than three months' duration. During the last few days of October the Boston Clear- ing House Association met and appointed a committee of six bank officers, of which the chairman of the clearing- house committee was one, to receive bills and notes re- ceivable and other securities to be approved by the com- mittee, who thereupon issued certificates to an amount not in excess of 75 per cent of the value of such property deposited, as determined by the committee, the certifi- cates bearing interest at the rate of 7.3 per cent. The resolutions further provided that any loss arising from the issue of the loan certificates should be borne by the banks of the clearing-house association, pro rata, ac- cording to the average daily amount which each bank 123 National Monetary Commission had sent to the clearing house during the twelve months ending September 30, 1907. Under these regulations a total issue of $12,595,000 was made. The first certificates were put out on Octo- ber 28, 1907, and the last were withdrawn and canceled on January 24, 1908. The associated banks of Philadelphia issued clearing- house certificates under an agreement which went into effect on September 24, 1873, and has remained substan- tially without change from that time. In all essential details it is similar to the regulations at New York, and, therefore, needs no special comment. On account of the temporary scarcity of currency employers found it necessary to make payments of wages in pay checks, payable through the clearing house, instead of in cash, and it was deemed important that such checks should be rendered as readily available as possible. A special meeting of the clearing-house association was, therefore, called on November 16, 1907, and the following resolutions were unanimously adopted: Resolved, That it is recommended by the clearing house of Philadelphia that hereafter pay-roll checks made payable through the exchanges of the Philadelphia clearing house shall be certified before issue by the banks upon which they may be respectively drawn. Resolved, That the clearing-house association recommend that no pay- roll checks be certified by any member of the association unless furnished by the American Bank Note Company in the form approved by the clear- ing-house committee. Resolved, That such pay-roll checks shall only be furnished to members of the association upon application to the clearing-house committee. Resolved, That the members of this association before certifying pay- roll checks shall open a pay-roll account for the depositor to whom such checks are issued, to which account said pay-roll checks shall be charged when paid. 124 Clearing-House Methods Resolved, That returns of the amount of checks issued and outstanding, as shown by the balance to the credit of pay-roll account, shall be made daily to the clearing-house committee by the banks which have accepted and certified them. The aggregate issue of clearing-house loan certifi- cates by the Philadelphia banks was $13,695,000, an amount considerably in excess of that of any previous issue. Many of the clearing houses of the country issued clearing-house checks, or cashier's checks, generally under proper safeguards, in small denominations, which were intended for general use, to take the place of cash temporarily withdrawn from circulation. Canton, Ohio, is a center of manufacturing inter- ests of considerable magnitude, and, therefore, re- quired large amounts of cash for pay rolls, which was not available. A consultation was held between the bankers and their manufacturing clients, with the result that the use of pay checks was agreed upon. One general form was used, there being but three denomi- nations — $5, $10, and $20 — and each bank provided its customers with a supply of these. The checks were made payable to bearer through the Canton clearing house only, and had to be signed by an authorized person connected with the firm or corporation issuing them. These checks, however, were found unsatisfactory, partly from the fact that when small purchases were made with them the tradespeople were obliged to make change with cash, which soon exhausted their supply. Subsequently, therefore, clearing-house checks, or cash- ier's checks, payable to bearer through the clearing 125 National Monetary Commission o Ih a > o 2 5W5 o ^ O ^ SO! 181 CO o >- CD LxJ »Aft 5A2 O O b] 126 Clearing-House Methods house only, in amounts of $i, $2, $5, and $10, were issued to the extent of about $200,000. These checks had no collateral security back of them, and were ac- cepted purely on the responsibility of the issuing bank. A specimen of this check is shown herewith. A special committee was appointed by the Cincin- nati clearing house on October 28, 1907, and early in November of that year checks, printed from steel plates, in denominations of $2, $5, $10, and $20, were issued to each of the 14 clearing-house banks. The committee received from each bank high-class collateral security of not less than 20 per cent in excess of the face value of the certificates delivered to it, which col- lateral was held until the checks were retired and can- celed. A list of merchants who had expressed a will- ingness to cash these checks, numbering in excess of 300 names, was published in the papers, and in several instances a premium of as high as 5 per cent was al- lowed for cash purchases made and settled by these cashier's checks. The total amount of the checks so issued was about $2,000,000, and as soon as the cur- rency situation again became normal they practically retired themselves. The action of the Cleveland association in this re- gard was substantially the same as that taken by Chi- cago, with the exception that the clearing-house loan certificates issued by the associated banks of Cleve- land were not used in the settlement of balanced at all, but were made the basis, dollar for dollar, for the issue of clearing-house checks in denominations of $1, 127 National Monetary Commission O UJ o • f ANTS RUST K OF ANKS AR 7. K o z i^ll ^ a < to is"! "^ Of) U a O Q. , f 1 : o K u III 2 O O .00) ), TH! E NOR NATIC CH AL TY < § |;|i o . ^ « <-♦ r^ 5°85 C OF FIVE DO FIRST NATIONAL 1 lOMMERClAL BANK iOCIATION OF FAR TE BANK OF MOOl ATION OF 2 d "5 <^ ^ SUM EN THE !0, THE C LOAN AS! FIRST STA SOCI CC . ^ a " R THE ENT BETWE K OF FARC VINGS AND EAD, THE 5E AS < ^l UJ s 5 5 5 -» OC K ffl o ~ 03 z t: u. X z 9 g o I u. «4^ u " < ^ ^ O ** :-» I s^^i z ? « H 18 H° — 3 =: S < er 111 PAY TO IS ISSUED GO, THE FA HE NORTHWI EAD NATION, CLEAF I -1 ^i".i w V- -J 5.°9z I UJ (T o u. u Wl CERTIFI BANK O OF FARC D, THE t, .E HEREO T H lO ca i._„ hereby applies fur consent of the Clearing-hquse Committee to maJce the Exchanges for . o/L.™.^ mi and after^ Stati'ment of its condUion enclosed. Respectfully, .flpprovcd. Application to ('leak i'ou Anothku Bank. 173 National Monetary Commission Nos. 77-83 CEDAR STREET. J^eiv Torh,..^.:...^..^.. ^ , „ ,..._.,,.^^ ^ Ji!sq.,. Cashier. Dear Sir: Consent of the Clearing-house Coimnittee is hdreby given to the .^,..,.-„ of ,._.,......, __..... to make the exchanges at the JVeiu Torh Cleaidng-house for the of on wnd after subject to the rides and regulations of the Association. By order of „_ _ Chairman Clearing-house Commitlee. , Manager. Consent to Clear for Anotjier Bank. 174 CI earing - H u s e Methods NEW YORK CLEARING-HOUSE. The Weekly Statement as provided for below must be certified by an officer and sent to the Clearing-house at the close of business on Friday of each week. - WILLIAM SHERER, Manager. COPY OF STATEMENT OF THE for week ending the day of 190 .... as required by Amendment to Section 25 of the Constitution of the New York Clearing-house Association, adopted February 11th, 1903. Average Amount of Loans, and Discounts and Investments (not Real Estate) Average Amount of Specie Average Amount of Legal Tender Notes and Bank Notes Average Amount on Deposit with Clear- ing-house Agent Average Amount on Deposit with other New York City Banks and Trust Companies .Average Amount of Deposits Average .\mount of Circulation. Correct. FoKM OF Statement of Weekly Averages of Non-Membkk Banks. 175 National M o n e t a r y Commission The Weekly Statement as provided for below must be certified by an officer and sent to the Clearing-house at the close of business on Friday of each week " WILLIAM SHERER, Manager. COPY OF STATEMENT op THE, for week ending the. day of . . ,.• ,• 190. . . . as required by Amendment-to Section 25 of the Constitution of the New York Clearing-house Association, adopted February 11th, 1903. Average Amount of Loans, Bills Pur- chased and Investments (not Real Estate) Average Amount of Specie Average Amount of Legal Tender Notes and Bank Notes Average Amount on Deposit with other New York City Banks and Trust Companies Average Amount of Deposits Correct Form of Statement of Weekly Aver.\ges for Trust Companies. 176 Clearing-House Methods The arrangement thus consummated, however, was to last but a few years. The New York state banking law at that time did not require that trust companies should carry any cash reserve, while it provided for the keeping by state banks of a cash reserve in their own vaults of 15 per cent. It was tacitly understood that a cash reserve of 25 per cent should be maintained by all the members of the New York Clearing House Association, although there was then no constitutional provision to that effect. This understanding did not, however, ex- tend to nonmembers, with the result that the state banks, generally speaking, merely met the requirement of the law, viz, 15 per cent, and the trust companies used their discretion. As will be readily observed, the trust companies, oper- ating under broad charters which gave them the privilege of transacting a banking business, of which by far the greater number took advantage, and with, as before stated, no reserve requirement, had an immense advan- tage over the members of the clearing house, and were thereby enabled to make considerable inroads into their business. This condition of affairs caused a great deal of dis- satisfaction among the associated banks, which culmi- nated in an effort on the part of the association to more nearly equalize the position of the banks and trust com- panies, which took the form of the following resolution, enacted into law on February 11, 1903: Every nonmember institution (not a bank required hy law to maintain a specified reserve) now or hereafter sending its exchanges through a member of the association, shall on and after June i, 1903, keep in its 177 National Monetary Commission vaults a cash reserve equal to 5 per cent of its deposits; and on and after February i, 1904, such cash reserve shall be 7^ per cent of its deposits^ and on and after June i, 1904, such cash reserve shall be such percentage as shall from time to time be fixed by the clearing-house committee, but not less than 10 nor more than 15 per cent of its deposits. The reserve hereby required shall be an average reserve as against the average deposits as shown upon its weekly statements. The trust companies resented very strongly this at- tempt to force them to keep a cash reserve, and during the next two years, almost without exception, withdrew from the privileges of the clearing house, rather than submit to its regulations in this regard, manifestly fair though they were. After the panic of 1907, the attitude which the New York clearing house had assumed on this question was justified, when the legislature of the State of New York enacted a law compelling the trust companies in New York to keep a cash reserve of 15 per cent, thus placing them on an equal basis, in this respect, with state banks. In the meantime, on January 13, 1908, the clearing- house association met and passed the following resolu- tions, which still obtain and determine the conditions under which the trust companies may, at the present time, become full members of the association, the same as banks: Trust companies organized under the laws of the State of New York may be admitted as members of this association in the same manner and to the same extent as banks may be admitted, and when so admitted shall be entitled to all the rights and benefits and subject to all the con- ditions and obligations to which bank members are or shall be entitled or subject under the provisions of the constitution. Trust companies, however, becoming members of the association, shall be required to keep a cash reserve in their own vaults of not less than 25 per cent of their deposits. A failure to keep such reserve shall be sufficient ground for action under section 6, Article III, of the constitu- tion (which provides for expelling members). 178 Cleai'ing-House Methods Three days later, viz, January i6, 1908, the associa- tion for the first time in its history passed a measure which thereafter compelled all its members to keep and maintain in their own vaults a cash reserve of 25 per cent of their net deposits. Each bank belonging to the New York Clearing House Association is required to furnish to the manager weekly, for publication, a statement of its condition, showing the average amount of loans and discounts, specie, legal- tender notes, circulation, and deposits. The capital and net profits also are given, this being the only association which gives the latter item. The matter of collecting checks and other items out- side of the city of New York is a subject that for many years past has received most careful thought upon the part of the officers and members of the New York clear- ing house. An amendment to the constitution was adopted, March 13, 1899, directly bearing upon this point and embodying a policy that was so radical as not only to attract attention throughout the entire financial com- munity, but at the outset to incite more or less opposition. As time has passed, however, the justness of the pro- visions has become apparent and the business community has acquiesced in what is manifestly an entirely reason- able measure. 179 National Monetary Commission TRUST COMPANIES. 1 Resources. Bonds & Mortgao'es Stocks & Bonds (Market Value): Public Securities Other Securities . . . Loans ..... .......... Overdrafts ............. Real Kstate Furniture & Fixtures Due from Trust Cos., Banks and i Legal Tenders and Bank Notes Total Book Value Stocks and Bonds Liabilities. Capital Surplus and Undivided Profits . . . Due Trust Cos., Banks and Bankers. Deposits (Not Preferred) Certificates of Deposit (Not P'f'd) 1 Other Liabilities Total Form of Statement Required by the New York Clearing- house Association of Trust Companies. 1 80 Clearing-House Methods NATIONAL BANKS Xo 254007 Liabilities. Capital . . ..... Net Profits Circulation Due Banks and Trust Co's Due other Depositors Unpaid Dividends Total Resources. Loans and Discounts U. S. Bonds on hand U. S. Bonds to secure circulation Bonds to secure U. S. Deposits Other Stocks and Bonds and Mtgs Premium on U. S. Bonds Real Estate, Furniture & Fixtures Due from Banks and Bankers Exchangea for Clearing-house Cash Items and Bank Notes Specie Legal Tenders Over Drafts 1 Total Certified Checks United States Deposits Form Used at Clearing-house in Tabulating National Bank Statements. i8r National Monetary Commission STATE. No. 364008 Liabilities. Capital Net Profits Due Trust Cos., Bks., Bkrs. & Broks Due other Depositors not Pfd Preferred Deposits' Unpaid Dividends Total. Resources. Loans and Discounts Stocks, Bonds and Mortgages Real Estate, Furniture & Fixtures. . Due from Trust Cos., Bks., Bkrs., & Broks. not incld'd in next item. Due from Approved Reserved De- positories. Cash Items including Exchanges for Clearing-house Specie., •. Legal Tenders and Bank Notes . . . Over Drafts '>^.>«TVTJ-' n .jci^ Total FoKM Used at CLEAKiNo-nousE in Taiu'lating State Bank Statements. r/j C> C^f-i'M •-:i-z) c o 0C5 z Ti 5 0) 3 oi i^ ttOTO £< •* - 96. "f ~ fl "'S'= M « .• ^ ^^ £ ee OOOOr-i o o o O 5 o ? o o CO Ol S >.-z H Ml a: • c I-' m' 00 -. 03 9^ Oi CT.' cT ^1 W 5 to 03 !» 1- 1^ lO o oo o O 0) '/. 0.' 3?^- OJ *=-■ ^ cic»o> ^1 1%: c C !^ tT t-.' rf — — o o O -o / 4i 5 s o o q CO bo 1— ( 5i5 'J '5 " ^ .— T ■^ c c 05 o » r 7 '■'- 5 c ■ o o 1 1 OO o o N o o , ,^" c o ao . x' M '^r-!| ". * — ' o" Cto . £ .S 0. > ^- CC»-\ m T. CO 5 Q a; < o CC JJ c CSC CO o *— 1 c il - o-c % > o 1 n « 5 2 a. o o o o 1- 01 o o o 01 CO PQ - :C ^ ~ , >o I- 04 •J a 2'S ^' ■ o 1 "^ 6 J-' 0/--; 12 rt'=^' II «0 OOC'5" OTO05 o'cd ! OT lO s O K a. oo oo 1 o 1 o ox. S; o a; 9'5 fc ; 10 O «0 ; to''XO" 1 —ceo ■ ocrio_ O G CO -i* 04 57 D bO •i IN — ■ 01 H 2 a o c o Ci 4) Q "3 3 "33 3 ; 5 ^-^ •■& tr. . ui ■ o . -•OOi 2- o bD c _ 95 < n rt c ■ a; 11^ s! cj - o I £ 5 •"" o a II < < O 1 bl c- t. 1 > < 37 0)00 o = . < 5 S 0) 5 to u t p c CQ « ?;p;a3?; K|i,5'. H *' TO i <: 5 u 6 ^ CI :c-c-^;^i «ct^oc y. Cl C3 O Oi 183 w z bo <3 2 KH w 00 -d ^ cS O X o o £3 03 H z |J4 0^ 0) «3 S H < b -1 o o CQ H CO O w g £ p^ ^ O o (U c3 CQ O o o 4) T) .3 01 ? p 6C O • O O m Po- ol's" 03O g r/3 cS Tl OJ 0) m -u ;/; yj 73 t3 i^ G P P T5 fl 03 o Q 2 SW ^ o O r^rs ai' ■ 0) o c g o 2 "o "^ .■ o a o CO CO -^ H o f^ PH5 -. '^ I— I -fl _2 o O) 3 G ^ Vr .ti 0) o S W cc . H O b c3 3^ H I— I cc O Oh W Q H O 03 ;^-^ O G O O G a G O 184 NEW YORK CLEARING-HOUSE. SXJMMARY OF WEEKLY STATEMENTS. CLEARING-HOUSE BANKS. DAILY . 'U. S. Deposits included S CLEARING-HOUSE BANKS, ACTUAL CONDITION THIS DAY Specie, Legal Teodere, tDeposiU, Circulation, EE Cash Rebeuve % tU. S. Dep osiW included i ClearingB for the week Balances " " " Clearings Ihis day STATE BANK . TRUST COMPANIES VB n cfiST. PKR CEVr. Cash in Vault 11 Deiiusits in Banks and Trust Go's, Doposita in Banks and Trust Co's, Total 1 Total Aggr^atc Reserve o c m Weekly Statemen BANKS NEW YORK CITY. BOROUGHS OF MANHATTAN AND THE BRONX. Bank of Washington Heights. Century B ank Colonial Bank Columbia Bank Fidelity Bank Jefferson Bank Mount Morris Bank Mutual Bank Plaza Bank Twenty-third Ward Bank (Bronx).. Union E.xchange National Bank Yorkville Bank . .• Coal and Iron National Bank New Netherland Bank Battery Park National Bank Aetna National Bank BOROUGH OF BROOKLYN. Broadway Bank ManufactiH'ers' National Bank Mechanics' Bank Nassau National Bank National City Bank North Side Bank JERSEY CITY. First National Bank, Jersey City Hudson Co. Xat. Bank, Jersey City . . Third Nal '1 Bank, Jersey City HOBOKEN. First National Bank, Hobokcn Second National Bank, Hoboken Total National )5anks " State Banks Totals *As per oOicial reporlx.— 12 National Banks, June 2;^, I'JOU. 15 State Banks, April 28, I'JO!). Re.serve, Sl,r)'l(i,775 Decrease. *As of July Ki, 1909. 20040 — 10. (To face page 18 NEW YORK CLEARING-HOUSE Weekly Sifllemenl of NON-MEMBER BANKS, lor Week ending Saturday, July 24, 1909 »-- ^„,. ,:a'„ §r ■>=•' ^sr W "Cp Hr «- .™..r,;;^r/„„™ SSSJ",:.:::* BKvnJ N«lIonnl Baok, Uobokcn Tot,^Na™>«UJa««. ■J:5a "iSX TolBlS. 13. an. 900 nZ'*" ""Z 112 H7 (WO uxianm —"" iSSSf Dti-reuc Dccmuu DectMio (Tq toco page 1«4.) .No. s. C I e a r i n g - H o u s e Methods The amendment to the constitution, being an addition to section 8, was as follows: The clearing-house committee shall have power to establish rules and regulations regarding collections outside of the city of New York, by mem- bers of the association or banks or trust companies or others clearing through such members, and the rates to be charged for such collections, and also providing for enforcement of the same. The committee may from time to time make any additions to, or changes in, such rules and regulations as it deems judicious. After any rule or regulation upon the subject has been once established, it shall not, however, be altered or rescinded until it has been in force at least three months, except by majority vote of the clearing- house association. Under this amendment the following rules and regula- tions regarding collections outside of the city of New York were adopted by the clearing-house committee: Pursuant to authority conferred upon it by the constitution of the New York Clearing House Association, the clearing-house committee of said association establishes the following rules and regulations regarding collec- tions outside of the city of New York, by members of the association, or banks, trust companies, or others clearing through such members, and the rates to be charged for such collections and also regarding enforcement of the provisions hereof. Section i. These rules and regulations shall apply to all members of the association, and to all banks, trust companies, or others clearing through such members. The parties to which the same so apply are hereinafter described as collecting banks. Sec. 2. For [items collected for the accounts of, or in dealings with the governments of the United States, the State of New York, or the city of New York, and for items payable in the cities of Boston, Mass.; Provi- dence, R. L; Albany, N. Y. ; Troy, N. Y.; Jersey City, N. J.; Bayonne, N. J.; Hoboken, N. J.; Newark, N. J.; Philadelphia, Pa.; and Baltimore, Md., the charge shall in all cases be discretionary with the collecting bank, and the same shall not be governed by the provisions of these rules and regulations. Sec. 3. For all items from whomsoever received (except on those points declared discretionary in sec. 2), payable at points in Connecticut, Delaware, District of Columbia, Indiana, Illinois, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New Jer- sey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, \'irginia. West Virginia, and Wisconsin, the collecting banks shall charge not less than one-tenth of i per cent of the amount of the items, respectively. 