PRACTICAL BANKING. 
 
 ALBERT S. BOLLES, 
 
 EDITOR OF THE BANKER'S MAGAZINE. LECTURER ON BANKING AND TRUSTS 
 IN THE LAW DEPARTMENT OF THE UNIVERSITY OF THE CITY 
 OF NEW YORK ; AUTHOR OF " THE FINANCIAL HISTORY 
 OF THE UNITED STATES," " INDUSTRIAL HISTORY 
 OF THE UNITED STATES," "THE CON- 
 FLICT BETWEEN LABOR AND 
 CAPITAL," ETC. 
 
 EIO-HTil EDITIOlSr. 
 
 NEW YORK: 
 
 ROMANS PUBLISHING COMPANY, 251 BROADWAV 
 1892. 
 
COPYRIGHT, 1884. 
 BY ROMANS PUBLISHING COMPANY, 
 
TO 
 
 LYMAN J. GAGE, 
 
 PRESIDENT OF THE AMERICAN BANKERS' ASSOCIATION, 
 
 jjft$ Jteafc is JteiruaiBir 
 
 AS A TOKEN OF THE AUTHOR'S REGARD FOR HIS FRIENDSHIP, 
 AND ADMIRATION FOR HIS RARE UNION 
 
 OF A KNOWLEDGE OF 
 
 THE HISTORY AND THEORY OF BANKING AND FINANCE 
 WITH EMINENT SUCCESS AS A BANKER. 
 
PREFACE. 
 
 An explanation is needful concerning the origin and composition 
 of this work. For several years letters have been received by the 
 publisher of the Banker s Magazine inquiring whether a work like 
 this existed. Other letters of inquiry have been received concerning 
 the Banker's Common-Place Book, which, after the issue of several edi- 
 tions, went out of print. For a long period I have been trying to 
 find an opportunity to embody the more important matters contained 
 in that work, with additional information in a new form, but the 
 desire to complete other undertakings resulted in the postponement 
 of this until after my connection with the School of Finance and 
 Economy in the University of Pennsylvania, when the need of the 
 book for the purpose of instruction was so great that the prepara- 
 tion of it was begun. The work, therefore, has been prepared to 
 serve a double purpose ; first, for those in banks, and elsewhere, 
 who wish to learn how the business of banking is conducted; and, 
 secondly, for use as a text book for the students whom it is my 
 pleasure to instruct. 
 
 I have not aimed to produce an original work, but the best for 
 the purposes mentioned. Accordingly, I have profited by the labor 
 of others to a considerable extent, and it is fitting that I should 
 acknowledge my indebtedness to them. In 1858 James S. Gibbons, 
 Cashier of the Ocean Bank of New York, wrote a work on The 
 Banks of New York, which ran through ten editions, and merited 
 the favorable reception accorded to it. Changes, however, have 
 occurred in banking methods since he wrote, while the style of 
 Mr. Gibbons' work, though very lively and appropriate for the gen- 
 eral reader, is not suitable for a class-room book. Nevertheless, I 
 have drawn very largely from that source in the preparation of 
 Part I. and with much pleasure I acknowledge my indebtedness to 
 this pioneer in describing the methods of conducting the business 
 of banking. 
 
VI PREFACE. 
 
 Aid has been derived from other sources. This has been 
 acknowledged in various places, but additional mention may be 
 properly made of several writers and sources of information. The 
 more important sections of the Banker's Common-Place Book have 
 been thoroughly revised and incorporated with other matter in 
 Chapters VI. and VII.; and the essay entitled "Suggestions to 
 Young Cashiers on the Duties of their Profession," is given in the 
 Appendix. Another portion of Chapter VII., from pages 51 to 58, 
 was written by George Walker, formerly Bank Commissioner of 
 Massachusetts, and a banker of many years' experience, who has 
 justly acquired the high reputation he enjoys as a financial writer 
 on both sides of the Atlantic. Chapter XIV., on " The Book- 
 keeper," has been prepared by S. R. Hopkins, who has happily joined 
 an exceptionally valuable experience as an accountant in all its 
 forms, private, corporate and municipal, with excellent facility for 
 description. He has also prepared the last part of the work re- 
 lating to " Trust Companies." The chapter on " Private Banking" 
 is from the pen of Eugene R. Leland, of New York, formerly a 
 banker in Wisconsin. 
 
 Part I., relating to "Deposit and Discount Banking," with the 
 exception of three chapters, has also been revised by Frederick B. 
 Schenck, Cashier of the Mercantile National Bank of New York. For 
 the interest he has taken in the subject, and for the valuable ideas 
 and suggestions with which he has enriched this part of the work, I 
 am profoundly grateful. To J. M. Dreisbach, Cashier of the Second 
 National Bank of Mauch Chunk, Penn., for information relating to 
 Country Banking and to the Balance Sheet in the Appendix. 
 
 Part Second, relating to Savings Banks, with the exception of 
 the first and last chapters, is the work of Charles E. Sprague, Sec- 
 retary of the Union Dime Savings Bank of New York. A practical 
 writer, and an experienced Savings Bank officer, it is believed that no 
 better description of the method of conducting the Savings-bank 
 business could be presented to the reader. 
 
 The Third Part, relating to Clearing-Houses, has been prepared 
 by Dudley P. Bailey, of Boston. For several years he has devoted 
 much study to the subject, and some of his papers have attracted 
 wide attention. I know of no one who could have given a better 
 account of the method of conducting the business of these insti- 
 
PREFACE. Vii 
 
 tutions. In this connection we would not omit to mention the 
 names of Nathaniel G. Snelling, Manager of the Boston Clearing- 
 house, and Wm. A. Camp, Manager of the Clearing-house in New 
 York, for information and other assistance rendered by them in the 
 preparation of this part of the work. Important assistance was ren- 
 dered by W. D. Snow, Secretary of the American Loan and Trust 
 Company, and by L. K. McKinney, Trust Clerk of the same 
 Company, in preparing Part IV. relating to Loan and Trust 
 Companies. 
 
 I trust that the work will prove useful. That it may be im- 
 proved in future editions, criticisms, facts and suggestions are so- 
 licited from every intelligent source. 
 
 ALBERT S. BOLLES. 
 
 PHILADELPHIA, October jist, 1884. 
 
CONTENTS. 
 
 PART I. 
 DEPOSIT AND DISCOUNT BANKING. 
 
 PAGE 
 CHAPTER I. 
 
 THE ORIGIN AND NATURE OF BANKING 3 
 
 CHAPTER II. 
 TH-? UTILITY OF BANKING t 
 
 CHAPTER ill. 
 THE NATIONAL BANKING SYSTEM y 
 
 CHAPTER IV. 
 STATE BANKS 14 
 
 CHAPTER V. 
 How BANKS ARE ORGANIZED AND ISSUE NOTES 16 
 
 CHAPTER VI. 
 THE PRESIDENT 24 
 
 CHAPTER VII. 
 DIRECTORS' MEETINGS AND DISCOUNTING 43 
 
 CHAPTER VIII. 
 THE CASHIER 72 
 
 CHAPTER IX. 
 THE PAYING TELLER 77 
 
 CHAPTER X. 
 THE RECEIVING TELLER 88 
 
 CHAPTER XI. 
 THE NOTE TELLER 93 
 
 CHAPTER XII. 
 THE DISCOUNT CLERK 97 
 
 CHAPTER XIII. 
 COLLECTIONS.. . 100 
 
X CONTENTS. 
 
 CHAPTER XIV. 
 THE BOOKKEEPER 104 
 
 CHAPTER XV. 
 THE RUNNER AND PORTER 128 
 
 CHAPTER XVI. 
 DEALINGS IN EXCHANGE 130 
 
 CHAPTER XVII. 
 PRIVATE BANKS 139 
 
 CHAPTER XVIII. 
 COUNTRY BANKING 143 
 
 PART II. 
 
 SAVINGS BANKS. 
 
 CHAPTER I. 
 UTILITY OF SAVINGS BANKS 151 
 
 CHAPTER II. 
 JANITOR 158 
 
 CHAPTER III. 
 THE DEPOSITOR 159 
 
 CHAPTER IV. 
 THE RECEIVING TELLER 165 
 
 CHAPTER V. 
 THE PAYING TELLER 170 
 
 CHAPTER VI. 
 THE BOOKKEEPER 173 
 
 CHAPTER VII. 
 THE TREASURER 177 
 
 CHAPTER VIII. 
 THE SECRETARY. 181 
 
 CHAPTER IX. 
 THE PRESIDENT 196 
 
 CHAPTER X. 
 THE BOARD OF TRUSTEES i 97 
 
 CHAPTER XI. 
 THE ATTORNEY . 200 
 
CONTENTS. XI 
 
 CHAPTER XII. 
 STATE SUPERVISION AND REPORTS 203 
 
 CHAPTER XIII. 
 How INVESTMENTS SHOULD BE MADE 208 
 
 PART III. 
 CLEARING-HO USES. 
 
 CHAPTER I. 
 ORIGIN AND UTILITY OF THE CLEARING-HOUSE 217 
 
 CHAPTER II. 
 ORGANIZATION AND MECHANICAL ARRANGEMENTS 222 
 
 CHAPTER III. 
 PREPARATION OF THE EXCHANGE 224 
 
 CHAPTER IV. 
 How CLEARINGS ARE MADE 229 
 
 CHAPTER V. 
 How OUTSIDE BANKS MAKE CLEARINGS 234 
 
 CHAPTER VI. 
 PAYMENT OF BALANCES 236 
 
 CHAPTER VII. 
 CLEARING-HOUSE CERTIFICATES 239 
 
 CHAPTER VIII. 
 THE RECORDS KEPT AND THEIR USES 242 
 
 CHAPTER IX. 
 FINES 246 
 
 CHAPTER X. 
 HISTORY OF THE NEW YORK CLEARING-HOUSE 247 
 
 CHAPTER XI. 
 CLEARING-HOUSES OUTSIDE NEW YORK 250 
 
 CHAPTER XII. 
 FOREIGN CLEARING-HOUSES 263 
 
 CHAPTER XIII. 
 COUNTRY CLEARINGS 274 
 
Xll CONTENTS. 
 
 PART IV. 
 LOAN AND TRUST COMPANIES. 
 
 CHAPTER I. 
 HISTORY AND SCOPE OF LOAN AND TRUST COMPANIES 281 
 
 CHAPTER II. 
 How BUSINESS is CONDUCTED 283 
 
 APPENDIX. 
 
 BANKING AS A PROFESSION FOR YOUNG MEN -. 293 
 
 ADVICE TO DEPOSITORS 297 
 
 SUGGESTIONS TO YOUNG CASHIERS ON THE DUTIES OF THEIR PROFESSION. 300 
 
PART I. 
 DEPOSIT AND DISCOUNT BANKING, 
 
UHIVBESIT7 
 
 PRACTICAL BANKING. 
 
 CHAPTER I. 
 THE ORIGIN AND NATURE OP BANKING. 
 
 The term bank is supposed to be derived from banco, the Italian 
 word for bench, the Lombard Jews in Italy having benches in the 
 market-place where they exchanged money and bills. When a banker 
 failed, his bench was broken by the people, and he was called a 
 bankrupt. 
 
 This derivation of the term, however, is probably wrong. " The 
 true original meaning of banco" says MacLeod,* "is a heap, or mound, 
 and this word was metaphorically applied to signify a common 
 fund, or joint stock, formed by the contributions of a multitude of 
 persons." 
 
 A brief account of the first banking operations in Venice will 
 dispel the haze enveloping this subject. In 1171 the financial con- 
 dition of Venice was strained in consequence of the wars in which 
 the people were engaged. The great council of the republic fin- 
 ally determined to raise a forced loan. Every citizen was obliged 
 to contribute the hundredth part of his possessions to the State, 
 receiving therefor interest at the rate of five per cent. The public 
 revenues were mortgaged to secure the interest, and commissioners 
 were appointed to pay the interest to the fundholders and to trans- 
 fer the stock. The loan had several names in Italian, Compera, 
 Mutuo, but the most common was Monte, a joint stock fund. After- 
 ward, two more loans were contracted, and in exchange for the 
 money contributed by the citizens, the commissioners gave stock 
 certificates bearing interest, and which could be sold and trans- 
 ferred. 
 
 * Principles of Economic Philosophy, vol. i, p. 547. 
 
4 PRACTICAL BANKING. 
 
 At this period the Germans were masters of a great part of Italy, 
 and the German word Banck came into use as well as its Italian 
 equivalent Monte. The Italians ere long changed Banck into Banco, 
 and the public loans or debts were called Monti or Banchi. Thus 
 an English .writer, Benbrigge, who wrote in 1646, mentioned the 
 "three bankes" at Venice, by which he meant the three public 
 loans, or Monte, that we have described. Likewise Count Cibrario, 
 who wrote a work on Political Economy in the Middle Age, says, " it 
 is known that the first Bank, or Public Debt, was erected at Venice 
 in 1171." Other proof of the same nature might be added to 
 show that Banco in Italian meant a fund formed by several con- 
 tributions ; and the Bank of Venice was really the first funding 
 system, or system of public debts. 
 
 " A banker," says Gilbart, " is a dealer in capital, or, more prop- 
 erly, a dealer in money. He is an intermediate party between the 
 borrower and the lender." The difference between the rate re- 
 ceived by the banker, for the use of the money loaned by him, 
 and the rate he has to pay for it, is his profit. 
 
 " By this means he draws into active operations those small sums 
 of money which were previously unproductive in the hands of pri- 
 vate individuals, and at the same time furnishes accommodation to 
 those who have need of additional capital to carry on their busi- 
 ness." In other words, a bank is a means for organizing capital 
 whereby its full power may be utilized. The function of a bank 
 in storing up capital, and thus increasing its power, has been 
 likened to that of a dam put across a stream. Before the erec- 
 tion of the structure, the waters coursed their way through wood 
 and meadow, contributing, it is true, to the diversity and beauty 
 of the scene, beside satisfying a needful want of man and beast. 
 To the poet, the stream gave forth an unregarded music, while a 
 De Quincey would hearken with profound emotion and awe 
 to the "sound-pealing anthems, as if streaming from the open 
 portals of some illimitable cathedral." But by storing up the 
 waters, a force is collected which can be used for running the 
 largest factory, and thus ministering in a very potent way to ad- 
 vance the material prosperity of man. 
 
 There are several kinds of banks. They may be divided first into 
 private and public banks. Private banks are conducted by individ- 
 uals without incorporation. They are very numerous in our country. 
 The number given in the Banker's Almanac and Register, not in- 
 cluding brokers, for the year 1884, was 3,387. They exist in all the 
 States and Territories. Some of them have flourished for a long 
 period, and are regarded very sound, and worthy of the highest 
 credit. 
 
 Chartered banks may be divided into two classes : those organized 
 and existing under the laws of the United States; and State institu- 
 
THE ORIGIN AND NATURE OF BANKING. 5 
 
 tions. The latter may be again divided into Deposit and Discount 
 banks, Savings banks and Trust companies. Each class will be de- 
 scribed hereafter. 
 
 The business of banking consists ( i ) in receiving deposits of 
 money on which interest may or may not be allowed ; ( 2 ) in 
 making advances of money, principally in the way of discounting 
 notes; (3) in effecting the transmission of money from one place 
 to another. This is true of the ordinary banks of deposit and dis- 
 count, both State and National. 
 
 The disposable means of a bank consists ( i ) of the capital paid 
 down by the shareholders ; ( 2 ) the money deposited with it by 
 its customers; (3) the notes it can circulate; (4) the money it 
 receives in the course of transmission, and which, of course, it must 
 repay at another place. 
 
 The expenses of a bank may be thus classified: rent, taxes and 
 repairs of the banking-house, salaries of officers, stationery and 
 postage. To this may be added interest upon deposits, if allowed. 
 
 The profits of a bank consist of that portion of its total re- 
 ceipts, including discount, interest, dividends and commissions, which 
 exceed the -total amount of expenses. 
 
PRACTICAL BANKING. 
 
 CHAPTER II. 
 THE UTILITY OP BANKING.* 
 
 I. Banks are useful as places of security for the deposit of 
 money. Not long ago a Western farmer received nearly ten thousand 
 dollars in specie from the Government in payment for bonds. Not 
 regarding a bank as a safe place for depositing his gold, he put it 
 in the bottom of a barrel in his wood-shed, filled it nearly full of 
 ashes, and the remainder with straw ; he then made a nest there, 
 filled it with eggs, and put them in the custody of a setting hen. 
 He thought that his sagacity was quite equal to the occasion. 
 After waiting a couple of weeks he concluded, one Sunday, when 
 having nothing else to do, that he would examine his highly origi- 
 nal safe in the wood-shed. The old hen was decidedly cross, and 
 did not enjoy his presence. Still she felt better than he did as 
 soon as he had plunged his arm down the side of the barrel and 
 found that some one had kindly relieved him of his gold. Prob- 
 ably he will think more highly of banks as places of deposit in 
 the future. 
 
 The need of a safe place of deposit gave rise to the leaving of 
 valuables with the goldsmiths of London. If money is deposited 
 in a bank and lost, even though not negligent it is responsible* 
 Robberies would rapidly multiply if much money were kept in 
 houses. The depositing of it with banks spares many a house 
 from the invasion of robbers. 
 
 2. A greater profit is acquired by the owners of money than 
 would be if banks did not exist. The aVIfjwanrp olJl!liSL by 
 " the new-fashioned bankers " has been considered the origin of 
 modern banking. A large amount of money, in the aggregate, 
 would remain idle and unproductive if these institutions did not 
 exist. By offering to pay interest, persons having money are in- 
 duced to deposit it with banks, and thus increase their gains. 
 [jf. Moreover, the payment of interest on deposits is a stimulant 
 to accumulate] money. Were there no Savings banks, a large por- 
 
 * On this subject Mr. George S. Coe, President of the American Exchange National 
 Bank, delivered an admirable address before the American Bankers' Association, in 1882, 
 answering the question, "What Important Function Do We, as Bankers, Perform?" See 
 Banker's Magazine, vol. 37, p. 170. 
 
THE UTILITY OF BANKING. 7 
 
 tion of the savings deposited in them would never have been col- 
 lected and saved. Probably the majority of these depositors have 
 no thought of collecting enough to buy a bond or a few shares of 
 stock. Such a process of saving is too elaborate for them. But 
 when a way is provided for adding to their savings by simply de- 
 positing their money in a bank, thousands, nay millions, of persons 
 in our country have availed themselves of the opportunity. 
 
 4. An important utility is that banks loan money to persons who 
 wish to borrow it. Loans are made chiefly to persons engaged in 
 manufactures, trade, commerce, and other business pursuits. Money 
 is especially needful to them to conduct their enterprises. Indeed, if 
 they could not obtain it, they could not maintain their place in, 
 the world of business. The credit that some mercantile houses 
 have is worth more to them than the capital they actually possess. 
 
 5. Another utility is that banks save the transmission of money^ 
 from one part of the world to another^ Rot only is the risk of 
 loss from robbery and other accidents avoided, but the money is 
 kept in more active circulation. Were it actually sent from place 
 to place to effect all the payments that are daily made, a large 
 amount must be locked up in the process of transportation, which 
 otherwise would be more actively employed. 
 
 fjS, There is a saving of time in paying large sums by checks or 
 bills of exchanged] To count the money would be a long process 
 in making the many heavy payments of our time. 
 
 7. There is less .d^gejrjofjerror when checks are used than when 
 money is paid. Of course there are some risks attending the use 
 of checks. But in paying with money there is also the risk of 
 getting counterfeits, light weight, or otherwise defective coin. 
 
 8. Besides, checks constitute a good record of one's expenditure. 
 If an individual deposits all the money he receives with a bank, 
 and draws it out by checks, his check-book contains the story of 
 his income and expenditure. For persons who do not have strict 
 business habits this mode of keeping their money and paying their 
 bills is especially worth observing. 
 
 9. A bank account is very useful if a payment is disputed. In- 
 dividuals do not always take receipts for the money they pay, and 
 even if they do, sometimes lose them. If a bill be paid, but no 
 proof can be furnished of paying it and payment be again de- 
 manded, too often it must be paid a second time. But if a check 
 for the bill be given this is the best kind of evidence of pay- 
 ment. 
 
 ip. If one has an account with a bank it is often a good chan- 
 nel for getting useful business information^/ If one has money to 
 collect or to remit, a banker, when, asked, will state the best way of 
 proceeding. Not infrequently bank officials give valuable advice 
 pertaining to investments and other matters. 
 
8 PRACTICAL BANKING. 
 
 II. An eminent English banker,* from whose work on Banking 
 many of the ideas in this chapter have been obtained, has said that 
 "banking also exercises a powerful influence upon the morals of 
 society, ft tends to produce honesty and punctuality in pecuniary 
 engagements. Bankers, for their own interest, always have a regard 
 to the moral character of the party with whom they deal ; they 
 inquire whether he be honest or tricky, industrious or idle, prudent 
 or speculative, thrifty or prodigal, and they will more readily make 
 advances to a man of moderate property and good morals than to 
 a man of large property but of inferior reputation. Thus the estab- 
 lishment of a bank in any place immediately advances the pecu- 
 niary value of a good moral character. There are numerous in- 
 stances of persons having risen from obscurity to wealth only by 
 means of their moral character, and the confidence which that 
 character produced in the mind of their banker. It is not merely 
 by way of loan or discount that a banker serves such a person. He 
 also speaks well of him to those persons who may make inquiries 
 respecting him ; and the banker's good opinion will be the means 
 of procuring him a higher degree of credit with the parties with 
 whom he trades. These effects are easily perceivable. It is thus 
 that bankers perform the functions of public conservators of the 
 commercial virtues. From motives of private interest they encourage 
 the industrious, the prudent, the punctual, and the honest, while 
 they discountenance the spendthrift and the gambler, the liar and 
 the knave. They hold out inducements to uprightness, which are 
 not disregarded by even the most abandoned. There is many a man 
 who would be deterred from dishonesty by the frown of a banker, 
 though he might care but little for the admonitions of a bishop." 
 
 *GUbart 
 
THE NATIONAL BANKING SYSTEM. 
 
 CHAPTER III. 
 THE NATIONAL BANKING SYSTEM. 
 
 As we have seen, the business of banking consists in getting a 
 common fund of money, and in lending a part of it. With this 
 general conception is associated the discounting of bills of exchange, 
 the collection of notes and drafts and the issuing of circulating 
 notes. The business may be conducted by one person, who is 
 called a banker; or by partners, as in any ordinary business, who 
 also are called bankers. Again, a number of men may join their 
 capital under a State law, and organize a State bank or associa- 
 tion, the capital of which is divided into shares. Capitalists may 
 also unite under the laws of the United States, and form a Na- 
 tional banking association. 
 
 Under these varying forms a banking business is done. We may 
 look at the reasons why men prefer one form to another. If a 
 man has considerable means and enjoys the confidence of the com- 
 munity, he may prefer to engage in banking alone, unfettered by 
 State or National laws. He may conduct his business in his own 
 way ; and if the people do not like it they need not patronize 
 him. A firm may do the same thing. They may be a law unto 
 themselves. But when men organize under a State law, they are* 
 bound by the law. They are subject to inspection. They must 
 pay a tax on the amount, of money used in their business. If 
 they issue promises to pay, a coin reserve must be kept to pay 
 them. By a National bank is meant not that the Government 
 owns or runs it, but authorizes its creation and prescribes itSi 
 mode of doing business. Every association under this law, whether] ( 
 in Maine or in Texas, is governed by the same principles, is sub- 
 ject to the same inspection, uses the same blanks in making re- 
 turns to the Treasury Department at Washington, and is under 
 the same penalties for the violation of any duty. All are treated 
 alike. The advantage to the people, of this system over any 
 other is, the existence of a power above the bank, to which they 
 can appeal if injustice is done. Another advantage of this sys- 
 tem is the general Government having seen fit to permit these 
 associations to issue promises to pay, based on the security of 
 
10 PRACTICAL BANKING. 
 
 United States bonds held in Washington, for the absolute and 
 prompt payment of every note issued on such security, the poor- 
 est and humblest citizen knows when he gets his pay on Saturday 
 night in a National bank bill, that he has the faith of the Govern- 
 ment behind his paper 'promise to pay. He need not see what 
 bank issued it ; for any bank must receive it for a debt due, and 
 the Government must pay for it in coin if the local bank fail. 
 
 The National banking system was based on the system of bank- 
 ing existing in the State of New York in 1862. That system had 
 existed many years; it had furnished adequate protection to bill- 
 holders; and in several respects was better than any system which 
 had preceded it. The Rev. Dr. John McVicker, professor of Politi- 
 cal Economy in Columbia College, was the author of the system, 
 and set it forth in a letter to a member of the New York Legis- 
 lature, entitled, Hints relating to Banking, written in 1827. As this 
 is the principal banking system in the country, and the only one 
 by which banks now issue notes of their own, the chief features 
 are worth describing in this place. 
 
 By the National law, banking associations may be formed by five 
 or more persons who must specify in their articles of association 
 the general objects for thus uniting. 
 
 They must make " an organization certificate " specifying : 
 
 A. The name assumed by the association. 
 
 B. Its place of business. 
 
 C. The amount of its capital stock and the number of shares into 
 which it is divided. 
 
 D. The names and residences of the shareholders and the number 
 of shares held by each. 
 
 E. A declaration that the certificate is made to enable them to 
 avail themselves of the advantages of the act. 
 
 No association may be organized with a less capital than $ 100,000, 
 except that banks with a capital of not less than $ 50,000, may, 
 with the approval of the Secretary of the Treasury, be organized 
 in any place with a population not exceeding 6,000 inhabitants. In 
 cities with a population exceeding 50,000 persons, at least $200,000 
 capital is required. Any National banking association designated for 
 the purpose by the Secretary of the Treasury, may become a deposi- 
 tory of public money and be employed as financial agent of the Gov- 
 ernment. 
 
 Associations so designated must give satisfactory security by the 
 deposit of United States bonds, or otherwise, for the faithful per- 
 formance of their duties. 
 
 The association may sue and be sued, elect directors, who, in 
 turn, may elect a president, vice-president, cashier and other of- 
 
THE NATIONAL BANKING SYSTEM. II 
 
 ficers; discount and negotiate promissory notes, drafts, bills of ex- 
 change, and other evidences of debt ; receive deposits, buy and sell 
 exchange, coin and bullion ; loan money on personal security, issue 
 and circulate its own notes, and make all needful by-laws not in- 
 consistent with the Banking Act. 
 
 There must be at least five directors. Each director must own 
 at least ten shares of the stock ; he holds his office until the elec- 
 tion and qualification of his successor. Annual meetings are held 
 in January. The capital stock is divided into shares of $100 each, 
 and is transferable. The liability of a shareholder is limited to a 
 sum equal to the par value of his stock. 
 
 Before beginning business, fifty per cent, of the capital stock of an 
 association must be paid in, and ten per cent, of the remainder 
 monthly, until it is all paid. 
 
 The next step is the transmission by the association of a certifi- 
 cate to the Comptroller of the Currency ( who is the chief official 
 of the Government in this particular department) stating that fifty 
 per cent, of the capital has been paid, and that all the provisions 
 of the law with reference to organizing a bank have been observed. 
 He then makes such an examination as may be thought necessary, 
 and if he finds that the law has been properly complied with, he 
 gives to the association a certificate to that effect, and that it is 
 authorized to begin business. This certificate must be published 
 within sixty days from the time of issuing it.* 
 
 Formerly the entire amount of bank notes which the banks were 
 permitted to issue was limited to $300,000,000, but in 1875 the law. 
 was changed, and they can now issue as many as they please, pro-' 
 vided they have a certain amount of Government bonds deposited 
 with the Treasurer. 
 
 As a necessary preliminary to furnishing notes for circulation, the 
 Comptroller of the Currency under the direction of the Secretary 
 of the Treasury, is entrusted with the important duty of engraving 
 plates in the best manner, to guard against counterfeiting and fraud- 
 ulent alterations, and to print therefrom and number so many circu- 
 lating notes in blank as may be required to supply the associations 
 entitled to receive the same. 
 
 After these notes have been signed by the president or vice-presi- 
 dent and the cashier, they are issued, and circulate the same as 
 money, and are received at par everywhere in payment of taxes ex- 
 cises, public lands, and all other dues to the Government, except for 
 duties on imports ; and also for all salaries and other debts owing 
 
 *The former Comptroller of the Currency, Mr. Knox, issued a very useful Government pub- 
 lication of forty pages, entitled Instructions and Suggestions of the Comptroller of the Cur- 
 rency in regard to the Organization, Extension and Management of National Banks, It 
 contains, among other matters, many of the forms required by the National law, an excellent 
 set of by-laws, and a summary of the principal restrictions and requirements of the National 
 bank law, which, with National Banking Laws, is published by Homans Publishing Co. 
 
12 PRACTICAL BANKING. 
 
 t>y the United States, except interest on the public debt and in re- 
 demption of the legal-tender notes. They are also a legal tender 
 for any debt or liability to every National banking association. 
 
 Every National banking association is required to keep on de- 
 posit in the Treasury of the United States a sum equal to five per 
 centum of its circulation, which sum is counted as part of its law- 
 ful reserve. All notes of National banks worn, defaced, mutilated, 
 or otherwise unfit for circulation, are forwarded to the Treasurer 
 of the United States for redemption. Such redemptions are reim- 
 bursed from the five per cent, fund, and notes worn and unfit for 
 circulation are then forwarded to the Comptroller of the Currency 
 for destruction. After making a record of the notes thus received, the 
 Comptroller directs their destruction in the presence of four persons. 
 
 National banks having a capital of $ 1 50,000 or less are required 
 to keep on deposit with the Treasurer of the United States, United 
 States bonds equal in amount to one-fourth of their capital stock. 
 Other banks are required to keep on deposit not less than $50,000 
 in United States bonds. Upon a deposit of bonds the association 
 making the same is entitled to receive from the Comptroller cir- 
 culating notes equal in amount to ninety per centum of the par 
 value of the United States bonds so deposited, but the total 
 amount of such notes issued to any association may not exceed 
 ninety per centum of the amount of its capital stock actually 
 paid in. 
 
 Every bank annually examines or has examined the bonds de- 
 posited in the office of the United States Treasurer, comparing 
 them with the books of the Comptroller, and with its own record 
 of them, and if the bonds exist and the record of them is correct, 
 executes a certificate to that effect to the Treasurer. 
 
 A National bank can hold real estate under the following con- 
 ditions and no others: 
 
 A. The building needful to transact its business. 
 
 B. Land mortgaged to it in good faith to secure debts previously 
 contracted. 
 
 C. Land conveyed to it in satisfaction of debts previously con- 
 tracted in the course of business. 
 
 D. Land purchased under sales ordered by courts in order to 
 secure debts due to the bank. 
 
 E. In the last three cases the real estate cannot be held beyond 
 five years. 
 
 The rate of interest which a bank may take on any note, bill of 
 exchange, or other evidence of debt is the rate permitted by the 
 laws of the State or Territory where the bank is located. 
 
 Every bank in sixteen of the principal cities of the United States 
 must keep on hand always in lawful money as a reserve fund, 
 twenty-five per cent, of the amount of its deposits; and the banks 
 
THE NATIONAL BANKING SYSTEM. 13. 
 
 in other places must keep on hand fifteen per cent, of their de- 
 posits. The banks last mentioned, however, may keep three-fifths 
 of their reserve on deposit with such of the National banks as 
 may be selected by them, approved by the Comptroller of the 
 Currency, and doing business in any of eighteen specified principal 
 cities of the United States. 
 
 National banks in any of the sixteen cities excepting New York, 
 may keep one-half of the required twenty-five per cent, reserve on 
 deposit in the City of New York. 
 
 Whenever this reserve of twenty-five per cent, for one class of 
 banks and fifteen per cent, for the other, falls below that amount, 
 the bank can make no new loans, except by purchasing or discount- 
 ing bills of exchange payable at sight, nor make any dividend until 
 the requisite proportion of reserve to circulation and deposits has 
 been restored. 
 
 They cannot make loans on the security of their own stock, 
 except to prevent a loss on a debt previously contracted, nor can 
 they pledge their own notes of circulation for the purpose of get- 
 ting money to pay in their capital stock. 
 
 They are also subject to examination by officers appointed by the 
 Government. 
 
 The banks must make reports to the Comptroller of the Cur- 
 rency according to the forms which he prescribes, exhibiting in de- 
 tail the resources and liabilities of the associations at the close of 
 business on any past day specified by him. The Comptroller is 
 required to call for not less than five such reports during each 
 year. These reports must be verified by the oath of the president 
 or cashier and attested by the signatures of at least three of the 
 directors. 
 
 In addition to the reports mentioned above, each association is 
 required to make a sworn report within ten days after the declar- 
 ation of any dividend, of the amount of such dividend, and the 
 amount of the net earnings. In order to enable the Treasurer to- 
 assess the duties, each association is required to make a sworn re- 
 turn to the Treasurer of the United States of the average amount 
 of its notes in circulation. 
 
 The Comptroller employs district agents to examine from time 
 to time, usually once a year, the affairs and assets of the several 
 banks. For this service a stipulated charge is assessed upon the 
 bank. 
 
 The charters of many National banks expired in 1882. On the 
 twenty-fifth of February, 1883, the charters of 297 more expired. 
 On the twelfth of July, 1882, Congress provided for their renewal. 
 Many of the National banks are now existing under this law. The 
 same period of life is given to them as was given before twenty 
 years. 
 
14 PRACTICAL BANKING. 
 
 CHAPTER IV. 
 STATE BANKS. 
 
 Although 2,589 banks (April 24) are in the National system, 
 nearly eleven hundred banks are flourishing under State regulations. 
 These in most cases existed before the enactment of the National 
 banking law. They declined to change, though they were obliged to 
 retire their circulation. A larger number of these banks are located 
 in Missouri than in any other State. At the beginning of the year, 
 1884, 153 State banks existed there; New York had the next largest 
 number, 98, while Pennsylvania had only one bank less. In Iowa 
 there were 78, in California 71, in Kentucky 66, and in Kansas 50 
 Michigan had 36, Ohio 35, Virginia 43, Wisconsin 38, Nebraska 
 and Minnesota each 32. Other States had a much smaller num- 
 ber. 
 
 The Government imposed a tax of ten per cent, on the circulation 
 of the State banks, which took effect on the first of July, 1866, under an 
 amendment to the law creating the National banking system. This rate 
 was too high to allow any profit on the State bank circulation, and 
 consequently it was withdrawn. Indeed the object of the law was to 
 expel it, in order to make room for the circulation of the National 
 banks. In other respects, however, the State banks are conducted as 
 they were before the creation of the National banking system. But the 
 internal mechanism of a State and National bank is quite the same, 
 and, therefore, in describing the methods of conducting a discount 
 bank, no distinction need be kept in mind between a National and 
 State bank. The former alone issues circulating notes, and the 
 mode of doing this will be explained more fully hereafter. The 
 main function of receiving deposits and of loaning them is per- 
 formed in essentially the same way by all banks. Of course, there 
 are minor differences; every bank has some ideas of doing busi- 
 ness that are peculiar to it, but it may be truly said that the 
 main features of the banking business are the same throughout 
 the country. The greatest differences exist between banks in the 
 large cities and the small places, and these will be explained in 
 their proper place. 
 
 State banks possess some advantages, in the opinion of some 
 bankers, that are worth mentioning : 
 
STATE BANKS. 15 
 
 1. They are not examined so critically; in some cases are not re- 
 quired to make returns to State officials, and in no case are such 
 full returns required as the National law requires to be made. Yet 
 the numerous requirements by the Government strengthen public 
 confidence in the banks, and probably the majority of bank- 
 ing officials would not have them removed or lessened if they 
 could. Not all think so, however ; hence some banks remain under 
 the shadow of the State instead of the Nation, because they are 
 watched less closely and can do things which would not be per- 
 mitted if they were National banking institutions. 
 
 2. There is another advantage which State banks claim to pos- 
 sess over their National rivals. They can certify checks in excess 
 of the amount which the depositor may have at the moment of cer- 
 tifying. The National banks are expressly forbidden to do this. In 
 several cases they disregarded the law, but the Comptroller of the 
 Currency dealt with the offenders so severely that the banks 
 which were the most desirous of continuing the practice with- 
 drew and reorganized as State banks. The institutions that with- 
 drew were located in New York City, and they maintained that 
 whatever advantages they would gain if they continued to exist as 
 National banks would not equal their losses if the practice of 
 over-certifying could not be continued. Wishing to continue it and 
 not infringe the law, they became State banks, and as such could 
 continue this objectionable practice without legal hindrance. 
 
 The banking laws of the States possess many variations, and we 
 have not space for even an abridgement of them. As no State 
 banks issue circulating notes, all regulations pertaining to that sub- 
 ject are dormant. The main provisions of the banking law of New 
 York are similar to those of the National Bank Act, which were 
 described in the previous chapter. 
 
l6 PRACTICAL BANKING. 
 
 CHAPTER V. 
 HOW BANKS ABE ORGANIZED AND ISSUE NOTES. 
 
 The subject of this chapter was so well handled by a cashier 
 of a National Bank several years ago, at a meeting of the Amer- 
 ican Bankers' Association, that his paper may fitly be incorporated 
 into our work. 
 
 Let us start a bank in a New England city. Some stormy winter 
 afternoon a half dozen men are sitting around a stove in a counting- 
 room on Commercial Street. They have discussed the weather and 
 their neighbors, have whittled the chairs, have told a few stories, 
 and have listened to the eloquence of a teamster who dropped in, 
 as he cursed the banks and ventilated some new theory of finance, 
 By the way, says Mr. A, it seems to me that if we had another 
 bank here, we could have an easier money market, and could get 
 better accommodation. Why, I took up a note the other day, to 
 my bank, and they didn't discount it, though with my own eyes I 
 saw the clerk put a discount on the little book for old Sykes, and 
 I reckon my note is as good as his. The other members of the 
 crowd, being well aware that Mr. A is a habitual growler, as well as 
 a persistent borrower of $150 a day to make his checks good, and 
 an inveterate swapper of checks, do not wonder at the obstinacy 
 of the bank. In a few minutes Mr. A goes out, and in walks Mr. 
 B, who is a well-known, honorable, retired merchant. The subject 
 is renewed, and Mr. B remarks that he has had some talk of 
 seeing some of the merchants and inquiring how they would feel 
 about having a new bank. Some variety of opinion is expressed. 
 But Mr. B at length says that he has determined to try it on, if he 
 can find the right men to go with him. He wants a grocer and a 
 lumber dealer, and a retired man, like himself, and one or two 
 more good men, to make up a board of directors. He says that 
 there is plenty of money seeking investment, and that with good 
 management the stock will be worth $125 in three years. 
 
 In the course of a week or so Mr. B has selected five men who 
 will sign a paper subscribing for at least ten shares each of a new 
 bank, to be called the National Bank of Commerce, to be located 
 in Portland, Maine. They write to Washington, to an officer of the 
 Treasury Department, called the Comptroller of the Currency. He 
 
HOW BANKS ARE ORGANIZED AND ISSUE NOTES. \J 
 
 makes inquiries about the needs of Portland and the character of 
 the men, and at length sends some blanks for the signatures of 
 the subscribers to the proposed capital stock of $ 250,000. He re- 
 minds the gentlemen that the law must be strictly followed, that 
 the gentlemen who are to be directors must each own absolutely 
 at least ten shares of the stock, and that at least one-half of the 
 money must be paid in before he can grant them any rights. Mr. 
 B takes his paper around among his friends, and in a few weeks he 
 has the amount subscribed. Certain preliminary steps are now 
 taken. A room is hired, a good vault built, and the subscribers 
 are called together to choose five directors. A cashier is selected. 
 There are many applicants for this office, but the directors choose 
 Mr. Perkins, because he has been in another bank for several years, 
 has borne a good reputation and knows his business. 
 
 The papers, duly signed and sworn to, have been sent to Wash- 
 ington for approval. They come back in a week, with a big seal, 
 and a certificate that must be published in some local paper, show- 
 ing that the bank is recognized by the powers that be. One of the 
 stationers' houses has subscribed to the stock, and so they are 
 making the new books. The cashier says they must hurry up first 
 with a stock journal and stock ledger, as the money is to be paid 
 in at once, and he must have these books. That old growler, Mr. 
 A, comes round before the bank is fairly started, and wants to hire 
 $500, on four months, with a poor indorser. When he is told that 
 they can't lend any money till they get under way, he remarks that 
 he thought this bank was going to help our merchants, and he 
 would like to know what banks are for. The teamster, of whom we 
 spoke a few moments ago, said, as Mr. A returned to his office, 
 that he could tell what banks are for : " Yer see, they are jest to 
 skin us poor fellows who haven't got nothing." Presently, how- 
 ever, our new bank has all of its $ 250,000 paid in. The directors 
 are called upon to decide whether they will issue circulating notes 
 or not. And for fear that some of you present to-night may think 
 that banks are compelled to issue notes, and that their whole profit 
 is derived from the profit upon the circulation, I will at this point 
 explain a few things. 
 
 The business of banking does not, of necessity, include the func- 
 tion of issuing bank notes. The privilege of issuing notes is 
 granted by the State or the Nation, as the case may be; but, lor 
 the privilege, certain taxes have to be paid to the party granting 
 the permission. In addition to the tax, the expense of handling 
 the notes, the expenses of the redemption of the same, the express 
 charges, etc., make it a serious question with many banks whether 
 it pays to issue notes. The fact is, though it is not often stated, 
 that a very considerable number of large and well-managed banks 
 long ago gave up their circulation, finding that it did not pay. In 
 
18 PRACTICAL BANKING. 
 
 places like Portland, where the banking capital is not excessive, I 
 think that a fair profit can be made if money is worth five and 
 a half per cent, the year through. But the banks here would 
 make a respectable living if they had no circulation. 
 
 Another mistake of the same kind is, the claim that the banks 
 make large amounts out of the lost bills. I have heard it said that 
 fully a quarter part of all that is issued never returns, and is 
 consequently saved by the bank. Now, this is a great mistake, 
 for, in the case of National banks the Government, and not the 
 bank, gets all the benefit. Even in the case of the State banks the 
 proportion of missing bills is very small. I was once connected 
 with a State bank that had a circulation for several years of more 
 than half a million of dollars. Its bills went all over New England 
 and into the West and Canada. When our Maine soldiers went 
 to the front they were paid in many cases in the notes of this 
 bank. Those notes went thus into many Southern States, passed 
 through many battles, were found in soldiers' pockets in the hospi- 
 tals and on the field. Now, you would say that there must have 
 been a large loss of money in this particular case. Well, the notes 
 keep straggling back to Portland even to this day ; they have al- 
 ways been paid, and thay always will be. An old lady dies, and a 
 crisp, clean bill is found tucked away in her pocketbook. Now and 
 then one turns up from down south or the extreme west, but to-day 
 there is only about $ 1,900 outstanding of all the many notes 
 that were issued by this one bank that had so peculiar a circulation. 
 Not long ago three clean five-dollar notes were presented for re- 
 demption. They had been hidden away in an old lady's wallet; 
 perhaps she had kept them to pay her funeral bills. Eighteen 
 years, at least, had passed since these bills were paid out. We oc- 
 casionally read of some drunken swell who lights his pipe or cigar 
 with a dollar bill ; but I always think, when I read that story as 
 it turns up periodically, that the bill in question was a poor coun- 
 terfeit, laid by for an emergency of brag and show. 
 
 Having cleared up these errors let us go back to our new bank 
 that we left with $250,000 paid in. After discussion, the directors 
 decide in favor of issuing notes. What is the process? You under- 
 stand, of course, that all National bank notes are based upon a secur- 
 ity deposit made by the bank with the Treasury Department in Wash- 
 ington ; that is to say, for every 1,000 United States bond deposited, 
 the Government will grant $ 900 in new bills to the bank.* No bank, 
 however, can have more bills than its capital, many do not have 
 so much; and, as has been previously said, some banks prefer to 
 have no circulation at all. Our new bank has $ 250,000 capital ; and, 
 taking up the newspaper, the managers are not consoled by the 
 quotation of 123 for a four-per-cent. bond. But, to get their circu- 
 
 * See provisions of National Banking Law, Chapter III., page 12. 
 
HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 19 
 
 lation they must first deposit their bonds. So they easily can see 
 that they cannot buy more than $220,000 of four-per-cent. bonds 
 with their $ 250,000. In other words, $ 30,000 is sunk in premiums 
 for which they have nothing to show. Or, to put it in another way 
 they have spent $30,000 for premiums before they have earned a 
 dollar. An order is given to a broker in New York to buy $220,- 
 ooo in United States bonds, drawing four per cent, interest. The 
 broker telegraphs back that he has bought at 123. He has bought 
 registered bonds that is, bonds that have no coupons or semi-an- 
 nual interest warrants, but are certificates of ownership of a certain 
 quantity in the four-per-cent. loan of the United States. These 
 certificates or bonds are in sizes of $ 10,000 in this case, and are 
 payable to some party who indorses them over in blank, when they 
 are sold. The interest on the bonds comes from the Treasury De- 
 partment to the owners by check through the mails, in quarterly 
 payments. 
 
 Now that the bonds are bought, and, of course paid for, they 
 are sent to the Treasury Department at Washington to be lodged 
 with the Treasurer of the United States to secure such an amount 
 of circulating notes as, under the law, he is authorized to issue to 
 the new bank. This officer issues a certificate that he has had 
 $220,000 in United States four-per-cent. bonds converted into 
 bonds bearing the name of the United States in trust for our new 
 bank ; that is, he holds the bonds as security for the payment of 
 the notes that are to be issued by the joint act of the Govern- 
 ment and the association. Whenever the bank surrenders the notes 
 or an equivalent, then the shareholders can have their bonds trans- 
 ferred to them again. But, so long as the bank owes for its notes, 
 so long must the bonds remain in the pigeon-holes of the big 
 vault of the Treasurer of the United States, all done up nicely, and 
 lettered and labeled, so that at any moment the agent of the bank 
 can put his hand on them and see that they are safe. The Treas- 
 urer sends a document to the Comptroller of the Currency, stating 
 that he holds the bonds, and the Comptroller issues an order for 
 printing the amount of notes authorized by law, which is ninety 
 per cent, of the deposit, the other ten per cent, being left as a 
 margin in case of a depreciation of the bonds. So the bank has, 
 in the first instance, sunk $ 30,000 in premium on its bonds, and 
 now ties up ten per cent, more to make the public absolutely safe 
 when they take the bills of that bank. Only $ 198,000 is allotted to 
 our new bank. This amount is what is called the circulation of the 
 bank. 
 
 The blanks come along in a few weeks, and though the of- 
 ficers may think it very pretty to see their names on a bank bill, 
 yet before they have signed a quarter of the pile, their hands ache 
 and they grow sick of their own names. But the bills must all be 
 
20 PRACTICAL BANKING. 
 
 signed. Then they are chopped up, and finally make glad some- 
 body's eyes. For the privilege of issuing these notes, the banks 
 pay to the Government one per cent, a-year tax upon the average 
 amount in circulation. Besides this tax, the banks pay the expenses 
 of an office in Washington, where the notes of all of the banks are 
 received, sorted, sent home for redemption, or, if too much defaced, 
 burned and exchanged for clean notes. The expenses of this office 
 for a bank of $ 250,000 capital would be, perhaps, $ 200 per annum. 
 Added to this must be the express charges from Washington to the 
 home of the bank. Every week or two a package of bills is sent home 
 for redemption. The cost of this service may be $75 more. Then, 
 again, the law provides that an amount equal to five per cent, of 
 the circulation shall at all times be kept with the Treasurer of 
 the United States, as a fund for paying these constant redemp- 
 tions ; so that the Treasurer gets his pay for the redeemed bills 
 before they start from Washington, and this amount has to be 
 kept constantly good by frequent remittances. You notice, there- 
 fore, that five per cent, of our $198,000, or $9,900, is tied up, 
 dead and profitless, in Washington, all the time ; so that really all 
 the bank has to use of its $ 250,000 capital in this direction is 
 $188,100.* 
 
 There is another side to this story, also. When a bank obtains 
 circulation and loans the money derived from it in a community, 
 the people in the region are helped. The wheels move round a 
 little faster, and I do not know but that a bank is entitled to some 
 share of the profit, if it takes all the risks of men's business, their 
 tricks, their honesty, and their frequent failures. Very certain it is, 
 that if the banks did not issue their notes the people could not 
 issue their notes as they do at present. We will now leave this 
 branch of banking, and see how our National Bank of Commerce 
 makes money in another direction, and at the same time serves 
 the people. I refer now to the loaning of money. What money 
 has a bank to loan? i. It has its capital. But, in the case we 
 have supposed, instead of loaning its $250,000 paid-in capital, it 
 will only have $188,100 to loan, which is the amount of circulat- 
 ing notes received from Washington, in exchange for its bonds 
 bought with all of its capital. 2. The bank really loans its whole 
 capital to the Government by its act of buying $250,000 bonds, draw- 
 ing four per cent, interest, so that the bank receives four per cent. 
 
 * I mention these facts to show that the banks do their share in paying taxes, and in mak- 
 ing the people absolutely secure in their funds, as well as to point out that there are some 
 serious outs in what many people think is a huge monopoly. I shall not contend, however, 
 that the banks do not make money out of their circulation. They do. But I think that they 
 fully pay for their privilege. It is not possible for a new bank to start to-day and buy bonds 
 at present prices, pay taxes and do an honest business, and make much money out of its circu- 
 lation. I would myself to-day, as things are, run a bank a new bank as quickly without 
 circulation as with it, if the institution were located in a city. 
 
HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 21 
 
 on this amount, as well as what it can make on its circulation. 
 3. It has its deposits to loan ; that is to say, after reserving what 
 is a prudent amount for the ordinary calls of its depositors, it can 
 invest the balance in such a manner that it can be relied upon in 
 case of need. 
 
 Experience teaches the bank manager how stable or how unreli- 
 able his balances may prove. In an old and well-established bank, 
 perhaps two-thirds of the deposits may safely be loaned, on various 
 lengths of time and various kinds of securities. In a new bank, 
 or in a poor bank, the officer will not be surprised if his balances 
 are as unstable as his own power to aid his dealer in an emer- 
 gency. These three, then, are, in the main, the sources of means 
 for a bank to loan and make money : 
 
 i. The capital. 2. The circulation. 3. The deposits. 
 
 Let us next see how the loans are made. What can our Na- 
 tional Bank of Commerce loan upon ? In walks Mr. H. He says 
 he wants to hire $ 2,000, and will give as security his son Bill and 
 his farm. He is told that the National Bank of Commerce can- 
 not loan on real estate, as the law practically prohibits it. Where- 
 upon Mr. H remarks that he would like to know of what earthly 
 use banks are if a man can't raise money on a good farm and on 
 his son Bill's backing. But he is reminded that farms won't pay 
 debts, and that in loaning money belonging to other people care 
 must be had that the money can be easily forthcoming when the 
 debt is due. Mr. B presents a note by a man up in Baldwin, in- 
 dorsed by the man's wife and by Mr. Jones of the same town. In- 
 quiry fails to bring out the fact that Mr. Jones and the rest of 
 the Baldwin family have any intention of paying the note when 
 due; but shows that they want to hire the money to help build 
 up a cheese factory. Now, while a cheese factory is a glorious in- 
 stitution, yet it is not the thing for a bank to loan its money on. 
 In other words, banks are not established to make permanent loans, 
 but to buy notes on short time, given for the actual purchase or 
 sale of goods. 
 
 In country towns the practice differs. For instance, if there was 
 a bank in Bethel, in this State, the drover would present a note 
 signed by himself and three neighbors, and would want to hire for 
 three months $2,000, so that he might go through the towns pick- 
 ing up cattle, and pay his note when he got through the operation. 
 So, also, another man would hire money outright to buy hay and 
 dried apples, and still another would want a thousand or two to fit 
 out a winter logging crew. Back of all these transactions is the 
 apparent ready ability of the hirers to pay their debts out of the 
 commodities dealt in. The money is not tied up in a farm or a 
 cheese factory as a permanent investment. 
 
 In cities the trader brings to the bank a batch of notes given 
 
22 PRACTICAL BANKING. 
 
 for goods sold to country traders. There is a value received in 
 every note. Flour, molasses, sugar, oil, pork, have passed out of the 
 store in the city, and the 'note expresses the value. The dealer in 
 the city wants to use his capital over again, and so sells his notes 
 to the bank. The bank buys the notes, and gives the dealer a 
 credit for the same upon his bank book. 
 
 In New York and some of the larger cities still another practice 
 prevails. Merchants have a way of making their own notes and 
 selling them outright at the price of money at the time. This can 
 only be done by the strongest houses. Other houses go to the 
 bank and say, you have for collection on our account a consider- 
 able number and amount of notes; now, hold these as security, and 
 loan us a certain amount on our note. This is all legitimate, as 
 you will see that the bank has abundant security on hand in a 
 form that can easily pay a loan. 
 
 Still another method is that used largely in the Western States. I 
 refer to the buying and selling of exchange on eastern cities. A 
 man picks up a customer for 200 barrels of flour. The flour is 
 ground in Minnesota, for instance. As soon as it is ready for deliv- 
 ery he puts it aboard the cars and gets a railroad receipt or bill of 
 lading, showing that 200 barrels of flour have been put into such 
 cars, shipped to Mr. Jackson, at Portland. The bank in Minnesota 
 says that he can pin his bill of lading to the draft he is about to 
 make on Mr. Jackson, and the bank will purchase the bill. The 
 bank does not depend on Mr. Jackson's credit, for they instruct 
 their correspondent in Portland not to give up the bill of lading 
 until they get their money. This custom is confined to the West 
 and South, and arises' from their large sales of produce in the 
 East. 
 
 The profit made by banks on their loans is the interest for the 
 time that the note or draft has to run from the day it is bought 
 by the bank till it matures. Who gets the profit ? The stock- 
 holders, of course. The capital is divided up into shares, generally 
 of $ loo each. Twice a year the directors look at the balance sheet 
 and say that, after paying the salaries and the taxes, they can pay 
 a certain amount to the stockholders. But one old director remarks 
 that they must first add to their surplus account an amount that 
 the law prescribes before they can divide. The idea of the bank- 
 ing law is to make the public safe ; so it is wisely provided that 
 until the surplus of a bank is fully twenty per cent, of its capital 
 no dividend shall be paid until at least one-tenth of its profits shall 
 be added to the surplus. 
 
 There is another little trouble that sometimes prevents the stock- 
 holder from getting a dividend as he expects. A bank, like a mer- 
 chant, loses money, sometimes, after exercising the greatest care and 
 the best judgment, and saying " No, no, no," over and over again. 
 

 HOW BANKS ARE ORGANIZED AND ISSUE NOTES. 23 
 
 Sometimes a man dies, and everybody is surprised to learn that 
 the estate cannot pay its debts. The bank holds his paper with 
 only a fair indorser. This fair indorser can't respond to so much 
 calamity, and so he fails. The bank settles off and loses fifty per 
 cent, of its debt. Or, a fire burns a man's store and stock, and he 
 is inadequately insured ; the bank loses again. Or, what is worse, 
 and what makes a bank man mad (and justly so, too!) is when a 
 firm lie, telling all sorts of stories about their business and profits 
 and expenses, and the community wake up some fine morning and 
 find the bubble collapsed ! ten cents on a dollar and nobody to blame. 
 
 The feeling of reciprocity between banks and their dealers ought 
 to be encouraged. The banker is interested in the success of 
 his dea^r. He sees a great many accounts, and he can be of much 
 aid to tnu merchants in exposing tricks and extended credits, and 
 the peculiar ways of men who deal with the merchants. The mer- 
 chant should feel that the banker is his friend, that if he criticises 
 it is from good motives. For instance, here is a young man just 
 starting in the wholesale grocery business. He is ambitious to do 
 all the business that he can, and probably tries to do more than 
 he ought to. In his anxiety he strikes out for new accounts, and 
 sells some country traders very large bills. He takes their notes 
 and carries them to his bank for discount, where he is kindly told 
 that he is selling such a man too much for his good, and the 
 bank declines his paper. Now, the banker notices that another con- 
 cern is working hard to shove that customer off, and this ardent 
 young man may get a big load before he is aware of it. I can re- 
 call very many cases where merchants would have saved many bad 
 debts if they would but have taken a hint kindly given. 
 
 Young merchants especially ought not to attempt sharp prac- 
 tices on their banks. Fictitious balances, or balances arranged so as 
 to look well the last day of a month, and exchanged checks, and 
 a thousand and one little sneaking ways, only hurt a merchant and 
 destroy his credit. The banker's ledger generally shows a continu- 
 ous balance, varying with each transaction ; averages, and not " put 
 up jobs," show the value of an account. My judgment is, that 
 there is now but very little "shaving" and "grinding" exercised by 
 the bank towards the borrower. Nor is there any disposition of 
 this kind in respectable quarters. Money is an article of merchan- 
 dise ; it has its price ; its price varies like the price of sugar and 
 flour. Firms of undoubted credit can hire money lower than can 
 some others of lower credit, just as ready money and a sharp buyer 
 can buy 100 barrels of flour cheaper than a man who purchases 
 on four months and is slow pay. It is true that banks do not 
 discount all the paper that is brought to them. Nor are they 
 bound to. They have the right of choice as much as a merchant 
 has whether he will trust out a bill of goods. 
 
24 PRACTICAL BANKING. 
 
 CHAPTER VI. 
 THE PBESIDENT. 
 
 The president is the chief executive officer of the bank, and 
 presides at the meetings of the Board of Directors, but is not 
 necessarily the business head or manager of the institution. Some 
 banks have a vice-president. The vice-president in the absence of 
 the president assumes the functions of the latter. 
 
 In legal matters the president must sign documents conveying 
 real estate, and with the cashier must sign certificates of stock 
 issued to shareholders, and the circulating notes. He, or the cashier, 
 may verify the various reports required by the National Banking law 
 to be made to the Comptroller, and must certify to that officer the 
 payment of each installment of stock. He cannot act as proxy at 
 meetings of the shareholders. 
 
 He is not required to give a bond to secure the bank in the 
 event of not faithfully performing his duties, but all the officials 
 below him give such security. It is supposed that his large pecu- 
 niary interest in his bank, and his well-known standing in the com- 
 munity where he resides, will prove an ample guaranty. Of course, 
 bank presidents are sometimes recreant to their trusts, but happily 
 not often. It is well to believe there are persons living in every 
 community whose word is as good as their bond, and for them to 
 give such an obligation, therefore, is superfluous. 
 
 The salary of a bank president varies from a very small sum to 
 fifteen thousand dollars a year. When his duties are very few, and 
 only a slight portion of his time is devoted to the affairs of the 
 bank, no salary is paid. This is often the case. 
 
 We have mentioned that in some cases he is the real business 
 head of a bank, and that in others he is not. The country banks, 
 so called, by which is meant in this place, the banks outside the 
 larger cities, are managed by the cashier. Here and there may be 
 found an exception. In the large cities, however, the president is 
 usually the chief business officer, going to the bank regularly, and 
 spending his time there during banking hours. He is a hard- 
 working officer, acquainted with all the details of the business, 
 and interested in all matters pertaining to the prosperity of his 
 enterprise. Occasionally the president of a city bank is a figure 
 
THE PRESIDENT. 2$ 
 
 head, and then the vice-president or cashier is the chief business 
 officer. 
 
 An author, from whom we shall frequently quote, has said : " It 
 is considered desirable that the president should possess an in- 
 dependent income, and be free from the entanglements of trade. 
 Engagement in other business would distract his attention from 
 the bank, and might give rise to a conflict of interests. Under the 
 pressure of personal embarrassment, with the means of relief in his 
 official hands, even a rigid sense of duty might be overcome. The 
 highest tone of sentiment on this point is, therefore, adverse to his 
 connection with the hazards of commerce. Yet several of our most 
 prosperous New York City banks have always been presided over by 
 active, enterprising merchants. 
 
 "There are other reasons why a bank president should hold 
 himself aloof from mercantile business. With large capital invested 
 in a particular branch of trade, his views might insensibly become 
 narrow and partial. An engrossing special interest would divert 
 his mind from the close study of credits generally, and make his 
 judgment less clear, as the condition of commerce becomes more 
 critical. In a season of growing stringency in the money market, 
 self-interest compels bank directors, in common with others, to 
 withdraw their attention from all affairs but their own, and thus 
 additional responsibility is thrown on the officers, particularly on 
 the president. The discounting of paper is then less strictly con- 
 fined to the sessions of the board. It is spread through every 
 hour of the day, with specialities and importunities which can be 
 dealt with only individually and privately."* 
 
 The truth of Gibbons' first remark has been illustrated in a 
 startling manner on more than one occasion. A bank president 
 ought not to be regarded morally as a very superior being. If he 
 is engaged in outside interests of greater pecuniary or other im- 
 portance to him than his bank, there is danger that he will neglect 
 or use it for a personal end. This has happened again and again. 
 Within a very short time several fresh illustrations have been 
 added to those existing before. 
 
 It need hardly be said that a bank president should possess a 
 very considerable knowledge, especially of men. It is true that 
 many a successful bank president has had only a slight acquaint- 
 ance with books, but he has understood men. To have this knowl- 
 edge in a marked degree is a gift rather than an acquirement; yet 
 the less fortunate should strive, nevertheless, to acquire by deter- 
 mined effort that knowledge of men which is so essential to busi- 
 ness success, 
 
 A bank president should keep a keen watch on the movements 
 of trade, on the strength and weakness of those to whom money is 
 
 * Gibbons' Banks of New York, p. 24. 
 
26 PRACTICAL BANKING. 
 
 loaned, or who are likely to ask for loans, for on the sagacious 
 lending of the bank's resources mainly depends its prosperity. Some 
 bank presidents read the trade newspapers with great care, and 
 search in every quarter for information relating to the borrowers of 
 money. If a considerable number of failures occur in a particular 
 trade they are carefully noted. A bank president told the writer a 
 few years ago that a great deal of tobacco had been injured in curing 
 during that year, and that he should be especially careful about 
 discounting "tobacco paper," because he expected that a good many 
 failures would happen among tobacco manufacturers. This is the 
 kind of vigilance required for a bank manager. Still, however wisely 
 he may conduct the business of discounting, risks are unavoidable, 
 and losses will accrue. 
 
