Clearing House Interbank Payments System

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The Clearing House Interbank Payments System (CHIPS) is a United States private clearing house for large-value transactions. By 2010 it 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.

Unlike the Fedwire system which is part of a regulatory body CHIPS is owned by the financial institutions that use it. Banks typically prefer to make payments of higher value as long as they are less time-sensitive in nature by CHIPS instead of Fedwire, as CHIPS is less expensive (both by charges and by funds required). One of the reasons is that Fedwire is a real-time gross settlement system, while CHIPS allows payments to be netted.

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,[citation needed] but many have accounts at CHIPS-participating banks to send and receive payments.

Differences with Fedwire[edit]

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)[1] 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).

Members[edit]

CHIPS is owned by the financial institutions. 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."[2] 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.

List of members[edit]

As of 2009, the member participants (with country of ownership) are:[3]

See also[edit]

References[edit]

  1. ^ Fedwire Participant Directory
  2. ^ Fedwire and Clearing House Interbank Payments System (CHIPS)
  3. ^ CHIPS Customers

External links[edit]