clearinghouse

clearinghouse

Institution established by firms engaged in similar activities to enable them to offset transactions with one another in order to limit payment settlements to net balances. Clearinghouses play an important role in settling international payments and the transactions of banks, railroads, and stock and commodity exchanges. Bank clearinghouses are usually voluntary associations of local banks set up to simplify the exchange of checks, drafts, and notes, as well as to settle balances. Increasingly, the automated clearinghouse (ACH) is used to transfer funds electronically. The clearinghouse idea was applied to various forms of trade from an early time. The Amsterdam Exchange Bank, founded in 1609, became Europe's largest clearinghouse and made the city an international financial centre. The first modern bank clearinghouse was established in London in 1773. The first bank clearinghouse in the U.S. was established in 1853.