20040 — 10 13 185 National Monetary Commission Sec. 4. For all items from whomsoever received, payable at points in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Indian Territory, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming, and Canada, the collecting banks shall charge not less than one-quarter of i per cent of the amount of the items, respectively. Sec 5. In case the charge upon any item at the rates above specified does not equal 10 cents, the collecting bank shall charge not less than that sum; but all items received from any one person at the same time and payable at the same place may be added together and treated as one item for the purpose of fixing the amount chargeable. Sec. 6. The charges herein specified shall in all cases be collected at the time of deposit or not later than the loth day of the following calendar month. No collecting bank shall, directly or indirectly, allow any abate- ment, rebate, or return for or on account of such charges or make in any form, whether of interest on balances or otherwise, any compensation therefor. Sec. 7. Every collecting bank, trust company, or other corporation not a member of the association, but clearing through a member thereof, shall forthwith adopt by its board of directors a resolution in the following terms, and file a certified copy thereof with the association as evidence as therein specified: Whereas this corporation has acquired the privilege of clearing and making exchange of its checks through the New York Clearing House Association, and is subject to its rules and regulations: Now, therefore, Be it resolved. That this corporation hereby in all respects assents to and agrees to be bound by and to comply with all rules and regulations regarding collections outside of the city of New York which may be estab- lished pursuant to the constitution of said association, and that the presi- dent of this corporation is hereby instructed to file a certified copy of this resolution with the clearing-house association as evidence of such assent and agreement on the part of this corporation. Sec. 8. In case any member of the association shall learn that these rules and regulations have been violated by any of the collecting banks, it shall immediately report the facts to the chairman of the clearing-house committee, or, in his absence, to the manager of the association. Upon receiving information from any source that there has been a violation of the same, said chairman, or, in his absence, said manager, shall call a meeting of the committee. The committee shall investigate the facts and determine whether a formal hearing is necessary. In case the committee so concludes it shall instruct the manager to formulate charges and present them to the committee. A copy of the charges, together with written notice of the time and place fixed for hearing regarding the same, shall 186 Clearing-House Methods be served upon the collecting bank charged with such violation, which shall have the right at the hearing to introduce such relevant evidence and sub- mit such argument as it may desire. The committee shall hear whatever relevant evidence may be oflfered by any person and whatever arguments may be submitted, and shall determine whether the charges are sus- tained. In case it reaches the conclusion that they are, the committee shall call a special meeting of the association and report thereto the facts with its conclusions. If the report of the committee is approved by the association, the collecting bank charged with such violation shall pay to the association the sum of $5,000, and in case of a second violation of 1899. I hereby certify, that, at a meeting of the Board of Directors of of held 1899, the following preamble and resolution were adopted: M'hereas this corporation has acquired the privilege of clearing and making ex- change of its checks through the New York Clearing House Association, and is subject to its rules and regulations: Now, therefore. Be it resolved, That this corporation hereby in all respects assents to and agrees to be bound by and to comply with all rules and regulations regarding collections outside of the city of New York which may be established pursuant to the constitution of said associa- tion, and that the president of this corporation is hereby instructed to file a certified copy of this resolution with the clearing-house association as evidence of such assent and agreement on the part of this corporation. [.SEAL.] Agreement to Comply with Rules and Regulations Regarding Collections Outside of New York. these rules and regulations any collecting l)ank may also, in the discre- tion of the association, be excluded from using its privileges,' directly or indirectly, and, if it is a member, expelled from the association. By resolution of the clearing-house committee, the fore- going resolutions went into effect on the 3d day of April, 1899. Most complete and accurate records are kept at the New York clearing house of all the transactions, both of the exchanges between the banks and of all the important acts relating to the administration. Six permanent em- ployees, subordinate to the manager and assistant man- 187 National Monetary Commission ager, are required to perform these duties, the attention of the latter two being almost wholly occupied in work of an administrative character. There are about twenty-five records, consisting of ledgers, statements, books, and registers. The most important are as follows : A record book containing a copy of the manager's proof sheet, showing the daily exchanges and balances of the several banks and the totals of the same; a ledger showing the exchanges and balances of each bank kept separately; the same being a compilation from the proof sheet; a registry book showing the bal- ances received at the clearing house each day; a record of the kinds and amounts of money received in payments of balances by days, months, and years since 1882; a weekly statement record showing the weekly statements required from members for publication; the statements made in response to the call of the Comptroller of the Currency and the state superintendent of banks, com- piled and recorded for the use of members of the associa- tion; an individual weekly bank statement introduced in 1892, being a compilation of the weekly statement by banks; a record of the increase and decrease in the items called for in the weekly statements; an annual record of comparative statements of footings of weekly statements; a record for the quarter begun in 1892, showing the re- sources, liabilities, dividends, and sales and book value of stock; a record of information, as complete as possible, regarding all the banks in New York City; a record of the issue of clearing-house certificates upon the deposit of gold coin; gold and silver certificates and legal-tender Clearing-House Methods notes and also upon the deposit of collateral security, with the loan committee when in session; a general statement of fines and corrections of clerks since 1877; a record of the returns, as far as possible, from the various clearing houses of the United States. There are about ten other records of less importance, besides the usual ledger, journal, and cash-book, in which the clearing house keeps its own accounts and the records of the proceedings of the various committees. 189 Chapter XIV. DAILY ROUTINE OF THE NEW YORK CLEARING HOUSE. THE CLEARING ROOM — CLERKS AND MESSENGERS — THE manager's part — HOW THE EXCHANGES ARE MADE— THE CASH BALANCE PAID IN — TPIE DISBURSEMENTS — CLEARING-HOUSE GOLD DEPOSITORY — RESTRICTIVE IN- DORSEMENTS — PRO RATING OF EXPENSES — RECORD OF FINES — TABLE OF ANNUAL CLEARINGS — TABLE OF AVER- AGE DAILY BALANCES. The clearing room of the New York clearing house is a beautiful and commodious apartment, 60 feet square, surmounted by a dome rising 25 feet above the walls. Light enters through the glass forming the upper part of the dome, and, when necessary, additional illumina- tion is secured by the use of electric lights, which encircle the base of the dome. Four rows of desks occupy the floor, with sufficient space between for an easy move- ment of the clerks in delivering the exchanges. Each member has its own numbered desk, separated from the one on the right and left by network of wire. At the east end of the room is the manager's gallery, elevated sufficiently to command an easy view of the scene of operations. It is made accessible in front by steps and in the rear by an elevator. Each business day, at 10 o'clock, the exchanges take place between the banks. About fifteen minutes before 190 Clearing-House Methods the hour designated the clerks begin to arrive. Formerly it was the custom for each member to send only two clerks, but so numerous and cumbersome have become the exchanges of many of the banks that it is now neces- sary to send one and sometimes two extra clerks to assist in transporting the items to and from the clearing house and in delivering the packages. The two essential representatives of each bank are the "delivery clerk" and the "settling clerk." The former delivers the packages brought, and the latter receives the return packages from the messengers of the other banks. Each member sends its items for the other banks made out separately and inclosed in envelopes, with the amounts listed on the "exchange slip" attached to the exterior. On their arrival at the house the settling clerks furnish the proof clerk, sitting at his desk in the manager's gal- lery, with the "first ticket," upon which is entered the "amount brought" or "credit exchange," and which the latter transcribes on the clearing-house proof under the head of "Banks Cr." The total of the amounts thus brought by the several clerks constitutes the right- hand main column of that sheet. If each messenger has a package for each of the other banks, there are 2,500 in all to be delivered. As a fact, in all other respects than the quantity of packages, this is the number of transactions between the clerks, for it is found in practice better to use a blank slip than to omit a slip merely because there is no amount to put upon it. This plan saves doubt and unnecessary 191 National M o n et ar y Com m i s s i o n searching when looking after the proof. The stationery used by each of the several banks is put up in sets in numerical order, and this is a reason why it is easier to use all the slips than to discard those which happen to have no items. Accordingly, as the delivery clerks pass the desks, as is described farther on, it is the rule to deposit the "small ticket" with the receiving clerk in each case, whether there is a package corresponding to it or not. When the settling clerks come to make their summing up, first checking back by the small tickets, they find that the blank spaces in their sheets are justi- fied by the blank tickets of corresponding numbers, and are in this respect assured of the correctness of their work. When the hand of the clock points to a few minutes before lo o'clock the manager appears in his gallery, usually surrounded by a group of visitors. At one minute before lo he sounds a gong as a signal for each of the clerks to station himself in his proper place. The settling clerks occupy their separate desks on the inside of the counter, while the delivery clerks form on the out- side with their exchanges either on the left arm or car- ried in a box or case of some light material. The deliv- ery clerks arrange themselves in the consecutive desk order, and stand ready for delivery as they pass along the counter. They carry "delivery clerks' receipts" con- taining the amounts for each bank arranged in order, upon which the several settling clerks, or their assistants, give receipts for the package delivered. 192 2d Teller, No. 1. BANK OF NEW YORK NAT'l BANKINS ASSOCIATION FROM No. 6i. THE FOURTH NATIONAL BANK. _ - - 1909 Form op Exchange Slip. No. 1. BANK OF NEW YORK NATIONAL BANKINQ ASSOCIATION. From No. 61 Fourth National Bank* $ Fac-simile of " Small Ticket " Deposited by MES-f SENGER WITH SETTLING ClERK. 193 National Monetary Commission 194 Clearing-House Methods All are now in position for the exchange. The manager calls "ready," and promptly at lo o'clock he sounds the gong again and the delivery of the packages begins. He looks down upon four columns of young men moving simultaneously like a military company in step. At the start each advances to the desk in front where his first delivery is to be made. He deposits the package of items and also the receipt slip on which the assistant of the set- tling clerk (or, in the case of small banks, the settling clerk himself) writes his initials opposite the amount of the package delivered in the blank space provided for that purpose. At the same time, in an opening in the desk provided for that purpose, he deposits a " small ticket" containing the amount of the package. If cor- rect, it must agree with the amount listed on the "ex- change slip." This process is repeated at the desk of all the banks, each clerk making the complete circuit in ten minutes to the point from which he started. Being now at liberty, each delivery clerk takes back to his bank the exchanges deposited by the other messen- gers, while the settling clerks remain until the proof is made. The settling clerks, immediately upon the completion of the exchange of packages, sum up, as quickly as possi- ble, the amounts entered on their statements under the head of "Banks Dr." Upon ascertaining the total they make out a "second ticket," containing the credit and debit exchanges and the balance, and send the same to the "proof clerk," who transcribes the debit exchange under the head of " Banks Dr." (the credit exchange hav- 195 < < o < X Q^ CO ►I? ^ p 8 •J u o vO 6 2 CO H -< is; C5 »-« CO 1— (.-lrHC003050i0505Q50 -( 7 ■ 1 1 pi P 1 CQ Bank of N. Y. Nat'l B'k'g Ass'n, Manhattan Company, Merchants' National Bank, Mechanics' National Bank, Bank of America, Phenix National Bank, National City Bank, Chemical National Bank, Merchants' Exchange Nat'l Bank, Gallatin National Bank, Seaboard National Bank, Liberty National Bank, N. Y. Produce Exchange Bank, State Bank, Fourteenth Street Bank, National Copper Bank, '^, ' : pc5 ig6 < < Z O < Z H 0< D O 6 o r-iClC0-<#;Ot^00iMC0-*MrJC50>0 H >-< O (A « ■ H 1 M 1 < H CO c« an u o o t— 1 H H W CO Bank of N. Y. Nat'l B'k'g Ass'n, Manhattan Company, Merchants' National Bank, Mechanics' National Bank, Bank of America, Phenix National Bank, National City Bank, Chemical National Bank, Merchants' Exchange Nal'l Bank, Gallatin National Bank, Bank of the Metropolis, West Side Bank, Seaboard National Bank, Liberty National Bank, N. Y. Produce Exchange Bank, State Bank, Fourteenth Street Bank, National Copper Bank, o >-( H O O c« O <: < 6 t-i->-Hi-HOOOO-' ^ t: -z: .2 »! ffl ^- tj -^ J< •^ a c3 B CQ 5 oa cQ ■«i 2 "3 fl ►^ d o -^ ta t; "^ ,:;Z: Z-Sii' u_ •— a ■ O O 01 -^^ •£ . a c L. c3 cs a> ■ a; o ill ' «> S o i oJ _ s s z g -ii-^ mO CO W .>^ s^r-=s S = 3 E= " ■Cog C C3 OJ (, Clearing-House Methods certificates of New York and other cities, with the excep- tion that the gold coin deposited as security therefor was placed in the vaults of the Farmers and Mechanics' Na- tional Bank instead of in the clearing house, which at that time had no adequate facilities for the handling of the same. This arrangement has since been changed, and the gold is now deposited in the vaults of the clearing house, in the same manner as at New York. The runners' exchange has since been abolished by constitutional amendment, and there is now but one exchange a day, which takes place at lo o'clock in the morning. There is also a constitutional provision that the mana- ger of the clearing house shall receive the certificates issued by the Treasurer of the United States for clearing- house purposes under any act of Congress, in settlement of balances due from the morning exchange. These certificates, it is provided, must be indorsed, "Pay to the order of a bank, member of the clearing-house asso- ciation of the banks of Philadelphia." The certificates are issued in denominations of $5,000 and $10,000. Inas- much as these certificates are issued only in the large denominations above mentioned, some other medium must be employed in the payment of balances and parts of balances under $5,000. This is done with clearing- house duebills (see form on another page) issued by the debtor banks to the clearing-house manager, who deposits them in the clearing-house depository bank, which, in turn, sends them through the exchanges against the debtor banks on the following day. These clearing- '.2^ National Monetary Commission I H i. a Z o > c t; a - c ;-^i IS O ■-' *-■ J 6 O 1 >-( ^ J - - z ~ o £ P u E !jc c u; H ^ 1 o 1 P?; c3 2 C K O ^-3 -^3 O o P ; bC S ^ • i ^ .s i - ^ r u: ^ * E Z ■ ~N - c ill O > ? 1 >^ !^ r-*- ►^ « ^ 0) S ^ i H tH §g >-^ o 'j^ 5 ,-*■ <4-l z ? i K* rj tt i .2 2 3 ^ ^ J O c < « 3 o ^ u O O 7 5 OJ u » ^ O > »> > ►^^. . > .190 This Statement, is to be sent with the Exchange!^, to the Clearing-house, at or before 10 o'clock, A. M., on the following business day. Loans and Discounts, including all Interest Bearing Securities of the United States_ Individual Deposits ^^^.^r.-v.- — .>.^, . Banks' and Bankers' Deposits.* ,,_ Total Deposits...^. ...«,. ^ .. ^»- J.«ss Exchanges for Clearing-house dnd due from Banks and Bankers (exchisive of Reserve .Agents),,,.,, ^^.^,,.4. Net Deposits. t_,-_ ,. , ,— . ^ U. S. Legal Tender Notes«^. _^ L'. S. Treasury Gold Certificates. Clearing-house Gold Certificales Cash Reserve .r^^. „, , , Due by Reserve .\gents, ^.»,,„ Total Reserve. ^___., . . Circulation „ National Bank Note.s, / rrrtifif thai- the nbore stalemnit is correct as shorrn h;/ the honks of Oic Bank. General liiu>kAiej>rr Form of D.uly St.\tement Employed by the Banks op Philadelphia. 230 AVERAGE BANKS No. 1 Philadelphia National 2 North America 3 Farm's i»ih »i«.i)«e,irt M «i,oio.»mi J.i- 22,1 ^^Z. .,20..0I.120 70 «,7»3,5.. 03 WEEKLY STATEMENT FOR TRUST COMPAHIES. Average. CoQdition for the Week preceding Monday. July 36lh, 1909. TRUST COMPAMY C.„,., ^ "•'££" -' T.^fde'r 0.. b.D>»i< "'Mr sS ■>— MND TITLE * T»„« CO . .2,«..,0«. ^m^m, KSOlnoo .M,,00. 1 „2« M.,.0.. „.2.,... i (To tec p.se 230.) Clearing-House Methods by the general bookkeeper. Such statement is to be made before the commencement of business and sent to the clearing house with the morning exchanges. Thus the Philadelphia association is more rigid even than New York in this particular, and, indeed, more exacting than any other clearing-house association in the country. In many cases, especially in the larger cities of the country, a weekly statement is required, but in no city except Philadelphia is a statement re- quired oftener than once a week. Philadelphia reports eight items, while New York reports but seven. Both give "capital stock," "cir- culation," "loans and discounts," and "deposits," but Philadelphia differs in that they report "lawful money reserve" in one item, and include "due from banks," "due to banks," and "percentage of reserve," which are not given in the New York reports. In addition to the protection afforded each member by these statements, each bank, upon becoming a mem- ber, is required to deposit collateral with the clearing- house committee, as security for its daily settlements, in the following proportion to capital ; Banks with capitals of $800,000 and over, 10 per cent. Banks with capitals of $500,000 and under $800,000, 14 per cent; but not to be required to deposit over $80,000. Banks with capitals of $250,000 and under $500,000, 20 per cent; but not to be required to deposit over $70,000. Banks with capitals of under $250,000 shall deposit not less than $50,000. The rules of the association further provide that if, after any bank shall have become a member of the asso- 231 National Monetary Commission ciation, the clearing-house committee shall deem the collaterals deposited by such bank to be insufficient security for its daily transactions, the committee may from time to time require such bank to deposit additional collateral security therefor. It is understood by all banks making such deposits that they alone are respon- sible for any loss on their collaterals deposited resulting from the failure to make demand and protest, or from any other neglect or omission other than the refusal to take such reasonable steps as may have been previously requested in writing. In case of default by any member, the clearing-house committee is instructed to apply their deposit of collateral " to the payment of any balances due by such bank at the clearing house or to the reimbursement pro rata of the several banks furnishing any such balance, and the surplus, if any, shall be held by the committee as collateral security for any indebtedness of such defaulting bank to the clearing-house committee, or to the association or any of its members, and also as security for all costs, expenses, and counsel fees, paid by the clearing-house committee, for the collection of the security representing the deposit, or which the committee may be compelled to pay by reason of holding the same." The committee may be required to determine the time when exchanges or deliveries of collateral security shall be made. The constitution further provides that — Bills receivable deposited as such security shall in no case be received at more than 75 per cent of their face value, unless accompanied by col- lateral security of greater value, when, in the discretion of the committee, such bills may be received to an amount not exceeding their face value. It shall be the privilege of each bank to e?)hM OF Ticket UbEo by Boston Banks in CoNNtoriON WITH Patmknt of Dkbit Balancks. 