Clearing House Interbank Payments System
Encyclopedia
The Clearing House Interbank Payments System (CHIPS) is the main privately held clearing house
for large-value transactions in the United States, settling well over US$1 trillion a day in around 250,000 interbank payments. Together with the Fedwire
Funds Service (which is operated by the Federal Reserve Banks), CHIPS forms the primary U.S. network for large-value domestic and international USD payments (where it has a market share of around 96%). CHIPS transfers are governed by Article 4A of Uniform Commercial Code
.
CHIPS is owned by financial institution
s. According to the Federal Financial Institutions Examination Council
(FFIEC), an interagency office of the United States government, "any banking organization with a regulated U.S. presence may become an owner and participate in the network." CHIPS participants may be commercial banks, Edge Act
corporations or investment companies. Until 1998, to be a CHIPS participant, a financial institution was required to maintain a branch or an agency in New York City. A non-participant wishing to make international payments using CHIPS was required to employ one of the CHIPS participants to act as its correspondent or agent.
Banks typically prefer to make payments of higher value and of a less time-sensitive nature by CHIPS instead of Fedwire, as CHIPS is less expensive (both by charges and by funds required).
CHIPS differs from the Fedwire payment system in three key ways. First, it is privately owned, whereas the Fed is part of a regulatory body. Second, it has 47 member participants (with some merged banks constituting separate participants), compared with 9,289 banking institutions (as of March 19, 2009) eligible to make and receive funds via Fedwire. Third, it is a netting
engine (and hence, not real-time).
A netting engine consolidates all of the pending payments into fewer single transactions. For example, if Bank of America
is to pay American Express
US$1.2 million, and American Express is to pay Bank of America $800,000, the CHIPS system aggregates this to a single payment of $400,000 from Bank of America to American Express — only 20% of the $2 million to be transferred actually changes hands. The Fedwire system would require two separate payments for the full amounts ($1.2 million to American Express and $800,000 to Bank of America).
Only the largest banks dealing in U.S. dollars participate in CHIPS; about 70% of these are non-U.S. banks. Smaller banks have not found it cost effective to participate in CHIPS, but many have accounts at CHIPS-participating banks to send and receive payments.
Clearing house (finance)
A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions...
for large-value transactions in the United States, settling well over US$1 trillion a day in around 250,000 interbank payments. Together with the Fedwire
Fedwire
Formally known as the Federal Reserve Wire Network, Fedwire is a Real Time Gross Settlement Funds Transfer system operated by the Federal Reserve Banks that enables financial institutions to electronically transfer funds between its more than 9,289 participants...
Funds Service (which is operated by the Federal Reserve Banks), CHIPS forms the primary U.S. network for large-value domestic and international USD payments (where it has a market share of around 96%). CHIPS transfers are governed by Article 4A of Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
.
CHIPS is owned by financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s. According to the Federal Financial Institutions Examination Council
Federal Financial Institutions Examination Council
The Federal Financial Institutions Examination Council, or FFIEC, is a formal interagency body of the United States government empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal...
(FFIEC), an interagency office of the United States government, "any banking organization with a regulated U.S. presence may become an owner and participate in the network." CHIPS participants may be commercial banks, Edge Act
Edge Act
The Edge Act is a 1919 amendment to the United States Federal Reserve Act of 1913,codified as:which allows National Banks to engage in international banking through federally chartered subsidiaries. The Act is named after Walter Evans Edge, a U.S. Senator from New Jersey who sponsored the original...
corporations or investment companies. Until 1998, to be a CHIPS participant, a financial institution was required to maintain a branch or an agency in New York City. A non-participant wishing to make international payments using CHIPS was required to employ one of the CHIPS participants to act as its correspondent or agent.
Banks typically prefer to make payments of higher value and of a less time-sensitive nature by CHIPS instead of Fedwire, as CHIPS is less expensive (both by charges and by funds required).