 As . correct sentiments beget correct conduct, a banker ought 
 to apprehend correctly the objects of banking. They consist 
 in making pecuniary gains for the stockholders, by legal oper- 
 ations. The business is eminently beneficial to society ; but some 
 bankers have deemed the good of society so much more worthy 
 of regard than the private good of stockholders, that they have 
 supposed all loans should be dispensed with direct reference to the 
 beneficial effect of the loans on society, irrespective, in some degree, 
 of the pecuniary interests of the dispensing bank. Such a banker 
 will lend to builders, that houses or ships may be multiplied ; to 
 manufacturers, that useful fabrics may be increased; and to mer- 
 chants, that goods may be seasonably replenished. He deems him- 
 self, ex-officio, the patron of all interests that concern his neigh- 
 borhood, and regulates his loans to these interests by the urgency 
 of their necessities, rather than by the pecuniary profits of the 
 operations to the bank, or the ability of the bank to sustain such 
 demands. When we perform vfell the direct duties of our station 
 we need not curiously trouble ourselves to effect, indirectly, some 
 remote duty. Re'sults belong to Providence, and, by the natural 
 catenation of events (a system admirably adapted to our restricted 
 foresight), a man can usually in no way so efficiently promote the 
 general welfare, as by vigilantly guarding the peculiar interests com- 
 mitted to his care. If, for instance, his bank is situated in a re- 
 gion dependent for its prosperity on the business of lumbering, 
 the dealers in lumber will naturally constitute his most profitable 
 customers : hence, m promoting his own interest out of their wants, 
 he will, legitimately, benefit them as well as himself, and benefit 
 them more permanently than by a vicious subordination of his in- 
 terests to theirs. Men will not engage permanently in any business 
 that is not pecuniarily beneficial to them personally; hence, a 
 banker becomes recreant to even the manufacturing and other inter- 
 ests that he would protect, if he so manage his bank as to make 
 its stockholders unwilling to continue the employment of their 
 
THE PRESIDENT. 27 
 
 capital in banking. This principle, also, is illustrated by the late 
 United States Bank, for the stupendous temporary injuries which 
 its mismanagement inflicted on society are a smaller evil than the 
 permanent barrier its mismanagement has probably produced against 
 the creation of any similar institution. 
 
 The honor and pecuniary prosperity of his bank should constitute 
 the paramount motive of every banking operation. A violation of 
 this principle produced, in the year eighteen hundred and thirty- 
 seven, a suspension of specie payments, which was visited on bank 
 stockholders by a legislative prohibition of dividends, and visited 
 on banks and bankers by a general obloquy. The banks suspended 
 that the debtors of the bank might not suspend : or worse, the 
 banks suspended that the debtors might be spared the pecuniary 
 loss that would have resulted from paying their bank debts. A con- 
 duct so suicidal was probably fostered by the pernicious union, in 
 one person, of bank director and bank debtor, a union from which 
 our banks are never wholly exempt ; nor are they always exempt 
 from the same union, still more pernicious, in bank presidents and 
 cashiers. With this inherent defect in the organization of our 
 banks, we can the more readily understand why, in 1837, the banks 
 assumed dishonor to shield their debtors, and why the dishonor 
 was continued for some more than a year in our State, and longer 
 in others; and would have continued longer in ours, but from a re- 
 fusal of its further tolerance by the legislature. 
 
 Every suspension of specie payments might have been prevented, 
 had the bankers performed their duty to their respective banks, by 
 prudence in the quality of their loans, and vigor in the enforce- 
 ment of payments. No proof of this can be more convincing than 
 the successfully sustained refusal of the Union Bank of New York 
 to unite in the specie suspension of the year eighteen hundred and 
 thirteen. All the banks, also, of New England preserved specie pay- 
 ments. We admit that, had all the banks of the Union refused 
 to suspend payments in 1813, 1819 and 1837, business would have 
 severely suffered ; but this is a consideration for the legislature, and 
 not for the banks. They are creations of the law, and should 
 obey their creator. In England, during its struggle with Napoleon* 
 the Government prohibited specie payments by the Bank of Eng- 
 land, when the suspension was deemed publicly useful. The suspen- 
 sion continued for twenty years, but the bank incurred thereby no 
 disgrace, for it obeyed the law. 
 
 The subordination of the honor and interests of a bank to the 
 avarice or necessities of its managers, or dealers of any description, 
 is productive, not of suspensions only, but of every disaster which 
 usually befalls banks ; and unless such a subordination can be pre- 
 vented by the officer who acts specially as a banker, no man who 
 respects himself should continue in the position, when he discovers 
 
28 PRACTICAL BANKING. 
 
 that* such a subordination is in progress. The owner of a steam 
 engine regulates his business by the capacity of his engine, but 
 should he regulate it by the necessities of his customers, he would 
 probably burst his boiler. A shipowner regulates his freight by the 
 tonnage of his ship; a contrary course would sink it. So every 
 bank possesses a definite capacity for expansion by which bank 
 dealers can regulate their business ; but, when a bank regulates its 
 expansion by the wants of its dealers, or the persuasion of friend- 
 ship, it will probably explode, or be otherwise unprofitable to its 
 stockholders. 
 
 Banks charge for the use of money no more than the use is 
 worth. Nothing is added for risk, and thereby money-lending dif- 
 fers from all other business that involves hazard. A great dispro- 
 portion exists also between the amount hazarded by any loan, and 
 the amount gained. The loan of a thousand dollars for sixty 
 days involves the possible loss of a thousand dollars, without the 
 possibility of a greater gain than some ten dollars. Banks, there- 
 fore, never regularly lend money, without receiving the security of 
 more than one person who is deemed safe for the debt; and a 
 good banker will err on the side of excessive security, rather 
 than accept security whose sufficiency may reasonably be ques- 
 tioned. In the country, two endorsers are usually required on every 
 note that is discounted; but in cities, where discounts are made 
 for shorter periods than in the country, one endorser is more usual 
 than two. 
 
 Independently of the wealth of the endorser, the banks derive 
 from him a security founded on the natural desire of every bor- 
 rower to protect his friends, should insolvency occur to the bor- 
 rower during the pendency of the bank loan. An endorser, will, 
 also, usually foresee earlier than the bank when mischances threaten 
 the borrower, and when appeals for protection should be made. To 
 derive these benefits from endorsers, they should be disconnected in 
 business from the borrower, so as not to be involved in his calam- 
 ities; hence, such disconnection is always one of the circumstances 
 from which a banker judges of the sufficiency of any proffered en- 
 dorser. Relationship of either consanguinity or affinity, between a 
 debtor and his sureties, sharpens usually the desire of the debtor 
 to protect his endorser; while again such relationship facilitates the 
 concealment of a common pecuniary interest in enterprises, and fa- 
 cilitates collusions against the bank in times of disaster, that may 
 more than counterbalance the benefits expected by the bank from 
 the relationship. 
 
 The more lax the morality is of a borrower, the less will he prob- 
 ably feel the obligation to protect his endorsers ; and the more lax 
 the morality is of an endorser, the more will he struggle against 
 the surrender of his property to pay an unprotected endorsement. 
 
THE PRESIDENT. 29 
 
 As a general result, however, debts are rarely collectable from the 
 property of an endorser, unless his property very greatly over-bal- 
 ances the amount of his endorsement. Instances are continually 
 occurring where an endorser who has become liable for a bad debt 
 which his property could pay, and leave him a surplus, will ruin 
 himself in successfully preventing the application of his property 
 to the debt in question. Hence, when a debt is contracted wholly 
 on the property of the endorser, the debt will not be safe unless it 
 is small in comparison with the wealth of the endorser. 
 
 Men who are prone to extravagance in their domestic or per- 
 sonal expenditures rarely possess the amount of property they are 
 reputed to possess. Men expend to be thought rich more frequently 
 than they expend by reason of being rich. The rich are usually 
 more inclined to parsimony than expenditure. Any way, persons 
 who practice parsimony are in the way of becoming rich, whatever 
 may be their present poverty; while persons who are profuse in 
 expenditures are in the way of becoming poor, though they may 
 possess a present opulence. 
 
 A man who transacts a regular business in a regular way is not 
 liable to sudden fluctuations in his pecuniary solvency; but when 
 a man's business is novel, and its results are untried, or when its 
 results are frequently disastrous, the banker who grants him loans 
 assumes some of the hazards and uncertainties of the business. 
 
 When money is to be invested in the purchase of merchandise, 
 cattle, flour, or other property in the regular course of the borrow- 
 er's business, the investment yields to the borrower a means of re- 
 payment; nothing is hazarded but ordinary integrity, and ordinary 
 exemption from disasters; but when the borrowed money is to pay 
 some pre-existing debt, none of the foregoing securities apply, and, 
 possibly, you are merely taking a thorn out of another person's 
 side, to place it in your own. 
 
 Notes which a man receives, on the sale of property in his ordi- 
 nary business, are termed business notes. The owner, having re- 
 ceived them as money, had satisfied himself of their safety ; hence, 
 when they are offered to a banker by a prudent man of business, 
 they possess an inherent evidence of value. They were given also 
 for property that will, in the ordinary course of business, furnish 
 the means by which the notes may be paid ; and thus they possess 
 an additional ingredient of safety. Kindred to such notes are drafts 
 which a man draws on a consignee to whom property has been 
 forwarded for sale. If the consignee be a prudent man (the con- 
 signor must deem him prudent or he would not trust to him the 
 property) he will not accept unless the property forwarded is 
 equivalent in value to the amount of the acceptance. The prop- 
 erty, therefore, will pay the acceptance, and while the property re- 
 mains unsold, it constitutes an equitable pledge for ultimate pay- 
 
30 PRACTICAL BANKING. 
 
 ment. A country banker, however, will usually be benefited, in a 
 long course of business, by never loaning on city names without 
 a reliable country endorser or maker, or both ; for nothing is usu- 
 ally more unreliable than the reputed solvency of the merchants of 
 large cities. 
 
 A factor will sometimes accept in confidence that the drawer will 
 supply him with funds in time to pay the acceptance. This will not 
 constitute a worse security than an ordinary accommodation en- 
 dorsement ; but the transaction lacks the reliability and security 
 that are consequent to the acceptor's possession of consignments in 
 advance of his acceptance, and so far as the nature of the acceptance 
 is concealed, the ostensible character of the paper will give it a fic- 
 titious security. 
 
 Notes and acceptances are often assimilated to the foregoing 
 character to facilitate the procurement of loans. Two merchants 
 will exchange notes, and offer each other's notes at different banks, 
 as business paper. Such notes are peculiarly hazardous by reason 
 that the insolvency of either of the parties will usually produce 
 the insolvency of the other. Acceptances are exchanged in the 
 same way, and possess the same element of danger. 
 
 Sometimes a country merchant will draw on a merchant of New 
 York, and obtain thereon a discount at some country bank. The 
 draft will have some months to run before it will become payable; 
 but when it is payable, the New York merchant will obtain the 
 means of payment by drawing on the country merchant, payable 
 some months thereafter, and getting a discount thereon in New 
 York. Such transactions are termed " kiting." They are practiced 
 on notes as well as on drafts; and by persons residing in the same 
 place as well as at distant places. When practiced by persons who 
 live at a distance from each other, the operation is usually very ex- 
 pensive, by incidental charges of exchange and collection. Bankers 
 should suspect the solvency of parties who resort to expedients so 
 commercially disreputable. The real character of the transactions 
 is rarely avowed by the parties inculpated in the practices; but a 
 vigilant banker will soon suspect the operations, and not touch 
 them unless the security can be made very ample. 
 
 A country produce dealer, or manufacturer, will sometimes place 
 in New York an agent on whom to draw ; or he may connect 
 his operations with some person there of no capital, whom he will 
 use as an acceptor. Such acceptances are no better than the note 
 of the country dealer. They constitute, moreover, a hazardous class 
 of paper, as you may rely somewhat on an assumed capital in the 
 acceptors. Such methods are rarely practiced except by persons 
 who want to extend their operations beyond a limit to which a real 
 consignee would restrict them. No prudential limit exists with the 
 dummy acceptor, hence, the drawer is able to carry his operations 
 
THE PRESIDENT. 31 
 
 to an extent unlimited, except by his own will, or his ability to 
 find lenders ; and men thus predisposed, and supplied with the 
 requisite machinery, usually extend their speculations till they are 
 overwhelmed in ruin. 
 
 Notes and drafts are often made to be sold at a usurious dis- 
 count, by parties ostensibly solvent, but who are struggling to pur- 
 chase a transient respite from bankruptcy, or to amend their 
 fortunes by desperate enterprises. Banks are, therefore, usually re- 
 luctant to discount paper offered by brokers and other persons who 
 are known to practice usury ; for though usury laws have been 
 greatly modified within a few years, yet no bank wishes to take 
 paper which may form the subject of a lawsuit. In many places 
 the defence of usury is said to be so discreditable that few men 
 will avail themselves of it. In the country, people feel less fastid- 
 ious in this respect, and any debt which can certainly be avoided 
 by means of usury would be very apt to be uncollectable. 
 
 But the avoidance of loss is only a negation of evil. To make 
 gains is the proper business of a banker, and, as the principal 
 source of legitimate gain is lending money, the bank must lend to 
 the extent of its ability erring on the side of repletion, rather 
 than of inanition ; for a banker knows not how far his bank can 
 bear extension till he tries ; hence, if timidity, indolence, or apathy, 
 limits his loans in advance o* necessity, he may injure the commu- 
 nity by unnecessarily withholding pecuniary assistance, and injure the 
 stockholders by unnecessarily abridging the profits. A banker must 
 not, however, extend his loans regardless of the future, but, like a 
 skillful mariner, he should see an approaching storm while it is an 
 incipient breeze, and meanwhile carry all the sail that will not 
 jeopardize the safety of his charge : governing his discounts, at all 
 times, more by the condition of his funds, and his own prospective 
 resources, than by any reputed scarcity or abundance of money in 
 other places and in other banks. 
 
 If a banker can make reasonably good profits on his capital with- 
 out much expansion, he may keep more restricted in his loans 
 than a banker should who is less favorably circumstanced. Every 
 banker must, however, remember, that to be strong in funds and 
 rich in profits are natural incompatibilities ; hence, the more money 
 a banker wishes to make, the poorer in funds he must consent to 
 become. In banking operations, as in most other, wisdom lies in 
 a medium between extremes ; and if a banker can keep funds 
 enough for practical safety, he had better forego excess of funds, 
 and receive an equivalent in gains. Physicians say that the hu- 
 man body can bear excess of food better than deficiency. The ex- 
 cess can be discharged by cutaneous eruptions, as we see some- 
 times in over-fed infants ; but deficiency of nourishment will not 
 relieve itself; so in banking, a repletion of loans, if they are un- 
 
32 PRACTICAL BANKING. 
 
 doubtedly solvent, prompt and short, will soon of themselves work 
 a relief to the bank ; but a paucity of loans cannot, by any proc- 
 ess of its own, cure the scant profits of the stockholders. Banks 
 are rarely injured, therefore, by an excess of discounts. When banks 
 fail, their disaster proceeds from the quality of their loans, not 
 from the quantity. 
 
 No banker should keep his funds inactive when no better ex- 
 cuse exists therefor than that the business he can obtain is not 
 so lucrative as the business of some other place, or as his own 
 business was at some other period. The legal rate of interest is 
 so high, that the voluntary forbearance of its reception for even a 
 short period, is ordinarily a greater evil than the reception of any 
 co*mmon description of solvent loans. Any way, a banker who 
 keeps his funds inactive, to await the offer of loans more lucrative 
 than simply the interest of money, should be well assured that the 
 future loans will be sufficiently lucrative to compensate for the for- 
 bearance. But no disadvantages of position must be deemed a 
 sufficient apology for the assumption of hazardous loans. When no 
 safe business offers, no business should be transacted by a banker 
 who entertains a proper respect for himself, or a proper feeling for 
 his stockholders. Gains may be impossible, but losses are measur- 
 ably avoidable. If any location presents the alternative of no busi. 
 ness, or great hazards, a banker is accountable for the choice which 
 he may make between the two alternatives; and he is accountable 
 no further. 
 
 But ordinarily every banker is presented with more business 
 than he can assume, and he is enabled to select the more profit- 
 able and reject the less profitable. In speaking of the profits of 
 banking, we mean gains that proceed from some other source 
 than the interest allowed by law for the use of the money. These 
 gains are derived most largely from circulation and deposits; hence 
 the loans are advantageous to a bank, in proportion as they in- 
 crease the circulation or deposits of the bank. Money was sometimes 
 borrowed to pay debts to a neighboring bank, or to a person who 
 kept his money deposited in a neighboring bank. Such loans 
 yield no profit to the lender except the interest on the loan ; hence 
 they are not so profitable as loans to borrowers who will take 
 bank notes of the lending bank, and circulate them over the 
 country in the purchase of agricultural products. While the notes 
 remain in circulation, the bank is receiving interest on them from 
 the borrower interest not for the loan of money, but for the loan 
 by the bank of its promises to pay money when demanded. So, on 
 a loan made by a bank to one of its depositing customers, the 
 bank receives interest only on its promise to pay the borrowed 
 money when the borrower shall from time to time draw for the 
 same. And when a deposit is thus drawn from a bank, the draft 
 
THE PRESIDENT. 33 
 
 is not necessarily paid in money, but in bank notes which may 
 obtain a circulation. This advantage is a usual attendant of the 
 deposits of some customers, and makes their accounts doubly bene- 
 ficial to a bank. Whether a depositor asks for more loans than 
 his deposit account entitles him to receive, is a question whose 
 solution depends on whether the bank can lend all its money to 
 better depositing customers, or more profitably use it in loans for 
 circulation. A banker should, however, estimate liberally the merits 
 which pertain to a steady customer; not deciding on any proposed 
 loan by the amount of the proposer's deposit at the time of the 
 proposal, but his antecedent deposits, which were doubtless made 
 in reliance on the bank for a fair reciprocity of benefits. Competi- 
 tion for profitable customers exists among banks as eagerly as 
 competition among borrowers for bank loans ; hence liberality 
 to customers by a banker is as much a dictate of interest as of 
 justice. 
 
 Notes and time-drafts discounted by country banks, and payable 
 in New York, Boston, Philadelphia, and other eastern places 
 were payable in a currency whose value was enhanced by the 
 rate of exchange, which existed in favor of the east and against 
 the west. As country banks never allowed any premium in the 
 reception of such paper, the benefit of the exchange was a strong 
 inducement to a country banker for preferring loans thus payable 
 to loans payable at his own counter. Borrowers would often take 
 advantage of this predilection, and make notes payable artificially at 
 New York, as a means of obtaining a loan of a country banker. 
 Notes thus made were rarely paid at maturity ; hence, so far as a 
 banker relied on their payment, and founded his business calcula- 
 tions thereon, they were hurtful. To the extent that he colluded 
 with the maker and supplied him with funds by which such note 
 could be paid at New York, at a loss, to the maker, of the differ- 
 ence in the rate of exchange, the transaction was unlawful. 
 
 Banking is not exempt from the ordinary fatality which ever in 
 a long course of business makes honesty the best policy. To gain 
 unlawfully must also be a poor recommendation to a banker, with 
 any thoughtful stockholder ; for if a man will collude to make dis- 
 honest gains for his stockholders, what security can the stockholders 
 possess that he will not collude against them, to make dishonest 
 gains for himself? A country banker may properly discount a note 
 payable in New York when the maker's business will make New 
 York the most convenient place of payment, though the borrower's 
 residence may be in the country : such is often the case with 
 drovers, lumbermen, and some manufacturers. Transactions of this 
 circuitous nature must, however, be spontaneous on the part of the 
 borrower; for a note is usurious if, in addition to the receipt of 
 legal interest, the banker superadds, as a condition of the loan, that 
 
34 PRACTICAL BANKING. 
 
 it must be paid at a distant city, and consequently in a currency 
 more valuable than that the lender received. But when such loans 
 are legal, and possess the best commercial character for punctuality 
 and security, they are not always so advantageous to the country 
 bank as notes payable at the country bank, and connected with the 
 circulation of bank notes or with deposits. The force of this re- 
 mark can perhaps be better seen in what follows. 
 
 Banks can usually make as many loans as they desire to borrow- 
 ers who will use the loan in purchasing from the bank a draft on 
 New York or other eastern city, whereby the bank will obtain a 
 premium on the sale of the draft, in addition to the interest on 
 the loan. The operation becomes peculiarly advantageous to the 
 bank when the loan is itself payable in New York, for while the 
 borrower pays, in such a transaction, say an eighth of one per cent, 
 to the bank for a bank draft on New York, he subsequently repays 
 in New York the borrowed money without receiving any return 
 premium from the bank. But howsoever profitable such a trans- 
 action seems, banks can rarely transact advantageously much of such 
 business. Should the entire capital of a bank of three hundred 
 thousand dollars be employed in discounting drafts on New York 
 payable at three months from the t^me of discount, and should the 
 bank pay therefor sight drafts on New York, charging for them a 
 premium of a quarter of one per cent., the bank could not pay 
 its stockholders above six per cent, the year in bank divi- 
 dends. 
 
 As every loan is usually attended with some advantage to the 
 bank, in the ways we have explained, beyond the interest paid by 
 the borrower, the sooner the loan is to be repaid to the bank, 
 the more frequently will the bank be able to reloan the money, 
 and obtain a repetition of the incidental advantages. 
 
 Country banks being subject, at certain seasons, to a demand 
 for currency, every judicious banker will endeavor to so select 
 the loans which he makes during a year, that large amounts 
 of them will become payable at the precise periods of the spring 
 and fall when funds will be most needed. This is imitating the 
 conduct of Pharaoh, who, during the years of plenty, accumulated 
 provisions for the periods of apprehended famine. Many months 
 of every year are months of plenty with every well-conducted 
 bank. The paper which is selected for the future contingency will 
 be useful in proportion to its reliability ; and paper payable in 
 New York, or other eastern cities, may be more useful than any 
 other. No rule of banking is more practically valuable than the 
 foregoing. 
 
 As banking is liable to panics and pressures which may arise 
 without being preceded by any long premonitory symptoms, a banker 
 must invest his funds in short loans, which measurably accomplish 
 
THE PRESIDENT. 35 
 
 the feat that is proverbially impossible, "to have a cake and eat 
 it at the same time : " that is, by means of short loans, the bank 
 keeps its funds always available within a short period, and yet 
 keeps them always loaned out on interest. The banks of large cities 
 are able to make loans payable on demand, or in a few days' 
 notice ; while country banks possess no such opportunities, but are 
 able usually to deposit their spare funds in some bank in New 
 York, subject to a repayment on demand, or on short notice; and 
 in the mean time to receive interest on the deposit. Experience, how- 
 ever, has painfully demonstrated that the convenience of an inter- 
 est-paying depository is not exempt from danger. 
 
 What is every person's business is proverbially nobody's ; hence the 
 safety of banks depends less on boards of directors than on some one 
 person to whom the bank is specially confided. He is to be always 
 present, and always responsible, in his feelings and in public estima- 
 tion, for the prosperity of the bank; and for these services he 
 ought to be well compensated, pecuniarily, so as to stimulate the 
 faculties to their best efforts. We mistake human nature when we 
 expect great efforts from any man, and supply no proper motive 
 therefor. 
 
 In large cities, discounts are generally made to persons who are 
 known personally or by reputation to some of the directors, but in 
 country banking, the borrowers and their endorsers in many cases 
 are residents of remote places, and unknown, personally, in the lo- 
 cality cf the bank. A country banker, who should insist on a per- 
 sonal acquaintance with the makers and endorsers of all the paper he 
 desired to buy, might find his business restricted to a circle too small 
 for the employment of his capital. In vain will such a banker in- 
 sist that he ought not to make loans to persons of whom he 
 possesses no knowledge; the answer will be that he should acquire 
 the knowledge. It is indispensable to his bank. He is bound to 
 know a sufficient number of persons to enable his bank to em- 
 ploy its capital advantageously. Every note, therefore, that he re- 
 jects for want of knowledge, is ostensibly a slight reproach on him, 
 in cases where he has not a sufficiency of known borrowers ; while 
 every note that he rejects or accepts by means of his knowledge of 
 the parties is a tribute to his industry and vigilance. 
 
 The preceding remarks will show why country banks are speci- 
 ally liable to loss from forgeries. Moreover, many of the makers 
 and endorsers who deal with country banks write poorly, and their 
 signatures bear but little internal evidence of genuineness, even 
 when you are partially acquainted with the parties ; for the same 
 person will write differently at different times, and especially with 
 different pens and different qualities of ink; and he varies these 
 continually. Still, the greater the danger, the greater is the caution 
 which the banker must exercise. He must bring to the difficulty 
 
36 PRACTICAL BANKING. 
 
 all the scrutiny of which the case is susceptible, or he will not 
 stand excused for consequent losses. A comparison of any proffered 
 signature with one that is genuine, though encumbered with difficul- 
 ties as above explained, is a guide that should not be neglected ; and 
 it is often the best that can be resorted to. Banks, therefore, 
 keep a book in which every person who deals with the bank 
 inserts his name. The signatures should be placed alphabetically, to 
 facilitate a future reference to them. The endorsers may never visit 
 the bank; but, when a note is paid, the names of the endorsers 
 may, with the consent of the maker, be cut from the note, and 
 pasted into the book, in their proper order. In no very long time, 
 a mass of autographs may be thus collected. Some names on notes 
 may not be deserving of such preservation ; and in this particular, 
 as in all others, the banker must exercise his judgment. 
 
 The law in relation to endorsers renders them liable only on due 
 notice of the non-payment of the endorsed note. This avenue of 
 loss is felt but seldom in large cities, but in the country it pro- 
 duces constant danger. A country banker, therefore, must know 
 where endorsers reside, and usually the information can be obtained 
 most readily when each note is discounted, and from the person 
 who brings it for discount. The information can be written on the 
 note under the name of the endorser, and it will serve as a direc- 
 tion to the notary public, should the note be protested for non- 
 payment. The laws of New York required, formerly, that the notice 
 of non-payment should be forwarded by mail to the post-office 
 nearest to the residence of the endorser. This imposed on the 
 banker a knowledge of postal locations that added much to the 
 difficulty of his position. The law has since meliorated the diffi- 
 culty by rendering a notice sufficient if directed to the town in 
 which an endorser resides. 
 
 As a banker will lend to the extent of his ability, that he may 
 make for his bank all the gains in his power, he must be well ac- 
 quainted with the pecuniary means and abilities of his bank. He 
 can keep on his table a summary showing the precise amount of 
 his funds and where they are situated, and of what they are com- 
 posed ; also an aggregate of his various liabilities. Such a sum- 
 mary, when corrected daily, or more frequently if necessary, will 
 constitute a chart by which he will be able to judge whether he 
 can lend, or whether he must retrench existing loans. The funds 
 that will be adequate to any given amount of liability a banker 
 must learn by experience, embarrassed as he will be by a want of 
 uniformity in the results of his experience, at different periods. 
 Every bank must be liable, momentarily, to demands for payment 
 of its deposits (and bank notes, if it issues any) beyond its pres- 
 ent funds. Practically, however, if a banker has funds enough, day 
 by day, to meet the requirements of the day, he has funds enough. 
 
THE PRESIDENT. 37 
 
 "'Sufficient for the day is the evil thereof," is a proverb peculiarly 
 applicable in banking. 
 
 But a banker must not be satisfied by knowing that his funds 
 of to-day will be sufficient for the wants of the day. He must 
 possess a reasonable assurance that the same will be his position 
 "to-morrow, and to-morrow, to the end of time." To gain this as- 
 surance, he ought to keep also before him one or more lists in detail 
 of his prospective resources, showing what notes and acceptances 
 will be payable to the bank daily for some weeks or months ahead, 
 and where they are payable. With such lists, and a knowledge of 
 the reality of the paper thus going onward to maturity, he will 
 be able t6 judge whether his prospective resources will need the 
 aid of his existing unemployed funds; or whether he may loan 
 them, and even extend his liabilities in anticipation of a prospective 
 surplusage of resources. 
 
 By means of such lists as we have just described, should a banker 
 discover that his existing resources will be small during, say, the 
 month of June, he can aid the defect by discounting in the pre- 
 ceding May, April or March, paper that will mature in June. By 
 thus regulating, prospectively, his future resources, he can be always 
 provided with funds. And that a banker may, at all times, be 
 master of his resources, he should never promise prospective loans, 
 or make loans with any promise of their renewal. The more he 
 keeps uncommitted, the better will he be able to accommodate 
 himself to future exigencies. Banking is subject to sufficient uncer- 
 tainties, without unnecessarily aggravating them by prospective agree- 
 ments. A banker may be unable to fulfill such pledges, and be thus 
 compelled to falsify his promises ; or, he may be able to fulfill them 
 only at a sacrifice of the interests of his bank, and thus be placed 
 in the unwholesome dilemma of injuring his personal character, or 
 of preventing the injury only by a sacrifice of the interests of his 
 bank. 
 
 A banker is compelled to employ officers to whom he intrusts 
 his vaults and their contents. Robberies are often committed by 
 persons thus intrusted, and some such robberies have remained long 
 concealed. The banker cannot be responsible for all such occur- 
 rences ; still, vigilance can accomplish much in the way of security 
 against mischances, and the banker is responsible for the exercise 
 of all practicable vigilance. Robberies and frauds possess usually 
 some discoverable concomitants. No man plunders to accumulate 
 property that is not to be used. Its use, therefore, which can rarely 
 be wholly concealed, is a clue which a vigilant eye can trace to 
 the plunderer. Nearly every plunderer is a prodigal, and may 
 thereby be detected ; nearly every plunderer is needy, and should 
 therefore be suspected. The banker should know human nature, 
 and be able to trace effects to their causes, and to deduce effects 
 
38 PRACTICAL BANKING. 
 
 from causes. To this extent he is answerable for the safety of his 
 bank. The sentinel whose post happens to be surprised by an 
 enemy may escape punishment as a criminal, but he can rarely 
 gain commendation for vigilance, or escape censure for carelessness. 
 
 To permit overdrafts is to make loans without endorsers, and 
 without the payment of interest. It is, moreover, to empower a 
 dealer to control your resources. No mode of lending money can 
 be more inconsistent with all safe banking, and it should never be 
 permitted. Still, every man who keeps a bank account can draw 
 checks for an amount exceeding his balance in bank; nor can the 
 banker personally supervise the payment of checks. A vigilant 
 banker will, however, provide vigilant subordinate officers : " The eye 
 of the master maketh diligent," say the Scriptures. An intelligent 
 and careful teller will soon learn whom he must watch ; but, after 
 all precautions, an overdraft may be perpetrated, and, whether by 
 accident or design, the bookkeeper should forthwith report to the 
 banker the occurrence, and he must act thereon as his judgment 
 shall deem proper. 
 
 No system of banking can escape the casualty of doubtful debts. 
 Usually the most favorable time to coerce payments is when they 
 first become payable. Then the debtor has expected to pay, and if 
 he is then in default no certain dependence can be made on his 
 subsequent promises. He is also usually less offended by a legal en- 
 forcement of payments when they are promptly enforced, and when 
 he knows the creditor is disappointed by the default, than he is 
 afte-r the default has been tacitly acquiesced in by a long forbear- 
 ance of coercive measures. Additional security, when necessary, can 
 also be more readily obtained at the time of the default, than it 
 can after the debtor has become reconciled by time to his dishon- 
 orable position. His credit is better now than it will be subse- 
 quently, and he can more readily now than subsequently obtain re- 
 sponsible endorsers. In relation to the extension of time on re- 
 ceiving additional security on a weak debt, any extension that is 
 productive of security is a less banking evil than insecurity; just 
 as any protraction of disease that results in health is a less physi- 
 cal evil than death. 
 
 A banker will be often subjected to importunity by persons who 
 will desire a deviation from the usual modes of banking. They 
 will propose a relaxation of good rules, and allege therefor some 
 pressing emergency ; but if the relaxation involves any insecurity, any 
 violation of law or of official duty, the banker should never sub- 
 mit, even when the result may promise unusual lucrativeness to his 
 bank. While a banker adheres with regularity to known forms of 
 business and settled principles, Providence is a guarantee for his 
 success ; but when he deviates from these Providence is almost 
 equally a guarantee of disaster, both personal and official. 
 
THE PRESIDENT. 39 
 
 Banking is a business, and should be reciprocally beneficial to 
 the borrower and the lender. When a borrower's business cannot 
 yield the requisite reciprocity of benefit, he will often attempt to 
 mend the defect by pertinacity of application, and by persuasions 
 addressed to the directors of a bank personally, as well as to the 
 banker ; and by servility and sycophancy. Such conduct is a strong 
 symptom of some latent defect in the applicant's pecuniary posi- 
 tion, and the appliances should strengthen a banker in his refusal 
 of loans rather than facilitate their application. Loans thus obtained 
 rarely result favorably to the lender. 
 
 No man is safe when engaged in a speculation, especially when 
 the price of the article that he purchases is above the usual cost 
 of its production. The speculator's intellect soon loses its control 
 over him and he will be controlled by his feelings, and they are 
 unnaturally excited. He becomes a monomaniac in the particular 
 concern with which he is engaged. He will increase his purchases 
 beyond all moderation, and at prices which he himself, when he 
 commenced his purchases, would have deemed ruinous. Many 
 banks are destroyed by such speculators. A bank will loan to them 
 till its safety seems to require that the speculation must be up- 
 held against a falling market ; and the effort is made till the con- 
 tinued decline in prices ruins both speculators and sustaining 
 bank. 
 
 When a debtor arrives at a certain magnitude of indebtedness 
 he becomes the master of his creditor, who is somewhat in the po- 
 sition of Jonah when swallowed by the whale. The debtor can say 
 to a bank thus circumstanced that to stop discounting for him will 
 ruin him, and that his ruin will involve a loss of the existing debt. 
 No prudent banker will be placed in such a position, but should 
 any banker lapse into so sad an error, Jie will rarely mend his po- 
 sition by yielding to the proposed necessity for further loans. He 
 had better brave the existing evil than yield to an argument which, 
 if already too potent to be disregarded, will acquire additional 
 strength by every further discount, and render his inevitable fall 
 more disastrous to his stockholders and more disreputable to him- 
 self. 
 
 With respect to his contingent expenses, the more a banker can 
 reduce their amount, the more easily will he make reasonable divk 
 dends of profit among his stockholders, without an undue expan- 
 sion of loans and consequent anxiety to himself. The income of a 
 bank is only an aggregate of petty accumulations. Every unnecessary 
 expenditure of one hundred dollars by the bank will nullify the in- 
 terest on four ninety-day loans of fifteen hundred dollars each 
 loans often withheld from meritorious claimants. The economy of 
 which we speak is not any unjust abridgement of properly remuner- 
 ative salaries to faithful officers and servants, who should, however, 
 
40 PRACTICAL BANKING. 
 
 labor diligently and perseveringly in their vocations, as men labor 
 in other employments, so that the bank may economize in the num- 
 ber of its agents, instead of economizing in the magnitude of their 
 salaries. A hundred dollars, or a thousand, when contrasted with 
 the capital of a bank, may seem a small matter, and probably bank 
 expenditures are often incurred under such a contrast; but the true 
 contrast lies between the expenditure and the net percentage of a 
 bank's gains. A bank whose net income will not exceed the legal 
 rate of interest possesses no fund from which to squander. And 
 banks often expend an unduly large part of their capital in archi- 
 tecture to ornament the city of their location, or to rival some 
 neighboring institution, whose extravagance ought to be shunned, 
 not followed. No person has yet shown why banks should be built 
 like palaces, while the owners of the banks are to a good extent 
 poor, and live humbly. The custom is perhaps founded on the de- 
 lusion of deeming a great capital identical with great wealth. When 
 several men, for any purposes of gain, unite their several small capi- 
 tals, they may well need a larger building and more agents than 
 each man would require were he unassociated ; but that the asso- 
 ciation can afford an organization increased in splendor as much 
 as in magnitude, is a fallacy somewhat analogous to the blunder 
 of the Irishman, who, hearing that his friend intended to walk 
 forty miles during a day, said that he would walk with him, and 
 then they could walk eighty miles. 
 
 When solicited by a neighbor or a friend, few men possess vigor 
 enough, or conscientiousness enough, to refuse a recommendation, 
 or to state therein all they suspect or apprehend. They will studi- 
 ously endeavor not to make themselves pecuniarily responsible by 
 any palpable misrepresentation; hence they will so qualify the rec- 
 ommendation that it will admit of a construction consistent with 
 truth ; but the qualification will be so enigmatical or subtle that 
 the banker will not interpret it as the recommender will show sub- 
 sequently it ought to have been interpreted. Besides, the man who 
 merely recommends a loan acts under circumstances that are much 
 less favorable to caution than the man who is to lend. When we 
 are in the act of making a loan, our organization presents the 
 danger with a vividness that is not excited by the act of recommend- 
 ing. To believe speculatively that we will suffer the extraction of a 
 tooth, is a wholly different matter from sitting down and submit- 
 ting to the operation. Suicide would be far more common than 
 it is, if a man could feel, when the act was to be performed, as 
 he feels when he only prospectively resolves on performing it. This 
 preservative process of nature no banker should disregard by sub- 
 stituting any man's recommendation for the scrutiny of his own 
 feelings and judgment at the time when the loan is to be con- 
 summated ; though he may well give to recommendations all the 
 
THE PRESIDENT. 41 
 
 respect which his knowledge of the recommender may properly 
 deserve. 
 
 By acting according to the dictates of his own judgment, a man 
 strengthens his own judgment as he proceeds ; while a man who 
 subordinates his judgment to other men's is continually debilitating 
 his own. Nothing also is more fallacious than the principle on 
 which we ordinarily defer to the decision of a multitude of coun- 
 selors. If fifty men pull together at a cable, the pull will com- 
 bine the strength of one man multiplied by fifty ; but if fifty men 
 deliberate on any subject, the result is not the wisdom of one man 
 multiplied by fifty, but at most the wisdom of the wisest man of 
 the assemblage ; just as fifty men, when they look at any object, 
 can see only what can be seen by the sharpest single vision of the 
 
 >up ; they cannot combine their vision and make thereof a lens 
 powerful as the sight of one man multiplied by fifty. A banker 
 
 ly, therefore, well resort to other men for information, but he 
 differ from them all, and still be right ; any way, if he perform 
 ic dictates of his own judgment, he performs all that duty re- 
 quires; if he act otherwise, he performs less than his duty. Let 
 the counsel of your own heart stand, says the Bible ; and, by way 
 of encouragement, it adds, that a man can see more of what con- 
 cerns himself, than seven watchmen on a high tower. 
 
 As virtue's strongest guarantee is an exception from all motive to 
 commit evil, a banker must avoid all engagements that may make 
 him needy. If he wants to be more than a banker, he should 
 cease to be a banker. Should he discover in himself a growing 
 tendency to irritability, which his position is apt to engender, let 
 him resist it as injurious to his bank and his peace; and if he 
 should find himself popular, let him examine whether it proceeds 
 from the due discharge of his duties. A country banker was some 
 few years ago dismissed from a bank which he had almost ruined, 
 and was immediately tendered an honorary public dinner by the 
 citizens of his village, into whose favor his misdeeds had unwisely 
 ingratiated him. The service of massive plate that was given to a 
 president of the old United States Bank was in reward of com- 
 pliances which soon after involved in disaster every commercial 
 interest of our country. Could we trace actions to their source, 
 these mistakes of popular gratitude would never occur. The 
 moroseness that we abhor proceeds often from a sensitiveness 
 that is annoyed at being unable to oblige ; while the amiability 
 that is applauded proceeds from an imbecility that knows not how 
 to refuse. 
 
 A banker should possess a sufficiency of legal knowledge to make 
 him suspect what may be defects in proffered securities, so as to 
 submit his doubts to authorized counselors. He must, in all things, 
 be eminently practical. Every man can tell an obviously insufficient 
 
42 PRACTICAL BANKING. 
 
 security, and an obviously abundant security; but neither of these 
 constitute any large portion of the loans that are offered to a 
 banker. Security practically sufficient for the occasion is all that a 
 banker can obtain for the greater number of the loans he must 
 make. If he must err in his judgment of securities, he had better 
 reject fifty good loans than make one bad debt; but he must en- 
 deavor not to err on the extreme of caution or the extreme of tem- 
 erity; and his tact in these particulars will, more than any other, 
 constitute the criterion of his merits as a banker. 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 
 
 CHAPTER VII. 
 DIRECTORS' MEETINGS AND DISCOUNTING. 
 
 We may properly open this chapter with some general remarks 
 concerning the duties of bank directors. Whatever may be their 
 shortcomings they usually begin their duties with honest intentions 
 toward their stockholders and the public. The misconduct which 
 may supervene, will proceed from temptations incident to their 
 office, and perhaps from the absence of well-digested notions of 
 their duties. Some years ago, a person was asked whether he would 
 accept the office, then vacant, of director in a bank. After delib- 
 erating, he replied, that as the office might result in some benefit 
 to him, he would accept. When the answer was reported to the 
 Board who were to fill the vacancy, they refused to appoint him, 
 lest he should sit at the Board mousing to catch something bene- 
 ficial to himself, while they wanted a director who would accept 
 office to benefit the bank. A man ought to watch his own inter- 
 est, when conducting his own affairs, but when he is acting offici- 
 ally, he should lose himself in his public duties. We expect a 
 soldier to sacrifice his life, if necessary, to the discharge of his duty, 
 and we should condemn him for professing a less self-denying 
 creed, how much soever our knowledge of human fallibility might 
 induce us to pardon his short-comings, when death should obstruct 
 his path. Fortunately the performance of bank duties will peril 
 only some forbearance from pecuniary acquisitions, and our creed 
 ought to be self-denying enough to renounce these, instead of 
 avowing them to be the motive of our services ; nor is the prin- 
 ciple new. The law will not permit a trustee to derive any indi- 
 rect benefit from his trust, or any judge or juror to decide in his 
 own controversies ; and the State of New York has, in its Constitu- 
 tion, consecrated, the principle, by prohibiting our legislators from 
 regulating their own compensation, or even the number of days 
 which shall be occupied in legislative duties. In some cities, also, 
 no civic officer can become legally interested in any municipal con- 
 tract ; and who censures not some recent high officers of our Na- 
 tional Government, for participating in a private claim, which they 
 officially aided in adjusting and paying. Thus thinking, the presi- 
 dent of a large railroad corporation of New York refused to sup- 
 
44 PRACTICAL BANKING. 
 
 ply iron for his road, though his associate directors, with the com- 
 plaisance which is as vicious as it is common, offered him the con- 
 tract. In this case, no contractor could have been more eligible^ 
 but the rejector established a precedent that is more profitable for 
 his corporation than the money it would have saved in purchasing 
 the iron of him. 
 
 The remuneration of bank directors, consists, too often, in an 
 indefinite claim for bank loans. This claim led formerly to so 
 great an absorption of the funds of country banks, whose capitals 
 are small, that a law was enacted by the New York Legislature 
 interdicting bank directors* from engrossing, directly or indirectly, 
 more than a third part of the capital of their respective banks ; a 
 quota which is, in some banks, divided equally among the directors, 
 irrespective of any business merits of the borrower.! This mode of 
 compensation, when founded on ample security for the borrowed 
 money, and when the amount taken, directly or indirectly, is limited 
 to the legal quota, may, in small banks, constitute a less objectionable 
 mode of remunerating directors than any other indirect mode, or than 
 most other direct modes. A man may, however, very properly refuse 
 the office of bank director, unless he can obtain for his services a sat- 
 isfactory pecuniary compensation ; and banks must comply with such 
 a requirement, if suitable men are not otherwise obtainable ; but such 
 a contingency promises to be remote, under the desire for acci- 
 dental distinctions by our citizens, consequent, probably, on their 
 legal equality. But when such a contingency shall occur, a direct 
 compensation will generally be purer than any indirect, and a defi- 
 nite compensation cheaper than an indefinite ; and usually money is 
 the most economical mode of paying for services that are not to be 
 deemed honorary. 
 
 The law usually regards bank directors as an entirety under the 
 title of a Board. The duties and powers which are usually conferred 
 on the board by the National and State laws may be classed as 
 legislative, supervisory, and appointing. The legislative power con- 
 sists in creating such offices as the business of the bank shall 
 render necessary, regulating their duties and salaries ; directing the 
 modes in which the bank shall be conducted, and generally all that 
 pertains to the management of the stock, property, and effects of 
 the corporation. The appointing power consists in selecting proper 
 incumbents for the created offices ; while the supervisory power is 
 indicated by all the foregoing, and by the ability to dismiss the 
 appointees at pleasure. But a man cannot properly supervise 
 
 * This law, like most other legal regulations of bank directors, was made before the 
 existence of banking associations ; hence the directors of such associations are not included 
 therein. 
 
 + The National Banking Law limits the amount that may be loaned to any applicant. 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 45 
 
 himself in the performance of public services, nor limit and regulate 
 their scope and extent, nor fix his compensation therefor; hence 
 the powers of the board can be exercised efficiently only on per- 
 sons who are not members of the board. Nor is the inexpediency of 
 uniting in the same person the duties of grantor and grantee, 
 master and servant, agent and principal, a contrivance of man ; it 
 proceeds from his organization. No person can sit at a board of 
 directors without observing that agents who are not directors, are 
 supervised more freely than agents who are directors. A practical 
 admission of this is evinced by some discount boards, who, in decid- 
 ing on paper offered by directors, vote by a species of ballot, while 
 in other boards, the offered notes are passed under the table, from 
 seat to seat; and a note is deemed rejected, if, in its transit, some 
 director has secretly folded down one of its corners. Had the United 
 States Bank been supervised by a board disconnected from execu- 
 tive duties, it would not have permitted its chief officer to per- 
 severe in the measures which ultimately ruined the corporation, 
 though its capital was thirty-five millions of dollars. Even the 
 separation of a legislature into two chambers, checks the esprit du 
 corps, and pride of opinion which would urge one chamber into 
 extremes, with no means of extrication from a false position. A 
 separation operates like the break of continuity in an electric tele- 
 graph, arresting a common sympathy, passion, or prejudice, which, 
 in a single chamber, rushes irresistibly to its object. Still, in many 
 banks (the Bank of England included) the president (entitled 
 governor in the Bank of England) is the chief executive officer, 
 as well as head of the legislative department. The Bank of Eng- 
 land is, however, controlled by twenty-four directors, the largeness 
 of which number naturally mitigates the influence of the members 
 iudividually, and hence diminishes ratably the objection against its 
 executive organization. Such an organization may operate well, 
 where the board consists of a small number of members, yet the 
 good is not a consequence of the organization, but in despite 
 thereof; for, whatever weakens the power of supervision, must di- 
 minish its benefits. The joint-stock banks of England are all con- 
 trolled by officers called managers, and who are not members of 
 the board, though they sit thereat ex officio for mutual explanation 
 and instruction. 
 
 That the board should legislate, supervise and appoint, but not 
 execute, occasioned probably the exclusion from the directorship 
 that early prevailed, and widely continues, of the person who occu- 
 pies the office of cashier, and who, with us, was once almost 
 universally the chief executive bank officer. But the executive 
 power, located, should center in only one person ; a divided re- 
 sponsibility creating necessarily a divided vigilance. Thirteen men 
 acting as an executive will not produce the vigilance of one man 
 
46 PRACTICAL BANKING. 
 
 multiplied by thirteen, but rather the vigilance of one man divided 
 by thirteen. The inspection of a picture by ten thousand promis- 
 cuous men will not detect as many imperfections in it as the 
 scrutiny of one person, intent on discovering to the extent of his 
 utmost vigilance; hence, large assemblies refer every investigation 
 to a small committee, the chairman of which is expected to as- 
 sume the responsibility of the examination, while the other mem- 
 bers are more supervisors than actors. Here, again, as in most other 
 modes which business assumes by chance apparently, our organiza- 
 tion dictates the mode. When, therefore, we want an army of the 
 highest efficiency, we possess no alternative but to intrust it to a 
 single commander-in-chief ; and if we want a bank of the highest 
 efficiency, as respects safety and productiveness, we must intrust it 
 to a single executive, under any title we please ; but to one man, 
 who will make the bank the focus of his aspirations, and know 
 that on his prudence and success will depend the character he 
 most affects, and the duration of his office, with all its valued as- 
 sociations and consequences. 
 
 If the proposed organization is the best that can be devised for 
 4 bank, the magnitude of power to be delegated is no proper ar- 
 gument against its delegation, but only a motive for prudence in 
 selecting the delegate. A man of known skill and established fidel- 
 ity is not always procurable for the proposed duties, especially by 
 small banks that cannot render available a breach of the tenth 
 commandment. But, providentially, the world is not so dependent on 
 a few eminent men, as their self-love and our idolatry may believe. 
 Every well-organized person possesses an aptitude to grow to the 
 stature of the station in which circumstances may place him, and 
 some of the most successful bankers of our State acquired their 
 skill after they became bankers. The like principle is discoverable 
 in all occupations, the highest not excepted. Few of our judges, 
 generals, diplomatists, legislators, or civil executives were accom- 
 plished in their vocation before they became invested therewith. 
 Skill is consequent in some degree to station and its excitement, 
 though a vulgar error expects (what is impossible) that official dex- 
 terity and competence should be possessed in advance. 
 
 On the chief executive should be devolved the responsibility of 
 providing funds to meet the exigencies of the bank; hence, he is 
 entitled to dictate whether loans shall be granted or withheld, and 
 the length of credit that shall be accorded to the borrowers re- 
 spectively. With him rests also a knowledge of the banking value 
 of each customer; he should, therefore, be permitted to select from 
 applicants the persons to whom alone loans shall be granted. The 
 responsibility should also be cast on him of making the bank pe- 
 cuniarily profitable to the stockholders ; hence, he will be stimulated 
 to obtain good accounts, and to extend business to the utmost ca- 
 

 DIRECTORS' MEETINGS AND DISCOUNTING. 47 
 
 pacity that his judgment will justify. On his untiring vigilance 
 should be reposed the safety of the capital ; hence, no loans should 
 be granted with whose security he is dissatisfied, nor any except 
 those with which he is satisfied even the improper negation of a 
 loan being usually a small evil to the bank, how important soever 
 it may be to the proposer. The Bank of England, with a capital 
 of about (including surplus) $90,000,000, intrusts the loaning thereof 
 to the governor alone. He has under him a sub-governor, selected 
 from the directors, while an executive committee, designated by the 
 board, may be consulted by him ; but the committee employs itself 
 in digesting matters for the action of the court of directors, rather 
 than in clogging the proceedings and diminishing the discretion of the 
 governor. All the joint-stock banks of England are organized with 
 a like self-depending executive, under the name of general manager, 
 and a bank organized thus to grant loans at all times, during its 
 business hours, will present a great inducement to customers over 
 a bank whose discounts are accorded at only stated days, and after 
 a protracted deliberation by directors loans being often useful only 
 when obtained promptly. Even the due protesting of dishonored 
 paper, and notifying of endorsers the enforcement of payment, or 
 the obtainment of security on debts which prove to be unsafe, 
 will all wholesomely fall under the control of the chief executive, 
 by reason that the vigilance of one person can control them bet- 
 ter than a divided vigilance ; and that the debts having come into 
 the bank by his agency, his self-love is interested in their collect- 
 ability. He must feel a like responsibility against losses by forgery, 
 overdrawn accounts, the depredation of burglars, and the pecula- 
 tion of subalterns. To secure in the highest degree his vigilance in 
 these particulars, he should be intrusted with the selection of all 
 subordinate agents, even of the notary and attorneys. At least 
 none should be appointed or retained with whom he is not satis- 
 fied. His self-respect cannot be too much fostered by the board, 
 and no measure should be enforced, and no loans granted, which 
 can wound his sensibility, or diminish his influence with his subor- 
 dinates or the customers of the bank. The more he can thus be 
 brought to identify himself with the bank, the more the bank will 
 be exempt from the disadvantages which make corporations con- 
 trast unfavorably with private establishments, and which a proverb 
 alludes to in saying that what is every man's business is nobody's. 
 So great is the assimilation to their bank which some managers 
 attain, that a poignancy of solicitude in relation to the debts of the 
 bank, the preservation of its credit and the productiveness of its 
 capital become the greatest evils of their position, especially when 
 they are predisposed to morbid nervousness, which, with disease of 
 the heart, their position induces and fosters. Such a man will ob- 
 tain from his board all the information it can yield him in rela- 
 
48 PRACTICAL BANKING. 
 
 tion to the pecuniary responsibility of his dealers; and the directors 
 should give him their opinion not mandatory, to relieve his re- 
 sponsibility, but to inform his judgment, though he will soon dis- 
 cover that his only safe guide will consist of his feelings founded 
 on personal observations too subtle often to be described, much less 
 enumerated. 
 
 His salary should be liberal, for nature will not otherwise produce 
 the activity of mind and body that are essential to his duties. Be- 
 sides, he must engage in no private business, and will possess 
 neither leisure nor taste to attend minutely to his domestic ex- 
 penses. No salary can equal in value the devotion of such an of- 
 ficer ; still, extravagance is unwise as an example, and unnecessary 
 as a stimulant. The more capable the officer, the more he will ap- 
 preciate money, and instances are frequent where bank services of 
 the most valuable kind are accorded on salaries that would be 
 deemed unsatisfactorily small by officers whose habits are less suited 
 for the station. 
 
 The duties of a board will rather commence than end with the 
 appointment of its executive. Their proper duties are supervisory. 
 Nature aids the discharge of such duties when the supervisor is 
 distinct from the supervised ; indeed, one of the most difficult 
 tasks of a supervisor consists in restraining the undue captiousness 
 that is natural to the position. The president of the bank, as 
 head of the corporation, cannot perform supervisory duties too effi- 
 ciently, and he may well be entitled to a pecuniary compensation 
 therefor. He should deem them under his special charge, but not to 
 supersede therein the modified duties of the other directors. Super- 
 vision over the manager's official proceedings will be as salutary to 
 him as proper to the board. Darkness is proverbially unfavorable 
 to purity, but only by reason of the concealment it creates ; every 
 other means of concealment is equally productive of impurity. A 
 man can easily reconcile to his judgment and conscience what can- 
 not be reconciled to disinterested supervisors : hence, if an officer 
 knows so little of human nature as to deem supervision offensive, 
 he is unfit to be trusted. That the supervision may be full, it 
 must be systematic. Every director will usually attend meetings of 
 the board in a degree inverse to their frequency, but twice a week, 
 or certainly once, where the bank is not very small, will be as 
 short as is compatible with a due inspection, singly, of the loans, 
 in some regular order, that may have been granted by the manager 
 since the last session of the board. The directors will thus learn 
 individually whether the power to make loans has been prudently 
 exercised ; and he will learn the opinion which any of the board 
 may express in relation to the borrowers or their sureties, especially 
 in cities where borrowers are generally known to the board ; and a 
 manager may advantageously defer to it the consummation of many 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 49 
 
 loans in relation to which his own information is questionable, or 
 about which he desires time to deliberate. Such a deferring will 
 often constitute a less offensive mode of avoiding an objectionable 
 discount than a direct and personal refusal, though truly the kindest 
 act a banker can perform, next to granting a loan, is to promptly 
 inform an applicant that he cannot succeed, when the banker 
 knows the loan will not be granted. 
 
 The supervision of the board must be as comprehensive as the 
 powers of the manager. The revisions of loans will enable the 
 board to ascertain, not merely the solvency of the bank's assets, 
 but whether its business is conducted without partiality, or un- 
 wholesome bias of any kind. Nearly every undue partiality possesses; 
 concomitants that may lead to its detection ; for instance, an un- 
 usual laxity of security, or length of credit ; with unusual frequency 
 of renewals in a direct form, or an indirect, so as to screen the 
 operations. A manager, properly sensitive of his reputation, and 
 properly diffident of his natural infirmities, will be reluctant to 
 grant loans to his relatives, or special friends; and never to him- 
 self, or any person with whose business operations he is connected. 
 To enable directors to judge of these particulars, a regular attend- 
 ance at the stated meetings is necessary; but memory alone must 
 not be relied on, except to suggest queries, which should always be 
 capable of solution by proper books and indexes, that must be 
 within reach of the directors; who should habitually inspect the 
 books, that the practice may, in no case, seem an invidious pecu- 
 liarity. In all scrutinies, however, the directors should remember 
 that in mere judgment and expediency they may differ from the 
 manager, and he may still be right, for banking constitutes his 
 business, while to them it is an incidental occupation. Lenity is 
 proper even to his undoubted errors, when they are of a nature 
 which experience may correct; but time will only inveterate bad in- 
 tentions, and their first unequivocal appearance should produce an 
 unrelenting forfeiture of his office. 
 
 The board must understand the liabilities of the bank to its de- 
 positors, bank-note holders, and other creditors ; also the funds of 
 the bank, and its available resources ; so as to judge how far the 
 honor of the bank is safe in the care of its manager. The char- 
 acter of depositors and borrowers are also proper subjects of gene- 
 ral scrutiny by the board, by reason that the reputation of a bank 
 is inferable from the reputation of its dealers ; not that disreputable 
 people should be rejected as depositors, but a bank is not an ex- 
 ception to the proverb which speaks " of birds of a feather ; " and 
 when the customers of a bank are generally respectable in their 
 character and business, we may be sure that the management of the 
 bank is at least ostensibly moral and mercantile. 
 
 The ticklers of a bank are books which show in detail the debts 
 
50 PRACTICAL BANKING. 
 
 due, prospectively to a bank, and the days of payment. The ag- 
 gregate footing of the ticklers will accordingly exhibit the amount of 
 loans not yet matured, and inductively the amount that is past 
 due. The information which relates to the amount past due is 
 often given reluctantly, but a knowledge of it is vastly important 
 in the proper supervision of a bank; and when tested by the 
 ticklers, the information cannot well be deceptious, or evaded. In 
 knowing the amount of past due loans, the board can pretty ac- 
 curately conjecture the character of the bank's customers. Such 
 loans should be satisfactorily explained by the manager, and the 
 means he is taking in their collection. The like may be said of 
 over-drafts,* which are rarely permitted by American bankers, 
 though in England they seem to constitute one of the regular 
 modes of advancing money to customers. Whether they shall be 
 permitted is within the proper discretion of the board, and should 
 they occur, inadvertently, the occurrence ought to be manifested to 
 the board. An exemption from losses is impracticable in long-con- 
 tinued operations; yet all grades of intellect are procurable, hence 
 the retention of an officer is unwise when his results are unsatis- 
 factory. Every man can adduce excuses which no person may be 
 able to controvert ; but when miscarriages are frequent, or import- 
 ant, the board should assume that something wrong exists and 
 eludes detection, rather than that nature deviates from her accus- 
 tomed processes, making vigilance unsafe, and skill unprofitable. 
 The examination of vaults, and counting of money, rarely reveal 
 defalcations, till the defaulter no longer endeavors to conceal his 
 delinquencies. The counting is not pernicious, if the board choose 
 to amuse their vigilance therewith; but we have not attempted to 
 designate modes in which frauds are detectable ; the ingenuity of 
 concealment being naturally as great as the ingenuity of detection. 
 Besides, the detection of skillful frauds requires a greater familiar- 
 ity with banking accounts, and a more laborious inspection of bank 
 books, than can ordinarily be expected of bank directors. For the 
 detection of frauds, therefore, the best practical reliance is a super- 
 vision, in the way we have indicated, of the bank's business, and 
 a familiar observation of the general conduct, habits and expenses 
 of the manager, as well as of all the subordinate officers; the 
 latter, however, are more especially within the duties of the man- 
 ager. The ruin of a bank, by fraud, commences usually in the 
 personal embarrassment of the delinquent, contracted by improper 
 self-indulgences, or the assumption of secret hazards. Men rarely 
 plunder till their conduct is otherwise disorganized, external symp- 
 toms of which observant directors may discover. A bank officer, 
 therefore (and the higher his official position the more urgent the 
 
 * The term "over-draft" means that the depositor has drawn for more money than 
 the balance to his credit. 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 51 
 
 rule), who will not keep disengaged from all suretyship and from 
 business that may render him pecuniarily necessitous, is as unfit to 
 be intrusted with a bank, as a nurse who frequents small-pox hospi- 
 tals, is unfit to be trusted with unvaccinated children. In men- 
 ageries, animals are kept peaceful by preventing the cravings of 
 hunger ; bank executives require a similar assuasive ; not by glut- 
 ting them with great salaries, but by preserving them from ex- 
 penditures unsuited to their income, and from pecuniary liabilities. 
 A bank manager of undoubted wealth presents therein the best 
 attainable guaranty against misconduct, and is entitled to greater 
 freedom of action in his personal transactions than officers of 
 ordinary circumstances ; still we will terminate this first part of 
 our undertaking, by venturing the advice, that when a man wants 
 to be more than a bank manager, especially when he wants to 
 employ much more than his own funds, he had better cease from 
 occupying a station which he is too ambitious, or too avaricious 
 to fill under restraints, which experience shows are alone safe. 
 
 We shall now consider the function performed by a bank in dis- 
 counting paper. First, however,* it is necessary to say a few words 
 respecting capital, since it is from the peculiar use made of capital, 
 in the production and distribution of wealth, that the necessity for 
 banks arises. 
 
 Capital used in production, is either fixed or floating. Fixed capi- 
 tal is invested in lands, buildings, machinery, mines, canals, railways 
 and their equipments, telegraphs, &c., all these being used in the 
 creation and distribution of wealth. Floating capital is invested in 
 the things produced, whether raw materials, or articles completed, 
 or in process of completion. It also pays for the labor and 
 other service ( wages and salaries ) necessary to production and 
 to the distribution of products. The processes of production 
 are very numerous and distinct. Each producer, when he has 
 completed his part of these processes, desires to sell his product, 
 realize his profit, and begin again with fresh materials. The quicker 
 he can do this, and the oftener he can repeat it, the greater will 
 be his profit ; for, in a normal state of things, each repetition brings 
 a profit. All the floating capital which he requires is enough to 
 enable him to do this easily, and without friction. If each article 
 were sold for cash, as soon as completed, and no store of raw mate- 
 rials had to be kept in excess of immediate wants, the minimum of 
 floating capital would be attained ; and if the fairly estimated profit 
 were always realized, the wealth of the producer would be con- 
 stantly increasing, and his business might either be enlarged, or a 
 surplus safely withdrawn' for outside uses. But immediate sale of 
 products by the producer, and immediate payment for them by the 
 
 * This portion of the chapter, to page 58, is from the pen of George Walker, concerning 
 whom proper mention is made in the preface of this work. 
 
52 PRACTICAL BANKING. 
 
 buyer, are practically impossible. A long process of digestion must 
 be gone through with before ultimate payment and the final payer 
 ( who is the consumer ) are reached ; and consequently the producer 
 cannot immediately sell, aud the buyer cannot immediately pay. 
 Markets may be dull, or overstocked, and buyers may be either slow 
 to come forward, or come without ready money. Hence, the pro- 
 ducer requires additional floating capital to carry his products till 
 sold ; and the buyer requires credit till he can get the means to 
 pay for the property bought by its resale. But a sale on credit is 
 to the producer, so far as the use of capital is concerned, precisely 
 like carrying the property without sale. Till he gets back the 
 value of his production, he must depend on other means to carry 
 on his business. He must find the necessary capital elsewhere, or 
 his production stops till payment by the buyer enables him to start 
 again. But a healthy business cannot stop ; it must go on con- 
 stantly and evenly, if the highest economy is to be attained. Stop- 
 page means idle factories, rusting machinery, unemployed workmen. 
 The friction and loss incident to stopping and starting would eat 
 up a large profit, and would destroy the even current of produc- 
 tion upon which stability of prices largely depends. The producer 
 cannot stop ; he must from some source, get the money to go on 
 with, and fortunately his business furnishes the basis on which to 
 get it. He must borrow money on the faith of the property sold. He 
 cannot, it is true, pledge the property specifically, for he has sold 
 it and parted with possession, and hence, I say, he must borrow 
 on the faith and not on the pledge of it. But though he cannot 
 pledge the property itself, he pledges what represents it, namely, 
 the written promise of the buyer to pay the price of it at a fixed 
 future date. In mercantile language, he gets the buyer's note or 
 bill discounted, and here comes in the first legitimate function of the 
 bank, a function which underlies all its operations, and is the touch- 
 stone of the regularity of its business. 
 
