lifl *'m*. ^^^^f. ' Tate System of the London Bankers ' Clearances THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES THE SYSTEM OF THE LONDON BANKERS CLEARANCES, AND THEIR EFFECT UPON THE CURRENCY. EXPLAINED AND EXE5IPLIF1 EI) BY FORMULAE OF THE CLEARING-HOUSE ACCOUNTS. BY W. TATE, AutJwr of " The Modern Cambist,'' &-c. i^c. LONDON: EFFINGHAM WILSON, 18, BISHOPSGATE STREKT WITHIN. 1 81 1 . tONDON : Printed by Maurice and Co., Fenchiirch-street. Mr. Tate respectfully announces that he receives a limited number of Pupils, for the purpose of expeditiously completing them in those branches of Education which are required to render them efficiently useful, at the commence- ment of their practice in the Counting House. The arrangements comprise the chief advantages of Pri- vate Instruction, affording an opportunity to Gentlemen filling commercial appointments, of obtaining, at such hours as may best suit their convenience, either during the day or evening, any extent of information that may be demanded, to enable them to take charge of the books and accounts of the first British and Foreign Commercial and Banking Houses. Private Lessons are given to Foreign Gentlemen in the English Language. Prospectuses may by obtained of Mr. E. Wilson, 18, Bishopsgate Street Within. 5, Warnford Court, Throgmorton Sired . PREFACE The system of Clearances adopted by the principal bankers of London, to facilitate the settlement of their mutual claims, has long enjoyed much celebrity, as afford- ing an example, of its kind perfectly miiquc, of economy of time and labour. It has also, of late, attracted the attention of inquirers into monetary operations, from the influence which it is considered to have upon the Currency, by its obviating the necessity' of retaining unproductive such great amounts of capital and deposits, as the daily payments of those bankers would otherwise demand ; and " the Select Com- mittee of the House of Commons, appointed to inquire into the effects produced on the circulation of the country by the various banking establishments issuing notes pay- able on demand,''"' seem to have entertained the same opi- nion, by ordering accounts to be furnished by the Clearing Hankers of the amounts of the payments whicli have thus 11 PHEFACK. been settled, and of the actual sums of money with which they were liquidated. By this measure, a greatly increased degree of interest has been given to the subject ; and it is therefore presumed, that an accurate description of the modus operandi will not be unacceptable to the public, as presenting better means of arriving at correct conclusions on the effect of the system, than are furnished by the limited data of those disclosures. The author takes this opportunity of returning his thanks for the admission, which was kindly granted to him, into the guarded precincts of the Clearing-house, and for the valuable assistance which he received in his investiga- tion of the details of its arrangements. BANKERS' CLEARANCES. The general regulations for conducting the business aii.sing from the Bankers'" mutual clearances, are prescribed by a committee of the Clearing Bankers of London, who arc in some measure limited in their number,* as those who are not general bankers do not require the aid which these clearances afford, and those whose banking-houses are at a considerable distance from the place in which the clearances are carried on, cannot avail themselves of this advantage, from the impossibility of keeping up that rapid communication which the settlement of some portion of tlic business demands. The Bank of England, and all Jtjint-stock banks, are not, however, members of this as- sociation. The daily transactions of the clearing-house f arc ma- • The names of the first of the fiims of the present twenty-seven clcaring-hankerS} arranged in the alphabetical order in which their desks are placed in the clearing-house, are Barclay, Dorrien, IMasterm.m, Stevenson, Barnard, Fuller, Prescott, Stone, Barnetts, Glyn, Price, Veres, Bosanqiiet, Fl anbury, Robarls, Weston, Brown, Ilnnkey, Rogers, Williams, Curries, .Tones, Smith, Wdlis. Denison, Lubbock, Spooner, t The clearing- house, a term used in the same acceptation ns banking- house, or counting-house, i> in a building erected for tliat jiurpose on the iiaged l)y tlie representatives, called clearers or clearing clerks, of these bankers, together with two inspectors, who are appointed by the committee to check and authen- ticate the results of the operations. They may be de- scribed under the three divisions of the morning's clear- ance, the aftcrnoon"'s clearance, and the transfer and set- tlement of the balances, the latter being the chief peculi- arity, and forming the principal advantage, of the system. Tile morninc;''s clearance begins at the bankino:-house with the clearer's sorting of the bills, checks, and orders held by his house on the other banking-houses, receipting the bills* and crossing the checks -f which require it with the firm of his house, and then entering the amounts in his " Clearingvhouse Book," (or ledger,) to the debit of the bankers by whom they are payable, writing on the out- side of each parcel or charge the amount of its contents. site of a part of the late Foreign Post-Office, in Lombard-street. It was previously in a part of the house belonging to the banking-house of Messrs. Smith, Payne, and Smiths. Before that time it was in a house in tlie old narrow part of Lombard-street, and originally, when