What is the role of a clearing bank?

A clearing bank primarily functions as a financial institution that facilitates the transfer of funds between different banks and financial entities. This role is crucial in the settlement process of transactions, particularly within the context of payment systems and electronic transactions. By conducting funds transfer activities for net settlements, the clearing bank ensures that payments are processed efficiently, reconciling the accounts of the involved parties and minimizing the risk of fraud or default.

This service is vital in maintaining the integrity and fluidity of the payment system, as it allows for the effective and timely settlement of transactions. While the other options may represent functions that financial institutions can perform, they do not align with the primary responsibilities of a clearing bank within the transactions ecosystem. For instance, issuing credit cards, providing loans, or managing customer service inquiries are services typically associated with retail banks or credit card issuers, rather than the specific settlement and transfer roles that a clearing bank provides.