 To reduce it to a definition or formula, I should say that the 
 first and most important function of a bank is, by the use of the 
 capital which it controls, to bridge over the periods of credit 
 which necessarily intervene between production and consumption, in 
 such a manner as to give back to each producer, or middleman, 
 as quickly as possible, the capital invested by him in such products, 
 in order that he may use it over again in new production or new 
 purchases. In this way the interruption of business, which would 
 be a public, as well as a private loss, is avoided. Thus defined, 
 banking is not only one of the most useful, but it is also one of 
 the most safe and healthy of business operations. Its safety lies in 
 the fact that every loan of the character described, is based on 
 property of intrinsic value ; and it is the property which, in the 
 last resort, pays all the loans predicated upon it in its progress of 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 53 
 
 transmission from the producer to the consumer. It gathers value 
 as it goes, by the addition of all intervening profits incident to 
 handling and resale, and on final sale the consumer pays the first 
 cost and all those profits added to it. This, of course, is on the 
 supposition that the transactions have been fairly profitable. In the 
 case supposed the property has been the real debtor throughout, 
 and the real payer of the discounts. It has purchased the paper 
 which was the subject of each discount in succession, and has 
 finally been exchanged with consumer for the cash which, in effect, 
 pays them all. The several makers of the paper, though debtors 
 in form, are only insurers, or guarantors, in fact. They pledge their 
 respective property to the payment of the loans ; but the primary and 
 generally sufficient pledge is the property for which the notes are 
 given. The wealth of the makers is a necessary margin or guar- 
 anty, because the property sold may be destroyed, or the value may 
 fall, or some one of its successive holders may, by misfortune or 
 fraud, divert its proceeds from their legitimate application, namely, 
 payment to the last seller. In a great majority of cases, however, 
 no such contingency happens, and the guaranty is not resorted to. 
 The intervening profits are an additional safeguard, inasmuch as 
 each party, when he sells, ought to receive a larger note than he 
 gave when he bought the goods. 
 
 From this analysis of the origin of bank discounts it will be 
 seen that the common maxim among bankers that the safest 
 loans are on mercantile paper is not only justified by experience, 
 but rests upon the simplest and clearest scientific principles. 
 
 In the reign of the first Napoleon, France had a very enlightened 
 finance minister in M. Mollien. In advising the emperor as to the 
 proper administration of the Bank of France, Mollien laid great stress 
 upon the principles which I have just enunciated. "He undertook to 
 show that no discount is regular, except that of genuine bills of 
 exchange, given in settlement of a completed transaction, in which 
 three parties* have cooperated, and by means of which the ac- 
 ceptor is put in possession of property of actual value, equal to 
 the amount of his acceptance." 
 
 "The discount of genuine bills of exchange, which represent the 
 products of labor, which the wants of consumers have called into 
 being, and which their savings are adequate to purchase, ought to 
 be exclusively preferred by banks; it is the real pivot of their or- 
 ganization." 
 
 * The three parties are, the drawer, the payee, and the acceptor. When the buyer gives 
 his note instead of a bill of exchange on a third party ( as is more frequently the practice 
 in certain parts of this country), the property is pledged indirectly, and only two parties en- 
 gage in the transaction, while in the case of a bill drawn on the acceptor, who is also the 
 consignee of the property (as is the practice in the cotton, grain, and provision trades), the 
 pledge is specific, and the paper is paid out of the proceeds of sale. 
 
54 PRACTICAL BANKING. 
 
 " He reproached the Bank of France with paying too little atten- 
 tion to the discounts of genuine bills of exchange guaranteed by 
 merchandise in store, which was in demand for consumption, and 
 which the income of the consumers was adequate to pay for." 
 
 Keeping in mind the definition already given, and which I now 
 repeat, that the true function of banking is to bridge over the 
 periods of credit which necessarily intervene between production 
 and consumption, by immediately advancing on the faith of the 
 property, to each producer and middleman, his capital invested in 
 the product, and his profit earned in producing or handling it, it 
 is easy to analyze and to test all loans and discounts of a differ- 
 ent sort which banks are in the habit of making. The loans which 
 come the nearest in principle to those embraced in the definition, 
 are such as are made upon the specific pledge of property although 
 not yet sold. These may be strictly legitimate, or highly specula- 
 tive, according to circumstances. When property is on its way to a 
 market, with the certainty or probability of early sale, according to a 
 well established course of trade, it is strictly legitimate to loan upon 
 it, if the loan is made with a proper margin. Of this character 
 are all bills of exchange drawn against produce or merchandise, 
 consigned for sale, either in the home or foreign market. If ac- 
 companied by a specific pledge of the property, they are called docu- 
 mentary bills, because the title is authenticated by bills of lading, 
 and protected by policies of insurance, which accompany the paper. 
 The merchandise is sold " for account of whom it may concern," 
 that is to say, for account of the bill holder first, and of the owner 
 of the property afterwards. A very large part of the grain, produce, 
 cotton and tobacco business of this country is transacted by means 
 of documentary bills. They have often little else than the value of 
 the property to depend upon, the drawers and acceptors being only 
 middlemen, or factors of small responsibility. If the property is of 
 a staple character, always salable at a price, and the advances are 
 sufficiently below its value, such bills make very desirable paper, for 
 the reasons already given that they do .not depend on the solvency 
 or even the good faith of the parties, the property itself, authenti- 
 cated by its title deeds, being the real security. Foreign bankers 
 make their profit very largely in buying documentary bills at one 
 rate and selling their own plain bills at a higher rate; but it re- 
 quires large capital and established credit to make a market for 
 bankers' bills. In recent years the margin of profit has been very 
 small, and the liability incurred in making it is immense, as both 
 the bills purchased and those sold have to bear the banker's signa- 
 ture. Foreign bills are not usually dealt in by American bankers, 
 except in the Southern cities, where cotton and tobacco are often 
 consigned directly to a foreign market. The same is probably true 
 to some extent in the grain-handling cities of the West and in 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 55 
 
 California. It hardly pays to discount foreign bills and send them 
 abroad for collection and remittances of proceeds. To deal profit- 
 ably in them, a bank must draw exchange, as well as buy it, and 
 the business of drawing is almost exclusively in the hands of private 
 bankers, and of the representatives of European or Canadian banks. 
 It has always been a surprise to many that some of the larger New 
 York banks have never competed for this business. They possess 
 in a high degree the most important qualifications necessary to a 
 good drawer of exchange. They have an adequate known capital, 
 make and publish periodical reports, arc examined by official ex- 
 perts, and are conservatively managed by officers and directors con- 
 spicuous for their wealth, experience and probity. Some of them 
 have existed for a long time, and have acquired that wide-spread 
 reputation which is a first requisite in a drawer of foreign bills. 
 Such a participation in foreign business on the part of the incor- 
 porated banks would have this further advantage, that the banking 
 of this country would be thus allied more closely with the banking 
 and financial operations of the rest of the world. At present there 
 is too great ignorance of, and too little regard paid to, what is 
 going on in the monetary world abroad. It is not considered a 
 necessary part of an American banker's education to study foreign 
 banking and finance, and, as a consequence, all the profit which 
 the banking business should properly derive from foreign commerce, 
 is turned over to private individuals, largely foreigners, or to the 
 representatives of more sagacious and cosmopolitan foreign institu- 
 tions. One obstacle to engaging in foreign banking, by the incor- 
 porated banks, is the great subdivision of capital, and the smallness 
 of the amount controlled by any one institution. 
 
 Besides loans on specific property consigned for sale, banks often 
 lend on property withheld from market for a better price. Such 
 withholding is, of course, speculative, and the loans are more or less 
 tainted with that quality. They are not always to be condemned, 
 but they should be made with great caution, and not relied upon to 
 meet the bank's immediate liabilities. Enough available means should 
 always be held in cash, and in" perfectly reliable short paper, certain 
 to be paid at maturity, to cover circulation and deposits. Capital 
 and surplus, when not absorbed in Government bonds (as is largely 
 the case v/ith that of the National banks ), may be lent on longer 
 and less convertible security. Convertibility, however, is the first 
 requisite in the collaterals to a loan. 
 
 The moment such collaterals are inadequate to protect the loan 
 by a forced sale, the debt becomes unsafe. The objection to loans 
 on property not sold, or consigned for sale, is that they have no na- 
 tural maturity, and however ample the collaterals, they are essentially 
 accommodation loans, and have often to be inconveniently prolonged. 
 The test of soundness in a bank is the speed with which it could 
 liquidate, and return its capital to stockholders. 
 
56 PRACTICAL BANKING. 
 
 If loans and discounts could be kept within the limits which 
 have been described, banking would be a very safe and easy 
 business ; but it is nearly impossible to avoid a class of transactions 
 of a far more questionable character ; and when banks fail, or lose 
 heavily, it is almost always because questionable loans have become 
 the rule, instead of the exception, in their business. The quality 
 of convertibility has been gradually lost sight of (usually in the 
 greedy pursuit of high rates of interest), and, little by little, the 
 assets have become tied up in a harder and harder knot. Common- 
 est among objectionable loans are those on personal security, and 
 accommodation paper without collaterals ; such as is not the out- 
 growth of any business transaction, out of the completion and frui- 
 tion of which, the means of payment will be derived. Loans made 
 for the purchase or improvement of real estate, whether productive 
 or speculative; loans to provide quick capital for corporations, or 
 for individual business, are not only very objectionable, but unfor- 
 tunately also very common. However strongly fortified by names, 
 they are always reluctantly paid, and often the cause of anxiety 
 and trouble. It is entirely outside of the province of legitimate 
 banking to furnish money for such purposes. Investments should 
 be the result of savings, and it is very unwise, either for an indi- 
 vidual to anticipate his savings by loans at short maturity, or for a 
 bank to help him to do so. So of quick capital ; I have shown 
 that all business requires it, and it should be greater or less ac- 
 cording to the business. It is the margin which protects from dis- 
 aster, and guarantees success. It is no part of a bank's business 
 to lend that margin. By so doing, it takes on itself the risk 
 which belongs to the customer, and which is the strongest incen- 
 tive to prudence. Its duty to him, and its proper relation to his 
 business, begin and end with turning his products into cash, as 
 soon as they are sold converting his credit sales into cash sales, 
 and thus reducing the necessary amount of his floating capital or 
 margin, without assuming to provide that margin. 
 
 A class of loans which has done more than any other to bring our 
 banking institutions to grief, within the last twenty years, is that 
 on railroad bonds. It is very pertinent, in spite of all that has been 
 said and written about it, and while the experience is fresh and pain- 
 ful, to point out the reason why such loans were disastrous, and to 
 indicate the inherent quality which made them so. This leads us to 
 say a few words about commercial, or rather financial, crises, and the 
 steps which lead to them. The soundest maxims and practices prevail 
 in the business world after a crisis and liquidation. Convalescence 
 and repentance go hand in hand, the world over. When business is 
 fairly resumed, in the good time now coming, we shall see every 
 class of business men proceeding with the greatest caution. Miners 
 and manufacturers will be careful not to overstock the market ; mer- 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 57 
 
 chants will sell on short credit, and scrutinize the means and char- 
 acter of their customers ; banks will keep their money in the till, 
 rather than make doubtful loans ; investors will be content with a 
 low rate of interest, so long as the security is undoubted ; specu- 
 lation and the speculator will be read out of all decent society, 
 and the men who get up pools and corners will be avoided by all 
 who need credit and are careful of their reputation. Contentment > 
 economy, and good morals will prevail, and for a time we shall 
 constitute a model society. But by and by we shall tire of too 
 much * virtue ; the wheels of industry and exchange will move 
 more rapidly, competition will be sharper, accumulating profits will 
 encourage more luxurious living, luxury will multiply wants faster 
 than the increase of means, higher profits will be demanded and 
 greater risks will be assumed to realize them ; speculation, which 
 is oftener the offspring of artificial wants than of the love of 
 gambling for its own sake, will take the place of slow and plodding 
 industry. This will be the progress of things in one direction. A 
 progress more potential and not less dangerous will, at the same 
 time, go on in another. Capital accumulates more rapidly in pros- 
 perous seasons, than the chances which offer for its employment. 
 Surpluses accumulate, and with them the channels of investment 
 widen. The first use of a surplus is to increase reproductive capi- 
 tal ; but there is a limit to the use of such capital. To augment 
 it too rapidly would lead to over-production and over-trading, and 
 these will inevitably occur before capital consents to seek remoter 
 and slower resting places. But seek them ultimately it must and 
 ought, for otherwise civilization would cling to its old centers, and 
 the extremities would never be opened up or enriched. This process 
 involves the conversion of floating into fixed capital, or to use the 
 more expressive European phrase, the immobilization of capital. 
 Capital arising from the profits of business, and invested in lands, 
 buildings, factories, railways, mines and furnaces, is thus immobil- 
 ized. The degree of immobilization is greater or less, according as 
 the resulting revenue from the investment is more or less remote- 
 If a quick return is yielded, and that return does not involve 
 over-production, the proceeding is wise and healthy. If, on the 
 other hand, the return is uncertain, or very remote, there is great 
 danger that capital, instead of being immobilized merely, may be 
 absolutely lost. It is rarely possible to compute with accuracy the 
 cost of a great undertaking, or foretell the period of its fruition. 
 The disposition to spread present means over a great deal more 
 ground than it can fairly fructify, is as universal as the disposition 
 among farmers to cultivate too much land. 
 
 Now, let us apply these principles to our past railway construc- 
 tions. The two dangerous elements to which we have adverted, spec- 
 ulation seeking illegitimate profits, and surplus capital driven to seek 
 
58 PRACTICAL BANKING. 
 
 remote investments, cooperated to make it what it was. Men with- 
 out capital did most of the speculating, men with more capital 
 than they knew how to employ profitably furnished the means. 
 But the means available proved to be sadly inadequate to the un- 
 dertaken schemes. It became soon apparent, in almost all cases, 
 that to save the surplus first invested, the capital, vital to business, 
 must be encroached on. Thus, little by little, the working capital of 
 the country not its savings, but its life was drawn into the fatal 
 vortex. This working capital is like the grease which greases the 
 wheels of the farmer's wagon. If not seasonably supplied, the 
 heated axle utters its notes of alarm, and if this goes unheeded, 
 the wheel is set fast and the vehicle is stopped. The wholesale 
 construction of railways on credit was a business of which the 
 country had no experience, and this is the only excuse for the 
 gross violation of sound business principles which it involved. The 
 banks were no wiser than the people. They began to lend moder- 
 ately, on the security of railway bonds, before railways had been dis- 
 credited, and when they had a surplus of capital to lend ; and 
 they ended by lending immoderately on the same security, after its 
 treacherous character had been disclosed, in the vain struggle to 
 save their past loans, or to assist customers whom they were un- 
 willing to see go to the wall. Very largely, also, in 1871-2, and '73, 
 they lent to railways, on railway securities, for the sake of illegiti- 
 mate interest, by which we mean not such rates as merely violate 
 the usury laws, but such as no healthy business ever did or ever 
 can pay. They were lending to a spendthrift heir on the doubtful 
 security of a post-obit bond. There is no danger that this folly 
 will be repeated in our time, but there are always snares set for the 
 unwary, and the next decade will doubtless disclose its own pecu- 
 liar temptations, and a period of prosperity will hardly escape the 
 usual dismal ending. 
 
 The regular meetings of Boards of Directors in most banks are 
 held twice a week, but in some banks meetings are held daily. 
 The mode of discounting paper varies much in different banking 
 institutions. In many of them, especially in the larger cities, the 
 business head, whether he be the president, vice-president or cashier 
 passes on the paper as soon as it is offered for discount. Cus- 
 tomers cannot wait, money is wanted, and they are speedily told 
 whether they can be accommodated or not. But with the country 
 banks a different custom prevails. The paper is offered for discount 
 and is put before the directors, and they decide whether to accept 
 or to decline it. The president of a very profitable bank in New 
 York City once said to the writer, that after his bank had been in 
 existence for ten years it had lost only three pieces of paper, and 
 these were discounted by the board during his absence. He loaned 
 the money, and the directors at their meetings merely ratified the 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 59. 
 
 loans made. A board is a very convenient body for referring 
 paper which an officer is unwilling to accept. He does not wish 
 to offend the offerer by declining to discount it, and so it is re- 
 ferred to the board for their action. This is the least offensive 
 way of telling a man that he cannot be accommodated. Of course, 
 many cases are referred to the board for their action which may be 
 decided favorably. The amounts may be very large, or there may be 
 something peculiar about the loans, a longer time than is usually 
 granted perhaps may be wanted, and the cashier or president may 
 not wish to assume the sole responsibility. When banks hold daily 
 meetings the directors decide what paper shall be discounted. 
 
 In order to have a correct knowledge of dealers' accounts, the 
 cashier has on his desk a book which contains a record of the 
 average daily balance of every dealer. This is made up at the end 
 of each month, and the average for the month is entered in the 
 Average Book. At the end of the year the average for the twelve 
 months is struck, and usually the Average Book is so ruled as to 
 show the daily average for five to ten years previously. The Aver- 
 age Book is indexed throughout on the margin, with as many 
 leaves as are required for each letter. The names of National 
 banks are usually entered first, alphabetically, then State banks,, 
 then bankers, and then the individual depositors from A to Z, 
 Usually there is a new Average Book for each year. 
 
 The amount of discounts usually granted to a dealer (the bank's 
 safety, of course, first being assured) is proportionate with his aver- 
 age balances. For example, a dealer whose general average balance 
 is $ 1 5,000 would be entitled to accommodation, other things being 
 the same, to five times as large a line as a dealer with an average 
 balance of $3,000. Hence a correctly kept Average Book is an im- 
 portant guide in granting discounts. 
 
 Good banking requires a bank to be in a condition to meet every 
 dealer's reasonable needs in proportion to his balances, irrespective 
 of the current condition of the money market. 
 
 At Directors' meetings the president is seated at the head of the 
 table, and the cashier occupies a convenient seat near him. In 
 some banks the directors have particular chairs, in others no order 
 of arrangement is observed. The cashier reads the minutes of the 
 previous meeting of the board, and after their approval the 
 board proceeds to other business. The cashier records the names 
 of the directors present, as this fact is worth preserving. The 
 business transacted since the last meeting, as previously stated, con- 
 sisting of the discounting of paper on the responsibility of the 
 bank manager, is submitted for ratification. Banking institutions are 
 not always so particular as they ought to be in doing this, or in 
 examining the paper taken. 
 
 When the wrong practices of Eno, the president of the Second 
 
6o 
 
 PRACTICAL BANKING. 
 
 National Bank of New York, were discovered, it was found that 
 not only did he discount paper on his sole responsibility, but kept 
 it in a vault down town, not belonging to the bank, and the 
 directors never saw it. They accepted his statement of what he 
 did as true, and never troubled themselves to look at the paper 
 discounted. Had this been done, Eno would have been obliged 
 to resort to some other artifice to conceal his fraud; or, what is 
 quite probable, could not have gone so far as he did, without ex- 
 citing suspicion leading to his detection. 
 
 Vigilance is the price of prosperity, and this applies more em- 
 phatically to banking than to almost any other kind of busi- 
 
 Daily Statement, 
 
 .188 
 
 
 Monday. 
 
 Tuesday. 
 
 Wed. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 II II 
 
 
 
 
 N Y Clearing-house Association bonds 
 
 
 
 
 Sundry securities 
 
 
 
 
 
 
 
 
 Total loans 
 
 
 
 
 
 
 
 
 Specie Gold certificates . .... 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total cash . .. 
 
 
 
 
 
 
 
 ._ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Taxes paid 
 
 
 
 
 Exchange 
 
 
 
 
 
 
 
 
 Total expenses, &c 
 
 
 
 
 
 
 
 
 Real estate, banking house .... 
 
 
 
 
 Other Real Estate 
 
 
 
 
 Deposit with (J. S. Treasurer, 5 per cent fund. . 
 
 
 
 
 Due from U. S. Treasurer, Redemption Agent 
 
 
 
 
 Due from banks . 
 
 
 
 
 
 
 
 
 Total footings 
 
 
 
 
 
 
 
 
 Memoranda Legal-tender notes . 
 
 
 
 
 Specie * 
 
 
 
 
 5 per cent, fund and redemptions 
 
 
 
 
 
 
 
 
 Total reserve 
 
 
 
 
 
 
 
 
 Reserve required 
 
 
 
 
 
 
 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 
 
 01 
 
 ness. No bank manager, however long and ably he may have 
 served a bank, ought to be permitted to conduct its affairs without 
 supervision. Directors who do not direct occupy a false position 
 toward the public, the depositors, the stockholders and the bank 
 manager. The welfare of the several classes concerned in the in- 
 stitution demand that these officials should not neglect their duties. 
 Before proceeding to discount paper, it is necessary to know what 
 resources a bank has available for that purpose. This information 
 is contained in a Statement from the General Ledger. The follow- 
 ing form is copied from the Daily Statement Book of a bank in 
 New York City : 
 
 Arctic National Bank of the City of New York. 
 
 Capital stock 
 
 Surplus fund 
 
 Profit and loss 
 
 Discount 
 
 Interest 
 
 Exchange 
 
 Rents collected 
 
 Total profits 
 
 National circulation outstanding 
 
 Dividends unpaid 
 
 Individual deposits A to 
 
 u * to 
 
 * * to Z 
 
 Certified checks 
 
 Total individual deposits 
 
 Banks and bankers' deposits A to . . , 
 
 * to . . 
 
 u u tO Z 
 
 Afternoon mail 
 
 Total banks and bankers' deposits 
 
 Total footings 
 
 Memoranda Gross deposits 
 
 ( Daily ) Net deposits 
 
 Weekly average Loans and discounts. . . . 
 
 Specie 
 
 (Reported Saturdays Legal-tender notes. 
 
 to Deposits 
 
 Clearing- House.} Circulation 
 
 Monday. 
 
 Tuesday, 
 
 Wed. 
 
 
'62 PRACTICAL BANKING. 
 
 The items are read, or the principal ones, and afterward the offer- 
 ings, consisting of notes on which the owners are desirous of obtaining 
 money of the bank. Instead, however, of reading these, a record, 
 previously made in a book called an Offering Book, is read to the 
 directors. In this book the names of the offerers are recorded 
 alphabetically, the amount of each note, the time it is to run, the 
 name of the indorser, where payable, and any other particulars re- 
 lating to it. In small banks the notes offered are read without re- 
 gard to alphabetical order. 
 
 If the amount of offerings exceeds the amount of loanable funds 
 of course not all can be accommodated, even if their notes be de- 
 sirable. But rarely does it happen when any considerable amount of 
 paper is offered that it possesses a uniform value. Some makers 
 or indorsers are better known, and are preferred to others. What, 
 therefore, happens, is to select from the entire amount offered the 
 most desirable offerings, and to decline the remainder. Yet, often 
 the entire amount offered is not enough to absorb all the loan- 
 able funds. Then the bank must look elsewhere to find a way for 
 employing its resources. One way is to buy paper, though in buy- 
 ing it the board may pass on the transaction the same as would 
 be done if offered in the usual way for discount. This business 
 of buying paper is worth a brief explanation. 
 
 It is purchased by a bank of a note-broker. But where does he 
 get such paper to sell? Of merchants. Formerly they gave notes 
 only for the merchandise they bought, but in recent times they 
 give notes without reference to the purchase of any special mer- 
 chandise, in order with the money thus obtained to discount their 
 ibills. 
 
 Once when notes were for a longer period, and notes were al- 
 most universally given for purchases, they were generally drawn to 
 the maker's order, and read for value received "from A B & Co.," 
 or whoever the seller might be. Indeed, %ome houses were so care- 
 ful lest the paper might be thought to be made paper that they 
 inserted the name of the seller of the merchandise in full. This 
 paper was sold largely in the " street " to banks and others, who 
 bought it with confidence because it represented an actual business 
 transaction. It suited commission houses and importers, because if 
 not willing to hold the paper until maturity, they could realize upon 
 it without the responsibility of endorsing it, and thus go on and 
 sell to a house (whatever their own private opinion of its soundness 
 might be) so long as the paper would sell at a rate of discount not 
 interfering too much with the profit on the goods or the rate of 
 commission. This, of course, was legitimate dealing, representing 
 actual merchandise transactions. So, indeed, is the making and 
 openly selling of one's paper in the market, and the using of the 
 proceeds in " cashing" bills, legitimate, but it is dangerous and liable 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 63 
 
 to abuses. Funds so obtained can be used for any purpose, and the 
 developments in some recent failures have shown that the money 
 was often used for operations entirely outside of the regular busi- 
 ness of the maker, or for purely speculative purposes. 
 
 As merchants often sell their paper at six or seven per cent, 
 interest, and discount their own bills at seven to nine per cent., 
 of course they make two or three per cent, by borrowing the 
 money for thus paying their bills in advance of their maturity. 
 The broker gets a commission for negotiating the merchants' paper, 
 which must be deducted from the profit of the transaction. After 
 deducting this brokerage, however, there is a considerable profit 
 from borrowing money as just described, and the business has be- 
 come a very large one. 
 
 In some parts of the country, Hartford, Connecticut, for example, 
 the banking capital is much larger than can be profitably employed 
 locally. Providence is another place of the kind. The banks of those 
 cities consequently invest large sums through note-brokers. 
 
 The following is the method of conducting the business in 
 the largest cities. A printed or lithographed list of notes is sent 
 to a bank. It may contain a description of a hundred pieces of 
 paper and is marked " This is for bankers' use only." Each piece 
 is numbered. If a bank wishes to see any of the pieces therein 
 described, they are sent on application. There is another way, how- 
 ever, of negotiating such paper, which may be explained here. If a 
 note-broker were selling all the paper given by a certain merchant, 
 the broker would be very careful in offering it for sale. If a banker 
 has twenty thousand dollars of it, for example, and the broker knows 
 that he cannot increase the amount, he will be careful not to offer 
 more. The broker would be equally careful not to put such paper on 
 a printed list through fear that the banker would see it, and con- 
 cluding that the merchant was giving a large amount of paper, would 
 determine to buy no more. The banker, in other words, might 
 conclude that the merchant was issuing more paper than he ought 
 to issue if his name appeared very frequently on printed lists. 
 
 Sometimes the broker has the notes in his possession for sale; in 
 other cases he has simply a memorandum of them. In the latter 
 case he has a printed form, containing the name of the maker, 
 amount, when and where payable, indorser, and other particulars. A 
 list is sent to a bank containing such a description of notes, or 
 a broker, or agent for him, may visit a bank personally and exhibit 
 such a list, or the paper itself, which he wishes to negotiate. Many 
 banks are visited several times a day by these brokers offering the 
 notes of persons for sale. 
 
 It may be further added that brokers do not always get posses- 
 sion of the notes until they have paid for them. Several practices 
 exist in this regard. One practice is for a merchant to make notes 
 
 
 
64 PRACTICAL BANKING. 
 
 and then deliver them to a note-broker for sale. The latter may 
 give a receipt or acknowledgment, or he may not. In such a case 
 the merchant has entire confidence in the broker, otherwise he 
 would not give him notes without adequate security. There are 
 some very good reasons for thus leaving notes with a broker when 
 perfect confidence is reposed in him. Very likely he has a class 
 of customers, retired merchants, perhaps, who buy paper occasion- 
 ally. They frequent his office, and, if he has notes which they can 
 examine, may be led to purchase, whereas they would not do so if 
 the broker had only a memorandum of the paper, and was obliged 
 to send for it before he could sell it and get the money therefor. 
 For this reason, therefore, sales are facilitated by entrusting the 
 broker and, in truth, vast amounts are left for sale. When Alonzo 
 Follet, of New York, failed a few years since, he had in his office 
 nearly $ 10,000,000 of notes, and the amount of paper that he had 
 sold annually was about $ 100,000,000. 
 
 Another way is for merchants to leave their paper with a note- 
 broker and get immediately from him a certain amount thereon. A 
 merchant, for example, may leave $ 25,000 of paper and ask for 
 $ 10,000, expecting the balance when the paper is sold. The note- 
 broker pays him this advance on account, and after selling the 
 paper and deducting his commission sends the balance. 
 
 Another way is for the note-broker to buy the paper, paying 
 therefor at the time of the purchase. A note-broker will go to a 
 merchant and say, " I will take so much of your paper at such a 
 rate." If the rate be acceptable, the merchant will sell it to him 
 and get his money. In these cases the broker expects to sell the 
 paper at a lower rate, and to make more than he would if charging 
 the ordinary commission. Many brokers do wholly a business of this 
 kind buying paper and selling it at the best rate they can obtain 
 for it. 
 
 The broker's commission in the large cities is one-eighth of one 
 per cent.; but for negotiating leather paper, as it is called, one- 
 quarter of one per cent, is paid, and the same rate is paid on dry 
 goods and on tea paper. The rate first named, however, is the most 
 general one for negotiating notes. 
 
 In negotiating paper note-brokers sometimes endorse it. Follet, 
 whom we have previously mentioned, guaranteed all the paper 
 he sold, and thus became contingently liable for a very large 
 amount. It was said at the time of his failure that the banks 
 which bought it did not do so on his guarantee, but on the credit 
 of the makers of the notes. A bank president at that time re- 
 marked, " If a man were to guarantee the note of the richest man 
 in New York, he would be contingently liable for its payment, but 
 the note would be valuable because the maker was responsible. 
 Follet's transactions were very large, and he handled the paper of 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 65 
 
 some of the best firms in the city. I presume the banks of the 
 city are now buying a million dollars of paper a day from brokers, 
 all bought because the maker is supposed to be good, and not be- 
 cause the broker endorses it." 
 
 It may be added that banks do not buy paper of the brokers in 
 preference to discounting that of their depositors; but as we have 
 previously said, these institutions are often unable to loan all their 
 resources to persons who make a direct application for money. 
 Banks must therefore either resort to the note-brokers, or loan in 
 some other way. 
 
 This bought paper, as it is termed, is entered in a discount 
 book, separate from the DEALERS' DISCOUNT BOOK, and for distinction 
 the bought-paper book is called CASHIER'S DISCOUNTS. Cashier's 
 Checks are given for the paper purchased, and each day the total 
 payments of the CASHIER'S DISCOUNTS are credited to the " Cashier 
 account " in the ledger. Each check when presented and paid is 
 charged to cashier's account, which offsets the corresponding credit. 
 Paper discounted for dealers is posted in a DEALERS' BILL BOOK, 
 with a title page for each dealer. Paper purchased is posted in a 
 CASHIER'S LEDGER, with a title page for each name on the strength of 
 which the paper is bought, and both books, of course, are indexed. 
 A reference to any name can therefore readily be had, and the 
 amount on hand, if any, at once be ascertained. 
 
 The officers, therefore, may tell at a glance what, and how much 
 of any name bought, they may have on hand. Many banks have 
 lying on their president's desk a small book, the leaves of which 
 are made of silicate slate, with two or three leaves for each letter 
 of the alphabet. The names of paper purchased, with the due 
 dates and amounts, are written in pencil on the appropriate pages, 
 and the entries are corrected daily by erasures or additions, as the 
 case may be. 
 
 Some banks have adopted a very perfect system of recording 
 the information they obtain concerning the paper they buy. Books 
 are prepared with a page or more devoted to each name. Here 
 are recorded, briefly and succinctly, condensed extracts of mercan- 
 tile agency reports, extracts from letters that may be received re- 
 lating to the character and responsibility of the house in question, 
 synopses of conversations with merchants, bankers, and others who 
 have been found to know the firm, &c., &c. A voweled index 
 affords means of speediest reference to any desired name. 
 
 Although the buying of paper has long been practiced by the 
 banks, the Supreme Court of Minnesota, in 1872, declared that a 
 bank which was authorized by statute "to carry on the business of 
 banking by discounting notes, bills and other evidences of debt," had 
 no authority to buy paper.* The custom of buying paper has not 
 
 * Farmers and Mechanics' Bank v. Baldwin, Banker's Magazine, vol. 31, p. 630, and see 
 the same volume, p. 510, for a discussion of the subject. 
 
 
66 PRACTICAL BANKING. 
 
 been shaken in the least by this decision. It has been practiced 
 too long and extensively to be overthrown by anything except a 
 legislative enactment. 
 
 A common way of lending is on collateral security, that is, on 
 bonds, stocks, warehouse receipts and other evidences of property. 
 Within a few years the banks in the large cities have increased 
 their loans of this nature enormously. They have done so partly 
 because the purchase of paper from note-brokers has proved so haz 
 ardous. Within two years mercantile failures have occurred, from 
 which some banks lost heavily in consequence of having large 
 amounts of bought paper. One failure was that of a leather house, 
 whose principal office was in Boston. The banks did not suppose 
 before the failure that the house was floating such an enormous 
 amount of paper. By making their notes, and giving them to note- 
 brokers to sell, it was exceedingly difficult for others to form any 
 judgment of the amount made and negotiated. After that failure, 
 many banks concluded that if loans were made on collateral security 
 their risk would be diminished. They believed that they were quite 
 capable of judging accurately of the value of collaterals offered as 
 security. Many of these loans are made on call, that is, the bank 
 can demand payment immediately, or after one day's notice. Loans 
 on railroad securities as collaterals are regarded with favor by some 
 of the most conservative banks. 
 
 The New York Stock Exchange will not list any kind of stocks 
 or bonds unless the instruments or evidences of them are engraved 
 on steel plates. All railroad stocks are required to be issued at a 
 transfer agency and registered at some well-known bank or trust 
 company. This is to prevent a fraudulent over-issue of certificates. 
 The principal New York City banks have the stock exchange tele- 
 graph quotations in their banking rooms, and therefore are promptly 
 informed concerning the current fluctuations of the market. On 
 such securities, loans are made usually within ten or fifteen per 
 cent, of the market value. The fluctuations in these stocks thus 
 pledged are carefully watched by a person in the bank, especially 
 appointed for that purpose. It is his duty to demand either more 
 security, or the payment of a part of a loan, in the event of a 
 decline in the value of the security pledged therefor. 
 
 In some States, though the rule is not uniform, the law requires 
 that for a collateral to be good security when delivered to the bank, 
 stock must be actually transferred on the books of the company 
 which first issued the same. 
 
 Another form of loan is that made on the security of business 
 paper. Thus, a merchant having a number of small notes of his 
 country customers, brings to the bank $ 1 5,000 or $ 20,000 of such 
 paper, and asks, on the pledge of it, for a loan of $10,000, giving his 
 own note at thirty, sixty or ninety days. This custom is more com- 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 67 
 
 mon in Western cities than in New York. It is among the safest 
 of business transactions, if ordinary care and discrimination are ob- 
 served, for if the principal should fail, his estate will pay something, 
 and the division of the remainder among several parties, with a con- 
 siderable surplus beyond the amount, leaves the risk of loss very 
 small. 
 
 Such are the several ways of loaning the resources of a bank. It 
 may be added, however, that fewer losses occur in loaning to regular 
 dealers than in buying paper. Banks, of course, know more about 
 their dealers than about other persons not keeping accounts with 
 them. 
 
 If a single director objects to a note offered for discount or pur- 
 chase, the board generally will refuse to make the loan. If an ob- 
 jection should be based simply on prejudice, the board probably 
 would not respect it. But if a director should say, " I have a pretty 
 good reason for not buying that paper," his opinion would be con- 
 clusive. Directors are chosen partly for the information which it is 
 supposed they will throw on the condition of business, and especi- 
 ally on that in which they are engaged. It is supposed that a di- 
 rector knows more about the condition of persons engaged in the 
 same business as himself, than the other directors, whose occupations 
 are different. This is why their opinions have so much weight. 
 Nevertheless, bank directors are not always disinterested in the per- 
 formance of their trust. Not long since we heard the following 
 story. A bank director, who was also a member of the Produce 
 Exchange in a large city, attended a meeting of the directors of 
 the bank. Several persons, who also were members of the Produce 
 Exchange, had presented notes for discount, accompanied with col- 
 lateral securities, principally warehouse receipts for grain. When 
 these offerings were read, one after the other, the director in ques- 
 tion objected, maintaining that they were not as safe as they 
 ought to be. When the entire list of offerings had been exhausted, 
 a large balance remained unemployed. The director just men- 
 tioned said if no better use could be made of it, he would take 
 it though at a rate which was not very remunerative. His offer was 
 accepted. Immediately he went to the persons who had applied for 
 loans to his bank and loaned to them on the securities which they 
 had offered. Of course he was not the typical bank director. 
 Generally, directors are men of well-known integrity, and though 
 too often neglectful in attending meetings, they freely give their 
 best experience to the bank when they do attend. 
 
 Some directors attend meetings with regularity, and take a deep 
 interest in the affairs of their bank. They seek to enlarge its sphere 
 and to increase its gains. There are other directors whose presence 
 is a surprise. A third class appear irregularly, and sometimes are 
 troublesome in their endeavor to learn concerning all the business 
 
68 PRACTICAL BANKING. 
 
 done at the meetings when they were not present. They are usu- 
 ally retained in spite of their ways for one reason or another. If 
 they attended regularly, most of their questions would be unneces- 
 sary. Time would be saved, and the temper of their associates 
 would not be tried. In a large board of twelve or fifteen directors 
 it is hardl) r possible to have unanimity on all occasions, and yet 
 each director may fill his valuable niche in the institution. Each 
 one, whether pleasant or disagreeable, whether regular in his attend- 
 ance or otherwise, may through his wealth, or business relations, or 
 knowledge, serve a useful purpose. At all events, they are usu- 
 ally selected with care, and changes do not frequently occur. 
 
 It has been said by a banker whose experience is worth heeding that 
 it is one of the duties of the president to protect a dealer when he 
 is unjustly assailed. To do this is also for the advantage of the 
 bank. Beside the general results of the fair treatment of credit, there 
 is this particular result, that the best class of customers which a 
 bank can have consists of those whom it has nurtured from mod- 
 erate to larger success, and whose experience has been all along 
 linked in agreeable intercourse with its officers and directors. These 
 are not easily seduced to open accounts with other banks; but 
 they are faithful to their old friends and they introduce other 
 dealers. 
 
 The New York City banks do not discount paper that runs for a 
 longer period than four months. This is the general rule. It is 
 not always observed ; but a man's credit would be unusually good, 
 or ample collateral security would be required, were a loan granted 
 for a longer period. Some banks will take only first-class double 
 name paper, that is, paper having the name of an endorser beside 
 the maker, and would prefer to buy such paper, at four and a-half 
 or five per cent., to buying other paper just as good, perhaps, 
 at six per cent, interest. In any event, a risk is taken, and 
 with the utmost precaution in making loans losses are not wholly 
 avoided. 
 
 One of the functions of a good bank manager is to ascertain, in 
 every possible way, the financial condition of his customers. Every 
 well-conducted bank has a book in which everything of importance 
 pertaining to the credit, ability and character of their customers is 
 noted. Papers are diligently read and reports scanned, inquiries are 
 made of persons who are supposed to know about others ; all 
 kinds of business are investigated with care; occasionally a consid- 
 erable sum is paid to an individual for making a special investiga- 
 tion into the affairs of a customer. Very often these investigations 
 and inquiries must be made with great tact and secrecy. If a cus- 
 tomer were to find out that he were under a telescopic investiga- 
 tion, he might be offended, withdraw his account, and vengefully 
 exert himself to injure the bank. On the other hand, no faithful 
 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 69 
 
 bank manager should be negligent of his duties in this regard. 
 No opportunity for inquiry should be neglected. The most success- 
 ful bank managers are those who are most diligent in conducting 
 these investigations, and in watching all these complicated movements 
 of trade. 
 
 Every bank should know as much as possible concerning each of 
 its dealers, and the information obtained should be carefully re- 
 corded and preserved. In a large business it would be impossible 
 for any officer to remember the different terms and agreements and 
 understandings had with its various dealers from time to time, and 
 therefore it is the practice of a systematic officer to write or dic- 
 tate to his stenographer, immediately after an important interview 
 with a dealer, the substance of what has been said. Some banks 
 have found that the most advantageous way is to have a very 
 large scrap-book prepared, in which all records of conversations, 
 statements of condition, agency reports, etc., etc., are pasted. 
 The book should be made with numbered leaves, and with short 
 stubs to which papers can be pasted, and with still shorter stub 
 leaves to fill up the book, so that when it is full the back will 
 not be broken. A voweled index separately bound should accom- 
 pany such a scrap-book. Between each numbered leaf there should 
 be room for, say, three of the shorter stub leaves on which papers 
 could be pasted. These shorter leaves would be numbered i, 2, 3, 
 and the entry in the index would therefore be, say, as follows : John 
 Smith & Co., Book No. i, page (say) T f s , which would mean that 
 on section 2 of page 185, in scrap-book No. i, there could be found 
 a record of all that was known concerning John Smith & Co. A 
 succeeding administration would therefore be able to know just 
 about as much concerning John Smith & Co. as the officer who 
 directed the entry. Of course, such systems as the foregoing re- 
 quire systematic and regular attention, which usually cannot be 
 given by either the cashier or president, and therefore a clerk must 
 
 I be employed for the purpose. In some large banks a young man 
 is employed as a " credit clerk," whose almost exclusive duty is to go 
 about in the various trades for the special information required, 
 and record what is learned in the above-described bought paper 
 books and dealers' scrap book. 
 Most large merchants outside New York City now make their 
 notes payable there, and have regular accounts with the banks in 
 that city. This is one reason why the banking resources of New 
 York are so rapidly expanding. Another is because the city banks 
 have unusual facilities for lending money. 
 
 Bank managers, as well as bank directors, are often importuned 
 to make loans through friendship and other than strictly business 
 
 k reasons. For many years the title page of the Banker's Magazine 
 has borne the following words, uttered by a successful and eminent 
 
7O PRACTICAL BANKING. 
 
 banker of Boston, Nathan Appleton : " No expectation of forbear- 
 ance or indulgence should be encouraged ; favor and benevolence 
 are not the attributes of good banking; strict justice and a rigid 
 performance of contracts are its proper foundations." Notwithstand- 
 ing these plain teachings, many a bank officer, through sympathy 
 and regard for friends and customers, has granted loans which were 
 not warranted either by their condition or by that of the bank at 
 the time of granting them. There are many occasions when a 
 bank manager cannot easily determine what course is the most 
 expedient. A considerate regard for the wants of a customer, his 
 ample security for the loan, the condition of the bank and of trade 
 these are circumstances which not infrequently render a decision 
 difficult. Of course no extra lights can be provided for these ex- 
 traordinary occasions. Human experience will not avail much at 
 such times. If the bank manager does not comprehend the situa- 
 tion, so much the worse for him and for all concerned ; any les- 
 son he might be likely to learn would come too late to be of any 
 use to him. 
 
 Notwithstanding the length of this chapter, we cannot forbear 
 adding the excellent " Suggestions to Managers of Banks," prepared 
 by Mr. Hugh McCulloch, when Comptroller of the Currency, on this 
 very important subject of discounts. 
 
 " Let no loans be made that are not secured beyond a reasonable 
 contingency. Do nothing to foster and encourage speculation. 
 Give facilities only to legitimate and prudent transactions. Make 
 your discounts on as short time as the business of your customers 
 will permit, and insist upon the payment of all paper at maturity, 
 no matter whether you need the money or not. Never renew a 
 note or bill merely because you may not know where to place the 
 money with equal advantage if the paper is paid. In no other 
 way can you properly control your discount line, or make it at all 
 times reliable. 
 
 " Distribute your loans rather than concentrate them in a few 
 hands. Large loans to a single individual or firm, although some 
 times proper and necessary, are generally injudicious and frequently 
 unsafe. Large borrowers are apt to control the bank, and when 
 this is the relation between a bank and its customers, it is not 
 difficult to decide which in the end will suffer. Every dollar that 
 a bank loans above its capital and surplus, it owes for, and its 
 managers are therefore under the strongest obligations to its 
 creditors, as well as to its stockholders, to keep its discounts con- 
 stantly under its control. 
 
 "Treat your customers liberally, bearing in mind the fact that a 
 bank prospers as its customers prosper, but never permit them to 
 dictate your policy. 
 
 " If you doubt the propriety of discounting an offering, give the 
 
DIRECTORS' MEETINGS AND DISCOUNTING. 71 
 
 bank the benefit of the doubt and decline it; never make a dis- 
 count if you doubt the propriety of doing it. If you have reason 
 to distrust the integrity of a customer, close his account. Never 
 deal with a rascal under the impression that you can prevent him 
 from cheating you. The risk in such cases is greater than the profits. 
 
 "In business, know no man's politics. Manage your bank as a 
 business institution, and let no political partiality or prejudice in- 
 fluence your judgment or action in the conduct of its affairs. The 
 National currency system is intended for a nation, not for a party; 
 as far as in you lies, keep it aloof from all partisan influences." 
 
 In 1876 Mr. McCulloch delivered an address before the American 
 Bankers' Association, closing with a statement of the principles of 
 sound banking, which are a proper sequel to the foregoing. 
 
 "First. The capital of banks should be r^al, not fictitious. 
 
 "Second. The managers should not be borrowers, nor should 
 loans be made to stockholders merely because they are stockholders. 
 
 " Third. A certain amount of the annual profits should be car- 
 ried to the surplus the larger the surplus the better not only 
 for the safety of the stockholders, liable as they are, under the 
 bank act, for an amount equal to their shares, but for the pro- 
 tection of depositors. 
 
 "Fourth. Banks should be kept strong in their cash reserves, 
 as times frequently occur when the strongest stand in need of 
 them. Nothing in the long run pays better than a ' goodly " 
 amount of idle money, especially when specie is the only legal money. 
 
 "Fifth. As banks are commercial institutions, created for com- 
 mercial purposes, preference in discounts should always be given to 
 paper based upon actual commercial transactions. Banks are not 
 loan offices. It is no part of their business to furnish their cus- 
 tomers with capital, nor should loans be made under any circum- 
 stances for operations in stocks, or to furnish facilities for stock 
 operations. 
 
 " Sixth. Renewals should only be permitted to secure doubtful 
 debts, or in cases in which more time is required than was an- 
 ticipated when the loans were made, to complete the transaction 
 upon which they were based. 
 
 " Seventh. Such salaries should be paid to officers and clerks as 
 will relieve them from the temptation to dishonest practices ; and 
 the services of those whose expenditures exceed their salaries 
 should be promptly dispensed with. 
 
 " Eighth. Bank managers should bear in mind that they are not 
 only trustees of stockholders, but that they owe something to the 
 public that their whole duty is not performed when good profits 
 are made and when solvency is secured, but that they should do 
 all in their power to encourage morality in business and to elevate* 
 credit, especially commercial credit, to the highest standard." 
 
72 PRACTICAL BANKING. 
 
 CHAPTER VIII. 
 THE CASHIER. 
 
 We have already said that every bank had a leading business of- 
 ficial who was either the president, vice-president or cashier. The 
 presidents of the country banks very generally perform only a few 
 duties besides those required by law which cannot be delegated. 
 Here and there may be found a president who is the real head of 
 the concern. In the larger cities the president, in most cases, is the 
 real manager, who is elected to act in that capacity, and on whom 
 the responsibility and success of the bank depend. 
 
 The cashier, unless there be a vice-president, ranks next to the 
 president, and has certain specified duties to perform. These are 
 mentioned in the law under which the bank exists. But from what 
 has been already said, he may also be the real head of the bank in 
 conducting its business, and this is often the case, especially in 
 country banks, which form by far the majority of the whole number. 
 
 His specific duties may be thus defined. He keeps a record of 
 the meetings of the directors, at which he acts as secretary. The 
 certificates of stock issued to shareholders are signed by him as 
 well as the president, and so are the bank notes which circulate as 
 money. Checks also drawn on other banks are signed by him, un- 
 less absent, when they are signed by the president. Drafts and 
 notes sent away to other banks are endorsed by him. These en- 
 dorsements are usually stamped : 
 
 "Pay to 
 
 or order, for colln for acct 
 of Arctic National Bank, N. Y. 
 
 JOHN SMITH, Cashier." 
 
 The correspondence of the bank is conducted in the name of the 
 cashier, and when his signature is alone required that of the presi- 
 dent may be substituted, but the alternate substitution cannot be 
 made. Formerly a cashier could hold no stock in his bank, and it 
 was regarded an improper thing for him to keep his personal ac- 
 count in it. The pecuniary relations of the president, also, toward 
 his bank were the same. This is no longer the case. The cashier 
 is usually a stockholder, and often a director. Under the National 
 
THE CASHIER. 73 
 
 banking system, whereby personal liability to the amount of the 
 stock is borne by everyone, if the cashier owns stock he is sup- 
 posed to be more interested in the success of the bank than if 
 he had no pecuniary interest. 
 
 The cashier is appointed by the directors, and may serve for any 
 length of time. He gives a bond for ten thousand or twenty 
 thousand dollars for the faithful performance of the duties of his 
 office, and which is signed by two sureties. Each clerk also gives a 
 similar bond, and usually for five thousand dollars. These bonds 
 do not cover losses occasioned by misjudgment or neglect, but only 
 fraudulent transactions. The requirement would be unreasonable to 
 hold these officials liable for losses of every kind. 
 
 The bondsmen are men of character and wealth. Their names are 
 submitted to the board of directors, or more generally to the offi- 
 cers, for the purpose of making whatever investigation may be need- 
 ful. If they do not approve of those offered, others must be pro- 
 cured. In the event of a loss, which the bondsmen must pay, it is 
 divided among them equally. 
 
 When an official has been promoted he must give another bond, 
 as the existing one does not protect the bank in the event of a 
 fraudulent loss occasioned by him after his promotion. Recently, 
 several cases have come to light of negligence on the part of di- 
 rectors in not procuring new bonds after making promotions. 
 Frauds were discovered, the bondsmen were sued, but the courts 
 decided that the bonds given simply related to the conduct of the 
 principals when holding the offices named in the instruments. 
 
 Although the cashier is appointed by the board of directors, and 
 is amenable to them and within their power of removal, he is also 
 the representative of the stockholders. If, therefore, the president 
 or directors should attempt to use the funds of the bank in an il- 
 legal manner, it would be the duty of the cashier to prevent them 
 from doing so if possible. His salary, and also that of the presi- 
 dent, is varied by the duties and responsibilities assumed. In the 
 larger banks the president, when he is the real manager, gets from 
 five to fifteen thousand dollars a year, and the cashier from five to 
 ten thousand dollars. The country banks pay, perhaps, half these 
 figures. These, however, are only crude approximations of the re- 
 muneration received. 
 
 As the cashier is the ostensible executive officer of a bank, he is 
 presumed to have, in the absence of positive restrictions, all the 
 power necessary to transact its business. Thus, in the absence of re- 
 strictions, if he should procure a bona-fide rediscount of any paper 
 of the bank, his endorsement would bind it, because he has the 
 implied power to transact such business. But he could not, by 
 virtue of his official relation to his bank, bind it as an accommo- 
 dation endorser of his own promissory note. Such a transaction 
 
74 PRACTICAL BANKING. 
 
 would not be within the scope of his general powers, and if a per- 
 son should accept an endorsement of that nature he could not 
 recover of the bank, in case the note was not paid, without prov- 
 ing that it specially authorized the cashier to make the endorse- 
 ment. There is no presumption in favor of the delegation of such 
 a power.* 
 
 One of the first duties on reaching the bank in the morning is 
 to attend to the correspondence. In some of the New York City 
 banks this is very extensive. Formerly the letters were opened by 
 the cashier, but now they are given to clerks appointed for that 
 purpose. The letters containing cash items are retained by the 
 tellers. Those which must be answered by the cashier himself are 
 termed " special letters," and are laid on his desk in the early part 
 of the morning. These may be applications for discounts, proposals 
 from new customers, orders for the purchase or sale of stocks and 
 bonds, letters asking for advice concerning the standing of persons, 
 opinions concerning the worth of certain bonds or stocks, or com- 
 plaints concerning the conduct of the business of the bank. The 
 answers are copied in a book kept for that purpose. 
 
 The number of letters daily received by a bank having a large 
 correspondence may be from two hundred to two thousand. Most of 
 them are formal, containing a statement of enclosures, and can be 
 easily answered. Printed forms are used in most cases both in send- 
 ing such enclosures, and in acknowledging their receipt. Mere ac- 
 knowledgments are not usually copied. 
 
 All the checks received in the morning letters which can be 
 sent to the Clearing-house are put in the package which is to be 
 sent there, as will be explained hereafter. The amount thus re- 
 ceived daily in some cases is very large, running into the millions. 
 
 A cashier of one of the best-conducted banks in New York 
 City has thus described the usual daily routine of his business. 
 After examining a dozen papers to which the bank subscribes, he 
 looks around to see that all the clerks are on hand and are pre- 
 paring the exchanges for the Clearing-house. By a few glances he 
 can tell whether the work is progressing satisfactorily. If a vacant 
 place is seen, then it is presumed that a clerk is absent, and some- 
 body must be found to supply his place. In the morning, almost 
 all the clerks, except the bookkeepers and the heads of the depart- 
 ments, are engaged in preparing the exchanges. In that bank the 
 letters are so numerous that a large force is necessary in order to 
 get the exchanges ready in time, and a vacancy must be speedily 
 filled if possible. Sometimes he is obliged to assist himself. If a 
 clerk does not appear within ten minutes past nine he is regarded 
 late. 
 
 * See the opinion of Ch. J. Waits in Savings Bank v. Parmlee, U. S , Supreme Court, 
 1877. 
 
THE CASHIER. 75 
 
 The special letters are brought to the cashier, and those requir- 
 ing immediate attention are answered at once ; others at a more con- 
 venient time. Then letters containing remittances are brought in 
 from the bookkeepers. Those requiring special attention are laid 
 on one side, and the instructions they contain are entered in a special 
 letter book for the use of the corresponding clerk. For example, if 
 an advice concerning a payment is requested, it is the duty of the 
 corresponding clerk to make the necessary advice. The last duty 
 which the latter performs in the day is to examine his special letter 
 book, for the purpose of assuring himself that all letters requiring 
 special attention on his part have been answered. 
 
 When the directors meet, as we have seen, the cashier meets 
 with them. Besides, he examines loans secured by collateral, to 
 reassure himself of the sufficiency of the security, or perhaps with 
 a view of calling the loan, if the collateral that is securing pay- 
 ment be of a kind which the bank does not wish to hold longer. 
 He also examines the balance books and directs all the detail of 
 the bank, keeping himself informed concerning the business done. 
 Such are the leading features of his daily business, interspersed 
 with frequent calls and interruptions. The afternoon hours crj not 
 so pressing, and the duties are more varied. 
 
 When the money market is "easy," the duties of a cashier are 
 very agreeable. The departments of the bank move along harmoni- 
 ously. The dealers call and transact their business, and go away in 
 good humor. If they want to get notes discounted this is done 
 promptly. Very often social topics are pleasantly blended with 
 their negotiations. But when the market shows signs of tightening, 
 then these pleasant daily scenes are quickly changed. The amount 
 of paper offered for discount is suddenly doubled, and the amount 
 discounted is reduced one-half. Merchants are not satisfied with 
 their usual preparations for future payments. They are determined 
 to get more ready money, if possible, and eagerly demand more 
 loans. These are the times that test the ability of the bank man- 
 ager, and which prove his fitness or unfitness for his position. 
 
 One of the duties of a cashier is to increase in every proper 
 way the business of the bank. The banking business in this respect 
 does not differ from any other. The profits in the business in 
 most banks are made on the deposits. To increase these, there- 
 fore, is the ambition of all concerned in the enterprise, and especi- 
 ally of those who are the most active and responsible in its 
 management. New accounts are eagerly sought. While, however, 
 this is true, no well-conducted bank will blindly open an account 
 with any person. He must be properly identified and introduced, 
 and his character must be ascertained. Some banks will not take 
 the accounts of persons introduced by a clerk of their own, for the 
 reason that it is possible for him to be a confederate in some 
 
76 PRACTICAL BANKING. 
 
 plan with the introducer to defraud the bank. The clerk might 
 be enabled to give him a fictitious credit or in some way assist 
 him in defrauding the institution. If, therefore, a clerk should in- 
 troduce a customer, an additional introduction would also be re- 
 quired. If he were a merchant, the introduction of another mer- 
 chant would be needful. If the applicant were not engaged in 
 business, he might present such facts as would satisfy the cashier 
 concerning his worthiness without further investigation. If the 
 cashier should decide to open an account with him, he would be 
 required to sign his name in a book kept for that purpose. All 
 that the applicant has said concerning himself, and whatever can be 
 found out about him afterward, is recorded in a book which has 
 been already described. 
 
 It is not possible for the cashier to supervise the books of a 
 bank personally, but he should look at them frequently enough to 
 satisfy himself of their correctness. Clerks sometimes get careless 
 and negligent, and may carry over their work from day to day, or 
 portions of it, if they are not watched. A supervision of this 
 kind is needed in order to maintain the best discipline. Without 
 it, clerks too often become careless and inattentive and delay their 
 work in various ways. A cashier should have an intimate knowl- 
 edge of the theory of accounting maintained by his bank, so that 
 when he examines any book he will be able at once to understand 
 it. We do not suppose that every bank has such a cashier, but 
 unquestionably it should have. Bank-booking is generally quite 
 simple, and no very high order of ability is required to master 
 it. Banks differ from one another in many details of doing busi- 
 ness, but in no case are these difficult to comprehend. 
 
THE PAYING TELLER. 77 
 
 CHAPTER IX. 
 THE PAYING TELLER. 
 
 Having described the duties of the cashier, we will describe those 
 of the paying teller, which are regarded as next in importance. He 
 is frequently called the first teller. Whenever the cashier is pro- 
 moted, the paying teller usually succeeds to his place. It is some- 
 times maintained, however, that the general bookkeeper and the cor- 
 responding clerk ought to have an equally good chance for the office. 
 
 The paying teller receives a higher salary than any other clerk, 
 and the general bookkeeper the next highest. The paying teller's 
 salary is larger, because he is trusted with more funds, and because 
 the responsibility put on him to scrutinize signatures and to pay 
 money is peculiar and very great. 
 
 To him is committed the custody and disbursement of the funds 
 of the bank. The amount of money in his keeping in a large bank 
 may amount to several millions of dollars. In such a bank several 
 apartments in the vault are appropriated to his exclusive use. A 
 cashier said to the writer not long since that in his bank an aver- 
 age amount of two mi-llion dollars was kept. The responsibility of 
 keeping it was too great for one man. The vault where it was 
 kept was divided into compartments. The paying teller had three, 
 the receiving teller one, the note teller one, the collection clerk one, 
 the discount clerk one, and the loan clerk two, and one was as- 
 signed to the cashier. Two locks were placed on each of two 
 of the three compartments assigned to the paying teller. The 
 combination of one lock was known only to the cashier, and the 
 combination of the other only to the paying teller. Consequently 
 neither person could open the compartments without the knowl- 
 edge of the other. In these compartments was kept the greater 
 part of the reserve of the bank. In the third compartment, which 
 had only one lock, the paying teller kept the balance of his cash, 
 which changed from day to day, and which necessarily must be 
 under his control. The cashier knew every combination except those 
 of the paying teller. 
 
 The paying teller is therefore the sole guardian of his cash. No- 
 body ever thinks of invading his compartments; but there are times 
 when this may be necessary. He may be taken sick, and in that 
 
78 PRACTICAL BANKING. 
 
 
 event another person must open the compartments to get the funds 
 for carrying on the business of the bank. There are times, too, 
 when investigations are made, annually or otherwise, all the com- 
 partments are opened, and their contents are examined. But, ex- 
 cept on such occasions, or when fraud is suspected, the teller's 
 compartments are not opened unless he is present. The reader can 
 well understand why such strictness prevails. If the cashier were 
 accustomed to going to them, if any loss should occur, it might be 
 very difficult to trace. The paying teller, therefore, has sole charge 
 of his compartments, and alone is responsible when losses arise. 
 
 The paying teller reaches the bank about nine o'clock in the* 
 morning. He unlocks his compartments, and the porter assists 
 him, if necessary, in carrying to his desk the money which is 
 likely to be wanted during the day. His compartment is then 
 locked, and he returns to his desk. 
 
 The different kinds of money paid by him are familiar to every 
 one. It consists principally of United States notes and National 
 bank notes. The former are issued by the Government, and are more 
 frequently called " greenbacks ; " the latter notes are made by the 
 banks themselves. Then there is coin, gold, silver "the dollar of 
 the daddies," and minor coins. Silver certificates are also paid, and 
 less frequently gold certificates. They represent the amount of gold 
 or silver specified on their face in the possession of the Treasury 
 department, and which can always be obtained by presenting these 
 certificates to the United States Treasurer at Washington, or to any 
 assistant treasurer.* To facilitate payments, the money drawer is 
 divided into sections which contain notes of different denomina- 
 tions. A package of fives contains two hundred and fifty dollars. A 
 package of tens five hundred dollars. A package of twenties one 
 thousand dollars. There are other packages for varying amounts. 
 When a check is presented for the amount of any packet, it is de- 
 livered without recounting. For intermediate amounts, of course, 
 the packets must be opened. 
 
 All payments of money are made by one teller; consequently all 
 the exchanges sent to the Clearing-house must appear in his ac- 
 counts. It may be stated here that this is composed of the checks 
 on other banks taken on deposit, and also those which are re- 
 ceived in letters from other banks. Formerly, it was the duty of 
 the paying teller to receive the exchanges in the morning, and to 
 prepare them for the clearing house. This, however, is now the 
 duty of the third teller, though sometimes performed by the second 
 or receiving teller. In the largest banks the business, of coui 
 is more subdivided than in the smaller ones. But in all cases the 
 exchanges, by whomsoever prepared, are charged to the first teller. 
 On this topic more will be said hereafter. 
 
 * There are nine assistant treasurers in the United States. 
 
THE PAYING TELLER. 79 
 
 At ten precisely the teller is ready for the business of the day, 
 which consists in paying checks of depositors of the bank. These 
 checks are usually given by depositors to other persons, but they 
 also draw money themselves from the bank. In any case, an order 
 or check is necessary to get it. 
 
 It is a good rule when drawing a check on a bank or banker to 
 make it payable to the order of an individual, firm, or institution, 
 as the case may be. By this means the drawer is saved from the 
 risk of loss, in case the holder of the check loses it a risk to which 
 all holders of checks payable to bearer are subject. 
 
 In paying a note or acceptance to a bank or banker, instead of 
 drawing bank notes for the amount, the payer should request the 
 paying teller of the bank in which his funds are deposited to certify 
 that his check is good for the amount, and hand it to the bank or 
 banker who holds the note or acceptance. The check in all cases 
 should be made payable to his or their order for the amount of 
 the same. 
 
 When making up a list of checks for deposit, the depositor 
 should endorse them all, whether payable to bearer or order, with 
 this phrase : 
 
 "For Deposit." 
 
 A. B. & Co. 
 
 Or, " For Deposit at Arctic Bank." 
 
 A. B. & Co. 
 
 By this means the depositor protects himself from risk of loss by 
 losing any of the checks; for though payable to his order, and en- 
 dorsed by him, they cannot be collected by any person except the 
 clerk of the bank in which the deposits are made, and consequently 
 they would be valueless in the hands of a stranger. 
 
