What is a Clearing Bank?
A clearing bank is a member of a national check clearing network that has the authority to approve or clear checks for payment, even if the checks were not made on accounts affiliated with the clearing bank.
A clearing bank is often a commercial bank. Depending on the system or network’s architecture, the bank may only be able to clear checks written on accounts associated with that system or network.
However, some networks have reciprocity agreements with other national networks to evaluate and clear checks written on non-network financial institutions quickly.
The function of a clearing bank
The work of a clearing bank can frequently speed the transfer of monies from the account of the payer to the account of the payee.
Depending on the regulations of the specific clearing network, the face amount of the check may be credited to the payee’s account and debited from the payer’s account on the day the check is cleared, even if they do not have accounts at the same institution.
In corporate scenarios involving a substantial number of money, this sort of action is frequently quite useful.
For instance, if the payee is holding goods or services for the payer until the check clears, the clearing bank’s intervention expedites the release of those things, allowing the payer to get them sooner.
Who Does The a Clearing Bank Work With?
A clearing bank may also collaborate with member banks to arrange electronic financial transfers or recurring payments between accounts held at multiple banks by the payer and payee.
This simply means that the money are removed from the payer’s account, processed via the clearing bank, and deposited the same day into the payee’s account in the event of a recurring payment.
Transfers of a single sum of money may also be handled in the same fundamental way, making it feasible to transmit payments that are posted within hours if necessary.
It is vital to remember that a clearing bank also gives protection to the payee. Since the clearing procedure requires that the money to cover the check be in the payer’s account at the time the evaluation begins, the payee is guaranteed to only be credited if the payer has the funds in their account to cover the check.
This prohibits the payee from accepting and depositing a fraudulent check drawn on a closed or nonexistent account. From this vantage point, the operation of the clearing bank may be considered as an effective instrument for preventing bank clients from falling victim to a scam or other form of fraud.
Clearing Bank FAQs
What Is Clearing in the Banking System?
Clearing is the process of settling transactions between banks in the financial system. Every day, millions of transactions occur, therefore bank clearance attempts to limit the sums that change hands. If Bank A owes Bank B $2 million in cleared checks, but Bank B owes Bank A $1 million, Bank A pays Bank B just $1 million.
Which Banks Are Clearing Banks in the United States?
Bank of America, Bank of the West, Barclays, The Bank of New York Mellon, BB&T, Capital One, Citi, Citizens, Comeria, Deutsche Bank, AG Consultants, Fifth Third Bank, HSBC, JP Morgan Chase, Key Bank, M&T Bank, MUFG Union Bank, PNC, Regions Bank, Santander, State Street, TD Bank, UBS, U.S. Bank, and Wells Fargo are clearing banks in the United States.
What Is an Example of a Clearinghouse?
The London Clearing House is an example of a clearinghouse; it is the largest clearinghouse for derivatives, followed by the Chicago Mercantile Exchange. Typically, clearing firms are large investment banks like JP Morgan, Deutsche Bank, and HSBC.
What Is a Clearing Process?
Clearing is the reconciliation of an options, futures, or securities transaction or the direct transfer of cash between financial institutions. The procedure verifies the availability of sufficient cash, documents the transfer, and, in the case of securities, assures delivery of the security or funds to the buyer.
A clearing bank is an account into which customers deposit money before it can be returned as cash. The customer must have their account number and name in order to access this cash.
This can be very useful when short on funds or are unable to carry out transactions due to a lack of currency.