The Clearing House Interbank Payments System (CHIPS) is the main privately held clearing house for large-value transactions in the United States, settling well over US$1 trillion a day in around 250,000 interbank payments. Together
with the Fed wire 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.
CHIPS is owned
by financial
institutions. 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.
Banks typically prefer to make payments of higher value and of a less time-sensitive nature by CHIPS instead of Fed wire, as CHIPS is less expensive (both
by charges and by funds
required).
CHIPS differs from the Fed wire 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) eligible to make and receive funds via Fed wire. Third, it
is a netting engine (and hence, not real-time).
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, but many have accounts at CHIPS-participating banks to send and
receive payments.