,note3 ,images of the original pages are available through ,internet ,archive4 ,see http3_/_/archive4org_/details_/simpleexp lanati#jjrobi ,transcriber's note3 ,text enclosed by underscores is in italics 7italics74 ,text enclosed by tilde characters is in bold face 7bold74 ,a ,,simple ,,explanation ,,of ,,modern ,,banking ,,customs by ,,humphrey ,,robinson ,edited from a ,legal ,standpoint by ,w4 ,overton ,harris1 ,former ,judge of the ,jefferson ,county 7,kentucky7 ,circuit ,court1 ,dean of the ,louisville 7,kentucky7 ,law ,school ,designed for the promotion of closer and more satisfactory relations between the public and the banks2 for the information of depositors generally1 and of those just entering the banking business4 ,boston ,small1 ,maynard ,company ,publishers ,copyright1 #aiji1 #aiaj ,by ,humphrey ,robinson ,entered at ,stationers' ,hall ,,contents ,,page ,i4 ,general ,remarks #i ,,ii4 ,the ,choice of a ,bank #ad ,,iii4 ,opening a ,bank ,account #ag ,,iv4 ,how to ,deposit #bb ,v4 ,your ,account on the ,bank's ,books #bf ,,vi4 ,stopping ,payment of a ,check #cb ,,vii4 ,how the ,bank ,collects the ,checks you ,deposit #cc ,,viii4 ,the ,clearing ,house #cf ,,ix4 ,a ,certified ,check #di ,x4 ,protesting ,notes1 ,drafts1 etc41--why ,necessary and how it is ,executed #ec ,,xi4 ,the ,local ,collection ,department #fd ,,xii4 ,the ,loan ,department #gg ,,xiii4 ,new ,york ,exchange #ii ,,xiv4 ,the ,method of ,issuing ,national ,bank ,notes #ajb ,,xv4 ,the ,so-called ,special ,privileges of ,banks #aji ,a ,,simple ,,explanation ,,of ,,modern ,,banking ,,customs ,i ,,general ,,remarks ,after some years of work in a bank1 it has been impressed daily upon the writer that1 if the depositors were fully informed about the details of the conduct of banks1 closer and more satisfactory relations would result4 ,hence this attempt to explain1 in a simple and concise way1 avoiding as much as possible the use of technical terms1 certain things that every depositor should know4 ,for ten years the writer was in business4 ,for an equal length of time he has been connected with a large city bank4 ,he remembers his utter lack of comprehension of banks and their ways1 and his consequent mistakes1 perplexity1 and embarrassment in dealing with them4 ,also the unfairness and prejudice with which he often judged them4 ,recalling all this1 he believes that1 without giving offense1 he can state these facts4 ,many men having constant transactions with the banks do not realize the importance of the choice of a bank2 few understand the correct way in which a note should be drawn1 or how to determine the exact due date of a sixty or ninety-day note1 or acceptance2 what protesting a note or draft really means1 and what effect it has on the drawers or endorsers2 the functions of the ,clearing ,house and the simplicity of its methods2 why the banks are compelled to pursue a certain course in the collection of paper sent them1 even though this course may be very objectionable to the payers2 how checks are collected2 the effect of certifying a check2 and many other details4 ,also that very few depositors have ever seen a copy of the ,national ,bank ,act1 or are familiar with the laws governing their own ,state ,banks and ,trust ,companies4 ,this lack of knowledge of the laws and customs1 from which there can be no safe departure1 is undoubtedly the cause of many unreasonable requests2 assertions of fancied rights2 remonstrances1 and irritating misunderstandings4 ,this condition should not exist4 ,one explanation for it may be1 that the work in a bank is so strenuous1 everything having to be accomplished in so short a time1 that the officers and employes do not have the opportunity to explain fully the reason why4 ,many seem to think that the details of banking are very complicated4 ,but there is no mystery about these details4 ,they are very simple and sane4 ,the methods of bookkeeping are really elementary1 principally mere addition and subtraction4 ,of course the science of banking and political economy involves deep and profound study1 but these are not treated here1 and the writer has attempted merely to give an idea of the daily routine of a bank4 ,this can be stated with certainty4 ,the interests of the public and the banks are identical2 and an acquaintance with banking customs will enable any man to conduct his business with much greater intelligence1 satisfaction and profit4 ,also that banks want to accommodate1 as far as possible1 not only their own customers1 but others1 because they are possible customers4 ,it is hoped that this writing1 in some small degree1 may hasten the time1 when the political orators1 remembering that the day of the private banker has passed1 and that the people now own the banks1 will cease inciting the public against them2 when the law makers1 elected by the stockholders and depositors of banks1 will cease oppressing them by unequal and unjust taxation2 when the public generally1 realizing the necessity and importance of banks to every community1 will cease being prejudiced against them and their ways1 and1 by reason of a better understanding1 will feel closer and more cordial toward them4 ,so here's to a better acquaintance between the public and the banks4 ,,ii ,,the ,,choice ,,of ,a ,,bank ,the choice of a bank should be most carefully considered1 especially by a business man4 ,the same care should be exercised in selecting a bank as would be used in choosing your lawyer or your doctor4 ,having done this1 make it a rule to be as frank and open and straightforward with your banker as with your lawyer or your doctor4 ,you will never lose by it4 ,all banking relations must be founded on mutual confidence4 ,once let your banker get the idea that you have deceived him1 and naturally he is forced to view your statements with suspicion4 ,tell him the whole truth about your business and your resources1 even though it hurts sometimes4 ,it is primarily to his interest to help all his customers build up their business as much as possible1 and to keep them going1 and your success contributes to the general success of your bank4 ,he should be1 not only your banker1 but your intimate financial adviser and your very good friend4 ,in deciding upon your bank1 did you inquire into the character and disposition of its ,president and ,cashier8 ,are they men whose business sagacity and honorable careers are such that you are glad to seek their advice2 and can you repose every confidence in their keeping inviolate your business secrets8 ,will they fulfill to the letter their promises of protection to the best of their ability in times of financial stress8 ,or1 have they exaggerated their resources and facilities and made all kinds of suave1 but very general promises in order to get your account8 ,have you gone a little further and considered the personnel of the ,board of ,directors of your chosen bank8 ,that ,board is supposed to approve or disapprove all loans and business arrangements4 ,or1 did you open your account with some bank merely because of convenience of location1 or because some friend suggested that institution8 ,,iii ,,opening ,a ,,bank ,,account ,in opening your account with a bank1 you will be asked to give your signature and your address4 ,write your name naturally1 as you are in the habit of signing it4 ,the paying teller has to accustom himself to the peculiarities of the signature of every patron of the bank1 and has to be constantly on the lookout for forgeries2 for if he pays a forgery1 the bank must stand the loss4 ,he soon gets to know your signature as he knows your face4 ,so don't have your signature on the bank's books as1 ,john ,p4 ,williams1 for instance1 and then sign numbers of your checks1 ,j4 ,p4 ,williams4 ,the letter ,j might stand for ,james or ,joseph1 and1 if the account is in the name of ,john ,p4 ,williams1 the bank is taking an unreasonable risk in paying out your money on a check signed1 ,j4 ,p4 ,williams4 ,it would have to make good any loss that might result thereby4 ,a woman1 for instance1 will open an account as ,florence ,perkins ,smith1 and then send out checks signed ,florence ,p4 ,smith2 or ,f4 ,p4 ,smith2 or if married1 will sign1 ,mrs4 ,harry ,b4 ,smith4 ,then the paying teller must see that every endorsement on the check is technically correct4 ,for instance1 that a check made payable to ,john ,p4 ,williams is not endorsed ,j4 ,p4 ,williams1 and again that a check payable to ,j4 ,p4 ,williams1 ,trustee1 is not endorsed by ,j4 ,p4 ,williams only1 and not as ,trustee4 ,before going to the paying teller's window you should endorse any check you are collecting2 even though it is made payable to ,cash or to ,bearer4 ,if the check should turn out no good1 the teller can then see at a glance who cashed it1 and communicate with the proper party4 ,compliance with these points saves much delay4 ,every check should be endorsed exactly as it is made payable on its face4 ,many firms1 as well as individuals1 overlook this point daily4 ,the paying teller must watch for raised or altered checks4 ,the law holds that any legal instrument is void if altered in any material way4 ,so many people1 if they make a mistake in writing a check1 will erase or alter the amount or the name1 instead of taking a little more time and making out a new one4 ,the banks have to be very cautious and particular about paying such checks1 for they are paying out actual cash on doubtful orders4 ,according to law1 they must suffer the consequences if they pay to the wrong person or pay the wrong amount4 ,but all depositors must use every reasonable precaution to keep their checks from being altered in any way4 ,many people1 especially in the rural districts1 write checks in lead pencil4 ,how easy it is for such checks to be changed if they fall into the hands of dishonest parties4 ,the rejection of the account of any person1 who will be so careless1 is plainly only the part of safety4 ,the figures should be placed close