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MatC
170355.  Sat Apr 28, 2007 8:07 am Reply with quote

Are clearing banks no longer called clearing banks?

 
Flash
170358.  Sat Apr 28, 2007 8:27 am Reply with quote

As far as I know they are.

 
MatC
170364.  Sat Apr 28, 2007 9:08 am Reply with quote

So - does that mean they're called it but they're not it?

 
Flash
170366.  Sat Apr 28, 2007 9:42 am Reply with quote

Yes, they are both it and called it, if I've understood you aright. A clearing bank is a bank which is a member of a clearing system, an organisation which sits in the middle of all its members and matches up deals. So if you write a cheque on your account at the NatWest in favour of someone who has an account at the Midland, and he writes one to someone who's with Lloyds and another to someone else who's with the NatWest then the whole lot gets thrown into the clearing system and netted off, and the clearing system says "NatWest owes us a million quid today, and we owe the Midland half a mil and Lloyds half a mill" or whatever.

Each clearing bank deals only with the clearing house, not directly with the other banks. And any bank which is not a clearing bank will have to access the clearing system via another bank which is.

 
MatC
170369.  Sat Apr 28, 2007 10:04 am Reply with quote

That's what I thought, but was puzzled by this:

Quote:
In the 18th Century, there was a clearing-house system of banking in the United Kingdom. Banknotes, which circulated as money, were issued by private banks.


That sounded a bit past tense.

 
Flash
170371.  Sat Apr 28, 2007 10:23 am Reply with quote

Oh, I see. Maybe a better way to express that would have been "By the 18th Century therewas already a clearing-house system ..."

 
dr.bob
170867.  Mon Apr 30, 2007 8:54 am Reply with quote

Quote:
In Scotland, however, there was a slight exception: banknotes often had a clause that allowed the bank to suspend convertibility. Although banks were legally required to pay the bearer in gold bullion, they could temporarily suspend that conversion should they find that necessary. The suspension clause in Scottish banks was the way that system responded to clearing house "bullying" trick - whereby several banks would surreptitiously hold back notes issued by bank Z and then, one day, they would all collectively unload the notes upon bank Z and demand redemption. Naturally, as it was a fractional reserve banking system, bank Z would not be able to redeem them all. If convertibility was required by law, then bank Z would have to declare bankruptcy.


After the Bank of Scotland's monopoly expired in 1716, the Royal Bank was set up in 1727 and they tried exactly this trick to force a take-over of BoS. The Royal Bank was aided and abetted by merchants who thought that BoS were being stingy with credit, and by the English government who were worried that the BoS supported rebellious Jacobites.

After suspending conversion of their notes for a while, BoS came up with a cunning plan to ward off this kind of attack in the future. When their banknotes came back into circulation they added an "interest option." Basically this said that, upon presentation of the note to the bank, the bank could choose to either pay the bearer the value of the note there and then or, alternatively, pay the bearer the value of the note plus 5% interest in six month's time. The mere presence of this clause killed off the idea of creating a run against the bank, and so the bank was not forced to actually use this option. The Royal Bank followed suit to prevent a run against their currency until the contentious clause was declared illegal in 1765.

s: http://economics.about.com/cs/moffattentries/a/scot_banking_2.htm

 

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