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 wire transfer transactions. [1]

Contents

As of late 2024, it settles approximately 500,000 payments totaling US$1.8 trillion per day. [2] Together with the Federal Reserve Banks' Fedwire Funds Service, 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. For payments that are less time-sensitive in nature, banks typically prefer to use 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 uses a system of multilateral netting that provides management of settlement risk as well as some liquidity benefits to its members. [1]

Differences from Fedwire

CHIPS differs from the Fedwire payment system in three key ways. First, it is privately owned (by The Clearing House Payments Company LLC), whereas the Fed is part of a regulatory body. Second, it is only accessible to a very small number of very large banks; it has just 47 member participants (with some merged banks constituting separate participants), compared with 9,289 banking institutions (as of March 19, 2009) [3] eligible to send and receive funds via Fedwire. Third, it is a netting engine (and hence, not real-time). [1]

A netting engine consolidates all of the pending payments into fewer single transactions. For example, if Bank of America is to pay American Express $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. 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

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." [4] 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

As of 2023, the 41 member participants (with country of ownership) are: [5]

See also

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References

  1. 1 2 3 Benson, Carol Coye; Loftesness, Scott; Jones, Russ (2017). "Core Systems: Wire Transfer". Payments Systems in the U.S.: A Guide for the Payments Professional (3rd ed.). Glenbrook Press. pp. 15, 16, 45, 123–128. ISBN   9780982789742 . Retrieved 2024-12-19.
  2. ↑ "[https://www.theclearinghouse.org/payment-systems/chips / CHIPS home page
  3. ↑ Fedwire Participant Directory Archived 2010-02-10 at the Wayback Machine
  4. ↑ Fedwire and Clearing House Interbank Payments System (CHIPS) Archived 2005-12-16 at the Wayback Machine
  5. ↑ "CHIPS Participants" (PDF). Archived from the original (PDF) on 2024-10-04. Retrieved 2024-10-23.
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