Clearinghouse
Clearinghouse is an institution used by banks to exchange checks and to establish claims against each other that result from financial transactions. Clearinghouses may be formal institutions with written rules and regulations, or they may consist of informal arrangements among banks. Nearly every city in the United States with more than two banks has a clearinghouse operated by an association of local banks. Formal clearinghouses operate in most large U.S. cities. Banks collect most checks drawn on out-of-town banks through Federal Reserve Banks or through commercial banks called correspondent banks. The rest of these checks are exchanged directly with banks in other cities.