The clearing house reduced the costs of clearing and settling the interbank obligations arising from the collection of checks and banknotes, and thereby made feasible the daily settlement in specie of each bank’s multilateral net claim on, or obligation to, the other banks in the clearing house.
By itself, such an efficient clearing mechanism constrained the ability of individual banks to expand their lending imprudently. From the very beginning, however, clearing houses introduced other important elements of private, selfregulation. For example, the New York Clearing House’s 1854 constitution established capital requirements for admission to the clearing house and required members to submit to periodic exams of the clearing house.