 In the case of checks payable to bearer, the safer plan is to 
 write across their face " See endorsement," or " For deposit." In 
 England, the custom prevails of crossing checks payable to bearer. 
 This crossing consists simply of drawing across the face of the 
 check two parallel lines, between which are written the words, "& 
 Co.," after a blank space. The check can then be collected only 
 through a bank or banker. 
 
 To obviate the trouble of writing in full the words, " For de- 
 posit," or " For deposit at Arctic Bank," a stamp may be used, 
 leaving only the signature of the party to be written underneath by 
 himself. 
 
 A banking firm in San Francisco have the following rules printed 
 on the inside of the front cover of their check books in order to 
 impress on their customers the importance of using every precaution 
 against fraudulent alterations or forgery of checks : 
 
80 PRACTICAL BANKING. 
 
 GUARD AGAINST FRAUD.' 
 
 Draw all your checks from your own book. 
 
 Number your checks in regular succession. 
 
 Write plainly. Use plenty of good black ink, and allow it to 
 penetrate the fibre of the paper before blotting. 
 
 Begin writing and figures close to left-hand margin, and leave no 
 space for additions or alterations. 
 
 See that the figures correspond with the body of the check, and 
 that dollars are plainly separated from cents, thus : $ ioo T 7 c 5 ff or 
 llOOjfr. 
 
 Keep this check-book in your safe when not in use. 
 
 Deposit your pass book regularly for monthly settlement. 
 
 In a recent address by an experienced banker,* he says that "a 
 good bank clerk is one who, being thoroughly trustworthy, has a 
 natural aptitude for figures, who is ready of hand and quick of eye, 
 who can handle money neatly and expeditiously, and see in an in- 
 stant whether what he handles is good or otherwise. A first-rate 
 teller will detect a forged note or spurious coin by its very touch, 
 even while he is handling thousands. Those who handle checks 
 must acquire a rapid power of observing signatures, and be able to 
 detect in an instant any attempt at fraud or forgery." 
 
 About half-past ten the exchanges from the Clearing-house are 
 brought in by the messenger. If the paying teller examined the 
 checks received he would be obliged to neglect other work, for 
 they frequently amount to several millions. Three men are often 
 sent by a bank to the Clearing-house. One man, a messenger, 
 carries the exchanges, another guards him, and the third is the set- 
 tling clerk. The settling clerk sits at a desk assigned to him. The 
 messengers start one after another in the manner fully explained 
 in the latter part of this work. The settling clerk receives the 
 envelopes, containing the checks on his bank, from the messen- 
 gers of other banks as they are passed in to him. He keeps these 
 in a certain order, and enters the amount from each bank in the 
 appropriate place in a statement prepared for that purpose. As 
 soon as the proof is made the balances are struck, and the mes- 
 senger and assistant return to the bank. The settling clerk remains 
 to make the final proof, and then he returns. The messengers 
 bring with them the record of the balance, which is generally cor- 
 rect. Sometimes, but not often, a small variation is discovered after 
 further examination, which is always made. 
 
 When the debit exchange is thus received it must be carefully 
 examined. From what has been said already the reader will un- 
 derstand that it consists of checks drawn on the bank to which it 
 has been returned. The signature, endorsement, and whatever pe- 
 
 * Mr. George Hague, General Manager of the Merchants' Bank of Canada. 
 
 
THE PAYING TELLER. 8 1 
 
 culiarity a check may possess, must be examined before charging it 
 to the drawer. This work is done during the intervals of other 
 business, and not so much haste is required in completing it as in 
 preparing the credit exchange for the Clearing-house, because that 
 must be there by ten o'clock, otherwise a bank is fined for tardi- 
 ness. 
 
 The assistant bookkeepers check out the exchanges, though this 
 work is sometimes done by the bookkeepers who post them in their 
 ledgers, and bring the totals of their postings to the paying teller,, 
 who compares the record with the amount brought from the Clear- 
 ing-house, which must be the same. 
 
 Having now considered the duties of a paying teller with respect 
 to preparing his exchanges, we proceed to consider another very 
 important function performed by him, namely, the certifying of 
 checks. 
 
 This consists in writing or stamping on a check words to the 
 effect that it is "good," which signify that it will be paid on pres- 
 entation. 
 
 When a depositor has enough money in the bank to pay the 
 check presented for certification, the duty of the paying teller is a 
 very simple one ; he will not hesitate to certify such a check. Re- 
 quests of this kind are often made in order to render a check 
 more negotiable. A person, for example, may be unwilling to re- 
 ceive a check if drawn in the ordinary manner; but if certified by 
 the bank on which it is drawn, no one will hesitate to receive it. 
 
 The paying teller is often asked to certify checks for a much 
 larger sum than the drawer may have on deposit, and the question 
 then arises, " Shall I grant or refuse the request ? " This is often 
 a very delicate question with him. When observing the National 
 banking law his duty is very plain, for he is not permitted to cer- 
 tify beyond the amount which the depositor may have in the bank. 
 Under the State bank system, however, no such regulation prevails. 
 
 Whenever the request is made the drawer expects to make de- 
 ficiency good within a short time, generally before the close of the 
 day. The paying teller is given a very wide latitude in granting 
 or declining these requests. Usually he acts on his own authority, 
 though, of course there is nothing to prevent him from getting the 
 opinion of the cashier or president. In all cases the question is 
 decided very quickly. If the person asking for the favor is an old 
 customer, and has always been prompt in fulfilling his engagements, 
 and whose account is a large and desirable one, the paying teller 
 would not hesitate to certify. If he were a new dealer, and not 
 well known to the paying teller, he would refuse. A good au- 
 thority says, " The discretion of the teller in certifying checks is 
 for the most part independent of his superior officers, and they are 
 averse to interfering with it. In doubtful cases he refers to them 
 
82 PRACTICAL BANKING. 
 
 for special instruction. Dealers apply to them also to reverse his 
 judgment, but not often with success. Either of them would be 
 likely to answer, 'The teller understands his business better than I 
 do.' Such is the influence acquired by a competent and judicious 
 clerk in this post that he obtains a degree of respect of the cus- 
 tomers of the bank a little less than is accorded the president or 
 cashier." 
 
 In the absence of the paying teller the receiving teller occupies 
 the place, and the same authority to certify. 
 
 Certified checks are generally returned in the debit exchange on 
 the following day through the Clearing-house. But very often they 
 are remitted to other places and do not appear for redemption for 
 a considerable time. They are charged, however, to the drawers 
 immediately, for certification is regarded equivalent to payment. 
 
 The city banks have a book in which these are recorded. The ag- 
 gregate is posted to the credit of an account called " Certified 
 Checks," which is balanced by the separate charges as the checks 
 come in. When the checks are paid they are entered on the debit 
 side of this account ; consequently it always shows the balance of 
 certified checks outstanding. Formerly the dealer's ledger account 
 was not charged with such checks until they were received for pay- 
 ment. They might be out so long as to be forgotten by the teller 
 and the bookkeeper, and it was not difficult to practice a fraud on 
 a bank by checking out deposits to such an extent as to leave an 
 insufficient sum for the redemption of a certified check when pre- 
 sented. The losses to which the old methods gave rise led to the 
 adoption of the existing plan of posting certifications. 
 
 A great variety of checks are drawn and presented for payment. 
 Every check requires more or less examination. One of the most 
 common defects is the lack of a proper endorsement. Checks are 
 not infrequently given to persons who know but little about such 
 matters, and who forget to fulfill this requisite, or who, perhaps, are 
 ignorant of the fact that a check is made payable to their order. 
 Sometimes checks are post-dated, and are presented for payment 
 before the time fixed by the drawers. Sometimes the dates are 
 altered, and the teller must be satisfied whether the alteration . is 
 material or not. Sometimes a check is drawn for a larger amount 
 than the depositor may have on hand, or the paying teller may 
 think so, and it is necessary for him to ask the bookkeeper what 
 the balance of the depositor's account may be before paying it. 
 Many irregularities and delays and inquiries may arise beside those 
 mentioned. 
 
 All checks that have passed the paying teller's examination are 
 given to a clerk for entry on his check list, and are charged to their 
 respective accounts in the ledger, except by those banks which use 
 the Boston system of ledgers, to be hereafter explained, in which 
 the check list is not used. 
 
 
THE PAYING TELLER. 83 
 
 In paying checks the teller must think of three things : first, is 
 the signature genuine ; secondly, is the account of the drawer good ; 
 and, thirdly, is the person presenting the check entitled to receive 
 the money. 
 
 Much might be said under the first head. A great many forged 
 checks are presented and paid. It is one of the terrors of banking. 
 All kinds of devices have been invented for preventing forgeries. 
 Various kinds of paper have been tried. The use of green ink on 
 the United States and National Bank notes was to render their 
 forgery more difficult. And indeed it has proved one of the most 
 effective of preventives. Private marks in signatures are sometimes 
 used. This must be said, however, concerning them : if a forger finds 
 out what the private mark is and successfully counterfeits it, the 
 paying teller is more likely to be deceived than he would be if 
 no such mark were employed. 
 
 One of the universal precautions observed by banks to prevent 
 forgeries is to require every depositor to write his name in a signa- 
 ture book. With this the paying teller compares doubtful signa- 
 tures. Every drawer should always sign his name in the same 
 manner, or, if varying it, should acquaint the paying teller with the 
 variation. 
 
 The paying teller must also satisfy himself concerning the genu- 
 ineness of the endorsement on every check presented for pay- 
 ment. 
 
 The second inquiry is, has the drawer a sufficient deposit to pay 
 the check. In every large bank several hundred depositors trans- 
 act business with it. They have various times and methods of de- 
 positing. Some draw many checks daily, and some only a few, or 
 at rare intervals. The deposits of a bank, therefore, are constantly 
 varying in amount. How then can a paying teller recall the condi- 
 tion of every depositor's account? 
 
 We cannot describe how a paying teller performs this important 
 part of his work any better than Gibbons has done. By carefully 
 examining the deposits and checks of a dealer, it is easy to judge 
 whether they are the proper returns from his business, or whether 
 they are mostly transfers between different persons and accounts ; 
 also to what extent his balances are maintained by loans and tran- 
 sient accommodations. It is not difficult to ascertain whether a 
 man uses his credit excessively or with prudence ; nor to get infor- 
 mation of his personal habits, associations, and general character. 
 The contact of the teller with merchants in all branches of trade 
 affords many opportunities of inquiry which, with those in possession 
 of the bank officers, enable him to classify the dealers, and thus to 
 assist his memory. 
 
 In the first-class stand those of known large capital, who never 
 give out their own notes. They may sell on credit, but they al- 
 
84 PRACTICAL BANKING. 
 
 ways buy for cash. Their deposits in bank are generally far greater 
 than their immediate wants. When their checks are presented, the 
 teller may safely pay them without reference to the condition of 
 their accounts; for if they should even appear overdrawn at the 
 moment, he knows that they will make an ample deposit before the 
 close of the day. In addition to this, they are likely to have a con- 
 siderable amount of promissory notes lodged in the bank for collec- 
 tion, which are collateral security. 
 
 The middle class of dealers are the most numerous. Less inde- 
 pendent with regard to capital, and relying on the bank for loans, 
 they are yet generally safe and trustworthy. They will not trans- 
 gress its rules, lest they forfeit its confidence. The teller pays their 
 checks commonly without examining their accounts, depending on 
 their integrity and self-interest to rectify possible errors by over- 
 draft or otherwise. 
 
 Next come the retail shopkeepers, mechanics and small manufac- 
 turers. Many of this class keep accumulating accounts, and seldom 
 call for loans ; or if so, to a very moderate extent. Separately, their 
 deposits are not large, but in the aggregate, they add materially to 
 the loaning facilities of the bank. They draw but few checks, and 
 their accounts are not liable to sudden changes. The teller soon 
 acquires such a knowledge of them as to remember which need 
 watching; and the bookkeepers aid him in this by an alphabetical 
 list of balances. An old bank gradually expurgates its ledgers of 
 troublesome accounts, while a new bank, from competition for busi- 
 ness, or non-acquaintance with the character of dealers, is likely to 
 fall heir to them. 
 
 By these precautions the paying teller is able to tell what checks 
 ought to be paid and what ought not to be. Now and then an 
 overpayment is made, but rarely. But a method of getting money 
 from a bank is sometimes practiced, which though illegal is success- 
 ful. Two persons who keep accounts in different banks may ex- 
 change checks, and each person deposits the check of the other. 
 Afterward, they draw out money on their own checks. Of course, 
 if the checks originally given were paid, no loss would ensue to 
 either bank, but in case they are not paid, the banks lose. When 
 a check is thus deposited, if the deposit teller should have any 
 doubt concerning the payment of it, he would inform the paying 
 teller of the fact, and that eventually when the depositor presented 
 his check for payment he would get no money. Such a thing would 
 not happen with a new depositor, for a bank would not be likely to 
 pay out money when it had received none. But when a person has 
 been depositing for a considerable time, if he should thus slip in the 
 check of another, the payment of which was doubtful or impossible, 
 he might be able to check against it and in that way defraud the 
 bank. This process of exchanging checks and drawing against them 
 
THE PAYING TELLER. 85 
 
 is called "kiting," and the persons who practice it are regarded 
 dangerous by a bank. No one would be likely to succeed a second 
 time with the same institution; indeed, when a person is detected of 
 doing it, his account is closed, and the bank refuses to have further 
 dealings with him. 
 
 Merchants in distant cities usually make their notes payable in a 
 New York City bank and remit the money to pay them previous to 
 their maturing. These remittances contain a letter of instruction 
 which is delivered to the paying teller who pays the obligation 
 when it is presented. After canceling it, the note is returned to 
 the person who sent the money. 
 
 Before paying an endorsed check the holder must be identified. 
 A great many persons holding such checks present them for pay- 
 ment and are surprised to learn that identification is necessary. A 
 check drawn " payable to bearer " requires no identification, and if a 
 bank should pay it, in no event would it be the loser; but if it 
 should pay a check payable to order to the wrong person, then it 
 would be required to pay a second time. It is to guard against 
 payment to the wrong person that checks are drawn payable to order. 
 It is a form of security which should not be omitted. Even if a 
 check should be lost or stolen, and the endorsement of the person to 
 whose order it was payable was forged, and payment was demanded 
 and made, the bank would be required to pay a second time to the 
 rightful owner of the check. As this is the law, banks cannot ex- 
 ercise too much care in paying checks to the persons who are en- 
 titled to the money, and no one can reasonably complain if the 
 utmost precaution is observed in making needful inquiries concern- 
 ing those who present checks for payment. Nevertheless, such in- 
 quiries are sometimes vexatious and annoying. It is not always 
 easy to find a person who is willing to go to the bank, or who can, 
 to identify the checkholder. A great many suits have arisen from 
 time to time concerning the liability of banks for the payment ol 
 checks to the wrongful person. 
 
 Endorsed checks paid to the Clearing-house are regarded as guar- 
 anteed by the bank from which they come. Any bank will guaran- 
 tee the endorsement of a dealer who is well-known to it. 
 
 Drawers sometimes direct that checks which they have given be 
 not paid on presentation. As a check on a bank is an order for 
 the payment of money belonging to the drawer, he has the right 
 to revoke it, and if such a revocation is given, and the bank does 
 nevertheless pay, it assumes a new risk. It is therefore very im- 
 portant to keep a record of the checks whose payment has been 
 stopped. Books are prepared for this purpose, one for each ledger, 
 and arranged alphabetically, so that the dealer's page may be referred 
 to as quickly as possible. The direction to stop payment must be 
 in writing, and all the particulars concerning the check on which 
 
86 PRACTICAL BANKING. 
 
 payment has been stopped must be carefully entered with full ex- 
 tracts from the letter giving directions to the bank concerning the 
 matter. Some banks have a form which they send to their dealers 
 to be filled out when they wish to stop the payment of a check. 
 
 As soon as payment has been stopped, the notice is sent to the 
 paying teller. He examines it, and puts his initial on it, and turns 
 it over to the bookkeeper, who records the fact. He is the per- 
 son to watch the matter, because he has the record. When ex- 
 changes come from the Clearing-house, he compares them with the 
 stop list after they have been arranged alphabetically, and runs them 
 over, and can speedily determine whether any check has been stopped. 
 In some banks as soon as a check of this kind appears, he takes 
 it immediately to the cashier. Nothing important is done without 
 his action. 
 
 There are other ways by which the bank may pay and receive 
 checks than by the first teller. First, the note teller may receive 
 them in payment of a note. Secondly, the receiving teller may take 
 them on credit; and, thirdly, the runner in payment of a draft. 
 For example, if Smith has a balance of $5,000 in a bank he may 
 draw that sum from the paying teller, or he may give his check 
 for it to another person for deposit in the same bank, or he may 
 take up a note with it at the note-teller's desk, or he may pay a 
 draft to the runner with it. Hence he may draw out $ 1 5,000 though 
 having but one-third of this sum on deposit. Of course such a 
 transaction is fraudulent and rarely happens. But it is possible. 
 
 If checks are not paid when sent through the Clearing-house they 
 are chargeable to the depositor's account. But if a check is deposited 
 in the same bank as that on which it is drawn it is paid when taken 
 by the receiving teller, as truly as if the first teller paid money in 
 discharge of it. In such a case if the check should not be good, 
 the bank might be obliged to look to the drawer of it and not to 
 the depositor. So, if a dealer A took up his note with the check of 
 another dealer B on the same bank, the bank would look to the 
 drawer of the check and not to the dealer for the money. 
 
 When the time for serving dealers has expired, the paying teller 
 makes up a statement of the day's business. This is called a 
 Proof. This proof is a test of the accuracy of the day's transactions. 
 The footings of cash on hand must agree with the " balance of 
 cash." If there is any discrepancy it must be hunted for until 
 found, and the necessity of going over figure* and recounting cash, 
 after the close of a hard day's work, is often an exasperating trial 
 of the teller's patience. 
 
 On the next page is tne paying teller's Proof of the Arctic 
 National Bank for July 24th. The form of Proof differs in banks. 
 Some tellers have a simple form, like that given here, others have 
 a much more elaborate form : 
 
 

 
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88 PRACTICAL BANKING. 
 
 THE RECEIVING TELLER. 
 CHAPTER X. 
 
 This official ranks next to the paying teller, and usually succeeds 
 him when he is promoted. 
 
 The accounts of a bank may be divided into the following classes: 
 general accounts, individual accounts, banks and bankers' accounts, 
 city dealers' accounts and collection accounts. The general ac- 
 counts are such as stock, expense, bills discounted, profit and loss, 
 cash, interest, exchange and some others. 
 
 The receiving teller receives all kinds of money and checks from 
 the depositors. The book in which these deposits are entered is 
 called the RECEIVING TELLER'S CASH BOOK. He has two books of 
 the same kind for alternate use by the teller and the bookkeeper. 
 
 The original entries of individual deposits are made by the re- 
 ceiving teller, and the other entries are made by the note teller. 
 The latter also receives the money paid for notes lodged for collec- 
 tion. Both clerks are receiving tellers, the receiving teller is called 
 the second teller, and the note teller the third. This rank they 
 hold in the order of promotion. 
 
 The deposits of merchants consist of the various kinds of 
 money and checks already described, and other documents repre- 
 senting money. The depositor is required to state the details of 
 his deposit, and a form is given him to fill up, which saves labor 
 in making the necessary statement. This blank is called a de- 
 posit ticket. A teller will not receive money without it. The 
 practice is different in country banks, as will be hereafter shown. 
 If his cash does not prove at the end of the day, he re-examines 
 these tickets and generally can find out where the error is. After 
 proving his cash, the tickets are put into a bundle and marked and 
 stored for future reference. 
 
 A bank located in a large city has an exchange drawer or rack 
 which is divided into numerous boxes. The checks of neighboring 
 banks received for deposit are assorted, and those on each bank 
 are put into their own box. 
 
 The footings of the checks thus received are copied on the gen- 
 eral list, and added together constitute the deposit teller's portion of 
 the exchange which goes to the Clearing-house. 
 
THE RECEIVING TELLER. 89 
 
 There are no complex calculations in the accounts of the receiving 
 teller. His duties are simple, and a high order of intelligence is 
 not required to fulfill the duties of the place. Most of the de- 
 posits, especially in the banks in the large cities, consist of mer- 
 chants' checks, which are given in discharge of obligations or pur- 
 chases. Some of these are certified before deposit and some are not. 
 Whenever the depositor is well known, his checks are received 
 without previous certification. But in other cases a certification is 
 required. 
 
 The reader should not confound the business of certifying with 
 that of over-certifying. There is no legal objection to certifying a 
 check to the amount of the depositor's balance. The National 
 banking law prohibits the certifying of checks only in excess of the 
 depositor's balance. The former kind of certification is very neces- 
 sary. Many persons whose financial standing is not known give 
 checks outside the banks on which the checks are drawn. 
 When, therefore, the check of an individual bears the certification 
 of the bank on which it is drawn, it will readily pass in making 
 payments, or be taken on deposit in any bank. But the check of 
 an unknown person would be received with hesitation. It might 
 be good, and it might not be. The certification of a check by 
 the bank on which it is drawn adds much to its negotiability. 
 
 The receiving teller of a bank may have reasons for requiring 
 checks to be certified of which the dealer may be ignorant and per- 
 haps cannot be informed. Sometimes a very considerable degree of 
 tact and caution are necessary in determining when certifications 
 should be required. Dealers should not be offended unnecessarily, 
 yet the safety of the bank must be regarded at all times. To 
 protect it, and to retain the friendship and good will of dealers, 
 is sometimes a difficult thing to do. Some persons are richly en- 
 dowed with tact and power of discernment ; they always know 
 what to say, and how to say it, when to be silent and not excite 
 distrust or arouse the ill-feeling of dealers. By other persons such 
 a knowledge of men and things is never acquired, though their 
 knowledge in many ways may be great and useful. 
 
 The receiving teller should know the condition of all accounts. To 
 do this he must ask the bookkeepers what is their average run ; he 
 should personally examine the ledgers, and also the deposits and 
 checks, and make all other inquiries of persons in the bank or else- 
 where who are likely to throw any knowledge useful in his depart- 
 ment of the business. 
 
 The receiving teller should examine the signatures, endorsements, 
 dates, and other features of checks, the same as the paying teller. 
 Dealers who are perfectly honest may be cheated by others, and de- 
 posit fraudulent or " kiting " checks. The depositor should endorse 
 his name below all others on the back of each check. The receiving 
 
90 PRACTICAL BANKING. 
 
 teller should notice especially this last endorsement, for it is the key 
 to discovery if anything wrong should appear in the future history 
 of the check. At times, when checks are rapidly received for de- 
 posit, it is impossible to examine them carefully, and hence the 
 greater need of looking at the endorsement of a depositor. When 
 checks are finally paid where they are made payable, errors are sure 
 to be detected, and of course the bank receiving them ought al- 
 ways to know from what source they come, in order to know what 
 to do with them should any imperfection be discovered. 
 
 Reclamations between banks occur daily. Checks are dated ahead, 
 or the dates are obscure or omitted. They lack intermediate en- 
 dorsement, or they are endorsed by attorney without adequate proof 
 of his authority. The sum in the body of the check may not cor- 
 respond with the figures below, or may be entirely wanting. Checks 
 sometimes are paid without signature. The paying teller recognizes 
 a familiar style of writing and the omission of the name may not be 
 detected. Sometimes they are thrown into the wrong box, and are 
 taken to the wrong bank. These and many other errors happen. 
 As soon as discovered the checks are sent back to their proper 
 places for correction. 
 
 Merchants sometimes keep accounts with more than one bank. 
 This is done for several reasons. One reason is to obtain larger 
 discounts. Some persons think that greater secrecy can be main- 
 tained than by doing all their business with one bank. 
 
 There is a protective feature in many accounts which prevent banks 
 from losing by overdraft ; we mean when dealers have notes de- 
 posited for collection. For, when paid, they are posted to the credit 
 of their owner, and may make up a deficit in his account. Bank 
 officers will sometimes admit temporary overdrafts in anticipation 
 of the maturity of collection notes; or, what is better, make tran- 
 sient loans, holding them as collateral, by which the irregularity of 
 overdraft is avoided. The receiving teller takes no cognizance of 
 this source of recuperation unless he finds a necessity to resort 
 to it. 
 
 The word "foreign" is applied by banks in New York City to all 
 others. Most of the banks located there receive, on deposit, indi- 
 vidual checks on banks at a distance. Merchants in Buffalo, for ex- 
 ample, remit their checks on banks in that city to their creditors in 
 New York, and there they are received as cash, perhaps, deducting 
 enough to cover the exchange and the expense of collecting. They 
 may be returned not good after several days, and, in such a case, the 
 depositor must promptly redeem them. The interval between their 
 deposit and their return is long enough to permit the dealer to close 
 his account and leave the bank in the lurch. It follows that the 
 receiving teller is practically discounting paper all the time. 
 
 Drafts on individuals and on private bankers in New York are 
 
 
 
THE RECEIVING TELLER. 91 
 
 received on deposit, but this throws on the bank receiving them 
 the trouble of collecting them, while rendering it responsible for 
 endorsements in which it has no interest. Dealers, therefore, are 
 required to scrutinize and to collect them on their own behalf. 
 
 The deposit teller must examine the bank notes received, lest 
 counterfeit ones be taken. When the State banks issued notes there 
 was such a great variety of them and they were often so poorly 
 made that it was an easy thing to make counterfeits and to put 
 them into circulation. It has been far more difficult to counter- 
 feit the Government issues, and those of the National banks. 
 
 There are publications whose special function consists in describ- 
 ing counterfeits, and the deposit teller should study constantly 
 such sources of information. "A man sent us a bill," said a cashier 
 to the writer, not long ago, "that had been stolen before signature. 
 Our clerks picked it out at once ; they had been notified concern- 
 ing it." The National Bank Act requires that every National bank 
 officer receiving a counterfeit or stolen bill shall cut it, or brand 
 it, or stamp it "counterfeit" or "fraudulent," as the case may be- 
 With the note in question the cashier said he did not wish to do 
 this, because he might lose ten or twenty dollars. So he notified 
 the depositor that the bill might be returned to him and sent it to 
 the Comptroller of Currency at Washington for redemption. When it 
 came back it was cut in many places, and stamped, "stolen," 
 "stolen;" "bad," "bad." As soon as received the cashier sent 
 it to the depositor, and wrote to him that the bill could not 
 be credited on his account. He was very angry, and said he would 
 like to know what conceited fellow in the department undertook to 
 say that the bill was stolen. How could he know that it was ? 
 The cashier simply replied that the clerks had picked the bill out 
 when it came over the counter, that the information was derived 
 from a counterfeit detector, a copy of which was sent to him. 
 
 Not infrequently a claim is made by some depositor for a larger 
 sum than that with which he is credited. How these differences 
 arise is often mysterious. The deposit teller then makes a general 
 and thorough revision of all his figures, checking them off by his 
 deposit tickets and going over his additions. If the error cannot 
 be discovered in this way, he sends a letter to each dealer whose 
 deposit may possibly have been erroneously entered, and if the 
 error still remains undiscovered the cashier is informed, and perhaps 
 the directors at their next meeting. The search is continued as long 
 as there is any chance of detecting their error. 
 
 Gibbons says there is a loose practice with some banks with re- 
 spect to a deficit or excess of cash in the daily accounts of their 
 tellers. Small sums accrue, which are thrown together in a box or 
 drawer and applied to the payment of small deficits. These are 
 not noted on the face of the day's transactions. He objects to 
 
92 PRACTICAL BANKING. 
 
 this mode of conducting a banking business, and well he may. 
 Nothing short of exactitude should be allowed in commercial ac- 
 counts, and especially in a bank. A ledger account should be 
 opened with each teller, in which any surplus should be credited 
 under its actual date, or any deficiency charged, and this might be 
 periodically balanced by a transfer to profit and loss. 
 
 When deposits are made the depositor sometimes waits until 
 the counting is finished ; on other occasions he leaves immediately. 
 Some banks, though, require the dealer to wait until his deposits 
 have been counted in his presence. Sometimes deposits are left 
 containing the dealer's count on them ; if they are, when the re- 
 count is made, should there be a deficiency, the depositor must 
 abide by the teller's count. 
 
 Depositors have a book in which is written on one side the dates 
 and amounts of their deposits, and on the other the amounts that 
 have been checked out and the dates when this was done. The 
 depositor presents this book whenever he makes a deposit, and the 
 amount is written therein. It is the general practice to write up 
 these books at varying intervals of a month or more. 
 
 The receiving teller rarely receives forged checks, as he transacts 
 business only with the regular dealers. Of course a dealer may de- 
 termine to be a knave, and to practice a fraud on a receiving teller, 
 but happily such cases are very infrequent. 
 
 Toward the close of the day depositors multiply in number. 
 " First come first served " is the rule ; a row is formed, and the 
 last comer must take his place at the end farthest away from 
 the receiving teller. Formerly, when the State banks issued notes, 
 and counterfeiting was a more general practice, the business of as- 
 sorting and counting bank notes was a more difficult practice than 
 it is at present. No assorting is done now when notes are received. 
 The teller merely watches sharply for counterfeits. Afterward the 
 notes are assorted into packages of various denominations without 
 regard to the bank issuing them. Such is the perfection of the Na- 
 tional bank-note system, that the note of one bank is as good as 
 that of another, and hence there is no occasion for noticing their 
 parentage. 
 
 The checks on country banks are handed over to the correspond- 
 ing clerk, who lists them in his letters and in mail blotters for 
 charge to the appropriate banks in the collection ledger, unless they 
 are on dealers of their own bank. In that case they are often 
 charged directly to the general account of the dealer. 
 
 
THE NOTE TELLER. 93 
 
 CHAPTER XI. 
 THE NOTE TELLER, 
 
 The note teller receives the letters and the money for all prom- 
 issory notes liquidated at the bank. In small banks his duties may 
 be blended with those of the receiving teller. And again the duties 
 of both may be performed by the paying teller. In other words, 
 one person may perform the duties assigned in a larger bank to the 
 three beside several assistants. 
 
 There are two kinds of notes. Those which are discounted by 
 the bank, and those which are deposited by the owners for collec- 
 tion, and for which they are to receive credit when they are paid 
 The former are called bills discounted, and the latter collection 
 notes. 
 
 In large banks at the present day the note teller does not have 
 charge of the notes until the morning of the day of maturity. The 
 bills discounted are handed to him early on the morning of the 
 day of their maturity by the discount clerk. They are usually 
 strapped together, and the total amount of the notes is stated in 
 pencil on the strap. When collected, this total amount is credited to 
 " bills discounted " in the general ledger. Should any of these notes 
 not be paid, of course the amount to be credited to " Bills Dis- 
 counted " will be just so much diminished. 
 
 The collection clerk each morning hands to the note teller the 
 notes he has maturing, and with a ticket for each note, or with a 
 ticket for each owner of notes. 
 
 When the notes are entered they are arranged by the note teller 
 in the order of the names of the payers. The note teller is now 
 prepared to receive payment of the notes whenever debtors ap- 
 pear. The notes payable at the bank are retained by the teller 
 in his drawer, and those payable at other points in the city are 
 sent out by messengers for presentation. 
 
 The note teller reaches the bank in time to make the entries of 
 remittances by the morning's mail before the institution is opened to 
 the public. The following is the usual form of letter received now- 
 a-days, with abbreviations: 
 
94 PRACTICAL BANKING. 
 
 DELAWARE RIVER BANK, 
 
 Philadelphia, June, 30, 1884. 
 H. MORSE, Esq., Cashier. 
 Dear Sir: 
 
 Enclosed find for our credit : 
 
 Peters, Cashier on Com $9,400 oo 
 
 Ruffin, a // Am 10,00000 
 
 Luther, * // Am. Ex 1,57560 
 
 Simpson, Met 14,26370 
 
 Corse & Co Third Nat 1,800 oo 
 
 Kerr Phx , 2,740 oo 
 
 $39,779 30 
 
 We add for collection : 
 
 Brown on Thompson 3 ds $ 1.250 oo 
 
 Green Burr & Co 10 ds 3,263 20 
 
 Wilson July 10 2,249 75 
 
 White 90 ds 242 90 
 
 Kent Albany July 25 506 oo 
 
 Mother Buffalo Aug. 3.- T,OOO oo 
 
 Gray & Co. Hartford sight 2,600 oo 
 
 Roberts Port 10 ds 1,050 oo 
 
 Yours truly, 
 
 J. JONES, Cashier. 
 
 To explain them fully, these items for credit mean checks as fol- 
 lows : 
 J. Peters, Cashier, Sussex Bank of Milford, on N. Bk. of Commerce, N. Y. $9,400 oo 
 
 T. Ruffin, Cashier, Bank of Fullerton, on Bank of America 10,000 oo 
 
 Corse & Co., Richmond, Tenn., on Third National 1,800 oo 
 
 And so on. 
 
 The collection items are drafts or notes, thus: 
 
 A. Brown & Co., draft on Thompson Bros, at 3 days' sight $ 1,250 oo 
 
 P. Green & Sons on Burr & Co., 10 days' sight 3,263 2O 
 
 Wilson & Co., note due July 10 2,249 75 
 
 Kent Bros. ( payable at Albany ) July 25 506 oo 
 
 Draft on Gray & Co., Hartford, sight 2,600 oo 
 
 This letter is given to the note teller, who writes his initial as 
 his receipt for each check that he takes from it for credit to 
 the remitting bank. In the same way, all letters containing cash 
 documents are passed into his hands, and the proper entries are 
 made from them. In the Boston system of bookkeeping, which 
 will soon be explained, the entries are made from the letter itself. 
 The total footing of the letter is first posted in the Note Teller's 
 CASH BOOK, the letter is then handed to the bookkeeper who again 
 posts the total opposite the dealer's name, and afterward the letter 
 is handed to the corresponding clerk, who brings all the letters to 
 the cashier for examination. In many banks, the president goes 
 through the letters received the previous day; in other banks, the 
 president is shown every unusual letter. It is important by this 
 system to have the letters footed, because the letter is the original 
 entry, and every footing is from the letter. The totals of the 
 
 
THE NOTE TELLER. 95 
 
 
 
 letters are posted by the note teller, and again by the bookkeeper, 
 and they compare the footings. 
 
 Some banks send notices of the time when a note falls due. For- 
 merly this was done more generally than it is now. The business 
 has become too large for banks to continue it. Persons who give 
 notes are supposed to know when they become due, and should be 
 prepared to pay them without notification. In some cities the cus- 
 tom seems to prevail of making notes payable at any bank in 
 town. Especially is this the case in Boston ; where it prevails notices 
 would seem to be necessary. In New York City, however, it is 
 customary for merchants and other persons to make their notes pay- 
 able at a specific place, and to have the money there to pay them 
 at maturity. 
 
 When notes are paid, a certified check may be used, or money. 
 A teller should preserve the notices and memoranda of his trans- 
 actions in the order of their occurrence until his cash is proved 
 at the end of the day. They may serve a useful purpose in 
 refreshing his memory or in detecting any error that may happen. 
 
 When a note is paid, the bank stamps thereon a notice like the 
 following: 
 
 "Paid at the Merchants' Bank." 
 
 Of course a great many incidents and irregularities happen in con- 
 nection with this department. The persons who ought to pay per- 
 haps forget where the note is payable, or when, or the amount. 
 Sometimes the notice is delivered to the wrong person. Some mer- 
 chants write their notes payable at the bank where they keep their 
 account. 
 
 After the last payer is dismissed the note teller closes his gate 
 erases from the Cash Book and DISCOUNT TICKLER the notes that 
 remain unpaid, and delivers them to a Notary Public for protest, 
 except where no endorser is to be held. 
 
 The protest consists in presenting the note at the place of busi- 
 ness of the drawer, or wherever it is made payable, and demanding 
 the money for it. If this be refused the note is attached to a printed 
 legal form, containing the following particulars : First, a true descrip- 
 tion of the note, so as to ascertain its identity; second, an assertion 
 that it has been duly presented to its maker, or place of payment, at 
 maturity, and dishonored ; third, the holder, or the person giving the 
 notice, looks to the person to whom the notice is given for pay- 
 ment and indemnity. This statement is essential to establish the 
 claim or the right of the holder or the party giving notice, for 
 otherwise he will not be entitled to any payment from the en- 
 dorser. It will be sufficient, indeed, if the notice sent necessarily or 
 even fairly implies by its terms that there has been a due present- 
 ment and dishonor at the maturity of the note, but mere notice of 
 the fact that the note has not been paid affords no proof whatever 
 
96 PRACTICAL BANKING. 
 
 that the note has been presented in due season, or even that it 
 has been presented at all. The note is returned to the bank on 
 the following day. The Notary sends notice of the protest to all 
 the endorsers and to the drawer of drafts, which advises them of 
 their liability for the payment in case of the continued default of 
 the first debtor. If the notes should be paid when presented by the 
 Notary he returns the money to the bank on the next morning, 
 
THE DISCOUNT CLERK. 97 
 
 CHAPTER XII. 
 THE DISCOUNT CLERK. 
 
 As we have seen, the profits of banking are composed of interest 
 OR money in other words, of interest, discount and exchange. 
 
 The loans are called discounts, because the interest is paid in ad- 
 vance and deducted from the amount due to the borrower. But if 
 a bank were to deduct seven dollars from a hundred dollar loan, pay- 
 able a year after date, the bank would receive seven dollars for 
 a loan of only ninety-three dollars. If the bank paid the borrower 
 $93.46, this sum at seven per cent, interest for a year would amount 
 to a hundred dollars, the sum expressed in the note. Banks are 
 permitted by law to deduct interest in advance in this manner, at 
 the rate prescribed, without rendering themselves liable for usury 
 The difference, therefore, between interest and discount in bank 
 practice is, the former is a sum of money payable for the use of 
 money at the end of a given term, while discount is the money 
 reserved from another sum at the beginning of the term for which 
 it is loaned. 
 
 When a bank discounts a note the interest is deducted at once, 
 and the borrower receives credit for the balance. 
 
 The OFFERING BOOK, containing a record of the notes offered for 
 discount, we have described elsewhere. The form of Offering Book, 
 however, is not the same in all banks. Some dispense with the 
 balance column, and some add another, showing the liquidations be- 
 fore the next discount day. Some banks enter in this book loans 
 already made to the borrower so that directors may have before 
 them, when they meet, all the essential facts necessary to transact 
 their business intelligently. 
 
 Accepted paper is now taken by the discount clerk, who first ex- 
 amines the notes for filling and general character, and then "times" 
 each note, /. e., writes in pencil on the back the due date of the 
 note. The notes are then entered in what is termed the " DEALERS' 
 DISCOUNT BOOK," which usually is ruled to permit, first, the maker's 
 name, then the endorser's, the place of payment, due date, and the 
 number of days to run, discount, amount of exchange charged, and 
 net proceeds. For the latter amount there is a separate column for 
 each of the ledgers, so that all the amounts belonging to any one 
 
98 PRACTICAL BANKING. 
 
 ledger appear only in one column. From this discount book the 
 discount clerk makes his statement, and posts his ledger, or bill 
 book, and his Ticklers. Before putting away the notes he "checks" 
 them back on the "Ticklers." These "Ticklers" are very important 
 books. Why they have been so called is scarcely known, but prob- 
 ably from the habit of ticking or checking off the entries. There 
 is usually one tickler for each month in the year, and one or more 
 pages for each day, with the pages on the left side reserved for 
 notes payable in the city, and those on the opposite side for notes 
 payable out of town. The total footings of these Ticklers will pre- 
 sent the total amount of " Bills Discounted," and the proof of these 
 total daily amounts is taken at least as often as once each month, 
 and proved with the General Ledger. 
 
 There are discount ledgers, which are opened in the same manner 
 as personal ledgers, but embrace the accounts only of customers who 
 g;et notes discounted. They contain a record of every note dis- 
 counted, the date of discount, the endorser or security therefor, and 
 the time of maturity. They also show the liability of each cus- 
 tomer as endorser for others on discounted paper. It is desirable 
 to keep this record to guard against losses. If two dealers should 
 exchange notes or endorsements and put them in the same bank, 
 these books would bring the fact to light. They are placed on the 
 directors' table on discount days. 
 
 From these ledgers the discount clerk ascertains the amount of 
 discounts set down in the Offering Book. He keeps daily super- 
 vision over them, cancelling the paid notes as fast as they ma- 
 ture, by drawing a line across the figures without obliterating the 
 record. 
 
 Some banks number their notes on the back and end with red 
 ink, and file them in packets. A good many banks, however, do not 
 number their notes, and are careful not to mar them, even by a pin 
 hole, so that if, for any reason, they should wish to dispose of 
 them, this could be done without the paper showing any indications 
 of having been in the possession of a bank. For the same reason 
 also, it is not desirable for a bank to have a note made payable 
 to its own order. When thus made, it would appear on its face 
 to be given in liquidation of an obligation of the maker to the 
 bank. It is, therefore, desirable that notes be made to the maker's 
 order, and endorsed to the bank if taken direct from him. 
 
 Notes are also transcribed on the Discount Ticklers ; each note is 
 under the date of its maturity, with a number and name of the 
 payer and amount. The Ticklers, which, as previously explained, 
 are books of monthly duration, continue to receive additions by 
 new discounts until within a few days of the transpiring date. 
 They are kept added in pencil until that time and are finally closed 
 in ink. 
 
 In some banks notes are filed without number. Those of each 
 
THE DISCOUNT CLERK. 99 
 
 day are kept in a separate packet, and the packets are arranged in 
 a consecutive order of dates. This plan is regarded more convenient 
 when there are very many notes. 
 
 The discount clerk has the possession of the greater part of 
 bills receivable, in which the resources of the bank are invested. 
 These are in his custody, are deposited by him at night in a com- 
 partment of the vault assigned to him, and taken out on the next 
 morning by himself. If any of the officers wish to examine notes 
 they do so in his presence, or require him to show them. By this 
 method his responsibility is kept distinct from that of the other 
 clerks and officials. 
 
 The discount clerk is in frequent intercourse with the customers 
 of the bank. The offerers apply to him after adjournment to find 
 out what disposition has been made of their application. We are 
 now speaking of the larger banks where such a clerk is employed. 
 In a small bank the cashier may transact the entire business de- 
 scribed in this chapter. When he appears at his desk to answer the 
 questions of applicants on occasions when the money market is 
 tight, his duty is by no means a pleasant one. Customers press to- 
 ward his gate at the earliest moment, to ascertain whether their 
 offerings "have been accepted or rejected, and the letters A and R 
 enable him to give a very short answer. When notes are rejected 
 they are returned to the offerer in the original envelope. 
 
 The discount clerk, as will be seen from the foregoing descrip- 
 tion of his duties, does not receive or pay out any money. It is 
 not easy therefore for him to perpetrate a fraud on the bank. Gib- 
 bons relates an instance which occurred in the second Bank of the 
 United States. The discount clerk selected some notes after they 
 had been discounted and filed away, which he thought would be 
 least likely to be wanted before maturity, and through the help of 
 an outsider, hypothecated them for a loan of money. When the 
 time of maturity drew near he selected others of longer date, and 
 substituted them for those first abstracted, which were restored to 
 their proper places in the files. The trick was discovered by the 
 maker of one of the hypothecated notes, who called at the bank to 
 pay it before maturity. 
 
 Sometimes a bank will rediscount a portion of its notes with 
 other banks. It may desire to get possession of more funds, in 
 order to pay the demands of depositors, or through fear of an in- 
 creased demand. In other words, the loans which it may have 
 made are transferred to another institution. 
 
 Discounted notes payable in other cities are transmitted by mail, 
 and when advice of their payment is received a journal entry is 
 made, charging the collecting bank and crediting " Bills Discounted " 
 in the usual commercial form. Discount notes which are payable 
 in other cities, are transmitted two or three weeks previous to their 
 maturity. 
 
100 PRACTICAL BANKING. 
 
 CHAPTER XIII. 
 COLLECTIONS. 
 
 An immense number of notes are given in liquidation of purchases 
 and other obligations, and which sooner or later are delivered to 
 banks for collection. Our readers will understand from what has 
 been already said, that many of the notes thus received by the de- 
 positors of a bank are offered for discount, and the mode of pro- 
 cedure with regard to them has been explained. But the remainder 
 are lodged for collection, and their future history needs explana- 
 tion. 
 
 They are first entered by the collection clerk in the customers' 
 book, after careful examination. Informality of endorsement, obscur- 
 ity of date, or other accident might render the bank liable to the 
 holder, although it was acting merely as a collection agent. The 
 clerk must scrutinize every note carefully before entering it, and 
 must always require the final endorsement of .the owner, so that 
 it may not be placed to the wrong credit when due. Banks gen- 
 erally will not receive for collection notes that have been dis- 
 figured or changed after issue by the drawer; nor will they receive 
 them from strangers on any terms. 
 
 Promissory notes are transferred by endorsement from one mer- 
 chant to another in settlement of debts, until the time of their ma- 
 turity, when, of course, they must be presented for payment. There 
 are several varieties of endorsement which may be briefly men- 
 tioned. An endorsement may be ( i ) in full, or ( 2 ) in blank ; it 
 may be (3) absolute, or (4) conditional; it may be (5) restrictive; 
 it may be (6) without recourse on the endorser; and there may be 
 (7) joint endorsements of the instrument; (8), successive en- 
 dorsements, and ( 9 ) irregular ones. An endorsement in full men- 
 tions the name of the person in whose favor it is made, and to- 
 whom, or to whose order, the sum described in the note is to be 
 paid. An endorsement in blank consists simply of the name of the 
 endorser written on the back of the instrument. " The receiver of 
 a negotiable instrument endorsed in blank, or any bona fide holder 
 of it, may write over it an endorsement in full to himself, or to 
 another, or any contract consistent with the character of an en- 
 dorsement, but he could not enlarge the liability of the endorser 
 
COLLECTIONS. IOI 
 
 in blank by writing over it a waiver of any of his rights, such as 
 demand and notice."* By an absolute endorsement the endorser binds 
 timself to pay on no other condition than the failure of the prior 
 parties to do so, and of due notice to him of their failure, while 
 a conditional endorsement contains some other condition to the en- 
 dorser's liability. An endorsement may be so worded as to restrict 
 the further negotiability of the instrument; it is then called a re- 
 strictive endorsement. The words " for collection," which are fre- 
 quently written on notes that are put in a bank to be collected, 
 render the endorsement restrictive. The endorser in such a case 
 may prove that he is not the owner of the note, and did not mean 
 to give a title to it or its proceeds when collected. Such an en- 
 dorsement merely makes the endorsee agent for the endorser in col- 
 lecting the note. The sixth kind is a qualified endorsement, or 
 endorsement without recourse. This consists in writing the words 
 " without recourse," or " at the endorsee's own risk " on the 
 back of the note. The endorser is then a mere assignor of the title 
 to the note, and is relieved of all responsibility for its payment. A 
 joint endorsement is made when a note is payable to several per- 
 sons who are not partners. Successive endorsements are those made 
 by several persons on a note, the legal effect of which is to subject 
 them as to each other in the order they endorse. The endorsement 
 imparts a several and successive, and not a joint obligation. 
 Lastly may be mentioned irregular endorsements, which may originate 
 in various ways. But in all cases an endorser guarantees the gen- 
 uineness of all the preceding endorsements. 
 
 The clerk marks on each note the date of its maturity. If he 
 should mark it one day too late, and the drawer should fail to 
 pay, the bank would be liable to the owner, because the notice of 
 the protest to the endorsers would be too late to hold them. A 
 careful clerk will revise his " timing " of notes so as to guard against 
 any error of this kind. 
 
 Dishonest customers have been known to mark a wrong date of 
 maturity on notes for the purpose of " catching " the bank ; in other 
 words, of making it liable. The bank could not escape by showing 
 that the wrong date was the customer's, without proving that he 
 intended to render the bank liable. It must be exact in its own 
 business, and cannot escape by showing that it adopted the errors 
 of others. 
 
 After the notes have been "timed," they are numbered on the 
 back and end, and recorded in the COLLECTION REGISTER. From 
 this book the notes are copied into the Ticklers. 
 
 Notes should be deposited ten days or longer before maturity, so 
 that there may be time enough to pass them through the several 
 
 * Daniel on Negotiable Instruments, 694. 
 
102 PRACTICAL BANKING. 
 
 books in the bank, and to serve notices on the payers, though 
 this practice, as we have already remarked, is not so general as it 
 once was. Merchants, however, are constantly receiving short-time 
 drafts, and these cannot be deposited long before the time of pay- 
 ment. Other circumstances often prevent their deposit until very 
 near the time of maturity, for example, the pledging of them to 
 secure loans. 
 
 The clerk of this department is responsible for the safe keeping 
 and production at all times of any note or draft deposited in the 
 bank. If payable in the city where the bank is located, he can 
 produce it ; if sent elsewhere for collection he can show what he has 
 done with it. 
 
 Notes or drafts which are payable in another place are in some 
 banks recorded in a FOREIGN COLLECTION REGISTER. In those doing 
 a smaller business the regular Collection Register may be made to 
 suffice by a special column ruling. In the Foreign Collection Reg- 
 ister are recorded the place of payment, and the name of the cor- 
 respondent to whom the paper is sent for collection, with the date 
 of its transmission. In a small bank a column is provided in 
 which to record the fact and date of payment, or of return if un- 
 paid. In other small banks, the Foreign Collection Register may 
 contain the only record of such paper, obviating entries against the 
 collecting bank, until payment is advised. 
 
 It is the practice of many banks to make their collections 
 for a district or county through one bank which has estab- 
 lished correspondence with all parts of it. But the large banks 
 desire so far as possible to make their collections direct. Their 
 notes are then presented more promptly, returns are received more 
 quickly, and country business is cultivated more successfully by thus 
 having reciprocal accounts. 
 
 When a bank is employed by another to collect notes within a 
 particular district, the clerk opens another book and records on the 
 page appropriated to the National Bank of Albany, for example, all 
 notes that fall within the circuit allotted to it. He stamps or 
 writes on the back of each note below the other endorsements, 
 
 "Pay National Bank of Albany, Albany, N. Y., 
 
 on order, for collection for account of 
 
 Arctic National Bank, N. Y. 
 
 THOMAS JONES, Cashier" 
 
 After the letter enclosing the notes has been copied it is sent by 
 mail to the collecting bank. 
 
 When drafts or notes for collection are payable at places where 
 the bank has no regular dealer, they are sent to a bank in such 
 place "for collection and remittance." If there is no bank or 
 banker of established credit there, the collection would not be re- 
 
COLLECTIONS. 103 
 
 ceived. When the note or draft is paid, the collecting bank remits 
 at once a check for the amount, less the charge for exchange, if 
 any. The check will be on a bank either in a city from whence 
 the collection has come, or on such other point as instructed by 
 the bank owning the paper. The bulk of checks remitted for col- 
 lections are drawn on New York, and many on Boston or Phila- 
 delphia. Such collections are desirable at points where a surplus 
 of exchange is created, as they afford a means of working it off at 
 a small profit. 
 The usual form of letter transmitting collections is as follows: 
 
 BUCKEYE BANK, DAYTON, O. 
 
 July 5, 1884. 
 
 E. SIMPSON, Esq., Cashier, 
 Tuscaloosa, Iowa. 
 
 Dear Sir: We enclose for collection and remittance, 
 
 O. Kane on Smithers & Co., sight $750. 
 
 Patterson & Brown Aug. 20 $ 1,000 & exchange. 
 
 Yours respectfully, 
 
 F. BANDERS, Cashier. 
 
104 PRACTICAL BANKING, 
 
 CHAPTER XIV. 
 THE BOOKKEEPER. 
 
 Mathematical accuracy is one of the prime virtues of an account- 
 ant. It is nowhere more important than in bank bookkeeping. 
 While the affairs of a bank are running along smoothly its cus- 
 tomers are given little opportunity to judge of the capability and 
 thoroughness of those who manipulate the books of account. But 
 when the institution comes to grief, and the creditors are waiting 
 in painful suspense to learn the fate of their deposits, the opportu- 
 nities for determining how well the books have been handled are 
 excellent. It is at such times that the public are taught to appre- 
 ciate the value of accuracy, system and promptness. When it re- 
 quires days, and, as is sometimes the case, weeks, for the book- 
 keepers to make up a statement of the condition of a suspended 
 bank, the inference may be fairly taken that something is radically 
 wrong. It may be the imperfections of the system in vogue, or 
 possibly a weakness in the brain of the bookkeeper. 
 
 A good theory to follow in bank bookkeeping is one which each 
 day presumes that the bank is to suspend payment before time for 
 the doors to open the next morning. And not only so, but also one 
 which presumes that the directors or proprietors are to require a com- 
 plete financial exhibit of the bank's affairs within twenty-four hours 
 from the time the suspension is announced. There can be no good 
 reason why a complete statement should not be presented within 
 a few hours at any time, if no crookedness has been practiced. It 
 is not only important that the work of each day should be finished 
 before the doors open on the morning of the day following, but 
 that the work should be so performed as to enable the bookkeepers 
 to make up a full exhibit without delay. Even in cases of defalca- 
 tion and crookedness on the part of any one individual where sev- 
 eral officers and clerks are employed, there would be no reasonable 
 excuse for requiring days, and often weeks, in preparing statements 
 for the public. Simplicity in method and an efficient clerical force 
 will obviate the present prevailing difficulties. 
 
 It is not good economy for the manager of a bank to expect one 
 clerk or bookkeeper to perform the labor of two. There can 
 be as much of a mistake in employing not enough as too 
 many. But, before considering the number to be employed, 
 
THE BOOKKEEPER. 10$ 
 
 the fitness of each for the position should receive attention. Above 
 all things, know that each and every person doing clerical work in 
 a bank is thoroughly qualified. Then see that the force is sufficient 
 to have the work kept closely up, and require in all cases that no 
 part is neglected. We would say to the bookkeeper of a bank : 
 Demand that you be allowed a sufficient force to do the work punc- 
 tually and in the best manner. If your request is refused it is bet- 
 ter to resign than take chances in doing your duty when you know 
 that important parts must be neglected. Banks show, as a rule, 
 more wisdom in this respect than commercial houses. Yet there 
 are but few banks in which an improvement might not be made by 
 an addition to the regular force. This improvement would redound 
 to the advantage of stockholders as well as the bank's customers. 
 
 The method of bookkeeping practiced in a bank may have much 
 to do with the force necessary for performing the work properly. 
 We cannot undertake in this treatise to go into the details of all the 
 different systems in vogue. It is our aim, however, to give such ex- 
 planations of the methods in most general use as will enable the 
 reader to understand the principles and be able to choose a plan 
 best adapted to his special needs. Important changes and improve- 
 ments in bank as well as commercial bookkeeping have taken place 
 within the past ten or fifteen years. A few years ago banks re- 
 ceived a fair revenue from the sale of exchange. Remittances from 
 one part of the country to another are still made almost entirely by 
 means of bank drafts, but since the establishment of a currency 
 which is at par throughout the United States, the rate of exchange 
 cannot much exceed the cost of transmitting money by express, and 
 the business of dealing in exchange by banks is no longer consid- 
 ered an important item of revenue. The change has had its influ- 
 ence upon bank bookkeeping. 
 
 The tendency has been, in bank bookkeeping, to abridge the work. 
 There is still room for improvement in many institutions in this di- 
 rection. It is a good idea, in all places where possible, to avoid re- 
 writing items and amounts. We will first turn our attention to 
 
 ACCOUNTS OF DEPOSITORS. 
 
 The depositors' accounts, in an institution doing a general bank- 
 ing business, absorb much the greatest attention of the book- 
 keepers. Eternal vigilance is a prime virtue in their manipulation. 
 Considering their numbers, the infinite multiplicity of items they 
 represent, and the vast sums received and disbursed upon them, 
 the small number of mistakes made in their keeping is worthy of 
 consideration. It demonstrates the possibility of wonderful accu- 
 racy. The errors, at least those discovered, will not average one in 
 a thousand transactions. 
 
 There is, perhaps, an unusual degree of accuracy exhibited in the 
 work upon this class of accounts. The reason is obvious. An 
 error, no matter how slight, is almost certain to be discovered by 
 
io6 
 
 PRACTICAL BANKING. 
 
 the depositor. Whether or not the error is reported to the bank of- 
 ficials, such a discovery is painful to the bookkeeper. It forms a 
 basis for suspecting other blunders ; it may, too, involve serious 
 difficulty. These are some of the penalties constantly in view, and 
 they, no doubt, exert an influence. 
 
 In all branches of an accountant's work the probability that an 
 error, if made, will be discovered by some one other than himself 
 will invariably cause some weight upon vigilance and thoughtfulness. 
 Where an error, if made, will be detected by its author, as is the 
 case in some parts of the bookkeeper's work, and may be corrected 
 before reaching others' eyes, a feeling of indifference is more apt 
 to manifest itself. This suggests the importance of rotating the 
 force employed ^.in large banks, so that the work of each one will 
 be examined b'y 'some one of the other employees. In England it 
 is almost the universal practice to have a professional accountant 
 go over, at stated periods, all the work of a bank. The plan is 
 not much followed in this country, but it is being discussed in 
 many quarters. Experience has shown that the examinations made 
 by Government officials are not a sufficient guarantee to stock- 
 holders and depositors that the published exhibits are faithful show- 
 ings of the banks' condition. 
 
 One cause that has had a tendency to bring about a high stand- 
 ard of accuracy in the treatment of depositors' accounts is that of 
 special study in this direction. Much attention and skill have been 
 directed to devising plans for keeping this class of accounts. We 
 will presently illustrate some of these inventions. But let us first 
 consider the elementary functions of a depositor's account. 
 
 THE DEPOSIT SLIP. 
 
 In the tenth chapter 
 of this work are de- 
 scribed the duties of the 
 receiving teller. De- 
 positors come oftener in 
 contact with the receiv- 
 ing teller than with any 
 other employee. It is 
 this teller who receives 
 the deposits. On page 
 92 appears a brief de- 
 scription of the deposi- 
 tor's pass-book. When 
 making a deposit the de- 
 positor fills out a print- 
 ed blank, upon which he 
 writes his name and a de- 
 scription of items mak- 
 ing up his deposit, thus": 
 
 
 Deposited by 
 
 George Washington 
 
 IN THE 
 
 NATIONAL BANK OF VALLEY FORGE. 
 
 PHILADELPHIA, July 4, 1886. 
 
 
 Dollars. 
 
 Cents. 
 
 Bills 
 
 6;o 
 
 
 Checks 
 
 7IO 
 
 
 
 280 
 
 40 
 
 
 725 
 
 50 
 
 
 1,965 
 
 9 
 
. 
 
 THE BOOKKEEPER. 
 
 107 
 
 This " Deposit Slip," with the funds to be deposited and {he de- 
 positor's pass-book, are handed to the receiving teller. The bills are 
 counted and the items examined and checked off by the teller, who 
 charges the bank in the depositor's pass-book with the full amount 
 of the deposit, and files the slip ready for the bookkeeper. These 
 slips are the bank's vouchers for the transaction. 
 
 THE DEPOSITOR'S PASS-BOOK. 
 
 The depositor's pass-book is a small account book. Upon the 
 left-hand page, or debit side, the deposits are entered ; the right- 
 hand, or credit pages are used to enter up the checks of the de- 
 positor. It is the bookkeeper's duty to write up and balance the 
 depositor's pass-book when left at the bank for that purpose. The 
 depositor's account in the bank's ledger furnishes the data for 
 writing up the pass-book. In the ledger account, however, the de- 
 posits which, in the pass-book, appear on the debit side are entered 
 on the credit side. The checks are entered on the debit side of 
 the ledger account. The reason of this transposition is, that the 
 
 THE ARCTIC NATIONAL BANK in Account 
 Dr. 
 
 with RICHARD WHITTINGTON. 
 Cr. 
 
 Jan. 2 
 
 3-.... 
 4 
 
 E.K 
 J.C 
 E.K 
 
 10,000 
 
 400 
 
 2,000 
 
 1,324 05 
 
 208 40 
 
 17520 
 96050 
 2,100 
 
 ICO 
 
 4675 
 ID 50 
 
 
 
 
 12 Vouchers 
 returned. 
 
 Balance. ..... 
 
 13710 
 5,42050 
 
 30510 
 
 1,240 80 
 77y zo 
 
 
 
 
 
 
 
 
 
 12,400 
 
 
 
 12,40000 
 
 Jan. ;. . . 
 
 
 371 10 
 
 
 
 
 
 
 
 
 
 
 The letters opposite the dates on the debit page are the initials of the teller who 
 received the deposit. On the credit page are several columns in which the amount* 
 of the checks or vouchers are entered. These checks are returned with the pass- 
 book to the depositor. The balance, after having been added to the footings of 
 the checks, is carried to the debit of the account preparatory to continuing the 
 transactions. 
 
 pass-book represents the depositor's account with the bank, while 
 the bank's ledger shows the bank's account with the depositor. 
 
 DEPOSITORS' LEDGERS. 
 
 The postings to the depositors' accounts are sometimes made di- 
 rect from the deposit slips on the one side, and from the checks on- 
 
 
io8 
 
 PRACTICAL BANKING. 
 FORM OF DEPOSITORS' LEDGER. 
 
 Brown &* Bacon. 
 
 
 
 
 Jan. 2.... 
 
 Dep 
 Col. 
 
 
 500 
 842 as 
 
 
 John Adams. 
 
 Jan. a 
 
 C'ks 
 
 423 10 
 
 Jan. a.... 
 
 CoL 
 
 
 500 
 
 Henry Smith. 
 
 Jan. 2 
 
 C'ks 
 
 312 So 
 
 Jan. a.... 
 
 Dep. 
 
 
 350 
 
 C. C. Brown. 
 
 
 
 
 Jan. 2.... 
 
 Dep 
 
 
 1350 
 
 ^ 
 

 THE BOOKKEEPER. 
 
 109 
 
 the Other. The checks and slips, when thus posted, are first en- 
 tered in a journal or register for the purpose of proving the cash 
 and accounting with the tellers. This journal or register forms a 
 part of the general books of the bank. The ledgers containing the 
 depositors' accounts are auxiliary to the general books. We mean 
 by this that a statement of the bank's condition is made up inde- 
 pendently of the depositors' ledgers. One account in the general 
 ledger serves to show the liability of the bank to its depositors. 
 In some banks the postings to the depositors' accounts are made 
 from other books, usually called "journals." In some systems two 
 journals are used, and in others only one. We give, in this connec- 
 tion, some illustrations of these journals. Though still used to 
 some extent, the forms shown under the title of "debit journal" 
 and "credit journal" have been mostly superseded by more modern 
 devices. The form under the title of " deposit journal " is used by 
 many country banks. It is simple, and well serves the purpose for 
 which it is intended. 
 
 DEPOSITORS' LEDGER WITH BALANCE COLUMN. FORM 2. 
 
 Richard Whittington. 
 
 Jan 2 
 
 Deposit 
 
 
 IO OOO 
 
 
 a 
 
 100,4675, 1050,305 10.... 
 Deo 
 
 46235 
 
 400 
 
 9.537 65 
 
 
 
 
 
 
 
 2IOO. 137 IO. .... . . 
 
 4 6l'l 60 
 
 
 c -J24. o^ 
 
 
 
 
 
 
 
 2o8 40 . 
 
 6 QS2 Q<? 
 
 
 *I 628 QO 
 
 
 
 
 
 
 
 
 
 
 
 The first column contains the debits or checks, the second column the credits or 
 deposits, and the third column the balances. The balances are carried out every 
 day after the deposits and checks have been entered up. 
 
