The British banking system

The Bankers' Clearing House

The transmission of payments by means of cheques creates problems when the person making the payment has an account in a different bank from the person receiving the payment. The final settlement obviously requires a movement of money from one bank to another. In any one day there will be millions of cheques which require such inter-bank transac­tions to be carried out. Fortunately, many of these transfers of money will offset each other. There will be a large number of cheques drawn on accounts in Bank A that are payable to accounts in Bank B, but there will also be a large number of cheques requiring a transfer of funds in the opposite direction.

Each bank in a multi-bank system will find itself in this kind of situation at the end of each day. An obvious solution is for each bank to pay (or receive) the net amount owing after the banks have totalled their claims against each other. This is the function of the Bankers' Clearing House. Cheques which are drawn on one bank but payable to anoth­er are sent to the clearing house where mutual claims are off­set against one another, and the banks merely settle the outstanding amounts. These payments from one bank to anoth­er are carried out by means of cheques drawn on accounts which the clearing banks keep at the Bank of England. On an average day in 1986, some 6—7 million cheques, with a total value of f27000 million, were exchanged and cleared.

The operational members of the London Clearing House are Barclays, the Mid-land, Lloyds, the National Westminster, Coutts and Co., Williams and Glyn's, the Co-operative Bank, the Trustee Savings Bank, the National Giro Bank and the Bank of England. Non-clearing banks have agency arrangements with the clearing banks, although there are proposals to extend membership of the Bankers' Clearing House. There are three Scottish clearing banks, with their own clearing system: the Bank of Scotland, the Clydesdale and the Royal Bank of Scotland.