to E, they meet half-way, or at a central point
called a clearing-house, and there collect their cheques. B may have
$5000 in cheques on E, and E may have $4000 in cheques on B, so that
the exchange can be made--that is, the cheques can be paid by E
paying the difference of $1000, which is done, not direct, but through
the officers of the clearing-house. Now Bank E's messenger carries
Brown's cheque back with him and enters it up against Brown's
account. This in simple language is the primary idea of the
clearing-house.
The clearings in New York in one day amount to from one to two
hundred millions of dollars. By clearings we mean the value of the
cheques which are cleared--that is, which change hands through the
clearing-house. 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.
[Illustration: The route of a cheque.]
To illustrate the connection between banks at distant points let us
suppose that B of Media, Pennsylvania, who keeps his money on
deposit in the First National Bank of Media, sends a cheque in payment
of a bill to K of South Evanston, Illinois. K deposits the cheque in the
Citizens Bank of his town and receives immediate credit for it upon his
bank-book, just the same as though the cheque were drawn upon the
same or a near-by bank. The Citizens Bank simply sends the cheque,
with other distant cheques, to its correspondent, the National Bank of
the Republic, Chicago, on deposit, in many instances in about the same
sense that K deposited the cheque in the Citizens Bank. The National
Bank of the Republic sends the cheque, with other cheques, to its New
York correspondent, the National Park Bank. It may possibly send to
Philadelphia direct, or even to Media; but this is very unlikely. The
National Park Bank sends the cheque to its Philadelphia correspondent,
say the Penn National Bank. Now the clearing-house clerk of the Penn
National carries the cheque to the Philadelphia clearing-house and
enters it, with other cheques, on the First National of Media. Custom,
however, differs very greatly in this particular. Many near-by country
banks clear through city banks; others clear less directly. If the First
National Bank of Philadelphia is known at the clearing-house as the
representative of the First National Bank of Media it likely has money
belonging to this Media bank on deposit. In that case the cheque is
charged up against the account of the First National of Philadelphia.
This bank then sends the cheque to the First National of Media, by
which it is charged up against B. This system of collection of cheques is
about as perfect as is the post-office system of carrying registered mail.
[Illustration: Backs of two paid cheques.]
Now, the banks and clearing-houses through which the cheque passes
on its way home stamp their indorsements and other information upon
the back. Our illustration shows the backs of two cheques which have
"travelled." Millions of dollars are collected by banks daily in this way,
and all without expense to their customers. It is estimated that these
collections cost the New York City banks more than two million dollars
a year in loss of interest while the cheques are en route. Ten thousand
collection letters are sent out daily by the banks of New York City
alone.
IX. COMMERCIAL DRAFTS
A COMMERCIAL DRAFT bears a close resemblance to a letter from
one person to another requesting that a certain sum of money be paid
to the person who calls, or to the bank or firm for whom he is acting.
For instance, the draft shown in the first illustration might be worded
something like this:
St. Louis, Mo., Feb. 22, 1899.
Mr. Robert Elsmere, Jefferson City, Mo.
My dear Sir:
Will you kindly pay to the messenger from the ---- Bank who will call
to-morrow the sum of three hundred and ninety-seven dollars and
charge to my account?
Yours, very truly, David Grieve.
[Illustration: A sight draft developed from the above letter.]
Commercial usage, however, recognises a particular form in which this
letter is to be written, and the address of the person for whom it is
intended is usually written at the lower left-hand corner instead of on
an envelope. Commercial drafts usually reach the persons upon whom
they are drawn through the medium of the banks rather than directly by
mail. Let us illustrate. Suppose that A of Chicago owes B of Buffalo
$200, and B desires to collect the amount by means of a draft. He fills
in a blank draft, signs it, and addresses it on the lower left-hand corner
to A. Instead of sending it by mail he
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