the actual cash handled, if any, need only be for
the actual debit balances. Usually once a week (in some cities
oftener) the banks of a city make to their clearing-house a report,
based on daily balances, of their condition. The clearing-house
establishes a fellowship among banks that has already proved in times
of money panics of the greatest service to themselves and the
community.

PAYMENT OF BALANCES IN CLEARING-HOUSES

Clearing-house certificates are made use of in many cities for the
payment of balances by debtor banks. These are issued against gold
deposited with one of the associated banks. They are numbered,
registered, and countersigned by the proper officer, and are used only
in settlements between the banks. Various methods of making
settlements are in use. In some of the cities the balances are paid by
drafts on New York or other money centres. The debtor bank sells some
creditor bank New York exchange, and receives in return a cheque or
order on the clearing-house, which when presented makes the debits and
credits balance. It is estimated that the actual cash employed in New
York clearings is less than one half of one per cent. of the balances.

HOW DISTANT BANKS ARE CONNECTED BY THE CLEARING-HOUSE SYSTEM

[Illustration: Illustrating cheque collections.]

To illustrate the connection between banks at distant points let us
suppose that B of Haverhill, Mass., who keeps his money on deposit in
the First National Bank of that city, sends a cheque to S of Waconia,
Wis., in payment of a bill. S deposits the cheque in the Farmers' Bank
of Waconia and receives immediate credit for it in his bank-book,
just the same as though the cheque were drawn upon the same or a
near-by bank. The Farmers' Bank deposits the cheque, with other
cheques, in, say, the First National Bank of Minneapolis, or it may
send the cheque to its correspondent in New York--say the Ninth
National--asking to be credited with the amount. For sake of
illustration, suppose that the cheque is deposited with the First
National of Minneapolis. Now, this bank has a correspondent in
Chicago--the Commercial National--and a correspondent in New York--the
National Bank of the Republic. If sent to the Commercial National,
this bank has a correspondent in Boston--the Eliot Bank, where the
cheque would be sent. Now, the First National of Haverhill has a
correspondent in Boston--the National Revere Bank. The Eliot Bank
would likely take this cheque to