CLEARING-HOUSE, the general term for a central institution employed in connexion with large and interrelated businesses for the purpose of facilitating the settlement of accounts.
Banking.—The London Clearing-House was established between 1750 and 1770 as a place where the clerks of the bankers of the city of London could assemble daily to exchange with one another the cheques drawn upon and bills payable at their respective houses. Before the clearing-house existed, each banker had to send a clerk to the places of business of all the other bankers in London to collect the sums payable by them in respect of cheques and bills; and it is obvious that much time was consumed by this process, which involved the use of an unnecessary quantity of money and corresponding risks of safe carriage. In 1775 a room in Change Alley was settled upon as a common centre of exchange; this was afterwards removed to Post Office Court, Lombard Street. This clearing centre was at first confined to the bankers—at that time and long afterwards exclusively private bankers—doing business within the city, and the bankers in the west end of the metropolis used some one or other of the city banks as their agent in clearing. When the joint-stock banks were first established, the jealousy of the existing banks was powerful enough to exclude them altogether from the use of the Clearing-House; and it was not until 1854 that this feeling was removed so as to allow them to be admitted.
At first the Clearing-House was simply a place of meeting, but it came to be perceived that the sorting and distribution of cheques, bills, &c, could be more expeditiously conducted by the appointment of two or three common clerks to whom each banker’s clerk could give all the instruments of exchange he wished to collect, and from whom he could receive all those payable at his own house. The payment of the balance settled the transaction, but the arrangements were afterwards so perfected that the balance is now settled by means of transfers made at the Bank of England between the Clearing-House account and those of the various banks, the Clearing-House, as well as each banker using it, having an account at the Bank of England. The use of the Clearing-House was still further extended in 1858, so as to include the settlement of exchanges between the country bankers of England. Before that time each country banker receiving cheques on other country bankers sent them to those other bankers by post (supposing they were not carrying on business in the same place), and requested that the amount should be paid by the London agent of the banker on whom the cheques were drawn to the London agent of the banker remitting them. Cheques were thus collected by correspondence, and each remittance involved a separate payment in London. Since 1858, accordingly, a country banker sends cheques on other country banks to his London correspondent, who exchanges them at the Clearing-House with the correspondents of the bankers on whom they are drawn.
The Clearing-House consists of one long room, lighted from the roof. Around the walls and down the centre are placed desks, allotted to the various banks, according to the amount of their business. The desks are arranged alphabetically, so that the clerks may lose no time in passing round the room and delivering their “charges” or batches of cheques to the representatives of the various banks. There are three clearings in London each day. The first is at 10.30 a.m., the second at noon, and the third at 2.30 p.m. It is the busiest of all, and continues until five minutes past four, when the last delivery must be made. The three clearings were, in 1907, divided into town, metropolitan and country clearings, each with a definite area. All the clearing banks have their cheques marked with the letters “T,” “M” and “C,” according to the district in which the issuing bank is situated. Every cheque issued by the clearing banks, even though drawn in the head office of a bank, goes through the Clearing-House.
The amount of business transacted at the Clearing-House varies very much with the seasons of the year, the busiest time being when dividends are paid and stock exchange settlements are made, but the volume of transactions averages roughly from 200 to 300 millions sterling a week, and the yearly clearances amount to something like £12,000,000,000. There are provincial clearing-houses at Manchester, Liverpool, Birmingham, Newcastle-on-Tyne, Leeds, Sheffield, Leicester and Bristol. There are also clearing-houses in most of the large towns of Scotland and Ireland. In New York and the other large cities of the United States there are clearing-houses providing accommodation for the various banking institutions (see Banks and Banking).
The progress of banking on the continent of Europe has been slow in comparison with that of the United Kingdom, and the use of cheques is not so general, consequently the need for clearing-houses is not so great. In France, too, the greater proportion of the banking business is carried on through three banks only, the Banque de France, the Société Générale and the Crédit Lyonnais, and a great part of their transactions are settled at their own head offices. But at the same time large sums pass through the Paris Chambre de Compensation (the clearing-house), established in 1872.
There are clearing-houses also in Berlin, Hamburg and many other European cities.
