Several times during the Civil War the New York clearing house resorted to the use of certificates as a means of relieving the financial stringency, and the effect in each case was decidedly beneficial. Banks were thus enabled to discount commercial paper and make loans to relieve business firms which were perfectly safe and solvent, but in distress, and the business situation at once felt the brightening effects of the policy. Clearing house certificates to the extent of $22,000,000 were in circulation among the banks of New York in 1862, and this was equivalent to a vast increase in the volume of money in circulation. Again during the panic of 1873 the same course was pursued and about $26,000,000 in certificates were issued by the New York clearing house. Other cities seeing the benefits of the system, adopted it, and issued certificates for temporary relief, thus greatly relieving the severity of the memorable panic of 1873, which extended over the entire country and resulted in severe hardships.

In 1893 a panic of unusual severity spread over the United States. Banks were forced to close and business houses were pushed to the wall. Under the restrictions of the national banking law it was impossible to secure relief by an increase in national bank notes in time to save the people from the disasters which follow in the wake of a financial storm. Banks in the small cities and towns drew heavily against their deposits in the large cities and money centers, especially New York, and it became necessary for the financial institutions, chiefly in New York, to find a means of staying the force of the panic. The most potent factor in this relief was the clearing house certificates issued by the associations of New York and other cities. Forty-one million dollars of these certificates were issued by the clearing house committee, based upon the deposits of securities by various banks of New York. Other cities pursued the same plan, and the amount of bank money was thereby suddenly increased throughout the country to the extent of perhaps $150,000,000, greatly to the relief of business interests generally.

What is and what is not proper matter for clearing depends upon the rules of each particular association, and these are by no means uniform on this point. The following paragraph appears in the rules of a western clearing house: "Proper matter for clearing shall consist of checks, drafts, manager's certificates, certificates of deposit, either demand or matured, and any other matter specially agreed upon, until notice is given to the contrary, and any bank clearing paper not proper shall be fined." In some associations notes and drafts are not sent through the clearings, while in others they may be cleared. The general rule seems to be that only such items as upon their face are unconditional demands upon a bank, for payment, are proper material for clearing. Some associations keep near this rule, while others seem to broaden it to the full limit of expediency.

The clearing house associations in a number of the large cities have enacted rules forbidding matter to be cleared which bears a restrictive endorsement. It was formerly the custom for depositors to endorse "For Deposit," "For Account of," "For Collection," etc., above the name of the depositor, thus intending to transfer possession but not title to the paper. This is now forbidden, as a measure of self-protection, by many large associations, unless the clearing bank specially guarantees the paper. Paper then to pass through the clearing house should be endorsed either in blank or full, as "Pay.....or order." Before sending its exchanges to the clearing house, each bank stamps a receipt upon the back of each item, with its number, and the words, "Received payment through the......clearing house." or otherwise, as the rules of the association prescribe. This indorsement though made unofficially and by means of a rubber stamp, is regarded as authentic, and guarantees all previous indorsements After the clearings are made, items which are not honored by the bank on which they are drawn are returned by messenger and "bought back" by the bank through which they were cleared.

Banks and trust companies not members of the clearing house association may clear through a member-bank, but the latter is liable to the association for such exchanges the same as for its own, and they usually exact proper security as well as compensation from the bank or trust company for performing the service. In Boston the clearing house association has put in operation a system for collecting checks on out-of-town banks which is certainly a material saving in expense as well as labor. Instead of each bank collecting its out-of-town checks, these are all sent to the clearing house at a fixed hour daily and there assorted by towns and banks. All of the checks on each country bank are then listed and forwarded to that bank in one package. This is a decided advantage also to the country bank, since payment can be made to the Boston clearing house for all of these checks at one time, instead of having to remit to several different banks. The remittances are then put through the regular clearings by the manager of the clearing house, very much the same as other items.

No doubt the clearing house, which was originally intended merely as a labor and time saving device, and which has since developed into an important factor in our financial system, assuming new functions from time to time, will further expand and add to the efficiency of the financial machinery of our country. In his valuable treatise on clearing houses, Mr. James G. Cannon, president of the Fourth National Bank of New York, says: "Clearing houses are gradually becoming a welding force that ultimately will bring to the banking business of this country the centralization which it so greatly needs. In the course of time rates for money in the United States will become more and more on a par with those prevailing in European money centers, and then the clearing houses of the various financial centers of this country will be obliged to undertake functions which as yet they have only discussed."