Prior to about 1850, New York City banks settled their accounts by sending a porter to visit every other bank, every day. At each stop, the porter presented checks his bank had received from customers drawn on the bank he was visiting, and collected the amount due in gold.
Porters carried as much as $50,000 of gold and bank bills in a pouch slung over the shoulder — with "a chain enclosed within the strap, to foil any attempt that might be made to cut it." Several of the banks were in the habit of sending a guard with the Porter, and in one or two instances, he was armed with a loaded pistol.
With or without a guard, the porters crossed and recrossed one another's tracks, hurrying to get their banks' accounts settled before the end of the working day. The system had the simplicity of Indian camps in which each tepee had a path leading to every other tepee, but as the number of banks grew, these paths became a tangled web.
Around 1850, the volume of payments was such that daily settlement in gold became impractical. The banks therefore agreed to exchange only checks each day and settle the resulting balances once a week. On Friday mornings, the city's bank porters would gather on Wall Street — outdoors — and attempt to untangle a week's worth of payments between dozens of banks.
In 1853, a bookkeeper suggested a simple solution: The banks should settle their accounts through a central clearing office. The city's banks quickly agreed and the New York Clearing House was established by a group of cashiers in the basement of 14 Wall Street. 52 banks participated in the first day of central clearing, exchanging checks worth $22.6 million.
At the end of the day, each debtor bank made a single payment to the clearing house in gold equal to its net balance. The clearinghouse then distributed the total among the creditor banks. By the aid of the clearing-house, each bank could settle all of its relations to the banks of the city by a single payment, instead of adjusting its relations with each bank separately.
Besides saving the porters from miles of daily walking, the new arrangement saved the banks from having to keep so much money on hand. Whereas previously banks had to keep enough gold in their vaults to meet every check presented to them, they now needed only enough to meet the difference between what came in and what went out. This made the banks of New York City approximately 19x more capital efficient.
In the first year of the New York Clearing-House, average daily clearings of $19,104,594.94 were effected by average daily payments of $988,078.06. Modern clearing houses do even better.
Today, the Clearing House Interbank Payments System (CHIPS) settles $26 of payments for every $1 that banks set aside for settlement. The improvement comes from running payment instructions through a "liquidity-saving mechanism" — a combinatorial algorithm that identifies groups of offsetting payments, minimizing the amount of money that actually needs to move. It's essentially the New York Clearing-House, but with better math — and running continuously.
Whereas the Clearing-House pooled a day's payments and settled them in a single, end-of-day batch, CHIPS searches continuously for groups of offsetting payments that can settle immediately. Banks submit payment instructions to CHIPS, which looks for combinations that can settle using the liquidity available. When it finds one, it releases the payments, updates each bank's position and starts searching again.
Most payments settle in less than a minute. Money that would otherwise sit idle can be put to work elsewhere — making loans, financing trades, or underwriting a merger. In 2025, the CHIPS network resulted in an estimated $5.5 billion in economic savings for participating banks.