to the dollar mark4 ,in writing the amount of the check in words1 begin close to the left hand margin1 and when the amount is written1 draw a line in the blank space left between the amount1 and the word dollars4 ,the law says that where the figures and the written amount differ1 the written amount shall govern4 ,,iv ,,how ,,to ,,deposit ,in making your deposit1 always head your deposit ticket with your name exactly as you wrote it when leaving your signature with the ,paying ,teller1 otherwise1 it might be credited to some other person4 ,also1 fill in the amount of your deposit as plainly1 and as legibly as possible4 ,after the receiving teller has checked off your deposit ticket1 it is passed on to the individual bookkeeper who has charge of your account4 ,he is only human1 and any bad figures on your ticket may lead to mistakes and consequent irritation to you4 ,always make out your own ,deposit ,ticket4 ,the ,receiving ,teller should not be asked to do this4 ,there are generally other people in line1 and they1 as well as the ,teller1 have a right to complain if he has to stop and do this for you4 ,list your money separately as gold and silver1 and1 in entering your checks1 write against each amount the name of the ,bank drawn on1 and the town1 as plainly and briefly as possible4 ,then add the various amounts and hand the slip to the teller4 ,when depositing currency arrange the bills so that the ones and twos will be together1 the fives together1 the tens together and so on4 ,have the bills straight and face upward4 ,with the gold and silver follow the same idea4 ,if your deposit is large put the money in packages and label with amount and your name4 ,by following these directions you will put the ,receiving ,teller under everlasting obligations4 ,he has a very short time in which to accomplish a great deal1 and his position at best is nerve racking4 ,in endorsing a check1 either simply write your name on the back1 or write ,pay to the order of ---- ,bank and then sign your name4 ,when a check is undoubtedly intended for you1 and your name is not stated correctly on its face1 endorse it exactly as it is made payable1 and then endorse as you generally do4 ,for instance1 if a check intended for ,brown ,bros4 ,co4 is made payable to ,brown ,bros41 it should be endorsed first ,brown ,bros41 and then ,brown ,bros4 ,co4 ,checks should be deposited or cashed promptly4 ,you have only until the next succeeding business day in which to collect1 or deposit for collection1 any check4 ,if you hold a check longer than forty-eight hours1 and the bank on which it is drawn should fail in the meantime1 you have released the drawer and must take your chances with the other claimants against the bank4 ,for this reason the banks send out all checks deposited with them for collection on the same day1 or the next succeeding business day2 otherwise they have released both the drawer and the endorsers1 if the paying bank should fail or any loss should result by reason of their delay4 ,checks drawn on banks in the same town1 and which are deposited after the clearing hour1 are held over at the depositor's risk1 until the next day4 ,v ,,your ,,account ,,on ,,the ,,bank',s ,,books ,there is no mystery about bank bookkeeping4 ,it is about the simplest known4 ,the total amount of your deposit is added to the balance you already have in the bank2 then the total amount of your checks1 that reach your bank that day1 is deducted2 the result is your balance4 ,right here it is well to emphasize that the great majority of the banks keep no record of the names of the parties from whom you receive checks which you deposit2 nor do they keep any record of the names of the people to whom you make your checks payable4 ,when you deposit a check1 the only record generally kept by the banks is the date that you deposited it1 the amount1 and the town in which it is payable4 ,if it is on a bank in the same city1 your bank will keep a record of the name of that bank1 but not otherwise4 ,in handling thousands of checks daily1 it can be seen what a stupendous task it would be for a bank to keep a complete record of the drawers and all the endorsers on every check4 ,its force of clerks would have to be doubled or trebled4 ,the bank should not be expected to keep your private memoranda1 and it is the duty of the depositor to keep a complete record of the parties from whom he gets the checks that he deposits or cashes4 ,if a check is lost in the mails1 the bank has a perfect right1 after giving the depositor the amount1 the date on which it was deposited1 and the town in which it was payable1 to charge the amount to the depositor's account until he furnishes a duplicate of the lost check4 ,so1 if you cash a check drawn by ,john ,b4 ,smith1 for example1 and payable to ,james ,a4 ,jones1 and then endorsed by several other parties2 it is your duty1 and not the bank's1 to keep a record of the person from whom you received that check1 and obtain a duplicate if it is lost before reaching its destination4 ,also with all other checks which you deposit or cash4 ,many retail firms cash checks for customers2 and after endorsing1 will deposit them for collection2 keeping absolutely no record of the sources from which they received them4 ,for example1--,mrs4 ,brown1 of ,st4 ,louis1 receives a check from her son in ,cincinnati4 ,she gets it cashed at the dry goods store with which she deals4 ,then the merchant deposits it1 with numerous other checks1 in his bank for collection4 ,if the check is returned unpaid1 the bank certainly has a perfect right to call on the merchant to pay it4 ,the merchant then calls on ,mrs4 ,brown to pay him4 ,now if that check is lost in the mails1 say burned in a railroad wreck1 the bank has the same right to call on the merchant for a duplicate4 ,and it is no valid excuse for him to say that he has no record of the person from whom he received it4 ,in short1 each person endorsing a check should keep a record of the person from whom he received it1 or for whom he endorsed it4 ,on the last business day of every month your statement is made up and you should call for it as soon after as convenient4 ,then you should assort your canceled checks according to the dates or numbers of same1 and compare them with the stubs in your check book4 ,this is very important in order that you may detect any forged or raised checks and promptly inform your bank4 ,if such checks are not reported to the bank in a reasonable time1 you will have to stand the loss4 ,the total amount of the checks not returned by the bank should be the exact amount of the difference between the balance as shown by your check book and your bank book4 ,for example1--you give a check on the last day of the month2 it does not reach your bank until the first1 second or third day of the next month4 ,it can not be charged to your account until it does reach your bank2 therefore1 the bank's statement will generally show a larger balance than your check book4 ,the difference is the amount of checks that are out4 ,banks do not like to tell the amount of your balance over the telephone4 ,they can not identify you over the 'phone1 and some person1 who has no business to know1 may be inquiring into your affairs4 ,for the same reason they do not like to state the amount of your balance to any one in person1 unless you authorize it4 ,that is a confidential matter between you and the bank1 and they make this rule for your protection as much as their own4 ,,vi ,,stopping ,,payment ,,of ,a ,,check ,if1 for any reason1 you desire to stop payment on a check1 communicate with the paying teller as quickly as possible4 ,give him a full description of the check1 the name of the party to whom it is made payable1 the number1 the date1 and the amount4 ,then always confirm this action in writing4 ,if1 after examination of your checks1 the bank informs you that this particular one has not been paid1 you can safely issue another1 if desired4 ,inform your bank1 however1 that you are issuing a duplicate1 and write the word duplicate across the face of the check4 ,,vii ,,how ,,the ,,bank ,,collects ,,the ,,checks ,,you ,,deposit ,when your deposit is handed in to the ,receiving ,teller1 he assorts the checks you give him into foreign and clearing items4 ,the foreign items1 that is1 checks or drafts on banks in other towns1 are then passed on to the route clerk4 ,he1 in turn1 assorts them so that they may be sent to the banks that will collect them for the least possible cost4 ,for instance1 if your bank is situated in the middle ,west1 the checks you deposit on the far ,west will be sent to a ,chicago or ,st4 ,louis bank4 ,checks on ,eastern cities1 except ,new ,york possibly1 will be sent to ,philadelphia or ,baltimore4 ,checks on nearby towns probably will be sent direct to banks in those towns4 ,the reason for not sending checks direct to the towns on which they are drawn1 is1 that often they can be collected much more cheaply by sending them through other large cities4 ,the less expense your bank incurs in collecting1 the less it will have to charge you4 ,the depositor should understand that the bank's charges for these collections are figured at about cost4 ,it is a fact that an examination of this account on the books of any city bank almost invariably will show that it is a source of loss rather than profit4 ,in other words1 the city banks really charge their depositors less than it actually costs for collections on other towns4 ,the clearing items1 that is1 checks on banks in your own town1 are passed to the ,clearing ,house clerks4 ,the collection of these checks through the ,clearing ,house1 and the operation of that institution1 are next explained4 ,,viii ,,the ,,clearing ,,house ,the ,clearing ,house is simply a meeting room for the convenience of the different banks in a city2 a place in which to swap checks4 ,small towns have none4 ,ordinarily no figuring is done here except addition and subtraction4 ,its