Non-Par Banking

As it developed in common law in the US, a bank’s notes, drafts or cheques were payable at face or par value in legal tender or lawful money only when presented at the bank of issue. The recipient of a banknote, draft or cheque not presented at the bank of issue was usually expected to pay the cost of settling the payment in lawful money. The practice of charging a remittance fee to clear banknotes, drafts or cheques that were not drawn on the receiving bank is called non-par banking. Such fees for payment services have a long history in the US financial system. The unique structure of banking in the US, as discussed in the general introduction to this collection in Volume 1 and the introduction to Volume 4 on the domestic exchanges, accounted for the existence of these fees. Given neither a permanent central bank nor a common currency, state chartering of banks that were geographically restricted to one location resulted in thousands of small banks scattered throughout the US. However, as the US grew, interregional trade expanded and this necessitated the settlement of payments between different cities and different regions. The clearing house system, the subject of Volume 6, arose to facilitate the clearing of the intercity and eventually interregional payments.