the business was on a very confined scale, in a part of the banking-house of Messrs. Barnetts and Co. ; unless it is true that a post at the corner of Birchin- lane and Lombard-street formed the original clearing-house for two or three clerks who met at it, and made it their place of exchange. * In most large houses of business, the greater part of this preparation for the clearances is done on tlie preceding evening, and the entries of bills in the clearing-house book are even made a day or two before the day of clearance. f To cross a check, is to write the firm of the bankers by whom it is to be received across the front of it. Tiiis is usually done by the person hawing or delivering a check, upon giving it to another who keeps an account with a banker; and as such check when drawn upon a clearing banker commonly passes through ihe clearing-house, the crossing of it ! These bills, &c ,♦ arc previously also entered in the •' Re- ceived Clearing Book," or, as it is more generally called, the " Clearing Book Out," which is kept at the banking- house, both to serve as a check upon the " Clearing-house Book," and to assist in letting the state of the account and the balance be known to the principals. Shortly before eleven o'clock, f or earlier with large houses or on days of heavy business, the clearer proceeds to the clearing-house, and deposits with the other clearers, in the order of their seats, the packets with which he has charged their accounts : he then takes his own scat, enters to the credit of the other bankers the charges which they have deposited with him ; investigates, if necessary, with the other clerks the cause of any difference there may be be- tween his amounts and the amounts with which their charges are endorsed; and having settled hi< morning's business, he returns with those charges and his book to (he banking-house. During the interval between the morning's and the after- serves the double purpose of being a record of the payment in llie banker's books, and of preventing tlie fraudulent obtaining of cash for it, in case of its being either stolen or lost. To persons who iire well known, crossed checks are, however, if so required, paid over the counter. Many bankers, and invariably the Bank of England, refuse to receive any check which is crossed mou.' than once, or on which tlic original crossing lias been cancelled. • Country bank notes are now not admitted for clearance. They therefore require to be presented, and then tlie acknowledgments given for them by the houses by whom they are made payable, are, of course, admitted into the account. Formerly these notes might pass through the clearing-house. f Twelve was formerly the hour ; but to allow more time for the exa- mination of the charges brought from the clearing-house, it was sometime since altered to eleven. 6 noon's clearances, tlie charges brought liome are examined by the principals, or those acting for them. Whatever they admit for payment is entered, to be charged to their customers'" accounts, in the "Draft Book," "Paid Clearing Book," or "Clearing Book In,"* and such bill?, &c. as arc irregular, or are not provided for, are by some houses deducted from the amounts of the morning's credits ; but, more generally, they are made to form a part of the after- noon's charges, consisting also of all bills, checks, and orders which have come in since the morning's accounts were made up. The afternoon's clearance begins in the same manner as * It was from this book of each banking-house, that the returns of the clearances were made out for the Committee of the House of Commons. It is stated, in a work of high authority in whatever concerns the prac- tice of banking, that " all the articles in the clearing are entered at home in a book called the Clearing-book. On the left hand are entered the bills and drafts on other bankers. These are called the ' clearing-out.' On the right hand are entered the drafts which are drawn upon the house, and which have come in from the clearing. These are called the ' clear- ing-in.' " And further, that " to secure greater accuracy, the clearing- in is entered, not only in the regular clearing-book, but also in another book by itself, which for distinction is called the 'clearlng-in book.'" Notwithstanding this, it is believed that this entering of the clearings-in and the clearings-out in the same book at the banking house, if practised, is done so by no house doing more than a mere minimum of business. In the intense pressure of the afternoon's clearances of many days of business, it is as much as two persons can accomplish to get all the en- tries made at the banking-house, and they certainly could not be employed on the same book. One or two large houses have a duplicate clearing-in book, the one to check the other ; but these are quite exceptions to the general practice. There are others who enter the clearings-in in liie general paying book of the banking-house, but the more common me- thod is to transfer only the tolal at the close of the business ; this, how- ever, is no check upon the clearing-house accounis. 