246 Clearing-House Methods Many 3^ears ago the custom sprang up at Boston of bor- rowing and loaning balances at the morning exchanges, and the settlement of the same by orders on the clearing house, and at one time this practice was an important feature of the clearing system. During the past few years, however, the practice has been largely discontinued, and only occasionally does one bank now borrow from another on account of its debit balances. Groups of officers may still be found at the clearing house each morning, but gen- erally for the purpose of buying and sehing New York ex- change, and not for borrowing and loaning balances, as heretofore, although occasionally a debtor bank or banks still borrow from a creditor bank or banks for the purpose of paying clearing-house balances. The borrowing and loaning of balances had its incep- tion in a small way some thirty years since, as a matter of convenience to debtor banks, and is quite unlike anything else in the clearing houses of the United States. Before its adoption debtor banks which found their balances at the morning exchanges too great for convenient settle- ment with cash, but which could easily call in the neces- sary amount later in the day, were accustomed to send their representatives through the streets to borrow from neighboring banks. Owing to the inconvenience and risk of this practice, the presidents and cashiers of the banks began to meet at the clearing house, and then, after the exchanges had taken place, to borrow and loan their balances. The custom found favor with the banks, and at one time had grown to such considerable proportions that some 60 per cent of the total balances were settled in 247 National Monetary Co m mis s to n M3NDIX IdlSDHH Clearing-House Methods that way. On the floor of the clearing house at each morn- ing exchange could be seen a busy group of bank officials, some borrowing balances, others negotiating loans. A may find himself a heavy debtor and may desire to borrow of B, whose balance is a heavy credit. If B wishes to loan to A, he gives him an order on the clearing house, and the latter uses it the same day in the settlement of his balance. All orders, therefore, on the clearing house are accepted by the manager in the settlement of balances to the full extent of their face value. But A may not desire but a small part of B's balance, in which event B may find a dozen other banks anxious to borrow, to each of whom he may loan a portion. Again, some, not finding it advantageous either to borrow or loan, settle their bal- ances by the usual cash payments at the clearing house. In practice, some banks habitually loan, but never bor- row. Others habitually borrow, but seldom or never loan. Although no direct losses have ever occurred from this practice, it is strenuously opposed by conservative bank- ers on the ground that it is dangerous for banks to borrow so heavily when they may be called upon for the full amount of the loan without a moment's warning. For example, A loans B $75,000 to-day, and the latter uses it in the settlement of his balance. B does not find it con- venient to return the loan to-morrow, and A, finding an opportunity a day or two later for a better investment, sends through the clearing house a check on B for the full amount. The latter is left with no alternative but to pay the balance or fail. Any objection, therefore, to such a custom seems on its face plausible, but in practice, as 20040 — 10 17 249 National Monetary Co mints s t on ffl s •g > 9i ^ Co I i ■I ■^ I § f^ q bo h4 O O D < d o 3SnOH-9NiaV31D NIOiSOa < c o 56 o H o 0) 250 Clearing-House Methods is claimed, a severe check is placed upon the borrower by the discretion of the loaner. It is practically impos- sible for any member to be a habitual borrower without its being known to the other members. Thus creditor banks are enabled to exercise proper care in making loans, and thereby to avoid loss. The rate of interest on such loans corresponds very closely with the rate on call loans. The newspapers reg- ularly report the clearing-house rate, and this doubtless has some influence on the rate in the market. A prom- inent banker has said that the effect of this custom is to make the rate higher than it otherwise would be, as the banks needing the money must have it, no matter what the rate may be, but in a weak market it has the effect of making the rate lower, since banks having a surplus will accept a low rate rather than hold cash over. One important disadvantage of this plan of borrowing and loaning balances, and one which has come into promi- nent notice in certain instances of late, should be mentioned in this connection. A bank that is a borrower of clearing- house balances is thereby deprived of the assistance in time of distress afforded by clearing-house loan certifi- cates. As before mentioned, the members of the clearing house who are lenders of balances are very sure to know of a given bank that is an habitual borrower, and accord- ingly they are on their guard, watching for the oppor- tunity to call for the amounts they have loaned whenever it would seem that the debtor bank could pay the same. As soon, therefore, as the debtor bank arranges for clear- ing-house loan certificates, its fellow-members, who are its 251 National Monetary Commission creditors, hold out their hands for them, thereby exchang- ing unsecured claims against the bank for the very best security that it can put up. The debtor bank then is deprived of the advantage of clearing-house loan certifi- cates up to the. amount of its indebtedness to its fellow- members. To put it otherwise, the act of borrowing balances in the clearing house anticipates the help that otherwise the clearing house could and would be to the bank when it really needed assistance. It is, of course, impossible to eat the cake and have it too. During the time this custom has prevailed in Boston, many banks, first and last, have found themselves embarrassed thereby, and have been compelled to struggle along in seasons of stringency with- out the help that clearing-house loan certificates would have afforded them, simply because to have asked for them would have advertised their condition in a manner to bring one class of their creditors down upon them in a way to nullify all the assistance they had obtained, and perhaps also draw the attention of the business public to their embarrassed condition, after they had exchanged their good bills receivable for clearing-house loan certifi- cates. The plan of borrowing and lending balances, although very generally acquiesced in by the banks of Boston, would seem to be fraught with danger. It would be less alarming, in the estimation of many conservative bankers, if the creditor banks were obliged by clearing-house rules to report from day to day to what institutions they have loaned their balances, either in whole or in part. Trans- 252 TON, i 1909. 2 Nati. 3 Old , 4 Stat( 5 New 12 Atla: 13 Men 17 Seco 20 Natii 22 Nat': 25 Web 26 Elio1 32 BoyI 39 First 46 Natii 51 Foui! 53 Win! 56 Com A(" Cc J tenoeL. r ^'■'^'^'^> 201,000 2S,000 393,000 63,030 117,O0C 185,000 639,000 ,076,000 259,000 38,000 329,000 29,000 635,000 "132,000 455,000 107,000 46,000 4,735,000 Dec. 129,000 BANKS. 1,055,000 185,000 901,000 35,000 376,000 950,000 2,201,000 7,610,000 1,260,000 483,000 1,085,000 352,000 6,000,000 101,000 477,000 348,000 180,000 National Union 2 Old Boston National 3 State National 4 New England National 5 Atlantic National 12 Merchants National 13 Second National 17 National Stiawmut 20 Nat'l B'k of Commerce 22 Webster and Atla^ Nat'l .... 25 Eliot National 26 Boylston National 32 First National 39 National Security 46 Fourth National 51 Winthrop National 53 Commercial National 56 23,599,000 Dec. 53,000 ION'S Foreign Df.paktmknt. 11,072,516 10,810,682 10,287,694 20040 SXATEMENT ASSOCIATED BANKS OF BOSTON, itiiiML-d to tliL- CleiiriiiK-lii ivgek eudiTig Saturdiiy. August I4 190». 2 National Union .. i.ono COD !I.C37,000 147.000 s.vo.om 2.H39.000 1.440.000 703,090 660.000 7,500 201,000 1,055,000 National Uniun 4 State National ,. 2.000 10.103,000 323.000 7.662.000 3,522.000 l.OOO 1.472.000 1.592.000 11,650 393,000 901.000 State Nalioniil 6 New England National . . . .. 200 000 668,000 90,000 530,000 271.000 1.000 03.000 16.000 232,000 5.000 65,000 35.000 New England Suliwrnil 12 Atlantic National . 750 000 3,633,000 207.000 3.791,000 1,343.000 1.000 51S,000 302,001) 984,000 10,350 117,000 .376,000 Atlantic National 13 Merchanle Notional .. 3,000 000 16,449.000 1.420.000 H.OIO.OOO 2.064.000 101.000 1,438,000 1,350.000 572.000 76.000 185,000 950,000 Mercliaiil-i Nittion.il 17 Second National -. 2,000 000 20,882.000 097.000 21.13J.000 5.478.000 1.000 3,044,000 1.603.000 l,}i98.000 35.2,50 639.000 2,201,000 Se.:nr„IN..l„,[i,d 20 National Shawmut . - 3,500 000 63,874,000 434.000 56,335,000 29.089,0011 1.192.000 12.0fW ntio 4.3,54.000 7.624,000 74.000 .076,000 7,610.000 Kaliniinl Mill »i, lilt 22 KaflB'ltol Commerce... .. 1.500 000 11.135.000 50.000 11.S80.000 1,781.000 1.000 2,381,000 053.000 580,000 2,500 259,000 1.260,000 Nut'l Il'k ol tVifiim.tve 25 Webster and Atlas Nat'l.- 1.000 000 5,380.000 181.000 4.041-,000 649,000 l.OOO 582.000 168,000 314,000 0,250 38.000 483,000 Wi-bsterundAtla, Kat'l. 20 Eliot National .. l.OOO 000 10,753,000 auo.ooo 7,1(12.000 4^82,0^3 1,373.000 714.00IP 684.000 30.000 329,000 1,085,000 Eliot National S.898.000 149,000 .167.000 7,500 40,000 635.000 352,000 6.000.000 39 Firet National .. 2.000 000 44.030,000 800.0DO 34.721.000 28,680,000 708.000 2.002,000 First National 48 National Security .- 250 000 2.3S2.000 248,000 l.SOS.OOO 153,000 232,000 92.000 339,000 13,500 132,000 101,000 National Security 51 Fourth National . .. 1,000 ouo 6.8fl0.000 380.000 7,176.000 1.233.000 l.OOO 995.000 575.000 715,000 20,000 455,000 4n.ooo Fourlli National 000 3,2»3,000 298,000 2.50!>,000 1,045,000 1.000 436.U00 148,000 338,000 15.000 107,000 348,000 60 Commertial National .. 250 000 1.951.000 148.O0U 1.022,000 183,000 263.000 149.000 154.000 7.500 40,000 180,000 Commercial National AcGitECArts. 21.350 000 2ir.,S4ft,000 7.555.000 183.73S,000 S.1.224.000 2,000.000 30.809,000 H.072,000 24.009,000 386.500 4,735.000 23,599,000 Dec. Del- Dec. Dec Dec. Inc. Dec- Inc. Dec, Dec, Dec. C0MPAal60N6. ■laj.oijo 11,000 i.win.oon 497,000 0.000 SM.OOO 2.560.000 236,000 2.000 129,000 53,000 Week ending August 14, 1909. . 30040 — 10. (To face p Clearing-House Methods c +J q: (D (D (D bO (D I. (D > < is: CQ O o oo < o X o < o f»^ ;^ :l t ■Ji J K < K '•i ^ -: a H t>' ,. z „• •> >> > t ? C3 ^T2 C -=; U> t '-^ i-j « 15 C « « ^ > ?-' C/D ?: ^ - 5 £ ^ * Z I ^ u; f; .. -1- f- F « -^ o 00 , -^ ui C/5 -2 < £ QJ :^ 5 = ^£ i ? -J *-" 2 5 - s *c«o ~ i (E i 3 ; zz. f-) b. — s a . "^ o > £ a; '■< 3? ■'* 00 O 2 X < ^o ^ ^p •"S e o aj -C z "*"' •< r- u ' "^ J •< h cu _■< '^ 1. £ (D ^ a c c an X :/:■ z a) u u ■J < a 253 National Monetary Commission actions of this kind, it would seem, ought to be noted in the clearing-house records. A special committee has in charge the deposits of gold coin and gold, silver, and legal-tender notes, by member banks of the Boston clearing house as a special trust fund, against which negotiable certificates are issued. The gold coin and various kinds of notes are stored in rented vaults, the clearing house occupying leased quarters and there- fore having no accommodations of its own suitable for the purpose. The fund so deposited at the present time amounts to about $3,000,000 in gold coin and about $4,250,000 in notes, and certificates to a like anfount have been issued against it. On obtaining the written assent of the clearing-house committee, members of the association are allowed to clear for outside banks and trust companies; but any bank, member of the association, making such exchanges, is liable therefor, and in the same manner as for its own exchanges and until at least one day's notice in writing is given to the clearing-house committee. Accordingly, in Boston and vicinity, and within a radius of ten miles from State street, are no less than 24 banks and trust companies making their exchanges through members of the association, upon such terms of security as are agreed upon between them and the clearing members. Full re- sponsibility for their acts is placed upon the members through which they clear. No statements whatsoever are required by the associa- tion from such outside institutions, it being left wholly to the members to determine their condition. Members, 254 Clearing-House Methods however, are required to furnish the manager weekly state- ments of condition. An example of the form employed is given among the illustrations. A statement is also sub- mitted of the condition of the associated banks of Boston, as returned to the clearing house for a given week. It will be noted further that there is a wide difference in the items included in the two statements. At Boston they are given under 12 heads, and at New York under 7. The only item called for by the New York statement, not included in the same at Boston, is "Net profits," while the item of "Loan" in the Boston statement is reported as "Loans and discounts" in New York. "De- posits," as reported at New York, is given in Boston under three heads, "Individual deposits," "Due to banks," and "United States deposits." "Bills payable," which for- merly appeared in the Boston statement, has been omitted for several years past. The requirement of the items, "Due from reserve agents," "Exchanges for clear- ing house," " Due from banks other than reserve agents," and "5 per cent fund," is not made by the New York association. In addition to the protection furnished by these statements, the clearing-house committee is empowered to examine any bank belonging to the association, and to require from said bank securities of such an amount and character as the committee may deem sufficient for the protection of the balances at the clearing house, whenever it shall be for the best interests of the associa- tion. Thus a member may be found to be weak and in danger of failure. If it is unable to pay its balances 255 National Monetary Commission at the clearing house, these securities will be appropriated for that purpose. The expense of printing is borne equally by the members, and all other expenses are defrayed by an annual assessment of $125 upon each member, and the remainder after that amount pro rata the average daily amount which each bank has sent to the clearing house during the preceding year. Upon each nonmember clearing through the associa- tion an assessment is made as follows: Four hundred dollars per annum on institutions whose capital is $500,000 or less ; $600 on institutions whose capital is over $500,000 and less than $1,000,000, and $800 on all whose capital exceeds $1,000,000. Admissions to membership may be made from time to time according to the following rule: New members may be admitted to this association on the recommenda- tion of the clearing-house committee, by an affirmative vote of three- fourths of all the members of this association, at a meeting called for the purpose, such vote to be taken by ballot; and each member thus elected shall, before admission, pay an admission fee of $5,000 and assent and subscribe to this constitution in the manner hereinafter provided. For cause deemed sufficient, any member may be expelled from the association by a majority vote of all the members. The constitution declares that before withdrawal a member must pay its due proportion of all expenses for the current year and give three months' notice in writing of such intention to the secretary. In practice, however, if a member desiring to with- draw pays its expenses, in compliance with the above requirement, and there is no objection on the part of the association, it may withdraw in less than the speci- 256 Clearing-House Methods fied time, as was true of the Hancock Bank, which with- drew on thirty days' notice. The power of suspension is lodged with the clearing-house committee, but at least four of the five members of the committee must be in favor of such suspension, and the committee must forth- with call a meeting of the association to take the matter into consideration. As shown before, the clearing-house association at New York was the only one in America when the bankers at Boston founded their clearing house. In nearly all the details of method and administration the rules established at New York were taken as a basis. As time went by a few changes were found necessary, par- ticularly in reference to administration, and hence it is unnecessary here to deal elaborately with this phase of the subject. The usual meetings of the association are held once each year, and at such other times as the clearing-house committee may designate on their own responsibility or when requested to do so by any five of the associated banks. Owing to the difficulty of obtaining a quorum, the required number was fixed at one-third instead of one-half of all the members, as in most associations. At each annual meeting a chairman and a secretary are chosen by ballot, to hold office for one year or until their successors are chosen. At the same meeting a nominating committee of three persons is selected, whose duty it is to present to each bank belonging to the associa- tion a list of nominees for officers for the succeeding year, such list to be presented at least two weeks before the 257 V National Monetary Commission meeting next after their election. A standing committee of five bank presidents or other directors of banks, mem- bers of the association, to be called the "clearing-house committee," is elected annually, to serve for one year, and to their care most of the important interests of the association are intrusted, as at New York and elsewhere. They appoint the manager, whose salary is fixed by the association, and who is required to give bond in the sum of $20,000, such bond to be approved by the clearing- house committee. The duties of the manager consist in supervising the exchanges between the banks and the settlements of balances. He is in immediate control of all the business transactions of the clearing house, dis- charging all the duties usually incumbent upon such officers. In another chapter is given an account of the foreign department of the Boston clearing house, being the outgrowth of an experiment which was commenced in June, 1899. 258 Chapter XVII. FOREIGN DEPARTMENT OF THE BOSTON CLEARING HOUSE. ORGANIZATION AND HISTORY — REGUIvATlONS TWO CI.EAR- ING HOURS — BIvANKS AND FORMS — FINES — BOOK- KEEPING. The Boston Clearing House Association has had in operation for several years past a plan of making collec- tions in the territory naturally tributary to that city but outside of the city itself. It is known as the "for- eign department of the clearing-house association," and is conducted independently of the regular clearings of that organization. The question of collecting out-of-the-city checks had been discussed by members of the Boston Clearing House Association for a long time, and finally, early in the year 1899, a special committee was appointed to which the whole subject of collecting checks throughout the dis- trict known as New England was referred. This com- mittee, after careful deliberation, reported that in its judgment it was advisable and practicable for the clearing house to undertake the collection of such checks and to distribute the proceeds thereof. The committee advised beginning with the State of Massachusetts, and adding the other New England States one by one, as soon as the proper provision for the same could be made. 259 National Monetary Commission The report of the committee further recommended that the work be done at the clearing house by the man- ager, under the supervision of the clearing-house com- mittee. It nominated the following routine: Those banks which choose to avail" themselves of this method of collect- ing their checks shall deposit them at some fixed hour, say at i o'clock, of each day. The checks are then to be assorted and the checks on each out-of-town bank made up in a separate package. To this package a slip shall be attached bearing a list of the checks, and, further, a com- plete list is to accompany the checks, showing the total of the amount on each bank, respectively. The clearing-house employees assigned to that duty shall send the checks forward to the banks on which they are drawn, so far as such banks will undertake to remit for checks on themselves by drafts on their Boston or New York correspondents. It was further suggested that in some cases checks on all the banks in one town or city might be collected through a single bank. The checks were to be sent by mail or by express, as found desirable. The report further set forth that the manager of the clearing house should have a desk and number assigned to him, and should take part in the morning settlements, collecting through such settlements the various checks on Boston banks received by him, and paying in the same way to the Boston banks their respective proportions of the checks forwarded two days previously, as might be arranged. Each day's settlements by the manager, the report continued, should represent the amount of foreign checks received on a certain previous day, and the debits and credits should be equal in amount. In case, however, remittances should be delayed so that the manager was without sufficient funds to meet the charges against him, he would charge against the several banks, through the morning settlements, their respective amounts of such 260 Clearing-House Methods delayed remittances, or settle with the banks in their