 In the large city banks where the depositors are so numerous as 
 to require a classification of the accounts, several books are kept 
 for summarizing the checks and deposits. The depositors' accounts 
 are grouped thus : Names commencing with A to D, E to K, L to 
 R, and S to Z. The checks and deposit slips are assorted so as to 
 be entered up under the several classes or groups in separate 
 
 * This balance is printed here in italics to represent an overdraft. In practice it would 
 be written in red ink. 
 
 
110 
 
 PRACTICAL BANKING. 
 
 journals or registers. The work of writing up must be commenced 
 in ample time for entering the last check paid and the last check 
 deposited almost immediately after the tellers close their windows. 
 
 DEPOSITORS' LEDGER WITH DOUBLE BALANCE COLUMNS. FORM 3. 
 
 Richard IVhittington. 
 
 
 .162 7? 
 
 70S IO IO SO 46 7$ IOO 
 
 1/2 
 
 CO OOO 
 
 O ^7 6^ 
 
 1628 QO 
 
 4.613 60 
 6 O e ?2 OS 
 
 2100, 137 10, 960 50, 175 20, 1240 80. 
 
 208 40, 1^24 05, 5420 so. . . 
 
 3 
 
 400 
 
 5.324 05 
 
 
 
 
 
 
 
 
 
 > 
 
 
 
 
 This represents a Depositors' Ledger with two debit and two credit columns ; one 
 column for itemized checks and one column for dates. The first column on the 
 left shows the debits' balance or overdraft ; the second column the totals of checks ; 
 the third, itemized checks and other explanatory remarks ; the fourth, the dates ; 
 fifth, credits or deposits ; and sixth, credit balances. 
 
 In the work of writing up there is precaution taken to leave suffi- 
 cient space after the name has been once entered to add subsequent 
 checks. This does not apply so much to deposits, as cases of more 
 than one deposit to a name in a day are exceptional. 
 
 Form 4, or what is commonly known as the Boston method, 
 possesses some advantages which have influenced its adoption in 
 many places. It is intended to serve as a day-book and ledger com- 
 bined. The asset balances are entered in red, and the liability bal- 
 ances in black ink. In our illustration we give a page, or portion 
 of a page, showing the closing entries for two days. It will be 
 seen that the depositors' accounts run horizontally across the page 
 (two accounts occupying a compartment). First comes the balance 
 brought forward from the page where the name previously appeared. 
 Then there are two narrow columns under the heading " Checks in 
 detail." The first of these columns belongs to the second account 
 in the compartment, and the second column to first account in the 
 compartment. The next two columns are for the totals of checks 
 and deposits. The sixth column is a space for explanations upon 
 the deposits or other credits. The seventh column contains the 
 
 
DEPOSITORS' DAILY BALANCE BOOK. 
 
 Ill 
 
 
 
 ii 
 
 
 
 1 
 
 
 J_JI 
 
 .5" 
 
 ki 
 
 'CP 
 
 tfoO 
 
 2.ts-o 
 
 
 
 
 
 ^ 
 
 i i 
 
 I i 
 
 *$ 
 
 1* 
 
 ^ 
 
 -jig 
 
 \> 
 
 for additional explanation, see page 
 
112 PRACTICAL BANKING. 
 
 balance at the close of the day. Following this, still to the right, 
 the same is repeated under another day. A page nineteen inches 
 in width will give space for three days' transactions. Running 
 across both pages of the book, six days' business is recorded be- 
 fore the name is re-written. The object of dividing the page into 
 compartments with horizontal lines, and placing only two accounts 
 in one compartment, is to aid the eye in its sighting across the 
 page from the side where the name is written. 
 
 In footing the balance columns the overdrafts are deducted, mak- 
 ing the footing show, not the total liability of the bank for de- 
 posits, but the "net total deposits." This is one of the objections 
 to be urged against the system. The overdrafts of depositors are as- 
 sets. They may be serviceable in paying depositors, and they may 
 not ; they are certainly not as reliable as money in the vault. And, 
 besides, a statement of a bank for the benefit of stockholders ought 
 to show the total deposits and the aggregate of overdrafts as two 
 separate items. 
 
 After footing the balance and total columns of the depositors' 
 accounts for the day, a general statement may be written up by 
 adding capital stock and other general accounts, if not too numer- 
 ous. The column entitled " Total checks " may, in entering the im- 
 personal or general accounts, be used for all cash disbursed. The 
 " Total deposits " column may contain all cash receipts ; in this way 
 the balance book will serve to take the place of a general ledger. 
 
 One advantage of this method which recommends it is the easier 
 locating of errors. Each page is susceptible of proof in itself, and 
 thus an error may easily be pinned down to a small number of en- 
 tries. 
 
 DEPOSITORS' BALANCE LEDGER. 
 
 The illustration presented under the title "Depositors' Balance 
 Ledger" represents a portion of a page of a book extensively used 
 by the large banking institutions of New York, and in some other 
 cities. Practically speaking, it is a skeleton ledger, kept for the con- 
 venience of the paying teller. During banking hours it is never far 
 from his counter, and the standing of any depositor's account can be 
 ascertained in a few seconds at any time. This book has no connec- 
 tion with the depositors' ledger kept by the individual bookkeeper. 
 
 In the Boston method the daily balance book is the only ledger 
 used for keeping the depositors' accounts. Thus, it will be seen that 
 the two books have a widely different purpose. In many banks 
 where the balance ledger is used the regular accounts of the de- 
 positors are kept by the individual bookkeeper, or bookkeepers (for 
 there may be several of them), in ledgers of the usual form. 
 
 A complete explanation of the skeleton ledger is difficult in a small 
 treatise which will not permit the introduction of ruled forms 
 showing different colored inks. A page about eighteen inches square 
 
THE BOOKKEEPER. 
 
 will give space for thirty accounts six days. The two pages of 
 such a book will serve thirty accounts thirteen days. Two writings 
 of an account will thus carry it through a month. The lines upon 
 which the names are written are about five-eighths of an inch 
 apart, and they alternate in color, first blue and then red. The 
 change of color serves to guide the eye correctly across the page, 
 or the two pages. For each day there is a pair of columns, the 
 
 DEPOSITOR'S BALANCE LEDGER. FORM 5. 
 
 Names. 
 
 A 
 
 Ug. I. 
 
 A 
 
 Ug. 2. 
 
 A 
 
 ug-3- 
 
 Aug. 
 
 N.Y. Tribune Ass'n. 
 
 210 40 
 3l8 60 
 
 18400 10 
 1415 60 
 
 1540 
 835 iS 
 
 19^59 *0 
 1410 
 
 
 18194 05 
 
 
 R. Wells 
 
 I2IO 
 
 4.2OO 
 
 184.0 
 
 2dOZ 
 
 zee CQ 
 
 1840 
 
 
 
 
 
 
 
 
 
 
 
 4 60 
 
 375 
 
 25O 
 
 270 50 
 650 
 
 
 350 
 
 70 10 
 
 '& 
 
 
 P. White 
 
 5 80 to 
 
 1840 50 
 
 
 JOJO 
 
 
 
 
 
 250 
 
 
 
 375 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 5*o 50 
 
 22600 10 
 
 
 22674 20 
 
 355 50 
 
 19579 f>5 
 
 
 first, or left-hand column, being for debits or checks, and the sec- 
 ond, or right-hand column, for credits or deposits; the balances are 
 carried forward in pencil. The calculation in carrying the balances 
 forward is done mentally. It would be surprising to one not ex- 
 pert in this work to observe the rapidity with which the book- 
 keeper performs these mental calculations. With three amounts on 
 one side and two on the other, the items ranging in value from the 
 units column to several thousand, the calculation is performed men- 
 tally, the balance struck without a moment's hesitation, and placed 
 in its proper column for the next day. For example, the following 
 represents a day's transactions : 
 
 Debit. 
 
 Credit. 
 
 7,462 25 
 35 60 
 
 12,620 39 
 
 379 84 
 
 284 60 
 
414 PRACTICAL BANKING. 
 
 The balance, 5,027.30, is dotted down with surprising rapidity. In 
 footing the columns the pencil figures only are taken to get the 
 total balances. The amounts in ink, when footed, show total drafts 
 and total deposits for the day. 
 
 The plan followed by which the entries find their way from the 
 tellers' counters and the exchanges, to the depositors' ledger and 
 balance book, varies in different banks. The volume of business 
 has much to do with the system in use. It is well worth the 
 space here to give a description of the plan in vogue in the Na- 
 tional Park Bank. This bank is a representative institution with 
 over ten thousand active accounts on its depositors' ledgers. There 
 are two receiving tellers. A depositor presents his book with de- 
 posit enclosed. If currency or specie form a part, it is counted 
 and dropped into the till or money drawer. The checks and other 
 items are not carefully examined. If the currency and coin are 
 correct, the amount according to the deposit slip is entered in the 
 pass-book. The deposit slip, the checks, drafts, or other items are 
 kept together until a checking clerk takes them away. These items 
 of the deposit slip are then carefully examined and re-checked upon 
 the deposit slip. If an error is discovered the correction is made 
 upon the slip. The checks, drafts, etc., are now classified and 
 passed over to other clerks. Some go to clerks who enter them 
 up ready for passing through the Clearing-house. Others must be 
 sent out for collection by the bank's messenger. The checks of the 
 bank's own depositors and correspondents go to clerks who enter 
 them up preparatory for the bookkeepers. This is followed up so 
 closely that, at the hour for closing the receiving teller's window, 
 every check, draft and other item of the day has been charged up 
 at the checking counter. The items in the balance ledgers are 
 taken from the books kept up by the checking clerks, and the in- 
 dividual bookkeepers also make up their ledgers from the books 
 kept on the checking counter. 
 
 There are four sources from which the balance ledger book- 
 keepers obtain the items of debits to the accounts in their charge. 
 These are first, through the Clearing-house; second, through the 
 paying teller's department; third, from the receiving teller's depart- 
 ment ; and, fourth, through the note teller's department. They 
 have been classified and entered up at the checking counter, so that 
 he has only to write down the totals. There are some institutions 
 having accounts with the Park Bank which draw as many as forty 
 checks in a day; many draw twenty to thirty. This will explain 
 why a method like that described in connection with the Boston 
 daily balance book would not be practicable in all places. 
 
 In this bank the accounts of depositors or dealers are divided 
 into four classes, and are kept by eight individual bookkeepers 
 
 
THE BOOKKEEPER. 
 
 1*5 
 
 ir of whom are on depositors' ledgers and four on the balance 
 irs, thus: 
 
 Names from A to D, 
 E to K, 
 L to R, 
 S to Z. 
 
 The accounts of correspondents or other banks are arranged under 
 to divisions: A to L, 
 
 M to Z. 
 
 Thus twelve individual bookkeepers are employed, eight on de- 
 sitors' accounts, and four on accounts of other banks. The bal- 
 :e books are extended before the hour for opening next morn- 
 j, and the footings made so as to compare with the general 
 before the close of the next day. 
 
 THE PRINCIPAL BOOKS. 
 
 The number and character of the books of a bank which make 
 the general set varies according to the volume of business trans- 
 ted. The routine practiced is also dependent upon the extent of 
 ic transactions. For the purpose of illustration, we shall give in 
 icse pages a description of the books and routine best adapted to 
 ic needs of a bank of a moderate type. 
 
 Commencing with the organization of the Lunar National Bank, 
 will follow the transactions of a period sufficient to embrace a 
 listory of the general routine. The preliminaries for organizing a 
 inking corporation have been fully described under Chapter V. 
 r e will presume, therefore, that all the preliminary arrangements 
 ive been perfected. The bank is organized with a capital of 
 1250,000. This amount is paid in by the shareholders. For the 
 iginal entries of what has transpired, we look to the minutes 
 the shareholders' meetings and the book of stock subscrip- 
 >ns. 
 
 The opening entry in the books of account is made in the 
 icral journal, a book with the ordinary journal rulings. The 
 tnt representing the certificates of stock is debited, and the 
 mt of capital stock credited for the amount of the bank's 
 ipital. Before any of the certificates have been issued to sub- 
 :ribers, they (the certificates) form the only resources of the cor- 
 >ration. They are the assets against the liability of the corpora- 
 >n for the amount of its capital stock. As the stock is sub- 
 ribed for, the certificates go out, and the corporation holds the 
 :kholders individually and collectively for the amounts thus is- 
 This operation is recorded by charging in the books to 
 account of " Stockholders " the amount subscribed for, and 
 liting the account of stock certificates. When the shareholders 
 
Il6 PRACTICAL BANKING. 
 
 pay in their subscriptions, the general account of " Cash " is debited, 
 and the account of stockholders credited with the payment. Thus 
 far the records of these transactions are the same in all joint-stock 
 companies. 
 
 In the General Ledger the account of "Stockholders" represents 
 these several accounts collectively. A book called a "Stock Ledger" 
 is kept for the purpose of keeping the accounts of these persons 
 separately. The Stock Ledger is an auxiliary to the general set. 
 
 The capital having been fully paid in, a purchase is made of 
 $220,000 in United States bonds, on which a premium is paid of 
 $30,000. The bonds are deposited with the Treasurer of the United 
 States at Washington, and in return the bank receives its National 
 bank notes to the amount of $ 198,000, less $9,900, the five-per- 
 cent, fund for the redemption of circulation by the United States 
 Treasurer. 
 
 The premium on bonds, ten-per-cent. fund to secure circulation, 
 and five-per-cent. fund to secure redemption, together may be 
 treated under one general title, they forming a reserve growing out 
 of the bank's circulation. The title we have chosen is "Circulation 
 Reserve." This is not arbitrary. The account represents an asset 
 which, in the example used here, is $61,900. The premium paid 
 in on the bonds forms nearly one-half of this reserve. But so 
 long as the present rate of interest holds, this resource is as sub- 
 stantial as so much money locked up where it cannot be used 
 until the bank withdraws its circulation. The three items which, 
 combined, make the reserve fund, or circulating reserve, could, if 
 it were desired, be treated each under an independent title. It 
 would, however, only encumber the books and serve no practical 
 purpose in the end. 
 
 The first three entries in the journal could, in a case of the kind 
 used as an illustration, be condensed under one journal entry. 
 But, suppose, instead of all the stock being subscribed for at once, 
 only a part had been taken. Then, too, presuming that the amount 
 subscribed for had been only paid in part. It will be seen that 
 each of the entries given would have been necessary for recording 
 the operations, step by step as they transpired. 
 
 For all that has been done up to this time, it was not necessary 
 that the company should have a place of business of its own. It 
 may have had one, however, and got fairly under way before its 
 circulating notes had been sent on from the Treasury Department. 
 But, presuming that our records represent the transactions in 
 order of their occurrence, we now find the new corporation 
 to rent or buy a place to conduct its business, open its doors 
 receive deposits. Let us proceed to examine the history of wl 
 takes place, and record the various operations in the books of 
 count. 
 
THE BOOKKEEPER. 
 GENERAL JOURNAL. 
 
 
 
 
 
 / "'St 
 
 
 
 
 
 Stock Certificates 
 
 256,000 
 
 
 
 
 
 
 To Capital Stock 
 
 
 
 
 
 
 
 Stockholders . 
 
 
 
 
 
 
 
 To Stock Certificates 
 
 
 
 
 
 
 
 Cash 
 
 2 CO OOO 
 
 
 
 
 
 
 To Stockholders 
 
 
 
 
 
 
 
 United States Bonds 
 
 22O,OOO 
 
 
 
 
 
 
 Circulation Reserve, (Premium) 
 
 lO.OOO 
 
 
 
 
 
 
 To Cash 
 
 
 
 2 SO, OOO 
 
 
 
 
 
 108,000 
 
 
 
 
 
 
 Circulation Reserve, (Ten p. c. fund). . 
 To United States Bonds .'. 
 
 22,000 
 
 
 22O.OOO 
 
 
 
 
 Tellers' Circulation 
 
 l88,IOO 
 
 
 
 
 
 
 Circulation Reserve, (Five p. c. fund) . 
 To Bank Circulation 
 
 9,900 
 
 
 I98,OOO 
 
 
 
 
 
 
 
 
 
 HISTORY OF TRANSACTIONS. 
 
 July I. Concluded purchase of property known as Treasury Hall, for 
 bank building, paying for same $27,500. Recording deed, $2.50. 
 
 I2th. Bill of carpenter for fitting up bank building, $562, paid. 
 
 1 3th. Bought furniture and fixtures, for which bill amounted to $375. 
 
 1 5th. Paid for books and other stationery, including express charges, $155. 
 
 i6th. Bought postage stamps, $12. Bill for printing, paid, $75.10. 
 
 Correspondence with Arctic Nat. Bank established by depositing in current 
 funds $ 30,000. Paid expenses of President, trip to New York, $ 55. 
 
 i8th. Received following deposits : H. M. Lutz, 585.10 ; Theo. Kitchen, 
 1,624.75; G. A. Lewis, 1,210.40; E. P. Graham, 482.50; W. H. Webb, 
 1,540.82. 
 
 Among deposits were following checks and bills : 
 First Nat., 513.80, 75.30, 12.40. 1,210.40. 
 East River, N. Y., 1,105.82. 
 Hanover, N. Y., 269.95. 
 
 Stebbins, F., & Co., Lawrence, Dak., 71.50. 
 Exchange, Pike, 111., 25.30. 
 
 Discounted paper as follows: 
 
 For Joseph Arnold, H. Coulter's note, 60 days, 1,000.00. 
 For W. T. Bartlett, his note, 60 ds., for 2,500.00; secured by U. S. bonds. 
 For H. Coulter, O. B. Arnold's note, 90 ds., 3,500.00. 
 For J. H. Watt, G. A. Lewis's note, 30 ds., 2,780.00. 
 For F. Zahn, R. Ladd's note, 60 ds., 3,400.00. 
 
 Bought following bills on New York, and sent same for credit to Arctic 
 Nat. Bank : 
 
 Theo. Kitchen's dft. on Imp. and Tdrs.', endorsed by W. T. Bartlett, 
 7,000.00 ; premium, 7.00. H. C. Rider's dft. on C. S. Hough, payable at 
 Nat. Park, 4,000.00; premium, 3.50. 
 
n8 
 
 PRACTICAL BANKING. 
 
 Sold exchange on Arctic Nat. as follows : 
 H. M. Lutz, 2,500.00 ; prem., 3.25. 
 
 F. Zahn, 1,800.00; prem., 2.25. 
 
 W. H. Webb, 250.00 ; prem. 50 cts. 
 
 Paid the following checks : 
 W. H. Webb, 250.50, 13.25. 
 Theo. Kitchen, 270.50, 18.42, 5.10. 
 
 i gth. Received the following deposits : 
 
 G. A. Lewis, 516.80; W. H. Webb, 275.10; G. A. Linton, 1,255.00; H. 
 M. Lutz, 346.10; John Rapson, 1,842.70; J. D. Brown, 540.15; J. W. 
 Torrey, 178.40. 
 
 Among the deposits were the following checks: 
 First Nat., Hartford, Conn., 175.80. 
 Chemical, New York, 255.10. 
 Fourth Nat., New York, 156.50. 
 Merch. Nat., New York, 127.40. 
 All of which were remitted Arctic Nat. for credit. 
 
 Paid checks as follows : 
 W. H. Webb, 75.80, 37.50, 42.60. 
 G. A. Lewis, 13.15, 27.50, 105.85, 10.10. 
 Theo. Kitchen, 8.75, 75.80, 327.40, 8.25. 
 H. M. Lutz, 107.10, 46.60, 3,27. 
 G. A. Linton, 36.40, 27.85. 
 J. D. Brown, 8.40, 10.75, 41.85. 
 
 Received for collection the following bills : 
 
 No. I John Rapson, on Brown Bros., Chicago, 246.80 J No. 2 J. W. 
 Torrey, on Smith & Wood New York, 47.25 ; No. 3 W. H. Webb, oa 
 Drexel, Morgan & Co., 1,247.50; No. 4 E. P. Graham, on Prince & 
 Whitely, 385.10; No. 5 J. D. Brown, on John H. Davis & Co., 470.50. 
 
 Many banks have dispensed with the Offering-Book. The infor- 
 mation given in Chapter VII. explains why the book may in many 
 cases be unnecessary. (For explanation, see page 126.) 
 
 OFFERING-BOOK. 
 
 
 Date. 
 
 Offered by 
 
 Guarantee. 
 
 Payable at 
 
 Amount 
 
 To 
 Run. 
 
 Ac- 
 cepted 
 
 De- 
 clined 
 
 Re- 
 marks 
 
 July 18 
 
 Joseph Arnold. 
 
 H. Coulter 
 
 Our bank 
 
 1,000 
 
 60 ds. 
 
 1,000 
 
 
 
 *7 
 
 W. T. Bartlett 
 
 U.S.Bds $3,200. 
 
 Arctic, N.Y.... 
 
 2,500 
 
 60 ds. 
 
 2,500 
 
 
 
 18 
 
 H. Coulter 
 
 O. B.Arnold.... 
 
 Our bank 
 
 3Soo 
 
 90 ds. 
 
 3.500 
 
 
 
 16 
 
 D. Robb 
 
 J.Hurd 
 
 do. 
 
 7 CO 
 
 60 ds. 
 
 
 750 
 
 
 if 
 
 J. H.Watt.... 
 
 G. A. Lewis.. .. 
 
 Chemical, N.Y. 
 
 /O 
 
 2,780 
 
 30 ds. 
 
 2,78- 
 
 
 
 18 
 
 C. T. Wood... 
 
 J. Green 
 
 Our bank 
 
 i, 800 
 
 60 ds. 
 
 
 i, 800 
 
 
 *7 
 
 P. Young 
 
 T. W. Bush 
 
 do 
 
 500 
 
 30 ds. 
 
 
 500 
 
 
 18 
 
 F. Zahn 
 
 R.Ladd 
 
 do 
 
 3.400 
 
 60 ds. 
 
 3.400 
 
 
 
THE BOOKKEEPER. 
 
 119 
 
 a 
 
 M" ef w cf 
 
 R 8 
 
 
 2 -a*. 
 
 II 
 
 i<i 
 *U 
 
 6 4 
 
 B 
 
 * I 
 
120 
 
 PRACTICAL BANKING. 
 RECEIVING TELLER'S CHECK-BOOK. 
 
 Depositor. 
 
 Cash. 
 
 Dom. Ex. 
 
 For. Ex. 
 
 Total. 
 
 July 18. 
 
 413 oo 
 
 75 3 
 
 96 80 
 
 585 10 
 
 Kitchen 
 
 841 oo 
 
 513 80 
 
 269 95 
 
 I 624 75 
 
 Lewis 
 
 
 I,2IO 40 
 
 
 1,210 40 
 
 
 2OO OO 
 
 la 40 
 
 270 10 
 
 4.82 ^o 
 
 Webb 
 
 435 
 
 
 1,105 82 
 
 I S4.O 82 
 
 
 
 
 
 
 By Paying Teller , ......... 
 
 z. 880 oo 
 
 
 
 
 
 
 
 
 
 
 
 1,811 oo 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 5^443 57 
 
 July 19. 
 
 aOO OO 
 
 41 oo 
 
 175 80 
 
 5x6 80 
 
 Webb 
 
 2O OO 
 
 
 255 10 
 
 275 10 
 
 
 I 2OO OO 
 
 ss oo 
 
 
 1,255 oo 
 
 
 7OO OO 
 
 
 46 10 
 
 14.6 10 
 
 
 I, =5OO OO 
 
 M)O OO 
 
 42 70 
 
 1,842 70 
 
 Brown, J. D 
 
 240 oo 
 
 505 
 
 995 xo 
 
 54 X 9 
 
 
 150 oo 
 
 28 40 
 
 
 178 40 
 
 
 
 
 
 
 
 7,770 oo 
 
 
 
 
 
 
 
 
 
 H Dom. Collections 
 
 
 42Q 4$ 
 
 
 
 
 
 
 
 
 
 
 
 814 80 
 
 
 
 
 
 
 
 
 
 
 
 d QZ4. 2*1 
 
 
 
 
 
 
 COLLECTION 
 
 Date Left. 
 
 No. 
 
 Drawer or Endorser. 
 
 Drawee or Maker. 
 
 Where Payable. 
 
 Date. 
 
 July IQ 
 
 I 
 
 John Rapson. ... 
 
 Brown Bros . . 
 
 Chicago 
 
 Jul. i 
 
 10 
 
 2 
 
 A. Cranberry 
 
 Smith & Wood. . . 
 
 N.Y .... 
 
 IO 
 
 IO 
 
 
 W. H.Webb 
 
 Drexel, M. & Co. 
 
 
 15 
 
 ZQ 
 
 
 
 Prince & W. . . . 
 
 
 *9 
 
 IQ 
 
 
 
 J. H. Davis & Co. 
 
 * .... ..... 
 
 19 
 
 
 
 
 
 
 
THE BOOKKEEPER. 
 
 121 
 
 DOMESTIC TICKLER. 
 August. 
 
 Date. 
 
 No. 
 
 Payer. 
 
 Amount. 
 
 Collected/or. 
 
 Remarks. 
 
 July 18. . . 
 
 4 
 
 G. A. Lewis 
 
 2,780 oo 
 
 Dis. 
 
 
 
 
 
 
 
 
 September. 
 
 July 18. . . . 
 
 i 
 
 H. Coulter 
 
 1,000 oo 
 
 Dis. 
 
 
 18. . . . 
 
 2 
 
 W. T. J3artlett 
 
 2,500 oo 
 
 Dis. 
 
 
 18.... 
 
 5 
 
 R. Ladd 
 
 3,40000 
 
 Dis. 
 
 
 October. 
 
 July 18... 
 
 3" 
 
 O. B. Arnolds 
 
 3,500 oo 
 
 Dis. 
 
 
 
 
 
 
 
 
 REGISTER. 
 
 Time. 
 
 Due. 
 
 Amount. 
 
 Collected/or. 
 
 Sent to. 
 
 Ck. 
 
 o ds. 
 
 Auer "\ 
 
 246 80 
 
 John Rapson. 
 
 
 V 
 
 60 ds 
 
 Sep. ii 
 
 47 25 
 
 J. W. Torrey. . . 
 
 Arctic 
 
 V 
 
 30 ds. 
 
 All ST. 17 
 
 I 247 5O 
 
 W. H. Webb. 
 
 Arctic 
 
 V 
 
 30 ds. 
 
 Aug. 21 
 
 ^8* 10 
 
 E. P. Graham 
 
 
 y 
 
 30 ds. 
 
 Aug 21 
 
 4 7O TO 
 
 J. D. Brown 
 
 
 y 
 
 
 
 
 
 
 
 * We here tickle both City and Out of Town items together, but banks generally separate 
 these items, putting them on opposite pages of the Tickler, headed respectively, Domestic- 
 Foreign. 
 
122 
 
 PRACTICAL BANKING. 
 
 
 00 
 
 
 S. 
 
 
 
 8, 
 
 H 
 
THE BOOKKEEPER. 123 
 
 ITEMS FOR ILLUSTRATING THE DEBIT AND CREDIT JOURNALS, 
 (x.) Rec'd notice from First National of Cleveland that Brown & Bacon's 
 d'ft on Hardin had been paid, and the amount, $842.25, placed to our 
 credit. Brown & Bacon deposited, cash, $ 500. ( See Credit Journal, deposits 
 column, $1,342.25; also Depositors' Ledger, acc't of B. & B. For charge 
 to First Nat., Cleveland, see Debit Journal.) 
 
 (2.) Bo't 100 U. S. 4s<gU23 ($12,300), paying by draft on Fourth Nat., 
 New York. (See Credit J., general col. for credit to Fourth Nat., and also 
 Debit J., general col. for credit to Government stocks. 
 
 (3.) Rec'd notice from Second Nat., St. Louis, that John Adams's d'ft on 
 Beeten for $500 had been paid and placed to our credit. (See C. J., de- 
 posit col., and D. J., general col. ; also Depositors' Ledger.) 
 
 (4.) Paid bill, stationery and printing, $47.50. (See D. J., general col.) 
 Note. This is entered to the account of " Expense." In some banks the 
 general expenses are divided under various headings, such as "Salaries." 
 "Stationery and Postage," "Rent," "Fuel and Gas," etc. The " Expens* 
 Account" in such instances would embody only items of contingencies not 
 provided for by special classification. Classifying the items is a matter oi 
 taste. As a rule, it is well to adopt such a practice. 
 
 FORM OF CREDIT JOURNAL. 
 
 Washington, January 2 y 1885. 
 
 L.F. 
 
 Title of Account. 
 
 Items and Notation. 
 
 Col. &Ex. 
 
 Deposits. 
 
 Genera/. 
 
 
 Brown & Bacon 
 
 too Col 842 25 
 
 
 I 742 25 
 
 
 
 Fourth National, N.Y. 
 John Adams 
 Henry Smith 
 
 U. S. 4#'s@i2 3 .... 
 Col 
 
 
 500 
 250 
 
 12,300 
 
 
 C. C. Brown 
 
 
 
 1,250 
 
 
 
 National Park, N. Y. . 
 
 C. Goodnough 
 J. Peters 
 
 10 
 
 4" 
 
 
 4,000 
 i, 600 
 
 
 
 F. Brokaw 
 
 14 
 
 
 1,256 
 
 
 
 R. Albert 
 
 80 
 
 
 320 
 
 
 P. Fisher 
 Amos Smith 
 
 Disct 
 // ,.... 
 
 
 3,979 
 2,953 50 
 
 
 
 F.Hill 
 
 
 
 2,467 50 
 
 
 
 Interest 
 
 Disct . Register .... 
 
 6 25 
 
 
 93 75 
 
 
 
 
 
 
 24 IQ 
 
 
 Col. & Exchange.. 
 
 
 24 IQ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 12,742 25 
 
 12,742 25 
 
 
 
 
 
 
 
 
 Cash, Dr 
 
 
 
 
 32,336 19 
 
 
 
 
 
 , 
 
 
124 
 
 PRACTICAL BANKING. 
 FORM OF DEBIT JOURNAL. 
 
 Washington, January 2, 1885. 
 
 L.F. 
 
 Title of account. 
 
 Items and Notations. 
 
 Col. & Ex. 
 
 Deposits. 
 
 General. 
 
 
 First Nat., Cleveland.. 
 Governments 
 
 B. &B. Col 
 
 4's pr. dft. 4th Nat. 
 
 
 
 842 25 
 
 12 "IOO 
 
 
 Second Nat St Louis 
 
 J Adams Col 
 
 
 
 
 
 Expense 
 
 Stationery Prinfg 
 
 
 
 
 
 Fourth National N Y 
 
 Remittance. 
 
 
 
 
 
 Second Nat., Wash'n. 
 F. Brokaw 
 
 T Swift . 
 
 C.C. Brown's, K.. 
 Goodnow, 4,010.. 
 Peters, 1,000.. 
 1,25914 
 
 1 20 145 50 200 
 
 
 i 2 59 J 4 
 
 1,000 
 
 5,010 
 
 
 
 8 10, 14 60, 105 30. 
 
 
 128 
 
 
 
 H. Smith 
 
 
 
 312 CO 
 
 
 
 
 105, 318 10 
 
 
 421 to 
 
 
 
 Bills Discounted 
 Dom. Exchange 
 
 D. R 
 D.R 
 
 
 
 4,000 
 5,500 
 
 
 
 
 
 
 
 
 Deposits, Dr 
 
 Checks paid 
 
 
 2, 588 24 
 
 2 ^88 24. 
 
 
 
 
 
 
 
 
 Cash, Cr 
 
 Disbursements. .... 
 
 
 
 11,787 OQ 
 
 
 
 
 
 
 
 DISCOUNT. 
 
 When 
 Discounted. 
 
 No. 
 
 Drawer or End. 
 
 Drawee or Mkr. 
 
 Where Pay. 
 
 Date. 
 
 Time. 
 
 Jan. 2 
 
 i 
 
 P. Fisher 
 
 J. C. Vermont.. 
 
 Washingt'n. 
 
 Jan. 2 
 
 60 
 
 
 2 
 
 Amos Smith.... 
 
 T. Wilder 
 
 N. Y 
 
 Jan. 2 
 
 9 
 
 
 7 
 
 C. Stevens 
 
 Brown & Bacon. 
 
 Chicago .... 
 
 Jan. 2 
 
 60 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE BOOKKEEPER. 
 
 I2 5 
 
 (5.) Sold drafts on Nat. Park, New York, as follows: C. Goodnow, $4,000, 
 cxch. $ 10 ; J. Peters, $1,600, exch. $4; F. Brokaw, $1,256, exch. $3.14; 
 R. Albert, $320, exch. 8oc. (See C. J.) Rec'd in payment, Goodnow's c'k 
 on Second Wash'n, $4,010; Peters' c'k on do., $1,000, balance cash; F. 
 Brokaw's c'k on us, $1,259.14. (See D. J. and Depositors' Ledger, d'ft to 
 Albert paid in cash.) 
 
 (6.) Discounted notes for P. Fisher, $4,000; Amos Smith, $3,000; F. 
 Hill, $2,500. Total, $9,500. (See D. J., general col. from Discount Regis- 
 ter ; also C. J. deposits, and col. and exch. from Discount Register.) 
 
 Note. The original entries of these transactions would be those in the 
 Discount Register. The transactions then find their way to the Ledger 
 through the Debit and Credit Journals. 
 
 (7.) Paid checks of Swift, Loveland, Smith and Adams. ( See Debit Journal, 
 deposits col.) 
 
 THE DISCOUNT REGISTER. 
 
 The purposes served by the Discount Register are what, in a 
 mercantile business, would be found in the use of a Bill-book. 
 The formular arrangement of the Register is somewhat more ex- 
 tensive than that of the Bill-book, as the information desired by 
 a bank covers a broader field than that sought by a commercial 
 house. In this book are recorded, in the order of discount, the 
 notes which become the property of the bank. The names of the 
 drawer or endorser appear first, and then come those of drawee or 
 maker. Following these are columns for information as to where the 
 note is payable, the time specified on its face, date when due, and 
 time it is to run for which discount is charged. The amount of 
 
 REGISTER. 
 
 WnDue. 
 
 To Run. 
 
 Bills Dis. 
 
 Dom.Ex. 
 
 Int. 
 
 Col.&Ex. 
 
 Proceeds 
 
 Credited To 
 
 Ck. 
 
 March 6.. 
 
 63 
 
 4,000 
 
 
 21 
 
 
 3,979 
 
 P. Fisher.... 
 
 V 
 
 April 5 . 
 
 93 
 
 
 3,000 
 
 4650 
 
 
 2,953 50 
 
 Amos Smith. 
 
 * 
 
 March 6.. 
 
 63 
 
 
 2,500 
 
 26 25 
 
 625 
 
 2,467 50 
 
 F. Hill 
 
 / 
 
 
 
 4,000 
 
 5,5oo 
 
 9375 
 
 6 25 
 
 9,40000 
 
 
 
 
 
 
 
 
 
126 PRACTICAL BANKING. 
 
 the note is sometimes classified under two headings, as seen in the 
 illustration, viz., " Bills discounted " and " Domestic exchange," and 
 sometimes it is entered under one heading, as " Amount " or 
 " Face." When the two columns are used, the first embraces the 
 notes payable at home, or in the place where the bank is located, 
 and the latter those payable at other places. A column is pro- 
 vided for " Interest," another for " Collection and Exchange," and 
 one also for " Proceeds." Finally the name appears to whom the 
 proceeds are credited, and a narrow column is added for the 
 " check " which is made as the items are posted. 
 
 There are many forms of this book in use, some less and some 
 more elaborate than the one we have given. Some banks treat all 
 notes discounted under the one general title of " Bills Receivable," 
 and use as a record only the simplest form of a bill-book. In 
 many banks a large number of books are used which the experi- 
 ence and skill of progressive accountants have demonstrated are 
 not really essential. There is a growing tendency among bank ac- 
 countants to dispense with every book not absolutely necessary, and 
 to abridge the bookkeeping in every way possible. This is a com- 
 mendable spirit of reform, but care should be taken that the 
 abridgement is not carried to excess, lest grave inaccuracies creep 
 in through the lack of proper checks and proofs. 
 
 THE OFFERING-BOOK. 
 
 Chapter VII. is devoted chiefly to the subject of discounting 
 paper. The information there given is so explicit that nothing re- 
 mains to be said here more than to explain some special functions 
 of the Offering-book, and give an idea of its place in a system of 
 bank accounts. On page 62, in the chapter referred to, reference 
 is made to the formula arrangement of the Offering-book. There 
 is no prescribed rule for the form to be employed. Any arrange- 
 ment that will best meet the requirements may be adopted. But 
 little difference in the style is to be noticed among the many in 
 use. We submit a form that seems to fill the requirements. The 
 form may be improved upon for some institutions. Some Offering- 
 books have a column headed " Average Balances." This is to give 
 the information contained in the Average-book, for a description of 
 which see page 59. Where an Average-book is kept, the addition of 
 the average balance column is not essential, and if it tends to make 
 the book cumbersome, should be omitted. The Offering-book is com- 
 monly termed a memorandum or auxiliary to the regular set. It. 
 however, acts as the book of original entry for the class of trans- 
 actions which originate therein. From the Offering-book the rec- 
 ord is carried to the Discount Register, through which it enters 
 the ledgers. A record of the discounted paper must also be carried 
 to the Domestic Ticklers, if payable at home, or to the Domestic- 
 exchange Book, if sent away for collection. 
 
THE BOOKKEEPER. 
 
 127 
 
 THE DEPOSIT JOURNAL. 
 
 The Deposit Journal is not as universally used as the General 
 Ledger, the Tickler or Discount Register. It is used in many country 
 banks, and helps to simplify and abridge the entries in the General 
 Journal. One side of the book shows the work of the paying 
 teller, and the other that of the receiving teller, coupled with the 
 records of certificates of deposit issued. Certificates of deposit are 
 sometimes issued by one official and sometimes by another. In some 
 country banks the cashier is also paying-teller and receiving teller, 
 /. e., he performs the duties of both, and may be also the book- 
 keeper, note teller and discount clerk. We do not refer to the func- 
 tions of the various departments of service with the idea that the 
 various duties must be performed by one and the same person. If 
 the one person acts as both paying and receiving tellers the De- 
 posit Journal becomes a mere cash-book for recording a special line 
 of transactions. 
 
 THE DEPOSIT-JOURNAL. 
 
 Debits, Monday, Jan. $, 1885. 
 
 Credits, Monday ; Jan. j ', 1885. 
 
 Names. 
 
 Checks. 
 
 CtfsDep. 
 
 s 
 sj 
 
 Names. 
 
 Deposits. 
 
 Ctfs Dep 
 
 C. H. Pine 
 
 2IO 40 
 
 
 
 
 75 
 
 
 Jos. Arnold.. . . 
 
 I 4.06 IO 
 
 
 
 W. B. Hincks 
 
 
 
 F N Benham 
 
 7^ 5O 
 
 
 
 F. W. Marsh 
 
 I CQ AO 
 
 
 H. B. Drew 1510 
 
 
 500 
 
 
 C. H. Pine 
 
 7t CQ 
 
 
 T L Bartholomew 
 
 
 
 
 J. P. Wood . 
 
 CTC. 
 
 
 
 
 
 
 
 
 
 Wm. E. Seeley.... 
 I. B. Prindle 
 
 
 i?S 
 
 
 Total Deposits.... 
 Total Ctf's issued. 
 
 1,510 90 
 
 1,510 90 
 
 1,000 
 
 E. E. Post 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total C'ks Pd 
 Total Ctf'sPd 
 
 2,300 70 
 
 2,300 70 
 675 
 
 
 
 
 
 Paying Teller's 
 
 Credits. 
 
 2,975 7 
 
 
 Receiving Teller 
 
 Chg>d.... 
 
 2,510 90 
 
 Besides the books described, there may also be named several rec- 
 ords or registers, such as the Certificate of Deposit Register and 
 Draft Register. These are simple forms, and require no special ex- 
 planation upon their formular arrangement nor instruction upon 
 their use. The former is a mere record of the certificates of de- 
 posit: when issued, to whom, the amount, and when paid. The lat- 
 ter furnishes information as to the drafts or bills drawn on corre- 
 sponding banks, date, in whose favor, on whom drawn, and amount. 
 
 NOTE. For explanation of "Depositors' Balance Ledger," see pages 112, 113. 
 Figures in italics represent balances, which are carried forward in -oencil. 
 
128 PRACTICAL BANKING. 
 
 CHAPTER XV. 
 THE RUNNER AND PORTER. 
 
 He is a young man, and occupies the lowest position in the bank. 
 He is simply a messenger to collect drafts and notes. Boys are 
 hired who are eighteen to twenty years old, are paid a small salary, 
 and are quickly trained to go around the city with notes and 
 drafts for collection. Their instructions are simple and definite, 
 They must not take anything beside a certified check or good 
 money, unless instructed by the Note Teller to do otherwise. He 
 has charge of the runners, who are promoted whenever vacancies 
 occur. Many bank clerks and not a few cashiers and presidents 
 began as runners. 
 
 In London a bank messenger or runner is called an out teller, or 
 collecting clerk. His duties are quite the same, though his methods 
 differ in some respects. When he starts out from the bank, on 
 what is there termed his "walk," he leaves behind him a record 
 of the route he is to travel, and of the collecting, notifying, and 
 presenting he is to do, in a book called the WALK BOOK. In 
 this way the bank is kept informed of the whereabouts of their 
 absent messenger, a bit of information that must be highly appre- 
 ciated. In our banks and offices the inquiry, "Where is that 
 messenger ? " has become as familiar as the question, " Where 
 are the police?" The London collecting clerk, or out teller, in- 
 variably has his wallet strapped to his body with chain and belt, 
 a practice which has in some cases been copied here, and ought 
 to be here more widely in vogue. The drafts which he takes upon 
 his route for presentation, for acceptance, are always left with the 
 drawees, who have twenty-four hours in which to return them to 
 the bank. 
 
 The porter is the janitor. His duty in some banks is to appear 
 when the watchman leaves at six o'clock in the morning. He puts 
 the bank in order, and stays until the clerks come, then takes all 
 the books out of the vault and puts them in their proper places. 
 It is now probably about half-past nine. At night, after the clerks 
 go away, he puts the books back, locks the vault and stays in the 
 bank until the watchman appears at eight o'clock. After the clerks 
 are gone, the janitor, porter or watchman is always present. 
 
 
DEPOSITORS' DAILY BALANCE BOOK. 129. 
 
 In explanation let us refer to the form on page in (Depositors* 
 Daily Balance Book). The "balance" column for Monday, Sept. 15, 
 is footed to show, opposite "net total deposits," $6,316.70. The figures 
 in this column added together do not make this amount, but the 
 balance credits added together, and the overdraft of $160, against the 
 account of O. F. Berry, deducted therefrom, make the footing as> 
 shown, which is proven by taking the 
 
 Balance for the preceding day 5*873 05 
 
 Diminished by " total checks " of Sept. 15 3,067 35 2,805 7& 
 
 Increased by ' ' total deposits, " Sept. 15 3,51 1 co 
 
 Which gives " net total deposits " 6,316 70 
 
 This $6,316.70 does not show the full amount of deposits for which 
 the bank is liable, but it shows the deposits less the overdrafts. 
 
 After footing the columns entitled " balance," " total checks," and 
 " total deposits," as shown opposite the account entitled " net total 
 deposits," and as explained above, the bookkeeper proceeds upon the 
 same form to make up a general statement of the bank's condition. 
 
 The amounts in the first column of balances are supposed to 
 have been brought forward from the preceding page. Under the 
 column entitled "total checks," we find the amount $2,710, showing- 
 a disbursement of cash for two notes discounted, $710 and $2,000 re- 
 spectively. This is placed in the column of "total checks," simply 
 because it shows, as does the footing above it, a diminution of cash 
 for the day. In the following column : " total deposits," and opposite 
 the $2,710 is the amount $3,100. This also belongs to the account of 
 "notes discounted," but represents a collection by the bank, which 
 increased the cash and diminished the " notes discounted " account,, 
 thus leaving to that account a balance of $43,810. Summarizing the 
 transactions we have this statement : 
 
 Debit balance to notes discounted Sept. 13 44,200 oo 
 
 Two notes discounted Sept. 15, 710 and 2,000 2,710 oo 46,910 co 
 
 Collections from notes paid 3, 100 oo 
 
 Debit balance of account Sept. 15 43,8io oa> 
 
 Following the account of " notes discounted " is that of " discount :" 
 
 Credit balance from Sept. 13 1,400 oo 
 
 Received during the day, Sept. 15 150 oo 
 
 Total account at close of the day iS5O oo 
 
 The item of $150 receipts was placed in the column of "total de- 
 posits " that it might be added, like the preceding amount, to the cash, 
 receipts, though it has no connection with the depositors' accounts. 
 
 The account of " profit and loss " has met with no change during 
 the day, and it is simply transferred from one column to the other as. 
 an uncharged asset or debit account. The account of expense has; 
 been increased by the payment of a printing bill of $5. The amount: 
 is placed in the column of " total checks," because it represents a dis- 
 bursement of cash. From $407 on the I3th the account appears ia 
 the new balance as $412. 
 
130 PRACTICAL BANKING. 
 
 CHAPTER XVI. 
 DEALINGS IN EXCHANGE. 
 
 A bill of exchange is a familiar instrument, for it is one of the 
 oldest used in commerce. It may be denned as an order by a person 
 on another living in a different place, directing him to pay a sum 
 of money to a third person. Worcester's definition of exchange 
 is : " the method of adjusting accounts or paying debts, when the 
 debtor and creditor are distant from each .other, by means of an 
 order or draft called a bill of exchange, so as to avoid the trans- 
 mission of either money or goods." The person who writes the bill 
 is called the drawer, the person to whom it is addressed is called the 
 drawee, and the person who is to receive the money is called the 
 payee. When the drawee has accepted the bill he is called the 
 acceptor. This is done by writing his name and the word "ac- 
 cepted " across the face of the bill, and also the date if the 
 bill is payable after sight. In accepting a bill, the acceptor cannot 
 vary the terms of it ; for example, if it be drawn on a person living 
 in New York, and payable there, he cannot accept it payable in 
 Boston. He must follow the direction in the bill. 
 
 The phrase " bill of exchange " is often abbreviated and called simply 
 exchange. In newspaper quotations the one word is generally used. 
 Thus " exchange on New Orleans," or "exchange on London," is quoted 
 at a certain figure. The term is somewhat ambiguous, however, 
 sometimes meaning the rate of exchange and sometimes the instru- 
 ment. But the term is employed in such relations to other words 
 that persons have no difficulty in understanding what is meant. 
 
 What is the use of these instruments, and what purpose do they 
 serve? Suppose that Jones, who lives in New York, owes Williams, 
 of St. Louis, $ 10,000. Exchange on New York being almost always 
 at a premium, Jones will either send his certified check on his 
 New York bank for the amount he owes in St. Louis, or he will 
 deposit the money in his New York bank, and take the bank's 
 certificate of deposit for the amount, payable to the order of his 
 debtor, Williams, in St. Louis. Williams will have no difficulty in 
 negotiating this certified check, or the certificate of the New York 
 bank, because, as already stated, New York exchange is almost 
 ^everywhere acceptable. But if, on the other hand, Williams, of St. 
 
DEALINGS IN EXCHANGE. 131 
 
 Louis, desires to pay $10,000 to Jones, of New York, he will either 
 draw a draft on some party in New York who is indebted to him, 
 and send the draft to Jones, or he will go to his bank in St. 
 Louis and buy, at the current rate, exchange on New York, /. e., 
 the bank's draft on its New York correspondent, payable to the 
 order of Jones. If bills of exchange did not exist, Williams would 
 be obliged to ship the money from St. Louis to New York. This 
 would cost expressage, besides the danger of loss by robbery or 
 other accident, and the loss of interest during the period of trans- 
 mission. 
 
 Many bills are drawn payable at sight, and in certain States 
 these must be paid when presented. In other States, however, the 
 drawees are entitled on sight drafts to three days' grace. To ren- 
 der bills payable at once when presented the words " at sight " 
 are omitted, and the dratts are then payable on demand. 
 
 The business of buying and selling exchange is a very large one, 
 especially that of foreign exchange. The buying of exchange comes 
 about in this way. Suppose Williams, of St. Louis, having sold a 
 bill of goods to Jones, of New York, has drawn a bill of exchange 
 on Jones for the amount payable to his (Williams') own order. 
 Williams wants the money at once, perhaps to pay for purchases. 
 He goes to a bank and asks the cashier if he will buy the bill. 
 The cashier looks at it; he knows that the drawee is perfectly good, 
 and that in the event of his failure to pay he can hold the drawer 
 responsible. He buys the bill and pays Williams the money there- 
 for. Transactions of this kind are occurring daily among the banks. 
 Enormous quantities of cotton, wool, breadstuff s, provisions of all 
 kinds and other commodities are bought and paid for by means of 
 bills of exchange. The bank charges the agreed rate of exchange 
 and interest to reimburse itself for the use of the money until the 
 draft or bill can be collected. The bill is then forwarded for col- 
 lection to the correspondent of the bank in the place where the 
 draft is payable. 
 
 It is a very common thing for the western merchant to make ad- 
 vances to the farmer or planter to enable him to grow his crops. 
 He may advance him cash or furnish him with the necessaries of 
 life, usually in either case taking as security a chattel mortgage on 
 his stock and a lien upon the growing crops. Suppose the product 
 to be cotton. When gathered the cotton is shipped to the mer- 
 chant, who proceeds to sell it for account of the planter, and to re- 
 imburse himself for the advances made. When sold the cotton is 
 shipped East, and the transportation company's bill of lading for 
 so many bales is attached to the merchant's draft on the consignee 
 for the value of the cotton ; or the merchant may forward the 
 goods to a commission merchant East for sale. He then attaches 
 his draft for the approximate value of the goods, and goes to his 
 
132 PRACTICAL BANKING. 
 
 local banker and sells his bill of exchange with documents, the latter 
 being endorsed so as to convey the title to the cotton to the owner 
 of the draft. 
 
 Merchants in St. Louis, Chicago and the other Western and 
 Southern points are constantly buying merchandise, groceries, dry 
 goods, etc., from merchants in New York and the East. For this 
 merchandise the West and South is indebted to New York and the 
 East. On the other hand, the products of the West and South, 
 cotton, grain, beef, pork, etc., are constantly being shipped North 
 and East. 
 
 The transactions in cotton, for example, exceed three hundred 
 millions a year, a large portion of which is consigned to houses in 
 the North, who make advances on the security of these instru- 
 ments. Formerly the method of doing business was different. Then 
 the banks in New York and other places would not advance on 
 bills of lading and warehouse receipts, and if the broker or mer- 
 chant did so he had the money from wliich the advance was 
 made. In those days cotton was sold on sixty days' time. As soon 
 as it was purchased in the North the planter drew on the re- 
 ceiver, and after the bill was accepted the local bank cashed the 
 paper. But now the Southern banks have not enough money to do 
 this business, and cannot take the paper when offered, and conse- 
 quently the planter consigns the cotton and draws for three-quarters 
 or more, of its value. By the present method, it may be added, the 
 receivers must have more capital than formerly, as then they had 
 two months in which to sell and get money before their accept- 
 ances became due. 
 
 Several years ago a quantity of wheat was sent from Chicago on 
 a bill of lading to order. The bank in that city advanced on it, 
 and the grain was forwarded, under the direction of the bank, to 
 a certain storehouse, with instructions to keep it until the drafts 
 that represented the advance were paid. As these had several 
 months to run, the storekeeper, who was a speculator, thought it 
 would be a fine thing to use the grain, intending to put other 
 grain, similar in quality and quantity, in its place before the drafts 
 matured. Accordingly, he forwarded it to a house in New York 
 for sale. The consignee was a careful, cautious man. He exam- 
 ined the bill of lading, found that it was genuine, examined the 
 wheat also, and found that it answered the description required, 
 and made a large advance at the request of the consignor on the 
 same. The grain was sold, and the balance, after deducting the 
 charges, etc., was paid over to the storekeeper. 
 
 It is needless to add that his speculation turned out disastrously, 
 and consequently he could not replace the wheat. Then the bank 
 in Chicago found out that their wheat was not where they sup- 
 posed it to be. They traced the wheat into the hands of the con- 
 
 

 DEALINGS IN EXCHANGE. 133 
 
 signee of New York, and though he had obtained it in a perfectly 
 honest way, yet, inasmuch as the storekeeper had no title to it, he 
 could convey no title to the consignee, and consequently the latter 
 was held liable. This doctrine has made the business of advanc- 
 ing money on the security of bills of lading more perilous than is 
 agreeable to bankers and commission merchants, and the question 
 arises whether it is not possible to grant greater protection to them 
 than they now receive. Ought not common carriers to be held re- 
 sponsible for the acts of their agents in issuing bills of lading? A 
 bill embodying this obligation was introduced into Congress at the 
 last session. It substantially declares that bills of lading, issued by 
 an agent authorized to issue such instruments, should be conclusive 
 evidence against the carrier in the hands of a bona-fide holder for 
 value, that the freight was actually received as in the bill of lading 
 stated, and that the agent issuing the same had full authority to 
 do so. To prevent this rule from becoming too severe in its practi- 
 cal application as against the carriers, the proposed law contained 
 a further provision that the carrier should not be responsible under 
 the provisions of the same on any bill of lading on which he 
 stamped the words " not negotiable," nor for any statement of fact 
 in such a bill of lading caused wholly by the fraud of the shipper 
 of the merchandise therein named, the holder of the bill, or the 
 person under whom he claimed. 
 
 It was hoped that this measure would meet the necessities of the 
 case, for while it is true that much may be said upon the propriety 
 of making principals responsible for the acts of their agents, it is 
 also true that that doctrine may be carried to such an extent as 
 to work positive injustice. To make carriers responsible to an un- 
 limited amount upon bills of lading issued at remote and unim- 
 portant stations by agents, of whose actions, owing to the circum- 
 stances, carriers have but little actual knowledge or control, is per- 
 haps to increase the risks of the transportation business beyond its 
 legitimate limits. 
 
 The practical effect of the bill would be, if enacted, that rail- 
 road companies would issue to their agents generally non -negotiable 
 bills of lading, which could not be made negotiable by any era- 
 sure or alteration ; they would provide their trusted agents at the 
 largest receiving depots with negotiable bills of lading, which would 
 be issued as required. 
 
 There is another kind of bill which may be described. A firm 
 in New York sends an agent to Chicago to buy grain. Mr. Snooks, 
 the agent, buys a considerable quantity, and in order to make pay- 
 ment draws on his principal or consignor for the full amount of his 
 engagement. He takes this bill to a bank and asks them to ad- 
 vance the money, as in the case just mentioned. The bank, if hav- 
 ing funds, is usually willing to grant the advance requested. 
 
134 PRACTICAL BANKING. 
 
 The bank forwards the draft to its corresponding bank in New 
 York, which presents it to the drawee in due time. He accepts 
 it, and pays according to its tenor. In this case, as the wheat is 
 purchased for the consignee, of course he is liable for the amount, 
 and the bill is drawn for the full sum that is due for it. 
 
 When a draft is offered for sale, how much will a bank pay for 
 it? To answer this question clearly a brief explanation is necessary. 
 If the business men in New York are selling about as many goods 
 to the merchants in St. Louis as they, on the other hand, are sell- 
 ing to New Yorkers, then the bills of exchange drawn in both 
 cities will be at par in other words, they will be transferred from 
 one person to another for just the amount expressed on their face. 
 There may be a very slight difference, enough to pay the banks 
 for the trouble of buying and selling them ; but, for the moment, 
 we will leave that fact out of sight. But now, suppose that the 
 merchants of St. Louis are selling the New Yorkers three times as 
 many goods as the former are buying in New York, then the mer- 
 chants of New York would owe those of St. Louis three times as 
 much money. The reader will perceive that there will be three times 
 as many bills drawn by the merchants of St. Louis as by the New 
 Yorkers, and if all the St. Louis merchants should wish to sell 
 their bills they could not get par for them, because the buyers could 
 not sell them at a profit, for the simple reason that there would 
 be occasion for using only one-third of them in settling the 
 debts due by the St. Louis merchants to the New Yorkers. On 
 the other hand, if all the New Yorkers should desire to sell their 
 bills they could get more than par for them, because the entire 
 amount would settle only one-third of their indebtedness to the St, 
 Louis merchants. The bills, therefore, which the New York mer- 
 chants would draw on those in St. Louis would command a premium, 
 while the bills drawn by the St. Louis merchants on the New York 
 ones would be at a discount. It may be added here, in passing, 
 that the bills drawn by the New York merchants on those in St. 
 Louis would be called St. Louis exchange, and the bills drawn by 
 the St. Louis merchants on those in New York, New York ex- 
 change. When the New York merchants cannot get St. Louis ex- 
 change at par, but must pay a premium therefor, the rate of ex- 
 change as between the two cities is said to be against New York; 
 if the St. Louis merchants should owe a balance to those in New 
 York, then they would be obliged to pay a premium to get New 
 York exchange with which to settle their indebtedness, and the 
 rate of exchange would be in favor of New York. In other words, 
 the rate of exchange is always against the place that owes the most 
 money, and in favor of the place that owes the least. But the 
 rate of exchange does not exceed the cost of transporting specie, 
 and the cost of doing this between many places is small ; for this 
 
DEALINGS IN EXCHANGE. 135 
 
 reason the rate of exchange between Boston and New York is very 
 little. Although a great many bills are drawn on these two cities, 
 yet the rate is very low, because they are so near together, and 
 the modes of communication are so perfect that money may be 
 readily sent from one city to the other to discharge any indebted- 
 ness which may exist between them which cannot be easily settled 
 with the medium of bills of exchange. Further on we have given 
 quotations of bills of exchange drawn on New York by other places. 
 It will be seen that the rate is only five cents on $ 1,000 in Boston 
 a sum too insignificant to be considered. But between New York 
 and other places farther away the rate is higher. 
 
 One thing further ought to be said in this connection. At cer- 
 tain seasons of the year a large amount of grain is shipped from 
 the West to the East, also pork, beef, lard, and other provisions; 
 enormous quantities of cotton are shipped from the South, too, 
 and many other articles which need not be mentioned. At the 
 same time, Western merchants are making large purchases in 
 the East, New York, Philadelphia, Boston, and elsewhere. But 
 the purchases made in the East are not so heavy^ as those made 
 by the Eastern men of the West. The consequence is, there are 
 not enough bills of exchange made in the East to pay all of 
 the indebtedness to the West; in other words, the rate of ex- 
 change during those seasons of the year is pretty steadily against 
 the Eastern cities. When the balance becomes large and the rate 
 of exchange considerable, it is absolutely necessary to remit cur- 
 rency to the West to restore the balance of trade. There is no 
 other way of restoring it. Years ago, when money was less plen- 
 tiful in the West than it is at the present time, there was a 
 more urgent need of transmitting money to effect these settlements. 
 Even now, large quantities go at certain seasons of the year. 
 
 The banks buy bills of exchange in order to sell them again ; this 
 is a part of their regular business. They buy at one rate and sell 
 at a higher rate. When the exchange is said to be at par between 
 two cities it is not strictly so, inasmuch as a bank will not give 
 quite as much for a bill of exchange as it asks for one when sell- 
 ing it. Of course, if it bought and sold at the same price no 
 profit would be made in the business, and there would be no rea- 
 son for undertaking it ; hence, the buying and selling rate is never 
 the same. Thus, in an ordinary newspaper report we find the fol- 
 lowing, which is extracted from the New York Journal of Com- 
 merce of August ist : 
 
 The following are the rates of exchange on New York: 
 Savannah, buying y& ; selling % premium. 
 Charleston, buying par@>6 ; selling 3-i6@# premium. 
 New Orleans commercial, $1.50 per $ 1,000 premium; bank, $2.50 
 per $i,ooo premium. 
 
136 PRACTICAL BANKING. 
 
 St. Louis. 500. per $ 1,000 premium. 
 Chicago, 750. per $ 1,000 premium. 
 Boston, par@5c. per $ 1,000 discount. 
 
 When a Charleston bank, for example, buys exchange on New 
 York, it expects to sell it again to persons who have payments to 
 make in the latter city. It does not sell the same bills that it 
 buys ; it could do so, however, if any persons desired them. What 
 the bank actually does is to forward the bills purchased to the 
 bank with which it corresponds in New York for collection ; that 
 bank presents them to the drawee at the proper time and they 
 are paid, and the amount is credited to the Charleston Bank. 
 When a man enters the Charleston Bank desirous of buying a 
 bill of exchange on New York, it simply draws a bill on its cor- 
 responding bank in that city and sells it to the party desiring the 
 same, charging him therefor whatever the prevailing rate may be 
 at that time. Just now, as will be seen from the above quotation 
 from the newspaper, the rate is one-quarter of one per cent. 
 
 Banks do not always charge their customers for a bill of exchange, 
 either when selling or collecting it. The custom, however, of charg- 
 ing generally prevails among banks ; nevertheless, the fact that ex- 
 ceptions are sometimes made is worth noting. In the exceptional 
 cases the dealer's account may be a very profitable one, and this favor 
 is shown to him as a kind of reward or gratuity or premium to make 
 him feel better satisfied with the bank. But a gratuity of this 
 kind granted to a dealer is rather an outside matter, and does not 
 pertain strictly to the banking business. 
 
 It may be stated in this connection that some depositors, instead 
 of going to their bank and buying a bill of exchange when they wish 
 to pay a debt due in another city, send their check to the person 
 whom they owe ; he receives it and deposits it in his bank which 
 afterwards sends it for collection to the bank on which it is 
 drawn. It will be seen that the depositor by doing this cuts off his 
 bank from selling him a bill of exchange, and his real object of 
 doing this is to save money by the operation. This has become a 
 subject of considerable complaint among bankers. The question 
 has been raised whether some method cannot be devised for col- 
 lecting these checks, and thereby effecting a considerable saving 
 among all the parties concerned. In that part of this work relat- 
 ing to the Clearing-house, a chapter will be found pertaining to 
 this subject. 
 
 In regard to foreign bills, what we have already said applies 
 in most respects to them. The rate of exchange does not exceed 
 the cost of shipping gold from the debtor to the creditor. As 
 between Great Britain and our own country this cost does not ex- 
 ceed two cents to the pound sterling. 
 
 
DEALINGS IN EXCHANGE. 137 
 
 There are occasions though when the exchanges sink and rise 
 much below the specie point, which is not accounted for by the 
 single fact of a balance of indebtedness, either for or against a 
 given country. Such an occasion occurred early in 1861, when war 
 was impending between the North and South. Fluctuations in the 
 American rates of exchange extended far below the specie point. 
 The balance of trade was in favor of the United States, and a large 
 sum was due from Great Britain. Yet, exporters sacrificed three or 
 four per cent, on their bills in order to get their money imme- 
 diately. The exporter had two courses open to him either to sell 
 his bills for what they would fetch, or to transmit them to Europe 
 with instructions to his correspondents to demand payment and re- 
 mit the amount in bullion. The former course was pursued, conse- 
 quently the bills were sold at a large sacrifice. 
 
 The items determining the question whether to send specie or 
 buy a bill of exchange are the following: cost of sending specie, 
 insurance thereon, and the loss of interest on the specie during 
 shipment from one country to the other. 
 