7 that of the morning, the clerks assembling at the clearing- house by three o'clock, and depositing and entering the charges as before. Between that hour and four oVlock, an assistant clerk, or more than one if necessary, particvdarly towards the latter hour, is occupied in bringing down to the clearing-liouse, and taking back to the banking-house the paid-in and the delivered-in checks. Sometimes, and with large houses, two clearing clerks are employed at the clearing-house, in entering in separate books the demands upon their house; and for the further relief of the clear- ances, it is the practice of some bankers to have the "Clear- ing Book Out" made up at home, and to let it be. sent to the clearing-house at four o'clock. When this liour has struck, it is the rule of the house that no fresh bill or draft has a right to be received.* Wlien the entries of the business up to four o''clock are finished, the accounts in the clearing-house book are added up and balanced, and tlie balances are entered in the bank- er's balance-sheet ; tliey are then called over and checked " Boxes, or rather drawers, are provided for receiving the charges and returns ; but very few of tliem are now so em])loyed, tliough it is still s lid that tlic boxes are sl)ut at four o'clock. A fresh bill or draft is sometimes takeo after this hour, especially if the deputy clearer has not left with iiis last packet for the investigation of his liouse ; and, of necessity, it is so ad- mitted, if the presenting clerk takes it, and gets it allowed by the house drawn upon. The strict rule, however, is to exclude it, if too late; and hero it may be noticed, that those drafts which are paid into bankers after four o'clock, are commonly taken to the paying bankers after five o'clock, in order, if good, to get them marked, as a guarantee for their not being rejected from the next day's account. Such marked or late checks form the chief part of those checks which come into the morning's clearance, wliich otherwise principally consists of bills, and conscqui nily very few checks form a p.nt of the returns lioni the morning's clemance. 8 one with another by every clerk in the clearing-house. This done, some clerks (particularly those who have to pay, or who have received after four o'clock any heavy returned bill or draft which may affect the credit of the party who paid it in) go home, and compare their accounts with the home accounts ; but it is more general for a rough state- ment of the balances to be sent from the banking-house to the clearing-house, and it is especially requisite for all to be at the clearance-house by five o'clock, or for any absent clerk to have some one there in his place, in order to receive the last returns; for until this hour, though no later, the bankers are at liberty to return any demand upon them which they will not pay. These returns are entered, not in the clearing-house book, but on the balance-sheet, because the four o''clock balances, as settled, must not be disturbed. When this is done, each of the sides of the balance-sheet or sheets is added up, and the balance of the two sides shows what the banking-house has to either pay or receive, not as respects the separate bankers, but the collective body of them as represented by the clearing-house.* The statement of this balance, as due to or by the general balance, is placed by the clearer upon a slip or balance-paper, using one printed with red ink if his house * Jn the work just referred to, no notice is taken of the entry of tliese late returns, which sometimes, and with some of the large houses, are nu- merous enough to fill a couple of balance-sheets. It is therefore, in some measure, left to be inferred, that the amount of what is to be received or paid, is found from the difference between the amounts of the four o'clock balances ; but this difference may be reversed in its nature, as well as altered in amount, by the late returns. The obsc\irity cannot, how- ever, have arisen otherwise than from the conciseness of the description. 9 is Dr. antl has to pay, or one printed with black ink if it is Cr. and has to receive ; which paper is delivered to one of the two inspectors who attend towards five o'clock, to be by him entered in his book to the debit or credit of the banker's account, according to its state for the day. It is also entered by the other inspector in the general balance- sheet, which is made out for all the accounts of the house, and which, when it is completed, and when all the separate balances are correct, forms a check upon the whole of the operations, by the amount of all the debits being equal to that of all the credits, as the money to be paid must, of ne- cessity, be equal to that which is to be received. Each paying clerk then makes his arrangements for his payments with those who have to receive, and })roceeds home to obtain the money. On his return to the clearing- house he pays it away as he had arranged, or otherwise, as it may happen, entering the firms to whom he makes his payments, with the amounts paid them, in'Jiis clearing-house book, his balance-sheet, and on a transfer-paper, but with the addition, in the former, of the separate amounts of each description of notes. This finished, the transfer-paper is taken to the inspector,* for the amounts paid to be entered by him to the credit of the paying banker, in discharge of • The inspectors will not pass a transfer-paper until tlie receiving party has delivered in the amount of his claim. The signature is therefore an admission by them, that the party stated to have received the money has declared that he had, at the least, that amount to receive, and therefore, as far as this amounts to, that there has been no collusion. It has been said that " the inspectors' signature is also necessary, before any money can be paid from one clerk to another ;" but whatever may have been the practice of the clearing-house in former times, it has been, for at least many years, not only not necessary, but altogether not ihougiit of, to have iheir signature previous to the making of any payment. 