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Subject Area: Economics
Topic: Money and Banking

Transaction of Business at the London Clearing House. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]

Edition used:

Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).

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Transaction of Business at the London Clearing House.

There are three clearings daily at the Lombard Street House. The morning clearing opens on ordinary days at 10.30; drafts are received not later than 11, and the work must be closed at noon. The country clearing then begins, drafts being received until 12.30, and the clearing closed at 2.15. The heaviest clearing, however, is that of the afternoon, which begins at 2.30. The bustle and turmoil of the work grow to a climax at four o'clock, the runners rushing in with the last parcels of drafts, up to the moment when the door is finally closed. On the fourth day of each month, when the heaviest work occurs, the hours are extended, the House opening at nine o'clock.

The Clearing House is a plain oblong room, with rows of desks in compartments round three sides, and down the middle. A small office for the two superintendents stands at one end. Each bank sends as many clerks to the House as may be requisite for the rapid completion of the work, and some banks have as many as six clerks. The cheques and bills to be presented by any one clearing banker, say the Alliance Bank, upon any other clearing banker, are entered at home in the "Out-clearing book," and are then sorted into twenty-five parcels, one of which is to be presented on each of the other clearing banks. On reaching the Clearing House, these parcels are distributed round the room to the desks of the clerks representing the several paying banks, who immediately begin to enter them in the "In-clearing books" in columns bearing at the head the name of the presenting bank. After being entered, the drafts are, as soon as possible, forwarded to the banking house for examination and entry in the bank books. Any cheques or bills refused payment are called "returns," and can generally be sent back to the Clearing House the same day, and entered again as a reverse claim by the bank dishonouring them on the banks which presented them. At the close of the day the clerks of the Alliance Bank are able to add up the whole of the claims which have been made upon them by the other twenty-five banks, and they learn from the out-clearing book the amount of the claims which the Alliance Bank is making on other banks. The difference is the balance which the Alliance Bank has either to pay or receive as the case may be. These balances being communicated to the superintendents of the House are by them inserted in a kind of balance sheet. When finally added up, the debtor and creditor sides of the sheet should exactly balance, because every penny to be received by one bank must be paid by another.

In former years the balance due by or to each bank was paid in bank-notes, and in the year 1839, average daily transactions to the amount of about three millions were cleared by the use of £200,000 in bank-notes, and £20 in coin, or about one-fifteenth part of the debts liquidated. More recently a suggestion of the late Charles Babbage was carried into effect, and the balances were paid by drafts upon the Bank of England, in which bank each city banker deposits a large part of his spare cash.

One ingenious minor arrangement in the London Clearing House is the division of the whole list of twenty-six bankers into three groups, in such a way that one of the clearing clerks of the Alliance Bank corresponds with one group of the other banks, a second clerk with the second group, and so on. Thus when a comparison or correction of accounts is made between any two banks, it is known precisely which clerk must answer to the questions called across the room.

Although the rapid and effective way in which the settlement is carried out in the London Clearing House must always excite surprise, it is quite open to question whether improvements are not needed. The room did not seem to me large enough for the convenient and wholesome transaction of such vast and increasing work. Although some banks employ as many as six clerks, the pressure is very great at times. The facility which these clerks acquire by practice in making and adding up entries is very great, but the intense head work performed against time, in an atmosphere far from pure, and in the midst of bustle and noise arising from the corrections shouted from one clerk to another across the room, must be exceedingly trying. Brain disease is occasionally the consequence.

The question must arise, too, whether the privilege of clearing is to be for ever restricted to twenty-six principal city banks, when there are certainly many other banks existing or being founded which need the convenience of access to the House. In New York the clearing circle, as we shall see, is much wider. At present the minor London banks are forced to employ the clearing bankers as agents, or to forego the advantages of the Clearing House altogether. It is hardly just or possible that a narrow monopoly of the sort should be maintained for ever.