operation is simple4 ,suppose you owe ,brown #aj4jj1 and you owe ,jones #e4jj4 ,then suppose ,brown owes you #e4jj1 and owes ,jones #d4jj4 ,then suppose ,jones owes you #c4jj1 and owes ,brown #e4jj4 ,now1 instead of each of you going around to two other places1 you three meet in a certain conveniently located room to square1 or clear up1 accounts4 ,this saves time and steps4 ,a clerk is in this room to do the sums for you4 ,with a little addition and subtraction he has the following3 ,you owe ,brown and ,jones together #ae4jj ,brown and ,jones together owe you #h4jj ------ ,therefore1 you owe ,brown and ,jones together #g4jj ,you and ,jones together owe ,brown #ae4jj ,brown owes you and ,jones together #i4jj ------ ,therefore1 you and ,jones together owe ,brown #f4jj ,you and ,brown together owe ,jones #i4jj ,jones owes you and ,brown together #h4jj ------ ,therefore1 you and ,brown together owe ,jones #a4jj ,the clerk then announces that you owe #g4jj here2 ,mr4 ,brown is entitled to receive #f4jj1 and ,mr4 ,jones is entitled to #a4jj4 ,then he gives ,mr4 ,brown an order on you for #f4jj1 and ,mr4 ,jones an order for #a4jj4 ,nothing complex about this if you know how to add and subtract4 ,now just substitute for your name1 the ,first ,national ,bank2 for ,brown's1 the ,second ,national ,bank2 for ,jones'1 the ,third ,national ,bank4 ,then put the figures up into the thousands or hundreds of thousands of dollars in place of the small ones given above4 ,then name the room where you met1 the ,clearing ,house1 and call the clerk who did the sums1 the ,clearing ,house ,manager4 ,then call the orders he has given1 the ,clearing ,house ,manager's checks4 ,no matter how many banks in any one city1 or how large the figures1 this simple method of settling is in operation daily4 ,say there are twenty banks in your city4 ,your bank receives through the mails1 and from its local depositors1 numbers of checks on the other nineteen banks in the same town4 ,the clerk1 who goes to the ,clearing ,house1 and his assistants1 assort these checks into nineteen different piles4 ,each bank goes by a number at the ,clearing ,house4 ,then these checks are stamped on the back about like this--,paid through the ---- ,clearing ,house2 then follows the date1 and name1 and number of the bank which sends them4 ,these nineteen piles of checks are added up into nineteen different totals2 the checks on each bank being kept in separate bundles4 ,the nineteen totals are added into one grand total4 ,the clerk then starts for the ,clearing ,house with nineteen bundles of checks2 and a sheet which shows how much his bank has against each of the other banks2 and the grand total it has against all the other banks combined4 ,therefore1 at a certain hour1 generally noon1 on each day1 twenty clerks1 one from each bank1 meet at the ,clearing ,house4 ,each one takes his stand at his desk4 ,when the manager taps the bell1 every clerk makes the round of all the other desks1 and leaves the bundle of checks he has against each bank with a slip showing the total amount of the package4 ,when this is over1 each desk has nineteen bundles of checks on it and nineteen slips showing the different totals4 ,each clerk then adds up these nineteen totals1 and the grand total resulting shows what all the other banks have against his bank4 ,he then reports two amounts to the ,manager of the ,clearing ,house1--the grand total of the checks he has brought in1 and the grand total of the checks which have been brought in against him4 ,say he has brought in #ajj1jjj4jj worth of checks against the other nineteen banks1 and they have brought in #ij1jjj4jj worth of checks against his bank4 ,then his bank has a credit at the ,clearing ,house of #aj1jjj4jj4 ,after the ,manager figures up from these totals handed him by the different bank clerks1 he finds that certain banks brought more than was brought against them1 and that certain other banks brought less than was brought against them4 ,in other words certain banks have lost at ,clearing while others have gained and at a later 7designated7 hour of the day1 the debtor banks pay in their losses at the ,clearing ,house and the creditor banks receive their gains1 the total losses and gains1 of course1 exactly offsetting each other4 ,while the systems employed at the ,clearing ,houses of the various cities of the ,united ,states may vary in some particulars1 they are all founded on the principles stated in the preceding paragraphs4 ,these principles have been so perfected that the clerks from the different banks are at the ,clearing ,house for a few minutes only each day4 ,the ,manager imposes a fine of several dollars on the bank for every mistake in calculation its ,clearing ,house clerk makes2 also for tardiness4 ,to return to the checks which have been brought back from the ,clearing ,house4 ,if1 on examination1 the ,paying ,teller has discovered any forgeries1 or irregular or missing endorsements1 or anything suspicious about any checks2 or if the bookkeepers have found that any check overdraws the account of the depositor1 the bank has only until the close of banking hours to return such checks and collect from the banks that sent them through the ,clearing ,house4 ,so the examination of these checks must be made carefully and very quickly4 ,the ,clearing ,house ,association in your city is what might be called a ,mutual ,aid ,society1 which the banks have organized for purposes of mutual convenience and protection4 ,this ,association pays the expenses of the ,clearing ,house2 the ,manager's salary2 the rent2 etc4 ,it adopts rules and by-laws and fixes fines and penalties for breaking them4 ,but it is not an incorporated body and can not sue or be sued4 ,in time of panic1 the ,association is a tower of strength1 not only for the banks themselves1 but for the whole community4 ,the associated banks1 at such times1 have it in their power to make or break the business interests of their city4 ,but their interests are identical with the interests of their patrons4 ,remember the banks are owned by the people1 not by two or three private individuals4 ,the failure of any one bank1 or of any one business house1 increases the panicky feeling4 ,therefore1 the ,clearing ,house ,association naturally and from very self-interest1 must do its utmost to keep its members and their customers on their feet4 ,in financial storms1 the ,association may adopt certain rules and regulations which may seem unreasonable to the public2 but these methods are put in force for the greatest good of the greatest number2 not only for the protection of the banks1 but of their customers and depositors4 ,it is a time for the public to be as reasonable as possible2 to uphold the banks and their officers and directors4 ,it is a time for the public and the banks to come closer together4 ,rest assured the banks have no desire to see any firm or person fail in times of panic1 or any other time4 ,they make their largest dividends when business is brisk and everything is prosperous4 ,what every ,clearing ,house ,association does want to wipe out1 however1 is the dishonest and reckless banker4 ,he is a menace and source of anxiety to every bank in the community4 ,the sooner the other banks can detect and expel him from the business1 the better4 ,in some cities1 notably ,chicago and ,st4 ,louis1 the ,clearing ,house ,association regularly employs expert accountants to make periodical and unexpected examinations of the banks in the ,association4 ,if any bank is found to be doing a reckless business and not living up to the rules and regulations of the ,clearing ,house1 it is heavily fined or expelled4 ,and expulsion from the ,clearing ,house means ruin for that bank as soon as the business community learns of it4 ,all ,clearing ,house ,associations should adopt this strict supervision4 ,many a bank was saved embarrassment and possible failure in the recent panic of #aijg by the wise methods put into effect by the ,clearing ,house ,association4 ,selfishness and enmity were ordered to the rear4 ,there are always banks whose officers have less foresight and wisdom than others4 ,some of these had been lending too freely1 and their actual cash reserves were not sufficient to meet the storm of checks of their frightened depositors2 frightened mainly because of ignorance1 for1 with a few exceptions1 the banks were in good condition4 ,to call in their loans and replenish their supply of cash would cause business failures and add to the panic4 ,so the ,clearing ,house ,associations of the different cities determined that the strong and wise banks should help the weak and foolish ones4 ,loan ,committees were appointed to sit daily at the ,clearing ,house4 ,the various banks brought to this ,committee notes they had discounted1 or stocks and bonds owned by them4 ,if the ,committee thought them good1 the ,clearing ,house ,association would lend the bank bringing them1 up to about #ge of their face value4 ,of course1 the ,clearing ,house ,association did not lend these banks actual cash1 but they issued them ,clearing ,house certificates1 bearing interest1 which could be used among the banks in settling daily claims against each other2 just as if the banks had deposited actual cash at the ,clearing ,house4 ,in this way1 if ,bank ,number ,one had the ,clearing ,house ,manager's check on ,bank ,number ,two for #ej1jjj4jj1 in settlement of some daily balancing at the ,clearing ,house1 ,bank ,number ,two could pay ,bank ,number ,one with ,clearing ,house certificates instead of actual cash4 ,in other words1 the banks which had a number of good notes1 or stocks and bonds1 but a small amount of cash1 were saved by the combined1 unselfish and patriotic action of all the banks working together for the common weal4 ,if the public generally knew of the many instances of generosity and unselfishness that were shown in the ,clearing ,houses in this and other panics1 the banks1 as a class1 would not be