10 the amount for which he was previously debited ; and also to the debit of the bankers receiving the same, in settlement of their claims. The inspector signs and returns the trans- fer-paper, the clerk leaves his balance-sheet with him,* and taking away his books and papers, returns to the banking- house, having terminated his business at the clearing-house for the day. The clerks who have to receive, have, of course, to wait till they get their money ; but it may occur, in cases of error or irregularity, that all the payers may have left without someone of the receivers having obtained the whole of his claim. Under such circumstances, he gets the inspector to give him a written admission of the imputed difference due to him from the clearing-house, in order to account for the deficiency to his principals. In a like man- ner, if, from a reverse error, there should be more declared to be paid than to be received, that party who will thus have a surplus, will get his transfer-paper signed for only the amimnt actually paid, and return that surplus to the banking-house to await the next day''s settlement of the mistake. No other money than bank notes is used in payments ; therefore any sum under five pounds is paid by a check or order upon the payer''s house, which must be presented there the following day. It is a regulation, that no larger sum than fifty pounds shall be left unpaid in cash upon any one account ; but it may so happen, that two or more items may make a larger amount. In general, however, the clearers endeavour to settle what is due as closely as possi- * It is the rule of the house for all the clerks to leave their balance- sheets with the inspectors; but many do not, and therefore, when ilie in- spectors want them for the purpose of tracinij out an error, they have to send for those which have not been left. 11 ble, or, what is the same, to leave as little as can be avoided to be paid by orders.* From the vast number of the transactions, and the rapi- dity with whicli, at times, the business is transacted, errors frequently and almost unavoidably occur ; but they are sure to be detected by the system of checking which is em- ployed for that purpose. The checking of the morning"'s business has been noticed. That of the four o''clock balances • It is against the rules, without saying whether it is practised or not, to let any balance, however small, be transferred or stand over to the next day's account. In other words, no trust must be either given or required, because the transfer-papers must declare the payment to be made in full, either by notes or orders. It was customary, some years since, for " the differences under five pounds that may be left between tiie clerks who receive and pay with eacli other, to be carried to account on the following day;" but as it was attended with the inconvenience of obliging the home accounts to be cor- rected by these differences, in order to make them agree with the clearing- house accounts, it has been altered, and when now practised it is in vio- lation of the regulations of the house. It may here be noticed, tiiat it was once tried to make the settlements through the medium of the inspectors, by their receiving and paying all the money for the house; but this plan created so much confusion, prin- cipally from the diflic\ilty of making up the exact amounts for payments, that it was directly abandoned. Mr. Babbage, in his work " On the Eco- nomy of Machinery and ^lanufactures," 4th edition, 1841, has been so far misled, as to suppose that this experiment had established a general practice ; for he says, in page 127, " Each clerk, who has upon the re- sult of all the transactions a balance to pay to various other houses, pays it to the inspector, who gives a ticket for tlie amount. The clerks of those houses, to whom money is due, then receive the same from the inspector, who takes from them a ticket for the amount." He is also not correct in stating that xpecic is used in adjusting the balances; and it is believed that, when he paid his visits to the clearing-house, any cash that lie saw ill use was not applied for that purpose. 12 has been stated also to be, by the callinp; over, one clerk with the other, of all the separate balances, which is essen- tially necessary, because the amounts of the different por- tions of the afternoon's entries are without any such refer- ence as is afforded by the endorsements of the morning's charges. At this time, if there is any difference between the declared balances of any two houses, the separate en- tries must be read over, each clerk taking his own charges, by which the cause of the disagreement cannot fail of being disclosed. If it should be found to exist in the amount of any entry, and the difference is not considerable, the balance as stated by one party, is admitted for the present by the other, in order not to prevent the settlement of the inspec- tor's general balance-sheet ; a correction is made in the ad- mitting party's balance-sheet, by underwriting the difference if the declared balance is too small, or placing it on the opposite side if too great, and the matter is left over for adjustment on the following day. If the difference is more than inconsiderable, it can be properly settled only by getting back for examination the check or bill which has caused the error. In this four o'clock settlement it is fur- ther to be remarked, that though the declared sums may agree, an error may occur from placing one or more of them upon the wrong side of the balance-sheet ; but this error cannot easily escape notice, and it is corrected by reversing the entry in the usual mode of book-keeping, as no altera- tion or cancelment should be made of the figures when once placed on the balance-sheet. The entries in the balance-sheet occasioned by returns after four o'clock, are frequently a source of error, wiiich cannot be so readily detected, because they are rarely ever called over before the final balance is taken and declared. 