respective proportions of such delayed remittances in the payment of balances by the debtor banks and the distri- bution of balances to the creditor banks. The report was accompanied by various forms w^iich were subsequently adopted for use. This report was approved, and at a meeting held De- cember 1 8, 1899, the following amendment to the con- stitution, which had been recommended by the clearing- house committee, was adopted: The clearing-house association shall have the power to establish rules and regulations regarding collections by members of the association, or banks, or trust companies, or others clearing through such members, and the rates to be charged for such collections, and also to provide for the enforcement of the same. The association may from time to time make any additions to or changes in such rules and regulations as it deems judicious. Any rule or regulation upon the subject can be established only by a vote of the majority of all the members of the association, and when once established it shall not be altered until it has been in force at least three months, and then only by a majority vote of all the members of the association. Under this provision rules and regulations were adopted at a meeting held December 27, as follows: Section i. These rules and regulations shall apply to all members of the association and to all banks or trust companies or others clearing through such members. The parties to which the same so apply are hereinafter described as collecting banks. Sec. 2. For all checks and drafts from whomsoever received, drawn upon any New England bank or trust company or banking house or other banking institution, which does not pay checks and drafts drawn upon itself and sent through the Boston clearing house by remitting therefor on receipt thereof promptly at par checks upon some member of the Boston or New York clearing house, or upon a banking institution clearing through some such member, the collecting banks shall charge not less than one-tenth of i per cent of the amount of such checks and drafts, respectively. Sec. 3. In case the charge upon any check or draft at the rate above specified does not equal 10 cents, the collecting bank shall charge not less than that sum; but all checks and drafts" received from any one depositor 261 National Monetary Commission or correspondent on the same day, and payable by the same institution, may be added together and treated as one item for the purpose of fixing the amount to be charged. Sec. 4. The charges herein specified are in all cases to be collected at the time of deposit or not later than the tenth day of the following calendar month. No collecting bank shall directly or indirectly allow any abate- ment, rebate, or return for or on account of such charges or make in any form any compensation therefor. Sec. 5. In case any member of the association shall learn that these rules and regulations have been violated by any of the collecting banks, it shall immediately report the facts to the chairman of the clearing-house committee or, in his absence, to the manager of the clearing house. Upon receiving information from any source that there has been a violation of the same, said chairman or, in his absence, said manager shall call a meeting of the committee. The committee shall investigate the facts and deter- mine whether a formal hearing is necessary. In case the committee so concludes, it shall instruct the manager to formulate charges and present them to the committee. A copy of the charges, together with written notice of the time and place fixed for hearing regarding the same, shall be served upon the collecting bank charged with such violation, which shall have the right at any hearing to introduce such relevant evidence and submit such argument as it may desire. The committee shall hear what- ever relevant evidence may be offered by any person and whatever argu- ments may be submitted, and shall determine whether the charges are sustained. In case it reaches the conclusion that they are, the committee shall call a special meeting of the association and report thereto the facts, with its conclusions. If the report of the committee is approved by the association, the collecting bank charged with such violation shall pay to the association the sum of $1,000; and in case of a second violation of these rules and regulations, any collecting bank may also, in the dis- cretion of the association, be excluded from using its privileges, directly or indirectly, and, if it is a member, expelled from the association. Sec. 6. Every collecting bank, as defined in section i of these rules and regulations, shall forthwith adopt, by its board of directors, a resolution in the following terms, and file a certified copy thereof with the association as evidence as therein specified : Whereas this corporation has acquired the privilege of clearing and making exchange of its checks through the Boston Clearing House Asso- ciation, and is subject to its rules and regulations: Now, therefore. Be it resolved. That this corporation hereby in all respects assents to and agrees to be bound by and to comply with all rules and regulations regarding collections outside of the city of Boston which may be established pursuant to the constitution of said association, and that the president of this corporation is hereby instructed to file a certified copy of this resolu- tion with the clearing-house association as evidence of such assent and agreement on the part of this corporation. 262 Clearing-House Methods It was provided that the above should go into effect on January i, 1900. In putting the plan into operation, the manager of the clearing house prepared two lists of banks, one comprising those banks the location of which with respect to the closing of mails, etc., required that checks should be deposited with the manager not later than I o'clock and the other permitting the deposit of checks not later than 3 o'clock of each business day, in order to be sent in the mail of the same day. This resulted in what is in effect two clearing hours for the foreign department. Saturdays are exceptions to the general rule, and with respect to that day it is provided that all checks shall be deposited not later than i o'clock. These requirements were later changed so that the checks to be so cleared shall be deposited not later than 3.30 o'clock on each business day, except Saturday, when it is provided that they shall be received not later than 1.15 o'clock, thus giving the banks from fifteen to thirty minutes more leeway than was originally provided. The regulations for the collection of out-of-town checks, formulated by the manager of the clearing house, include the following: Every check must be stamped by the bank depositing it, according to the following form : Received payment through the Boston Clearing House. Prior indorsements guaranteed. Bank of Boston by Cashier. 263 National Monetary Commission O r O z o z o H o QQ H Z LU H < a G Z o UJ Qi o te- « c «s vQ ^3 G ♦ c^^ *— < b« ^3 © G 8 M f* 2 »4 M «l) CS ^ G {/3 G © g G o > *G o t/i o G © o •4-> -M M^ C« o Iz: G .2 ^ 3 ui a ^ o >; Wi "TO OU ^ > «i> o O K ^ ^ "«^. ■♦J a ?? o •S3 ^ ^ •M O o ^ ^ H »« C •»s O V 5^ o •*< ••"^ o .o ■M *+H ! V, i;; H O Q » O H O z 264 Clearing-House Methods The checks on each bank must be placed in a separate package, with a sHp attached containing a Ust of the checks, the name of the bank on which they are drawn, and a footing; and the check ticket attached to the shp must also be filled out and the name of the bank and the footing of the checks placed thereon. Whenever there is but one check on a bank it will still be necessary to have the clearing-house slip attached, with the name of the bank and the amount of the check placed upon both slip and check ticket. These packages must be assorted al- phabetically, according to the names of the respective towns in which the banks are situated, and must be deliv- ered by the messengers of the banks at the proper desks for the respective letters. By 1. 1 5 o'clock p. m. on Saturdays, and on other days before 3.30 o'clock p. m., each bank must send to the clearing house, by its messenger, a ticket showing the total amount of checks left for collection that day, and receive a charge ticket showing the date on which it is to be charged into the regular morning settlements against the manager. The manager is known as No. 100, and joins in the settlements on the same footing as any one of the banks. Banks are requested to see that all indorsements are in order. No examination of packages or checks will be made by the officers or employees of the clearing house. If the remittance from any Massachusetts bank shall not have been received on the morning on which the charge tickets are to be charged against the inanager of the clear- ing house, the manager will charge against each Boston 20040 — 10 18 265 National Monetary Commission Boston Clearing-house. Gloucester Safe Dep. &. Tr. Co., Gloucester, Mass, FROM DATE- Gloucester Safe Dep. & Tr. Co., Gloucester, Mass. FROM Date. L„L f I a 1 2 y. o » 266 Clearing-House Methods bank its proportionate amount of such delayed remittance, as well as the amount of any protested or unpaid checks received from any Boston bank. New York exchange and currency received in payment of collections will be charged at par against the several Boston banks from time to time, under the direction of the clearing-house committee, in proportion to the busi- ness of each bank, and the amounts of any such charges will be reported to the president, cashier, or other repre- sentative of each bank at the 1.15 o'clock clearing. A fine of $2 will be collected from any bank which is late at either the 1.15 o'clock or the 3.30 o'clock settlement, and its checks may be refused by the manager, at his dis- cretion, if presented more than ten minutes late. Any bank not sending to the manager of the clearing house by 1.15 o'clock on Saturdays, and on other days before 3.30 o'clock, a ticket showing the total amount of out-of-town checks it has deposited at the clearing house that day will be fined $4. A fine of $4 will also be imposed for any mistake in the amount of such deposit so reported. An incomplete or incorrectly filled slip or check ticket is fined $1. The forms used by the foreign department of the Boston Clearing House— in fact, the actual stationery — have been largely borrowed from the forms employed in the regular clearings. Minor adaptations have been made in certain forms, and in cases where absolutely necessary new forms have been designed and printed. The deposit ticket, a sample of which is shown among the illustrations, contains little more than the name of the bank making the deposit, 267 National Monetary Commission 268 Clearing-House Methods the date, and the amount of checks left for collection. The receipt corresponding to this, which is also repro- duced among the illustrations, is likewise very simple in its details. There is the name of the bank, the reported amount of the checks, the date at which the amount is payable, if the checks prove good, and the signature of the manager. The detailed statements of checks deposited for col- lection, known as foreign slips, a sample of one of which is shown herewith, are of different colors of paper, thereby readily distinguishing the items of one State from those of another. Rhode Island, for example, is straw color, Connecticut blue, etc. This slip gives the name and the location of the bank on which the checks are drawn and the name of the bank depositing them for collection. There is a coupon at the bottom which recounts the name of the bank making the deposit, the date, the name of the bank on which the checks are drawn, its location, and the amount. The letter form used in transmitting the checks for collection to the several banks on which they are drawn is presented among the illustrations. In the blank space below the signature of the manager the footings of the several slips prepared by the banks are inserted. As this account is made up, the stubs from the foreign-slip tickets (see previous illustration), being that part des- ignated as the foreign-check ticket, is detached and is retained by the clearing-house manager as evidence of the amount that is inserted in the letter. The coupon at the Vjottom of the letter itself is likewise retained for 269 N at i 71 a I Monetary Commission 270 Clearing-House Methods bookkeeping purposes and is the basis for charging the account with the bank. The amount represented by it is the aggregate of all of the stubs of the slips inclosed with the letter. For the purpose of making up the accounts — that is, filling out the letters of transmission and otherwise com- pleting the work — a number of Burroughs 's arithmom- eters are employed. In other words, the machine that is largely in use among banks throughout the United States for listing vouchers returned, etc., is used in mak- ing up the records of remittances. Enough of these machines are used, and so skillful are the employees in their manipulation of them, that in a surprisingly short period of time after the exchanges have been completed the lists for the individual banks are made up and the matter placed in the mails or the hands of the express companies, as the case may be. The settling clerk's statement, also shown in the illus- trations, has five columns. The first records debit remittance checks; the second column contains debit of uncollected checks; the third records credit checks for collection; the fourth, credit adjustments; and the fifth, credit receipts. This sheet in use is of the conventional size, with the names of the banks printed down the left- hand margin and numbered, and corresponding numbers placed at the ends of the lines on the right-hand margin. The bookkeeping employed in the foreign department of the Boston clearing house is very simple in character. The outward posting mediums, as already explained, are the stubs of the letters. The inward posting mediums 271 National Monetary Commission C. A. RUGGLES, Manager. BOSTON CLEARING-HOUSE. Boston, To the Cashier of the . National Bank oL Dear Sir ; Enclosed find checks on your Bank as listed below, for the amount of which please remit by return mail a draft on your Boston correspondent, payable to the order of the Manager of the Boston Clearing-house. Please do not delay the protest or return of any check not good, but return it, under protest if neces- sary ( deducting check and fee from remittance) » Any special instructions on slip or check should be ob^ served Do not protest checks of ten dollars or under unless requested to do so. Yours truly, C. A. RUGGLES, Manager. ^National Bank- Date, Amount^. FoKM OF LkTTKR of TRANS.MIbtelON TO C0RRKSPONDENT8: 272 Clearing-House Methods are the letters from the out-of-town banks inclosing remittance checks. Of necessity, an account is opened with each bank to which collections are forwarded. At the outset it is charged with the amounts sent to it for collection, and in turn, as remittances are received, it is credited. With respect to the inward posting mediums, it some- times transpires that the banks making returns send back the original letter inclosing collections. This, of course, answers every purpose in the clearing house. The ledger at present in use has *the names of the various out-of-town banks printed down the left-hand margins of the page, there being a line to each. There is a debit and a credit column for each day occupying the space to the right of the names. The ledger is simi- lar in form to certain varieties of deposit ledgers in use among banks, and is of a variety that is sometimes described as a progressive ledger. As already men- tioned, the banks are debited with the items sent out and credited with the remittances. The debits, of course, precede the credits by one, two, three, or four days, according to the location of the banks. Where- ever the remittances come in promptly, the columns, tak- ing the banks collectively on a page, balance. Where- ever one or more remittances are delayed, the columns, of course, are out of balance, thereby directing attention instantly to the delinquent. The following is a memorandum of the volume of busi- ness in round figures, handled annually by this depart- ment of the clearing house: 273 National Monetary Commission 1900 - $541. 000, 000 1901 565, 000, 000 1 902 607, 000, 000 1903 658, 000, 000 1904 594> 000, cxx) 1 905 595 , 000, 000 1906 635, 000, 000 1907 633, 000,000 1908 564, 000, 000 The cost of collecting these items has averaged about 7 cents per $1,000, the total cost of the maintenance of the department, including rent, clerk hire, and all expenses of every character, being about $42,000 annually. Six hundred and forty-one New England banks and trust companies are corresponded with at the present time, and the average number of packages handled daily during the year 1908 was 5,491. The average daily remittances by correspondents during that period has been 94 per cent, which means that only 6 per cent of the amount due daily was charged back pro rata, through the clearings, to the banks, in order that the manager's payments and receipts would each day exactly balance. The necessity for this charge back of 6 per cent is due to the fact that it is impossible to receive returns in less than three days from banks located in the northern part of the States of New Hampshire, Vermont, and Maine. It is stated for this system, by those who are in close touch with it, that it accomplishes all and more than was expected of it, and that it has been the means of a big saving of money to the banks. That the banks have supported it loyally would seem to be indicated by the vol- ume of business annually turned over to it for collection. 274 1 d 1 i i ! m o CREDfT j ADJUSTMENTS. ! « i 1 i \ \ TON CLEARING-HOUSE SETTLIh CREDIT CHECK FOR COLL. 1 , 1 DEBIT UNCOLLECTED CHECKS. 1 M ^ • paHo 1 en O < National Union Old Boston National St^te National New England Nation!* .Atlantic National Merchants National Second National National Sliawiiiut Nat'l B'k of Commerce Faneuil Hall National Webster and Atlas Nat'l Eliot National Boylston National First National National Security Fourth National Metropolitan National Winthrop National Commercial National U o (I* d e^ « •^f >.T M rj t^ 3 (M •r)« »0 O ■M 0> O — 'N ^5 -^ ^75 Chapter XVIII. THE CHICAGO CLEARING HOUSE. DATE AND HISTORY OF FORMATION METHODS OF EX- CHANGE — PRELIMINARY EXCHANGES AMONG MEM- BERS — KINDS OF MONEY EMPLOYED IN SETTLING BAL- ANCES TRADING BALANCES — NONMEMBER BANKS THAT CLEAR — STATEMENTS OF CONDITION — EXPENSES AND FINES — ADMISSIONS AND EXPULSIONS — VOLUME OP CLEARINGS ADMINISTRATION. The practical utility of clearing houses had been attested in the United States by more than ten years of successful operation, when Chicago, in April, 1865, formed an association on lines substantially identical with those of the leading cities of the East. Although the Chicago clearing house performs essentially the same functions as do the clearing houses of other impor- tant centers, yet in the course of time circumstances have wrought many changes in its constitution which have tended to give it a character peculiarly its own. The membership (now 20 in number) at the date of the organization embraced nearly all the banks and bankers in the city. Although at one time the list went up to 30, there are at the present time only 20 members, the vicissitudes of the banking business in Chicago in the interval accounting for the increase and subsequent decrease. The membership as at present made up 276 Cleariug-House Methods embraces 9 national banks, 7 trust companies, 2 state banks, the Chicago branch of the Bank of Montreal, and the subtreasm^' of the United States at Chicago. The requirements for membership at the outset were not so rigid as they are at present. Xo minimum limit was placed upon the capital necessar}^ for membership. As a fact, many of the members had but small capital and limited experience. Further, at that stage of the development of the clearing system experience did not demand what has since been found to be very essential. The Chicago clearing house progressed with uniform success from the date of its organization in 1S65 until 187 1, when all the interests of the city sustained a severe shock bv the great fire which swept over the citv. In that fire some portion of the records of the clearing house was lost. Soon after the fire the panic of 1873 occurred, and in that crisis a number of the members fell out of line. Still other vicissitudes, some of which were peculiar to the organization itself, ser\^ed still further to retard its growth and progress. In 18S2 the Clycago clearing house was formally incorporated under the laws of the State. The failure of members in this organization has never given occasion for litigation. Those members who have been so unfortunate as to fail have seldom attempted to clear on the day of their failure. In most cases they have given notice of their condition in ample time for their exchange to be withdrawn. Wlien, however, a failing bank has attempted to make its regular clearings and has not been able to pay the balance against it at 277 National Monetary Commission the clearing house, aU the exchanges presented by and against it have been returned and a new settlement made, the same as if it had not participated in the ex- changes of the day. In this way those who had pre- sented checks against the failing member were enabled to return them to their customers, thereby intrenching themselves against loss. No formal provision was made for such action at the outset, but as