denounced and condemned as they sometimes are4 ,and this unselfishness was not exercised by the banks for the salvation of the banks alone1 but for the business interests of the whole community as well2 for1 as has been pointed out1 the interests of the banks and the people are one4 ,,ix ,a ,,certified ,,check ,your check is nothing but a piece of paper on which is written an order on your bank to pay some one a certain sum4 ,strangers might not like to accept this piece of paper in payment of debts due them4 ,in many cases your check should be certified4 ,when a depositor presents a check to his bank to be certified1 it should be handed to the ,paying ,teller4 ,he1 in turn1 hands it to the individual bookkeeper having charge of that depositor's account4 ,if the bookkeeper finds the balance sufficient to cover the amount of the check1 he stamps across its face the words ,good for ---- 7the sum named in the check7 when properly endorsed4 ,then the ,teller or some officer of the bank1 signs that statement and the amount of the check is immediately charged to that depositor4 ,in other words1 the bank guarantees or certifies that your check is good4 ,the bank must be very particular about certifying a check4 ,if any officer or employe of a ,national ,bank certifies a check1 which calls for more than the maker of the check actually has to his credit1 such officer1 or employe1 has committed a penitentiary offense4 ,this provision of the ,national ,banking ,act is most strictly enforced1 and the penalty is severe4 ,when certification is necessary1 the maker of the check should be the one to have it certified4 ,if you take ,brown's check to his bank and have it certified1 you release ,brown entirely and can only hold the bank4 ,for example1--a man sold a piece of land1 and1 on delivering the deed1 took the purchaser's uncertified check4 ,after the purchaser had left with the deed1 the seller1 thinking the check might not be good1 had it certified4 ,the bank failed that afternoon4 ,the purchaser proved that he had more than the amount of the check to his credit on the bank's books4 ,on consultation with his lawyers1 the seller found that he had no claim on the drawer of that check and could only file his claim against the bank with its other depositors4 ,and he only received about fifty cents on the dollar when the bank's affairs were finally wound up4 ,all because he did not insist on the purchaser of the land having his own check certified4 ,if he had done this he could have held both the purchaser and the bank4 ,by having your check certified1 you practically exchange your check for one guaranteed by the bank4 ,for example1 the bank certifies your check for #ajj4jj4 ,it immediately charges your account with the #ajj4jj1 and credits its certified check account with #ajj4jj4 ,then when your certified check comes back to the bank1 through the person to whom you delivered it1 the bank charges its certified check account with #ajj4jj1 and the transaction is closed4 ,therefore1 if1 for any reason1 you decide not to use a check after you have had it certified1 do not destroy it as you would an uncertified check4 ,be sure to bring it back to the bank so that the amount may be credited your account1 and be charged to the bank's certified check account4 ,otherwise your account will remain charged with the amount and your balance will show that much less4 ,x ,,protesting ,,notes1 ,,drafts1 ,,etc4 ,,why ,,necessary ,,and ,,how ,,it ,,is ,,executed ,protesting notes1 drafts1 checks1 or other commercial paper is simply warning or giving notice to people1 secondarily liable on that paper1 that it has not been paid when due4 ,the person who ought to pay the paper is primarily liable4 ,all other persons who have endorsed the paper or drawn it on another person1 firm or bank are secondarily liable4 ,you have endorsed ,brown's note4 ,brown does not pay it when due4 ,if you do not receive a prompt notice of this1 you might endorse another note for ,brown under the false impression that he had paid the first one4 ,likewise1 if you have endorsed ,jones' draft on his firm1 or his check1 and his firm1 or his bank refuses to pay such draft or check1 both you and ,jones should receive prompt notice that payment was refused4 ,with such notice you would not endorse for ,jones a second time unless he made good to you1 and explained matters satisfactorily4 ,if ,jones was honest in drawing his draft or check he is entitled to prompt notice of non-payment so that he can take immediate steps to get his money4 ,possibly his firm is embarrassed financially1 or his bank has failed4 ,say ,smith ,co4 have drawn a draft on a customer and have taken it to a bank and secured the money on it4 ,if the customer refuses to pay the draft1 the bank wants prompt notice so it can collect from ,smith ,co4 ,and ,smith ,co4 want prompt notice so they can take legal steps at once to protect themselves1 and probably stop further shipments to this customer4 ,various other instances might be given where endorsers or drawers of paper might suffer loss or damage from lack of notice of its non-payment4 ,the law holds that this giving of notice is of such grave importance1 that1 if the bank receiving paper for collection does not promptly notify all persons1 secondarily liable1 of non-payment1 all such persons are released from obligation1 and the collecting bank must take its chances on making the amount from the payer4 ,this statement must be qualified to this extent4 ,if a check is not protested1 the maker of the check must prove that he has suffered loss by not receiving notice of non-payment4 ,but the drawer of a draft1 or the endorsers on any check1 draft1 or note are released1 whether they suffer damage or not4 ,generally speaking1 a check is a written request of a depositor to his bank to pay a certain sum to a certain party2 whereas a draft is a written request of any one to a firm or individual1 to pay a certain sum to a certain party4 ,of course1 if the bank receives orders from the parties sending them1 not to protest certain notes1 checks1 or drafts1 it must obey these orders4 ,but if no such instructions accompany the paper1 the bank must protest or make itself liable4 ,every bank of any size has one of its employes appointed a ,notary1 or it can employ a ,notary on the outside4 ,he is an officer appointed by the ,state1 and is under bond to the ,state to perform all his duties according to law4 ,when the bank hands protestable paper to a ,notary1 it is his duty to make a formal demand at the proper place on the person who should pay it4 ,if payment is refused1 the ,notary makes an exact copy of the note1 draft or check at the top of a printed form used for this purpose4 ,then1 over his signature as a ,notary1 accompanied by his official seal1 he states that he has made a demand in person for payment of the paper described by him2 and1 on payment being refused1 he has protested the non-payment4 ,also that he has mailed or delivered notices of this non-payment to all the parties secondarily liable on this paper and states their names4 ,the ,notary's official statement is called the ,instrument of ,protest4 ,the notices he mails are called the ,notices of ,protest4 ,certain fees are allowed the ,notary by law for protesting4 ,these are called ,protest ,fees1 and become a part of the debt4 ,of course1 the person who ought to have paid the paper gets no ,notice of ,protest4 ,he certainly knows if he has not paid4 ,the ,notary must keep a copy of all his ,instruments of ,protest4 ,this is a public record1 just as any court record is1 and as accessible to the public4 ,it is rarely examined1 however4 ,so1 from the language prescribed by law1 that the ,notary uses in his ,instrument of ,protest1 comes the common use of the terms protest and no protest paper4 ,to bind the parties secondarily liable a ,notary can protest paper only on the exact day it is due4 ,otherwise he might put it off several days1 or demand payment before it was due1 and damage might result in either case4 ,so1 if the protesting is not done on the exact date when the paper is due1 it is of no avail4 ,the maturity of a draft reading so many days1 or months1 after date must be calculated from the date of the draft itself4 ,but the maturity of a draft reading so many days1 or months1 after sight must be calculated from the date it was presented to the sight of the payer and accepted4 ,it is very necessary to date acceptances of time drafts reading after sight4 ,demand for payment must be made at the proper place during business hours4 ,a check of course is payable at the bank on which it is drawn1 during banking hours4 ,a draft on a firm is payable at its office2 likewise a draft on an individual is payable at his office1 or if he has none1 then at his residence4 ,notes or accepted drafts are payable at the place stated on their face4 ,but1 when no place of payment is stated1 demand for payment must be made at the office of the maker of the note1 or the acceptor of the draft2 or if he has no office1 then at his residence4 ,when you draw up a note it is the proper thing to state on its face payable at ---- bank 7giving the name of your bank72 or payable at my office2 or payable at my residence4 ,likewise1 when accepting a draft1 write the date1 then accepted1 payable at ---- 7stating your bank1 or residence7 across the face of the draft over your signature4 ,therefore when a note1 or an accepted draft is made payable at a certain bank1 demand for payment must be made at that bank1 and not on the maker of the note1 or the acceptor of the draft4 ,most notes and accepted drafts are made payable at the bank of the payer4 ,all of them should be4 ,in this way1 if you keep money enough in your bank to meet your notes and acceptances1 just as you keep money there to meet your checks1 the bank will save you all worry about their payment in case you or your bookkeeper overlook them4 ,under such circumstances your paper