122. Clearing-House.-Mr. A. pays a debt of $50 to Mr. B. by a check upon the First National Bank of their city. Mr. B. deposits the check in the Second National Bank, which credits Mr. B.'s account $ 50. To complete the transaction the Second National Bank takes the check to the First National Bank and receives $50 for the same. The First National Bank then debits the account of Mr. A. $ 50.

In a city with several banks it is impracticable for each bank to go to each of the other banks with the checks it has paid. To facilitate these interchanges of checks the banks form what is known as a Clearing-House Association. Without going into details the workings of a clearing-house are as follows: Each bank of the association sends daily to the clearing-house the checks it received the previous day. For these it receives credit; it has paid out money. Then it— and every other bank-is debited with each check made out upon it and paid by another bank; another has paid out money for it. If bank N. has brought checks to the clearinghouse to the value of $ 56,345.83 and the other banks have brought in checks that they have paid drawn upon bank N. to the value of $48,707.29, bank N. has paid out $ 7638.54 more for the other banks than they have paid out for it. The other banks must pay bank N. that much to balance the day's transactions. In practice, however, only the balance is kept from day to day and a money settlement made weekly, or every two weeks. Each bank bears its share of the expense.

In a city with few banks one bank usually acts as the clearing-house, or each bank acts a month in its turn.

To facilitate the handling of checks received upon banks in other cities-foreign checks, so called--each bank has a representative bank in some of the large business centres,

as New York and Chicago. The banks in your city have deposits in what cities? Suppose a merchant in Waco, Texas, sent a check to a manufacturing company at Elgin, Ill. The Elgin bank at which the check is deposited sends the same to its representative bank at Chicago. The latter credits the Elgin bank with the amount of the check and sends it to the Chicago Clearing-House. From here it goes to the bank representing the Waco bank, which debits the Waco bank the amount of the check and forwards it to the Waco bank. When the Waco bank receives the check, the Imaker is debited its amount and it is returned to him when his account is balanced.

123. Protested Checks.-A check drawn by a person having insufficient funds goes back through the clearinghouse to the person depositing it. Trace its route. All who have indorsed the check are notified by a notary public, which action is called protesting. This cost is added to the amount of the check. A protested check serves as a note.

EXERCISES

1. The financial part of a daily paper stated that for a certain week the bank clearance was $3,546,377,000 for New York; $438,079,000 for Chicago; $315,219,000 for Boston. Explain what this means. If necessary, ask a banker.

2. A certain city has five banks: A, B, C, D, and E. Find the debit or the credit balance for each bank if they turn the following checks into the Clearing-House one day:

124. Savings-Banks. Savings-banks are state banks. However, most national and state banks maintain savings departments. A depositor in a savings department cannot check against it, but must bring his bank-book each time he wishes to make a withdrawal. As a rule, withdrawals are permitted at any time, but the banks reserve the right to require 30-da. or 60-da. notices of withdrawals. These rights they exercise only in times of money stringency.

Interest is paid on savings deposits at a low rate, usually 4% or less. In most communities the interest is paid semiannually, but in some it is paid quarterly. If the interest is not collected on interest-paying dates, it will be added to the principal at those times. Interest is thus compounded semiannually. Explain.

The time and the amount upon which interest is paid varies for different communities. The following practice is quite common, however: no interest is paid on fractional parts of a dollar. Upon how much would interest then be paid on a deposit of $ 105.87? No interest is paid on money

on deposit a fractional part of a month. Money on deposit for 3 mo. would then draw interest for how long? Interest is paid only on money on deposit at interest-paying dates. Withdrawal is made from the amount longest on deposit.

Suppose, in a savings-bank paying interest Jan. 1 and July 1, that $ 85 was deposited Jan. 20 and $40 May 8, and that $30 was withdrawn May 23. The $30 would be deducted from the $ 85 leaving $ 55 for which interest will be paid 5 mo. and $ 40 for 1 mo; or $ 315 for 1 mo.

EXERCISES

How?

1. Compute the interest for the account on page 100 due Jan. 1, the next interest-paying date, at 3 %.

2.

What is the balance of this account on Jan. 1?

3. Complete the above page by computing the interest due July 1, at 31 %, and by footing up the balance.

4. Make up a ledger page for the following items: Deposits: Jan. 1, $45; Feb. 18, $19.50; Mar. 16, $ 20.45. Withdrawals: Mar. 1, $ 10; Apr. 12, $ 15; May 7, $ 20.

125. Postal Savings Banks.-In the postal savings department the U. S. Post Offices accept for deposit amounts of $1 and up to a maximum of $100 for any one month. The most that any one person may have on deposit is $ 500. These deposits bear 2 % interest if left for one year. They begin drawing interest the first day of the month following the one in which the deposit was made. Money so deposited may be withdrawn by surrendering the certificate of deposit at the post office where deposit was made. Certificates of deposit may be changed into U. S. government registered or coupon bonds bearing 21 % interest Jan. 1 and July 1. An amount of $500 of these bonds may be held by any one person in addition to $500 of certificates of deposit.

Since the issuing of Thrift Stamps and $5 Baby Bonds, postal savings accounts have become nearly extinct. What reasons can you give for this?'

126. Federal Reserve Banks.-According to a United States law of 1914 the United States was divided into twelve banking districts and a Federal Reserve Bank established at each of the following cities: Boston, New York, Philadelphia, Richmond, Atlanta, Cleveland, Chicago, Minneapolis, St. Louis, Dallas, Kansas City, and San Francisco. These banks are the bankers' banks. All national banks must and state banks may become members of the Federal Reserve System. Members are required to subscribe for stock of the Federal Reserve Bank in an amount equal to 6% of their capital and surplus. The capital stock of banks becoming members of the system is governed by the population of the town in which the bank is located. Banks deposit their funds in the Federal Reserve Bank of their district and draw upon them just as the business man does with the ordinary bank.