or Baltimore. Checks on nearby towns probably will be sent direct to banks in those towns. The reason for not sending checks direct to the towns on which they are drawn, is, that often they can be collected much more cheaply by sending them through other large cities.

The less expense your bank incurs in collecting, the less it will have to charge you. The depositor should understand that the bank's charges for these collections are figured at about cost.

It is a fact that an examination of this account on the books of any city bank almost invariably will show that it is a source of loss rather than profit. In other words, the city banks really charge their depositors less than it actually costs for collections on other towns.

The "clearing" items, that is, checks on banks in your own town, are passed to the Clearing House clerks. The collection of these checks through the Clearing House, and the operation of that institution, are next explained.

  VIII

THE CLEARING HOUSE

The Clearing House is simply a meeting room for the convenience of the different banks in a city; a place in which to swap checks. Small towns have none. Ordinarily no figuring is done here except addition and subtraction. Its operation is simple.

Suppose you owe Brown $10.00, and you owe Jones $5.00.

Then suppose Brown owes you $5.00, and owes Jones $4.00.

Then suppose Jones owes you $3.00, and owes Brown $5.00.

Now, instead of each of you going around to two other places, you three meet in a certain conveniently located room to square, or clear up, accounts. This saves time and steps. A clerk is in this room to do the sums for you.

With a little addition and subtraction he has the following:

The clerk then announces that you owe $7.00 here; Mr. Brown is entitled to receive $6.00, and Mr. Jones is entitled to $1.00. Then he gives Mr. Brown an order on you for $6.00, and Mr. Jones an order for $1.00. Nothing complex about this if you know how to add and subtract.

Now just substitute for your name, the First National Bank; for Brown's, the Second National Bank; for Jones', the Third National Bank. Then put the figures up into the thousands or hundreds of thousands of dollars in place of the small ones given above. Then name the room where you met, the Clearing House, and call the clerk who did the sums, the Clearing House Manager. Then call the orders he has given, the Clearing House Manager's checks. No matter how many banks in any one city, or how large the figures, this simple method of settling is in operation daily.

Say there are twenty banks in your city. Your bank receives through the mails, and from its local depositors, numbers of checks on the other nineteen banks in the same town. The clerk, who goes to the Clearing House, and his assistants, assort these checks into nineteen different piles. Each bank goes by a number at the Clearing House. Then these checks are stamped on the back about like this—"Paid through the —— Clearing House"; then follows the date, and name, and number of the bank which sends them. These nineteen piles of checks are added up into nineteen different totals; the checks on each bank being kept in separate bundles. The nineteen totals are added into one grand total. The clerk then starts for the Clearing House with nineteen bundles of checks; and a sheet which shows how much his bank has against each of the other banks; and the grand total it has against all the other banks combined. Therefore, at a certain hour, generally noon, on each day, twenty clerks, one from each bank, meet at the Clearing House. Each one takes his stand at his desk. When the manager taps the bell, every clerk makes the round of all the other desks, and leaves the bundle of checks he has against each bank with a slip showing the total amount of the package. When this is over, each desk has nineteen bundles of checks on it and nineteen slips showing the different totals.

Each clerk then adds up these nineteen totals, and the grand total resulting shows what all the other banks have against his bank. He then reports two amounts to the Manager of the Clearing House,—the grand total of the checks he has brought in, and the grand total of the checks which have been brought in against him.

Say he has brought in $100,000.00 worth of checks against the other nineteen banks, and they have brought in $90,000.00 worth of checks against his bank. Then his bank has a credit at the Clearing House of $10,000.00.

After the Manager figures up from these totals handed him by the different bank clerks, he finds that certain banks brought more than was brought against them, and that certain other banks brought less than was brought against them. In other words certain banks have "lost" at Clearing while others have "gained" and at a later (designated) hour of the day, the debtor banks pay in their losses at the Clearing House and the creditor banks receive their gains, the total losses and gains, of course, exactly offsetting each other.

While the systems employed at the Clearing Houses of the various cities of the United States may vary in some particulars, they are all founded on the principles stated in the preceding paragraphs. These principles have been so perfected that the clerks from the different banks are at the Clearing House for a few minutes only each day. The Manager imposes a fine of several dollars on the bank for every mistake in calculation its Clearing House clerk makes; also for tardiness.

To return to the checks which have been brought back from the Clearing House. If, on examination, the Paying Teller has discovered any forgeries, or irregular or missing endorsements, or anything suspicious about any checks; or if the bookkeepers have found that any check overdraws the account of the depositor, the bank has only until the close of banking hours to return such checks and collect from the banks that sent them through the Clearing House. So the examination of these checks must be made carefully and very quickly.

The "Clearing House Association" in your city is what might be called a Mutual Aid Society, which the banks have organized for purposes of mutual convenience and protection. This Association pays the expenses of the Clearing House; the Manager's salary; the rent; etc. It adopts rules and by-laws and fixes fines and penalties for breaking them. But it is not an incorporated body and can not sue or be sued.

In time of panic, the Association is a tower of strength, not only for the banks themselves, but for the whole community. The associated banks, at such times, have it in their power to make or break the business interests of their city. But their interests are identical with the interests of their patrons. Remember the banks are owned by the people, not by two or three private individuals. The