12. Payment Of Balances

The banks have strict rules concerning the payment of these balances. They must be paid before a specified time and in specified funds. In some places banks have a deposit of gold with the clearing house against which it issues certificates, generally in amounts of $5,000. In New York the balances must be paid by the debtor banks to the clearing house between 12.30 and 1.30 o'clock either in actual coin, United States legal tender notes, or in gold certificates issued by the United States or the clearing house. At the latter hour, or on the subsequent completion of the accounts, the creditor banks receive the balances from the clearing house manager, assuming, of course, that the debtor banks have all paid their balances. Should any bank make default in the payment of its balance at the proper hour, the amount of that balance must be immediately, on requisition from the manager, furnished to the clearing house by the several banks exchanging with the defaulting bank in proportion to their respective balances against that bank resulting from the exchanges of the day. The amounts so furnished constitute claims against the delinquent bank only, for the clearing house is in no way responsible. The defaulting bank is immediately suspended from the clearing house. At several American clearing houses the regulations provide that until the settlement is completed and balances are paid the exchange shall be in trust only, that the vouchers delivered at the clearing house shall, until that time, remain the property of the bank presenting them, and that in case of default by any member in paying its balances, such vouchers shall be returned unmutilated to the banks from which they were received.

To hasten the payment of balances three different kinds of certificates are used : gold clearing house certificates, issued against gold deposited with the clearing house by the respective banks to which the certificates are given; United States gold certificates, issued by the government to the depositors of gold; United States legal tender certificates, issued by the government to the depositors of legal tender notes.

The gold clearing house certificates are numbered, registered, and countersigned by the proper officer, and indorsed when paid into the clearing house by the paying bank, and when paid out are charged to the receiving bank, so that they can always be traced by the records. Their use, however, is restricted to settlements between banks, and they never enter into general circulation.

The United States gold certificates are issued against the deposit of gold coin in denominations of $20 and upward. Large deposits of gold have been made from time to time for which these ccrtificates have been given, chiefly for the purpose of having the gold stored. It is a convenient and inexpensive way for the banks to obtain storage of the metal. By this method the government becomes a free depository.

On several occasions the clearing houses have issued another kind of certificate that requires explanation. These have been issued to their members at times of great stringency in the money market on the deposit of discounted notes of unquestioned value. The committee of the clearing house is vested with this authority and has always acted with great prudence, never issuing certificates for more than fifty or sixty per cent of the value of the securities deposited. The certificates are signed by the clearing house committee, and are used simply by the bank receiving them to pay balances due to other clearing house banks. They have never been used continuously for more than a few months; then they have been retired by the banks for whose benefit they were issued. On their retirement their own securities have been returned. They were first issued in 1853, the last time in 1893.