CHIPS differs from the Fedwire payment system in three key ways. First, it is privately owned, whereas the Fed is part of a regulatory body. Second, it has 47 member participants (with some merged banks constituting separate participants), compared with 9,289 banking institutions (as of March 19, 2009) eligible to make and receive funds via Fedwire. Third, it is a netting
Netting
In general, netting means to allow a positive value and a negative value to set-off and partially or entirely cancel each other out.In the context of credit risk, there are at least three specific types of netting:...
engine (and hence, not real-time).
A netting engine consolidates all of the pending payments into fewer single transactions. For example, if Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
is to pay American Express
American Express
American Express Company or AmEx, is an American multinational financial services corporation headquartered in Three World Financial Center, Manhattan, New York City, New York, United States. Founded in 1850, it is one of the 30 components of the Dow Jones Industrial Average. The company is best...
US$1.2 million, and American Express is to pay Bank of America $800,000, the CHIPS system aggregates this to a single payment of $400,000 from Bank of America to American Express — only 20% of the $2 million to be transferred actually changes hands. The Fedwire system would require two separate payments for the full amounts ($1.2 million to American Express and $800,000 to Bank of America).
Only the largest banks dealing in U.S. dollars participate in CHIPS; about 70% of these are non-U.S. banks. Smaller banks have not found it cost effective to participate in CHIPS, but many have accounts at CHIPS-participating banks to send and receive payments.
Member list
, the member participants (with country of ownership) are:- ABN AMRO Bank N.V. Netherlands
- American Express Bank Ltd. United States
- Banco Bilbao Vizcaya, S.A. Spain
- Banco de la Nacion ArgentinaBanco de la Nación ArgentinaBanco de la Nación Argentina is a state-owned bank in Argentina, and the largest in the country's banking sector.-Overview:The bank was founded on October 18, 1891, by President Carlos Pellegrini by way of stabilizing the nation's finances following the Panic of 1890; its first director was...
ArgentinaArgentinaArgentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires... - Banco do Brasil S.A. BrazilBrazilBrazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
- Bangkok Bank Public Company Limited ThailandThailandThailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
- Bank Hapoalim B.M. IsraelIsraelThe State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...
- Bank Leumi USA United States
- Bank of America, N.A. United States
- Bank of ChinaBank of ChinaBank of China Limited is one of the big four state-owned commercial banks of the People's Republic of China. It was founded in 1912 by the Government of the Republic of China, to replace the Government Bank of Imperial China. It is the oldest bank in China...
China - Bank of CommunicationsBank of CommunicationsBank of Communications Limited , founded in 1908, is one of the largest banks in China.-Before 1949:The Bank of Communications was founded in 1908 and emerged as one of the first few major national and note-issuing banks in the early days of the Republic of China...
China - The Bank of New York Mellon United States
- Bank of Nova Scotia Canada
- The Bank of Tokyo-Mitsubishi UFJ, Ltd. Japan
- Barclays Bank PLC England
- BNP Paribas New York France
- Brown Brothers Harriman & Company United States
- CalyonCalyonCrédit Agricole Corporate and Investment Bank is Crédit Agricole's corporate and investment banking entity. With a staff of 13,000 employees in 58 countries, Crédit Agricole CIB is active in a broad range of capital markets, investment banking and financing activities...
France - Citibank, N.A. United States
- Commerzbank AG Germany
- Credit Industriel et CommercialCrédit Industriel et CommercialCrédit Industriel et Commercial is a financial services group in France, founded in 1859 With its parent-company, Crédit Mutuel it is the fourth largest bank in the country...
France - Deutsche Bank AG Germany
- Deutsche Bank Trust Co Americas, formerly Bankers TrustBankers TrustBankers Trust was an historic American banking organization. The bank merged with Alex. Brown & Sons before being acquired by Deutsche Bank in 1998.-History:A consortium of banks created Bankers Trust to perform trust company services for their clients....
United States - Dresdner Bank AG Germany
- Habib Bank Limited Pakistan
- HSBC Bank USAHSBC Bank USAHSBC Bank USA, National Association, the American subsidiary of UK-based HSBC Holdings plc, is a bank with its operational head office in New York City and its nominal head office in McLean, Virginia . HSBC Bank USA, N.A...
