he two largest check clearing houses in the U.S. have signed an agreement to join their regional systems. The proposal clears the way for the formation of one national check clearing and settlement organization.

The Clearing House and Western Payments Alliance intend to merge their respective East and West Coast-based functions in anticipation of the passage of Check 21 legislation. The proposal reflects recent changes in banking, such as the shift in infrastructure from regional to national, and from paper to electronic processing.

By some estimates, paper check volume is declining 3% to 5% annually, and proponents behind the merger say no financial institution can afford to be complacent. Proactive management of the migration from paper to electronic payments is crucial.

"This is really a big deal," said Patti Murphy, President of the Takoma Group and Contributing Editor of The Green Sheet. "These are the two largest-and New York is also the oldest-clearing houses in the country. It's also worth noting that The Clearing House is in the process of 'merging' with the Chicago Clearing House, another oldie in a major banking town.

"NY, or The Clearing House, is the organization behind SVPCo, which operates the biggest exchange network for electronic check presentment (ECP). ECP gets a big push from Check 21 and eliminates the need for time-critical shuttling of checks across town and across the country.

"The clearing houses were originally established to simplify check exchanges in a transportation-dependent check exchange system. That need subsides with Check 21 and ECP, but there remains the need for a clearing house-type structure to govern the exchanges-whether by trucks or planes or by way of the ether-and to facilitate settlement. This is a very logical, forward-looking step, the wave of the future," Murphy said.

The Clearing House, through the National Check Exchange, processes 4 million transactions per day totaling $7.8 billion for its 35 participating members in the Northeast. WesPay clears more than 7 million transactions totaling $7 billion daily for its 21 participants, located primarily in the western U.S.