13 Just possible further causes of error arc, placing a ricjlit balance upon a wrong paper, thereby occasioning it to be placed upon the wrong side of the inspectors' book and balance-sheet, and making this error by the inspectors, from a correct and correctly described banker's balance. Generally, the home accounts, the banking-house "Clear- ing Books In and Out," correct the clearing-house accounts, but it is only by the latter that the balances must be settled at the clearing-house ; and therefore, though some houses send down to their clerks their statements of what they have to receive, those statements have no further operation in the settlement of the declared balances, than in assistinfir to trace out the source of an undiscovered error.* Finally, it remains with the inspectors to rectify from the balance- sheets and their own entries, whatever faults may have escaped the clerks' investigation. Although the description which has just been attempted of these financial operations, has been endeavoured to be given with as nuich perspicuity as the subject will admit of, yet as the whole relates principally to matters of account, it .>-eems to be scarcely possible for the arrange- ments to be clearly comprehended, or for their effects, es- pecially upon the currency, to be fully understood, without • It is a rule of the house, but one not strictly observed, for (he balance of the balance-sheet to be sent down from each banking-house to the inspectors, as a check upon the possible fraudulent collusion of any two clearcrs. Such declared balances are made out on paper of a difl'er- ent quality and colour from iliut used in the cloaring-house, and are signed rospeclivcly by one of the partners of the baukiui^-house. 14 having before us some formiilne ^vh^c•h may bring them, as it were, under our inspection. For this pur))osc, and for giving an opportunity for making a few further re- marks, which may serve to chicidate any obscurity in the preceding explanation, let us suppose that, instead of the twenty-seven bankers now composing the clearing-house, and the numerous sums with which most of their accounts are charged and credited, that there were only four, which we will designate, in the following statements, by the firms of Allen & Co., Bateson & Co., Christie & Co., and Dalton k Co.; and that the whole of the clearing-house business con- sisted in the few items which their accounts here contain. On referring to Allen's clearing-house book, page 19, we find that he has charged his co-clearers in his morning's charges, and as previously entered in this book at the banking-house, different items, which amount respectively to £2139 . 12 . 4, £2076 .6.6, and £1645 .1.6. In a like manner we find that Bateson's charges on his co-clear- ers are £1156 . 16,* £1973 . 19 . 2, and £2546 . 15 . 2 ; and so with Christie's and Dalton's charges, we find them entered, like as with the others, in their books, to the debit of their co-clearers' accounts. These twelve charges, three for each, being then depo- sited with the parties on whom they have been made, are passed by these parties to the credit of the depositors' accounts. Thus Allen's charges on Bateson pass to the credit of Allen's account in Bateson's book, Avhile Bate- son's charges on Allen pass to the credit of Bateson in Allen's book. These being entered, the morning's clear- ances are finished. * When there are not more tlian two sums in a morning's charge, it is seldom or ever ihatlhey are either endorsed or added together in the books. IT) The afternoon's char 5 C. H. B. Allen. 422 2 4 156!l6 1000 - - 17 1700 10 - 226 11 17|10 3 r 2139 12 4 1000 - _ 88 3 2 784' 17 — 1017 1 — 1 1 1 1 1 '^ 111-1 I \j .3944 ifi 6 9 7 4300 915 10 15 3 ^ 1055 e. 13 Christi 2 842 17 6217 _ 2000 941 16 _ 975 5 — 53 11 3818 2 7 1973 19 2 r 62 17 68 18 — 165 8 — 843 2 11 83il7 5 94 13 6 613 18 8 718 1517 18 8 2 3 4744 3 8 524 14 B 1347 10 4 350 - - 2 6091 235 14 15 - Dalton 2 11 13 1110 — _ 1000 - -- 901 -- - 44 10 _ 683 1 9 s •2516 61 15 19 2 1710 2 10 11 13 2 r r 235'15 2 59 5 - 1575' 12 - 2(;79 12 4 3551 10 _ S71 17 1 1 20 Bankers' CiiEARiNc-IIousE Books. Christie & Co.'sC. 11. B. 340 Allen. 500 54 14 2 800 — — 100 - i - 776 6 6 494 14 2 2076 6 6 63 16 624 10 _ 10191 3 35 — — 84 16 - 27 15 6 83 84 19 16 7 1662 9 2 r 1260 i« 5 B 842 17 2932 7 7 B ateson 7 91515 2 2000 — — 62!l7 — 975 5 941:16 5311 1 - 3818! 2 62ll7 7 r 197319 2 165 8 — 68 18 — 83 17 5 843 2 11 61318 8 94 13 71 S 1 « 6 o 4744 3 8 1517 8 3 1347 10 4 B 524 14 — 320 4 350 - - 6091 265 14 5 Dalton 2 114 8 8 73 14 - 73 14 r r 114 8 8 460 — — 144 1 2 386 594 11 13 fi 597 8 10 "n 1352 o « 1949 11 6 Christie & Co.'s 5 C. H. B. 1 600 Allen. 