Newspaper Page Text
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house and back of them a board room,
impressive in its mahogany paneling
and furniture. There is an air of de
liberation about the whole place. No
body speaks loudly nobody appears to
hurry nobody acts as though he were
at the very vortex of the great swirling
financial community.
Into these quiet quarters have been
going daily for the last few days a
company of grave faced men. They
meet in the morning in the boai\
room and are together for a half hour,
an hour or longer, as the case may be.
When they separate to leave the build
ing each is greeted at the door by a
knot of reporters with a common ques
tion:
"Is everything safe?"
And the members of the clearing
house committee have answered:
"Everything is safe today. The usual
applications were made for assistance,
and it ill be extended."
Center of Land's Finance.
It is about once in a score of years
that this thing happens. When it does
come about the New York clearing
house becomes a name on every lip in
every business center in the land. It
is no longer the medium merely of a
published bank statement and annual
report. The fact that all the national
banks in the city through it have dem
onstrated their ability to meet their
balances makes it the primary news
center for the finances of the land.
Just recently the Clearing House as
sociation has figured in the news in an
even more prominent way. Certain
gentlemen of explosive financial meth
ods have been eliminated from the
(banking situation. The papers have
Said that the clearing house did it
iwent so far even as to compel one or
more of thorn to sell their bank stock
and otherwise to efface themselves.
The action Is hailed as courageous and
Bulwarkof the Banks
JUST WHAT NEW YORK'S CLEARING HOUSE DOES AND
HOW IT WAS ESTABLISHED.
Skilled Association That Has Been Made the Center of Coun-
try's Financial System Through Vast Transactions of
Modern BusinessSimple Expedient That Solves
the Problem For Individual Banks of
Keeping Enough Cash on Hand to
Meet Daily Needs.
the average followers of af
fairs financial the name of the
York clearing house is as
sociated primarily with the
weekly bank statement on which bro
kers sell or buy the market, ?s suits
their disposition, and an annual state
ment of clearings, balances and ex
changes running into wholly impossi
ble figures that are only useful for
one who is preparing an address upon
the commercial greatness of the coun
try. To the average outsider still less
is suggested by mention of the New
York clearing house unless perhaps
there remains a memory of some early
study of banks and their relationship
to each other, says the New York
Times.
Go down past the clearing house
,building in Cedar street, between
^Broadway and Nassau, and there is no
.sign of great things happening near by.
'A doorway leading into a marble wall
ed foyer, where sits an ancient guard
reading a newspaper then a winding
succession of stairsmore than one
stairway and hardly twoand one
comes into an upper corridor and meets
another guard, also at his ease.
Inside are two private offices that
might serve any large private banking
THE NEW YORK CLEARING HOUSE.
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wise, and organizations of business
men in many quarters give their
thanks to the New York clearing
house for its services in the interest of
sound banking and proper business
methods. It is easily a circumstance
that merits a bit of study as to how it
came about.
Suppose one goes back, just for a mo
ment, to the beginning, before there
was any clearing house at all. It was
long enough ago to be in the days when
the hoarding of one's wealth in a
stocking was not a matter for extraor
dinary comment. Diverse systems of
banking carrying diverse consequences
to the depositor had afflicted the coun
try, and there were not a few who had
but little use for banks anyhow and
chose to keep their funds at home,
where they could be always obtaina
ble. These chary ones, then, wanted
to have their assets in a thoroughly
"liquid" state. To do that they took
the chances of fire and robbers and
rats, kept their deposits in their closets
and made their clearances over their
own hearthstones.
It was a system that had certain ad
vantages, but was not without its
drawbacks. If one leaves out of con
sideration the element of safety in the
stocking bank there is still an objec
tion of inconvenience when it comes
to applying such a system to the ex
igencies of even the ordinary kinds of
business. It involves carrying a great
deal of money in one's clothes, which
may be not only uncomfortable, but
unsafe. It involves postponing collec
tions from one's fellow traders until
they happen to have a sufficient amount
of funds in their pockets to settle up.
