Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)

Free Banking: Theory, History and a Laissez-Faire Model (Larry J. Sechrest)
- Highlight Loc. 459-63  | Added on Tuesday, October 25, 2011, 01:01 AM

From a periodic note-exchange, it is but a small conceptual step to a formal clearinghouse function. The clearinghouse, by supervising the multilateral note and deposit exchange for a group of banks, greatly reduces the time and effort involved in the many pairwise clearing relations that would otherwise be required. Furthermore, the clearinghouse can serve as a credit information bureau, can police individual banks so as to ascertain their soundness, and can provide short-term liquidity to its members in times of financial crisis (Selgin and White 1987, 450).