time passed on this course was found to be the best means by which to avoid serious complications. Accordingly, the rule has been embodied in the constitution. It is similar in its pro- visions to that existing in the constitutions of nearly all the clearing-house associations of the country. The history of this organization shows comparatively few failures. The membership, however, has been repeat- edly reduced by consolidations. We now come to an analysis of the methods of exchange pursued by this body, and, as we proceed, we shall find that in these details Chicago, quite as much as any of the larger cities of the East, presents certain striking features of its own which are not to be found in the others. The exchanges in Chicago are made on each business day at 1 1 o'clock, except Saturday, when they are made at lo o'clock. Each bank sends from two to three representatives to the clearing house, with its claims separately made out against each of the other members. One of the repre- sentatives of each bank stations himself immediately opposite the desk bearing the number of his bank, first 278 Clearing-House Methods having deposited with the manager a ticket which states the amount of the exchanges that his bank has sent to the clearing house. On receipt of the ticket the manager immediately enters in the credit column of the sheet before him the amount stated thereon. This sheet is ruled in four columns, for the entry of the credit and debit exchanges and for showing the credit and debit balances. Standing in front of each of the representa- tives of the banks above mentioned is the messenger from the same bank, with a bundle of exchanges ready to be delivered at the desk of each of the other banks. Precisely at 1 1 o'clock, or as soon as all are present, a gong is struck, and thereupon the messengers begin the delivery of the checks, passing around the double row of desks and depositing with the clerk of each of the banks the exchanges drawn upon it. While delivering the checks the messenger passes from clerk to clerk a sheet containing the amounts to the debit of each, and upon this the several clerks receipt for the checks they receive. When the packages have all been delivered and re- ceipted for, they are taken to the several banks by mes- sengers, the sheets being passed around by other messen- gers, who, with the clerks, remain at the clearing house. As the sheets are thus being passed along, each clerk enters the amount charged to his bank on the debit side of the page in a book which he has brought with him for that purpose. These books are ruled in four columns, for the entry of the amount brought, the amount received, the credit 279 National Monetary Commission balance, and the debit balance, respectively. One column is filled out before the messenger comes to the clearing house, and that is the amount brought, or, as described above, the credit column. When the debit entries have all been made from the sheets, the balance is struck by taking the difference between the total of the amount brought and the amounts received. Each clerk now makes out, as quickly as possible, a ticket showing the total amount brought, the amount received, and the balance, and hands the same to the manager. It is clear in each case that if the amount brought exceeds the amount received, the balance will be in his favor and vice versa. The manager, upon receiving these tickets, immediately enters the amounts in the debit column of his sheet, and the balances shown in the credit balance column, or the debit balance column, as the case may be. It now remains to foot up the columns. If the amounts brought and the amounts received agree, and if the debit and credit balances likewise agree, the manager announces that the work is correct, and there- upon the several clerks immediately return to their banks. If, on the other hand, these amounts do not agree, the discrepancy is announced by the manager, whereupon the clerks proceed to search for the error. A search of this kind requires skill and accuracy at figures, for it is fre- quently necessary to foot up long columns of figures and even to call back the entries between banks in order to locate the error. If the mistake is not soon found, the anxiety becomes apparent, for a fine of $2 is imposed upon 280 Clearing-House Methods the unfortunate member whose error has caused the trouble if the mistake is not located in twenty minutes. The custom of exchanging checks and other items among themselves before the hour for exchanging at the clearing house has grown up among the members of this organization. For example, members A, B, C, and D may be located in close proximity. Therefore, for con- venience in making early entries of items, they exchange among themselves the checks which they hold against each other. The settlement of balances arising in this way is made at the same time and in the same manner as if the exchanges had taken place at the clearing house. All banks which find themselves debtors in the ex- changes are allowed from 12 to 12.30 o'clock to settle their balances with the manager at the clearing house. The creditor banks receive their balances between 12.30 and 12.45 o'clock. On Saturdays these transactions are one hour earlier. The method of settlement in Chicago differs materially from that which prevails in New York, Boston, and Philadelphia, and, indeed, from that of all other impor- tant clearing houses in this country. Less than 25 per cent of the balances are settled with currency and gold coin. The latter is used only to a very limited extent. The following is the substance of the by-law of this organization relating to kinds of money to be used in settlement of balances, as amended in October, 1899: All payments to the Chicago clearing house by the different members of said association shall be made in United States gold coin or United States Treasury certifi- 20040 ID 19 281 National Monetary Commission cates therefor payable in Chicago, in United States legal tender notes or Treasury notes, or United States Treasury certificates therefor payable in Chicago, and in United States gold and silver certificates. All gold paid to the clearing house in settlement of balances shall be put up in strong canvas bags, each con- taining $5,000; all coins in any one bag to be full weight and of one denomination; the bags to be securely fas- tened with a lead seal bearing the name and clearing- house number of the member putting up such package, in such manner that in the opinion of the manager of the clearing house the fastenings can not be sufficiently released to allow of the removal of any of the contents without mutilating the seal. Every such package shall have a suitable label or tag attached, bearing the name of the sealing member, the amount of the contents, denomi- nation, date of sealing, and signature of the person or per- sons duly authorized to date or seal the same. All currency other than coin paid to the clearing house in settlement of balances, except notes of the denomina- tion of $50 or larger, shall be put up in packages, each containing $5,000 or $10,000. All the notes included in any package shall be of one denomination, inclosed in bands containing each 100 notes and no more. The de- nomination, kind of currency, and amount shall be plainly marked on the cover of the package, with the name of the member of the association putting up the same, date of sealing, and signature of the person or persons duly authorized to date or seal the same. Every such package shall be inclosed between cardboards of the full width and 282 Clearing-House Methods REPORT TO MANAGER. C, H. Bank No..„ „ TRADES WHOLE BALANCE. PAYS IN S ^ COLLECTS $„ .....,.:. ^ REPORT TO BANK C. H. Bank No. DR. dAL. $ CR, " S. Forms of Reports Used in Trading Balances. 283 National Monetary Commission length of the notes, placed on the upper and lower sides thereof, and shall be tied with twine and securely sealed with w^ax seals bearing the imprint of the member putting up the same. All notes included in such package shall be in good condition and fit for circulation and of the denomi- nation of either $5, $10, or $20. For each and every violation of any of the regulations contained in the paragraphs relating to gold and currency above, the manager shall impose a fine of $5 on the offend- ing member. The value of every package of gold or currency put up in accordance with the provisions of this by-law shall be guaranteed by the member whose seal it bears, until and including the 15th day of March, June, September, or December, whichever month shall come next after its authorized date, or redate, and in case of any shortage, either in count or weight, the member putting up the same shall on demand immediately make good any such shortage to the member breaking the seal. This guar- anty shall not extend to any package which shall have passed into the hands of any person or corporation not a member of the association. Chicago has developed a peculiar custom of trading balances, and so extensive has this practice become that perhaps 75 per cent of the balances are disposed of in this way. It began many years ago, and originated in a desire to avoid the counting and carrying of so much money through the streets as would be necessary to settle the bal- ances. The trading is done mainly by the clerks at the clearing house. As soon as they strike their balance, and 284 Clea ring-House Methods while the manager is entering upon his sheet the amounts and balances, and footing the columns, the clerks repre- senting the creditor banks engage in loaning balances to the representatives of the debtor banks. The clerks are not given full liberty of action, but are very generally instructed by their banks regarding the amounts to be traded and the members with which trades may be made. Any member may trade its whole balance, or any part thereof. It may trade its balance to a single member, or to two or more members. A notable example of this kind occurred in August, 1897, when the Northwestern National Bank traded its balance to 15 different banks. The credit balance of this bank was $2,622,000, which amount was more than 98 per cent of the credit balance of all the banks, there being on that day only two other creditor banks out of the whole list of 22 members. Some banks do not find it to their advantage to trade, and hence adjust their balances by cash settlements. At the conclusion of the trades, the representatives of the banks make out and hand to the manager reports of the tradings, as shown by the accompanying form. This form, it will be noticed, is provided with a coupon which embodies a report to the bank. The formal order by which the transfer is made is shown in the second of the accompanying forms. Manifestly, it would be impossible for the manager of the clearing house to ascertain from the reports just illustrated whether a given bank had traded to a single bank or to a number of banks, and also with what bank or banks the trade had 285 National Mojtetary Commission been negotiated. This fact is determined by an order or orders upon the manager of the clearing house from the cashier of each creditor bank which has negotiated a trade, to pay to a specified bank or banks certain portions of its balances each, such sum to be deducted from the balances due from the exchange of that day. For example, B, a creditor bank, gives an order on the manager of the clear- ing house, signed by the cashier, to pay C, D, or E, or any one of them, a part of its balance, or the whole of the sum which it may have traded to them at the clearing house. The manager deducts such an amount from the debit bal- ances due the clearing house by C, D, and E, respectively. Hence they are required to pay to the clearing house only the difference between such orders and their debit balances. The manager also obtains another kind of receipt — namely, the orders to the clearing-house manager to pay to the authorized messengers the balances in cash due from the exchanges of that day. The form of this order is also shown in facsimile herewith. The settlements of the amounts of all orders are made between the banks concerned, the debtor banks giving to the creditor banks cashiers' checks, currency, or exchange for the amount of the trade, such checks always going through the exchanges on the following day. Suppose, for example, B's debtor balance is $75,000 to-day, and that this amount is settled by a trade with some creditor bank. B gives to the creditor bank a cashier's check for $75,000, which the latter will send through the exchanges to-morrow against B. Suppose also that in addition to the $75,000, B's debit balance goes on increasing each day. 286 Clearing-House Methods o o O O o O r o z < o < E c/1 Q ^^ -a u O O -a 15 o (L) C ffi CQ p CJ c « ci Q ci ai ^ o [b E o 287 National Monetary Commission It is evident that in that case B must cease to postpone an actual settlement by trading and instead make a cash payment at the clearing house. This practice, it will be perceived, differs materially from that in vogue in Boston with respect to borrowing and loaning balances. In one case trades are made by the clerks; in the other they are restricted to one or another of the principal officials of the bank, who appears at the clearing house simply for that purpose. In the one case interest is required; in the other it is not. In the one case the checks on the debtor members go through the exchanges on the following day; in the other they do not so pass through at once, but may be held over indefinitely. In the one case the trading is solely an element of mutual convenience to members ; in the other case it is an element of gain to the creditor bank. Besides the regular members, there are about forty nonmember banks clearing through the Chicago clearing house. In other words, there is an average of two to each member. Most of those clearing in this way are private banks and trust companies. Since Illinois heads the list of States in number of institutions in this class, it is not siu-prising that the number in Chicago is so large, or that it should represent such a large fraction of the clearing- house business. Some comparisons may be interesting: In Boston the members exceed the nonmembers by about 33 per cent; in Philadelphia there is at the present time but one nonmember bank, while in New York the list of members and nonmembers is nearly even, there being a few less nonmembers than members. 288 Clearing-House Methods Up to January, 1907, the Chicago clearing house exacted no compensation for permitting outside institutions to clear through its members, but about that time an amend- ment was added to the constitution making it imperative for a member bank to first obtain the consent of the clearing-house committee before it could clear for an outside institution, and further obligated such member to pay the association annually for each of such outside banks, as follows: For each bank having a capital of — ■ More than $25,000 and less than $50,000 $150 More than $50,000 and less than $200,000 250 More than $200,000 and less than $400,000 350 More than $400,000 and less than $600,000 450 More than $600,000 and less than $1,000,000 600 Exceeding $1,000,000 750 The amendment further provided that such banks and bankers should, under proper authority, consent to the same examinations and render the same statements of their condition as are required of the members of the association, and be subject to all such rules and regula- tions in matters of common interest arising from or affect- ing relations with banks in other localities, and the foster- ing of sound and conservative methods of banking, as have been or may from time to time be adopted by the association, and sign an agreement so to do in such form as the clearing-house committee may require. Members of the association are required to furnish the manager statements of their condition, in accordance with the following rule: "Each member of this association shall furnish the manager, as often as five times yearly, a sworn statement of its condition, at such times as may be designated by the Comptroller of the Currency for National Monetary Co m mission statements from national banks; and at such other times and on such other dates as the clearing-house committee may require. Said statements shall be made in form and manner prescribed by the clearing-house committee. Said statements shall be open to the inspection of the members of this association, but otherwise shall be held strictly confidential." Many of the Chicago banks vol- untarily publish their statements, though no requirement of the kind is made by the clearing-house association. The daily clearings are the only regularly published statistics of the association. No items with restricted indorsements are allowed to go through the exchanges, the rule requiring that all checks and other paper for deposit shall be indorsed in blank, or simply "Pay to or order," without qualification. The expenses of the Chicago clearing house are met by an annual assessment of $750 upon each of the mem- bers, and the payment of the balance after that amount pro rata, according to the daily average of exchanges sent to the clearing house for the months of October, November, and December immediately preceding. The fines upon the members are devoted to the payment of expenses. The total annual appropriation for this pur- pose for many years was in the neighborhood of $8,000, but the increase in expenses incident to the occupation of new quarters has made a considerably larger appropria- tion necessary. The fines enforced by the Chicago clearing house are unusually heavy: For failure to be represented punc- 290 Clear in g-House Methods tually at the morning exchanges for the first five minutes, or part thereof, the fine is $3 ; for the second five minutes, or part thereof, $10; and for tardiness exceeding ten minutes, $25. So prompt, however, have been the members that the $25 fine has never been imposed, and in only a few instances has the $10 fine been assessed. Banks desiring to become members make a formal application to the clearing-house committee. The latter thoroughly examines their condition and standing and makes a report to the association. The applicant then may be admitted on receiving the affirmative vote of three-fourths of the members of the association. The members are required to pay an admission fee of $1,000, and to assent to the articles of incorporation and by-laws, thus being put upon the same footing as the original members. The by-laws provide that no new members shall be admitted except banks having their principal office located in the city of Chicago, organized under the laws of the United States or under the laws of the State of Illinois, and having done business therein, with their subscribed capital stock fully paid in, for a period of at least six months prior to the application for membership. It is further provided that no new member shall be admitted except banks having a paid-in capital of at least $500,000, which capital shall be kept intact during the membership. The assistant treasurer of the United States located in Chicago may, upon application, be admitted to membership without the payment of an admission fee, but shall have no voice in the manage- ment. Any member may withdraw at pleasure, first 291 National Monetary Commission paying its due proportion of all expenses incurred and signifying its intention to the clearing-house committee to withdraw. In many clearing-house associations it is easier to expel members than to admit them, the vote being a majority for expulsion and three-fourths for admis- sion. At Chicago, however, the conditions of admission and expulsion are the same, the requirements in each case being a vote of three-fourths of all the members. In many of the most important cities of the country clearing-house loan certificates have been issued from time to time in seasons of great pressure — for example, as in the panics of 1873 a-^^ 1893 — thus giving elasticity to the currency in times of greatest need and affording relief to the banks from the terrific strain upon them. In Chicago, however, up to 1907, such action had never been taken, although in 1893 the subject was under serious consideration and a vote of 15 to 9 was cast in favor of an issue. At this time extensive loans were made to the members who were most in need, the loans amounting to $1,745,000. This represents the largest amount ever loaned in Chicago in this manner, and it was all repaid within sixty days from date. On other occasions banks that have been temporarily embarrassed, and which upon the careful examination by the clearing- house committee were found to be solvent and in pos- session of collateral sufficient to secure their loans, have been promptly assisted by their fellow-members in the clearing house, each furnishing aid in proportion to its capital and deposits. In 1907, however, the conditions 292 Clearing-House Methods o ^. < a: d o D CO en d ^ 1 m O o Pi: < o Q notIneIcotiAbLe, u Sr -^ K w U PS "c Q- £ o u C (U ^')i National Mofietary Commission were such that the issue of loan certificates seemed a desirable step to take, and they were accordingly put out under the resolutions, and in the amounts, described in a special chapter on the subject. The Chicago clearing house has experienced various changes in the number of its members. The member- ship at one time was as high as 30, and, as already stated, is at present only 20; yet the record of clearings shows an almost uninterrupted increase from the beginning of the organization. No losses have ever occurred from the enormous trans- actions which have been repeated from day to day during the thirty-two years of the history of the asso- ciation. These exchanges are conducted by two men — the manager and one assistant — and their record is em- bodied in four books. One contains simply the copy of the manager's proof sheet, showing the debit and credit^ exchanges and balances of each bank, and the total of the same for all the banks. Another book, the items in which are posted from the first, contains a record of the daily debits, credits, and balances of each bank, kept apart from a similar record of each of the other banks. The third book contains a transcript of the total clearings and balances by days, weeks, and months. The fourth book is a record of the amount and kind of money paid by and to the several banks in settlement of balances. From these records the total transactions of each bank with the clearing house for a given period may be readily ascertained. The annual transactions beginning with 1865 have been computed and posted in this manner. 