would never be protested4 ,in accepting a note from a customer1 do not have it made payable at your bank4 ,have the drawer make it payable in his own town and at his own bank4 ,demand for payment must be made at the exact place stated in the note4 ,as every business man is particular about protecting his credit in his own town1 and especially at his own bank1 it is obvious that he will be most diligent about providing for the payment of paper made payable at the bank with which he is doing business4 ,notes and accepted drafts should be sent1 a week or two in advance of their maturity1 to the town in which they are made payable4 ,if paper1 made payable at ,new ,orleans1 for instance1 is not in ,new ,orleans when due1 proper demand for payment can not be made and the drawers or endorsers might be released4 ,there is absolutely no law requiring a bank to send you a notice that it holds your note1 or draft accepted by you1 for collection and due at some future date4 ,it is customary for banks to send such notices1 but it is only a courtesy4 ,it is your duty to keep account of when your paper is due1 and to have funds at the place of payment when it is due4 ,the banks that do so are very careful about sending out these notices1 but the public should regard it as a favor shown them and not as their lawful right4 ,many people do not know or appreciate this fact4 ,you should always put your street address just below your signature on a note so that notice can be addressed properly4 ,also1 in drawing a draft1 always put the name of the person or firm1 on which it is drawn1 in the lower left hand corner1 and invariably state the street address4 ,,xi ,,the ,,local ,,collection ,,department ,a bank has a perfect right to refuse to accept and to return any checks1 notes1 drafts1 etc41 sent it for collection4 ,but if it does accept them1 it must obey the instructions of the sender1 literally and exactly4 ,the bank has absolutely no right to disregard these instructions1 no matter how obnoxious or disagreeable they may seem to the payer of the paper4 ,many people regard all collectors as offensive and unwelcome4 ,they wish to take their own time about paying their debts4 ,please mark this difference between the collector of your grocer's or druggist's bill1 and the city bank as a collector of your note1 or of a draft on you4 ,the monthly collector must turn in cash for the majority of the bills given him or lose his position4 ,but it really makes little difference to the bank whether you refuse or pay the note or draft that some other bank has sent it4 ,when collections are sent to a bank direct by firms1 or by banks in another city1 that do not keep an account with it2 the collecting bank makes small fees1 but these fees are very insignificant4 ,so1 by prompt payment of notes and drafts1 you are conferring more of a favor on yourself than on the bank4 ,it is wise to protect your credit with strange banks as well as your own4 ,every bank receives many confidential inquiries concerning the financial standing of firms and persons in its city4 ,if not personally known to the officer in charge of this correspondence1 he invariably inquires of the collection department as to the promptness with which the parties in question meet their notes and drafts4 ,and even though you are not a patron1 a bank in your own city would rather give you a good financial reputation than a poor one4 ,the collecting bank must regard most carefully the instructions of the sender1 especially about protesting or not protesting4 ,also about telegraphing payment or non-payment1 and whether to hold the paper after it is due or not4 ,in no case must it surrender any documents attached to a draft until the draft is paid1 or accepted2 and1 in case of acceptance1 documents attached must not be surrendered unless the sender so directs4 ,when drafts have ,bills of ,lading attached1 and the draft states on its face that it is payable on arrival of the goods1 the bank can hold it until the goods arrive2 but if the draft calls for payment on presentation1 even though it has a ,bill of ,lading attached1 the bank holding it1 until the arrival of the goods1 does so at its own risk4 ,as has been stated1 and it can't be stated too forcibly1 the presenting bank has no option and must obey orders to the letter4 ,if it does not1 it must suffer any resulting loss4 ,it is only an agent and can not regard the wishes of the payer4 ,another point you should bear in mind4 ,the bank must not only pay strict attention to the instructions of the sender of the collection1 but it must follow the law4 ,in self-protection a bank must keep itself informed about the laws regarding collections and any changes in these laws4 ,if a bank accepts anything but the actual cash in payment of a collection1 it does so at its own risk1 and not at the risk of the sender4 ,for instance1 a bank has a draft on ,smith1 or holds ,smith's note for collection4 ,smith offers his check in payment4 ,if the check turns out no good the bank must recover the paper immediately1 and any document which might have been attached2 otherwise the sender can hold the bank for the amount4 ,therefore1 when you tender your check to a bank in payment for collections1 you are asking them to take a risk4 ,if you are not well known in the bank1 it is only a reasonable request for the bank to ask you to have your check certified4 ,don't ask the bank to have it certified2 for1 as has been explained in the remarks on ,certified ,checks1 the bank by so doing would release you1 and could hold only the paying bank4 ,you might just as well ask a strange bank to cash your check as to offer it your uncertified check for a collection on you4 ,you would hardly cash a check for a stranger4 ,why should the bank take an equal risk for you8 ,yet nothing seems to rouse the ire of the average man more1 than for the collection clerk to ask him to have his check certified4 ,it is a well-nigh universal rule in all ,clearing ,house ,associations1 that the banks1 which are members thereof1 shall not collect checks on each other before the daily hour for meeting4 ,also it is a general custom not to collect from each other1 checks that are deposited1 or taken in payment for paper due1 after that hour4 ,hence1 when a bank accepts uncertified checks in payment before the clearing hour1 it will know before closing time whether such checks are good4 ,but1 if a bank accepts an uncertified check in payment after the clearing hour1 either1 it must have it certified1 and thereby release the drawer2 or1 it must hold it until the next day at its own risk4 ,the banks always respect the man who has his check certified1 if tendered after the clearing hour4 ,for these same reasons you can see why a bank can not take a check on a bank in some other town in payment of a collection4 ,it then would be several days before the bank would know whether the check was good or not4 ,also the bank would be out that amount of money for the length of time it takes to collect that check2 for every bank must remit to the sender on the very day it puts its ,paid stamp on a collection and delivers it to the payer4 ,therefore1 when a bank notifies you that it holds your note1 or a draft drawn on you1 for collection1 bear in mind four points4 ,first3 the bank must follow the instructions of the sender or owner of the paper4 ,second3 it can not disregard the law4 ,third3 you are benefiting yourself more than the bank by paying your paper promptly4 ,fourth3 the bank is taking a risk every time it accepts anything other than actual cash for a collection4 ,the collecting bank can not consider the instructions of any one but the bank or persons from whom it receives the item4 ,for instance1 you live in ,st4 ,louis1 and have sent your note to ,brown ,co4 of ,bridgeport1 ,conn4 ,brown ,co4 discount your note with their bank1 or give it to their bank for collection4 ,before it is due the ,bridgeport bank forwards this note to a ,philadelphia bank1 which in turn forwards it to a ,st4 ,louis bank4 ,you are duly notified by the ,st4 ,louis bank4 ,for various reasons you may not wish to pay4 ,in that event1 positively the only way to have this note recalled is for you to communicate with ,brown ,co4 ,then they must request its recall by the ,bridgeport bank1 which in turn instructs the ,philadelphia bank4 ,then that bank instructs the ,st4 ,louis bank to return the note4 ,in other words1 all instructions must come through the same channels by which the note was originally sent4 ,bear in mind that you are not the owner of this paper1 nor is the bank which receives it for collection4 ,when a draft has the words with exchange on its face the drawer is asking the payer1 not only to pay the amount of the draft1 but also the bank charges for collecting4 ,unless the presenting bank has instructions to collect this exchange or return the draft1 it can accept the amount of the draft and deduct its charges when it remits for the collection4 ,so don't feel resentment toward the bank when it asks you to pay for collection charges4 ,many people do4 ,but the bank is only following instructions and cares nothing whether you1 or the fellow at the other end1 pays the cost4 ,because it is human nature to object to paying out money1 the ,local ,collection ,department is the recipient of more complaints and unreasonable requests than any other department of the bank4 ,any number of actual happenings could be set down4 ,now the law says that banks shall keep open during certain hours on every business day1 which is not a legal holiday4 ,after the closing hour there is a tremendous amount of work to be done4 ,the tellers must balance their cash2 the bookkeepers must take off a balance of every account on their particular set of books2 and every check and draft deposited1 or received through the mails1 and payable in other towns1 must be listed and forwarded for collection4 ,nothing can be held over without risk1 no matter