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Definition: CHIPS

CHIPS stands for clearing house interbank payment system. It is one of the largest private sector US dollar funds transfer system. It basically acts like a clearing house.

In 2012, it cleared and settled approximately USD 1.5 tn in cross border and domestic payments only. It engages in around 250,000 interbank payments daily. It commands a 96% market share in large value domestic and foreign transfers.

The different steps are as follows:

  1. Chips account at the Fed opens for pre-funding
  2. Banks send and receive payments
  3. CHIPS nets and releases the final payments to the bank
  4. CHIPS nets any unresolved payments. Banks fund their respective negative closing positions.
  5. CHIPS then sends money through fedwire to those banks that are in a positive closing position

CHIPS network can be accessed by any banking organization with a regulated US presence.

One of the most important characteristics of CHIPS payment systems is that it is not real-time. It is a netting engine. Hence those funds that are not time sensitive in nature are transferred through CHIPS.


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