DEFINITION of 'Clearing House Interbank Payments System - CHIPS'

The primary clearing house in the U.S. for large banking transactions. CHIPS settles over 250,000 of trades per day, valued in excess of $1 trillion. CHIPS and the Fedwire funds service used by the Federal Reserve Bank combine to constitute the primary network in the U.S. for both domestic and foreign large transactions denominated in U.S. dollars.

BREAKING DOWN 'Clearing House Interbank Payments System - CHIPS'

CHIPS differs from the Fedwire transaction service in several respects. First and foremost, it is cheaper than the Fedwire service, albeit not as fast, and the dollar amounts required to use this service are lower. It is also privately owned by member banks and has only 46 members (as of 2006), compared to the approximately 50,000 members that use the Fedwire service. Finally, CHIPS acts as a netting engine, where payments between parties are netted against each other instead of the full dollar value of both trades being sent.

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