294 Clearing-House Methods In the rules of the Chicago clearing house due provi- sion is made for the administration of its affairs in all details. The several powers are lodged in a president, vice-president, manager, secretary, treasurer, and clearing- house committee. In addition, five directors are charged with the responsibility of attending to all matters per- taining to the corporate existence of the association, the Chicago clearing house being the only incorporated clearing house at present existing in America. The annual meeting is held on the third Tuesday in January, when the ofhcers, directors, clearing-house committee, and manager of the clearing house are elected by ballot. A majority vote of a quorum determines the result, a quorum being a majority of all the asso- ciated banks. At this meeting each member of the association must be represented by one or more duly authorized persons, and is entitled to one vote. Besides the general meetings, the president is required to call special meetings whenever he may deem it necessary, or whenever he is so requested by five members of the association, or by the clearing-house committee. The president and vice-president are constituted the officers of the association and must be elected from among the officers of members of the association. Upon the president, and in his absence upon the vice-president, de- volves the duty of presiding at all meetings of the associa- tion and of calling the special meetings under the condi- tions named above. The manager has immediate charge of all the business of the clearing house, subject to the con- trol of the committee. He supervises and directs the 295 National Monetary Commission work of the clerks and messengers while in the clearing house, and, in addition, is ex officio secretary and treasurer of the association. As treasurer, he has charge of the funds belonging to the association and disburses the same on the order of the clearing-house committee. He is required to keep a correct record of all the money received and disbursed on account of the association, and to sub- mit a detailed statement of the same at the annual meet- ing and whenever requested by the clearing-house commit- tee. As secretary, he keeps the minutes of the proceedings of the association in a book provided for that purpose. His salary is fixed by the association and he is required to give a bond with sureties in a sum of not less than $20,000, to be approved by the clearing-house committee. He is required to report to the committee all violations of the charter or by-laws that may come to his notice. He holds office until the next annual election, but is liable to suspension by the clearing-house committee or expulsion by the association. The clearing-house committee consists of five members and is elected by majority vote by ballot at the annual meeting of the association. Upon this committee de- volves the chief responsibility for the successful conduct of the affairs of the association. It is its duty when occa- sion demands to procure a suitable room or rooms for the clearing house, with all necessary articles for the con- venient transaction of its business. The committee ap- points the necessary clerks, establishes rules to be observed at the clearing house in cases not provided for in the con- 296 Clearing-House Methods stitution, but subject to the approval of the association, and has general supervision of clearing-house affairs. The clearing-house committee determines the assess- ment of each member for its quota of expenses, and orders the payment of bills by drawing on the treasurer for the same. The committee hears and determines all disputes arising between members of the association, when sub- mitted to it by the parties in dispute, thus performing a function sometimes discharged by a separate committee known as the " arbitration committee." A record of each case of dispute is kept in a book provided for that purpose, which book is kept at the clearing house and is open to the inspection of all the members. The committee fills vacan- cies in the offices or other committees, and has power to suspend the manager or any clerk, and any member of the clearing house, whenever such action is deemed ad- visable. Finally, it is the duty of the committee, when- ever it mav seem to be necessary, to examine any member of the association and establish a scale of fines for errors, disorderly conduct, or other irregularities of the repre- sentatives of the members. 20040 — 10 20 297 Chapter XIX. THE ST. LOUIS CLEARING HOUSE. EARLY HISTORY SCOPE OF MEMBERSHIP PLAN OF AD- MINISTRATION — MANAGEMENT OF CLEARINGS — RECORDS KEPT BY THE MANAGER. The members of the St. Louis Clearing House Associ- ation have stood together with remarkable unanimity on the uniform rates of collection which were introduced on March i, 1895, and their success is justly attracting the attention of similar associations throughout the country. The St. Louis association was organized in 1868, in the midst of the period of reconstruction and when the country was slowly recovering from the blight of civil war. At the beginning there were 35 members, and in five years the list had grown to 41. This was in the troublous time of 1873, when the institution of clearing-house loan certifi- cates first became general, and which has since proved invaluable in similar crises. St. Louis joined the other leading associations at that time in the issue of these certificates, but to what extent it is not known, the records, unfortunately, having been lost in a fire. In subsequent periods of financial stringency, except in 1907, the asso- ciation has not found it necessary to resort to the issue of such certificates, although in 1893 some of the mem- bers were hard pressed and obtained relief through the association. The' membership has greatly diminished since the date of organization, and, strange to say, is not 298 Clearing-House M e t h o d s half as great now as in 1873. Some failures have occurred, but the change has been due, in the main, to consolida- tion and to voluntary liquidation. Originally the membership embraced private banks, savings banks, and state and national banks, but now no private institutions are included. The present list com- prises 17 members, there being 9 state banks and trust companies, 6 national banks, and the German Savings Institution. Besides these, the post-office clears without the full power of members, and is assessed not in propor- tion to clearings, but for a definite amount, fixed at $40 a year. Banks may become members of the association by a two-thirds vote of all the members and by the payment of an admission fee of $1,000 in addition to the annual assessment for expenses; but, before applicants can be referred to the association for admission, their merits must be passed in review by the committee of manage- ment, and they must have a paid-up capital of not less than $500,000. Any member may be expelled by a three-fourths vote of the members for violation of any of the articles, by-laws, or rules of the association. Like- wise, any member may be suspended by the committee of management, provided a majority at least of the com- mittee is present, and that the vote of those present is unanimous. It will be noted that the vote for expulsion is greater than that required for admission. This is the reverse of the rule in most associations, for, ordinarily, it is easier to get rid of a member than it is to admit him to membership. 299 National Monetary Commission Besides the members, there are 35 outside institutions clearing through the association, 9 of which are trust companies, 16 are state banks, i is a savings bank, and 9 are national banks. The members clearing for outside banks and trust companies are liable for their checks and certificates of deposit, the same as for their own; and "their liability continues until after the completion of the exchanges of the morning next following the receipt of notice of discontinuance of such agency." Section 3 of article 1 of the constitution provides as follows : The officers of the association shall consist of a president and vice- president, who shall be selected from among the members of the associa- tion, and elected by ballot at a stated meeting in January, annually, and shall hold their offices until their successors are chosen and qualified, but shall not be eligible for reelection for more than two consecutive years Most clearing houses have embodied in their constitu- tions similar provisions, except that it is unusual to pro- vide that members shall not be eligible for reelection for more than two consecutive years. There are also elected at the same annual meeting a manager and committee of management, as opposed to the usual custom of appoint- ment of the manager by the clearing-house committee, and the election of the latter. In the hands of the com- mittee of management is placed the power to examine the books and accounts of any member of the association, whenever they may deem it necessary, and to employ ac- countants to aid in such examination. They are author- ized to suspend any bank from the privileges of the clear- ing house until the association has an opportunity to act upon it. Clearing-House Methods The president or, in his absence, the vice-president presides at all meetings of the association. He is re- quired to call meetings of the same whenever, in his opinion, the interests of the association require it, or whenever requested to do so by the committee of man- agement or any tfiree members of the association. The manager, in addition to the usual duties falling to his office, acts as secretary and treasurer of the association. Each member is required by the constitution to furnish the manager, for publication, "a sworn statement of its condition at such times as may be designated by the Comptroller of the Currency or the Secretary of State for statements from national or state banks, and at such times and dates as the clearing-house committee may re- quire. Such statements are made in the form and manner prescribed for statements from national and state banks, and are open to the inspection of members of the associa- tion." This provision applies with equal force to all banks not members of the association clearing through members, but not to trust companies enjoying such privi- leges. Such statements are now published in the daily press. The expense of printing is not borne equally by the members, but is apportioned in the same manner as the other expenses. Each bank pays $250 annually in ad- vance, and the expenses necessary after that amount are assessed quarterly upon the members according to the average daily amount of exchanges which each has sent to the clearing house during the preceding three months. Each nonmember clearing through a member pays $250 301 National Monetary Commission a year in advance, the manager, in January, sending a draft for this amount through the clearing bank against said nonmember. The fines, which amount to from $250 to $850 a year, are collected from the banks by the manager and are paid by the offending clerks or by their banks, according to the nature of the offense. The total expenses of the associa- tion average about $25,000 a year. We have now to analyze the operations as they take place at the clearing house from day to day, and in this we shall find that St. Louis differs in some important de- tails from associations in the East. The clearing room is a beautiful, centrally located apartment, and sufficiently elevated to command a delightful view of the city. Out- side of New York, it is the most commodious and best- lighted clearing room in the United States, but it is not so artistically equipped as the clearing room at Pittsburg. On each business day the clerks appear at the clearing room at 10.30 o'clock, except on Saturdays, and then at 9 o'clock, with their demands separately made out against each of the other banks, and with their items bound with a rubber band — not placed in envelopes, as is the case in most large cities. A facsimile of one of the lists used for the purpose is given in the illustration. Immediately upon his arrival each clerk delivers his items at the desks of the several members upon which they are drawn. The settling clerks sort, according to the number of the banks, the packages as they are deposited by the delivery clerks. In five minutes after the hour appointed for the ex- changes the settling clerks are in position, and at the tap 302 Debit List. St. Louis Clearing-House, 190 3 Boatmen's Bank 3 6 Central National Bank 6 7 Commonwealth Trust Co 7 11 Franklin Bank 11 13 German American Bank 13 14 German Savings Institution 14 15 St. Louis Union Trust Co 15 16 International Bank 16 19 Merchants' -Laclede Nat. Bank 19 21 Mercantile Trust Company 21 22 Mississippi Valley Trust Co 22 26 National Bank of Commerce 26 27 South Side Bank 27 28 State National Bank of St. Louis 28 29 Third National Bank 29 32 Mechanics American National Bank 32 38 Post Office ■ 38 Checks or other items cleared through a Member of this Association on a Bank or other Institution not a Member thereof shall be listed on and fastened to a separate slip, and the total footing of the slip entered as one item on the regular clearing slip. The clearing of such items loosely or in any other manner than herein provided is prohibited. Clearing Through Members. 13 German American Bank. 26 National Bank of Commerce. 29 Third National Bank. 26 National Bank of Commerce. 32 Mechanics-American National Bank. 32 Mechanics-American National Bank. Banks and Trust Companies. Bremen Ban k Broadway Savings Trust Co Cass Avenue Bank Chippewa Bank City National Bank Commercial Trust Co East St. Louis, Illinois State Trust Co. Bank East St. Louis, Southern Illinois Na- tional Bank East St. Louis, Union Trust and Savings Bank Farmers' & Merchants' Trust Co Grand Avenue Bank Granite City, First National Bank Granite City, Granite City National Bank . .Jefferson Bank .Jefferson & Gravois Trust Co Lafayette Bank Lemay Ferry Bank Tjowell Bank Madison, Ills. First National Bank Manchester Ban k Mercantile National Bank Northwestern Savings Bank Savings Trust Co Scruggs, Vandervoort & Barney Bank... Soutliern Commercial and Savings Ban k St. Louis County Bank Trust Company of St. Louis County Union Station Bank Vandeventcr Trust Co Washington National Bank Webster Groves — Bank of Wellston — J'irst National Bank Wei Iston— State Ban k West St. Louis Trust Co Broadway National Bank 29 Third National Bank. 32 Mechanics-American National Bank. 29 Third National Bank. 32 Mechanics-American National Bank. 7 Commonwealth Trust Co. 26 National Bank of Commerce. 29 Third National Bank. 29 Third National Bank. 26 National Bank of Commerce. 3 Boatmen's Bank. 29 Third National Bank. 32 Mechanics-American National Bank. 26 National Bank of Commerce. 29 Third National Bank. 21 Mercantile Trust Co. 29 Third National Bank. 29 Third National Bank. 3 Boatmen's Bank. 13 German American Bank. 21 Mercantile Tru.st Co. 11 Franklin Bank. 26 National Bank of Commerce. 32 Mechanics-American National Bank. 29 Third National Bank. 26 National Bank of Connnerce. 26 National Bank of Commerce. 29 Third National Bank. 16 International Bank. 29 Third National. Fac-simile of Debit List Used in St. Louis Clearincj-IIouhe. 303 National Monetary Commission of the bell the distributing clerks proceed in line around the room, passing along the sheet containing a list of their exchanges, to be receipted for by the settling clerks. The credit and debit exchanges and the balances are listed by the manager in the usual way on his proof sheet. After striking the balance he calls off the credit and debit balances and they are listed by the clerks on sheets pre- pared in blank form for that purpose and taken back to their banks. The taking of such copies is optional with the members, it being intended for the information of any banks that may desire them. Hence the representatives of some of the smaller members do not remain to take them, but return to their banks immediately after the proof. One hour after the exchanges the creditor members return to receive their balances, whereupon the manager issues to them his certificates of indebtedness by the debtor members, payable on demand to said creditor members "without recourse upon any member of the association after 2 o'clock p. m. of the same day, except the debtor members named in such certificates, and ex- cept on half -holiday Saturdays, on which days the cer- tificates of indebtedness are issued without recourse upon any member of the association after 11 o'clock a. m. of the same day, except the debtor members named in such certificates." Usually the manager's certificates are cashed at the counter of the debtor bank upon presentation of the same by the creditor bank, but sometimes they are certified by the latter and sent through the exchanges against them 304 ST. LOUIS CLEARING HOUSE. Date 190 Total Clearinqs $ balance:3. Banlc No Cr 3 Boatmen's, G Central National, 7 Commonwealth Tr. Co. 11 Franklin, 13 German American, 14 German Savings, 15 St. Louis Union Tr. Co. 16 International, 19 Mercliants'-Laclede. 21 Mercantile Trust, 22 Mississippi Valley Tr. Co. 2b , Nat'l Rank Commerce, 27 South Side, 28 State Nat. Bank, 29 Third National, 32 Mechanics' Am. Nat'i, 38 Post Office, TOTAL, ■ Form Used fuh Listing Balances in St. Louih Cj.EAiuN';-HoiiaE, 305 National Monetary Commission on the following day. Some banks, however, refuse to certify, but give a cashier's check to a creditor member in exchange for a manager's check held against them, and the former is sent through the exchanges on the follow- ing day. Manifestly there is no occasion for the appear- ance of the debtor memibers at the clearing house in the settlement of balances. Immediately, however, after issu- ing his checks to creditor members the manager fills out a blank giving the clearings and balances, as shown in the illustration, and delivers the same to the debtor bank. In this way the member banks know whether the amount of their balance, as reported to them by the clerk on his return from the exchanges, proves with that listed by the manager, and also what banks hold the manager's certificates of indebtedness upon them and in what amount. If the total of the manager's checks issued against them agrees with the amount of their balance, they know that to be correct the manager's checks presented at their coun- ter by the creditor members must agree with the amounts of the same as Usted on the card by the manager. This custom of delivering cards is practically unknown to other associations. The by-laws define proper matter for clearing as follows : 1. All checks or drafts upon or certificates of deposit, demand or matured, of any member of the clearing house or any bank or trust company clearing through any member. 2. Any other matter specially agreed to by any mem- ber or any bank or trust company clearing through it until notice is given to the contrary. 306 Clearing-House Methods ST. LOUIS CLEARING HOUSE. lOOI - -- t . ' 1 ClPtarlngSi . . - ^P BalcincOi • . . . $ No- Df^bit, . , , !p , , .Checks Favor. Nn. $ ,, ^, jj ,^ t( t( „ « • Form of Manager's Report of Cleabinqs, Balances, Etc, 307 National Monetary Commission 3. Mercantile or other paper payable at any bank or trust company when such clearance shall have been author- ized by the said bank or trust company, but not otherwise. All unstamped and illegibly stamped items shall be con- sidered improper matter for clearing. Express money orders, railroad and other pay checks are not, by the rules of the association, proper matter for clearing, but their clearing is allowed by consent of the banks at which they are payable, and only on conditions prescribed by such banks. Such orders and pay checks "must be Hsted on separate slips, fastened together firmly with the slips, and the full amount of them entered as one check upon the regular clearing slip." For violation of this rule any member is liable to a fine of $2 for clearing improper matter. The manager keeps the following records of transactions : 1 . A record of daily clearings and balances of each mem- ber. The same, by addition, is found for weeks, months, or years. 2. The clearings register showing the daily clearings, debits, and credits of each member. 3. A record of total credit clearings of each member by months. 4. A record of the clearings, debit and credit, by months for each member, a total of the same being made at the end of the year. 5. A monthly and annual total of the clearings of all the members. 