Clearing house (finance)

A clearing house is a financial institution formed to facilitate the exchange (i.e., clearance) of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms (also known as member firms or participants).

Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations.^[1] A clearing house provides emergency lending and assists banks when they need help.^[2]

^ Gilman, Theodore (1904). "The Clearing-House System". Journal of Political Economy. 12 (2): 208–224. doi:10.1086/251033. ISSN 0022-3808.
^ Gorton, Gary; Tallman, Ellis W. (2016). "Too Big to Fail before the Fed". American Economic Review. 106 (5): 528–532. doi:10.1257/aer.p20161043. ISSN 0002-8282.

[1] Gilman, Theodore (1904). "The Clearing-House System". Journal of Political Economy. 12 (2): 208–224. doi:10.1086/251033. ISSN 0022-3808.

[2] Gorton, Gary; Tallman, Ellis W. (2016). "Too Big to Fail before the Fed". American Economic Review. 106 (5): 528–532. doi:10.1257/aer.p20161043. ISSN 0002-8282.

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