how heavy the day's work4 ,the rule in every bank is to clean up all the work on the very day it is received4 ,none of this daily balancing of cash1 or books1 can be commenced until the last check has been cashed1 the last depositor has come in1 and the last payer of a collection has settled4 ,for instance1 the payment of a single draft or note after banking hours1 necessitates the holding open of several sets of books or the erasure and changing of various totals by the bookkeepers4 ,it is a very mistaken1 but popular1 idea that the bank employes practically are through with their duties at the close of banking hours4 ,the fact is1 that the usual hours for the employes are from eight till five1 and it is no uncommon thing for the clerk and officers to be hard at work many hours after the business houses have closed4 ,yet many persons think the bank very disobliging if it refuses to transact business after hours4 ,one unreasonable individual insisted that he had until sundown to pay his note on the day it was due4 ,when the collecting bank told him it would be protested if not paid before the end of banking hours1 he became very abusive and wanted to know who gave that bank the power to say how late he could pay4 ,he was politely referred to the law makers1 but this did not lessen his resentment against the bank4 ,the foregoing are statements of actual daily occurrences and are only fair samples of the injustice with which many persons treat the banks4 ,and it is mainly the result of ignorance of the laws and customs1 which the banks must obey4 ,,xii ,,the ,,loan ,,department ,as a preface to the remarks on this department1 the following simple and concise statement is taken1 by permission1 from that excellent book1 ,money and ,banking1 by ,mr4 ,horace ,white4 7,book ,,ii1 ,chapter ,i1 page #bce1 ,edition of #ahie47 ,,function ,,of ,a ,,bank ,a bank is a manufactory of credit and a machine of exchange4 ,mr4 ,h4 ,d4 ,mc,leod's analysis of the mechanism of banking is substantially this3 ,a man has #e1jjj4jj of his own money4 ,he starts a bank4 ,his neighbors deposit #de1jjj4jj with him4 ,this money becomes the absolute property of the banker4 ,the depositors have simply a right to withdraw an equal amount whenever they like1 which right can be enforced by law4 ,the banker owns the money and the depositor has a claim1 or right of action1 against him for an equal sum4 ,but the depositors will not draw the money out immediately2 if they had intended to do so1 they would not have deposited it at all4 ,the banker finds by experience that some of his customers will deposit as much money as others draw out1 so that #ej1jjj4jj is on hand all the time4 ,he concludes that if his own #e1jjj4jj in connection with his good reputation1 is considered by the public a guarantee for #de1jjj4jj1 then the whole #ej1jjj4jj will serve as a guarantee for at least #bjj1jjj4jj4 ,when he begins1 his balance sheet reads in this way3 ,,liabilities4 ,,assets4 ,deposits #de1jjj4jj ,cash #ej1jjj4jj ,he now begins to discount the commercial paper of his customers running say ninety days at #f4 ,when he discounts a bill of exchange for #a1jjj4jj1 he deducts the interest for ninety days 7#ae4jj7 and credits the customer the remainder 7#ihe4jj7 on his books4 ,this #ihe4jj is called a deposit1 because the customer has the right to draw it out by his check exactly as he could draw out an equal sum of gold deposited by him in the same bank4 ,in the eye of the banker1 and of the customer1 and of the law1 it is a deposit4 ,in ordinary times it is like any other deposit4 ,that is1 the proportion remaining uncalled for at any time will be about the same as the proportion of actual money deposited4 ,yet it is nothing but a bank credit4 ,hence the word deposit1 when thus used1 is clearly a misnomer1 since1 by derivation and common understanding1 a deposit means a thing laid away1 or given in charge of somebody4 ,it must be borne in mind1 therefore1 that bank deposits consist of two different things1 namely1 7#a7 money1 7#b7 bank credits1 and that the latter may be four or five times as large as the former4 ,the process continues till the banker has #bjj1jjj4jj of discounted bills in his portfolio4 ,then his accounts stand thus-- ,,liabilities4 ,,assets4 ,deposits #bdb1jjj4jj ,cash #ej1jjj4jj ,profit #c1jjj4jj ,loans ,discounts #bjj1jjj4jj ----------- ----------- #bde1jjj4jj #bej1jjj4jj ,this is ,mr4 ,mc,leod's exposition and it is the correct one4 ,it follows that the banker has manufactured something which serves as a medium of exchange to the extent of nearly #bjj1jjj4jj4 ,this something is credit4 ,goods can be bought and sold with it as readily as with money1 since the checks drawn against these deposits are universally accepted4 ,the whole #bjj1jjj4jj of bills are not discounted in a lump1 but gradually1 so that some are always maturing and bringing money in to meet the checks of customers1 in an endless chain of deposits and discounts4 ,it is found in practice that #bjj1jjj4jj of loans and discounts may be easily carried on #ej1jjj4jj of cash4 ,thus1 the loans of all the ,national banks in the ,united ,states in ,october1 #ahid1 were #b1jjj1jjj1jjj4jj1 and their cash 7including silver certificates and silver dollars7 was a trifle less than #djj1jjj1jjj4jj1 or only one-fifth of the amount of the loans4 ,the other four-fifths was credit1 and perfectly sound credit too1 for it had passed through one of the severest panics in our history4 ,the foregoing quotation is an unanswerable argument for the need of banks as manufacturers of credit in every community4 ,the greater the banking capital in any section1 the easier it will be for the people of that section to carry on and enlarge their business4 ,the ,loan ,department is not only the most important1 but it is the money-making end of the bank4 ,if it makes no loans it will pay no dividends4 ,if1 on the other hand1 it makes bad loans1 it will go out of existence4 ,it can be understood readily that the successful bank officer1 whose duty it is to accept or reject loans1 must be a person of large experience and wide knowledge of men and affairs4 ,he must be an excellent judge of human nature4 ,not too conservative1 nor yet too venturesome4 ,he must be a constant student of financial conditions2 and must expand or contract his loans as the sea of finance is placid or stormy4 ,his responsibility is great4 ,he must lend1 but he must lend judiciously1 millions of other people's money4 ,he can not allow feelings of personal friendship to warp his judgment4 ,he must be thoroughly familiar with the laws concerning the making and the collection of notes4 ,in an address to the ,national ,banks in #ahfc1 the ,hon4 ,hugh ,mc,culloch1 the first ,comptroller of the ,currency1 gave this sound advice3 ,do nothing to foster and encourage speculation4 ,give facilities only to prudent and legitimate transactions4 ,distribute your loans rather than concentrate them in a few hands4 ,pursue a straightforward1 upright1 legitimate banking business4 ,treat your customers liberally1 bearing in mind that a bank prospers as its customers prosper4 ,in lending1 the bank should encourage the business interests of its community and should discourage speculation4 ,if every one1 before asking a loan1 would put this question to himself1 ,would ,i take this risk1 his banker would be saved much embarrassment4 ,on the other hand1 if you know your security is good1 there is no reason why you should feel any degree of awe or nervousness in offering your own or your customer's notes4 ,that is what the bank is in business for1 and your proposition1 if not made for purposes of reckless speculation1 is welcomed in ordinary times4 ,bear in mind1 however1 that your banker may1 at times1 have to refuse your paper1 because he has seen clouds on the financial horizon of which the average person is ignorant1 and he is endeavoring to protect1 not only his stockholders1 but his patrons1 from the storms that are imminent4 ,it is advisable for you to consider his views carefully1 and probably to curtail business expansion4 ,your average balance on the bank's books has a great deal to do with the amount of the loans1 no matter how well secured1 that you can ask reasonably4 ,every bank has a number of customers who expect to be taken care of in the loan department4 ,but1 if all the bank's patrons are borrowers1 it soon will have loaned out all of its funds4 ,the bank must have depositors also4 ,while some depositors do not ask for loans1 experience has shown that the proportion of a customer's balance to his loans must be sustained in order to keep the bank adjusted4 ,in ,new ,york the banks generally require a regular customer to keep an average balance of not less than twenty per cent4 of the loans made him4 ,most interior banks consider ten per cent4 about the right proportion4 ,for example1 in the interior cities1 if your account shows an average balance of #bjj4jj1 you can reasonably request loans1 properly secured1 of #b1jjj4jj4 ,an average balance of #a1jjj4jj should entitle the depositor to loans of #aj1jjj4jj and so on4 ,experience proves that if the banker does not keep this important point in mind1 his machinery will be out of gear4 ,speaking generally1 it will pay any concern to borrow money1 if necessary1 to show a fair balance to its credit4 ,bankers are only human1 and all business is selfish4 ,every bank will be disposed to take care of its best paying customers first in times of financial storms4 ,every merchant looks out for his best customers first4 ,why not a banker8 ,when a firm attempts to hold its bank down to the last cent of profit1 keeps no balance to speak of1 and subjects the bank to endless expense in the collection of its checks and drafts1 it can not reasonably expect as liberal treatment in squally times as the concern which pursues the broader policy of live and let live4 ,some firms1 if they would figure it out1 could see plainly