6. A condensed record of the published bank state- ments. 308 Clearing-House Methods Although, as we have seen, there has been a great de- crease in the membership from the original number, the volume of exchanges has gone on increasing, and the asso- ciation now takes fifth rank among the clearing houses of the country. Thus we have reviewed the methods and manner of administration of our five largest clearing houses, and with a few minor exceptions, designed generally to meet some local condition, the conduct of the other clearing houses of the country is along very similar lines. 309 INDEX. "Acceptable matter" for clearing, 8, 49-51, 58. at New York, 2 10-2 11. at St. Louis, 306, 308. Administration of clearing house, 30-35. at Boston, 257-258 at Chicago, 295-297. at New York, 159-163. at Philadelphia, 234-236. at St. Louis, 300-301. Admission to membership. (See Membership.) Admission charges, at New York, 165. Admissions, committee on, t,t„ 34. at New York, 162, 165. Advertising, clearing house, 22. Agreement, New York clearing house, regarding outside collections, form of, 187. Ohio Bankers' Association, No. 2, for mutual protection in panic, 131-135- Altoona, Pa., reports on financial integrity at, 21-22. Application to clear for another bank, New York clearing house, form of, 173- Arbitration committee, 34. at New York, 163. at Philadelphia, 235. functions of, discharged by clearing-house committee at Chicago, 297. Arithmometer, use of, in foreign department of Boston clearing house, 271. Assessment, at Bo.ston, for printing and on nonmembers, 256. at Chicago, for expenses, 290. at New York, 21 1-2 13. Assets, need of elasticity in, of I)anks, 27. unavailable, cash settlements to counteract maintenance of, 27-28. Atlanta, Ga., clearing-house loan certificates issued at, 1893, 107, 109. clearing-house loan certificates, 1893, form of, 108. use of in general circulation, 109. plan for clearing country checks, 62-63. Austin, Tex., settlement of balances at, by option of cash or draft, 45. Authorization. (Sec Resolutions.) 3" National Monetary Commission Average condition, weekly statement of, form of, at Boston clearing house, for associated banks, to face 252. at New York clearing house, for associated banks, 183. for nonmember banks, No. 2, io face 184. at Philadelphia clearing house, for banks and trust companies, to face 230. Average daily clearings, at New York for fifty-five years, table, 217 at New York in 1906, 220. Averages, weekly statement, form of, at Boston, used by associated banks, 253- at New York, used by associated banks, 184. by nonmembers, 175. , by trust companies, 176. at Philadelphia, by banks, 228. Balance, definition of, 7, 36. Balances, borrowing and loaning of, at Boston, 247-252. borrowing and loaning of, at Boston, form used in transfer, 250. See also Balances, trading of. debit, manager's receipt for, at Boston, form, 248. ticket used in connection with payment of, at Boston, form, 246. listing, in St. Louis clearing house, form used in, 305. method for determining at New York, 55. paid in cash at New York for fifty-five years, 221. ratio of, to clearings, at New York, 220-221. settlement of. {See Settlement of balances.) striking instances of large and small amounts of. New York, 222. trading of, at Chicago, 284-288. orders used in transfer, 287, 293. report used in transfer, 283. Baltimore, clearing-house loan certificates, issued at, 1873, 83, 89. clearing-house loan certificates issued at, in 1893, 100. minimum rates of exchange established at, 16. settlement of exchanges in money at, 38. settling clerks' methods at, 52. Bank Clerks' Beneficial Association, clearing-house fines at Philadelphia donated to, 233. " Bank draft," or " banker's draft," definition, 6. Bank examiners, clearing house, 137-147. Bank, national. {See National bank.) Bank of America, depository for New York clearing-house, 204. Bank of the Union, expulsion of, from the New York clearing house, 164. Banks, associated, of Boston, statement of weekly averages of, form, to face 252. Sec also Boston clearing house. Bay City, Mich., alternation of clearing bank at, 48. "Bill," definition, 5. 312 Clearin^-Hotlse Methods " Bill of exchange," definition, 5. Binghamton, N. Y., settlements at, by drafts on another city, 45. Birmingham, Ala., clearing-house loan certificates issued at, 1893, 109-no. clearing-house loan certificates at, 1893, form, iii. Bond, given by clearing-house manager at Philadelphia, 236. Bookkeeping, Boston clearing house, foreign department, 271-273. calculating interest on loan certificates, 113-115. Chicago clearing house, 279-280, 294. "debits of exchange," and treatment of checks, 65. Borrowing and loaning of balances, at Boston, 44, 247-252. at Chicago, 44, 284-288. at Pittsburg, 44. comparison of methods of, at Boston and Chicago, 288. Borrowing, information concerning, secured by clearing-house bank exam- iners, 144. Boston clearing house, 240-274. administration, 257 borrowing and loaning of balances, 247-252, 288. clearing-house loan certificates, of 1861, 242-243. of 1873, 83, 86, 243. of 1890, 92, 93, 243. of 1893, 98-100, 243. of 1893, form of, 97. of 1895, 112, 243. of 1907, 123-124. of 1907, method of calculating interest on, 1 14-1 15. foreign slip and check ticket, form, 266. described, 269. foreign department, exchange ticket, form, 270. letter of transmission, form of, 272. receipt, form of, 268. receipt for pro rata charge on account of uncollected checks, form, 264. routine of clearing out-of-town items, 263, 265. settling sheet, form, 275. volume of business, 274. receipt, manager's, for debit balances, form, 248. national loan and, 243. outside banks and trust companies, rules, concerning, 254. routine, 243-245, 263. settling balances, method of, 44, 244. foreign, 263-265. ticket used with payment of debit balances, form, 246. weekly statement of averages by, form, to face 252. weekly statement to clearing house, by associated banks, form, 253. 20040 — 10 21 313 National Monetary Commission Buffalo clearing house, decorative scheme of room of, 48. clearing-house loan certificates, of 1893, 105. method of calculating interest on, 115. kinds of money acceptable in making settlements, 38. ratio of balances to clearings, 37. receipt, given by creditor banks on receipt of balances, form, 40. given to debtor banks on payment of balances, form, 42. uniform rates of exchange fixed at, 15. Building company. New York clearing house, 157-158. Building fund, New York clearing house, 156-157. Burroughs's arithmometer.in foreign department, Boston clearing house, 27 1 . California, contemplated plan of clearing-house bank examiners, 146-147. Camp, William A., manager of New York clearing house, 160. Canada, settlements in government legal-tender notes, 38. Canadian currency, uniform discount agreed on at Seattle, 23. Canton, Ohio, clearing-house check, form, 1907, 126. paychecks used at, 1907, 125. Cash balances paid in at New York clearing house for fifty-five years, 221. Cash settlements, recommended, 27, 28. Center, financial, defined, 6. Central agency, need of, to disseminate information regarding outstanding paper, 25. Centralization of banking, clearing houses a means to, 24. Certificates, building, of New York clearing house, 157-158. clearing house. {See Clearing-house certificates.) four kinds, 43. gold. {See Gold certificates.) issued by Treasurer of United States for clearing-house purposes, at Philadelphia, 227. manager's, at St. Louis, 304-306. of indebtedness at St. Louis, 304, 306. participating. New York, 1907, 118. Chairman of Clearing House Association, Boston, 257. Charge ticket, Boston clearing house, foreign department, how used, 265. Charleston, settlement optional by cable or draft at, 45. Chattanooga, advertising through clearing house at, 22. clearing-house loan certificates, 1893, 112. hour of exchanges, 49. Chester, Pa., reports on fraud required at, 22. Check, definition, 6. back of, showing indorsements after typical journey, 73. clearing house. {See Clearing-house check.) country, argument for charge for collection of, 74. collection of, 59-63. collection, typical procedure showing need of reform in, 64-74. 314 Clearing-House Methods Check — Continued. country — continued. difficulties of handling, 59, 60. plans for clearing of, 60, 61. typical journey of a, 64-74. uniform rates for collection of, 60. employer's pay. (See Pay checks.) face of, after typical journey, 6g. itinerary of, shown by map, 7 1 . "local," definition, 9. manager's. (See Manager's check.) methods of transport to clearing house, 52. Ohio Bankers' Association No. 2, agreement relating to, 133-134. Check ticket and foreign slip, Boston clearing house, form, 266. Chicago clearing house, 276-297. clearing-house bank examiners at, 138-140. clearing-house check, form, 120. clearing-house loan certificates, 1907, 121-124. fines for tardiness at exchanges, 53. settling balances, method of, 44. order on manager for balance due, form, 293. ratio on balances to clearings, 37. trading balances at, 284-288. reports used in, form, 283. transferring balance at, form of order, 287. Cincinnati clearing house, clearing-house checks of, 1907, 127. clearing-house loan certificates, 1873, 83, 89-90; 1893, 105. . form of, 1893, 104. errors in exchanges, method of preventing at, 54. no fine if reported immediately, 56. settling, time of, at, 43. ^ exceptional rule for, 52. Circulating certificates, or "scrip," use of, at Los Angeles, 1907, 129-130. Civil war, clearing houses in, 12. Boston clearing house in, 242. effect on clearings at New York, 218. "Clearance," definition, 5. "Clearing," definition, 4-5. Clearing, for nonmembers. (See Nonmembers, regulations concerning.) by telephone, at South Bend, Ind., 53. hours, at various clearing houses, 49. two, of Boston foreign department, 263. improper matter for, 51, 59. matter, 8,49-51,58,59. at New York, 2 10-21 1. at St. Louis, 306, 308. 315 National Monetary Commission Clearing — Continued . room, at New York, 190. at St. Louis, 302. Clearing house, definition, 4, 11. Clearing-house association, annual meeting, and representation in, 35. See also Administration and under names of cities. Clearing-house associations of California, plan for cooperation of, 146-147. Clearing-house bank examiners, 137-147. Chicago, 138-140. Kansas City, 144. Los Angeles, 144. Minneapolis, 140-141. New York, opposition to, 147. Philadelphia, 145. St. Louis, 141-143. St. Paul, 141. San Francisco, 144. Clearing house, building of New York, 213. Clearing House Building Company, New York, 213. Clearing-house certificates, circulating or "scrip," 129-131. gold coin and legal tender, suggested by Gallatin, 152. gold. New York, form of, face, 206. New York, form of, back, 207. Philadelphia, 225. kinds of, 75, 204. negotiable at Boston, 254. usee} in liquidation of balances, New York, 202, 204. Clearing-house check. Canton, Ohio, 1907, 125, 127. Canton, Ohio, form, 126. Chicago, 1907, 1 21-123. form of, 1 20. Cincinnati, 1907, 127. Cleveland, 1907, 127, 129. Clearing-house circulation certificates, 129-131. Clearing-house committee. See Committee, clearing-house.) Clearing-house due bills, at Philadelphia, 226, 227-229. Clearing-house gold certificates. (See Clearing-house certificates, gold.) Clearing-house loan certificates, 75-136. circulation of, not currency, 76. not used as money, except in South, 116. criticism of, met, 115-116. definition of, 75-76. effect of borrowing balances on, at Boston, 251-252. emergency circulation under this title in Southeast, 112. 316 Clearing-House Methods Clearing-house loan certificates — Continued, how used, best illustrated in East, 1 1. as protection in panic, 21, 45. in saving use of cash, 77. beneficial efi'ects of first issue of, 81. * interest on, method of calculating, 1 13-115. rates of, 78. rates of, on issues of i860- 1864, 81-83. rate of, at New York in 1873, 85. rate of, at New York, 1884, 90. Clearing-house loan certificates, issues, of 1860-1896, 80-113. of 1907, 1 17-137. Atlanta, 108. Baltimore, of 1873, 83, 89. forrn of, 99. Birmingham, Ala., iii. Boston, of 1873, 83, 243. of 1890, 92, 93, 94, 98. of 1893, form of, 97. of 1895, 112. of 1907, 123-124. of various dates, 243. Chicago, of 1907, 1 21-123, 292. Cincinnati, of 1873, 83, 89, 90. of 1893, form of, 104. Cleveland, of 1907, 127-129. Detroit, form of, 106. Fargo, N. Dak., of 1907, 129. form of, 128. lyOS Angeles, of 1907, 129. Louisville, of 1891, 95. New Orleans, of 1873, 83, 89. form of, 102. of 1879, 90. of 1893, 100. New York, of i860, 80, 81. of 1861, 1863, 1864, 82, 83. of 1873, 83. of 1873, form of, 84. of 1884, 90. of 1890, 91, 92. of 1891, 92. of 1893, 98. of 1907, 117-121. 317 National Monetary Commission Clearing-house loan certificates — Continued. New York — Continued. aggregate amount of since i860, 121. amount of used in settling balances in 1908, 208. attitude of members toward, 79. Oklahoma, of 1907, 131. Philadelphia, of 1873, 83, 86. of 1873, form of, 87. of 1890, 94. of 1893, 100. of 1907, 124-125. St. Louis, of 1873, 83, 89. of various dates, 298. redemption of, 78. in 1873, collaterals for, 85. smallest denominations issued, 1 10. Clearing-house loan committee. {See Committee, loan.) Clearing-house note depository certificates, proportion of used in settling balances at New York, 208. Clearings at New York, amount of first, 154. at New York, average daily, 220. for fifty-five years, 217. volume of, 217, 222. ratio of balances to, 220, 221. two a day, 50, 57. Cleveland, loan certificates and clearing-house checks issued at, 1907, 127. Coin certificates, 45. Coin, use of in settling balances at Boston, 244. Collateral, amount deposited to secure loans in panic of 1907, 135. Collecting. {See Collection.) Collection, definition, 7. charges, 15-20. See also Collection of items, cost of, Boston foreign department, 274. inclosure sheet, use of, 65. items, definition, 8. of checks, routine of handling, 64-74. of items, regulation of, 15-20, 25, 179, 185-187. uniform rates of, at St. Louis, 298. Collections, country or outside, Boston, 261-262. Kansas City, plan for, 61, 62. New York, 179, 185-187. Committee, arbitration, 33, 34. at Philadelphia, 235. at New York, 163. 318 Clearing-House Methods Committee — Continued. clearing house, 30, 32-33. at Boston, 257, 258. at Chicago, 140, 296-297. at New York, 161-162, 169. at Philadelphia, 234-235. reports of clearing-house bank examiners to, at Chicago, 140. conference, 33, 34. at New York, 162. exchange, 34-35. executive, 30, 32. loan, T,T„ 78. at Detroit, 107. at New Orleans, loi. at New York, 118, 161. nominating, 33, 34. at Boston, 257. at New York, 163. of management, 30, 32. at St. Louis, 300. on admissions, 33, 34. at New York, 162, 165. Committees, 32-35. Conference committee, duties and election of, 33, 34. at New York, 162. Consent to clear for another bank, form of, 174. Constitution of New York clearing house, drafting of, 154-155. provisions of, 159-179. Cost of collecting, Boston clearing house, foreign department, 261-262. Creditor banks, receipt given by, at Buffalo on receipt of balances, form, 40. "Credit ticket," of New York clearing house, 194. Country collections. {See Collections.) Courts, Pennsylvania, decision, that loan certificates are not money, 116. decree in Keystone National Bank case, 238. Currency certificates, 43, 44. Boston clearing house, 28-29. New York clearing house, 28-29. Currency, depositories for, 28. shipped by express, 25. system, defects of, cause of panic of 1907, 117. clearing-house loan certificates as a remedy for, 77. use of, in settlements at Chicago, 282. Curtis, George, drafting of constitution of New York clearing house by, 155. proposes committee on arbitration at New York, 161. amendment concerning nonmembers, 167. 319 National M o n e t ar y Commission Daily clearings, average at New York for fifty-five years, 217. at New York in 1906, 220. Danville, 111., settlement of balances direct between banks, 43. Dayton, Ohio, cashing manager's checks at, 43. Debit balances, form of ticket used in connection with payment of, at Boston, 246. list used in St. Louis clearing house, 303. " Debits of exchange," 65. Debtor banks, form of receipt given to on payment of balances at Buffalo, 42. Defaulting members, at New York, action regarding, 208, 209. at Philadelphia, rule concerning use of collateral security of, 232. Ohio Bankers' Association No. 2, treatment of, 133. Delivery clerk, duties of, at New York, 191, 195. "Delivery clerk's receipts," 192. Depository, coin, for clearing house indicated in Gallatin's "cash house," 152. of Boston clearing house, 254. Depository certificates, 44, 45. Deposits, of city customers, clearing-house rules concerning limitations, 20 Deposit ticket, Boston clearing house, foreign department, form, 266. Des Moines, Iowa, express money orders cleared at, 50. Detroit, appointment of loan committee, 1893, 107. clearing-house loan certificates used at, 106. two clearings a day at, 56, 57. Draft, defined, 6. Drafts, use of, in United States extensive, 58. use of, by smaller clearing houses foreshadowed by Gallatin, 153, growing, 58. Due bills, clearing-house, employed at Philadelphia, 227-229. form of, used at Philadelphia, 226. in Keystone National Bank failure, 237. loan certificates regarded as, 116. Edmunds, F. W., devised coin certificates, 45. Empire City Bank, expulsion of, from New York clearing house, 164. Employers' pay checks, use of, in Philadelphia panic of 1907, 124-125. Errors, adjustment of, at New York, 209. Cincinnati method to prevent, in exchanges, 54. fines for, at New York, 215-216. in exchanges, checking of, at New York, 200. reclamations for, at Boston, 245. at New York, 210. Examination of banks by Boston clearing-house committee, 255. Examiners, clearing-house bank, 26, 137-147. 320 Clearing-House Methods Exchange, charges for sale of, 20. definition of, 5. of drafts, daily at London, Gallatin on, 151. of items, results of, 36. premium on, at St. Joseph, 20. Exchange committee, 34-35. Exchanges, before clearing, at Chicago, 281. hour of making, 48. method of making, 48-49, 53, 54. at Chicago, 278-280, 281. at New York, prior to establishment of clearing house, 148-150. at New York, 190-202. at Philadelphia, 224. at St. Louis, 302-304. time taken to make, 55. volume of at New York, 217-222. See also Clearing, and Settlement of balances. Exchange slip, at New York, form of, 193. use of, 191, 195. Exchange ticket, Boston foreign department, 270. "Executive committee," 30, 32. Expenses, at Boston, for printing, 256. at Chicago, how met, 290. at New York, 211-212, 213. at Philadelphia, apportionment of, for printing, 233. at St. Louis, 301-302. Express money orders cleared in Des Moines, 50. Expulsion, at Boston, rules concerning, 256. at Chicago, rules concerning, 292. at New York, 164, 166. at St. Louis, 299. Failure, action of Boston clearing house in cases of, 255-256. provision for protection against, by Ohio Bankers' Association No. 2, 133- Failures, in history of Philadelphia clearing house, 236. of Marine Bank and Wall Street Bank in 1884, effect on clearing house at New York, 219. result of, in regulations for nonmembers at New York clearing house, 168-169. treatment of, by Chicago clearing house, 277, 278. use of clearing-hou.se bank examiners to prevent, 137. Fall River, Mass., draft, 45. two clearings a day, method described, 56. Fargo, N. Dak., items for outsiders cleared at, 50. clearing-house loan certificates at, form, 128. in 1907, 129. 321 National Monetary Commission Farmers and Mechanics' National Bank, depository for Philadelphia clear- ing house, 225. Financial depression of 1890, forces leading to, 91. stringency. {See Panic.) Fines, abuse of loan certificates restricted by, 116. for failure of bank to meet its requirements, 38. lateness at clearing, amounts of, 53. mistakes, 55. in Boston clearing house, foreign department of, 267. in Chicago, 290, 297. for errors, 280. for violation of regulations, 284. in Cincinnati, none for mistakes if reported at once, 56. in New York, 198, 214, 215, 216. collected from 1885 to 1908, 214. for transferring loan certificates to nonmembers, 204. in Philadelphia, 233. in St. Louis, 302. for clearing improper matter, 308. *' First ticket," at New York, 191. form of, 194. Foreign department of Boston clearing house, 259-275. See also Boston, foreign department. Foreign slip and check ticket, Boston clearing house, form, 266. description, 269. Forfeiture of privileges at St. Joseph, Mo., 19. Forgan, J. B., on clearing-house bank examiners, 138. Forms: agreement to comply with rules regarding outside collections, New York, 187. application to New York clearing house to clear for another bank, 173. check, after typical journey, back, showing indorsements, 73. after typical journey, face, 69. issued by group 2, Ohio Bankers' Association, 130. clearing house. Canton, Ohio, 126. clearing house, Chicago, 1 20. clearing-house loan certificates, Atlanta, 108. Baltimore, 99. Birmingham, Ala, m Boston, 97. Cincinnati, 104. Detroit, 106. Fargo, N. Dak., 128. New Orleans, 102. New York, 84. Philadelphia, 87. 