CHIPS (Clearing House Interbank Payments System)
Definition
CHIPS (Clearing House Interbank Payments System) is a U.S. private-sector, real-time interbank payment system used by financial institutions to transfer large value transactions. It is operated by The Clearing House Payments Company L.L.C. (TCH), a U.S. bank-owned organization that processes a significant volume of domestic and international dollar payments. Launched in 1970, CHIPS provides efficient, secure, and reliable payment settlements, playing a critical role in the financial infrastructure of the United States.
Examples
- Commercial Banking Transactions: Large commercial banks use CHIPS to settle high-value transactions between themselves and other financial institutions. For example, Bank A might use CHIPS to transfer funds to Bank B for corporate transactions.
- International Dollar Payments: CHIPS supports international transactions, including payments from U.S. banks to international banks, facilitating smooth cross-border trade and investment.
- Financial Market Settlements: Investment firms leverage CHIPS for settlement of securities transactions, enabling swift and secure movement of funds associated with stock, bond, and other securities trades.
Frequently Asked Questions (FAQs)
What is the main purpose of CHIPS?
The primary purpose of CHIPS is to facilitate large value, real-time payments between financial institutions. It integrates essential features such as payment finality, extensive network connectivity among participating institutions, and high processing speed.
How does CHIPS differ from Fedwire?
While both CHIPS and Fedwire are key U.S. payment systems, they differ in their operations. CHIPS is a private-sector system catering primarily to large financial institutions for high-value transactions, whereas Fedwire, operated by the Federal Reserve, provides real-time gross settlement services for various types of financial transactions.
What types of transactions are typically processed through CHIPS?
CHIPS processes a variety of transactions, including interbank transfers, international dollar payments, and settlements related to securities trades. The system is designed to handle high-value payments, ensuring efficiency and security.
How many banks participate in CHIPS?
As of recent data, over 45 financial institutions, including some of the world’s largest banks, participate in the CHIPS network, leveraging its capabilities for efficient payment settlements.
Is CHIPS only used for domestic transactions?
No, CHIPS is widely used for international dollar payments as well. The system supports cross-border transactions, facilitating global trade and finance.
Related Terms
- Fedwire: A real-time gross settlement funds transfer system operated by the Federal Reserve Banks, allowing financial institutions to transfer funds rapidly and securely.
- SWIFT (Society for Worldwide Interbank Financial Telecommunication): A vast messaging network used by banks and other financial institutions to send and receive information securely, primarily related to financial transactions.
- ACH (Automated Clearing House): An electronic network for financial transactions in the United States, used for batch processing of large volumes of credit and debit transactions.
- RTGS (Real-Time Gross Settlement): A funds transfer system allowing the continuous (real-time) settlement of funds transfers individually on an order-by-order basis without netting.
Online References
Suggested Books for Further Studies
- “Banking and Financial Institutions: A Guide for Directors, Investors, and Counterparties” by Benton E. Gup.
- “Financial Market Utilities and Payment, Clearing and Settlement Systems: Strengthening System Resilience and Stability” by J.A. Brandon.
- “Money, Banking and Financial Markets” by Stephen G. Cecchetti and Kermit L. Schoenholtz.
Accounting Basics: “CHIPS (Clearing House Interbank Payments System)” Fundamentals Quiz
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