that the bank was handling their account at a loss2 yet1 they think they are conferring a great favor in placing their business with any bank4 ,a large concern was pursuing this narrow policy4 ,among other things it made a practice of borrowing large sums in other cities at four or five per cent4 when the local rate was six4 ,the recent panic came on4 ,money advanced to fifty1 to one hundred per cent4 in ,new ,york4 ,the local banks were having all they could do to take care of their own good customers4 ,the result was that this firm came to the verge of an assignment4 ,and1 if it had not happened that the banks of its city did generously come to its rescue1 it would have collapsed4 ,it is well to remember1 that1 while the rates of interest in ,new ,york are temptingly low at times1 they fluctuate violently and often without warning2 also that the bankers in a strange city have no personal interest or local pride in your success or failure4 ,money is only a commodity1 and rates of interest are governed by supply and demand4 ,now the supply of money in the ,new ,york banks varies tremendously1 by millions of dollars in fact4 ,this variation comes from many causes4 ,on the other hand1 the demand for money in ,new ,york is constantly changing4 ,the reasons for this are manifold4 ,but in the smaller cities1 both the supply and demand are much more uniform and steady4 ,hence the rates of interest1 outside of ,new ,york1 are much less liable to change4 ,therefore1 unless the demands of your business exceed the banking facilities of your town1 it is very advisable for you to confine your loans to the local banks4 ,the loan department is restricted by certain laws1 just as the other departments4 ,state and ,savings ,banks1 and ,trust ,companies must obey the laws of their particular ,state1 but any bank having the word ,national as part of its name1 or the letters ,n4 ,a4 7,national ,association71 or the letters ,n4 ,b4 ,a4 7,national ,banking ,association7 following its name1 must adhere strictly to the provisions of the ,national ,bank ,act4 ,the ,congress of the ,united ,states has forbidden the use of the word ,national as part of the name of any ,bank or ,trust ,company which does not comply with all of the sections of the ,national ,bank ,act4 ,as the statutes differ in each of the separate ,states1 only the laws governing ,national ,banks will be considered here4 ,the whole spirit of the ,national ,bank ,act in relation to loans is to prevent the advancing of money on anything but quick assets4 ,in other words1 loans must not be made on any security1 that can not be turned into money quickly4 ,for this reason a ,national ,bank can not lend on real estate as a security4 ,also it should not accept notes having longer than ninety days or four months to run4 ,the fundamental principle of the law is the guarding of the depositors' money2 to have it ready for them at all times4 ,but the whole fabric and theory of banking is founded on the fact1 demonstrated by centuries of experience1 that at no one time do all the depositors want to draw all their money from all the banks4 ,also that every day some loans are due and can be converted into cash if necessary4 ,payment of demand1 or call1 loans can be demanded any day4 ,on time loans1 payment can not be asked for until the maturity of the note1 the day agreed upon by the bank and the borrower4 ,on demand1 or call1 loans the interest must be paid at the end of every three months1 or when the loan is paid4 ,on time loans1 the interest1 or discount1 is paid in advance4 ,notes reading one1 two1 three1 or four months after date are due1 of course1 one1 two1 three or four months after the date of the notes4 ,but thirty1 sixty1 or ninety-day paper is not due in one1 two1 or three months4 ,this is a common error4 ,the exact number of days must be calculated4 ,the following table for determining the maturity1 or due date1 of thirty1 sixty1 or ninety-day paper is herewith given3 ,,table ,,for ,,finding ,,maturity ,,of ,,notes ,,and ,,drafts ,at #cj1 #fj1 and #ij ,days ---------------------------------------- ---------------- ,,at #cj ,,days ,,at #fj ,,days ,,at #ij ,,days ,,dated ,,in ,will be ,due ,will be ,due ,will be ,due ,,month ,,of ,same ,date in ,same ,date in ,same ,date in ---------------------------------------- ---------------- ,,january ,february less ,march plus ,april #a day #a day ---------------------------------------- ---------------- ,,february ,march plus ,april plus ,may plus #b days #a day #a day ---------------------------------------- ---------------- ,,march ,april less ,may less ,june less #a day #a day #b days ---------------------------------------- ---------------- ,,april ,may ,june less ,july less #a day #a day ---------------------------------------- ---------------- ,,may ,june less ,july less ,august less #a day #a day #b days ---------------------------------------- ---------------- ,,june ,july ,august less ,september #a day less #b days ---------------------------------------- ---------------- ,,july ,august less ,september ,october less #a day less #b days #b days ---------------------------------------- ---------------- ,,august ,september ,october less ,november less less #a day #a day #b days ---------------------------------------- ---------------- ,,september ,october ,november less ,december less #a day #a day ---------------------------------------- ---------------- ,,october ,november less ,december less ,january less #a day #a day #b days ---------------------------------------- ---------------- ,,november ,december ,january less ,february less #a day #b days ---------------------------------------- ---------------- ,,december ,january less ,february less ,march #a day #b days ---------------------------------------- ---------------- ,,example4--,paper dated ,march #aeth at #ij days is due ,june #acth4 ,,to ,,prove4--,exclude day of date1 then #af days in ,march1 plus #cj days in ,april1 #ca days in ,may1 #ac days in ,june equals #ij days4 ,paper apparently due1 from this table1 on ,february #cjth1 is1 of course1 due ,march #b;d1 or apparently due ,april #cast1 is1 of course1 due ,may #ast4 ,in ,leap ,year allowance must be made for #bi days in ,february4 ,for paper payable in ,states allowing grace use table1 then add days of grace4 ---------------------------------------- ------------------- ,national ,banks can lend only a certain proportion of their deposits4 ,in ,new ,york1 ,chicago1 and ,st4 ,louis1 called ,central ,reserve ,cities1 ,national ,banks must keep on hand1 in lawful money1 a reserve of twenty-five per cent4 of their deposits4 ,in ,albany1 ,baltimore1 ,boston1 ,cincinnati1 ,cleveland1 ,detroit1 ,louisville1 ,milwaukee1 ,new ,orleans1 ,philadelphia1 ,pittsburg1 ,san ,francisco and ,washington1 called ,reserve ,cities1 the ,national ,banks must have the same reserve of twenty-five per cent4 of their deposits4 ,but the ,national ,banks in these last-named thirteen cities can keep one-half of their reserve in ,national ,banks located in any of the three ,central ,reserve ,cities1 viz43 ,new ,york1 ,chicago and ,st4 ,louis4 ,in all other cities or towns the ,national ,banks must have a reserve of fifteen per cent4 of their deposits1 but nine per cent4 of their reserve can be kept in ,national ,banks located in any of the thirteen ,reserve ,cities2 or in ,national ,banks in the three ,central ,reserve ,cities4 ,approved ,reserve ,agents are the banks of the larger cities1 selected by the banks of smaller cities or towns1 in which to carry part of their reserve4 ,these selections must be approved by the ,comptroller of the ,currency1 the executive head of the ,national ,banking ,system4 ,a ,national ,bank is forbidden to lend more than ten per cent4 of its combined capital and surplus to any one firm or individual4 ,but the discount of bills of exchange drawn in good faith against actually existing values1 and the discount of commercial or business paper actually owned by the person negotiating the same1 shall not be considered as money borrowed4 ,also no ,national ,bank can lend on its own stock as security4 ,the ,comptroller of the ,currency can have an examination made1 as often as he may deem proper1 of the condition of any ,national ,bank4 ,the visits of the ,national ,bank ,examiners are never announced in advance4 ,they come suddenly and without warning4 ,their duties are not only to balance the books and count the cash1 but also critically to examine each loan and its security2 and to give especial attention to loans to any director or officer1 and to any concerns in which they may be financially interested4 ,if the bank is overloaned1 that is1 has loaned more than the law allows1 the examiner immediately reports it1 and the ,comptroller of the ,currency orders that bank to cease lending1 and to require payment of enough of its loans to make good the reserve required by law4 ,and if the bank does not court disaster and the closing of its doors1 it hastens to obey orders and to get in line4 ,the supervision of the ,national ,banks is not perfunctory or careless4 ,it is very strict4 ,the inquisitorial powers of the ,national ,bank ,examiners are practically unlimited4 ,they have a legal right to put any bank officer on oath in questioning the affairs of the bank4 ,they look into every department in the most searching way1 and any disobedience of the law is reported promptly to the ,comptroller4 ,these ,examiners are appointed by the ,united ,states ,government2 and if they want to hold their positions1 they must be strictly impartial in their reports to the authorities4 ,the provisions of the ,national ,bank ,act have been so rigidly enforced1 that in forty-four years1 or since the ,act was passed by ,congress1 the average annual loss to depositors in ,national ,banks1 has been only thirty-seven one thousandths part of one per cent4 of their deposits4 ,practically no loss at all4 ,isn't that a tribute to the wisdom of