It necessitates much making of change.
End of the Stocking Regime.
So it is not difficult to see how the
system of letting a bank make the
change and attend to the other bother
some matters between the man who
pays and the man who receives be
came a popular one and in measure as
it commanded public confidence super
seded the stocking theory of banking.
These trite reminiscences are indulg
ed in here to remind the reader first
that confidence and credit based on
confidence were essentials of the first
departure that public convenience
prompted from the stocking bank the
ory of doing business. And in the sec
ond place they are made in order to
suggest that after the banking com
munity became highly developed, so
that there were many people clearing
their own personal debits and credits
through many banks, the banks them
selves came to occupy the same rela
tion to each other as regards the trans
action of their mutual business as
their customers had occupied each to
the others a generation or two before.
The check of every bank was a cer
tificate of its own indebtedness, good
so long as the person to whom it was
tendered believed that the Individual
who signed it had the funds on deposit
and that the bank itself was sound.
But, however readily accepted, the
check of John D. Rockefeller or J. P.
Morgan would have no value unless
Its handling meant in the end that the
actual cash was to be paid out to the
il* *i".ilAhA7^A*, inifi, ~k
person to whom the debt was due. So
the banks, with their steel and con
crete vaults for their cupboards, kept
their funds in their stockings and
made their clearances over their own
counters, sending forth their messen
gers in person with cash to pay those
who owed and would not come to col
lect.
Hence the establishment of the clear
ing house. Here was a community
knitted more and more closely together
every year by the strengthening of
common business interest, becoming
more and more a center for the ex
change of the country's business,
where the weekly clearings ran into
the billions of dollars and the weekly
exchanges of credits into the hundreds
of millions. For each bank to keep on
hand all the cash needed to care for
all the demands of depositors every
day meant that practically all the as
sets representing active accounts must
be available at an instant's notice.
Element of Danger.
There was an element of waste and
an element of danger in such a situa
tion as this. The element of danger
was that the banks, obliged to keep so
large an amount of cash on hand,
would have shut down on their cus
tomers whenever there was the slight
est contraction of money, lest they
find themselves unable to make good.
The element of waste lay in the limita
tions placed upon the investments
which the banks might safely and
profitably make of the funds in their
charge if only their actual cash out
lay could be figured on the net instead
of on the gross basis. The clearing
house was the result.
And with the clearing house came
mutual confidence based upon infor
mation. The member banks, first dis
closing to each other their debts and
credits every clay, later recognized the
wisdom of making a weekly confes
sion of condition. Side by side was
maintained the right of the clearing
house to go in and make an examina
tion at any time of a member bank, for
the clearing house undertook to take
from each bank belonging to it a state
ment of its claims against every other
member bank, to balance those state
ments, collect the balances from the
debit banks and turn the credits over
to the banks entitled to receive them.
Good Work Done In 1893.
It was back in 1S93 when the clear
ing house last demonstrated that it
was an instrument of safety as well as
of convenience. In the memory of re
cent things one needs not hark back
to the money stringency of that time
for illustration of what such a condi
tion means to the banks. In 1S93 the
people had to withdraw their money
from the banks not because they dis
trusted the banks themselves or the
methods by which they were conduct
ed, but because the money was needed
to pay for the necessities of business
and personal life. There came a time
when there was not cash enough in ac
tual circulation to go around among
the banks if withdrawals were to con
tinue, and the prospect was for a sus
pension of payments not because of in
solvency based on inability to pay
debts in liquidation, but inability to
convert good assets into cash quickly
enough to keep up with the demands
of depositors.
