In banking, CHIPS stands for the Clearing House Interbank Payments System, a private-sector network that clears and settles large-value U.S. dollar payments between major banks. It’s the largest system of its kind in the world, moving roughly $2.2 trillion in domestic and international payments each business day.1The Clearing House. About CHIPS CHIPS handles wholesale transfers between financial institutions, not everyday consumer payments, and its defining feature is that it settles those transfers on a net basis instead of one by one.
What CHIPS Moves and Who Uses It
The payments running through CHIPS are the plumbing behind international commerce: cross-border trade settlements, foreign exchange deals, interbank funding, and capital market operations. When a company in Germany buys $50 million worth of goods from a U.S. supplier, the payment between their banks likely touches CHIPS.
The system has 42 direct participants, all large commercial or investment banks with a U.S. presence.1The Clearing House. About CHIPS Its reach extends much further through correspondent banking. Thousands of smaller banks worldwide access the U.S. dollar payment system by maintaining accounts with a CHIPS participant. A regional bank in Southeast Asia, for instance, sends and receives dollar payments through its correspondent in New York, which handles the CHIPS side of the transaction and takes on responsibility for settling those payments on the client’s behalf.
How Netting Settles Trillions With Less Cash
The mechanic that sets CHIPS apart is multilateral netting. Rather than settling each payment individually as it comes in, the system continuously calculates what each bank owes every other bank on a net basis. If Bank A owes Bank B $100 million and Bank B owes Bank A $80 million, only $20 million actually needs to move. Scale that logic across 42 participants exchanging hundreds of thousands of payments, and the savings compound.
CHIPS uses a patented algorithm that matches and nets payments throughout the business day.1The Clearing House. About CHIPS Bilateral netting offsets obligations between pairs of banks; multilateral netting offsets obligations across the entire network. The result: $2.2 trillion in gross payment value clears while only a small fraction of that actually changes hands.
According to The Clearing House, every dollar of funding contributed to the CHIPS network supports roughly $26 in settled payment value.1The Clearing House. About CHIPS That ratio matters because participant banks can free up capital for lending and investing rather than tying it up to cover gross payment flows.
Prefunding and Final Settlement
Each participant prefunds an account at the start of every business day. The prefunding amount moves via Fedwire to the CHIPS account at the Federal Reserve and serves as the liquidity pool used to settle payments during the day. CHIPS calculates each bank’s required prefunding weekly based on its transaction volume, and the balance cannot be withdrawn during operating hours.2U.S. Department of the Treasury. Technical Note on Payment Systems and Liquidity Risk Management
Throughout the day, the netting algorithm matches and releases payments as offsetting obligations accumulate. This isn’t a single end-of-day batch. Payments are released in real time as the algorithm finds matches. Final net positions are squared up at the end of the day, when the Federal Reserve adjusts each participant’s reserve balance to reflect its net debit or credit. That final transfer through Fed balances is what makes CHIPS settlements irrevocable.
The system accepts new payment messages until 6:00 PM Eastern Time.3The Clearing House. CHIPS Network Extends Operating Hours After that cutoff, any remaining unmatched payments go through a final resolution process. If a payment still can’t be matched and netted, it’s returned to the sending participant.
CHIPS, Fedwire, and SWIFT
Three systems dominate the infrastructure behind large U.S. dollar transfers, and they’re easy to confuse.
CHIPS Versus Fedwire
Fedwire is the Federal Reserve’s own payment system. It settles transactions individually and immediately through real-time gross settlement. When a bank sends a Fedwire payment, the full amount moves from the sender’s Fed account to the receiver’s Fed account right away, with no netting. That makes Fedwire the tool for time-sensitive payments where a bank needs guaranteed, instant finality.
The tradeoff is liquidity. Because Fedwire settles each payment at full value the moment it’s submitted, participating banks need to hold enough reserves at the Fed to cover every outgoing payment in real time. CHIPS lets banks clear a far larger volume of payments with less capital tied up. The two systems complement each other: Fedwire handles urgency, CHIPS handles volume.
Where SWIFT Fits In
SWIFT is not a payment system. It’s a messaging network. When an international bank wants to instruct its correspondent in New York to make a dollar payment, it sends a SWIFT message containing the payment details. The SWIFT message doesn’t move money. The actual transfer happens separately through CHIPS or Fedwire.
SWIFT is the instruction; CHIPS or Fedwire is the execution. For cross-border dollar payments, the typical flow is a foreign bank sending a SWIFT instruction to its U.S. correspondent, which then uses CHIPS to execute the payment through the netting process.
Who Regulates CHIPS
CHIPS is owned and operated by The Clearing House Payments Company L.L.C., a private entity owned in turn by the largest commercial banks in the United States.4The Clearing House. About Our History A board of executives from participating banks makes governance decisions covering risk management policies and operational standards.
Because a disruption to CHIPS could threaten the stability of the broader financial system, the Financial Stability Oversight Council designated The Clearing House Payments Company as a systemically important financial market utility under Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.5Board of Governors of the Federal Reserve System. Designated Financial Market Utilities That designation places the Federal Reserve as CHIPS’s primary regulator.
Under Title VIII, the Federal Reserve can impose enhanced standards covering risk management procedures, margin and collateral requirements, participant default policies, capital requirements, and the timely completion of settlement.6Legal Information Institute. Dodd-Frank Title VIII – Payment, Clearing, and Settlement Supervision The Federal Reserve also expects designated financial market utilities to comply with the Principles for Financial Market Infrastructures, international standards designed to ensure that critical payment systems can withstand operational disruptions and financial stress.7Federal Register. Policy on Payment System Risk
Recent Move to ISO 20022
On April 8, 2024, CHIPS completed its migration to the ISO 20022 messaging format, processing 555,345 payments worth $1.81 trillion on the first day under the new standard.8The Clearing House. CHIPS Network Successfully Migrates to ISO 20022 ISO 20022 is the same format used by other major global payment systems, so CHIPS messages now carry richer, more structured data about each transaction.
For banks and their corporate clients, that richer data means easier reconciliation, better compliance screening, and fewer manual interventions when payments arrive with incomplete information. The change aligns CHIPS with the direction the global payments industry is moving and improves the efficiency of cross-border payments flowing through the system.8The Clearing House. CHIPS Network Successfully Migrates to ISO 20022