[126]METHODS OF SETTLING BALANCES
There are no less than five different methods of settling balances, in whole or in part, without the use of money at the clearing house. They are (1) 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 currency 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, exchanged for cashier's checks or exchange on another city, or sent through the clearings on another day.
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 practised as a matter of convenience to the several members. 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 practised in 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 safekeeping, 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 associated banks. Many of the clearing houses impose a fine for their transfer to any other party than a member of the association.
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 transferred 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 have 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 depository certificates in the settlement of clearing-house balances.
Clearing-house loan certificates are issued only in emergencies. 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 settlements 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 foreign drafts are used in payments of equal thousands only, as at Wilmington, Del., and Chester, Pa.