How it works (Example):
Let's assume XYZ Bank has the following activity today:
Check deposits $275,000
CD purchases $100,000
Cash deposits $125,000
Net settlement = $500,000 - $1,200,000 = -$700,000
Why it Matters:
Banks send their net settlement data to each other and to Federal Reserve bank banks in order to collect or pay amounts due from or to one another. A clearinghouse typically handles the actual transaction between entities. Payments usually occur at the end of the day so as to include all transactions for the day.