 Suppose that Jones owes a bill in London ; he goes to a house 
 in Wall Street which deals in foreign bills. The par of exchange 
 between the two countries is $4.86 T 6 ^; that is the legal value here 
 of a pound sterling. The question in Jones' mind when he goes into 
 this house is, whether he shall buy a bill and send that to Lon- 
 don in discharge of his debt, or whether he shall transmit specie 
 for the same purpose. Of course, he will do the thing which is 
 cheapest. Remembering that the par of exchange between the two 
 countries is $4.86^, and that the cost of shipment is two cents 
 in the pound, if he can buy a bill at less than $4.88^ of course 
 it would be cheaper for him to buy the bill than to send the 
 specie. On the other hand, if he were obliged to pay more than 
 $4.88^ for the bill, then it will be cheaper to send the specie. 
 
 Suppose an Englishman has a debtor in New York who owes 
 him ^10,000, payable in that city, shall he send over there and get 
 the money and import it into his own country, or shall he draw 
 on his debtor for the amount and sell the bill? Remembering that 
 the par of exchange is $4.86 T ^, and that it will cost him two 
 cents in the pound to transport his specie, it is clear that any sum 
 which he can get for his debt exceeding $4.84^ is a saving on 
 the importation of gold. On the other hand, if he cannot sell the 
 bill for $4.84^, but only for a sum considerably less than that 
 figure, his more profitable course is to import specie. 
 
 When bills are payable on time, say 30, 60 or 90 days, they com- 
 mand a lower price than when they are payable at sight. The 
 reason is, the buyer pays cash ; he sends the bill to Great Britain 
 to pay his debt, but it is not paid, say, for 60 days, and as he is 
 out of the money during the interval the bill is bought at a re- 
 duced rate. 
 
138 PRACTICAL BANKING. 
 
 The sum paid for a time-bill, therefore, will depend on the 
 length of time it has to run and the rate of interest in the country 
 where the bill is payable. / A bill drawn payable in London three 
 months after date is bought by a banker at a price which is equal 
 to a bill payable on demand, less three months' interest at the rate 
 at that time prevailing in London, for the purchaser must discount 
 the bill there at the ruling rate before he can make it equally 
 available with a draft on demand. It may be added, that when for- 
 eign bills are bought as an investment, a thing often done, it is 
 for the purpose of earning the higher rate of a foreign country, in 
 the place of the lower rate ruling at home. 
 
 It may be well to note that when bills are quoted at $4.84 the 
 quotation does not mean that they are two per cent, less than par, 
 but simply that they can be bought for two cents and ^ less 
 than the regular value of a pound sterling. If, for example, a bill 
 of exchange were drawn for 1,000, the amount would be equiva- 
 lent to $4,866.50; if it were quoted at $4:85, this quotation would 
 mean that the bill could be bought for $4,850.00, or $16.50 less 
 than the par of exchange. 
 
 Within a few years the practice has arisen of transferring money 
 by telegraph, or, as it is termed by the newspapers, " cable trans- 
 fer." By this method a merchant who desires to ship wheat to 
 London can complete the transaction in a few hours. He can 
 ship the wheat, telegraph the fact to the consignee at London, 
 obtain particulars concerning the conditions of the market, and, if 
 he think best, have the wheat sold at once, "to arrive," and to re- 
 mit the proceeds through a London banker. A bill does not ap- 
 pear at all in the transaction. The amount of business done in 
 this manner has materially reduced the volume of bills in some 
 places. In the Eastern trade with London, in which competition is 
 exceedingly keen and the margin of profit consequently small, the 
 telegraphic transfer system has been in use for several years. The 
 amount of cable transfers between this country and European 
 countries is constantly increasing. 
 
 
PRIVATE BANKS. 139 
 
 CHAPTER XVII. 
 PRIVATE BANKS. 
 
 Although of less relative importance than formerly they were, prU 
 vate banks continue to maintain a good standing, and prove well 
 adapted to some phases of the business of banking. According to 
 the last report of the Comptroller of the Currency (December, 1883) 
 the private banks hold about fifteen per cent, of the totals of capi- 
 tal and deposits, excluding those of Savings banks. The capital 
 employed by a private bank is apt to be variable in amount, not a 
 fixed sum represented by stock certificates, so that the returns, 
 which are made the basis of a tax, probably represent the minimum 
 of capital employed. 
 
 In addition to this, it may be said that many of the State banks, 
 while running as such, are in reality private institutions, the capit;d 
 stock being held by one or two owners, and the directorship being 
 nominal. This use of bank organizations is facilitated by the ease 
 with which they can be formed in most of the States, and is re- 
 sorted to from various reasons. In some cases it is to have the 
 benefit, when starting a new concern, of the prestige and credit 
 which the title of " bank " is supposed to give ; in others, and more 
 frequently, to secure the immunity of limited liability ; in others, 
 again, to retain the name and clientage of a long-established busi- 
 ness. One of the largest State banks in the West, with a deposit 
 line of millions, and a very large volume of business, reports a 
 capital of $ 100,000, but in this instance the owner advertises that 
 "the stockholders are individually responsible, without limit, for all 
 the liabilities of this bank." 
 
 In view of these facts it is probable that private banking occu- 
 pies a rather more important place than the returns published by 
 the Comptroller would indicate. 
 
 His figures, however, furnish the only trustworthy basis of com- 
 parison to be had, and from them some interesting results are to be 
 obtained. 
 
 The following table, taken from the last published volume of 
 the Comptroller of the Currency, shows the geographical distribu' 
 tion of bank capital and deposits, excluding Savings banks : 
 
140 
 
 PRACTICAL BANKING. 
 
 Geographical. 
 Division. 
 
 New Eng. States. 
 Middle States... 
 Southern States. 
 W. States &Ter. 
 
 Totals. 
 
 National Banks. 
 
 No. 
 
 691 
 214 
 843 
 
 Capital. 
 
 Millions. 
 166.23 
 
 173-19 
 34-8 
 110.66 
 
 484.88 
 
 Deposits. 
 
 Millions. 
 193.15 
 
 301.28 
 1,119.82 
 
 State Banks and Trust 
 Companies. 
 
 No. 
 
 40 
 210 
 248 
 563 
 
 io6t 
 
 Capital. 
 
 Millions. 
 
 8.30 
 
 40.60 
 
 25-34 
 
 48.90 
 
 123.14 
 
 Deposits. 
 
 Millions. 
 
 3 J - 6 4 
 
 244.02 
 
 45-94 
 168.40 
 
 Private Banks. 
 
 No. 
 
 2OO2 
 
 490.00 1 3412 
 
 Capital. 
 
 Millions. 
 
 6.22 
 62.42 
 
 6-33 
 30-31 
 
 105.28 
 
 Deposits. 
 
 Millions. 
 
 6-57 
 
 112.69 
 
 20.68 
 
 149.02 
 
 288.96 
 
 The average capital and deposits in the three classes of banks 
 are as follows: 
 
 Capital. Deposits. 
 
 National banks $210,100 .... $485,200 
 
 State banks 116,000 461,800 
 
 Private banks 30,800 .... 84,700 
 
 The ratio of capital to deposits is, in the National banks 433 
 
 /*// State banks 251 
 
 * u a Private banks 364 
 
 a * * All classes 376 
 
 The proportions of the totals of capital and deposits as held by 
 each class in the several geographical divisions are given below : 
 
 , Per Cent, of Total. 
 
 for the Three Classes. Capital Deposits. 
 
 New England States 254 .... .122 
 
 Middle States 387 .481 
 
 Southern States 093 .... .071 
 
 Western States and Territories 266 .... .326 
 
 , Per Cent, of Total. , 
 
 For the National Banks. Capital. Deposits. 
 
 New England States 343 .... . 173 
 
 Middle States 357 .... .497 
 
 Southern States 072 .061 
 
 Western States and Territories 228 .269 
 
 , Per Cent, of Total. , 
 
 For State Banks and Trust Companies. Capital. Deposits. 
 
 New England States 067 .064 
 
 Middle States 330 .498 
 
 Southern States 206 .... . 094 
 
 Western States and Territories ,,.,,.., . .397 .... .344 
 
 , Per Cent, of Total. . 
 
 For Private Banks. Capital. Deposits. 
 
 New England States 059 .... .023 
 
 Middle States 593 .... . 390 
 
 Southern States 060 .... .071 
 
 Western States and Territories 288 .... .516 
 
PRIVATE RANKS. 14! 
 
 These figures show, among other things, that the average of 
 ;apital and deposits is, as might be expected, lowest in the private 
 ranks, and highest in the National banks. About midway between 
 the two, in respect to average capital, come the State banks, while 
 the average deposits of the latter nearly equal those of the National 
 banks. As the profits of banking come chiefly from loaning de- 
 posits, it would seem that in the greater ratio of deposits to capi- 
 tal is to be found a source of gain to offset that which comes 
 from circulation, especially when, as at present, the margin of profit 
 from this source is reduced to so thin a shaving. The high ratio 
 of capital shown by the National banks is due, in part at least, to 
 the provision of the National Bank Act, which fixes the minimum 
 limit of capital for banks organized thereunder, scaling them pro- 
 portionately, in some degree, to the population of the towns and 
 cities in which they are located. The ratio of capital to deposits 
 of the private banks closely approximates to 'that shown by three 
 classes taken as a whole. 
 
 This analysis of the Comptroller's table furnishes other inter- 
 esting and instructive comparisons, which, however, cannot be 
 dwelt upon here, as they do not bear upon the subject of this 
 chapter. 
 
 The general character and function of the private banks is shown 
 by their small averages, and also by their geographical distribu- 
 tions. Nearly two-thirds of their number, and over fifty per cent, 
 of their deposits, are reported from the Western States and Ter- 
 ritories. It is in that region of new and small communities where 
 active enterprise and industry abound, along with a plentiful lack 
 of capital, that the conditions are found most favorable to their 
 establishment and maintenance. A town too small to establish or 
 support a National bank, with a capital of fifty thousand dollars, 
 may yet feel the need of banking facilities, and this need becomes 
 more and more pressing until a leading merchant, or some man 
 who has been in the way of buying notes or making small loans 
 at remunerative rates, either assumes or gradually has forced upon 
 him the functions of a banker and puts out his sign. His capital 
 may be, and usually is, small at the outset, but in a rural commun- 
 ity every man is known to his neighbors. His "means" are closely 
 estimated, his integrity and ability are pretty correctly gauged, his 
 habits and manner of life are known. In respect to these he is sub- 
 jected, not to periodical and perfunctory examinations by National 
 or State officials, but to continuous and rigid watchfulness by self- 
 constituted examiners who are very apt to reach correct results, al- 
 though they are not permitted to count his cash or scrutinize his 
 bills discounted and his ledger. If he passes this investigation suc- 
 cessfully he will win the confidence of his townsmen and his busi- 
 ness will prosper. Such has been the origin of many of the 
 
142 PRACTICAL BANKING. 
 
 largest and most respectable private institutions now in exist- 
 ence. 
 
 Private bankers, so far as they command public confidence, do 
 so upon their reputation for wealth and their character for honesty 
 and ability, and these are applied directly to the management of 
 the business confided to them. Under these circumstances there 
 must be, other things being equal, a greater concentration of re- b 
 sponsibility, a stronger sense of direct, personal liability than is felt 
 by either the directors or officers of incorporated institutions, so 
 that this form of banking offers to the dealer, equally with any 
 other system, that which must after all be his chiefest and best 
 guaranty, namely, faith in the integrity and capacity of the man- 
 agement. 
 
 Private banks, however, lack one important quality, that of per- 
 manency. Especially is this the case in the United States, and as, > 
 from various causes, they may be wound up, they are little likely, 
 in the great cities and larger towns, to be replaced by similar in- 
 stitutions. Gradually, with the growth and development of the ! 
 country, the function which they are best fitted to fill diminishes, 
 and their business is merged into or usurped by National and State 
 banks ; and this tendency will continue. 
 
 As to the details of their management, little need be said. These 
 should in no wise differ from those of well-conducted National and 
 State banks, and for the most part they are so managed. In rare 
 instances private banks have adopted the practice of making public 
 reports of their condition, and publishing them along with those 
 furnished periodically by their National and State competitors. It 
 would be well if in some way this could be made a universal 
 custom. 
 
 Occasionally there is to be found a banker who affects to despise 
 theory and red tape, names by which he designates the restrictions 
 which it is the intention of National and State statutes to impose, 
 but it will generally prove that, if successful, he adheres to their 
 substance if not to their form. The advantages which are some- 
 times claimed to be found in an immunity from these salutary re- 
 quirements are questionable. So far as such so-called advantages 
 are embraced, their tendency is to allure men from the safe paths 
 of correct banking; the prudent and successful bankers, under any 
 system, are those who hold themselves strictly amenable to the 
 rules and principles which experience has proved ought to govern. 
 
 A few words should be said about the large banking houses that 
 are only to be found in great commercial centers like New York. 
 Many of them were originally founded with a view to conducting 
 a regular banking business, of receiving deposits and discounting 
 commercial bills, and numbers of them continue to do a large 
 business of this kind, especially for out of town correspondents. 
 
PRIVATE BANKS. 143 
 
 But they have, for the most part, gone largely into the business of 
 placing corporate loans, of acting as agents for States and munici- 
 palities, and of dealing in foreign exchange. Along with their 
 growth in this direction there has been a decline in that which 
 may be more strictly termed banking, until many of them have 
 come to resemble the great financial firms of London, who style 
 themselves merchants, not bankers. 
 
 Several of the larger banks in New York have from time to 
 time sought to enlarge their dealings in foreign exchange, but 
 never with any marked degree of success. The causes of this are 
 not far to seek. A busy banker engrossed in the management 
 of a large line of deposits and discounts cannot scan with 
 sufficient care the wide field of foreign exchanges. The condi- 
 tions of supply and demand, the different standards of money, 
 the changing rates of interest in the various financial centers, and 
 the numerous other influences, ordinary and extraordinary, which 
 affect the business of exchanges, demand nothing less than 
 constant study by the man who would master them, and their 
 perfect mastery is necessary. It is probable, too, that the foreign 
 agencies which are available for a bank to employ do not render 
 the effective service that is requisite; that the London and Con- 
 tinental branches, having common interests, which form a part of 
 the organization of all the large houses dealing in exchange, are 
 essential to success. This segregation of the exchange business 
 from that of banking is, however, but an illustration of the in- 
 evitable tendency to specialization which marks commercial prog- 
 ress. 
 
144 PRACTICAL BANKING. 
 
 CHAPTER XVIII. 
 COUNTRY BANKING. 
 
 General principles of banking apply alike to banks irrespective of 
 location. Details in conducting the business may be materially in- 
 fluenced by the bank's position in the country. The routine of 
 large banks in commercial centers is usually the outgrowth of long 
 experience, careful experiment and constant thought of improvement. 
 The bank president in a country town, though he may have carved 
 his way to position, through gradual advancement from runner or 
 sweeping-boy, would, if placed at the head of one of the large 
 banks of a metropolitan city, be found unable to manage its af- 
 fairs. He may be a better financier and possess greater executive 
 ability than many city bank presidents, but he would lack in that 
 particular knowledge which comes only from experience. What we 
 say of bank presidents will apply as well and possibly with more 
 strength to other officers and to the clerical force. And in select- 
 ing the president in our illustration we do not refer to that class 
 who are presidents only in name. We mean presidents who are 
 in every sense entitled to the position. And, thanks to the prog- 
 ress of the times, figurehead presidents are not so numerous now 
 as a few years ago. Sharp competition has lifted banking to a 
 science. It has brought capable heads almost without exception 
 into president's chairs. This is true of country as well as of city 
 bank presidents. 
 
 However true the above, it furnishes no evidence that less capa- 
 bility, thoroughness, or good financiering is required in the country 
 than in the city bank. Especially good judgment, careful calcula- 
 tion, and a close watch over the finances are requisite in conduct- 
 ing a country bank. Opportunities to loan money are not often, 
 as favorable in the country as in large business centers. The se- 
 curities offered, too, are of a different kind. The country banker's 
 customers are more frequently personal acquaintances and friends. 
 He is called upon oftener to lay aside personal and friendly con- 
 siderations in loans and discounts. He must know his customers 
 better because he trusts them more on personal obligations. Loans 
 in large cities are made largely on collateral securities. In country 
 banks such securities are seldom received. The personal responsibil- 
 
COUNTRY BANKING. 145 
 
 ity of the borrowers or of their endorsers is more usually the thing 
 to be considered. 
 
 The routine of bank work varies according to the volume of 
 business transacted. The methods employed in a bank where the 
 average balances due depositors reach half a million dollars would, 
 in a bank where such balances did not exceed one hundred or two 
 hundred thousand dollars, prove cumbersome and complicated. On 
 the other hand a system which meets every requirement in the 
 medium-size institution would, if introduced in the large city bank, 
 be found wholly inadequate. The clerical force of a bank, too, has 
 much to do with the method that may be introduced to the best 
 advantage. In the larger city banks it is not unusual to see em- 
 ployed as the clerical force twenty to forty persons. Many banks 
 in small cities and towns find that two or three persons will do 
 the work comfortably. We could name many banks of respectable 
 size where the average deposits reach one hundred thousand to 
 two hundred thousand dollars, in which not more than two clerks 
 are employed, and some where one clerk and the cashier get 
 through with the work. The cashier in such case is also paying 
 teller, receiving teller, discount clerk, note teller, and general book- 
 keeper. The work is often divided up between the two or three 
 persons without any special reference to the functions of individual 
 members in a fully organized force. 
 
 The books used in a country bank do not differ materially in 
 number or formular arrangement from those used in metropolitan 
 places. The following are those in most common use: general led- 
 ger, general journal, deposit journal or teller's cash, deposit ledger, 
 sometimes called individual ledger and sometimes customers' ledger, 
 collection register, discount register, tickler, sometimes two ticklers, 
 foreign and domestic ; certificate of deposit register, draft register, 
 deposit ledger balance book, or as some term it depositors' balance 
 ledger, and offering book, the latter being sometimes dispensed 
 with. Then there are also used in some banks a discount ledger 
 and daily general balance book. A monthly statement book is kept 
 by National and also by many private or State banks. 
 
 An experienced country bank bookkeeper gives the following de- 
 scription of his daily routine : 
 
 " I enter in the journal all remittances in detail ; total amount of 
 loans and notes discounted each day, the latter I get from the 
 discount register; notes and loans paid, which come from the tick- 
 ler, these being entered separately in the journal with the total only 
 extended into the money column. Collections paid, if belonging to 
 our correspondents, go in the journal ; if they do not belong to 
 correspondents, they are remitted for direct ; the draft register, in 
 these transactions, completes the entry which opens in the collection 
 register. Drafts drawn on our correspondents are journalized and 
 
146 PRACTICAL BANKING. 
 
 other transactions such as exchange, interest, expense, etc. In clos- 
 ing the journal for the day, the footings of the deposit journal, 
 which with us are the total amount of checks paid and the total 
 amount of deposits received, are entered. In one respect my journal 
 represents a cash book. I bring forward each day the balance of 
 cash on hand. This enables me to prove my cash by my journal 
 by balancing it the same as a cash book. The journalizing is done 
 at the close of banking hours and the entries are posted to the 
 ledger during the first hours of the next day. As the posting is 
 done, the new balances are entered in the daily balance book which 
 is lying conveniently on the desk. Opposite the accounts not af- 
 fected the previous day's balances are extended. When the posting 
 is finished the daily balance book is footed, which furnishes a proof 
 of the work. 
 
 "On the debit side of the deposit journal appear all checks and 
 certificates of deposit paid ; on the credit side are deposits received 
 and certificates of deposit issued. The footings only of this book 
 are journalized. The footings are made direct to the depositors' 
 ledger. The account in the general ledger of " Deposits " is charged 
 and credited from the journal. 
 
 " Our ledgers are provided with balance columns, the general 
 ledger having one account to a page, the deposit ledger two. In 
 the general ledger there are four money columns, two for items 
 and two for balances. In the deposit ledger there are but three 
 columns, Dr., Cr., and balance. In the balance column over-drafts 
 are distinguished from credit balances by being entered in red ink. 
 
 "We use only one collection register. It is made to serve a 
 double purpose, viz. : it is a record of bills, etc., brought in by our 
 customers to be sent out for collection, and also of collections re- 
 ceived from our correspondents and others, excepting sight drafts. 
 After the record is made in the collection register, it is entered in 
 the tickler under the day on which it falls due. When the collection 
 is paid we make the proper notation in the tickler and either credit 
 our correspondent or remit direct to the sender according to direc- 
 tions. In case the collection is not paid and is protested, immediate 
 notice is given. Of sight drafts received for collection we make no 
 book record. The letter accompanying the collection is the orig- 
 inal and only entry we have. After presenting the draft for payment 
 we note on the accompanying letter how it was disposed of whether 
 paid or returned. If paid and belonging to a correspondent it is 
 properly credited. If it does not come from a correspondent we 
 remit for it immediately, so noting on the letter. The letter is then 
 filed as a history of the transaction. Our letter-copying book fur- 
 nishes a history of all collections passing through our hands." 
 
 The cashier of a well regulated and carefully managed country 
 .bank says: 
 
COUNTRY BANKING. 147 
 
 "Three persons do all the work in our bank. The president 
 attends to the correspondence and takes charge of the loans and 
 discounts. I perform the work of paying and receiving tellers and 
 general bookkeeper, besides the ordinary duties of cashier. An as- 
 sistant keeps the customer's ledger and helps me in some of the 
 details about the other books. Our loans and discounts range 
 from one hundred and fifty thousand to two hundred thousand 
 dollars. The depositors' balances are in the aggregate usually not 
 far from the loans and discounts. We hold readily convertible 
 stocks and bonds to the amount of forty thousand to sixty thou- 
 sand dollars. Our capital is two hundred thousand and circulation 
 one hundred and sixty-two thousand. Cash on hand seldom gets 
 below twenty thousand dollars, and our surplus is fifty thousand. 
 The net profits enable us to pay the stockholders seven per cent., 
 and we generally carry two or three per cent, to the surplus. A 
 dull season occasionally cuts our dividends down to half the usual 
 amount. We have run so close that no dividends were declared 
 for a year. 
 
 "My aim in the routine work is to avoid all unnecessary labor. I 
 use as few books as possible. A few years ago I thought a huge 
 journal was indispensable, but I have so systematized the work that 
 I now have no use for it. In fact I have not used a journal at all 
 for more than a year. The bookkeeping is done in such a manner 
 that I can make up a verified statement of our condition within an 
 hour any day after we close. Besides the general ledger I keep only 
 the ordinary balance ledger for depositors' accounts. In this I also 
 keep the accounts of banks and bankers. The accounts in the 
 balance ledger are arranged alphabetically, and this book is kept 
 so closely posted that the last check paid and last deposit made 
 are entered up within a few minutes after the bank is closed for 
 the day. We have only a few depositors who draw more than four 
 or five checks in a day on an average. For these special cases I 
 provide by giving their account a double space in the balance ledger. 
 In posting the checks and deposits my assistant makes his entry 
 direct from the checks and deposit slips. As the entry is made he 
 marks the page by leaving projecting at the top of the book a 
 narrow strip of colored paper. This enables him to turn at once to 
 the pages on which changes have been made during the day. These 
 pages are footed, and the footings compared with the columns in 
 my cash book, headed " depositors' debits " and " depositors' 
 credits." The comparison furnishes a proof that all checks and 
 deposits for the day have been posted. An additional test comes 
 when the balances of all the accounts are extended for the next 
 day and the footings compared with the general ledger account 
 of "depositors" after the totals of the various books have been 
 posted. I do not enter in my cash the names, but merely the 
 
148 PRACTICAL BANKING. 
 
 amounts of debits and credits belonging to the depositors' accounts.. 
 After the work has been proven I take the balance ledger and 
 have my assistant read over the checks and I compare his postings 
 to satisfy myself that the postings are all properly made. When 
 this is done I run over the general ledger, the postings to that hav- 
 ing been made, and carry the balances to the daily balance sheet. 
 This proves the entire work of the day." 
 
 The Daily Balance Sheet is a device for proving the work of the 
 bank bookkeeper and for preserving, in a concise and regular form, 
 daily statements of the bank's condition. The new balances are ar- 
 rived at daily thrpugh debit and credit differences. The illustration 
 given in this chapter, though not a complete showing of all the ac- 
 counts upon the specimen pages furnished for the purpose, will serve 
 to demonstrate the principles of the work. For example in explan- 
 ation see the first account, viz.: Loans and Discounts. The balance 
 on the evening of August 15 was 167,15073. The following day 
 there were payments in excess of new loans and discounts to 
 amount of 311.44. This credit difference is subtracted from the 
 debit balance, leaving the new debit balance 166,839.29. Again; the 
 balance against the First National of Philadelphia on the evening 
 of August 15 is 40,737.31. On the following day the remittance 
 to that bank in excess of credits given it were 23,513.10. The 
 debtor difference is added to the debit balance, and the new bal- 
 ance is 64,250.41. The first or upper line of footings represent the 
 total balances of banks and bankers' accounts, the lower line of 
 footings are the proofs or trial balance. All the entries in this 
 book may be made in either ink or pencil as may be desired. 
 Ink is, of course, preferable, but as they form only an auxiliary 
 proof and leave a record for future reference, if desired, there is 
 no special objection to pencilings. 
 
 GENERAL LEDGER ACCOUNTS NOT APPEARING ON ILLUSTRATION OF 
 DAILY BALANCE SHEET. (See opposite page) 
 
 Circulating Notes Received. 
 Unpaid Dividends. 
 Certificates of Deposit. 
 Cashier's Checks. 
 Remittances. 
 
 f Notes of this Bank. 
 Notes of other National Banks. 
 
 Cash 
 
 U. S. Legal Tenders. 
 
 Gold Coin. 
 
 Silver $ Nickels $ 
 
 Treasurer of United States. 
 Comptroller of the Currency. 
 Suspense Account. 
 
COUNTRY BANKING. 
 
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PART II. 
 SAVINGS BANKS 
 
UTILITY OF SAVINGS BANKS. I$I 
 
 CHAPTER I. 
 UTILITY OP SAVINGS BANKS. 
 
 This class differs from State or National banks in that they have 
 no special capital owned by a few or by many individuals, but their 
 capital is the deposited money of a great many saving people. 
 They are mutual. That is, every one who puts money in is prac- 
 tically an owner in the bank, and the profit made by the bank, 
 after paying taxes and expenses, and putting aside a proper reserve, 
 is paid to the parties whose money earns the profit. The people, 
 in their dimes and dollars and tens and hundreds, own the Savings 
 banks. Hence it is that these institutions are very rigorously 
 guarded by the laws of our States. It is not the idea of a Savings 
 bank to pay a large percentage of interest. Safety is the first thing, 
 and in order to be safe, only choice and high-priced investments 
 can be purchased by the managers. 
 
 Savings banks are voluntary trusteeships, undertaken by a few 
 persons in a particular locality, either self-appointed, renewing their 
 own number as vacancies occur, or chosen by the depositors. The 
 corporate body thus formed receives deposits or funds,* small in 
 amount, and from the poorer classes of society. It undertakes to 
 invest them with due diligence in the safest practicable way, and to 
 divide all the income, after paying necessary expenses, among the 
 depositors, at stated and convenient times. None of the profit on 
 these investments belongs to the corporation itself. All of it be- 
 longs to the depositors. If a surplus is created, it is only for a 
 safeguard against occasional losses or emergencies. In every re- 
 spect, the corporation is nothing but the agent or trustee of the 
 whole body of depositors, and works for their account and benefit^, 
 not for its own. 
 
 " The principal reason for the creation of a Savings bank is to 
 offer to the poor and to those of small incomes a means of keeping 
 safe their occasional savings. A secondary reason is to enable such 
 persons, by combining these small sums, to invest them, so as to 
 earn some interest. Such persons do not ordinarily draw out their 
 deposits, except on an emergency. The deposits are made to meet 
 emergencies in the private life of the depositors, and are not sub- 
 ject to the daily calls of business. It thus appears that, as such 
 
152 PRACTICAL BANKING. 
 
 emergencies usually result from sickness or lack of employment, the 
 drafts will be gradual, not sudden, and are not subject to sudden 
 increase by reason of commercial revulsions, unless in the excep- 
 tional case of panic. Large deposits, which do not come from sav- 
 ings, but which are the capital of persons who have acquired 
 wealth, should be rejected.* They can invest their own funds, and 
 they are likely to withdraw their deposits suddenly and in large 
 sums." 
 
 In the introductory chapter of this part of our work we shall 
 briefly set forth the utility of Savings banks. This, however, has 
 been well done by another, Henry L. Lamb, and we cannot improve 
 on what he has said concerning the utility of these institutions. 
 His paper was read at an annual meeting of the American Bank- 
 ers' Association in 1879, when he was acting as superintendent of the 
 banking department of the State of New York. 
 
 First. The savings institution is founded to help men and 
 women. 
 
 Some one has said that they are meant "to help men to help 
 themselves." It is not in simple human nature to save and to put 
 by a store for the ever possible rainy day. The savage and the 
 child go on in reckless improvidence. Some one must take care 
 of the improvident, as society is organized now in the enlightened 
 nations. There are saving people and spending people. There are 
 people who create property and people who waste it. There are 
 people who earn money and keep it, and people, too, who earn 
 money and squander it. This is inevitable. By and by the spend- 
 
 * " Certainly, the use of these institutions should be confined to the class for wkose 
 benefit they were devised, and only that class who have not the time, opportunity, or 
 ability to investigate and determine for themselves a proper investment or adequate means to 
 enable them to pay for the information through private sources, should be permitted to be- 
 come depositors. 
 
 In case of temporary embarrassment, the largest deposits, those belonging to what may 
 be properly termed a capitalist class, would be soonest withdrawn, and whenever private 
 investment promises better returns these funds leave the banks. Whenever money is cheap 
 and hard to place, this class solves the difficulties of investment by placing their moneys 
 in our Savings banks. Instead of supporting the banks, they make of them a convenience, 
 and prey upon their resources ; instead of being an element of strength, they are a constant 
 menace. 
 
 Most States recognize this principle, and have fixed limitations designed to exclude this 
 class of depositors. Instance : Connecticut limits amounts receivable in any one year 
 from a single individual to $1,000. Vermont limits the aggregate to #2,000. New York 
 limits the aggregate to $ 3,000. Massachusetts limits deposits to 1,000 from each indi- 
 vidual, and allows it, by accumulation of interest, to reach $ 1,600, but allows no dividend 
 upon any sum exceeding $ 1,600. Each of these States makes varying exceptions as to trust 
 <unds, &c. 
 
 Recently, while examining a discount bank, I found twelve pass books from several dif- 
 ferent banks, and in. four different names, but all belonging to the same individual, calling 
 for sums aggregatfng $ 28,000, put up as collaterals for a loan. While this shows that any 
 law is liable to evasion, it emphasizes the necessity for specific regulations as to the re- 
 ception of deposits Extract from address of A. B. Hepburn, Bank Superintendent of 
 Ntw York, at the American Bankers' Association in 1882. 
 
UTILITY OF SAVINGS BANKS. 153 
 
 thrift has run his life, and comes in poverty and need to his 
 brother and asks for support. Misfortune may follow the prudent 
 and bring them, by unexpected reverses, to want. In the artificial 
 conditions which our civilization creates, the demands of the needy 
 are greater than they were in primitive conditions of living. Such 
 demands as these meet the intensely practical mind to-day, just as 
 they do that of the philanthropic. So they did a hundred years 
 ago. 
 
 When a great want is felt in the world a host of men begin to 
 try to solve the problem to satisfy the want. Great inventions then 
 seem to be contemporaneously made by different men. This very 
 question of dealing with simple men and women, of taking care of 
 the humble who had no estates, of taking care of the poor who 
 come to want by improvidence or by misfortune, appears to have 
 received the studious notice of the economist and philanthropist 
 at the same time. While Jeremy Bentham and Malthus enforced 
 the benefits of providence and savings in the interests of the great 
 body of the people as well as of those who saved, about the open- 
 ing of this century an English clergyman and a Scotch minister, 
 each in his own parish, set in operation a plan for his parishioners 
 to save money, which embodies in substance the fundamental prin- 
 ciple of the savings institution. Contemporaneously, a woman, Mrs. 
 Priscilla Wakefield, established such an organization in England. 
 Similar ideas also were advanced at the same period by a London 
 magistrate, Patrick Colquhoun, who wrote upon the question of 
 popular indigence and measures for its relief as early as 1806. 
 
 In America, in 1816 and 1817, the needs and the claims of the 
 poor awakened attention at Boston and New York, and thought was 
 immediately directed towards the savings institution, because it was 
 deemed most helpful. At Boston, in 1816, it was proposed "to 
 form an institution for the security and improvement of the sav- 
 ings of persons in humble life until required by their wants and 
 desires." 
 
 The first Savings bank in the State of New York seems to be 
 the direct result of a meeting of citizens at the New York Hospi- 
 tal on December 16, 1817, to take into consideration the subject of 
 pauperism. A society was there formed for the prevention of pau- 
 perism. A committee was then appointed to report on the prevail- 
 ing causes of poverty. The report recites, among other causes, that 
 "Prodigality is comparative among the poor; it prevails to a great 
 extent in inattention to those small but frequent savings when labor 
 is plentiful which may go to meet privation in unfavorable seasons." 
 When the constitution of this society was drafted it declared that 
 one prime purpose of the organization should be "to hold out in- 
 ducements to those people to economy and saving from the fruits 
 of their own industry in seasons of great abundance." The earnest- 
 
154 PRACTICAL BANKING. 
 
 ness of the men who were members of this organization is proved 
 in the passage of an act, upon their petitition, by the Legislature 
 of 1819, for the incorporation of the Bank for Savings. In each of 
 the two years thereafter a Savings bank was incorporated in this 
 State. 
 
 Second. The savings institution is not organized to make money. 
 
 Right here it is wholly different from the discount bank in motive 
 and aim. The Savings bank receives money chiefly to keep it se- 
 curely for the benefit of the depositors. The ordinary bank per- 
 forms some service for such as need it in business, and justly is 
 paid for such service. The aim of the bank is profit gain upon 
 the capital which is employed in the work. The savings institution 
 seeks to serve those who are not fitted by knowledge and habit 
 for safely keeping and investing their money when saved. The dis- 
 count bank is equipped with money, with skill in business, with 
 acquaintance with monetary affairs, and offers- to the busy managers 
 of commerce and trade its aid in making exchanges and in all their 
 operations which require its assistance. The savings bank opens 
 its doors to savers ; it receives and permanently invests money. 
 The bank opens its doors to borrowers and users of money, for 
 pay. One serves by receiving and keeping, the other serves by lend- 
 ing. One aims at profit, the other never makes profit an end ; the 
 Savings institution is a receiving reservoir from little springs ; the 
 bank is a distributing reservoir of accumulated capital. 
 
 There ought to be, therefore, no antagonism between the Savings 
 bank and the bank. If the Savings bank is kept to its original 
 idea, as it should be, it will not encroach on the domain of the 
 bank, and the last will by no means come in conflict with the 
 Savings bank. The time has been when men had the idea that the 
 best way to get on in the world was to rob each other. Juster 
 ideas than that now prevail. The Savings institution is a concep- 
 tion which demonstrates this truth. It is the reverse of the com- 
 munistic notion recently prevalent. The communist proposes the 
 division of capital, the drone to share with the worker in the ac- 
 cumulation of his production. The Savings institution aims at mak- 
 ing all men producers and savers too, It offers the aid of the 
 strong, who can manage well, to the weak, to receive their small 
 gains and hold them securely against that time when need or de- 
 sire may require the store for prudent use. The Savings institution 
 enlarges the number of capitalists ; it reduces the army of possible 
 prodigals, paupers and tramps. The communist is the enemy of 
 capital, for he proposes to rob the man who has money. The 
 Savings-bank depositor is himself an owner of money. He belongs 
 to the conservatives by the logical tendency of his position. In 
 this land, where there is such room for growth, such demand for 
 money, such room for men of the right stamp, the Savings institu- 
 
UTILITY OF SAVINGS BANKS. 155 
 
 tion is an educator, is the friend of capital, of order and stability, 
 both political and social. Whoever earns and saves, lengthens con- 
 tinuously his arms for service. Whoever earns and spends as he 
 goes does not lengthen his arms, but shortens his legs for running 
 his race in life. While the Savings bank is not organized to make 
 money it is most profitable in several ways. It accumulates money; 
 it inspires and trains men to get money and to the wise use of 
 it; it spares those who have capital from charges upon it for the 
 support of those who might otherwise become poor; it makes 
 better men and families and better citizens; it adds to the sum of 
 National resources in money, and adds to the means for advance- 
 ment in material improvement. It is thus a many-sided benefaction 
 to those out of it, as well as to those in it. 
 
 Third. The Savings institution does not hoard money. 
 
 Some men object to the Savings institution because it withholds 
 money from circulation. This is an obvious fallacy. If the de- 
 positors in such institutions were to save an amount of money as 
 large as they deposit, a great part of it would be hoarded. All 
 who have acquaintance with Savings banks know this. If a panic 
 comes upon the depositors in one institution, or in several, and 
 money is drawn in large sums, much of it is hoarded and much of 
 it is squandered. After the fright is over the identical money that 
 was withdrawn and kept is often returned for deposit months after 
 withdrawal. This demonstration of the disposition of saving men 
 to hoard is always made under these conditions. The Savings bank 
 encourages the habit of saving. Many of you, I have no doubt, 
 were born and bred as boys on farms. You may still recollect the 
 eager hunt for hens' nests in the hay mows, bays and scaffolds of 
 the old weather-stained barns ; you will recollect, too, perhaps, that 
 the nests require the invitation of a " nest egg " to coax the fe- 
 cund fowl to make her diurnal deposit in it. I think that men 
 need such solicitation, too. The man who is profligate while he 
 has nothing to "lay to," will often become stingily saving when he 
 has a "nest egg" to win him from other temptations. Those who 
 can do this, and would otherwise lay their gains in stockings, pre- 
 fer the Savings bank, for money there makes money, which this 
 class of men are quick to see. 
 
 The Savings bank 'invests its money. Its managers are, in theory, 
 intelligent men, competent to make safe investments in solid secu- 
 rities. The genuine Savings bank is conservative, and does not en- 
 courage speculation, ballooning, and failure with disaster. It puts 
 money into circulation, and does not withhold it. It adds substan- 
 tially to the sum of active capital in the country, which is not 
 less useful because it is permanently invested. These little savings, 
 when gathered into masses and discreetly invested, serve great pur- 
 poses. As the tiny streams which trickle from hidden springs upon 
 
156 PRACTICAL BANKING. 
 
 remote hill sides flow together and make the willing power to turn 
 mill wheels, or to furnish the water for the thirsty people of a great 
 city, so these savings of humble people and of small owners, when 
 aggregated, become available to build the mills, or to buy the 
 wheels for the mills, or to lay the pipes to convey the water to the 
 thirsty town, or to help the thrifty saver to rear his own house, or 
 to aid the State itself when its financial burdens are too great to 
 be discharged at once. 
 
 Fourth. Why should any man become the manager of a Savings 
 bank ? 
 
 I have been asked this question often. The trustee cannot be 
 paid. Why should a man do anything that will not pay him ? I 
 hope I have given some reasons why a Savings bank does pay the 
 community in which it is placed. No man with capital can turn 
 a deaf ear to the promise to save that capital from the moth and 
 rust of taxation. You know that now. A host of Savings-bank de- 
 positors is a better class of citizens than an army of tramps. The 
 self-sustaining person, who is self-respecting, too, is a safer neigh- 
 bor than the vicious drone or the indolent beggar. The Savings 
 bank is not a pauperizing charity. But it is a school, teaching the 
 sound lessons of self-denial, of economy, and of sober industry. 
 Ill fares the land, to Hastening ills a prey, 
 Where wealth accumulates and men decay, 
 
 says the poet. 
 
 But if wealth accumulates, and men and women grow stronger 
 by its possession, and better in character and aspiration by the 
 habits of saving, happy is the land where they dwell. There is no 
 man who has capital, who is acquiring capital, that has not, in 
 fact, an interest in the success of Savings banks, though he may not 
 have seen this or felt it. You, gentlemen, give freely to support 
 churches ; you pay taxes to maintain schools, to watch criminals, 
 to punish the bad. These things cost you money, and a good 
 round sum, too. Have not you, has not every man who can do it, 
 an interest in these institutions, which are saving in many senses ? 
 
 Their great success will spare your own pockets; their great suc- 
 cess will add to the total of the resources which can find profit- 
 able employment in this land; their great success will breed a class 
 of people of moderate means, who will look up in the world, and 
 not down. Why should not any man, every man, indeed, who has 
 the capacity for the work, lend something of his time, something 
 of his judgment and knowledge, to the people that need them ? 
 He shall lend not chiefly for the sake of the borrower of such ser- 
 vices, but for his own sake. I put it upon the last ground that 
 the wisest self-interest of every man of substance will dictate his 
 support of Savings banks in which he is a shareholder just so long 
 as he has any relations with other men and is a citizen bearing the 
 tax burdens of a citizen. 
 
UTILITY OF SAVINGS BANKS. 157 
 
 Fifth. The Savings bank is one of the best safeguards of property. 
 
 Trustee service is more agreeable than jury duty. Personal atten- 
 tion in a Savings bank is more economical than constables, police, 
 poonnasters, hospitals, prisons. 
 
 It is sure that the three-quarters of a million of depositors in 
 Savings banks in this imperial State are arrayed as a solid phalanx 
 against communism, rioting and disorder. The facts are too sig- 
 nificant to be disregarded by intelligent men. Ireland, Germany and 
 Russia to-day should admonish the American citizen, who has prop- 
 erty, and who is a leader in business and in politics, that security 
 and progress will be found in the diffusion of property among the 
 great body of people, by training them to its acquisition and main- 
 tenance. The Savings bank is a fortress which resists the danger- 
 ous classes. It is garrisoned by men who stand actually for their 
 altars and their fires on their own hearthstones. Who of you has 
 not a personal interest in this army, which is perfectly loyal always, 
 and which is not the consumer of your goods, but is itself a con- 
 stant producer and saver, as well as guardian ? 
 
 The real Savings bank in our country has done great good. It 
 can come nearer in practice to the ideal. It contains infinite 
 possibilities to this teeming land for future beneficence as respects 
 depositors, and safety and advantage in respect to other men with 
 capital. To bring these institutions, which save money and save 
 men, at once, up to a higher standard of excellence in administra- 
 tion and to a higher degree of utility and results and influence, 
 only demands the moderate attention and service of thoroughly 
 practical men. The Savings institution is benevolent on one side, 
 but it is a business enterprise at bottom, and must be conducted 
 on business principles. When it is so conducted it is one of the 
 most profitable investments that can be established. It does not 
 pay the honest manager in dividends and salaries, but it saves him 
 a vast deal now, and will save his children after him a vast deal 
 more, and will pay for all the service which he can give it. 
 
PRACTICAL BANKING. 
 
 CHAPTER II. 
 JANITOB. 
 
 In order to give the reader as clear an idea as possible of the 
 interior workings of the modern Savings bank, we will describe the 
 functions and the daily routine of each person connected with one 
 of these institutions. We will begin with the janitor. 
 
 Since seven o'clock, when he relieved the night watchman, this 
 humble, but important functionary has been preparing the bank for 
 the business of the day. He has swept and dusted the banking 
 room, seen that the ink, pens and other appliances were provided, 
 and has stamped with the proper date the books and documents 
 representing the business of the previous day. The tickets, when 
 made out by the clerks, are purposely left undated; when made out 
 by the depositors there are sometimes errors or discrepancies in the 
 date, therefore this stamping gives the official date of their passing 
 through the books. 
 
 At the opening of the bank at nine o'clock, the next duty of 
 the janitor will be to arrange the many account books in their 
 proper places for the business of the day. During the active busi- 
 ness hours he sees that persons wishing to do business are directed 
 to the proper department of the bank, he attends to any calls or 
 messages between those departments or outside of the bank, he 
 carries the deposits to the deposit banks, he copies letters or 
 places them in the files, sees that the doors are opened and closed 
 at the proper hours. These hours are from ten to three daily, but 
 on Mondays and Saturdays the closing hour is seven P. M. 
 
 Between nine and half-past the members of the executive staff 
 of the bank begin to arrive. The treasurer, the secretary, the pay- 
 ing teller, the receiving teller and the bookkeepers. The duties of 
 these officials will be described in order, but first, we will consider 
 the person for whose benefit and on whose behalf they are acting 
 in every official transaction of the day, namely, the depositor. 
 
THE DEPOSITOR. 159 
 
 CHAPTER III. 
 THE DEPOSITOR. 
 
 As a convenient, though perhaps unfamiliar name, we will call 
 our typical depositor John Smith. John Smith arrives at the bank 
 soon after its opening on the day in question, having in his pos- 
 session $ i, which, contrary to the usual desires of mankind, he is 
 anxious to part with. He proposes to relinquish the possession of 
 this dollar for an indefinite time and to place it in the custody of 
 the bank. Now, what are John Smith's motives in this eccentric 
 conduct ? 
 
 First. He thinks that the dollar out of his hands will be less 
 likely to be uselessly spent than in his hands, which is incon- 
 testable. 
 
 Second. He thinks that the dollar out of his hands will be less 
 likely to be lost or destroyed than if in his possession. 
 
 Third. He believes that, aggregated with a great many thousand 
 other dollars belonging to other depositors, this dollar of his will 
 possess an earning power which, in his pocket, it would entirely 
 lack. These homely thoughts of John Smith represent or convey 
 the Savings banks' reason for existence. Their object is three-fold. 
 To prevent waste, to prevent loss, to give profit. 
 
 Again, taking up the practical operations of John Smith's case, 
 we will suppose that this is his first attempt at saving. As he 
 comes into the bank, if intelligent, he will look about him, and 
 see a very plainly expressed printed notice, headed, "how to open 
 an account." If unintelligent, or uneducated, he will probably 
 apply to the janitor as a guide, philosopher and friend, who shall 
 give him the necessary information for becoming a member of the 
 numerous partnership, which owns the handsome building in which 
 he stands, and all its contents. Following the directions of the 
 notice referred to, he goes to one of the tables or desks on which 
 are writing materials and all the necessary blank forms, takes a 
 deposit ticket, which is printed on green paper to make it easily 
 distinguishable, and writes, 
 
 First, the amount of his proposed investment ; second, his name ; 
 third, his address, and lastly, the date. 
 
 It is not usual in Savings banks, in general, that the tickets, 
 
l6o PRACTICAL BANKING. 
 
 either for drawing or depositing, should be made out by the 
 depositor. This bank finds it in every respect preferable so to do. 
 The average style of writing is better than would probably be the 
 case if made out by a clerk working rapidly, because each de- 
 positor naturally takes pains with his own ticket. There is the 
 further great advantage that we have his evidence as to the amount 
 and circumstances in case of future dispute. It is too much the 
 practice in Savings banks to assume that the depositor is unedu- 
 cated and ignorant. The writer once mentioned this idea of tickets 
 made out by the depositors themselves in the largest of our Sav- 
 ings banks, and was answered, " well one out of every three of our 
 depositors is unable to write." He inquired whether this propor- 
 tion was obtained by actual count or by guess. On being informed 
 that it was merely a guess, he suggested that a count be made of 
 a few pages of the signature book, and it was found that the pro- 
 portion was one in nineteen; that is, eighteen able to write, to 
 one who is obliged to make a cross. In our bank the proportion 
 is about one to twenty. It is found also that the depositors, 
 when once accustomed to this more dignified way of doing busi- 
 ness, far prefer it. They feel as if they were treated with more 
 respect, not as inferiors or subjects of charity, and finally there is 
 a great saving of time and error for the receiving teller. 
 
 This he carries to the window occupied by the receiving teller. 
 He hands the ticket and the dollar to that official, and also names 
 the amount aloud, " one dollar," or if English be not his native 
 language, he is perfectly at liberty to say " ein thaler," "un dollard," 
 " uno scudo," " un peso," or whatever equivalent expression in his 
 own vernacular may signify his intent. Now the functions of the 
 receiving teller begin, and Smith is only informed that he must 
 next step to the signature desk. Here lies a large book on a re- 
 volving desk, and, like a guest in a hotel, he is requested to write 
 his name and address, or if unable to write, his name is written 
 for him, and he makes his mark, but instead of getting the number 
 of his room, the number of his pass book is printed opposite the 
 line on which he writes. The clerk, whom he now sees, obtains 
 from him, besides his name and address, the following information : 
 Where do you live? What is your age? Are you married, single, 
 or a widower? Are you colored ? What is, or was, your father's 
 name? Mother's name? Wife's name? Occupation? 
 
 The particular points of information obtained from the de- 
 positor vary in different banks. The place of nativity is taken 
 by some, and this would seem an excellent test of identity. The 
 color of the eye, as being the one bodily characteristic which is 
 unchangeable, is also taken by some institutions. Perhaps in the 
 future photography may come to our aid, and instantaneous photo- 
 graphs of small size be taken on the occasion of the first deposit. 
 
THE DEPOSITOR. l6l 
 
 The entries in the signature book having been made, the clerk 
 again asks Mr. Smith "how much money did you deposit?" and on 
 being answered correctly hands him the pass book. 
 
 This pass book has stamped upon it, both on the outside and 
 inside, the same number which stands opposite the depositor's 
 name in the signature book, and this number will hereafter be the 
 key to all the dealings of Mr. Smith with the bank. It is written 
 on the deposit ticket, it is written opposite the first entry in the 
 books of the bank, it stands at the head of his ledger account, 
 (page 164.) These consecutive numbers are printed wherever they 
 possibly can be, to avoid mistakes, but as Smith will very prob- 
 ably forget the number of his book, especially if he is a careless 
 person, and loses the book, it is necessary somewhere to be able 
 to find him by name. Therefore, the signature clerk has one more 
 duty to perform in connection with Smith's account. Lying op- 
 posite him is a pile of cards about one inch by three. On the 
 top one of these, which contains Smith's number, the signature 
 clerk writes very, plainly John Smith. This, as will be seen after- 
 wards, serves as an entry in the alphabetical index. 
 
 When next Mr. Smith has any sum of money to deposit, he 
 will make out and sign his deposit ticket as before, except that 
 he now knows the number of his book, and will insert that in 
 the proper place. Perhaps he will find several other customers 
 awaiting their turn at the receiving teller's window. In this case, 
 he must fall in at the end of the line in proper order. But 
 Smith will not go on depositing forever. His deposit of savings 
 has only half performed its mission while it is lying in bank. 
 Ultimately it is to be used. When Smith has become sufficient 
 of a capitalist to invest his money at his own discretion, then he 
 will wish to withdraw his accumulations. But frequently before 
 that time he wearies of well doing, or he miscalculates the amount 
 which he can spare from his current expenditure, and it is neces- 
 sary for him to withdraw a portion, or the whole ; or this neces- 
 sity may be caused by removal, by calamity, by sickness, or by 
 death. In this case he finds his way to the paying teller's window, 
 having first filled out a ticket of another form, the draft ticket. 
 This he presents (see p. 164 for form), and again names the sum to be 
 withdrawn. After proper scrutiny, which will be described under 
 the paying teller's duties, his book is handed to him again, and 
 between its leaves, instead of the draft ticket, is the money de- 
 sired. If this exhausts his account, the form called a closing draft 
 is used. In this case, the pass-book is surrendered, and is filed 
 away according to its numerical order. But, if Mr. Smith continues 
 his deposits for a sufficient length of time, he will be entitled to 
 his share of the earnings. Any amount over $ 5, participates in the 
 profits of the concern. It is considered that the use of any sum. 
 
l62 PRACTICAL BANKING. 
 
 less than that does not more than pay for stationery and labor. 
 Semi-annually, a few days after the first of January, and a few 
 days after the first of July, the book may be presented for the 
 purpose of entering therein the dividends to which he is entitled, 
 In the majority of cases, Smith takes it for granted that the cal- 
 culation of this dividend is correct, though occasionally, he scru- 
 tinizes it very carefully. 
 
 The conditions of this dividend in many institutions, are these: 
 Deposits begin to participate in the dividend on the first day of 
 each quarter, but they only are entitled to it if they remain till 
 the end of the half year; thus, money which is in bank on the 
 first day of January, provided it remains until the first day of 
 July, receives a half year's dividend, but if withdrawn, even during 
 June, receives nothing. If in bank on the first of April, and re- 
 maining until the first of July untouched, it draws a quarter's 
 dividend. Furthermore, the first few days of- each quarter, may be 
 allowed to the depositor as a sort of grace, the limit being 10 days, 
 at the half-year, and three days at the quarter. 
 
 The dividend is now usually spoken of as interest. As the 
 rate in the State of New York is not promised in advance, 
 but depends upon the profits of the half year, the term dividend, 
 is considered more proper, but considering that it depends on the 
 time, it is in that respect, strictly speaking, interest. The word in- 
 terest-dividend would seem to be the most exact. 
 
 A few banks in New York allow interest to begin on the 
 first day of each month, instead of the first day of each quarter, 
 but with the same provision as to forfeiture in case of withdrawal 
 before the end of the half year. In Pennsylvania, in some parts 
 of New England, and in Great Britain, money bears interest for 
 every full calendar month during which it has remained undis- 
 turbed, and is credited only once a year, unless the account is 
 closed. 
 
 The current rate at present (1884) is wavering between four 
 per cent, and three per cent. Ten years ago, the current rate 
 for Savings deposits was six per cent., but the general investment 
 rate has greatly lowered. Some banks make a distinction in rate 
 for different amounts. For example, four per cent, on amounts not 
 exceeding $ 1000, and three per cent, on any excess over $ 1000. Or 
 on another plan, less than $500 receives four per cent., but if the 
 whole deposit exceed $500, only three per cent, is paid on the 
 whole. On this manifestly unjust plan, a depositor whose book has 
 amounted to $501, receives absolutely less of the profits, than he 
 whose aggregate is only $499. It would be better to preserve rig- 
 orously a limit as to the maximum which any depositor shall ac- 
 cumulate, or which he shall deposit in a given period, and then 
 divide the profits pro rata, on all sums. 
 
THE DEPOSITOR. 163 
 
 If interest is not withdrawn, it will itself draw interest as a de- 
 posit. The more ignorant depositors, however, frequently desire to 
 draw their interest, even if they immediately re-deposit it, forfeit- 
 ing thereby a quarter's interest on it. Their intellect in money 
 matters has not yet been sufficiently developed for them to grasp 
 the idea that there can be an increase of money value, without a 
 visible amount or representative having touched their hands. 
 
 Besides the individual deposit which John Smith or Mary Smith 
 may have made in their own names, there are various other forms. 
 Frequently, money is deposited "John Smith, in trust for William 
 Jones," or "John Smith, Trustee for William Jones." Often this 
 trust is to some extent a fiction, the legal effect of which is that, 
 upon the death of Smith, Jones will receive the deposit without 
 the formalities and expense of administration. Frequently, also, it 
 is intended as an evasion of that rule which makes a different rate 
 of interest for higher sums. The thrifty John Smith will have the 
 maximum amount in his own name, and scattered through the 
 books of the bank you will again meet him as trustee for his wife, 
 trustee for each of his children, trustee for his son-in-law, etc. 
 Accounts may be opened in two names jointly, as John Smith or 
 Mary Smith. Sometimes John Smith and Mary Smith. In the for- 
 mer case the book is marked "To be drawn by either signature." 
 In the latter case, "To be drawn by both signatures only." The 
 money of benevolent and other associations is frequently accepted 
 by the Savings banks on deposit, generally with special regulations 
 as to the officials who shall have control of the funds. A special 
 signature book is provided for societies, in which is allowed, not a 
 single line, but an entire page, so as to provide for changes in 
 officers. 
 
 Smith occasionally loses his book, and it is then his duty to re- 
 port it to a clerk in charge of that department. It is usually re- 
 quired that he advertise its loss for a certain number of times in 
 one of the daily papers. The reason of this precaution is that he 
 may have assigned his claim to the moneys in the book to an in- 
 nocent holder, and be thus endeavoring to obtain payment twice. 
 If the book is not then returned he is required to execute a bond 
 of indemnity, with a surety, making the bank good against any 
 loss from adverse claims, and to make an affidavit as to the cir- 
 cumstances of the loss. 
 
 When Smith has gone over to the great majority of Smiths his 
 legal representatives will ultimately appear at the bank, presenting 
 letters testamentary, or letters of administration from the Surrogate 
 of the County. Generally, upon these being admitted as correct, 
 the money is transferred, without loss of interest, to a new book 
 in the name of the executors or administrators, or paid to them 
 in cash. Sometimes their names are simply added at the head of 
 
6 4 
 
 PRACTICAL BANKING. 
 
 the original pass book, but in the bank which we are describing, 
 it is a rule that no change in the heading of an account shall be 
 made, except by transfer to a new book, lest unauthorized changes 
 should be made, or alleged to have been made, by the employees. 
 Such changes are sometimes desirable, for example, in case of a 
 woman who has changed her name by marriage, but in this case 
 she may continue to be recognized as a depositor by her former 
 name. 
 
 The depositors of our bank are of all ages, occupations, re- 
 ligions, nationalities, colors and social grades, the children, from ten 
 years upwards, are quite as exact and business-like in their transac- 
 tions as their seniors, and the habit of carrying on a Savings bank 
 account is quite prevalent among the children of all classes. 
 
 'As the official with whom the depositor comes first and chiefly 
 in contact, we will describe the duties of the receiving teller. 
 
 FORM OF DEPOSIT TICKET, PAGE 159. 
 
 Write the amount very plainly ; dollars above the word 
 "Dollars," cents above the word "Cents." 
 
 CENTS. 
 
 Deposited in the 
 
 Union Savings Bank, on Book No 
 
 Name of Depositor 
 
 Date Address 
 
 = Entered by . 
 
 Lay bills straight in the book, facing one way. 
 
 If you deposit checks or anything besides money, please give Received by 
 particulars on the back of ticket. 
 
 See if the entry is correct in the book. Posted 
 
 FORM OF DRAFT TICKET, PAGE 161. 
 
 Write in this corner the amount you wish to draw, 
 
 We cannot pay ver y P^inly, in figures ; dollars above the word 
 
 without the " Dollar s," cents above the word " Cents." 
 
 Book. 
 
 DOLLARS. CENTS 
 
 The Number is 
 
 on the Cover of NEW YORK... !88 
 
 the Book. 
 
 Union Savings Bank. Pay on Book No 
 
 Write the 
 
 Amount very to myself or bearer Dollars. 
 
 plainly in words. 
 
 Signature 
 
 Always sign as 
 
 you did at first. Present Address 
 
 Previous balance, Paid by Entered by Sig. exd. by Posted 
 
 FORM OF SAVINGS BANK LEDGER ACCOUNT. 
 
 163,454. John Smith. 
 
 January 
 February 
 April ' 
 May 
 
 Drafts. 
 
 Deposits and Interest 
 
 20 
 15 62 
 
 Balance. 
 
 25 
 4062 
 
RECEIVING TELLER. 165 
 
 CHAPTER IV. 
 RECEIVING TELLER. 
 
 After the doors of the vault have been opened in the morning 
 he takes out the large tin box containing his cash, and closed by 
 his own combination lock. Placing the bills in the compartments 
 of his drawer according to denominations, so as to be able to give 
 change, if necessary, and arranging his tray of silver conveniently, 
 he is ready for operation. As has already been said, the depositor 
 hands in his pass book, between the leaves of which is the money, 
 accompanied by a deposit ticket. The first duty of the teller is to 
 count the money. To facilitate this, depositors are requested to 
 have their bills neatly laid out facing in one direction, and the 
 same denominations together. The teller usually counts the amount 
 twice. He then sees that the amount as stated on the ticket is 
 correct. He next sees that the depositor has correctly stated the 
 number of the account; then he proceeds to make the entry in 
 the pass book on the next vacant line, writing the date, the amount 
 in words, and extending the amount in figures into the column 
 headed " deposit." Then, with another glance at the ticket, he 
 sticks the latter on a spindle, and hands the book to the de- 
 positor, again repeating the amount. 
 
 This process is very brief, and detains the depositor less 
 than any other, but in many banks it is thought that further en- 
 tries should be made before the depositor leaves the bank. In 
 many, a different clerk enters the amounts from the pass book 
 into the deposit book, which will soon be described, and then 
 hands out the book. In others, the pass book is taken direct to 
 the ledger, and the amount posted there directly from it. The ob- 
 ject of these precautions is, first, to insure accuracy, and, 'second, 
 to check embezzlement on the part of the receiving teller. It is 
 always more difficult to prevent embezzlement on the part of a 
 receiving agent than of a disbursing agent, because the latter is 
 compelled to produce vouchers for all his expenditures, but unless 
 guarded in some way the receiver may withhold or destroy the 
 evidence of his having received. There are two classes of methods 
 employed to prevent this in moneyed institutions ; one is that which 
 
l66 PRACTICAL BANKING. 
 
 makes another employee cognizant of his doings ; and another, that 
 which makes that known to the public. It is manifest that there 
 is no absolute security in the former method. If you multiply the 
 number of hands through which a transaction passes, you some- 
 what diminish the probability of fraud, but there is always the 
 possibility of collusion; but collusion with the chance public, whose 
 interests are directly opposite, is impossible. Therefore, the writer 
 considers that the only security against embezzlement lies in making 
 the acts of a receiving agent to some extent public, as the bell 
 punch does on the horse-car lines. There may yet be invented a 
 method by which the teller will, by pressing certain keys, cause the 
 number and amount to be legibly written in a book which shall face 
 directly from him and directly towards the depositor, who will be 
 requested by a sign to observe whether the correct amount is en- 
 tered upon it. 
 
 Only black ink is used or kept at the receiving teller's desk, 
 The reason for this will be seen when speaking of the paying tel- 
 ler. It is the duty of the receiving teller to explain the regulations 
 of the bank, and give all information to persons inquiring with ref- 
 erence to opening accounts; to explain the system of deposit tick- 
 ets to those who are not acquainted with it, and, in case of illiter- 
 ate persons, to assist them, or to perform it for them. As the first 
 impressions of depositors will be formed from their intercourse 
 with him, it is essential that he should be perfectly courteous and 
 of even temper. He will frequently meet with depositors who will 
 endeavor to defraud him who will pass in $99, for example, and a 
 ticket made out for $ 100, and when told of the error, will pull 
 the other $ i bill out of their pockets, saying very innocently, " Is 
 that so? I must have counted wrong," hoping that once in a 
 thousand times the teller may make the same mistake. 
 