422 5 28 4 — 91 1 6 942 12 — 527 16 — 94 16 — 529 8 _ 518 18 — 74 11 - 2184 10 _ 1645 1 6 74 11 -^ r r 28 4 _ 160 5 11 r 94 16 — 121 17 6 482 1 17 6 1 o - 2541 4 5 252:10 __ 79 6 1 B 2620 10 6 11 13 I kteson 235 15 2 2 looo! - - 1410 — - 44,10 - 901 — — 683 19 8 ! 2546 61 15 19 o 1740 2 10 23515 2 r 1- 11 13 2 157512 - 59 5 - 3551 10 2679 12 4 B 871 17 8 265 5 C yhristif • 320 4 2 7314 - 114 8 8 114 8 8 r r 73 14 _ 144 1 2 460 386 594 11 13 8 597 8 10 1 352 2 8T? 1949 11 6 Bankers' Balance-Sheets. 21 Drs. Allen. Crs. 1269 18 79 6 5 1 3 Bateson Christie Dalton Bateson Dalton Bal. 1055 13 13 9 226 11 117 1173 6 9 402 9| - 157515 9 I 1 1575 15 9 Bal. Christie 402 9 40-2 9 - Drs. Christie. Crs. Allen 1269 18 5 Bateson 1347 10 4 1352 2 8 Dalton 94 13 6 Bateson 83 17 5 1446 16 2 1254 10 Bal. 2701 6 2 2701 6 2' Bal. 1254 10 - 402 852 9 1 Allen Bateson 1 - 1254;10 _ 1 1 Drs. Buteson. Crs . 1055 1347 13 10 17 9 4 5 Allen Christie Dalton Allen Christie Bal. 871 226 94 1193 1293 17 11 13 2 19 « > 6 5 1 6 1 1 83 2\H7 1 6 1 2487 441 852 1293 1 18 1 19 Bal. Dalton Cliri.stie 1293 19 Drs. Dalton. Crs. | 871 17 8 Allen Bateson Christie Allen Bal. 79 1352 6 2 1 8 117 13 9^^9 441 10 18 8 1 1431 8 9 1431 8 9 Bal. Bateson 1 11 18 1 441 18 1 22 InSPECTOHS' CLEAIUNfi-HoUSE BoOK. Allen & Co. Christie & Co. | 402 9 Christie 402 9 - 402 852 9 1 - Allen Bateson 1254 10 , .11 1254 10 Bateson & Co. 1293 19 1 Dal ton Christie 441 852 18 1 1 - 1293 19 1 Dalton & Co. | 441 18 1 Bateson 441 18 I Drs. General Balance. Crs, 402 9 , Allen 1293 19 1 Bateson Christie 1254 10 - 1 Dalton 441 18 8 1 1 1696 8 1696 23 The mechanism of the clearances has tlius been ex- plained, but their eft'ect with regard to the amount of the money which is saved from being employed, remains to be shown; and this will probably most satisfactorily be done, from the following statements of what the four supposed bankers would have had to pay, if the system of clearances had not been adopted. The amounts in the first of the following pages, are taken from the credits or payments in the preceding clear- ing-house books, deducting the returns, as not being paid, and marking with the letter /, those which have been made after four o'clock, and wiiich are found in the bankers'" balance-sheets. From these we see, that Allen's payments would have been to Bateson, £405() . 9 . , to Christie £1577 • 13 . 2, and to Dalton i:23i<3 . 13 . 5; in all £ 7977 • 15 . 7, which would be found to be the same as in Allen's " Clearing-book In," n)ade up at the banking-house. From the same state- ment it appears, that Bateman would have paid £111:?8 17 . 5, Christie £ 9191 . 1 • 3, and Dalton f 6498 .19.4, making altogether £ 34796 . 13 . 7 ; tbi-' settlement of which is reduced by the clearances to £1696 .8.1. It also appears, as shown by the ledger in the following page, that when these payments have been posted to the differ- ent accounts, the balances are precisely the same as those given in the preceding general balance-sheet. N. H. TIk' ruling of llie preci fliug simulated accounts is a lilllt; dif- ferent from that of tiic actual clearing-house books; but it will bo per- ceived, that this is owing to the difliculty there would be in giving a fac-simile of those books, for which reason the amounts and descriptions of the notes, and the amounts of tlio drafts given in settlement, are omitted in tliese clearing-houM' book-.. 24 Clbauinc! Jlllens Payments. House Payments. Christie s Paymenis. Bateson. 4300 10 3 17 10 - 226 11 3 ^ Christie. 1662 9 2 84 16 - 2541 Balton. 4 5 28 94 74 4 - 16 - 11 - 4056 9 1577 13 2343 13 7977 15 Bateson s Payments. 3244 17 Allen. 16 10 6 4744 Christi 3 8 62 83 17 17 5/ 4'5Qi 3551 Dalton 10 11 235 13 15 2 2 3.30. 11128 17 6 Allen. 2932 7 7 84 16 - OQ Bateson m~ 6091 14 - 62 17 94 13 61 'iO' Dalton . 597 8 10 73 14 _ 114 8 8 4f 9191 Dalton^s Payments. 2620 10 6 74 11 28 4 - 94 16 - 117 13 -I 2305 6 2679 Bateson. 12 4 235 11 15 13 2 2 Christie 1949 11 6 114 73 8 14 8 2432 6 1761 8 10 6498 19 Payikg Ledger. 25 Allen k Co. 3227 2847 2305 6 11 6 6 7 6 7 S 7977 402 15 9 7 8380 4 8380 4 7 Christie & Co. 1577 4597 1761 1254 13 9 8 10 2 3 10 B 9191 1 3 9191 1 3 Bateson k Co. 4056 9 1112817 5 5934 3 6 B 129319 1 2432 4 - 12122 16 6 12422 16 6 Daltoii k Co. 2343 3304 409 441 13 1 6 18 5 8 2 1 B 6498 19 4 6498 19 4 Drs. General Balance. Crs. 402 9 — Allen 1293 19 1 Bateson Christie 1254 10 - Dalton 441 18 1 \(>'.)G 8 1 161^6 1 2G Leaving tliese pro forma statements, and proceeding to inquire, as far as we ai'e enabled, into what way be the amount by which the systemof clearances aids the currency, the only data afforded upon which to base our arguments are, the returns in the Appendix to the second Report of the Select Committee of the House of Commons. In these statements the following amounts are given for the pay- ments made through the clearing-house, for each month of the year 1839, (the daily payments ranging from about 1^ to 64 millions of pounds,) together with the amounts in bank notes with which those payments were discharged, or more properly the amounts of the inspectors' daily balance-sheets, omitting: throuohout the returns all sums in the amounts which were under £ ]00. 1839. Payments. Bank Notes. January ... 82.762.400 ... 6.348.500 February ... 76 . 164 . 700 ... 4.960.200 March 75 . 879 . 200 ... 5.621.500 April 85 . 839 . 200 ... 5.836.000 May 80 . 587 • 600 ... 5.615.000 June 67 . 413 . 900 ... 5.060.000 July 83.865.200 ... 6.284.800 August 87 . 610 . 500 ... 6.164.900 September... 74 . 237 . 