that law2 to the strict supervision of the ,government2 and to the honesty and integrity of the officers of ,national ,banks2 past and present8 ,it has happened1 of course1 that some spoilers have occasionally obtained control of a ,national ,bank1 and have dishonestly used the depositors' money in risky ventures for their own profit4 ,but the officials of the ,treasury ,department have soon sized them up1 and such men shortly find the banking business not to their liking1 especially with ,uncle ,sam as a supervisor4 ,,xiii ,,new ,,york ,,exchange ,practically every bank in the ,united ,states keeps part of its funds in banks in ,new ,york ,city1 the money center of the country4 ,all ,national ,banks are allowed to keep part of their reserve in the ,national ,banks of ,new ,york1 ,chicago and ,st4 ,louis1 the three ,central ,reserve ,cities4 ,for these reasons checks drawn on banks in these three cities are generally accepted at par1 that is1 collected without cost to the depositor4 ,in this connection1 the word exchange comes from the fact that you exchange your personal check for the bank's check on another bank1 located in some other city4 ,in remitting for collections1 or for balances due1 the banks outside of the three ,central ,reserve ,cities1 generally send their checks on one of these cities1 according to their location4 ,under certain conditions you will notice your local newspapers quoting ,new ,york ,exchange at so much premium or so much discount4 ,these rates are generally in use only between the different banks in your city4 ,the banks do not charge a depositor any premium for its checks on other cities1 unless the amount of the checks called for is large4 ,the proper way to draw your check when you want ,new ,york ,exchange1 is to make it read ,pay to the order of ,new ,york ,exchange4 ,the bank then makes out its check on a ,new ,york bank payable to your order4 ,then you should endorse the bank's check to the order of the party to whom you are remitting4 ,banks do not like to sell their checks on other banks to strangers4 ,some expert at raising checks may buy ,new ,york ,exchange for ten dollars and raise it to ten thousand4 ,also he might buy the bank's check with the idea of obtaining the ,cashier's signature for the purpose of forgery4 ,,xiv ,,the ,,method ,,of ,,issuing ,,national ,,bank ,,notes ,many people have the idea that a ,national ,bank1 having a capital of1 say one hundred thousand dollars1 can call on the ,united ,states ,treasury ,department for an equal amount of ,national ,bank ,notes1 without expense to the bank2 and thus have double the amount of its capital to lend at the start4 ,the ,national ,bank ,act does say that each ,national ,bank must issue currency equal to a certain per cent4 of its capital2 and further1 that each ,national ,bank can issue currency equal to the full amount of its capital4 ,but the profit on taking out this currency1 or circulating notes1 is so very small that many banks do not issue as much as the law allows4 ,these circulating notes must be issued under certain expensive conditions4 ,first--the bank must purchase and deposit with the ,treasurer of the ,united ,states an amount of registered ,united ,states ,bonds1 equal at their par value1 to the amount of the circulating notes called for4 ,second--dependent on the kind of bonds deposited1 the bank must pay a tax on its circulating notes4 ,third--the bank must stand the expense of plates for printing and the express charges for sending it the original issue of its notes4 ,also1 when any of its worn-out or mutilated notes are sent to the ,treasury ,department1 they are destroyed1 and the bank then has to pay the expense of re-issue and the express charges for sending them to the bank that originally issued them4 ,the signature of the ,president and ,cashier of the bank must be affixed4 ,therefore ,national ,banks1 in calculating the possible profit on taking out circulating notes1 have the following example to be considered in issuing every one hundred thousand dollars of their notes3 ,bonds purchased3 ,united ,states ,registered #b bonds to be paid at par in #aicj4 ,price of bonds #ajd #ajd1jjj4jj ,par value of bonds purchased #ajj1jjj4jj ,money worth #f4 ,income from bonds #b1jjj4jj ,income from circulating notes loaned at #f #f1jjj4jj --------- #h1jjj4jj ,,less ,,deductions4 ,annual tax on circulating notes #ejj4jj ,sinking ,fund to retire premium on bonds at maturity1 amount to be charged off each year #aha4jj ,expenses 7plates1 express charges1 etc47 #ge4jj #gef4jj --------- ,net ,income from ,circulating ,notes #g1bdd4jj ,net ,income from loaning #ajd1jjj4jj 7net cost of bonds purchased7 at #f #f1bdj4jj --------- ,net profit on taking out #ajj1jjj4jj of circulating notes #a1jjd4jj ,hence the net percentage of profit on taking out ,national ,bank notes on this class of bonds1 is about one per cent41 based on their present market price4 ,the profit on taking out circulation on other ,united ,states bonds is even less4 ,suppose the market price of the #b bonds purchased was higher1 say #ajh1 as it was several years ago1 the profit would be even less4 ,also1 if the bonds decline in market value below par 7as in case of war1 for instance71 the bank must stand that loss2 and purchase and deposit an additional amount of bonds1 so as to make the market value of the bonds deposited equal to the amount of its outstanding circulating notes4 ,in order to retire its circulating notes and obtain possession of its ,united ,states ,bonds1 deposited as security therefor1 the bank must send the ,treasury ,department an amount of lawful money equal to the amount of the circulating notes it wishes to retire4 ,it can then withdraw a proportionate amount of the bonds held as security for its circulating notes4 ,but the law says that not more than nine millions of ,national ,bank ,notes can be retired in any one month4 ,therefore1 if the market price of ,united ,states bonds goes up to a point where all profit on its circulation is wiped out1 the bank may have to wait several months until previous requests for retiring circulation are out of the way4 ,in the meantime ,united ,states bonds may have gone down in price4 ,as has been stated1 a ,national ,bank can take out an amount of circulating notes1 or ,national ,bank currency1 equal to the amount of its capital4 ,but the profit on the operation is so small 7leaving out the chances of actual loss7 that many banks do not issue notes to the full amount allowed4 ,the following figures relative to the total capital of all the ,national ,banks1 and the total circulation of these banks on the dates stated1 conclusively prove this fact4 7,these figures are taken from the annual report of #aijg of the ,comptroller of the ,currency47 ,november #ab1 ,january #bf1 ,march #bb1 #aijf4 #aijg4 #aijg4 ,capital ,stock #hdg1ead1fec4jj #hfj1icj1fbd4jj #hgc1ffi1fff4jj ,circulating ,notes #ecf1aji1ica4jj #ede1dha1hgj4ej #edc1cbj1cge4jj ,may #bj1 ,august #bb1 #aijg4 #aijg4 ,capital ,stock #hhc1fij1iag4jj #hif1dea1cad4jj ,circulating ,notes #edg1iah1fif4jj #eea1idi1dfa4ej ,it can be seen from these figures that the ,national ,banks could have taken out over three hundred millions more of circulating notes than they actually issued during the time stated4 ,and these figures are not exceptional4 ,banks1 other than ,national1 shall pay a tax of ten per centum on the amount of their own notes used for circulation and paid out by them4 ,this tax is prohibitive and no ,state ,banks issue circulating notes for this reason4 ,,xv ,,the ,,so-,,called ,,special ,,privileges ,,of ,,banks ,in every political campaign1 especially the ,national ones1 the orators talk a great deal about the special privileges of banks4 ,but they are never defined exactly4 ,according to them1 one privilege 787 the bank enjoys is the power to lend a certain per cent4 of its depositors' money4 ,but if it could not do this1 what reason would the bank have for existing8 ,that is its principal real source of profit4 ,practically the only other privilege the ,national banks have1 is the right to take out ,national ,bank ,notes1 or currency4 ,as has been shown in the remarks on ,the ,method of ,issuing ,national ,bank ,notes1 this privilege allows so little profit that the banks do not use it to the full extent of the law4 ,on the other hand1 consider a few of the many risks the bank is constantly taking4 ,every loan it makes is a risk4 ,a few bad loans1 made through dishonest or visionary representations of its customers1 may blot out the bank's profits for a year or more4 ,every check or draft cashed is a risk4 ,every check1 draft1 or note it takes for collection is a risk4 ,in fact1 every transaction the bank undertakes is more than ordinarily hazardous4 ,moreover the profits of the average city bank are not large4 ,considering their responsibilities and the innumerable ways by which they may involve the bank1 the salaries paid the employes1 from the ,president to the messengers1 are small4 ,also remember there is no water in the stock of banks4 ,the capital of every ,national ,bank must be fully paid in1 before it is allowed to open for business2 and in most of the ,states1 the banks1 other than ,national1 must have their entire capital paid up within a year from their beginning4 ,the net profits of successful banks1 located in cities with a population of one hundred thousand or over1 average about six to ten per cent4 ,the business man1 when considering an investment in a mercantile or manufacturing enterprise1 generally counts on double that amount of dividends4 ,if1 as the politicians state1 the banks enjoy so many special privileges2 it is strange that the people of every section of the country do not rush in to organize and take stock in banks4 99 99 99 99 99 99 ,transcriber's note3 ,minor typographical errors have been corrected without note4 ,irregularities and inconsistencies in the text have been retained as printed4