322 Clearing-House Methods Forms — Continued. consent of New York clearing house to clear for another bank, 174. debit list, St. Louis, 303. due bills, Philadelphia, 226. exchange slip, New York, 193. exchange ticket, Boston, foreign department, 270. foreign slip and check ticket, Boston, 266. gold certificate, New York, back, 207. face, 206. letter of transmission, Boston, foreign department, 272. listing balances, form used in, at St. Louis, 305. National bank statements, form used in tabulating at New York, 181. order used in transferring balances that have been loaned, Chicago, 287. on Chicago clearing-house manager for balances due, 293. proof sheet, New York, 201. receipt, given by foreign department, Boston, 268. given for pro rata charge on account of uncollected checks, Boston foreign department, 264. given by creditor banks on receipt of balances, Buffalo, 40. given to debtor banks, on payment of balances, Buffalo, 42. manager's, for debit balances, Boston, 248. manager's, New York, 205. settling clerk's. New York, 196. report, manager's, of clearings, balances, etc., St. Louis, 307. settling clerk's, of daily balances. New York, 203. used in trading balances, Chicago, 283. resolution authorizing exchanges through a member bank. New York, 172. settling sheet, Boston foreign department, 275. settling clerk's statement. New York, 197. State bank statements, form used in tabulating, at New York, 182. statement required of trust companies. New York, 180. statement, required of trust companies by New York Clearing House Association, 180. statement, daily, by banks of Philadelphia, 230. statement, weekly, of average condition, Boston, of the associated banks, to face 252. New York, of the associated banks, 183. New York, of nonmember banks, to face 184, No. 2. New York, summary of, to face 184, No. i. Philadelphia, of banks and trust companies, to face 230. of averages, Boston, used by associated banks, 253. New York, required of associated bank.s, 184. New York, required of nonmember banks, 175. New York, required of trust companies, 176. Philadelphia, required of banks, 228. 323 National Monetary Commission Forms — Continued. ticket, first or credit, New York, 194. second, New York, 199. small, New York, 193. used in connection with payment of debit balances, Boston, 246. Fort Wayne, Ind., advertisements, 22. cashing manager's checks at, 43. Fourth National Bank, failure of, in Philadelphia, 236. Fraud, cooperation to prevent, 22. Frederick, Md., option of cash or draft in settlements at, 45. Fremont, Ohio, draft, 45. Furniture, arrangement of, in clearing house, 47. Gallatin, Albert, suggestion for clearing house, 151-153. Gibbons, J. S., on early exchange methods in New York, 149-150. Gilpin, William J., manager New York clearing house, 160. Gold certificates, clearing house, on subtreasuries, recommendation for en- largement of, restriction of, 26. clearing house, at New York, 202, 204. form of, face 206. form of, back 207. settling balances with, 202, 208. United States, used in settling balances in New York, 202, 208. Gold coin and notes, fund of, at Boston, 254. handling of, in settling balances at Boston, 244. method of handling, at Chicago, 282. packages of, rules concerning, at Milwaukee, 39. used in settlements at New York, 202. depository certificates, 45. Hamilton, Canada, money acceptable in clearing house at, 38. Hartford, Conn., draft, 45. Hastings, Nebr., banks alternate weekly as clearing house, 48. History of clearing houses in United States. {See under names of cities.) Holyoke, Mass., draft, 45. Houston, Tex., regulation of rates of exchange by clearing-house association of, 16, 17. Inclosure sheet, collection, use of, 65. Indorsements, facsimile of, on check after typical journey, 73. requirements for, 51. restricted, 51. at Chicago, 290. at New York, 211. Insolvency, action in case of, of members at New York, 209. Interest, method of calculating on clearing-house certificates, 113-115. rates of. {See Rates of interest.) 324 Clearing-House Methods "Item," definition 'of, 8. Items, included in statements at Boston and New York, difference in, 255. number reported at New York and Philadelphia, 231. Itinerary of a check on a typical journey, 70-72. Jacksonville, Fla., option of cash or draft in settlements at, 45. cashing manager's check at, 43. Jacksonville, 111., banks alternate monthly as clearing house, 48. Kansas City, Mo., option of cash or draft in settlement at, 45. cashing manager's checks at, 43. plan for clearing country checks, 61, 62. system of clearing-house bank examiners at, 144. Keystone National Bank and loan certificates in 1890, 94. failure of and litigation of clearing house at Philadelphia over, 236-239. Law, New York State banking, as affecting relation of trust companies to clearing house, 177-178. Ledger, progressive, use of, in Boston foreign department, 273. Legal tenders, clearing house, used in settling balances at New York, 208. United States, used in settling balances at New York, 208. Letter of transmittal, form of, of foreign department of Boston clearing house, 272. Liability, for manager's check, 43. Liquidation of balances, action on, by Boston clearing house in 1857, 242. use of clearing-house certificates in, at New York, 204. Listing balances, form used at St. Louis clearing house, 305. Loan certificates. {See Clearing-house loan certificates.) Loaning and borrowing of balances. {See Borrowing and loaning of balances.) Loan committee. {See Committee, loan.) Loans, clearing-house bank examiners' reports on, at Chicago, 139. "Local check," definition, 9. London, system of exchange of, referred to by Gallatin, 151. Los Angeles, clearing-house bank examiners at, 144. issue of loan certificates and circulating certificates at, 1907, 1 29-131. gold acceptable in settlement, 38. two clearings a day at, 56, 57. Loss, provision in case of, at Boston, in issuing loan certificates in 1907, 123-124. provisions against, by New Orleans banks, 103. Losses, absence of, at Chicago, 294. usefulness of clearing-house bank examiners in providing for, 138. Louisville, Ky , fine for mistakes, 56. loan certificates, issue of, 189 1, 95. method of calculating interest on loan certificates at, 115. 325 National Monetary Commission Lowell, Mass., bank to act as clearing house chosen at annual meeting, 48. draft, 45. Lyman, George D., manager of New York clearing house, 160. Manager of clearing house, 31. at Boston, 258. foreign department, 260. at Chicago, 295-296. at New York, 160. at Philadelphia, 236. at St. Louis, 300, 301. Manager's check, liability for, 43. settlement by, 43-44. at Philadelphia, 229. Manager's certificates, at St. Louis, 304-306. Manufacturing concerns, compelled payment of loans, 27. Massachusetts and foreign department of Boston clearing house, 259. Matter for clearing, 8, 49-51, 58, 59. at New York, 2 10-2 11. at St. Louis, 306-308. Meetings of clearing-house association, annual, at Boston, 257. at Chicago, 295. at New York, 159. Membership, clearing-house association, Boston, 256. Chicago, 276-277, 291. changes in size of, 294. New York, 163-166. table of 1854-1908, 217. Philadelphia, 234. St. Louis, 299. Middle States, rate of collection in, 18. Milwaukee, fines for being late at clearing, 53. kinds of money acceptable in settlement at, 38 packages of currency, rules for handling of, 39. Minneapolis, advertising committee, 22. clearing-house bank examination at, 140-144. fine for being late at clearing at, 53. Money, labeled packages, rules concerning, 39. Montreal, Canada, drafts on, 39. Morning exchange, at Philadelphia, 224. National bank notes, shortcomings of, in panic of 1893, 95. National bank statements, tabulation of, at New York, form, 181. National clearing house, argument for, 60. National currency act, 1859, effect on clearings at New York, 219. National loan and clearing houses in 1861, 243. 326 C/eart7tg--House Methods New England, and Boston clearing house, 259. banks, and Suffolk Bank in panic of 1857, 241. correspondents of Boston clearing house, 274. drafts on Boston clearing house, 46. New Haven, Conn., matters cleared at, 50. New Orleans, clearing-house loan certificates, of 1873, 83, 89. clearing-house loan certificates of 1879, 90. of 1893, 100-105. of 1893, form of, 102. of 1896, 113. hours of exchanges, 49. manager's checks at, 43. matter cleared at, 50. settlement of balances at, by option of cash or draft, 45. New York clearing house, 148-179. and national loan, 243. application to clear for another bank, form, 173. balances paid in cash at, in fifty-five years, 221. bank examiners, clearing house, proposed, 147. building company, 157-158. clearing-house loan certificates, of i860, 80, 81 of 1861, 1863, 1864, 82, 83. of 1873, 83. of 1873, form, 80, 81, 84. of 1884, 90. of 1890, 91-92. of 1891, 92. of 1893, 98. of 1907, 1 17-121. clearings for fifty-five years at, 217. collections, outside, rules for, 185-187. consent to clear for another bank, form, 174. building, cost of, 159. committees, 33, 118, 161-163, 169. exchange and currency of, how treated at Boston, 267. exchanges through a member, text of resolution authorizing, 172. time taken to make, 55. exchange slij), form, 193. expenses, 211, 213. fines, amounts of, collected from 1885 to 1908, 214. locations of, 155-159. manager's receipt, form, 205. national bank statements, tabulation of, form, 181. nonmembers, regulations concerning, 166-178. origin, 153-154. proof sheet, form, 201 327 National Monetary Commission New York clearing-house — Continued, ratio of balances to clearings. 37 records, kinds kept, 187-189. "second ticket," form, 199. settling balances, proportion of money and certificates used i:i, 208. settling clerk's receipts, form, 196. settling clerk's report of daily balances, form, 203. "small ticket," form, 193. State bank statements, tabulation of, form, 182. trust companies, relationship to, 170-178. form of statement required from, 180. weekly averages, statement of, required, from associated banks,form, 184. from nonmembers, form, 175. from trust companies, form, 176. weekly statements of average condition, for associated banks, form, 183. for nonmember banks, to face 184, No. 2. summary of, for associated banks, to face 184, No. i. New York State banking law, effect on relation of trust companies to clearinghouse, 177-178. New York Stock Exchange, closing of, in 1873, 85. Nominating committee, 23, 34- at Boston, 257. at New York, 163. Nonmembers, regulations concerning, 25. assessment on, at Boston, 256. New York, 212-213. bank examiner's operations extended to, at Chicago, 139. Boston, 254, 288. Chicago, 288-289. New York, 166-178, 288. application to clear for another bank, form, 173. consent to clear for another bank, form, 174. resolutions authorizing exchanges through a member bank, 172. Philadelphia, 288. St. Louis, 300-302. weekly statement of average condition of, by New York clearing house, form of, to face No. 2, 184. weekly statement of averages, made to New York clearing house, form, 175- Notes, deposit of, at Boston clearing house, 254. in the settlement of balances at Boston, 241 Northwestern National Bank, trading of balances by, 285. Obligation, delivered by banks at New Orleans in return for loan certifi- cates, 103. Officers of clearing house, at Philadelphia, 234-236. enumerated, 30. 328 Clearing-House Methods Ohio Bankers' Association No. 2, agreement to provide for protection against "runs," 131-135. check issued by, form, 130. Oklahoma, loan certificates, 1907, 131. Order used in transferring balances that have been loaned, Chicago, form, 287. on manager of Chicago clearing house for balance due, foira, 293. Out-of-town checks, provisions for handling, at Boston, 259, 260. See also Checks, country. Out-of-town collections, amendment of constitution of New York clearing house concerning, 179. Out-of-town items, schedules of rates of exchange on, fixed by exchange committee, 35. See also Collections. Outside institutions. See Nonmembers. Packages, rules concerning, at Boston, 245. of checks in foreign department, at Boston, 265. of money, at Chicago, 282, 284. at Boston, 244. transferred at New York, 202. Panic, clearing-house loan certificates as protection in, 12, 21, 116. assistance by clearing houses in, 24, 76. of 1857, at Boston, 241-242. of 1861, at New York, 218, 219. of 1873, 83, 85. at Boston, 243. at Chicago, 277. of 1884, at New York, 90. of 1893, 95-112. at Boston, 1 12. at St. Louis, effect at, 298. of 1907, effect at New York, 11 7-1 18. at Chicago, 292-294. at St. Louis, 298. clearing-house loan certificates in, 1 17-136. illustrating need of clearing-house bank examiners, 138. currency system as cause of, 117. attitude of clearing houses in, 135. pay checks, issue of, by railroads, 136. Ohio Bankers' Association, No. 2, agreement for mutual protec- tion in, 131-135. Participating certificates, used at New York, 118. Pay checks, at Canton, Ohio, 1907, 125-127. employers' use of, at Philadelphia, 1907, 124-125. use of, by railroads, 1907, 136. 20040—10 22 329 National Monetary Commission Penalties. See Fines. "Personal checks," definition of, 9. Philadelphia clearing house, 223-239. clearing-house bank examiners installed, 145-146. clearing-house loan certificates of, 1873, 83-87. of 1890, 94. of 1893, 100. of 1907, 124-125. method of calculating interest on, 114. daily statement employed by banks of, form, 230. due bill issued at, form, 226. national loan and, 243. ratio of balances to clearings at, 37. reports on fraud, 22. weekly statement of average condition of banks, to face 230. weekly statement required of banks, 228. Pittsburg clearing house, arrangement and furniture of, 48. clearing-house loan certificates of, 1893, 105. committees of, 2,2 . mode of settling balances at, 44. ratio of balances to clearings at, 37. Portland, Me., clearing house, advertising, 2t,. Portland, Oreg., clearing house, kinds 01 money acceptable in settlement of balances at, 38. Post-office, New York, clearings by, 164. St. Louis, clearings by, 299. President of clearing house, duties of, 30. at Chicago, 295. at New York, 159-160. at Philadelphia, 235. at St. Louis, 301. Printing expenses, at Boston, 256. at New York, how met, 212, 213. at Philadelphia, how apportioned, 233. at St. Louis, 301. Progressive ledger, use of, in foreign department of Boston clearing house, 273- Proof, method of arriving at, at Chicago, 280. at New York, 198. at St. Louis, 306. " Proof clerk," 195. Proof sheet, clearing house, at New York, form, 201. Protection, measures for, at Altoona, Pa., 21-22. at New York, against insolvency of nonmembers, 167-168. at New Orleans, in connection with loan certificates, 105. 330 Clearing-House Methods Providence, furnishings of clearing house at, 48. Rate of collection, in Middle States, 18. uniform, clearing houses fix, 2. at St. Louis, 298. Rates of exchange, schedules adjusted by exchange committee, 35. Rates of interest, clearing-house regulations of, on local loans, 14. agreements concerning, 25. on borrowing balances, at Boston, 251. on loan certificates in panic of 1907, 135. uniform, 13, 25. Ratio of balances to clearings, at Buffalo, 37. at Chicago, 37. at New York, 37, 220-221. at Philadelphia, 37. at Pittsburg, 37. at St. Louis, 37. what it depends on, 37. Receipt, forms of. {See Forms, receipts.) Reports, forms of. {See Forms, reports.) at Philadelphia and New York, 231. of clearing-house bank examiners at Chicago, 139-140. at Minneapolis, 140-14 1. at St. Louis, 142-143. Reclamations for errors and deficiencies, at Boston, 245. at New York, 210. See also Errors. Records, kept, at New York, 187, 208. at Chicago, 294. at St. Louis, 308-309. Relief, provisions for, in panic, by Ohio Bankers' Association No. 2, 131-135. See also Protection ; Panic. Reserves, bank, form of, at New York, in 1907, 117. cash, regulations concerning, of nonmembers at New York, 177-178, 179. Resolutions, authorizing clearing-house checks, Chicago, 1907, 1 21-123. authorizing clearing-house loan certificates, Boston, 1890, 92-93. New Orleans, 1893, 100-103. New York, 1907, 118. Philadelphia, 1890, 94. authorizing exchange through a member bank at New York, 172. regarding jjay-roll checks, Philadelphia, 124-125. relating to nonmembers. New York, 168-178. Responsibility, of New York clearing house, 209. Restricted indorsements, at Chicago, 290. at New York, clearing items with, 211. 331 National Monetary Commission Resumption of specie at Boston, 1857, 242. effect of, in 1879, on clearings at New York, 219. See also Specie payments. Richmond, Va., clearing-house loan certificates at, 1893, no. Rochester, N. Y., collection charges, 16. prohibition against inducing customers to change accounts, 23. option of cash or draft, in making settlements, 45. Rockford, 111., matters cleared at, 50. Routine, daily, of clearing house at Boston, 243. at Chicago, 278-284. at New York, 190. at St. Louis, 302-306. suggestions afforded by, in foreign department of Boston, 260. "Runners," at Philadelphia, 224. Runners' exchange, at Philadelphia, 224-227. Saginaw, Mich., option of cash or draft in settlements, 45. St. Joseph, Mo., clearing house, committee, 32. bank examiners, 144-145. rules concerning collection, 19, 20. interest, 13. persons to whom exchange may be sold, 20. premium on exchange, 20. St. Louis clearing house, 298-309. bank examination at, system of clearing house, 141-143. collection charges, 17, 18. » debit list, 303. issue of loan certificates, 1873, 83, 89. listing balances at, form used in, 305. manager's report of clearings, balances, etc., form, 307. ratio of balances to clearings at, 37. rules concerning charges for exchange, 20. St. Paul clearing house, clearing-house bank examination at, 141. matters cleared at, 50. money acceptable in settlements at, 38. San Francisco clearing house, clearing-house bank examination at, 33, 144. money acceptable in settlements at, 38. Savannah, Ga., clearing house, matters cleared by, 50. rates of interest, 14. Scotland, banks of, system of clearing of, referred to by Gallatin, 151. Scranton, Pa., clearing house, matters cleared at, 50. "Scrip," or clearing-house circulating certificates, use of, at Los Angeles, 129-131. Seattle, Wash., clearing house, discount on Canadian currency at, 23. "Second ticket," 195, 199. 332 Clearing-House Methods Secretary of clearing house, duties of, 31. at Boston, 257. at Chicago vested in manager, 296. at New York, 160. at Philadelphia, 235. at St. Louis, vested in manager, 301. Settlement of balances, clearing houses divided according to methods of, 2. definition, 9. by cash, recommended, 28. by circulating notes, Boston, 1857, 241. by currency certificates, 28. by manager's check, 43. methods of, 37-46. with money, 38-41. without money, 41-46, 229. suggestions for improvement in, 26, 27. at Boston, 44, 244, 260-274. at Chicago, 44, 281-284. at New York, prior to establishment of clearing house, 149-150. details of, 202. first plan for, 153-154. at Philadelphia, 225, 229. at Pittsburg, 44. at St. Louis, 304-305. out of town, by Boston foreign department, 260-274. record of money and certificates used in, kept at New York, 208. in trading balances at Chicago, 286. Settling clerks, rules concerning, at Baltimore, 52. at Cincinnati, 52. at New York, 191, 195, 198. fines for mistakes of, 55. methods of, in making exchanges, 52-53. receipts, at New York, form, 196. reports of, at New York, form, 203. statement, at New York, form of, 197. at Boston, foreign department, 271. at Boston, foreign department, form, 275. Settling sheet, at Boston, form, 275. See also Settling clerks, statement. Sherer, William, manager of New York clearing house, 160. Silver, clearing-house certificates, used in settling balances at New York 208. coin, objections to, 39-41. use of, in settling balances, at Boston, 244. 333 National Monetary Commission Sioux City Clearing-House Association, maximum rate of interest, 13. Sixth National Bank, effect of looting of, on regulations for nonmembers at New York, 169. Slip, foreign and check ticket, of Boston clearing house, form, 266. "Small ticket," use of, at New York, 192, 198. facsimile of. New York, 193. South Bend, Ind., clearing house, telephone method used in clearing at, 53. Specie, encouragement to use of, by Boston clearing house, in 1857, 242. management of, in exchanges, in early New York banking, 150. payments, resumption of, in 1879, efTect on clearings at New York, 219. suspension of, at New York and Boston, 1857, 241, 243. Spring Garden National Bank, and issue of loan certificates in 1890, 94. Statements. {See Forms, statements.) Stock Exchange clearing house, establishment of, at New York and effect on clearings, 220. Subtreasuries, 28. Subtreasury, United States, membership of, in New York clearing house association, 163, 164. Suffolk Bank and Boston clearing house in panic of 1857, 241. Superintendent of banks, California, appointment of, supersedes plan for clearing house bank examiners, 147. Suspension of members, at Philadelphia, 234. * power of, at Boston, 257. of specie payments, at New York and Boston, 1857, 241, 243. Syracuse, N. Y., clearing house, draft used in settlement at, 45. Tables: balances paid in cash at New York in fifty-five years, 221. clearings for fifty -five years at New York, 217. fines collected by New York clearing house association from 1885 to 1908, 214. volume of business handled annually by foreign department of Boston clearing house, 274. Ticket. {See Forms, ticket.) Trading of balances. {See Borrowing and loaning of balances.) Transfer of balances. {See Borrowing and loaning of balances.) Transfers by cable or telegraph, charges for, 20. Transmittal, letter of, Boston foreign department, form, 272. Treasurer of clearing house, duties of, 31. duties of, vested in manager, at Chicago, 296. at St. Louis, 301. of the United States, certificates issued by for clearing house purposes at Philadelphia, 227. Trust companies, on requirement of cash reserve by New York clearing house, 178. statement required of, by New York clearing house association, form of, 180. 334 f >;5™'l"V^§'""6d438 8210 HG 2306 C16c ^^TY or UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 108 349 * , , tSH^^^^^^^^K.. . •