700 ... 5.129.800 October . . . 87 . 478 . 200 ... 5.7O6.8OO November. . . 81 . 729 . 200 ... 4.793.100 December . . . 70 . 833 . 800 ... 4.755.000 £954.401.600* £66.275.600 By this account, the average of the daily payments for * Mr. Leatham, in his tubular statemtiits of the tuireiicy, gives 975^ 27 the 311 days of business, appears to have been a little in excess of three millions of pounds, wliile that of the sums actually paid, was about 213,000 pounds, leaving a balance of a little less than three millions of pounds for the daily cancelments of the clearing transfers. Respecting what portion of this balance may be reckoned to operate upon the currency, the opinions of even experi- enced persons widely differ. The lowest of their estimates rates it at one-third, or one million, it being taken into consideration that a large part of the payments would be provided for by the coming-in receipts. Others, however, though agreeing in this principle, double this amount, be- cause a proportionate surplus above the extent of the ordi- nary range of tiie payments should always be provided, and because days of business are continually occurring in which the payments are more than double of those of the average of the business ; they think, therefore, that the calculation must be made upon the higher, and not upon the average amount, as in the intervening days much of the requisite capital would be lying unemployed. millions as the amount, from good authority, of 27 returns; but lie says that hvo houses made no returns, and that those returns wue for the year 1840. The order which was given about last Easter, was obeyed by all tlie bankers except by one house, which has since failed ; and the year 1839 was selected, as the attention of the committee was more particularly directed to the operations of banking during that year. Enormous as the amount of this year's clearances is considered by Mr. Leatham to be, it ftills very far short of what it was in former times, when the Bank of England less interfered with private banking business, when London Joint-stock banks were not in existence, and when the expenditure of the war and the operations in the funds gave a constant activity and extent to that business, which is now but little known. Se- veral days' clearances tiien ranged from twelve to fifteen millions. 28 There are also others who would carry the amount of its economizing effects to a much greater extent, but the information we possess is too imperfect to enable any judgment to be formed with tolerable correctness. It would be requisite for this purpose, that the returns should be obtained for a period of several years, and that they should be accompanied by estimates of the required extra capital which the nature of the transactions would demand, and which estimates none but the bankers themselves, se- parately and not collectively, could supply. The propor- tionate reserved amount, which but for the clearances would be wanted for a house of quiet private business, or for one chiefly of country business, would furnish no criterion by which any opinion could be formed for a similar amount demanded for a house of large payments, either for general town business, or for stock operations. If the calculations of one of the largest banking-houses may be depended upon as a guide for the rest, the actual assistance given by the clearing-house to the currency can- not be far short of two millions of pounds, which the bankers are thereby enabled to further profitably apply in investments in public securities, or in the discounting of bills and other accommodations for their customers. Great, however, as the benefit is which the clearing system thus confers, there is another and very important consequence arising from it, which must be taken into consideration ; and this is, its relieving the banking business of London from the paralysing influence which actual payments would occasion, and which could not be altogether counteracted by the remedy of any limited amount of unproductive re- serves. The interval of time between the opening and close of business, short as it is, now gives both bankers and their customers an opportunity of meeting large and unexpected 29 or unprovidctl-for demands upon them, whicli, were they without the assistance of the clearing-house, might destroy their credit beyond the possibility of retrieval. The statistics of the returns, if the phrase may be used, afford some particulars not unworthy of a passing notice. Of the twenty-eight bankers making returns of payments through the clearances, for the year 1839, 3 ranged from 100 to 107 niillions. 90 — 80 — GO — 1 .. above ... 1 .. 5» ... 1 .. ?5 ... 2 .. from 50 to 3 .. ■n 30 95 4 .. 9» 20 5? G .. 5» 10 ?? 