 The receiving teller should be an excellent judge of money, an 
 accomplishment which is not so needful for the paying teller. In 
 fact, although in business banks the paying teller is the higher of- 
 ficer, it would seem as though, in the Savings bank, the receiving^ 
 teller's position were the most important. During the day the re- 
 ceiving teller may be called upon to supply funds to other depart- 
 ments of the bank. The paying teller regularly keeps his cash filled 
 from that of the receiving teller. He draws this in even amounts, 
 making requisition for so many thousand dollars in such denomina- 
 tions ; therefore, when not otherwise occupied, the receiving teller 
 should package up his bills with paper strips properly marked. An 
 excellent rule for this is always to put 50 pieces in one package, 
 so that a package of $2 bills is known to contain $100, and a pack- 
 age of $ 5 bills $250, etc. If the receipts are largely exceeding the 
 expenditures, or, as it is frequently expressed, " the bank is running^ 
 ahead," the Treasurer may make requisition in a similar manner for 
 
RECEIVING TELLER. 167 
 
 a part of the receiving teller's funds to deposit in bank. Checks, 
 drafts, money orders, and similar documents are by this bank freely 
 taken on deposit and credited as cash, but with a particular mark 
 which indicates the nature of the funds, and nothing is ever paid 
 against such deposits until they have been actually collected. 
 Some of the more conservative banks, probably from force of habit, 
 rather than otherwise, refuse altogether to receive checks on deposit, 
 but as the irresistible tendency of the age is to make all payments 
 of any moment through the agency of banks, the rule will ulti- 
 mately prevail that checks are prima facie cash. Towards the 
 close of the business day, or whenever he has leisure, the receiving 
 teller gets ready the tickets representing the transactions of the 
 day, in order to have them written up in his book called the "De- 
 posit Book." This book simply contains number of account and 
 amount of deposit. (>ee page 169.) As we have remarked, it may 
 very properly be written up from the pass books before they leave 
 the bank, especially if the business is sufficiently voluminous to 
 give the receiving teller an assistant who can attend to this and 
 also to the signature book. 
 
 For convenience, the tickets are frequently assorted, proximately 
 into numerical order, before writing them up. The only advantage 
 In this is that it facilitates searching for error, if any, in the next 
 day's " Bookkeeper's proof." There are, on the other hand, some 
 advantages in entering the tickets in the exact order in which they 
 were received, because, sometimes, in the case of dispute, this enables 
 us to find the names of the depositors who were standing near at the 
 time the questioned deposit was made, and also enables us to ascertain, 
 proximately, the hour of the day when said transaction took place. 
 The receiving teller is required, by an inflexible rule, to turn over 
 to the Treasurer, before three o'clock, all checks, drafts, or other 
 cash items, not actually money or currency, so that the cash bal- 
 ance carried over night by the teller is bona fide cash, and available 
 for payments. The liberty of holding checks over night, or memo- 
 randa, in place of cash, may very easily lead to a fictitious balance 
 covering a real shortage. The checks received are entered in a 
 special book, which gives the name of the bank, the name of the 
 maker, the name of the depositor from whom received, and the 
 amount. Shortly before three o'clock the janitor goes to the desks 
 of the various tellers, and asks them for their checks and check 
 lists. He counts the items received from each one, and brings 
 them, with their contents, to the Treasurer, who receipts in the 
 margin of the check-list book. Now the day's work is over, and it 
 is the teller's duty to "balance his cash." His deposit book is fully 
 written up and footed. His transactions with other departments of 
 the bank have been noted by him as they occurred, and are 
 vouched for by receipts taken and given. He therefore has all the 
 
l68 PRACTICAL BANKING. 
 
 elements of a balance, except the verification of the amount on 
 hand. He counts, first, his packages of bills, assuming the contents 
 of the packages in themselves to be correct; next his loose bills, 
 and last his coin. He is now prepared to make up and prove his 
 report to the Secretary. This contains three columns "debits," 
 "credits," and "cash on hand." (See form, ^age 169.) 
 
 In the debit column is entered, first, the amount in his hands at 
 the beginning of the day; second the amount received from de- 
 positors, being the total of the deposit book. He also states, as a 
 matter of statistics, the number of depositors, and also the number 
 of accounts opened. 
 
 Then follow receipts from other sources, either from the treas- 
 urer or from the other tellers, but this is exceptional, for the re- 
 ceiving teller, as such, is constantly parting with his money inside 
 of the bank, and has no occasion to receive from others. It might 
 have been mentioned, that in our bank, more as a matter of con- 
 venience than otherwise, expense vouchers, unless paid by check, 
 are paid by the receiving teller from his cash, after receiving the 
 approval of the treasurer or secretary. It is considered that there 
 is an economy of labor in thus relieving the receiving teller of 
 part of his money, making so much less for the paying teller to 
 recount. 
 
 On the credit side of the teller's report is, first, "amounts paid to 
 depositors," but unless he has acted during the day as paying teller, 
 the receiving teller will have nothing to record here. Next come 
 amounts paid to the treasurer. This will embrace the checks turned 
 over by him, the currency turned over to be deposited, expense 
 vouchers paid on the approval of the treasurer or secretary. In the 
 two former cases, he has a receipt on the margin of his check list. 
 In the latter case, he holds the authorization on the voucher. Next 
 come payments to other tellers. This is normally, of course, 
 to the paying teller. The last item of credit, which is balance 
 on hand, is not inserted until the cash has been counted. The 
 results of the count are written in the last column under the 
 heads "Packaged bills," "loose bills," "coin." Then the aggregate 
 of these is placed opposite the words "actual cash on hand." Now 
 this may not be the correct amount which should be on hand. If 
 in excess, the cash is said to be "over," if deficient, it is said to 
 be "short." 
 
 A line is provided for each of these contingencies, and if, after 
 thorough search, the cash is "short," the amount of deficiency is 
 entered on the proper line, and added to the actual cash on hand, 
 the result being carried into the credit column, last line. If the 
 cash be "over," the amount of excess is similarly entered, but sub- 
 tracted. The amounts of the debit and credit columns should now 
 be equal. This report, signed by the teller, ' is handed to the sec- 
 
RECEIVING TELLER. 
 
 169 
 
 retary, who extracts from it the information necessary for his books, 
 which he will hereafter test, and marks it " examined and entered, 
 
 secretary," and places it on file. The teller begins his report 
 
 for the following morning, with the balance on hand, as corrected. 
 During the following day, unless he succeeds in finding the error, 
 he is required, in case of an "over," to charge himself by ticket, 
 approved by the secretary, with the amount, placing it to the credit 
 of an account called "excess account," from which it may ulti- 
 mately be transferred to the credit of the rightful owner when 
 ascertained. In case of a "short," he is charged in an account 
 called his "deficiency account," and has ultimately to refund the 
 amount to the bank. 
 
 Besides the daily report of all transactions, the teller makes a 
 monthly report of his transactions v/ith depositors alone, for more 
 convenient examination by the auditing committee. 
 
 FORM OF TELLER'S DAILY REPORT. 
 
 UNION SAVINGS BANK. SECOND TELLER'S REPORT, March i, 1884. 
 Dr. Cr. Statement of Cash. 
 
 
 Balance brought forward 
 
 
 Packaged Bills 
 
 10,500 
 
 
 
 826 13 
 
 Loose Bills 
 
 
 
 
 
 Coin 
 
 269 72 
 
 
 
 100 
 
 Treasurer. 
 
 179 07 
 
 
 
 
 Teller 
 
 
 Actual cash on hand. . . 
 
 12,479 7 2 
 
 
 
 
 Short 
 
 
 
 
 
 Over 
 
 i 
 
 
 
 
 
 
 
 Balance carried forward.. 
 
 12,478 72 
 
 
 12,478 72 
 
 18,483 92 
 
 
 18,483 92 
 
 
 
 I hereby certify that the above 
 report is true and complete. 
 
 E. D. J, 
 
 Teller. 
 
 Examined and 
 entered. 
 
 Sec. 
 
 Cash on hand examined and found as stated. 
 
 Committee. 
 
 I 
 
 s 
 o % 
 
 i 
 
 ii 
 
 * ro 
 
1 70 PRACTICAL BANKING. 
 
 CHAPTER V. 
 THE PAYING TELLER. 
 
 It has already been explained, in connection with the receiving 
 teller, that the moneys received by him are the principal sources of 
 supply to the paying teller, but if the payments at any particular 
 time are running heavier than the receipts, recourse must be had to 
 depository banks for funds. In this case requisition is made on the 
 treasurer, who draws the amount from the nearest bank, and takes 
 the paying teller's receipt on the stub of the check book. The 
 bank accounts are drawn upon for payments to depositors, also, in 
 another way. A depositor frequently prefers to receive his payment 
 in a check on some commercial bank, rather than in money, thus 
 lessening the risk of loss, and in many cases creating additional evi- 
 dence of his transaction. In this case the paying teller sends the 
 depositor, after verifying his draft, to the secretary's window, and 
 himself hands the draft to the secretary, who gives the check to 
 the depositor. On the return of the draft, the paying teller receipts, 
 as before, in the margin of the check book. Thus, the receipts of 
 the paying teller are, first, from the receiving teller; second, from 
 the treasurer in money drawn from the banks; and, thirdly, in 
 checks which are immediately issued. His payments are almost ex- 
 clusively to depositors. When, as has already been said, the depos- 
 itor presents himself at his window with a request for a certain 
 sum of money, the paying teller has to make the following inquiries : 
 
 First. Is the pass book presented? 
 
 Second. Is there sufficient money on the account to pay the draft ? 
 In order to ascertain this he requests the bookkeeper, by mention- 
 ing the number of the account, to inform him of the present bal- 
 ance, or, if there be sufficient time, examines it himself. 
 
 Third. Is there a properly made out draft for the amount? If 
 not, the teller usually makes it out himself. (See form, page 164.) 
 
 Fourth. Is the signature genuine? To ascertain this, he turns 
 to the signature book ( the entire series being near him ), and, find- 
 ing the number of the account, compares the signature of the 
 draft held in his hand with that originally written in the book. It 
 is very frequently the case that there will be some slight disparity, 
 
THE PAYING TELLER. 17 1 
 
 far more frequently than in case of a commercial bank. The last 
 withdrawal was perhaps many years ago, and very naturally some 
 change may have taken place in the character of the handwriting. 
 Any substantial variation, such as writing initials instead of full 
 names, or abbreviations instead of initials, he causes to be corrected 
 by a re-writing of the name on the back, if the depositor is present 
 in person. It is not his duty to refuse payment where the signa- 
 ture is not absolutely identical. He must, using the best of his judg- 
 ment and discretion, form his opinion as to whether the signature 
 is genuine. A by-law of the bank, which has been sustained as rea- 
 sonable by the courts of the State, declares that any payment made 
 to any person producing the genuine pass book shall be considered 
 valid, and shall discharge the bank. A payment without the pass 
 book is very exceptional, and is never made without the approval 
 of one of the officers of the bank, noted on the draft itself. Id 
 this case, of course, a perfectly incontestable signature must be pre- 
 sented. In the case of persons who did not write, but made a mark 
 on the opening of their account, the mark is now made in the pres- 
 ence of the teller, and the person is asked the various test ques- 
 tions which were asked at that time. If answered correctly, and 
 the appearance of the person sufficiently answers the description, 
 this, with the presentation of the pass book, is considered sufficient 
 evidence to pay on. 
 
 In some of the older Savings banks the signature of the de- 
 positor, when coming in person to draw, is not taken. They rely, 
 not on comparison of signatures, but on the asking of the so-called 
 test questions. This seems to us a very improper way of transact- 
 ing business, of which the only advantage has been, in past years, 
 the saving of two cents for an internal revenue stamp, now abol- 
 ished. The bank retains no voucher for the payment. It is perfectly 
 easy, especially in our crowded tenement houses, for a person who 
 has abstracted a pass book, to obtain such information as the names 
 of parents, etc., and the writer has no doubt that many cases of 
 fraud have occurred in this way, which even the depositors have 
 not been aware of. The identification by questions should only be 
 employed as a last resort, where comparison of signatures cannot be 
 made. 
 
 Fifth. To whom is the amount payable ? Instead of coming in per- 
 son, the depositor frequently gives his draft to another. The printed 
 forms given by the bank read " pay to myself, or bearer," and in the 
 forms given in the pass book, the word "bearer," is always recommend- 
 ed to be inserted. Occasionally, a draft is presented, payable to order, 
 In this case, of course, identification is necessary, as in a business 
 bank. The bank claims the right to decline any such draft, as it 
 is no part of its business to verify endorsements, but frequently 
 the difficulty is overcome by paying in check to the order of the 
 
172 
 
 PRACTICAL BANKING. 
 
 payee named. Some drafts are presented through the medium of 
 business banks, having been deposited for collection. These are 
 also usually paid by check. The bank has the right, in case of a 
 financial panic, or similar emergency, to demand sixty days' notice 
 before making any payments whatever. In this case, it is the duty 
 of the paying teller to accept such written notices. 
 
 The paying teller keeps a draft book, precisely corresponding to the 
 deposit book already described. His daily report is precisely similar to 
 that of the receiving teller, the footing of his draft book being entered 
 as a credit, and the statistics of the number of drafts, and num- 
 ber of books closed, taking the place of number of deposits and 
 number of accounts opened. When an account is closed, the pass 
 book is always retained by the bank; therefore, at the close of the 
 day, the paying teller should have a pass book for each account 
 which has been closed, and his report of the number closed is 
 made by counting these pass books. The following morning this 
 account is verified by a report from the bookkeepers of the num- 
 ber of accounts actually ruled off on the ledger. In case of a lost 
 book, an envelope, of the size of the pass book, and marked with 
 the number, date, &c., is put in as a substitute or dummy. It is 
 the paying teller's business to keep himself supplied with funds, and 
 to give timely notice to the treasurer, or to the receiving teller, 
 that they may have money ready for him in the morning hours 
 when he has leisure to count it. 
 
 FORM OF TRANSFER TICKET. 
 
 UNION SAVINGS BANK. 
 TR/ 
 from 
 
 TRANSFER. 
 
 .... to the cr< 
 Account No 
 
 dit of Account No 
 
 
 
 
 
 
 
 
 NEW YORK 
 
 
 ,8 Date ' 
 
 Sign 
 ] 
 
 
 Interest from 
 
 3 resent 1 
 
 Address... Jan ' 
 
 Entered, Transfer Book. 
 Posted 
 
 Apl. 
 
 Sig. ex 
 
 'dby 
 
 Approved by Posted J ul y 
 as Transfer. Oct. 
 
 
THE BOOKKEEPER. 17$ 
 
 CHAPTER VI. 
 THE BOOKKEEPEB. 
 
 The bookkeeping department of the Savings bank has charge, solely, 
 of the accounts with depositors. The general accounts of investments, 
 income and expenditure, are a separate system under the direct charge 
 of the secretary. The province of the bookkeeping department is to 
 keep a classified record of the tellers' transactions, which shall, at any 
 moment, indicate the standing of any given depositor with the bank 
 and the balance to his credit, at the same time corroborating the 
 accuracy of the tellers' figures. The transactions with the depositor 
 are : first, deposits ; second, interest ; third, drafts ; fourth, trans- 
 fers. The tickets already described as deposit tickets and draft tick- 
 ets form the basis of all the bookkeeping operations. The trans- 
 fer, which consists in withdrawing from one account and crediting 
 the same sum to another, is effected by a double ticket. Half of 
 this is of the size and form of a draft ticket, and the other half 
 of that of a deposit ticket, and any clerk is authorized to make a 
 transfer, being responsible for all the parts of it. He makes the 
 entry in both pass books, writes up a description of the transac- 
 tion in a third book, called the transfer book, giving the num- 
 ber of the account from which, the number of the account 
 to which the transfer is made, and its amount, and also the 
 date from which it bears interest. The double ticket is placed 
 upon a special spindle kept near the transfer book. The book- 
 keeping work of one day is always done on the following day. 
 The result of the day's business is an accumulation of tickets of 
 the three kinds, as already described, and these are stamped with 
 the official date, the transfers being divided into their component 
 parts. We then have two series, one of debits against depositors, 
 and the other of credits in their favor. The first duty of the head 
 bookkeeper is to take each series and to divide it according to the 
 numbers belonging to the different ledgers. The ledgers of the 
 bank contain 5,000 numbers each, in consecutive order, but when 
 the majority of the accounts have been closed, several of these are 
 consolidated and kept in one volume. Each bookkeeper has certain 
 ledgers assigned to him, for the accuracy of which he is responsible. 
 One bookkeeper, whose share of the work is the twenty-fifth and 
 
174 PRACTICAL BANKING. 
 
 twenty- seventh ledgers, receives the tickets, debit and credit, belong- 
 ing to accounts contained within those limits. He next makes a 
 further arrangement, so as to bring them into exact numerical order, 
 which greatly facilitates posting.* It may be briefly described as 
 follows : The ledger consists of three columns besides the date : 
 debits, credits and balance. After each transaction, and in the same 
 line with it appears the resulting balance or amount to the credit 
 of the depositor. The posting is done entirely from the tickets in 
 the first instance, but only consists in rewriting the balance, plus 
 the deposit, or minus the draft, as the case may be. Thus, if the 
 bookkeeper has a deposit ticket on John Smith's account for $29.32, 
 he turns to the proper page of the ledger, as indicated by the 
 number on the ticket, and there he finds that the present balance 
 
 is $270 44 
 
 Adding mentally, figure by figure, he writes on the next line 299 76 
 which is the new balance produced by the transaction. He also 
 writes the date, but does not make any entry in the column de- 
 voted to deposits. Each ledger has a book corresponding to it, 
 called the "Journal," which might more properly be termed a 
 " Proof Book " of that ledger. It is a transcript of all the postings 
 each day to accounts in that ledger. In writing up the tickets in 
 this book, which is done as soon as the posting is finished, the 
 amounts are omitted, only numbers and names being copied. Now 
 comes the process of verification. Turning to Mr. Smith's account, 
 the verifying bookkeeper (not the one who posted it) infers from 
 the two balances that the transaction must have been a deposit 
 of $29.32. He therefore writes that amount in the credit column 
 of Smith's account, and copies the same into the credit column of 
 the Journal. Now it is evident that if there were a mistake either 
 in the amount of the entry, or in subtracting instead of add- 
 ing, or in computing the balance as changed, the aggregate of 
 the entries on this ledger, and the aggregate of the entries of 
 the entire day will be incorrect. This aggregate is carried to 
 two forms, called respectively, the " Daily Proof of Deposits," and 
 the " Daily Proof of Drafts." Opposite " Ledger twenty-five " and 
 " Ledger twenty-seven," the bookkeeper enters the amount posted 
 to each side, as shown by the journal. When the daily proofs have 
 been completed by filling up every line, their total is compared with 
 the total aggregates derived from the teller's reports, and if there 
 is any discrepancy, it indicates some error, either in the teller's 
 accounts, or in the balancing of some depositor's account, or in the 
 transaction on some depositor's account, or in addition. It is the 
 duty of the clerk who last made an error which threw the daily 
 proof out of balance to search for the error now existing. When 
 
 * The process employed in posting is fully explained in an article, entitled " Balance 
 Posting," in The Bookkeeper, No 51. 
 
THE BOOKKEEPER. 175 
 
 he has found the present error, and fixed the responsibility for it 
 upon one of his colleagues, the latter holds the unenviable appoint- 
 ment of searcher, until he again relieves himself of if by detecting 
 some other offender. 
 
 A " Monthly Proof " is also made, which involves the total trans- 
 actions for the month, and the aggregate balance of each ledger, 
 being a summary trial balance ; and there are intermediate " Satur- 
 day Proofs," which are not obligatory, but made by the bookkeepers 
 for their own convenience. 
 
 We have described one of the most advanced methods for keeping 
 accurate accounts with depositors, and one by which it would seem 
 almost impossible that any error should escape detection. It in- 
 volves two principles which seem to us vital in insuring accuracy. 
 First, that where there is a great volume of work to be gone over, 
 it should be cut up into such small portions, each separately proved, 
 that the area of search for errors is narrowed. Second, that the 
 process of verification should be totally different from the process 
 verified. A familiar illustration of the latter principle is 'in the 
 process of addition, where, having added upwards, we then add 
 downwards, lest the same error occur in the same combination of 
 figures. We will now describe one of the primitive methods which 
 are still in use in some institutions and which violate these prin- 
 ciples. 
 
 The ledger contains columns for drafts only and deposits, none for 
 the balance. The posting is done, not from tickets but from the 
 tellers' deposit and draft-books. The verification is merely a going 
 over the items in the same order, affixing a check-mark if the 
 original book and the ledger agree. There is no division of the 
 transactions and balances of different ledgers or sections. The only 
 thorough proof is in the semi-annual trial-balance, and it is an al- 
 most hopeless task to find an error in this, if there is a discrep- 
 ancy, as usually happens. Experience has shown that this method 
 neither prevents nor detects with certainty, errors in posting. 
 
 The interest, or dividend, is computed semi-annually, and its 
 calculation devolves upon the bookkeepers, each for his own 
 ledger. The calculations are gone through twice. The first 
 operation is entered in a book called " Interest and Balance 
 
 Book, Ledger ." This contains, on the left hand side, the 
 
 numbers of all the open accounts in succession, followed by columns 
 for the amount of interest at each half-yearly period, separated by 
 other columns for the balance, which will hereafter be explained. 
 The so-called " balance column " of the deposit ledgers, greatly fa- 
 cilitates the calculation of interest. Making the calculation men- 
 tally, figures are put down in the " Interest and Balance Book," op- 
 posite the principal, in pencil. When the ledger has been finished 
 in this way, the " Interest and Balance Book " is laid aside entirely 
 
1/6 PRACTICAL BANKING. 
 
 and the calculations again made, the result being noted in pencil 
 on the margin of the account. Thus there are two independent 
 calculations of dividend, and if, upon comparing these two, they are 
 found to be identical, it is assumed that the calculation is correct. 
 As this work is commenced before the end of the interest period, 
 there are changes during its progress, caused by the withdrawal of 
 money. These are corrected each day. After the first of January, 
 or of July, the amounts penciled on the margin are written with 
 red ink in the body of the account, and the resulting balance car- 
 ried out, also in red. The " Interest and Balance Book " is added 
 up by pages and aggregated by ledgers, so as finally to show the 
 total amount of the dividend. It is the duty of the bookkeeper to 
 enter in the depositor's pass book, whenever required by him, all 
 dividends standing to his credit up to date. This is also done in 
 red ink, and it is the invariable rule to foot up and balance his 
 pass book at that time, compare its balance with that shown by the 
 ledger account, and check off the latter, if correct. The book is 
 also similarly balanced whenever the page is full ; thus the daily 
 and monthly reports of the bookkeepers verify and control the 
 daily and monthly reports of the tellers, the cash department and 
 the accounting department each reporting to the secretary, who bal- 
 ances one against the other. 
 
 In connection with the signature book the index cards are 
 described and exemplified. These are kept in a chest of drawers 
 which will contain about 10,000. They are arranged in alpha- 
 betical order, the index cards of each day being inserted in their 
 appropriate places, and the cards representing closed accounts being 
 each day extracted and filed in a separate series, so that 'the reg- 
 ular series contains only the open current accounts. 
 
 Many forms of index books have been and are used simply 
 alphabetical, alphabetical with vowel divisions, and alphabetized 
 according to the first three letters. In none of these can the ar- 
 rangement ever remain absolutely alphabetical, and there is always 
 a considerable space to be gone over to find a certain name, and a 
 great chance of missing it. In the card method a certain name can 
 occupy but one place, as in a directory, and the dead accounts do 
 not have to be gone over in order to find the open ones. 
 
 Little zinc cards indicate the divisions between letters, and be- 
 tween combinations of letters, so as to facilitate search. 
 
 We have now considered the principal functions of all the clerks 
 of the bank, and have next to describe the duties of its executive 
 officers. These are, in the bank under consideration, the president, 
 treasurer and secretary. The treasurer and secretary perform, to a 
 certain extent, co-ordinate duties. That is, they assist each other, 
 and relieve each other when absent. We will describe first the 
 duties of 
 
THE TREASURER. 177 
 
 CHAPTER VII. 
 THE TREASURER. 
 
 This officer is elected by the board of trustees, and holds office at 
 their pleasure. He may or may not be a member of the board, but 
 it is customary that, he should be. His department is the custody 
 and management of the investments of the bank, but, as the senior 
 officer present, he exercises a general direction over all departments. 
 The cash deposited in banks is principally under his control. He, or 
 the secretary acting for him, directs the deposits to be made in dif- 
 ferent banks. Checks on the banks are signed by him and by the 
 secretary, and countersigned by the president. He is the proper of 
 ficer to collect interest or rent due the institution, to receive payment 
 for obligations which mature, to receive applications from borrowers, 
 and to lay before the board of trustees all matters pertaining to 
 investments which may require their action. The principal invest- 
 ments of the bank, as permitted by law, are ist, loans on pledge 
 of stocks; 2d, stock investments; 3d, mortgage loans. 
 
 The kinds and amount of these various classes of investments 
 are guarded by law, which differs in the various States. In the 
 New England States loans may be made upon bills receivable 
 as security, which is not the case in this State. In some States 
 loans may be made upon bank stocks or railroad stocks. 
 
 The First of these classes, loans on pledge of stocks, are consid- 
 ered as a temporary investment. The loan cannot exceed par, and 
 there must also be a margin of ten per cent. These loans are 
 made upon the sole discretion of the Treasurer, as it would be 
 impracticable, in case of a loan from day to day, to await the ac- 
 tion of the board at its monthly meeting. The borrower deposits 
 the securities, the treasurer is responsible for seeing that they are 
 genuine and that they are sufficient, and for their custody. He 
 takes from the borrower a voucher, and also a note, which are at 
 first embodied in one document, afterwards separated. 
 
 The raising and lowering of the rate on such loans is also at his. 
 discretion, and if the loan should not be paid, principal or interest,, 
 when due and demanded, it is his duty to sell the stocks pledged 
 as collateral security, as prescribed in the note, and to account 
 properly for the proceeds. It is also his duty, in case of the de 
 
178 PRACTICAL BANKING. 
 
 preciation of the security below the legal margin, to make a call 
 for a sufficient part of the loan to bring it within the margin. 
 
 Second. Stock investments. These are usually voted by the board, 
 but the practical business of buying and selling is effected by the 
 treasurer. The board usually authorizes a purchase at not exceeding 
 a certain price, or a sale at not below a certain price, and it is the 
 duty of the treasurer, of course, to obtain the most advantageous 
 terms possible for the bank, and his contract, even if it should be 
 contrary to the vote of the board, would bind the institution. 
 These securities are frequently of the class known as coupon bonds, 
 where each maturing amount of interest is represented by a small 
 promissory note attached to the margin of the bond. These bonds 
 and their coupons being payable to bearer, there is greater danger 
 in case of theft than from registered securities. The treasurer is, 
 therefore, usually instructed to convert any coupon bonds, which 
 may be purchased, into registered. As an expert in the money mar- 
 ket, the treasurer is expected to submit to the board at its meet- 
 ings all desired information as to what appear to be the most profit- 
 able investments. When the interest on the stock investment ma- 
 tures, the treasurer attends to its collection through the regular 
 channels, referring to the register of interest due, kept by the sec- 
 retary. 
 
 The law of the State of New York permits Savings banks to in- 
 vest only in the following stocks and bonds: i, United States 
 bonds, including District of Columbia 3-65's; 2, New York State 
 bonds ; 3, bonds of any State in the Union which has not during 
 ten previous years defaulted on principal or interest; 4, bonds (if 
 issued in pursuance of a State law) of any city, county, town or 
 village in the State; 5, any interest-bearing obligations of the city 
 or county in which the bank is situated. In loaning on collateral 
 security, the banks are restricted to the same classes of bonds. 
 
 Third. Mortgages. A person desiring to borrow from the bank 
 upon his mortgage on real estate, fills out the application, which 
 contains spaces for a full description of the property and other in- 
 formation concerning the proposed loan. This is, in the first in- 
 stance, investigated by the treasurer, and in a great many cases de- 
 clined by him at once. He is understood, by custom, to have a 
 veto upon such applications as seem out of the question. If the 
 loan appears advantageous, and within the limits prescribed by law, 
 the treasurer submits it, with others, in a list at the next meeting 
 of the board ; a printed copy of the list, giving a brief description 
 of the security in each case, being laid before each member. If 
 the loan is accepted, and the application forwarded to the attorney 
 to whom the applicant is then referred, and the title is, by the 
 latter, pronounced good, the treasurer draws the bank's check in 
 iavor of the attorney for the amount of the loan. He will receive 
 
THE TREASURER. 179 
 
 from the attorney the application, with the receipt of the borrower 
 endorsed thereon. Also the bond, the insurance policy, the mort- 
 gage, when it has returned from the office of public record, and the 
 abstract of title when it has been copied. It is his duty to exam- 
 ine each of these documents, to see that the correct amount has 
 been paid upon the voucher, to see that the bond is in accordance 
 with the vote of the board, that the insurance policy is in one of 
 the companies selected by the bank, and made payable to the bank 
 as mortgagee, that the mortgage describes the property correctly, and 
 that the abstract is properly certified to by the attorney. He fur- 
 thermore sees that the documents are appropriately filed under the 
 serial number of the mortgage. 
 
 All the documents, except the application and abstract, are kept 
 in a single envelope, headed with the number of the loan, and they 
 retain this number so long as they are the property of the bank. 
 The application is filed as a cash voucher, and the abstracts, which 
 are somewhat bulky, are kept in a separate series. Semi-annually, 
 on the first days of May and November, it is the duty of the treas- 
 urer to collect from the mortgagors the interest on their mortgages. 
 He sends to each mortgagor, about twenty days previous to those dates, 
 a statement of the amount of interest due, the computations for 
 which are made and verified by the secretary. This statement is 
 so arranged as to constitute, when signed and returned by the mort- 
 gagor, a letter of transmission accompanying the payment to the 
 treasurer. These statements are required to be signed, even when 
 the party pays in person, as evidence of the correctness of the 
 amount paid. In return, the treasurer gives a receipt. In the ma- 
 jority of cases the payment of interest on mortgages is made by 
 check on some bank in favor of the institution. If it is made in 
 money, a statement is handed with the money to one of the tellers, 
 who receipts therefor by writing his initials after the words " Re- 
 ceived by," and returns the statement. (See form, page 180.) 
 
 The secretary debits the teller and credits the treasurer. It is the 
 theory of the bank that every document representing the payment 
 of money in either direction should be doubly signed, by the party 
 or bank official giving, and also by the one receiving it. 
 
 Interest on loans, it might have been stated, is collected in a 
 precisely similar manner. If a mortgage becomes in default of inter- 
 est or principal, it is the duty of the treasurer, after applying all 
 other means, to place the mortgage in the hands of the attorney for 
 foreclosure, and upon the conclusion of the action, to collect and 
 account for the proceeds. He also receives money in partial pay- 
 ment of mortgages, usually where the same are over-due, and running 
 by mutual consent. In this case, he requires a statement of the 
 general form, and gives a receipt. 
 
 Besides these classes of regular current investments, the bank 
 
i8o 
 
 PRACTICAL BANKING. 
 
 may, in certain cases, invest in real estate. These cases are the 
 following : 
 
 1st. A building for its own use ; but, as it would be unprofitable to 
 confine the building to the single story required for bank use, it is 
 allowed to add portions thereto for the purpose of deriving revenue 
 from renting. 2d. Where mortgages are foreclosed, it is frequently 
 necessary for the bank to bid at the sale in order to protect 
 itself, and in this manner it may become the buyer. When the 
 fee of a piece of real estate has been thus acquired by the institu- 
 tion, it then becomes the duty of the treasurer to act as the bank's 
 agent in managing the property, to sell it whenever that can advan- 
 tageously be done, and to derive the best possible revenue from 
 it, so long as it is held. The collection of rents, both from the 
 rented portions of the bank's premises, and from foreclosed real 
 estate, is effected in a manner analogous to the collection of 
 interest. A statement is sent out as a notice, returned as a 
 voucher, and exchanged for a receipt. As to the sale of real 
 estate held by the bank, the board usually instructs the treasurer 
 as to a limit, above which he is authorized to dispose of it. When 
 a bargain is made, he and the purchaser sign in duplicate a contract 
 of sale, and the amount paid in hand at the signing of this 
 contract is considered as a liability, and credited to the account 
 "contracts of sale." 
 
 The expenditures of the institution are under the supervision of 
 the treasurer. In every case, whether the payment be as an invest- 
 ment, or as the expense of managing any of its departments, he 
 takes from the payee a voucher, and if the actual payment is made 
 by a teller, it is countersigned by the latter. (See form below.) 
 
 FORM OF VOUCHER. 
 
 Voucher No 
 
 For Payment by the UNION SAVINGS BANK, OF NEW YORK, TO 
 
 188 Consideration. Amounts. Totals. 
 
 
 
 
 
 
 
 
 
 
 
 
 I CERTIFY that the above mentioned . . . 
 
 Approved for Payment, 
 
 Paid in Money, 
 ... . Teller 
 
 RECEIVED ON, 188 
 
 from the UNION SAVINGS BANK, 
 Dollars, 
 
 
 Check No 
 
 in full payment, as above stated. 
 
 
 Examined by Auditing Comnv ttee, 
 
 
 
 
THE SECRETARY. j8l 
 
 CHAPTER VIII. 
 THE SECBBTABY. 
 
 The secretary is supposed to be the accounting officer of the 
 bank. It is his duty to know, from its books and records, the 
 state of the institution in every department, at any time. In prac- 
 tice, he performs a large share of the duties just described as be- 
 longing properly to the treasurer, he being constituted by the by- 
 laws, a vice-treasurer; but his duties will be described as they exist 
 in theory, for the secretary alone. His duties may be divided into 
 three branches : as correspondent of the bank, as recorder of the 
 board of trustees, and as accountant of the bank. All letters should 
 be received by him, and answered by him, either immediately, or 
 upon reference to the appropriate department. It is the rule of the 
 bank that every letter received, however unimportant, be filed in 
 its alphabetical place, and that every letter sent, however appar- 
 ently unimportant, be copied in the impression book. This refers 
 to all correspondence not of a personal character, or all which is 
 signed officially. There can be no such thing as an unimportant 
 letter, because the fact of every letter being copied enables us to 
 say positively, " I did'nt write a letter to so and so on such a 
 day, because if I had, it would appear in the copying book." This 
 being able to swear to a negative, which can only be done by the 
 aid of a rule without exceptions, is, of itself, worth all the labor 
 attending the copying of letters. Official letters of the bank are 
 written upon its letter sheet, the heading of which, printed in 
 copying ink, contains the clauses, " referring to your letter of 
 
 ," and " subject ," which enables a correspondence on a 
 
 given subject to be traced through the letter book. Special forms 
 of letters often required, are printed, as letter of transmission to at- 
 torneys, with check for the mortgage ; letter to depositor, with re- 
 mittance on his account; request to depositor to present pass book 
 (for the tracing of errors, &c. ); circular, explaining to persons at a 
 distance how to deposit without coming in person, called the "re- 
 mittance circular." Circular with rules as to interest on mortgage, 
 <c. This is used to "stir up" delinquents by under-scoring the 
 part against which they have transgressed. Notices of meeting of 
 board of trustees. 
 
182 PRACTICAL BANKING. 
 
 Second. As recording officer of the board of trustees, the secretary 
 performs the ordinary duties of keeping the journal or minutes, 
 and filing and preserving documents. He submits to the board at 
 each meeting a report which is confined to the dealings of the bank 
 with its depositors, giving all the statistics as to number and amount 
 of receipts and payments and averages. 
 
 Third. The chief duties of the secretary, or those which occupy 
 the most of his time, are those which he performs as accountant to 
 the bank. Strictly, he has no custody of any values whatever, 
 but all records of transfers of values are directly or indirectly made 
 by him. Thus, he is an auditor of every department of the bank, 
 all of which contribute to him through reports. He keeps person- 1 
 ally, or through assistance, all the general books of the bank, that 
 is to say, all the books of the bank except those containing the ac- 
 counts with depositors. His daily cash book classifies transactions 
 in two ways: ist, as they affect the general standing of the bank in 
 its relation with the outside world ; and, 2d, as they affect merely 
 the increase and diminution of some one of the departments of its 
 cash. These departments are : 
 
 i st. Money in the hands of tellers. 
 
 2d. Funds in the vault in the direct custody of the treasurer. 
 
 3d. Deposits in banks subject to check signed by the president, 
 treasurer and secretary. 
 
 These together constitute the total cash account, and the possi- 
 ble transactions may be of the following kinds : 
 
 i st. Money received from the public and paid to one of these 
 departments, or, in other words, an increase of the total cash with 
 an increase in a department. 
 
 2d. Money paid to the public, and drawn for that purpose from 
 one of the departments, or, in other words, decrease of total cash r 
 and decrease of department cash. 
 
 3d. A transfer from one department of cash to another, or in- 
 crease of one department and decrease of another. 
 
 By means of the inner columns of the cash book, which repre- 
 sent transactions with the public, and which, alone, find their way 
 to the monthly cash, and the outer columns, which represent the 
 various departments spoken of, all the records for a single day are 
 made upon a single page. The possible transactions of a single 
 day will be shown by an example, in which a page of the daily 
 cash book will be shown, referring to the reports, documents and 
 vouchers which form its basis. It will be seen that every figure 
 appearing in the columns of the daily cash has its counterpart in 
 two different documents or reports, and that these bear upon and 
 corroborate each other. The only exceptions are the "vault" and 
 the. "check list," which are merely suspended transactions; half-way 
 houses where the Treasurer temporarily detains values. 
 
THE SECRETARY. l8: 
 
 REFERENCES AND EXPLANATIONS TO DAILY CASH BOOK. 
 
 Line i has no vouchers. ib relating to the "Vault," cann< 
 have one, as it merely completes an operation which, like 1 5, was ii 
 terrupted by the arrival of the hour of three, when it became ir 
 possible to deposit the checks. if is included in the sum 
 line 14, for which the Park Bank gives its voucher in the pass boo 
 
 Line 2. Collection of Interest, d is supported by Statement N 
 784, as follows: 
 
 NOTICE. The half yearly interest, $1,500, on Mortgage No. 443, for $5o,ot 
 will be due and payable on the first of May, 1886, at the Union Savings Bar 
 New York. Prompt payment is expected. Receipted tax bill for last year to 
 exhibited unless already done. 
 
 s Paper is to be SIGNED and returned to us with the payment. J| 
 
 EXAMINED. 
 
 NEW YORK, March i, 1886. 
 To the Treasurer of the UNION SAVINGS BANK. 
 
 SIR : Herewith I deliver to you, in payment 
 above Interest, fifteen hundred Dollars. Please acknowledge recei] 
 
 JAMES O. SMITH, 
 $1,500 Received by S. Address, 115 Broad wj 
 
 Line 3. Payment of Expense, a is included in the amount $i79-< 
 Second Teller's Report, see page 169. For e see Form on pa 
 1 80. Voucher signed by teller. 
 
 Line 4. d is supported by Statement No 785, as follows : It 
 signed by the tenant and countersigned by the teller who receiv 
 the money. 
 
 PLEASE SIG 
 
 f AND RETURN WITH THE RENT. 
 
 UNION SAVINGS BANK. 
 
 NEW YORK, March i, 1886. 
 To the Treasurer of the UNION SAVINGS BANK. 
 
 Rent will be due Mar. i, 1886, 
 for No. 335 East 46th Street, 
 from March i to April i, 
 i Month, at $t, 200 per year. 
 $100. E. D. J. 
 
 SIR: 
 Herewith I deliver to yo 
 
 One hundred Dollars, in payment of Rent, i 
 stated in the margin. 
 GEO. P. TRUMBULL, 
 
 
 
 Lines 5 and 6 refer to a single transaction. As two accounts 
 " Mortgages " and " Interest" are affected by it, it requires two lin 
 Statement 786 is as follows : 
 
DATE, MARCH i, 1886. 
 
 UNION SAVINGS BANK. 
 
 
 by Tellers^ 
 
 b) Drawn 
 front 
 Vault. 
 
 (e) Checked 
 front Banks. 
 
 d) Received 
 front the 
 Public. 
 
 1! 
 
 Account. 
 
 R 
 
 (e) Paid to 
 the Public. 
 
 4* 
 
 
 
 
 
 215 37 
 
 
 
 
 TVb. 
 784 
 
 Interest, 
 
 
 
 i. From vaj,( 
 2. 6 mo. 6 ;( 
 
 
 
 J 
 
 5289 
 
 
 
 
 100 
 10,000 
 
 116 67 
 
 9 
 
 Expense, 
 Rent, 
 Mort. 357. 
 Interest, 
 
 365 
 
 52 89 
 
 3. Consol. m 
 4. Turnbulljat 
 5. Satisfied* 
 6. j Chtiic 
 
 
 
 
 
 
 P 
 
 112,500 
 36,500 
 
 
 
 U. S. 4 M %, 
 
 2344 
 
 112,500 
 
 7. Bo't of >J$B 
 8. Transfer! 
 
 
 
 
 
 
 
 
 500 
 
 787 
 
 Rent, 
 
 
 
 9. Smith, <jm 
 
 
 
 
 
 
 P 
 
 375 
 
 
 
 Expense, 
 Real estate, 15 
 
 366 
 
 2345 
 
 75 
 300 
 
 10. Banking ofc 
 n. 716 MadE 
 
 
 
 A 
 
 7 
 
 s$ 
 
 
 
 
 
 
 
 
 
 12. Checks f n 
 13- 
 
 
 
 A 
 
 56 12 
 
 
 
 
 
 
 
 
 
 14. Deposit.-,.! 
 
 
 
 
 
 
 
 
 
 
 
 
 
 15. Checks f:al 
 
 
 
 
 
 
 
 
 
 
 
 
 
 16. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 18*. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 * 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 P 
 
 1,200 
 
 
 
 
 
 
 28. Checks i. ie 
 
 
 
 
 
 
 
 
 
 
 C 
 
 
 
 29. 
 
 120 
 
 IO 
 
 A 
 
 6,718 19 
 
 
 
 
 
 
 
 
 
 30. 
 
 17 
 
 q 
 
 J% 826 11 
 
 
 
 
 
 
 
 
 
 3^ 
 
 o 
 
 1 
 
 
 1 
 
 Q 
 
 
 
 
 10,140 40 
 
 W 
 
 Depositors, 
 do. 
 
 w 
 
 7,544 32 
 
 32. Deposits tn 
 33. Drafts 1 
 
 a 
 
 "8 
 
 
 
 
 
 
 547,472 78 
 
 
 
 
 
 34. Balances.in 
 
 
 
 c 
 
 
 31,335 15 
 
 40,056 12 
 
 
 377,966 37 
 
 
 
 
 
 449,357 64 
 
 35. Balances it< 
 
 
 Sin 
 
 39,434 3i 
 
 40,271 49 
 
 528,541 37 
 
 569,829 85 
 
 
 
 
 569,829 85 36. 
 
 116 67 
 
 This Form is to be Returned 
 to us with Signature. 
 
 UNION SA VINGS BANK. 
 
 NEW YORK, March i, 1886. 
 Statement for Payment of Mortgage No. 357, on 
 
 Property, 292 East 32d Street. Principal, ... - $10,000 
 Interest at 5 per cent, from January 7 to March i, 1886, ") 
 2 months 24 days. j 
 
 10,116 67 
 To the Treasurer of the UNION SAVINGS BANK. 
 
 SIR : We deliver to you herewith Certified Check for 
 Ten thousand, one hundred, sixteen $fc Dollars, in payment of the 
 above mortgage, and acknowledge receipt of the following papers : 
 Bond, Mortgage, Satisfaction Piece, Abstract, Insurance Policy. 
 
 ALEXANDER AND GREEN, Attorneys, 
 
 per James Blacstone, Jr. 
 
 Line 7. Purchase of Bonds, c will be accounted for in the pass 
 book of the Park bank, which will claim credit for this and other 
 amounts, e is supported by voucher No. 2344, in form similar to 
 that already given. 
 
 Line 8. Transfer Between Banks, Having drawn a large check on 
 the Park, a transfer is made from the Chemical, so as to equalize. 
 The current checks are drawn upon the Park, and the balance in 
 the Chemical is kept at some multiple of 365, to facilitate the 
 computation of daily interest. 
 
 Line 9. Collection of Rent. Similar to 4, except that payment is 
 received in check. 
 
 Line 10, n. Payment of Expense. Two vouchers are taken for 
 this according to the distinction explained on page 183. 
 
DAILY CASH BOOK. 
 
 L. 
 
 (/!* 
 
 (g)Depostted 
 in Banks. 
 
 (A) Placed 
 in vault. 
 
 (**) Received by 
 Tellers. 
 
 (/) Cash on Hand at Close. 
 
 J:ks brought over.. . 
 1 433, Smith ; Chem. 
 1 to Feb. 26 
 
 215 37 
 1,500 
 
 10,116 67 
 
 36,500 
 5oo 
 
 ss 
 
 P 
 
 49,277 87 
 
 56 12 
 
 3 
 
 A 
 
 A 
 J 
 
 100 
 
 1,200 
 
 1 37623 
 o 9,764 17 
 
 1 
 
 ISt 
 
 2d 
 
 Ov< 
 Vat 
 Bat 
 Par 
 
 Ch( 
 
 Tot 
 
 16 
 i34 
 
 1 
 
 o 
 
 8 
 
 Teller, 18,856 43 
 Teller, 12,479 72 
 
 3i,336 15 
 - r > * 3 T ,335 15 
 
 lit, 40,056 12 
 
 iks, 
 k, 195,466 37 
 jmical, 182,500 oo 
 377,966 37 
 ^ 449,357 64 
 
 00 
 
 16 
 
 
 46, i mo., Ccy.... 
 under & Green, 
 jmo., 24 d., 5%-.. 
 tf:&Co. at 112^ ... 
 
 lion Ave., 5th Nat.. 
 t Daubwell for 
 painting.. 
 Her 
 
 
 
 $2,596 08 
 
 Her after i. . , 
 
 
 day Increase, 
 Decrease, 
 
 1 1 forward . . 
 
 
 479,263 50 
 
 40,215 37 
 
 2 7,993 9 1 
 
 
 
 528,541 37 
 
 40,271 49 
 
 39i434 3i 
 
 Line 12, 13. These are totals of the checks taken on deposit by 
 each teller during the day. They are included in the amounts $375.- 
 77 and $179.07, for which the tellers respectively claim credit in their 
 reports. (The report of the first teller is given below, line 30.) Each 
 teller keeps a book in which he records the particulars of each check, 
 viz., the bank on which it is drawn, name of the maker, number of 
 account on which it is deposited, name of last indorser from whom 
 it was received, and amount. The book is handed in to the treasurer 
 with the checks between its leaves ; they are compared with the list 
 and the total initialed by him. 
 
 Line 14. At the time for making the deposit, the "check list" 
 column is added up. At the same time a deposit slip is made up 
 from the checks themselves and its total compared with i^g. If cor- 
 rect, a press copy is taken of the slip. The teller of the Park bank 
 receipts by entering the amount in the pass book with his initial. 
 
 Line 15. One of the tellers has received some checks too late in 
 the day to be included in the deposit just mentioned. As it is a 
 positive rule that the tellers' final balances must be in actual money 
 these checks are handed in to the treasurer, who enters them in the 
 "vault" column, whence their amount will be taken next morning 
 to form the first item in the check list. 
 
 The above entries are made during the day from time to time. 
 The remaining entries are made at the close of business for the day 
 when the tellers have made their reports. The teller's report shown 
 
 on page 169 is that of the second teller, J , for the day under 
 
 consideration. The report of the first teller, A , contains the fol- 
 lowing entries, the signatures and " statement of cash " being 
 omitted : 
 
PRACTICAL BANKING. 
 
 FIRST TELLER'S REPORT. 
 
 Dr. 
 
 Cr. 
 
 19,374 16 
 376 23 
 
 1,200 
 5,000 
 
 25,950 39 
 
 Balance brought forward, 
 16 Depositors, 120-10 
 
 319 65 
 Treasurer, 56 12 
 
 ad Teller, 
 Balance carried forward, 
 
 6,718 19 
 
 375 77 
 
 18,856 43 
 
 25,950 39 
 
 The entries from the report are made as follows : " Balance 
 brought forward " is compared with the previous page, under the 
 head of " cash balance at close." The amounts opposite " depositors " 
 are entered on line 30, a and /. The $1,200 which is composed of 
 checks drawn for payment to depositors who prefer to receive it in 
 that form, is compared with the stub of the check book and entered 
 at 28, under c and /. The $375.77 has already been entered in 
 column a, and is composed of $319.65 and $56.12. The $5,000 is 
 found to be the exact converse of an entry in the second teller's re- 
 port and the two are checked off against each other. Finally, the 
 additions having been proved and the two sides found to agree, the 
 balance, $18,856.43 is entered in the statement of "cash on hand at 
 close." The second teller's report is then taken up, examined and 
 entered in the same way, not omitting to note an "over" of $i. 
 The total amount for which the tellers are accountable is $31,335.15, 
 which is entered at 35 a. Then the columns a and j are added up, 
 showing an equality, which proves the correctness of the figures as 
 far as they relate to the teller's funds. Next the entries 32^ and 33,? 
 are made up by adding together, for the former 30 and 31 /, and for 
 the latter 30 and 31 a. 
 
 It now remains only to prove the remaining departments of cash, 
 and the aggregate. The amounts in line 34 were brought forward at 
 the beginning of the day from the previous page. The amount in 
 vault is ascertained, entered at 6j and also at 35^. Columns b and j 
 then become equal. The amount in each bank is obtained, aggre- 
 gated at 8, 9, 107, and entered at 35^, where it balances the account 
 of the banks. The total cash is now ascertained (i i/) and entered at 
 35<?, which gives the equal footing $569,829.85, and proves the cash in 
 bulk as well as by departments. 
 
THE SECRETARY. 183 
 
 The voucher or document given by the banks where we deposit 
 is in the pass-book entries; it is made immediately in the case of 
 deposits, but in checks not till the end of the month, when the 
 pass-book is balanced. The lines of our specimen page of the daily 
 cash book will be numbered, and each column forming it will be 
 lettered, and in our explanation the two supporting vouchers of 
 each line will be given in succession. 
 
 The intermediate transfers or interchanges between departments 
 of the bank, which occupy so large an amount of the soace of 
 the daily cash book, do not, as a rule, go beyond its pages. The 
 inner columns which we have spoken of as representing the rela- 
 tions of the institution to the public, contain all that enters into 
 the general books of the bank, and, with the exception of the en- 
 tries " deposits received," and " drafts paid," every item in these 
 inner columns is supported by a voucher. These form two series, 
 called the " general vouchers for receipts " and the " general vouch- 
 ers for payments." Each series is numbered consecutively, but the 
 vouchers for payments form two series. For the sake of conveni- 
 ence, vouchers relating to expense, either of management or of 
 the banking premises, are numbered from i to 1,000, repeating 
 these numbers when the thousand has been reached. The re- 
 maining vouchers for payment are numbered from 1,000 upward. 
 Upon reaching No. 2,000, the numbers re-commence at i.oou 
 The reason for this is that the series with smaller numbers or ex- 
 pense vouchers are subjected to a special analysis in a book called 
 the " Expense Book," and it is therefore preferable to keep them 
 together. These two series of general vouchers for receipts and 
 payments are the basis of all further records. No entries are made 
 from book to book, but always from the voucher to the book, the 
 fact of such record taking place being noted on the back of the 
 voucher. Thus, a voucher for expenditures on real estate other 
 than the banking house is recorded in the daily cash book, in the 
 monthly cash book, under the heading " real estate," in the real 
 estate ledger, under the head of the particular property, and in the 
 general ledger, under the account of " real estate." These four en- 
 tries are made each direct from the voucher. The letter " D " on 
 the back of the voucher indicates that it has been transcribed in 
 the daily cash book ; the letter " M " that it has been entered in 
 the monthly cash book ; and the folio of the real estate ledger 
 and of the general ledger are also noted on the back. These four 
 entries must correspond, and any discrepancy between them will be 
 detected by the operation of the trial balance. 
 
 The practice of requiring signed vouchers for payments of money 
 has long been an established rule of mercantile practice, but. 
 
184 PRACTICAL BANKING. 
 
 strange to say, where value of some other kind is paid or given, 
 and money received, it has not usually been customary to insist 
 upon a voucher. In this bank the principle is rigorously carried 
 out that in every transaction involving an interchange of values, 
 there shall be a corresponding interchange of documentary evidence 
 between the parties.* 
 
 As the entire accountability of the bank rests upon these docu- 
 ments, so their arrangement in convenient form for examination 
 and reference is of importance. The vouchers for each month are 
 arranged in two series the receipts and the payments, and each of 
 these has a list, the form of which is printed on strong manilla 
 paper. The inside of the list of vouchers for cash payments con- 
 tains, first, a certificate from the auditing committee that they have 
 examined all the vouchers mentioned in the list below, amounting 
 to $ , and have passed the same as correct. The committee 
 
 not only signs this, but one of its members marks, with his initial 
 or otherwise, each particular voucher, in order to prevent its being 
 again presented. When the examination is completed, this list 
 serves as a wrapper or jacket, within which the vouchers them- 
 selves are tied up. On the outside of the wrapper is a printed 
 form, giving the amount as classified for posting aggregates to the 
 general ledger. The total of this outside list will be the same 
 figures as the total of the numerical list verified by the commit- 
 tee, but it gives simply the aggregate to be charged to each ledger 
 account. For example, the list inside may contain a number of 
 vouchers for money loaned on mortgage. The classified list will 
 simply state " Mortgages, $ ." These lists, on the outside of 
 
 the bundles of vouchers constitute what might be called a grand 
 voucher, which authorizes the secretary to record the transactions 
 in bulk. 
 
 An examiner would not, for the great mass of transactions, re- 
 quire any books in order to ascertain the past history of the insti- 
 tution since this method has been in practice. He would simply be 
 handed a number of bundles of vouchers two for each month 
 with the authenticated list on the inside of the wrapper and the 
 classified list on the outside, and from these he could himself make 
 up an authenticated history of all the substantial transactions of the 
 bank during the period covered. These are the real records of the 
 bank. All the books are simply transcripts in various convenient 
 and ingenious forms, in which the order of the vouchers is changed 
 for obtaining special results. The vouchers are the history the 
 books are philosophical combinations of, and deductions from, the 
 facts. 
 
 The primary vouchers of the deposit department, as already men- 
 tioned, are the deposit tickets and draft tickets, but it would be in- 
 
 * See Lecture on Documents as Related to Accounts, published in The Bookkeeper, No. 58. 
 
THE SECRETARY. l8$ 
 
 convenient, from the number of these, to file them with the general 
 vouchers. Each teller's daily report is a substitute or grand voucher 
 for those of the day in his department, and these might be filed in 
 that relation; but as they are stated in the form of an account, 
 they would have to be made in duplicate, and therefore, for conve- 
 nience, the monthly return is required from each teller as to his de- 
 posits and as to his drafts. 
 
 The secretary makes up at the end of the month two combined 
 vouchers from these monthly returns. He brings together the total 
 amount, and he certifies to its agreement with the aggregate reports 
 given independently from the bookkeeper's department, so that these 
 two vouchers contain the ultimate condensation of the thousands of 
 drafts and deposits which accrue each month. This might be called 
 a cumulative voucher of the fourth degree. The primary voucher 
 being that signed by the depositor, the secondary voucher being the 
 teller's daily report, and the tertiary being the teller's monthly re- 
 port. As corroborated by the accounting branch of the deposit de- 
 partment, it consists of even more steps. 
 
 The business of the bank has three different units of time the 
 day, the month, and the half-year and each of these has its his- 
 torical record, its counterbalancing proofs, and its final statement of 
 results or balance sheet. The daily transactions are brought to a 
 focus upon the page of the daily cash book, and are also repeated 
 in various forms in special ledgers, namely, the deposit ledger, mort- 
 gage ledger, loan ledger, stocks ledger, real estate ledger, rent 
 ledger. For information, there is also kept in the daily cash book, 
 below the cash entries, a daily statement of profit and loss and a 
 daily balance sheet, so that at the close of each day the exact 
 status of the bank, as near as can be ascertained, is recorded. 
 
 An accurate account is kept, in this book only, of the interest, to 
 the nearest fraction of a cent which is earned on each class of in- 
 vestment, and this is added to the accrued interest account daily, 
 and also credited the income account. Similarly the accretion of 
 rents and any other profits is recorded. On the other hand, the 
 exact daily amount is apportioned for payment of salaries, of taxes, 
 of dividend as estimated, of general expenses, and for the extinction 
 of the premium on bonds as they approach maturity. 
 
 Each of these elements produces its effect on the profit and loss 
 or surplus account, and equally on some branch of the resources or 
 liabilities, actual or estimated, so that the business of the day re- 
 sults in a balance sheet, the cash transactions appearing above, be- 
 ing, of course, taken into consideration. 
 
 The balance of each department of the cash, and also of the cash 
 as a whole, is also verified daily. The monthly work consists in 
 the aggregation, by the means already explained, of all the events 
 of the month into two sets of columns, which give the general 
 
1 86 PRACTICAL BANKING. 
 
 condition. These totals, when posted to the general ledger, form 
 the basis of its trial balance. The trial balance of the general 
 ledger is not precisely identical with the balance sheet contained 
 in the daily cash under the last day of the month, for this reason : 
 The general ledger, in its current or normal state, is kept on the 
 basis of cost. No profit or loss, by depreciation or appreciation, is 
 recognized until realized by the actual disposition of the proceeds. 
 Hence, the trial balance of the general ledger is a balance sheet 
 on the cost basis, while the daily balance sheet is on the basis of 
 present market values. 
 
 The secretary completes his monthly work by making up, from 
 the figures thus obtained, the reports to be submitted to the next 
 following meeting of the board of trustees. At the monthly meet- 
 ings in June and December, being the last months of the half 
 years, it is required by law that the dividends be fixed according 
 to the profits earned. It is therefore necessary for an estimate of 
 the earnings and expenditures of the half year to be submitted, as 
 a basis of this dividend. This can very readily be done, as five- 
 sixths, or nearly eleven-twelfths of the period have elapsed. At 
 this meeting, therefore, the secretary submits such an estimate, 
 showing, as its result, the rate of dividend which can be allowed, 
 usually leaving a margin to be added to the surplus. The board 
 then votes upon the dividend, and the secretary issues orders to 
 the bookkeepers to make the calculations at the prescribed rate. 
 At the same meeting the examining committee is appointed, and 
 this is the first step in the preparation of the semi-annual official 
 reports. It is necessary that every facility be provided for this 
 committee to examine in detail, as far as advisable, the exact con- 
 dition of the bank. The secretary prepares a balance sheet in 
 blank, containing headings and spaces for all the departments, of re- 
 sources, of liabilities, and the surplus, with their several values. He 
 also prepares numerous blank schedules, each referring to one of 
 these departments, and giving the individual units which make it 
 up. Thus, under the head of stock investments, Schedule C, for 
 instance, would be given the following information : Title of stock 
 and by whom issued ; rate of interest ; year of maturity ; amount at 
 par ; cost ; present market rate ; present market value ; interest paid 
 to what date; amount of interest earned but uncollected. 
 
 As the last day of the month approaches, at the close of which 
 it is the duty of this committee to make its examination, the sec- 
 retary begins to fill in the figures of these schedules, first, of course, 
 in those departments in which there is the least chance of a change 
 occurring. Thus, if it is not probable that there will be any fur- 
 ther purchase or sales of stocks and bonds, the stock schedule can 
 be filled up as to all the particulars, except " market rate " and 
 ' market value." In order to ascertain the market rate of such se- 
 
THE SECRETARY. 187 
 
 curities, recourse must be had, where possible, to published quota- 
 tions or to the opinions of experts. The secretary usually sends, a 
 few days beforehand, to several firms of respectable brokers who 
 make a specialty of dealing in public investment stocks, a list of the 
 kinds of securities held by the bank, giving the title, date of maturity 
 and the rate of interest, and requesting a reply in the margin to the 
 question, " What would be a fair market value for each of these 
 
 classes of securities at the close of business on the last day of ?" 
 
 These are filled up and returned by the brokers on the last day, for 
 the information of the committee. Other departments of resources 
 also require corroborative evidence, which it is the duty of the sec- 
 retary to procure. As to balances deposited in banks, he requests 
 the cashier of each depository bank to certify the balance on de- 
 posit at the close of the month to the chairman of the committee 
 direct. In case the amount thus certified differs from the amount 
 appearing on the check book, it is the duty of the secretary to ex- 
 plain and to furnish evidence of the disparity, which usually arises 
 from checks issued but not yet presented, and the committee should, 
 during the following month, or whenever it can be done, make a 
 re-examination of the checks which were outstanding. If there be 
 any papers in the mortgage department which the committee is en- 
 titled to see, and which are in the hands of the attorney for the 
 purpose of foreclosure or otherwise, a certificate of their contents 
 must be furnished by the attorney. As to real estate owned by the 
 bank, if necessary, a disinterested appraiser, experienced in real estate 
 values, should be employed to make a survey and report ; and this 
 should also be done in the case of mortgaged property, if there has 
 been such depreciation as to make the margin precarious. All of 
 these preparations, although part of the committee's work, are, in 
 practice, attended to by the secretary in order to lessen the burden 
 of labor for the committee. Besides the report of the committee to 
 the board of trustees, there is an official report to the superintend- 
 ent of the bank department, which is required by law to be made 
 semi-annually at the dates mentioned. The body of this report, or 
 balance sheet, is verified by the oath of the examining committee, 
 and is identical with the balance sheet contained in their report to 
 the board of trustees. The report however, is submitted and sworn 
 to in its entirety by the president and secretary, and is prepared by 
 the secretary from his books. The main report or balance sheet, 
 just described, contains, in the blank form furnished by the State 
 department, a column headed "resources," and another headed "lia- 
 bilities." 
 
 Besides the main report above given there is a summary of cash 
 transactions for the half year, or in the December report for the 
 whole year, and schedules, marked from A to I. 
 
 The table of cash transactions begins with the balance on hand 
 
l88 PRACTICAL BANKING. 
 
 and in banks at the commencement of the period, to which are 
 added the receipts, classified according to their sources. Then fol- 
 low, on the other side, the payments similarly classified, conclud- 
 ing with the balance on hand and in banks at the close of the 
 period. Under our system, these aggregates are readily obtained 
 from the bundles of cash vouchers for receipts and payments, respec- 
 tively, being in most cases simply an adding together of the six 
 monthly totals. In some of the particulars a little analysis is nec- 
 essary from the wording of the blank, some items not exactly co- 
 inciding with either of the accounts kept in the General Ledger of 
 the bank. It is, however, a principle in this institution, that every 
 official report must have its figures, in some shape, derived from the 
 books of the bank. It is too frequently the custom, in institu- 
 tions of this kind, and perhaps of other kinds, that the sworn re- 
 ports are made independently of the books, and that there is no 
 way of directly tracing the connection between the two. As dupli- 
 cate blanks are furnished by the department, in order that the 
 bank may retain a copy of its official report, it is the practice 
 in some banks to make references, by book and page, on the face 
 of the copy retained, which will show precisely how the figures 
 are obtained from the books. These schedules are given in the ap- 
 pendix. 
 
 Schedule A, No. I, contains a list of mortgages taken during the 
 period covered, with the valuation of the property mortgaged as 
 security, and serves as a general mortgage account, corroborating 
 item i of the resources. 
 
 Schedule A, No. 2, contains a list of mortgages paid off, in whole 
 or in part, during the period covered. 
 
 The theory of these two reports is to enable the department to 
 ascertain the amount out on mortgage, and the security therefor; 
 but to make up such a statement from the schedules of many 
 years, would be a very laborious process. It would seem prefer- 
 able, that occasionally, say once in three or five years, a special 
 report should be called for, giving a full list of the mortgages as 
 they then existed, with the location of property, and an appraisal, 
 which the department could verify at its leisure. 
 
