New York Clearing House Association

The New York Clearing House Association is an organization that was established in 1853 to simplify the settlement of interbank transactions in New York State. Modeled after the London Clearing House, which was established in 1773, the New York Clearing House Association was the first in the United States. Before the Federal Reserve System was established in 1913, the New York Clearing House Association also worked to stabilize the monetary system.

The clearing process is one of recording the exchange of checks and other instruments among member banks. Settlements are prepared daily, with about 3 million paper instruments being presented to the clearing house for payment each day. Today, the New York Clearing House hands approximately $20 billion in transactions, largely electronically, each day. In 1975, the New York Automated Clearing House (NYACH) began processing payments electronically at the New York Clearing House; it became the Electronics Payment Network (EPN) in 2000. In 1992, the Clearing House Electronic Check Clearing System was implemented.

Prior to 1853, banks sent porters daily to exchange their checks for coin, and settlement occurred only once a week. However, in the four years preceding the creation of the Clearing House, the number of banks operating in New York more than doubled, from 24 to 57. As the number of banks increased and exchanges became more frequent, the potential for record-keeping errors and abuses also grew. The New York Clearing House was established after a bank bookkeeper, George D. Lyman, suggested the concept of a centralized clearing house. With the founding of the Clearing House, specie certificates replaced the use of gold in the exchange process, making it easier and safer for banks and bank porters and easing the burden that specie exchanges placed on bank cash flows. This reduced the likelihood of bank runs and helped stabilize the monetary system.

In the period between 1853 and 1913, the U.S. experienced 10 financial panics. The Clearing House played a role in mitigating those panics by issuing loan certificates that were backed, not by gold, but by bank notes held by member banks. These certificates were a form of quasi-currency that helped support the monetary system and stabilize the currency through times of financial panic. When Congress passed the Federal Reserve Act in 1913, the federal clearinghouse system that was established was modeled on the New York Clearing House, among other private clearinghouses that had emerged during the time of American expansion.