New York Clearing House Association

The New York Clearing House Association created in 1853, is the first and largest U.S. bank clearing house and has helped the banking system in America’s financial capital to develop. Initially, it simplified the chaotic settlement process among the banks of New York City. It later served to stabilize currency fluctuations and bolster the monetary system through recurring times of panic. Since the creation of the Federal Reserve System in 1913, it has used technology to meet the demands of an increasingly complex banking system.

In the decade before the Clearing House was founded, banking had become increasingly complex. From 1849 to 1853 –years highlighted by the California gold rush and construction of a national railroad system–the number of New York banks increased from 24 to 57. Settlement procedures were unsophisticated, with banks settling their accounts by employing porters to travel from bank to bank to exchange checks for bags of coin, or “specie.” As the number of banks grew, exchanges became a daily event. The official reckoning of accounts, however, did not take place until Fridays, often resulting in record keeping errors and encouraging abuses. Each day, the porters would gather on the steps of one of the Wall Street banks for their “Porters’ Exchange.”

In 1853, a bank bookkeeper named George D. Lyman proposed in an article that banks send and receive checks at a central office. There was a positive response and The New York Clearing House was organized officially on October 4 of that year. One week later, on October 11 in the basement of 14 Wall Street, 52 banks participated in the first exchange. On its first day, the Clearing House exchanged checks worth $22.6 million. Within 20 years, the average daily clearing topped $100 million. Today, the average is in excess of $20 billion.

The New York Clearing House brought order to what had been a tangled web of exchanges. Specie certificates soon replaced gold as the means of settling balances at the Clearing House, further simplifying the process. Once certificates were exchanged for gold deposited at member banks, porters encountered fewer of the dangers they had faced previously while transporting bags of gold from bank to bank. Certificates relieved the strain on the bank’s cash flow, thus reducing the likelihood of a run on deposits. Member banks had to do weekly audits, keep minimum reserve levels and log daily settlement of balances which further assured more ordered, efficient exchanges.

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