United States - Mega International Commercial BankMega International Commercial BankThe Mega International Commercial Bank is a subsidiary of Mega Financial Holding Company. It is one of the leading banks in Taiwan. It has 105 branches in Taiwan along with 17 branches, 2 representative offices and 2 wholly owned subsidiaries abroad...
TaiwanTaiwanTaiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following... - Intesa SanpaoloIntesa SanpaoloIntesa Sanpaolo is a banking group resulting from the merger between Banca Intesa and Sanpaolo IMI based in Turin, Italy. It has clear leadership in the Italian market and a minor but growing international presence focused on Central-Eastern Europe, the Middle East and North Africa Intesa Sanpaolo...
Italy - Israel Discount Bank of New York United States
- JPMorgan Chase Bank, N.A. United States
- KBC Bank N.V. Belgium
- Mashreq Bank United Arab EmiratesUnited Arab EmiratesThe United Arab Emirates, abbreviated as the UAE, or shortened to "the Emirates", is a state situated in the southeast of the Arabian Peninsula in Western Asia on the Persian Gulf, bordering Oman, and Saudi Arabia, and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar, and Iran.The UAE is a...
- M & T Bank United States
- Mitsubishi UFJ Trust and Banking CorporationMitsubishi UFJ Trust and Banking Corporationis the trust banking arm of the Mitsubishi UFJ Financial Group, a Japanese financial services group which is the largest in the world measured by assets...
NY Branch Japan - Mizuho Corporate BankMizuho Corporate Bank, or MHCB, is the corporate and investment banking subsidiary of Mizuho Financial Group, the second-biggest Japanese financial services conglomerate...
- NY Japan - The National Bank of Kuwait SAK KuwaitKuwaitThe State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...
- The Northern Trust Company United States
- Société GénéraleSociété GénéraleSociété Générale S.A. is a large European Bank and a major Financial Services company that has a substantial global presence. Its registered office is on Boulevard Haussmann in the 9th arrondissement of Paris, while its head office is in the Tours Société Générale in the business district of La...
France - Standard Chartered BankStandard Chartered BankStandard Chartered PLC is a multinational financial services company headquartered in London, United Kingdom with operations in more than seventy countries...
England - State Bank of IndiaState Bank of IndiaThe State Bank of India is the largest Indian banking and financial services company with its headquarters in Mumbai, India. It is state-owned. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest...
India - State Street Bank and Trust CompanyState Street Bank and Trust CompanyState Street Bank and Trust Company or simply State Street is a custodian bank organized as a Massachusetts trust company specializing in services to mutual funds and their advisers, collective investment funds, corporate and public pension funds, insurance companies, operating companies and...
United States - Sumitomo Mitsui Banking CorporationSumitomo Mitsui Banking Corporationis a Japanese bank based in Yurakucho, Chiyoda, Tokyo, Japan. It is a member of the Sumitomo Group and Mitsui Group. As of the year 2009, SMBC was the second largest bank in Japan in terms of assets.-History:...
Japan - UBS AGUBS AGUBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
Switzerland - WachoviaWachoviaWachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
Bank, N.A. - Charlotte United States - WachoviaWachoviaWachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
Bank, N.A. - New York United States - Wells FargoWells FargoWells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
Bank, National Association United States
See also
- Automated clearing houseAutomated Clearing HouseAutomated Clearing House is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments...
- electronic payment network in the United States - Electronic Payments NetworkElectronic Payments NetworkThe Electronic Payments Network is an electronic automated clearing house that provides functions similar to those provided by Federal Reserve Banks...
- private sector ACH operator - Bankers' clearing houseBankers' clearing houseA bankers' clearing house is an organization that transfers money between member banks, originally to clear checks. For more than a century, this service has been expanded to include several other banking services now done electronically.- Predecessors :...
- historical origins - Clearing House Association, LLCClearing House Association, LLCThe Clearing House Association, LLC is the nation’s oldest banking association representing 17 of the world's largest commercial banks, which collectively employ over 2 million people and hold more than half of all U.S. deposits...
- banking lobby organization