7 •• 5» 3 ?i 40 — 30 — 20 — 10 — The returns, of course, show no daily settlements. Where so many various sums, often many hundreds in number, are settled against each other, the chances are greatly against an exact balancing of the two sides of any balance account. It has however, though but seldom, occurred ; frequently a few pence has settled the balance, and num- bers of times the difference, in accounts of many thou- sands of pounds, has not amounted to a single pound. On the contrary, notwithstanding all that has been collected in li(|uidation of the charges, a single banking-house has more than once had to pay above half a million of money, and such larger amounts arc also spoken of as being received from the house, as would scarcely obtain belief. In conclusion of this subject, there remains only to no- tice the plan, which has been proposed by one of the most experienced and intelligent members of the clearing-house, for extending its advant.iges, by making the cash settle- 30 merits periodically) as weekly or monthly, instead of daily as at present ; setting off the credit for one day against the debit for another, through the medium of the inspectors'" general accounts for the house, and then ultimately re- ducing the separate settlements, in the same manner as the bankers'* daily clearing-house balance accounts now reduce the adjustment of the separate accovmts. The great obstacle to the adoption of this expansion of the system of clearances, consists in the difficulty of creating a sufficient degree of mutual confidence ; for the balance against any house might be, not only for a single day, but for many days in succession, of very large amount, and if any unforeseen occurrence should render that house incapa- ble of meeting its engagements, the whole of the preceding business would be beyond recal. Now, it is in the power of any clearing banker, if he cannot meet the charges on him, to cause his credits to be returned in time sufficient to prevent his fellovz-members of the house from suffering that loss, which they would sustain under the proposed intended system. To have a guarantee fund in government securities, applicable only to the settlement of such claims, and to limit the credit to its value, would be a means of remedy that would obviate this objection ; as indeed, could it be provided, it would every other, were all the payments of bankers made through the clearing-house ; but as this is not the case, and as the balance, particularly if heavy, in favour of a house for one day may be wanted on the follow- ing day for purposes in which the clearing-house is not concerned, the plan, even with this security, might some- times operate with as much inconvenience, as at others it would be attended with advantage. 31 ADDENDA, It has been said that the Bank of England, and Joint- stock banks, are not members of the association of Clear- ing Bankers. The Bank of England has, however, a sort of perambulatory clearance with the London bankers, by sending round to each of them, early in the morning, the charges of bills which the bank hold on them. They are left for payment or return until about twelve o''clock, when on the bank clerk's calling again, any which arc not iiitendcd to be paid, must be returned. This morning''s charge may be kept open until four in the afternoon, and it may be conditionally discharged by any bills or drafts, except Chancery drafts, which the banker may hold on the Bank of England, with the balance in cash; but any of those which tile bank may refuse to admit, must be paid for on being returned at any time within the hours of business. With Joint-stock banks, as well as with non-clearing bankers, there is no exchange of paper ; and that with the Bank of England is limited to the morning''s charge. What- ever claims they have on each other are paid in cash, if admitted, on presentation. By those who are interested in the London Joint-stock banks, tlic clearing-house is decried as a monopoly, and their exclusion from it is deemed to be a hardship which calh for legislative interference. Overlooking the facts, that the clearing-house was formed by the private hankers for their own especial advantage, and that the premises are their own freehold property, it is argued that, because it has been established upwards of sixty years, and because 32 its arrangements afford great facilities to the public in the money transactions of the metropolis, it ought to be re- garded as a public concern ; and that, in particular, Joint- stock banks having capitals of two millions of pounds, have upon that ground a legitimate right to admission.* In what manner the solicited interference, for- the advan- tage of these concerns and of the customers they have with- drawn from the private bankers, is to be exercised, has not been explained ; but as the possession of a seat, without election, in this house, would of itself confer no privilege, it is evident, that if Parliament were so far to attend to the request, as to make the existence of the clearing-house dependent on the opening of its doors to these applications, it would be further necessary, to make it obligatory on the private bankers to ti'ansact business with them against their inclinations : an interposition which it is quite chimerical to imagine could or would be attempted. The very able advocates of these proprietary establish- ments well know, that their admission into the clearing- house is considered prejudicial to the interests of its pre- sent possessors ; that, whatever may be asserted, no public prerogative is, in truth, involved in the question ; and that therefore unless they can succeed in proving that a reciprocity of benefit will attend their being enrolled in the fraternity of clearing-bankers, the clearing-house list will not be enlarged with their firms, nor will the next census of its payments include their contributions. * See the minutes of evidence before the Committee of the House of Commons, in their second Report. THE END. 7T UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. / iii L9-32m-8,'58(5876s4)444 !0 V"^ ' 'Ui.SiJJ^. HG Tate - ^333^ System of the L8T18 London Bankers * ' Clearances" AA 000 580 729 BINDERY MAY I960 HG 2333 L8T18