Without a Clearing House in New York.
Diagram showing a Bank Messenger's 26 Trips to Exchange Checks with other Banks.
"When two banks exchanged checks the amounts were almost always unequal, leaving a balance for one to pay and the other to receive. Every day every bank, if they had settled daily, would have had fifty-one balances to pay, or receive. They were payable in coin. Instead of attempting the daily adjustment of accounts, which would have consumed hours, and caused much annoyance, it had become a tacit agreement that a weekly settlement of balances should be made after the exchange of Friday morning. On settlement day, the cashier of each bank would draw checks for every debt due to him by other banks, and send out the messengers to collect them. Over fifty porters were out all at once, wrote a bank officer of the time, with an aggregate of several hundred bank drafts in their pockets, balking each other, drawing specie at some places, and depositing it in others, and the whole process was one of confusion, disputes and unavoidable blunders of which no description could give an exact impression.
"The second diagram, representing the fifty-two banks in a circle around the Clearing House, indicates how completely all this misdirection and waste of energy stopped upon the installation of that marvelous method which affects such amazing economy. Every bank now sends straight to a common point. Every bank sends there all the checks it has on all the city banks, and charges the whole amount against an imaginary debtor—the Clearing House. Every bank receives there all the checks all the other city banks have on it, and admits its indebtedness for the whole amount to an imaginary creditor—the Clearing House. The balance can now be struck. If the bank loses, it pays the Clearing House the difference. If the bank gains, the Clearing House pays the bank; and there is the end of it, reached by the shortest path with the greatest ease and quickness.
"The principal results may be summarized:
"The Clearing House saved every bank in New York City on the average twenty-six trips daily to exchange checks with other banks. It abolished sending to other banks for this purpose. It substituted one trip to the Clearing House—an economy of 96½ per cent.
"The Clearing House saved every bank in New York the payment or receipt, mostly in coin, of fifty balances on settlement day (Friday). It abolished settling at the counter of banks, except for checks, sent through the clearing and returned 'not good.' It substituted one payment, or receipt, of a net balance to or from the Clearing House, an economy of 98 per cent.
With a Clearing House in New York.
Diagram showing Single Trips to Exchange Checks with all other Banks in the City.
"The Clearing House saved the banks of New York all the drudgery, irritation and anxiety which had made daily settlements impracticable. It abolished the weekly settlement; it substituted daily settlements to the Clearing House—an economy of considerable importance.
"The Clearing House saved all the banks of New York the trouble of keeping accounts with one another. It abolished accounts of city banks with city banks—closed 2,652 accounts. It substituted one account for each bank with the Clearing House—an economy of 98 per cent.