Railways.—The British Railway Clearing-House was established in 1842, its purpose, as defined by the Railway Clearing-House Act of 1850, being “to settle and adjust the receipts arising from railway traffic within, or partly within, the United Kingdom, and passing over more than one railway within the United Kingdom, booked or invoiced at throughout rates or fares.” It is an independent body, governed by a committee which is composed of delegates (usually the chairman or one of the directors) from each of the railways that belong to it. Any railway company may be admitted a party to the clearing-system with the assent of the committee, may cease to be a member at a month’s notice, and may be expelled if such expulsion be voted for by two-thirds of the delegates present at a specially convened meeting. The cost of maintaining it is defrayed by contributions from the companies proportional to the volume of business passed through it by each. It has two main functions. (1) When passengers or goods are booked through between stations belonging to different railway companies at an inclusive charge for the whole journey, it distributes the money received in due proportions between the companies concerned in rendering the service. To this end it receives, in the case of passenger traffic, a monthly return of the tickets issued at each station to stations on other lines, and, in the case of goods traffic, it is supplied by both the sending and receiving stations (when these are on different companies’ systems) with abstracts showing the character, weight, &c., of the goods that have travelled between them. By the aid of these particulars it allocates the proper share of the receipts to each company, having due regard to the distance over which the traffic has been carried on each line, to the terminal services rendered by each company, to any incidental expenses to which it may have been put, and to the existence of any special agreements for the division of traffic. (2) To avoid the inconvenience of a change of train at points where the lines of different companies meet, passengers are often, and goods and minerals generally, carried in through vehicles from their starting-point to their destination. In consequence, vehicles belonging to one company are constantly forming part of trains that belong to, and run over the lines of, other companies, which thus have the temporary use of rolling stock that does not belong to them. By the aid of a large staff of “number takers” who are stationed at junctions all over the country, and whose business is to record particulars of the vehicles which pass through those junctions, the Clearing-House follows the movements of vehicles which have left their owners’ line, ascertains how far they have run on the lines of other companies, and debits each of the latter with the amount it has to pay for their use. This charge is known as “mileage”; another charge which is also determined by the Clearing-House is “demurrage,” that is, the amount exacted from the detaining company if a vehicle is not returned to its owners within a prescribed time. By the exercise of these functions the Clearing-House accumulates a long series of credits to, and debits against, each company; these are periodically added up and set against each other, with the result that the accounts between it and the companies are finally settled by the transfer of comparatively small balances. It also distributes the money paid by the post-office to the railways on account of the conveyance of parcel-post traffic, and through its lost luggage department many thousands of articles left in railway carriages are every year returned to their owners. Its situation in London further renders it a convenient meeting-place for several “Clearing-House Conferences” of railway officials, as of the general managers, the goods managers, and the superintendents of the line, held four times a year for the consideration of questions in which all the companies are interested. The Irish Railway Clearing-House, established in 1848, has its headquarters in Dublin, and was incorporated by act of parliament in 1860.
General.—The principle of clearing adopted by banks and railways has been applied with considerable success in other businesses.
In 1874 the London Stock Exchange Clearing-House was established for the purpose of settling transactions in stock, the clearing being effected by balance-sheets and tickets; the balance of stock to be received or delivered is shown on a balance-sheet sent in by each member, and the items are then cancelled against one another and tickets issued for the balances outstanding. The New York Stock Exchange Clearing-House was established in 1892. The settlements on the Paris Bourse are cleared within the Bourse itself, through the Compagnie des Agents de Change de Paris.
In 1888 a society was formed in London called the Beetroot Sugar Association for clearing bargains in beetroot sugar. For every 500 bags of sugar of a definite weight which a broker sells, he issues a filière (a form something like a dock-warrant), giving particulars as to the ship, the warehouse, trade-marks, &c. The filière contains also a series of transfer forms which are filled up and signed by each successive holder, so transferring the property to a new purchaser. The new purchaser also fills up a coupon attached to the transfer, quoting the date and hour of sale. This coupon is detached by the seller and retained by him as evidence to determine any liability through subsequent delay in the delivery of the sugar. Any purchaser requiring delivery of the sugar forwards the filière to the clearing-house, and the officials then send on his name to the first seller who tenders him the warrant direct. These filières pass from hand to hand within a limit of six days, a stamp being affixed on each transfer as a clearing-house fee. The difference between each of the successive transactions is adjusted by the clearing-house to the profit or loss of the seller.
The London Produce Clearing-House was established in 1888 for regulating and adjusting bargains in foreign and colonial produce. The object of the association is to guarantee both to the buyer and the seller the fulfilment of bargains for future delivery. The transactions on either side are allowed to accumulate during a month and an adjustment made at the end by a settlement of the final balance owing. On the same lines are the Caisse de Liquidation at Havre and the Waaren Liquidations Casse at Hamburg. The Cotton Association also has a clearing-house at Liverpool for clearing the transactions which arise from dealings in cotton.
Authorities.—W. Howarth, Our Clearing System and Clearing Houses (1897), The Banks in the Clearing House (1905); J. G. Cannon, Clearing-houses, their History, Methods and Administration (1901); H. T. Easton, Money, Exchange and Banking (1905); and the various volumes of the Journal of the Institute of Bankers. (T. A. I.)