which in this case was the day of failure. Further, it owed three hundred and thirty-five thousand dollars on clearing-house loan certificates, issued to it by the association on the deposit of collateral security in obedience to the terms of a special agreement entered into between said bank and the Clearing-house Association. Acting under the instructions of the clearing-house committee, the manager appropriated the sum of one hundred and seventeen thousand and thirty-five dollars and twentyone cents, furnished him by the banks, to the payment of the obligations of the Keystone National to the association as follows: In payment of the debit balance of the Keystone National Bank in that morning's exchanges, forty-seven thousand and twenty-nine dollars and seventy-five cents; to make good the due-bills given by the bank for its debtor balance on the preceding day, including due-bills given to the several banks, forty-one thousand one hundred and ninety-seven dollars and thirty-six cents; and the remainder, amounting to twenty-eight thousand eight hundred and eight dollars and ten cents, to the cancellation of a part of the three hundred and thirty-five thousand dollars in clearing-house loan certificates issued to that bank.

Upon a bill brought by the receiver of the defaulting bank against the seven members of the clearing-house committee, the Circuit Court rendered a decree for seventy thousand and five dollars and forty-six cents, with interest from March 20, 1891, against the defendants, on the ground that after the known insolvency of the named bank, they applied its funds in their hands or under their control to the payment of its debts to the Clearing-house

Association and to members thereof, with a view of giving them an unlawful preference over other creditors.

The Circuit Court of Appeals, to whom the case was appealed by the clearing-house committee, reversed this decree, on the ground that a bona fide exchange of items had taken place between the Keystone National Bank and its clearing-house association before the bank examiner had acted, and when the clearing-house association had no reason to suspect the impending failure. The transaction was in the regular course of business and with a view to continuing operation. The exchange was an accomplished fact, and the only thing remaining to be done was the payment by the Keystone National Bank of its debtor balance in the morning exchange. It failed to do this, and hence the action of the clearing-house manager in appropriating the money received from the various banks holding exchanges on the Keystone National Bank to the payment of the latter's obligations to the association was a justifiable procedure. The receiver of the Keystone National Bank finally appealed the case to the Supreme Court of the United States, and in March, 1897, a decision was rendered in favor of the clearinghouse committee.

CHAPTER XIV

THE BOSTON CLEARING-HOUSE

Formation and Early History-Period of the Civil War-Settlement of Balances Borrowing and Loaning BalancesClearing for Outside Banks.

Only three years after the establishment of the New York Clearing-house a similar association was formed in Boston-namely, in 1856-for the purpose, as specified in the constitution, of effecting a more perfect and satisfactory settlement of the daily exchanges of checks and other items, and of the balances resulting therefrom. The constitution was modelled very closely on that of New York, and, although important changes have since been wrought in both, Boston still remains more nearly on the New York model than does any other important association in the United States. This is so, for the most part, because the New York Clearing-house was the only one at that time in the United States; and hence to it alone could Boston look for a model.

The history of the association has been both eventful and interesting. Prior to its establishment there was much opposition to it, on the ground that it was an “innovation upon the established order of things and of doubtful expediency," but when the pressure in favor of its establishment became so great that opposition on the

part of a few was no longer of any avail and it became an established fact, its great practical utility was quickly demonstrated and the opposing banks soon came into it.

In less than two years after its formation the panic of 1857 burst upon the country, and in that crisis its usefulness was severely tested. In New York specie payments were suspended, whereupon the Boston banks immediately took action, and a committee was appointed to report to the association what course should be followed, in view of the action at New York. Upon the recommendation of that committee that Boston should follow the lead of New York, specie payments were suspended. It thus became necessary to provide some substitute for specie. Clearing-house loan certificates, based upon collatcral as security, did not come into use until 1860, and hence a different course was taken from that generally pursued by clearing-houses in similar emergencies since that time.

The association voted to permit its members to use their own circulating notes in the settlement of balances. to a limited amount, based upon the capital of each bank, in no case exceeding five per cent., except in the case of the Suffolk Bank, which was allowed ten per cent., it at the time being the redeeming agent for the note circulation of nearly all the New England banks. These bills thus received at the clearing-house were to be returned to the next day's settlement, and were to be at the joint risk of the banks in proportion to the amounts of their respective capitals; and the clearing-house committee were authorized to demand at their discretion satisfactory collateral security for such bills. The banks using

their notes at the clearing-house were required to pay one day's interest at a time.

The association, on the day following that upon which this plan was adopted, having been addressed by a committee representing the merchants of the city, who expressed their desire for an expansion of the bank loans, voted that the amount of circulating notes that may be used in settlements at the clearing-house be doubled. At a subsequent meeting, in order to encourage the use of specie, it was voted that the manager keep an account of the specie paid in by each bank, and in subsequent settlements repay to such bank, when a creditor, specie, this reimbursement to be in the order of payment by the banks.

A few weeks later the association voted that the amount for which the bills of the associated banks may be used in the liquidation of balances at the clearing-house, be reduced fifty per cent., and on December 14, 1857, just two months after suspension, a unanimous vote was cast in favor of the resumption of specie payments. It is probable that for a short time thereafter the use of banknotes was continued, but within a week it was voted to discontinue altogether their further use at the clearinghouse.

From this time on, the exchanges took place with little interruption till the outbreak of the Civil War, when anxiety and distrust again seized upon the country. In the latter part of 1860 it was voted to permit the banks to settle their balances at the clearing-house with their own circulating notes, to the extent of ten per cent. of their capital, it being voted at the same time that it was