The plan that was adopted has be
come historic. In the office of William
Sherer, the present manager of the
clearing house, there hangs a picture
of a group of gentlemen gathered
around a big board room table. At
the head of the table is H. W. Cannon,
then president of the Chase National
bank, and around him are T. D. Tap
pan, who was president of the Galla
tin National G. G. Williams, then pres
ident of the Chemical National Wil
liam A. Nash, president of the Corn
Exchange National, and J. Edward
Simmons, president of the Fourth Na
tional, who are still at the head of
those institutions, and E. H. Perkins,
who was at the head of the Importers
and Traders'. With them were Mr.
Sherer and W. J. Gilpin, assistant
manager of the clearing house.
Eliminates Cash Exchanges.
The committee became known as the
clearing house loan committee. Its
procedure was to eliminate entirely
the exchange of cash between the
banks in settling their balances with
each other by means of a system of
clearing house loans and credits. Thus
if a bank had a debit balance of $250,-
000 it would be required to put up ap
proved collateral with the clearing
house backing a loan to it in this
amount. If a bank, on the other hand,
had a credit balance it would receive
a certificate from the clearing house
in this amount having the pledge of
the associated banks behind it.
By this method it became possible
for the banks to use all their funds
for their over the counter business
without having to employ any part of
their cash to settle their balances in
the clearing house. The degree of the
emergency may be judged from the
fact that currency sold at a premium
of 4 per cent, and the banks without
concern for possible receivership ap
plications refused to pay out cash on
their checks presented in any large
amounts until the depositors could sat
isfy them that the money was needed
for legitimate purposes.
The panic of 1893 passed by and
there were no bank failures in the
clearing house circle. The names of
the men who were on the loan commit
tee of that year went down into his
tory as having performed a great pub
lic service that was to sfand unique
until the crisis of October, 1907, was
reached.
The clearing house committee of
1907 will also go down in financial his
tory as having exercised effectively
and skillfully the moral suasion which
is the chief power of an organization
with billions of assets among its mem
bers.
^SUMtfaigBSSKSSBSSMIll
Opera House Block
AND FEED BARN.
T. J. KALIHER, Proprietor,
Princeton, Minn.
Single and Double Rigs
at a iloments' Notice.
Commercial Travelers' Trade a Specialty.
Did you ever hear a mana man you could believe
say that he bought a pair of shoes here that did not give
him satisfaction
If you did, did you ever hear him say that we refused
to make it satisfactory, whether the fault was his or ours?
Did you ever hear a man say that he bought a pair of
shoes here and found out later that he could have bought as
good shoes elsewhere for less money?
NEVER!
We would be pleased to show you, Sir, the best shoes
money can buy anywhere. We also have a fine line of
Ladies', Men's and Children's Underwear,
Stockings and Sweaters.
All Kinds of Repairing Promptly Executed.
FRANrPETERSOlF
G*/
Princeton
Ads in The Union Bring Results
SPOT CASH FOR CREAM
J& AT &
The Princeton Creamery
BRIDGEMAN RVMELL, Props.
Butter fat tests fairly and squarely made,
will pay you to bring your cream to
the Princeton Creamery.
C. L. BARNES, Hanager.
Job Printing and Job Printing
IHERE are two kinds of Job Printingthat which is neat and
artistic and that which possesses neither of these qualities. The
Princeton Union makes it a point to turn out none but the former
kind, and the Union finds this easy because it has the type, machinery
and skilled labor with which to accomplish it.
NotHing Looks Worse Than
BotcHed Job Printing.
It is a drawback to the business of a merchant or anyone else who uses
it. Botched Job Printing suggests loose methods. Then why not use
the kind printed by the Union? It costs you no more and gives the
public a good impression of your business. The Princeton Union is
prepared to execute every description of
Commercial and Fancy Printing
at short notice and nominal prices. If you are in need of letterheads
noteheads, billheads, statements, cards, posters, programs, wedding
invitations or any other work jn the printing line, an order for the
same placed with the Union will insure its being produced in an at-
tractive and up-to-date style.
Bring in Your Orders Before the Fall Rash Commences.
PRINCETON UNION I
Princeton, Minnesota.
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