Mechanism of Operation of the Clearing House

How does Clearing House operate?

Mechanism of operation of the clearing house is by now an well developed one. Generally the mechanism is as under:

1. Every member bank of the clearing house prepares a bank-wise list of cheques and drafts received from its customers and drawn on different banks.
2. Representative of each bank visits the clearing house with the cheques and their list in the morning and delivers the cheques and drafts to the representatives of the respective banks. Similarly, he also receives the cheques drawn on his bank from the representatives of the other banks.
3. The representatives return to their respective banks to meet again in the afternoon to return the dishonored instruments, if any, to the representatives of the respective banks.
4. The representative of each bank cmputes the final balance payable by his bank from other banks after taking into account the various amounts of receipts and payments.
5. The final settlement is effected by the supervisor of the clearing house by debiting or crediting , as the case may be, the accounts of the respective banks as maintained with clearing house.