 Schedule A No. 3, is a special list of those mortgages, the interest 
 on which is more than six months in arrears. By the law, in the 
 State of New York, any mortgages, on which the interest is not 
 more than six months in arrears, are to be taken at their full 
 value, and the superintendent has a right, in case of the mort- 
 gages comprised in Schedule A, No. 3, to affix a value. It is not 
 known that he has in any case made such a valuation. In a pros- 
 perous bank, in ordinary times, this schedule should be blank. 
 
 Schedule B is a list of the bonds or stock investments of the 
 institution, and its arrangement is commendable. In the case of 
 
THE SECRETARY. 1 89* 
 
 stocks and bonds, a different plan is pursued from the one adopted 
 in reference to mortgages. In mortgages, the increase and decrease 
 during the period are alone considered. In stocks, the increase 
 and decrease are entirely disregarded, and only the final status given. 
 This would seem a defect, as there is far more opportunity for 
 covering up frauds by exchange, barter, purchase and re-sale of se- 
 curities, than mortgages. Every purchase, and every sale of stock 
 securities during the period, should be reported, with dates and 
 prices. 
 
 Schedule B is recapitulated on a smaller blank for the conveni- 
 ence of the department. 
 
 Schedule C is headed " stocks upon which loans are made in 
 accordance with section 261," a rather inverted title, as the primary 
 object is to give the amount loaned upon stocks. 
 
 Schedule D gives the details of cash ; first, as to that deposited 
 in banks and trust companies, not only is the amount on deposit 
 stated, but also the capital and surplus of the depositary bank, as 
 shown by its last official statement. The reason for demanding this 
 information is, that a Savings bank is prohibited from depositing in 
 any bank or trust company more than a certain proportion (twenty- 
 five per cent.) of the capital and surplus of the latter. 
 
 Schedule E, No. i, is intended for those investments which are 
 contrary to the present law governing Savings banks. Only in case 
 the bank has had such investments before the change of the law, 
 which it has not been able to dispose of, can there be anything 
 to enter in this schedule. 
 
 Schedule E, No. 2, is devoted to assets other than those enumer- 
 ated, and would be very appropriate for miscellaneous and abnor- 
 mal resources, but the bank department has included in it also, 
 interest earned but uncollected, which is not an abnormal resource, 
 but one which must exist in every Savings bank. There must 
 always be interest which is earned and not collected, and it would 
 therefore have seemed more appropriate to provide a separate 
 schedule, under the head of income earned but uncollected, for in- 
 terest and rents. Interest is divided into accrued and due, and the 
 interest overdue is divided into that which is overdue less than six 
 months and more than six months, and, finally the total is divided 
 into collectable and un collectable, and the collectable portion is ex- 
 tended into the principal money column. The remainder of the 
 blank is for miscellaneous assets, other than income. 
 
 Schedule F contains a classified account of the current expenses 
 of the bank for the period, such as salary, taxes, insurance, re- 
 pairs, stationery, advertising, &c. The numbering of the schedules, 
 which, previous to this point, was regular, now becomes arbitrary, 
 as different schedules have been inserted according to the views of 
 different officials. 
 
190 PRACTICAL BANKING. 
 
 Schedule G contains payments of all kinds not otherwise stated. 
 It is difficult to see why there should not have been a similar 
 schedule of receipts of all kinds not otherwise stated, or a schedule 
 of both. 
 
 In Schedule H we again return to resources. This contains a de- 
 scription of all real estate owned by the bank, whether for banking 
 purposes or purchased under foreclosure sale, giving the location, 
 how acquired, when acquired, original cost, present appraised value, 
 amount of income derived during the period, amount of expendi- 
 tures on it during the period. Only one of these columns demands 
 special remark the one giving the cost. There is a difference of 
 , opinion as to what constitutes the cost of a piece of property 
 bought in at foreclosure sale for less than the face of the mort- 
 gage, and other charges. 
 
 First. It is the usual way to consider that the entire amount of 
 the mortgage, interest, taxes, legal costs that is to say, the entire 
 cost of the mortgage investment is also the cost of the real estate. 
 For example, 
 
 The face of the mortgage is $ 10,000. 
 
 The interest is 600 . 
 
 The bank has paid taxes 230. 
 
 Insurance 42 . 
 
 And cost of suit , , 325 . 
 
 $11,197. 
 
 Now, under the present view, this $11,197 would be considered 
 the cost of the real estate bid in, regardless of what the bidding 
 price was, and regardless of what it was really worth. But, suppose 
 the property is offered at public -sale, and the bank bids $ 9,000, no 
 one offering more, then, 
 
 Second. I hold to the opinion that the cost or purchase price of 
 this piece of real estate is not $11,197, but $9,000. It is true that 
 the entire investment was $11,197, but what have we done? We 
 have taken, in part satisfaction of our claim, a house worth $9,000, 
 and for which no one else has bid more. The remaining $2,197 
 is not wiped out. We have a deficiency judgment for it against 
 the bondsman. If this proves worthless, of course we lose the 
 $2,197; but that is not to bz assumed prima facie. Suppose 
 another person had bid $9,000, and we, thinking that the full price, 
 had let it go, would he, the purchaser, consider the property worth 
 any more than $9,000? He does not know of our claim; $9,000 
 represents to him the entire cost. We, on the other hand would 
 have still the deficiency judgment for $2,197. Possibly this is 
 worthless. If so, it is our loss ; but the loss is on the bond, not 
 on the real estate. When we buy in the property we happen ac- 
 cidentally to be the purchaser and, at the same time, the judgment 
 
THE SECRETARY. 19! 
 
 creditor; but this should not merge in one two entirely different 
 transactions. Suppose, after buying the property for $9,000, we sell 
 it for $10,000. This gain of $1,000 does not lessen our claim on 
 the deficiency judgment. If the debtor should be, or should become, 
 solvent, we can still collect of him the full amount. The rise of 
 $1,000 is our gain. But how can it be a gain if the cost was 
 $11,197? I am aware that in this opinion I am nearly single- 
 handed against all parties and current opinion, but believe that my 
 view is strictly correct. 
 
 Schedule I is a miscellaneous one, and very crudely constructed. 
 Before the statement of cash transactions was prescribed, Schedule I 
 contained questions eliciting much of the information which is now 
 contained in that statement. Therefore, its present contents are, to 
 some extent, a repetition of what has already been given in the 
 statement of cash transactions, and to some extent contains matter 
 which more properly belonged there. All statistics which relate to 
 financial values should be grouped either under the resources or the 
 liabilities, or the receipts, or the payments, not in a miscellaneous 
 schedule which contains such items as the number of trustees and 
 the number who have attended each meeting. In this schedule oc- 
 curs the question, "Date of taking last abstract of balances due de- 
 positors as shown by depositors' ledgers," and "What was the 
 amount of the discrepancy, if any, between the aggregate of such 
 balances and the amount shown by the general ledger due to de- 
 positors at the sajne date ? " 
 
 The law requires, what a prudent bank would of its own accord 
 prescribe, that an accurate list or balance of amounts due deposit- 
 ors shall be taken at least once in six months, and that the dis- 
 crepancies, if any, found on that occasion be reported to the super- 
 intendent. The process of this balance might have been described 
 under the bookkeeper's department. It has there been stated that 
 the balance due each depositor is proved whenever there is a 
 change, so that, substantially, the ledgers are always in a state of 
 proved accuracy as to individual balances. We have also seen that 
 each month the aggregate amount due the depositors of each ledger 
 is ascertained, and that by aggregating these the grand total, as shown 
 by the general ledger, is corroborated. These processes continue 
 during the half year, and the results of monthly reports are entered 
 in a book kept by the secretary called Ledger Balances. At the end 
 of six months there is an additional column for dividend, and, in- 
 cluding this, the balance due depositors is again ascertained, and 
 this is the basis of the semi-annual trial balance required by law. 
 Each of the ledgers, from one to thirty, ought to show a certain 
 amount of aggregate balances, and this list, added together in the 
 book called Ledger Balances, equals the amount reported to the 
 bank department as due depositors on the ist day of January or 
 
Ip2 PRACTICAL BANKING. 
 
 July. Each bookkeeper transcribes into the book already mentioned 
 under the name of "interest and balance book," opposite the proper 
 number, the amount owing to each depositor. Having done this, 
 and carefully compared it, he adds the entire amount together, and, 
 if perfectly correct in every respect, the sum total should equal the 
 corresponding line in the ledger balances. If it does not so equal, 
 there is probably an error, either in transcribing some amount, or 
 in adding up some page, or in adding the interest to the previous 
 balance. It might be mentioned that the work is facilitated by 
 writing in red ink, in the balance column, the result produced by 
 crediting the dividend. It has been found by experience that any 
 partial method of examination, in order to find the reason of any 
 discrepancy, is ineffectual. Such methods we call "stabbing." We 
 have an exhaustive method, which we call "taking off drafts and de- 
 posits." It consists in taking the original tickets of all the transac- 
 tions of six months, and assorting them in a mass, numerically, so 
 that, for example, in ledger 27, the transactions of six months will 
 be represented by two series of tickets, the deposit tickets begin- 
 ning with the deposits on account No. 135,001, and ending with 
 the deposits on account No. 140,000. The draft tickets form a 
 separate series, beginning and ending in the same way. When this 
 assorting is completed, we copy off each of these series of tickets 
 by amounts only, but we do this in sections. Suppose the first 
 page of the interest and balance book comprises Nos. 135,001 to 
 135,050, then we write down all the deposits in the same compass, 
 and take their total. We write down all the drafts in the same 
 compass, and take their total, Then we f6rm an equation thus : 
 Old balance -f- deposits + dividend=drafts -f- new balance. Or, in 
 another form : Old balance + deposits + interest drafts=new 
 balance. If this equation holds good, the first page is considered 
 correct, or proved. Then we go on to the second page, and so on. 
 Probably we discover by this process the whole or a part of the 
 discrepancy by the time we reach the end. If not, we put together 
 the totals ; that is, we arrange the page footings in tabular form in 
 five columns, so that by footing these columns we obtain of the 
 entire ledger the same equation : Old balance + deposits + inter- 
 est=drafts -|- new balance. This ought to prove. If it does not, 
 some one of the pages which we believed to be in proof has really 
 been out of balance. Having brought this final equation to an ad- 
 justment, our next step is to ascertain in which column the error 
 is. We have an independent statement of every one of these col- 
 umns, and we make the comparison of each in succession. The 
 old balance we have before us in the same book the interest like- 
 wise, and the new balance. If one of the two former of these is 
 incorrect, the defect is soon remedied, but when these two columns 
 have been corrected, we still have the drafts and the deposits. 
 
THE SECRETARY. 193 
 
 To find the total drafts of six months, add together the drafts of 
 January, February, March, April, May, and June successively, and 
 similarly with the deposits. Now, this gives us a test of the second 
 and fourth columns of our final equation. If, at last, we find that 
 the error is in one of these, we first go back, comparing the tick- 
 ets with our transcription of them. If this fails to discover the 
 error, it may be necessary to re-assort the delinquent tickets, either 
 draft or deposit, by months, and ascertain in which month the 
 error occurs. Having located it in the month, it may be necessary 
 to re-assort that month by days, and locate it by the tickets. But 
 ultimately we must find it. The process is absolutely exhaustive. 
 
 The second question propounded by the bank department as to 
 the balance is, what is the amount of the discrepancy ? One of the 
 New York banks constantly reports at present, " Old discrepancy prior 
 to April 13, 1874, $2,386.08." For some years this has not varied. The 
 following is its history : Up to the date mentioned there had been 
 no accurate balances of the depositors' ledgers. While the bank 
 was small, the importance of searching out and correcting the 
 minute errors which then existed was not understood. The first 
 trial balance taken was about $50 out of the way. The accounts 
 were only a few hundred in number. It would have been an easy 
 matter to analyze the work up to that point and to have discov- 
 ered the error, but it was thought near enough. These two words, 
 "near enough," are the most dangerous that can be used in book- 
 keeping, for an error which is apparently near enough may be the 
 resultant of opposing errors each of large extent, and one of which 
 will threaten danger. Presumably, the labor of finding this first dif- 
 ference was postponed until a more convenient season. As the 
 work increased, this search, which was the business of nobody in 
 particular, became less and less likely to be effected, and the next 
 year rolled around, and it came time for another trial balance. 
 Now the number of depositors had largely increased, and it was 
 said, " Never mind the old error ; it will probably turn up this 
 time." Nobody knows whether it turned up or not, because the 
 error this time was over $ 100 on the opposite side, so out of the 
 mud we had got into the quicksand. Each year the same trial at 
 a balance was made, and with the same lack of success, ending 
 with the same motto which was at first inscribed on our banner, 
 "Near Enough." Near enough one time meant $6,000 until a few 
 months later it was found that a little error of $13,000 in a semi- 
 annual dividend had been made, which brought the " near enough " 
 to $7,000 the other way. Some radical spirit among the book- 
 keepers became dissatisfied with this erroneous discrepancy, and be- 
 gan to think that it was better to undertake a great deal more 
 labor, and to know at least that the current work of the bank was 
 proceeding correctly; so, on the I3th of April, 1874, they divided 
 
194 PRACTICAL BANKING. 
 
 the ledgers among themselves, and commenced, in an imperfect 
 way, to keep each ledger in balance as an independent equation, 
 and to actually search out all the errors in each ledger. It is true 
 this was somewhat like the proverbial needle and haystack, but the 
 difference was that the haystack was very much smaller. Gradually 
 the system has been improved in simplicity and effectiveness until 
 the present time, and the old discrepancy of $2,386.08 is the relic 
 of the old errors. This may some time all be found, but the prob- 
 abilities are that it will not. The present Secretary began, a few 
 years ago, a process of bridging over the period of chaos by be- 
 ginning to do what was not done twenty years ago, namely, to take 
 an accurate trial balance of the work at the end of each half- 
 year. Three of the years have thus been completed, but the pro- 
 cess of going through the remaining fourteen years involves colos- 
 sal labor. Possibly it may at some time be thought worth while 
 to employ a special corps of clerks to do this. As an illustration 
 of how deceptive the " near enough " principle is, it may be men- 
 tioned that at one time our discrepancy was only $700 apparently. 
 The discrepancy account had, by successive finds, worked down to 
 this point, when, by pure accident, it was discovered that the 
 amount in the general ledger, which had been considered as the 
 standard, or norm, was itself $ 10,000 away from the truth by a sin- 
 gle error. This startling discovery was enough to unsettle the 
 minds of the most fanatical adherent of the " near enough " theory. 
 A search was made through the mouldering pass-books, thousands 
 and thousands of which, having been closed and surrendered, were 
 lying in numerical order in the cellar. Luckily they had been pre- 
 served. By comparing them with the ledger it was found that 
 about $8,000 of principal stood open on the ledgers of the bank, 
 when, in reality, the accounts had been entirely closed. A dishon- 
 est employee might, by discovering these and compromising with 
 the depositor, have abstracted a large amount, especially as the ac- 
 crued interest on the same amounted to over $6,000. At one 
 stroke, by the closing of these accounts, there was a gain to the 
 surplus of the bank of more than $ 14,000, and the effect upon the 
 discrepancy account was to bring it to 2,300 and odd dollars. 
 Very little has been found since that time, but it is considered a 
 matter of duty to report the amount every six months to the bank 
 department. It has often been suggested, Why not close this ac- 
 count into profit and loss? The answer is that an error might be 
 discovered the very next day, which would require its re-opening, 
 and that it is better to leave the account open forever if neces- 
 sary, or until the last cent of discrepancy of those fourteen years 
 has been discovered. This story of error has been related, because 
 history has so often repeated itself on this point. The writer has 
 Jbeen surprised to find how many large institutions have had almost 
 
THE SECRETARY. 195 
 
 the identical experience, and the old, old story of beginning busi- 
 ness with a small force, and with a system which was not expan- 
 sive, and which was soon outgrown. The Bowery Savings Bank, 
 which is the largest in America, perhaps in the world, only sub- 
 divided its work and took a new departure with a large discrep- 
 ancy within five years; and at this moment the Bleecker Street 
 Savings Bank is still operating, on its initial or fundamental bal- 
 ance, for' a new system ; a balance taken in the air, so to speak, 
 as a point of departure. A clerk in an old Savings bank in Salem, 
 Mass., was relating to the writer only a few weeks ago the history 
 of the bookkeeping of his bank, which was almost word for word 
 like the one given above, even to the disinterring of the old pass- 
 books from the cellar, with this further incident that in the Salem 
 case the pass-books were unclassified and lay in mouldy heaps. This 
 embellishment was lacking in the case cited above. 
 
196 PRACTICAL BANKING. 
 
 CHAPTER IX. 
 THE PRESIDENT. 
 
 In many Savings banks the duties which have been described as 
 shared between the treasurer and secretary, are divided between the 
 president and treasurer, or the president and secretary. The pre- 
 sident is usually not a salaried officer, and in that case his duties- 
 are practically confined to presiding at the monthly meetings. He 
 is rather president of the board of trustees than president of the 
 bank. In other institutions he receives a small salary, attends 
 daily, but not during the entire session, and has no routine duties, 
 but superintends and advises in all departments. He is required by 
 the by-laws to execute all deeds, releases, satisfactions, or other 
 documents in the nature of a conveyance of real estate, and to 
 countersign all checks. Although it may seem wasteful to employ 
 an officer of a corporation with no stated routine duties, yet where 
 the trust is large the writer thinks emphatically that this should be 
 the case that the duties of the highest officer should be entirely 
 discretionary with himself, and that he should possess such an inti- 
 mate and also such a broad knowledge of the business that he him- 
 self is the best judge of what department needs his personal atten- 
 tion, and that he himself ean be held responsible for everything. 
 
THE BOARD OF TRUSTEES. 197 
 
 CHAPTER X. 
 THE BOARD OP TRUSTEES. 
 
 This body is the ultimate governing power of the bank. It is 
 the final jurisdiction, from which there is no appeal within the 
 bank, and in fact there is no appeal whatever, for the only remedy 
 in case of wrong-doing is to punish the trustees personally, and to 
 remove them, which, however, would not act as a reversal of their 
 decisions. They are supreme, and responsible only to the people of 
 the State, through their representative, the Superintendent of the 
 Banking Department. The board of trustees consists of not less 
 than fifteen nor more than twenty members. Under the State law, 
 not less than thirteen is requisite. The board elects to fill its own 
 vacancies occurring by death, resignation, or neglect of duty for 
 ix months, and its actions in this respect cannot be questioned 
 if the record is clear. 
 
 Seven members of the board constitute a quorum, provided the 
 president, or one of the vice-presidents, be among the number. The 
 entire government of the affairs of the bank, from the most minute 
 \ detail up, is vested in the board of trustees. The powers, which 
 practically are exercised by the executive officers of the bank dur- 
 ing the intervals between the sessions of the board, are those dele- 
 gated to them by the board, as expressed in its by-laws. Some of 
 the duties cannot be delegated. A loan on mortgage can only be 
 made upon vote of the board, based upon the report of the com- 
 mittee. The rate of dividend can only be declared by the board at 
 its annual or semi-annual meeting, and this vote must be recorded 
 by ayes and noes. If a dividend exceeding the accumulated earn- 
 ings should be declared, it would stand as regards each individual 
 depositor, but the trustees voting for it would be personally liable 
 for the amount of the excess. The election of officers and commit- 
 tees is another duty which must be exercised by the board itself. 
 With these exceptions, the government of the bank is discretionary 
 as to means with the board of trustees, and they may delegate so 
 much of their powers as they desire. It becomes impracticable to 
 do otherwise as regards the routine business of the bank, and the 
 transactions in those investments which are of a less permanent 
 character than upon real estate security. Even the restriction as to 
 
198 PRACTICAL BANKING. 
 
 loans on mortgage is found a serious inconvenience, and is believed 
 to be systematically disregarded by many banks. Applications are 
 acted upon after examination by a committee, but without previous 
 submission to the board. The more important of the committees 
 usually established in a Savings bank are Finance Committee, the 
 Attending Committee, the Auditing Committee, and the Examining 
 Committee. 
 
 The Finance Committee is intermediate between the board of trus- 
 tees and the treasurer, and considers and acts upon the more import- 
 ant questions which arise in his department. 
 
 The Auditing Committee may be regarded as bearing a similar rela- 
 tion to the secretary. It is required by the by-laws to examine and 
 audit the vouchers for all payments. Also to count the cash on hand 
 at least once a month. The process of auditing the vouchers has been 
 described under the secretary's duties. It may be further said, that 
 in so far as the audit is intended as a check upon embezzlement, 
 it should comprise also the cash receipts as well as payments. It 
 should be ascertained whether the receipts have all been fully ac- 
 counted for. Like all other amateur committees of examination, the 
 proceedings of this committee are almost inevitably perfunctory. 
 They are very seldom thorough very seldom go to the bottom of 
 the figures which they are supposed to examine. Having ascertained 
 that a certain amount of payment is supported by the proper 
 vouchers, they very seldom even enquire whether this is the entire 
 amount of payment to be accounted for, which simple omission 
 completely destroys all utility of the examination. The officer whose 
 work they are supervising has only to withhold all questionable or 
 improper vouchers from their examination. Such committees seldom 
 take the time necessary for the proper performance of their duties, 
 and seldom possess the ability. They ought, in justice to them- 
 selves and to their trust, to employ skilled assistants to point out r 
 at least, the way in which to do their work more thoroughly. 
 
 The duty of the Examining Committee is to ascertain the precise 
 condition of the bank at the close of the semi-annual period. An idea 
 of the manner of performance of their duties may be gathered from 
 the description of the schedules furnished them by the secretary 
 as a basis of their examination. One of their number makes up 
 from the figures thus ascertained a report to the board, analyzing 
 the history, results, and prospects of the institution. This commit- 
 tee is also required by law to endorse upon the official report 
 made to the Bank Department their affidavit as to its correctness, 
 so far as the report proper or balance sheet goes. 
 
 The Attending Committee. In the infancy of Savings banks, when 
 they were looked upon as charitable institutions, the members of the 
 board of trustees attended in rotation at the bank ; but what they did 
 beyond lending a general air of elderly benevolence has never been 
 
THE BOARD OF TRUSTEES. 199 
 
 ascertained. Where this custom is kept up, they almost invariably sign 
 their names in a large book, and this is probably the most important 
 of their functions. Such attendance inevitably degenerates into a 
 farce. In this institution it has been abandoned. All members of 
 the board of trustees are welcome at all times, and even if they 
 were not welcome, it would be their duty to visit the bank, and 
 keep themselves informed. This many of them do, and the more 
 irregular this attendance is in point of time, probably the better 
 it is. 
 
200 PRACTICAL BANKING. 
 
 CHAPTER XI. 
 THE ATTORNEY. 
 
 The peculiarity of Anglo-Saxon law with regard to its arbitrary 
 distinctions between real and personal property is well illustrated 
 by the fact that a Savings bank can safely effect investments of 
 millions in securities and valuables with only a layman's knowl- 
 edge, while it is impracticable or inadvisable to stir in the most 
 unimportant transaction which regards real estate, without a lawyer 
 at one's elbow. Yet the property in the latter case is more readily 
 identified than any other in the world. It is impossible to coun- 
 terfeit it ; it is the most visible, most tangible, most impossible to 
 secrete, and most exposed to the public eye of all property. Noth- 
 ing but the barbarous state of our laws, borrowed from a form of 
 government whose policy it is, of set purpose, to prevent transfers 
 and diffusion of titles in land, has caused this. 
 
 The attorney of a Savings bank is not usually a salaried officer. The 
 greater part of his services consists in the examination of titles to real 
 estate, upon which it is proposed to loan on bond and mortgage. 
 The law prescribes that the charges for such services shall be paid 
 by the borrower. It would in many cases be to the interest of the 
 bank to pay them voluntarily, in order to secure a desirable in- 
 vestment or a greater rate of interest, but the law, as construed 
 by most Savings banks, prevents this. 
 
 When an application for loan on bond and mortgage has been 
 accepted by the board of trustees, the fact of this acceptance is 
 endorsed upon it by the secretary and the paper forwarded to the 
 attorney. The proposed borrower is notified to wait upon the at- 
 torney with the papers which he may have in support of his title. 
 The amount charged by the attorney for his services in making 
 the examination are on a scale fixed by the customs of the pro- 
 fession, but subject to varying through negotiation. Frequently the 
 borrower, especially of late years, goes to the attorney and says, 
 " 1 will take this money of your institution provided you do not 
 charge me more than such a sum." Generally the disbursements, 
 that is, amounts paid to public officials for searches, constitute one 
 portion of the charge, and the fee of the attorney for the labor 
 and responsibility of certificate form another portion, and this latter 
 
THE ATTORNEY. 2OI 
 
 is a fixed or sliding percentage upon the amount of loan. In 
 many cases the labor is very slight, as there may be an abstract 
 giving the chain of title to a very recent date, which has only to 
 be copied. Still there is a responsibility on the part of the attor- 
 ney for its correctness, and theoretically, at least, he is supposed 
 to be liable for damages in case he has not properly performed 
 his duty. The writer knows of one case in which the attorney as- 
 sumed the burden of a defect in a case where he was really care- 
 ful, but where a second person, of the same name as the owner, 
 had personated him. It is proper, in the letter of instructions which 
 accompanies the check sent to the attorney to complete the loan 
 not to direct him to pay to a certain person, but to pay to the 
 owner of such property. 
 
 From the amount of this check the attorney deducts the ex- 
 penses and charges, and pays over the net proceeds to the bor- 
 rower, taking his receipt, of course, for the full amount, and giving 
 him a receipt for fees. The borrower's receipt is endorsed, as 
 already stated, on the back of the application. When a mortgage 
 is satisfied or assigned, the necessary papers for that purpose are 
 drawn up by the attorney, and he is responsible for their correct- 
 ness, the officer signing whatever he advises. A payment on ac- 
 count, not being a matter of record, is effected without the assist- 
 ance of the attorney. 
 
 In case of foreclosure, the matter is placed entirely in the 
 hands of the attorney up to the time of the sale. When it 
 comes to the amount to be paid, this is a business matter which 
 is decided by the officers of 'the bank. If bid in, it is the 
 duty of the attorney to see that the title is perfected in the 
 bank, and the judgment is regularly entered for the deficiency, 
 if any, a transcript of which judgment should be delivered to the 
 bank. It is also his duty, if advisable, to institute supplementary 
 proceedings in order to execute this judgment. If a purchaser be 
 found for the property held by the bank, it is the duty of the 
 attorney to draw up a contract of sale, which generally stipulates 
 that the final delivery of the deed shall be at his office, and here, 
 again, he is responsible for the correctness of the paper. 
 
 Very few cases occur in which the bank requires the aid of counsel 
 in regard to its money or deposits. Advice is sometimes requisite as to 
 the construction of the statute law, and there is sometimes litigation 
 arising from adverse claimants to moneys deposited, or from alleged 
 errors on the part of the bank. A certain by-law which has been 
 adopted by most of the Savings banks, and which has in the main 
 been sustained as reasonable by our Court of Appeals, has been a 
 fruitful source of litigation. This by-law is usually to the following 
 effect that the bank will endeavor to prevent fraud, but any pay- 
 ment made to a person producing the proper pass-book shall be 
 
202 PRACTICAL BANKING. 
 
 valid. Sometimes the expression is "will use their best endeavors," 
 and this has been construed to require a much higher degree of 
 care than demanded by the other phraseology. What constitutes a 
 proper amount of diligence on the part of the bank is the turning 
 point of many cases, and the question of fact is usually submitted 
 to a jury, who, in the vast majority of cases, find against the cor- 
 poration. In the cases of trust accounts, of associate accounts, of 
 insolvent depositors, and depositors deceased or supposed to have 
 deceased, there are frequently adverse claims, and the bank is usually 
 secured by having the amount nominally paid into court to abide the 
 result of the action between the other parties ; but if paid over to 
 one of the claimants, there is danger of litigation and possibility of 
 loss. This has been the case even where money was paid over 01. 
 genuine letters of administration granted upon the effects of a per 
 son believed to be dead, but who inopportunely appeared and hat 
 to be paid a second time. 
 
STATE SUPERVISION. 203 
 
 CHAPTER XII. 
 STATE SUPERVISION AND REPORTS. 
 
 In many, but not all of the States, officers are appointed for the 
 purpose of supervising and regulating Savings and other banks and 
 their affairs. In New York State* no Savings bank can be organ- 
 ized hereafter without the assent of the Superintendent of the Bank- 
 ing Department, and there seems to be no appeal from his decision. 
 During the existence of the Savings bank it is subject to his in- 
 spection by means of examinations and reports, as follows: 
 
 A semi-annual report, as already described under the duties of 
 the secretary. 
 
 A special report on any subject and at any time required by him. 
 
 An examination by himself or by deputies once in two years. 
 
 A special examination whenever, in his judgment, it shall be 
 necessary. 
 
 The expenses of special examinations are borne by the corpora- 
 tion examined. Those of the regular examinations and other ex- 
 penses of the department are borne by the corporations in propor- 
 tion to their size, and, finally, the remedies in the hands of the 
 Superintendent in case of improper action are, first, the publicity 
 effected through his report to the Legislature, and, second, his 
 power to make complaint through the Attorney-General in case of 
 violation of law, or improper exercise of corporate powers ; and the 
 remedies which may be applied by the court upon this proceeding 
 are : Removal of the board of trustees or any of their number ; 
 appointment of receiver and dissolution of the corporation, or the 
 consolidating of the institution with a similar one which may be 
 willing to accept the transfer. . . . The Superintendent has re- 
 cently been given supervision over the receivers of failed Savings 
 banks, who are now required to report to him, and he has been 
 made the custodian of any unclaimed balances which the receiver 
 may have on hand in -favor of depositors at the termination of his 
 receivership. Thus, during the existence of a Savings bank the 
 
 * All institutions of the kind within the State are made subject to its control, and a 
 penalty is imposed for any person receiving or offering to receive Savings deposits in 
 any town where there is an organized Savings bank. 
 
204 PRACTICAL BANKING. 
 
 Superintendent has no positive governing power over its acts, but 
 is the head of a bureau of information. He himself has no power 
 to remove trustees, or to annul any of their acts, but the moral 
 power given by his authority for compelling information is probably 
 beneficial. 
 
 The problem of State supervision is a very difficult one. A 
 supervising department like the one under consideration usually be- 
 comes, after a time, a mere bookkeeping department, and if the 
 reports of the several institutions check off correctly on his sum- 
 maries, as found by the clerks in his department, the Superintend- 
 ent goes no further, but devotes his time to the more congenial 
 and dignified pursuits of practical politics. This is without any evil 
 consequences in peaceful times, when there is no financial embar- 
 rassment, and everything goes swimmingly, but usually the same 
 let-alone policy is continued from the force of inertia, into a pe- 
 riod when the times begin to grow shaky, and generally the 
 superintendent awakes to find that his rose-colored reports, for 
 some time past, have been delusive. Then there will be a reac- 
 tion from King Log to King Stork, and the state of the most 
 prudently managed institutions will be looked upon with suspicion, 
 and very likely some unnecessary wrecks will be the consequence. 
 This was the case in the period of financial reaction, which fol- 
 lowed our Civil War and reconstruction period, and presumably its 
 history will repeat itself. 
 
 There is one very important lack in the system of reports as 
 now carried on. There is nothing corresponding to a profit and 
 loss account. There is nothing to show, analytically, whether the 
 dividend which has been paid to depositors has been earned during 
 the period covered, or whether it is subtracted from the previous 
 reserve ; whether it is strictly from the income, or whether inci- 
 dental gains have been relied upon to help it out. Such an ac- 
 count should be required from every Savings institution, and should 
 be most carefully scrutinized. In doing so there is a very import- 
 ant element which may readily prove deceptive. It is the question 
 of premiums on stock investments. Let us suppose that the nor- 
 mal rate of interest on money is about four per cent., and that it 
 does not vary much from that figure on fair security, and let us 
 suppose that a municipality has issued its bonds, bearing ten per 
 Cftnt. interest, and payable in twenty years. Let us again suppose 
 that another municipality has issued its bonds, bearing five per 
 cent, interest, and payable in ten years, that another one has issued 
 three-per-cent. bonds, payable in fifteen years. We are assuming 
 that the security in all these cases is as good as anything human 
 can be. In case of the ten-per-cent. bond running twenty years, it 
 is evident that there is an extra interest of about six per cent., 
 which is to be collected every year above the market rate. There- 
 
STATE SUPERVISION. 2O$ 
 
 fore, the longer this thing continues the more valuable is the bond, 
 and we shall indisputably find that it bears a proportionate pre- 
 mium. The value is not expressed by the par $ TOO. It is the 
 present worth of $100 due twenty years from now -j- the present 
 worth of $10 due one year from now, + the present worth of $10 
 due two years, 4- the same at three years, -f etc., and in order to 
 be perfectly accurate these present worths must be computed at 
 compound interest, and this computation must be semi-annual or 
 annual, according to the terms of the bond. The five-per-cent. 
 bond would not be worth so much, both because there is a smaller 
 excess of interest over the market rate, and because this excess con- 
 tinues to run for a shorter time. The three-per-cent. bond would 
 be worth still less. In this case there is a deficiency of interest 
 which the buyer should be compensated for now, and the longer 
 it has to run at three per cent, the worse off is the purchaser; 
 therefore, this bond would be worth less than par. Now, it has 
 been claimed that the true measure of the surplus of a Savings 
 bank, as far as its stock investments are concerned, is the nominal 
 or par value of those investments. That is to say, a bank having 
 seven-per-cent. bonds to a certain amount is no better off than 
 one having ^^-per-cent. bonds. A bank whose seven-per-cent. 
 bonds mature next year is no stronger than one where the seven 
 per-cent bonds have twenty-five years to run. 
 
 The advocates of this theory consider that they are acting on the 
 safe side. They consider the premium as a loss, once for all ; there- 
 fore, at a period of buying, they would cut down the dividend to 
 depositors, perhaps to nothing, simply because the institution has 
 been making favorable investments. On the other hand, in subse- 
 quent after years, they would treat the entire revenue from these 
 bonds as all profit, and thus the depositors at this time would re- 
 ceive more than would be, on the other theory, the fair earnings of 
 their money. 
 
 Another plan is to hold the stocks at the amount they cost. By 
 this means the loss, instead of being thrown upon the year in 
 which they were purchased, is thrown into the year during which 
 they are sold or redeemed, and this is a still more dangerous way 
 of looking at it. In the former plan the stocks, if worth above 
 par, as they usually are, are steadily undervalued, while in this 
 method they are overvalued, in all probability, during most of the 
 time they are held. In one case there is a fallacious calculation of 
 current earnings ; in the other case, there is a fallacious estimate of 
 surplus in reserve. The true principle would seem to be that each 
 year or half year an equitable portion of the amount paid for pre- 
 miums, or conversely, of the amount received for discount, should 
 be wiped out, so that the differences between par and market value 
 would steadily and gradually disappear as the bond approached its 
 
206 PRACTICAL BANKING. 
 
 maturity. Thus, the ten-per-cent. bond of which we spoke would 
 be considered as earning, each year, the rate to which its cost price 
 would be equivalent when averaged over the term say four and 
 a-half per cent. The remaining five and a-half per cent, should not 
 be considered as earnings, but as an offset to the depreciation of 
 bond, or a refunding to us of extra premium, which we paid for an 
 abnormally high rate of interest, and while this is true in theory 
 it can be empirically tested by the state of the market. It will be 
 found that, making allowance for the shifting productiveness of 
 money and some other disturbing element, such as public confi- 
 dence, that the market price of a security will settle in about this 
 manner : That each year there will be a depreciation, amounting 
 approximately to the difference between the current rate of interest 
 on that kind of securities and the revenue actually produced. We 
 would therefore enunciate this formula for ascertaining the true 
 earnings from stock investments. From the, cash income (#) re- 
 ceived subtract such part () of the premium, as will progressively 
 consume the entire premium at the date of maturity. The differ- 
 ence is the current earnings (V). 
 
 Again, take the difference between the market value (d} at the 
 beginning of the period, and the market value (e) at the close of 
 the period. The difference between d and e is the gross deprecia- 
 tion (/), or the gross appreciation ( /). 
 
 Combining b, taken negatively, with /, or /, we have the inci- 
 dental or speculative loss or gain (p, or /). 
 
 P=+f-b. 
 -p^-f-b. 
 
 Thus there will be four cases. 
 
 First. A gross depreciation equal to the amount of premium 
 written off. Here there is no loss nor gain. 
 
 Second. A depreciation greater than the amount of premium 
 written off. Here there is an incidental loss to be taken from the 
 surplus. 
 
 Third. A gross depreciation less than the amount of premium 
 written off. In this case there is an incidental gain or a real ap- 
 preciation. 
 
 Fourth. An appreciation which, together with the premium writ- 
 ten off, is always an incidental gain. 
 
 Our examination of the functions of a Savings bank brings us to 
 the conclusion that it is simply a money making corporation an 
 association of small capitalists who combine for the purpose of hav- 
 ing their small investments possess an earning power by aggrega- 
 tion. The officers and employees of the Savings bank are merely 
 
CONCLUSION. 207 
 
 their agents in this. The entire resources of the bank, whether 
 credited to deposits or to surplus, are the absolute property of de- 
 positors as an association. The trustees are a body whose constitu- 
 tion is somewhat anomalous, being the unpaid custodians of money 
 not their own, but whose duties are assumed as a public burden 
 and as a distinction. This latter peculiarity, the constitution of a 
 board of trustees, which is independent of the real proprietors of 
 the concern, seems to me the only point which gives a Savings 
 bank, as now organized, a right to be called a benevolent institu- 
 tion. It is benevolent for the trustees to give their time and ser- 
 vices without compensation in the management of the money of 
 others. It is not benevolence, however, to invest a man's money 
 and pay him over the proceeds. Although in practice, this plan 
 of organization has worked better than the one where there is a 
 body of stockholders whose capital is substituted for a surplus as 
 guaranteed to depositors, yet it is by no means proved that the 
 advantage would not be on the side of the latter form, which 
 eliminates all pretence of benevolence, and makes the Savings 
 bank what we believe it to be, a pure matter of business. Of the 
 three forms of associated saving, viz., the mutual, which we have 
 described at length, the stock, or business-like form, which we have 
 just touched upon, and the governmental, which, of late years, is 
 becoming the subject of experiment, time alone can decide which 
 will survive as the fittest. 
 
208 PRACTICAL BANKING, 
 
 CHAPTER XIII. 
 HOW nTFESTMENTS SHOULD BE MADE. 
 
 We shall close this part of our work by giving some rules re- 
 lating to Savings banks' investments. The Legislatures of the sev- 
 eral States have adopted regulations on this subject, thus lightening 
 the responsibility of Savings bank directors. These regulations are 
 the outcome of a conservative spirit, and should be observed. 
 Nevertheless, a wide latitude exists, which cannot be completely 
 traversed by Legislative regulation. To a very important degree the 
 directors must exercise their own wisdom in making investments. 
 The following remarks on this subject were made by Mr. Washing- 
 ton B. Williams at the annual meeting of the American Bankers' As- 
 sociation in 1882. They are worthy the attentive study of those 
 who are entrusted with the duty of investing the funds of these 
 institutions. 
 
 Safety is the first consideration, and profit is secondary. Again, 
 Savings banks are not confined to investments which are readily 
 convertible. Here, also, safety comes first; convertibility is of minor 
 importance. 
 
 Mortgages on real estate, being less readily convertible than some 
 other securities, bear higher interest. At the same time, no prop- 
 erty is more stable in value, and none less likely to depreciate, 
 than real estate. Neither the recent general depression from former 
 inflated values, nor any special instances of loss, affect the truth of 
 this general proposition. 
 
 Mortgages on real estate, accordingly, have always been a favor- 
 ite kind of investment for Savings banks. They have other advan- 
 tages, in not being readily subject to theft or misappropriation ; and 
 the laws of the several States, as well as the general rules by 
 which courts govern and control trustees, declare this mode of in- 
 vestment to be the most desirable. 
 
 Taxes are high in this country, are thrown heavily on real es- 
 tate, and are generally paramount to mortgages. To secure prompt 
 payment of interest and taxes, the property mortgaged ought gen- 
 erally to be improved and productive of rent. 
 
 The Savings bank law of New York allows the investment of not 
 over 60 per cent, of the deposits in such mortgages. That of New 
 
HOW INVESTMENTS SHOULD BE MADE. 209 
 
 Jersey allows 70 per cent., and these serve to indicate the general 
 rule. 
 
 By examining the reports as to the Savings banks of the several 
 States it will, however, be found that the Savings banks of New 
 England invest not over 35 per cent, of their trust funds in mort- 
 gages, and those of New York City a less proportion. 
 
 The best conducted Savings bank in Jersey City, N. J., which has 
 passed safely all the depressions and panics of thirty years, has 
 generally maintained, and still maintains, its mortgage investments 
 at over 65 per cent., of a deposit line of over $ 5,000,000. 
 
 These different usages, though they doubtless result from more 
 than one cause, yet point with sufficient clearness to this important 
 rule: Taxation should be so adjusted as in no wise to deter 
 Savings banks from freely investing on mortgages on real estate. 
 It is a most unwise policy as to the interests of the industrial 
 classes to drive Savings banks out of this mode of investment. It 
 is the mode which is at once solid in basis, understood by and ac- 
 ceptable to the depositors, and beneficial to them and the commu- 
 nity where the savings arise, by re-distributing the savings in the 
 form of loans. Such investments ought not to be taxed, even if it 
 should become necessary to accord a special preference in this re- 
 spect to Savings banks. These institutions represent the industry 
 and frugality of the masses, and every effort should be made to put 
 them on the soundest footing. In my belief, nothing can so surely 
 do this, and so certainly retain confidence, as to encourage, facilitate 
 and require the investment of the savings deposits in mortgages 
 properly secured on the farms, the shops, and the homes of the 
 people. If these are not real values, what are? How can mere 
 promises to pay by the same people, either individually or collect- 
 ively, be any better? 
 
 It is, then, to be regarded as a prime duty of legislators to so 
 regulate taxation as to encourage, not deter, investments by Sav- 
 ings banks in loans on real estate. 
 
 A trustee should take no risks that can be avoided. If he acts 
 on this rule, he is discharging his full duty. If he violates it, 
 although from good motives, if he allows his confidence in his own 
 skill in choosing among the many ordinary investments in the 
 market to lead him to transcend it, he would be restrained by 
 injunction by any court having jurisdiction of trusts, even if the 
 particular investment were a successful one. High rates of interest 
 are quite a secondary matter. 
 
 In order to avoid, then, as far as possible, all temptation to do 
 more than one's duty, as trustee, or to manifest special financial 
 skill, or to make the earning of interest paramount to absolute 
 safety, we would adopt certain rules. 
 
 Large deposits, which do not come from savings, but which are 
 
210 PRACTICAL BANKING. 
 
 the capital of persons who have acquired wealth, should be rejected. 
 They can invest their own funds, and they are likely to withdraw 
 their deposits suddenly and in large sums. 
 
 Bonuses and discounts on buying securities should not be sought 
 or allowed. They tend to drive .away the best-secured loans, and 
 to introduce a speculative habit of looking at the immediate appar- 
 ent gain rather than the ultimate security. 
 
 Good mortgages on improved real estate, to about half its value, 
 should be encouraged and granted up to the highest legal limit, 
 without fear. If necessary, the rate of interest on these should be 
 reduced, so as to secure the very best of that class of investments. 
 
 Would this be safe in case of a run on the bank? 
 
 It would for several reasons : 
 
 First. The remaining 35 per cent, and upwards of convertible se- 
 curities would be available. 
 
 Second. Such mortgages, though not promptly available at par, are 
 always excellent securities to borrow on temporarily to meet such 
 emergencies. 
 
 Third. The mortgage-investments being to a large extent loans 
 among the same community which affords the depositors, there is a 
 powerful influence at work to sustain confidence in the assets of 
 the bank. 
 
 But, as a further means of safety to all, the bank should never 
 hesitate, in case of panic, to enforce its thirty, sixty or ninety day 
 rule, as the case may be, or to close its doors. It is nothing but 
 the common agent or trustee of the depositors, who, as above 
 shown, have a common interest in its funds and investments. It 
 has no financial reputation to keep up as a source of profit to 
 itself or to attract deposits. Its whole duty is summed up in the 
 one word "safety." 
 
 A trustee has neither moral nor legal right to sacrifice a part of 
 the common assets in order to give an advantage to those of the 
 common proprietors who first run to his door. A court having 
 jurisdiction of trusts would restrain him by injunction from thus 
 violating his prime duty of taking care of the common property 
 for the common benefit. Some special charters of Savings banks 
 expressly provide for such action. I think the power and duty of 
 the courts plainly arises out of the nature of the trust. But to 
 avoid all question it should be provided for by proper legislation 
 wherever this ordinary class of Savings banks exists. 
 
 The salutary effect of such judicial action is at once apparent. 
 The bank stands in this emergency like any other trustee who seeks 
 the direction and protection of the courts. 
 
 They will stop any ill-advised suits, hold back every hostile hand, 
 and open the doors again and direct payment by installments if 
 prudence so indicates. This is the best and safest way for real 
 
HOW INVESTMENTS SHOULD BE MADE. 211 
 
 savings depositors, and meets all their actual needs in the supposed 
 case of a panic. In the meantime, the assets are producing their 
 regular income, there are no sacrifices of securities, the ignorant and 
 alarmed depositors are protected against loss, and none gets an ad- 
 vantage over the other, and the bank finally resumes without 
 injury. 
 
 Too much unwillingness to adopt this safe and just course, if it 
 becomes necessary, would savor of a desire to do more than the 
 duty of a trustee ; a course neither incumbent, nor, indeed, justifiable. 
 
 As a corollary to this view, would come the rule of giving all 
 due publicity to the affairs and investments of the bank, at least 
 as to its class and kind of investments and their amounts. Inquiry 
 was recently made of a Savings bank in the City of New York 
 for a statement of this character, such as is made public in many 
 banks, and is required by law once or twice a year in some States. 
 The answer given was, that that bank made no such statements, 
 and that the names of its trustees were sufficient guarantees to the 
 public of its soundness and good management. I need not say 
 that such views are contrary to the true position and office of a 
 Savings Bank. 
 
 Investments in expensive buildings should be avoided. In many 
 cases, the whole apparent surplus will be found to be absorbed in 
 an unproductive banking-house. 
 
 Government bonds are the safest of convertible investments, and 
 so are generally the bonds of the State in which the bank is situ- 
 ated. They may be 'guarded against the ordinary chances of fire 
 and theft by well known precautions, such as registry, stamping, &c., 
 but the low rate of interest which they must henceforth produce 
 renders it very desirable to see if the field can be extended with- 
 out losing sight of our cardinal rules. 
 
 It must be conceded that personal security of two or more names 
 is not admissible, notwithstanding the custom of many New Eng- 
 land Savings banks to accept such security. Not only is this usage 
 entirely opposed to the general law of trusts as established by the 
 experience of two centuries, but it leads to complications and temp- 
 tations outside of the line of duty which directors of a Savings 
 bank ought to confine themselves to. 
 
 Stocks of railway and manufacturing corporations must also be 
 excluded. In fact, railway management, as to treatment of stock- 
 holders and value of stock, is now almost synonymous with decep- 
 tion and fraud. If there are exceptions, they serve to establish the 
 general rule. 
 
 As to other corporations, the value of their stock depends so 
 much on the changing market, on the course of mechanical inven- 
 tion, on the individual qualities of the managers, that it is too un- 
 stable for our present purpose. 
 
212 PRACTICAL BANKING. 
 
 Railway bonds, secured by first mortgage on the entire road,- 
 would seem a safe class of investment with the exercise of ordi- 
 nary prudence, and at one time were largely taken by some Savings 
 banks. So vast and so constantly increasing are these great internal 
 improvements, so enormous the flow and reflow of business over 
 them, so immense the probable development of that business in the 
 future, that such mortgages, if they could be had at a proper rate 
 per mile, would be among the safest of investments, assuming rea- 
 sonable care in selecting those of apparently permanent value. 
 There is difficulty in ascertaining the history, legal position and 
 amount of such mortgages, but not so great as to be insurmount- 
 able. The great objection is to the extravagant amount per mile of 
 the bonds issued in many cases, compelling after a while the bond- 
 holders to take the road It is always an undesirable thing for a 
 trustee to be compelled to enter into a current business with the 
 trust funds. 
 
 Municipal indebtedness has attained large proportions in this 
 country, and has long furnished a field for private and corporate 
 investment. Experience has fully shown that we must strike out 
 from the list of Savings bank investments all municipal bonds is- 
 sued in aid of any railway undertaking. The Legislatures of several 
 States have recognized this, and after once allowing such invest- 
 ments by Savings banks have very judiciously forbidden them. 
 
 Subject to this exception, the public debt of local municipalities 
 within the State where the Savings bank is located, is a sound 
 class of investment, assuming, of course, the exercise of due care 
 in the investigation of the origin and aggregate amount of such 
 debt. You have the savings of many voters in your care. If in- 
 vested in apparently sound municipal obligations, there is, besides 
 legal remedies, a great force of public opinion to sustain your claim, 
 and to bring about proper provision for payment of interest 
 and principal. Experience shows that such debts, when not dispro- 
 portionately large, or the result of some arbitrary and unpopular 
 scheme, have been among the safest investments we have had. 
 
 It is evident that we must look elsewhere than to Government 
 bonds alone for interest paying securities. The directions to look 
 in are (i) mortgages on productive real estate to a high percentage 
 of the total investments ; (2) well selected municipal obligations ; 
 (3) selected railway first mortgages. 
 
 Those to avoid are (i) real estate of merely speculative value, 
 and unimproved ; (2) capital stock of railways or manufacturing cor- 
 porations ; (3) personal security ; (4) railway aid bonds, and muni- 
 cipal bonds where the debt is large in proportion to the resources, 
 or is the result of too sanguine speculation on the future. 
 
 Call-loans on deposit of collaterals form a large part of the 
 business of some city Savings banks. No doubt, in a large com- 
 
HOW INVESTMENTS SHOULD BE MADE. 2IJ 
 
 mercial center, these may be safely and quickly made. The objec- 
 tion to them is that they tend to throw the whole management 
 and selection of investments into the hands of some one person. 
 However efficient such management may be for a time, we know 
 that most great disasters have also arisen from this. Other invest- 
 ments, such as mortgage loans, or the purchase of securities, are 
 usually, in well-managed banks, passed upon by a board or com- 
 mittee. This old-fogy method is the safest, and so far as practica- 
 ble should be followed by institutions whose paramount object is 
 safety.* 
 
 Some New England and other Savings banks have loaned funds 
 on mortgage on lands in other States. There is no reason why 
 such loans on suitable and proper security should not be as good 
 and safe in Massachusetts as in New York ; but there is a great 
 difficulty in being assured that you are getting proper security. At 
 home your own board or your own investment committee can 
 judge, depositors are more or less familiar with your securities, the 
 risk of acting on other men's judgment, removed from your own 
 responsibility, is avoided, your risk is less, your certainty of protec- 
 tion by the courts is greater. Prudence dictates that even in these 
 days of easy locomotion and of assimilating business and values, 
 you should not extend your reach too far and get beyond the 
 range of your own vision and your own capacity to judge and act. 
 It may be the office of a good judge to enlarge his jurisdiction, but 
 it is not the duty of a prudent trustee. 
 
 The same reasons will apply to distant municipal and railway se- 
 curities. And caution should be exercised in going beyond your 
 own State as to any debt of local municipalities. My own view is 
 that this should be prohibited, except, perhaps, in certain cases, 
 such as well-known large cities whose affairs are conducted on a 
 sound basis, and with the advantage of the best business talent. 
 This is true of Boston, New York, Philadelphia and others, and is 
 not affected by the fact that they have also been now and then 
 attacked by municipal thieves. 
 
 * A startling instance of the danger of this call-loan method has recently occurred in the 
 Newark Savings Institution now insolvent. 
 
PART III. 
 CLEARING- HOUSES 
 
THE CLEARING-HOUSE. 217 
 
 CHAPTER I. 
 ORIGIN AND UTILITY OP THE CLEARING-HOUSE. 
 
 Closely connected with the general subject of banking is that of 
 the Clearing-house. This is a comparatively modern institution, the "' 
 Edinburgh bankers claiming the credit of establishing the first one. 
 The earliest of whose transactions we have any record, however, 
 is that of London, founded in 1775, or earlier, and of this little 
 was known to the public until it began to publish regular state- 
 ments of its transactions, May ist, 1867. The literature on the sub- 
 ject is almost wholly the creation of the last thirty years. Works 
 on banking and political economy, of an earlier date than this, 
 rarely, if ever, notice the subject at all. For more than three 
 quarters of a century after its establishment the London Clearing- 
 house and that of Edinburgh remained the only organizations of 
 the kind known to exist. The monetary systems of most European 
 States, centering around a single great bank, located at the capital 
 of each, found in this a means of effecting mercantile settlements. 
 Furthermore, the use of bank checks in making payments, which 
 chiefly creates the need of the bankers' Clearing-house, has in re- 
 cent years attained a development previously unknown. The growth | 
 of American banking, decentralized and distributed among many 
 banks, and the increasing use of bank checks as a means of pay- 
 ment, gave birth to the next Clearing-house in the order of time 
 after that of London. The New York Clearing-house was estab- 
 lished in 1853, from which date the growth of the Clearing-house 
 system in the United States has been stupendous. Boston followed 
 in 1856; Philadelphia, Baltimore and Cleveland in 1858; Worcester 
 in 1 86 1 ; Chicago in 1865, all the others are of later date. At pres- 
 ent there are thirty-one Clearing-houses known to exist in this 
 country. Each of our prominent commercial cities has one. The 
 United Kingdom has six, Australia one, and they are found in 
 France, Germany, Switzerland and Italy, though checks are so little 
 used on the Continent of Europe that the Clearing-houses of the ( 
 last four countries have comparatively small transactions. The ex- 
 changes of American Clearing-houses were $51,827,000,000, in 1883, 
 and in 1881 reached a maximum of $63,414,000,000, adjusted by the 
 payment of balances not exceeding six per cent, of the amount 
 
2l8 PRACTICAL BANKING. 
 
 cleared, the actual cash handled being estimated at about two per 
 cent, of the clearings. From the inauguration of the Clearing-house 
 system in 1853 to December 31, 1883, it had effected settlements 
 amounting to about $880,000,000,000, by paying balances of about 
 $57,000,000, or 6^ per cent, of the clearings. The amount of actual 
 cash handled was very much less than this, as balances are to a great 
 extent paid by means of checks or certificates issued from some 
 common depository, without handling actual cash. The Clearing- 
 house is, therefore, one of the most useful agencies called into be- 
 ing by the wants of modern commerce. It is among the most 
 interesting features of our financial mechanism and well worthy of 
 careful study. Susceptible of almost indefinite expansion, the clear- 
 ing system in its various forms holds in possibility the solution 
 of problems which have long engaged the attention of thinkers. 
 
 A glance at some of the more common banking operations will 
 suffice to show the need of a Clearing-house wherever any con- 
 siderable number of banks are located in the same vicinity. Mer- 
 cantile establishments are constantly receiving in the course of 
 business not only specie, but usually, to a much larger extent, 
 bank notes, checks, drafts, or other mercantile paper. To present 
 this paper at the counters of the various banks at which it is 
 payable would take a great deal of time. The dealer, therefore, 
 deposits it in the bank with which he keeps his account, where, 
 either at once, or at latest when collected, the amount is placed 
 to his credit and goes to swell his balance. This is the usual way 
 in which a bank receives the paper payable at other banks. It 
 may also be taken in payment of notes payable at the bank re- 
 ceiving it. Although bank notes, as well as the various kinds of 
 mercantile paper, are so received, yet the great bulk of all such 
 receipts, especially in the large cities, consists of checks. When 
 the paper in question is payable at the bank receiving it, the trans- 
 action is closed by the simple delivery in the case of bank notes, 
 and in the case of checks by charging them to the drawer, the 
 result being, in the latter case, a simple transfer on the books of 
 the bank from the account of the drawer to that of the drawee. 
 Where most of the transactions of a community center in a single 
 institution, as formerly in the case of the Bank of England, and at 
 present in the case of the Bank of France, the larger part of the 
 check transactions may be settled in this way. Thus at Paris 
 where the Bank of France performs the functions of a great Clear- 
 ing-house, its clearings or transfers reached $6,008,243,900 in 1883, 
 as compared with $813,238,000 at the Paris Clearing-house. In 
 1881, the clearings of the Bank of France reached $8,772,000,000, 
 while those of the Paris Clearing-house were only $908,600,000, the 
 former being nine and three-fourths times the latter. To make 
 provision for this class of business, the Bank of France furnishes 
 
THE CLEARING-HOUSE. 219 
 
 special books of red colored checks so-called, " bons de virement 
 rouge" the object of which is to enable payments to be made 
 by their means to other persons also having an account at the 
 bank without its being possible for any one unlawfully to obtain 
 value for them, since they only operate as orders to the bank to 
 transfer such an amount from the drawer's account to some other 
 account on the books of the bank, and never as vouchers for the 
 withdrawal of funds from the establishment. The Bank of Eng- 
 land furnishes no account of its clearing transactions, but they 
 must be a much smaller proportion of the total than those of 
 the Bank of France, banking being less centralized in London 
 than in Paris. 
 
 In this country no one bank concentrates in itself the larger por- 
 tion of the business. Free banking and competition keep the 
 banks more nearly on an equality. The larger part of the checks 
 received by any bank, in the course of business, are likely to be 
 drawn on some other bank, of which they must be collected by 
 the receiving bank. As business increases in any locality, each bank 
 is likely to have a larger number and amount of demands upon, 
 most of the other banks in the place, and they eventually become 
 too large and numerous to be conveniently settled between the in- 
 dividual banks. Before the establishment of a Clearing-house in 
 this country this method was pursued in New York long after the 
 inconvenience became so great that it would now be considered 
 quite intolerable. Mr. J. S. Gibbons, in his very interesting and in- 
 structive book, The Banks of New York and the Panic of 1857, 
 gives the following graphic description of the difficulties attending 
 this mode of settlement : 
 
 "During the few years following 1849 the number of banks in 
 New York was increased from twenty-four to sixty. To make the 
 daily exchange, one half of them must necessarily send to the other 
 half. But this plain division of the service was not convenient or 
 economical. It was found better for all of them to do a part of 
 the distribution, and thus the whole sixty porters were in motion at 
 the same time. Each carried a book of entry, and the money for 
 every bank on which he called. The paying teller of the receiving 
 bank took the exchange and entered it on the credit side of the 
 book ; then he entered on the debit side the return exchange and 
 gave it with the book to the porter, who hastened to the next 
 bank in his circuit. The porters crossed and recrossed each other's 
 footsteps constantly; they often met in companies of five or six at 
 the same counter, and retarded each other, and they were fortunate 
 to reach their respective banks at the end of one or two hours. 
 This threw the counting of the exchanges into the middle and 
 after part of the day, when the other business of the bank was be- 
 coming urgent. 
 
220 PRACTICAL BANKING. 
 
 " Instead of attempting a daily adjustment of accounts, which 
 would have consumed several hours and caused much annoyance, 
 it became a tacit agreement that a weekly settlement of balances 
 should be made after the exchange of Friday morning, and that 
 intermediate draft drawing should be suspended. The weaker and 
 more speculative banks took advantage of this by borrowing money 
 on Thursday, which restored their accounts for Friday, and its re- 
 turn on Saturday threw them again into the debit column. In this 
 way the banks distant from Wall Street managed to carry an in- 
 flated line of discounts, based on debts due to other institutions. 
 It became an affair of cunning management by some to run a small 
 credit of two or three thousand dollars each with thirty or more 
 banks, making a total of one hundred thousand dollars, on which 
 they discounted bills. Consequently, the Friday settlements proved 
 to be no settlements at all, but a prodigious annoyance. As soon 
 as the paying teller or his assistant completed the exchange balance 
 list the cashier of each bank would draw checks for every debt 
 due to him by other banks, and send out the porters to collect 
 them. A draft on one in favor of another might settle two ac- 
 counts at once, but there was no understanding that made it possible 
 to secure that small economy; or, if there was, it was disregarded. 
 The sixty porters were out all at once, with an aggregate of two 
 or three hundred bank drafts in their pockets, balking each other, 
 drawing specie at some places and depositing it in others, and the 
 whole process was one of confusion, disputes, and unavoidable 
 blunders, of which no description could give an exact impression. 
 
 "After all the draft-drawing was over came the settlement of 
 the Wall Street porters among themselves. A Porters' Exchange was 
 held on the steps of one of the Wall Street banks, at which they 
 accounted to each other for what had been done during the day. 
 Thomas had left a bag of specie at John's bank to settle a balance 
 which was due from William's bank to Robert's ; but Robert's bank 
 owed twice as much to John's. What had become of that? Then 
 Alexander owed Robert also, and William was indebted to Alex- 
 ander. Peter then said that he had paid Robert by a draft from 
 James, which he, James, had received from Alfred on Alexander's 
 account. That, however, had settled only half the debt. A quarter 
 of the remainder was canceled by a bag of coin which Samuel had 
 handed over to Joseph, and he had transferred to David. It is en- 
 tirely safe to say that the presidents and cashiers of the banks 
 themselves could not have untangled this medley. Each porter 
 had his tally, and by checking off and liberating first one, whose 
 account was least complicated, and then another, they finally 
 achieved a settlement. 
 
 "This scene was re-enacted on every Friday. In consequence of 
 the porters being withdrawn from their regular service in the bank. 
 
THE CLEARING-HOUSE. 221 
 
 extra labor was imposed on others, responsibilities became mingled 
 together, and the officers were kept for the whole day in a state of 
 distraction and anxiety. The paying tellers were subject to frequent 
 interruption, as they were obliged to receive and deliver all specie. 
 
 " Not the least irritating feature of the case was that a single small 
 draft by any one bank on any other induced a general drawing, and 
 all became involved in commotion and 'war' upon each other. If 
 time were allowed, the debtor banks would finally be obliged to 
 pay the liquidating balance ; but three o'clock arrested the process, 
 and the banks where the demand was then in force were obliged 
 to disburse the coin. It was not unusual for a debtor bank to add 
 fifty thousand dollars to its specie at the close of the day, with 
 its debt doubled, while a creditor bank to half a million in the 
 general account, would find itself at three o'clock depleted of one or 
 two hundred thousand dollars in coin." 
 
 This, it will be noticed, was when the bank settlements at New 
 York could not have reached to one-sixth of their present amount. 
 It may be safely affirmed that the vastly larger transactions of the 
 present day could not be settled in the old way. It was not until 
 after much deliberation and considerable opposition that a Clearing- 
 house was established at New York, but the success of the experi- 
 ment soon dispelled all doubts of its utility and necessity, and led 
 to the adoption of the system in other cities. 
 
222 PRACTICAL BANKING. 
 
 CHAPTER II 
 ORGANIZATION AND MECHANICAL ARRANGEMENTS. 
 
 To establish a Clearing-house a number of banks associate them- 
 selves together, under certain regulations more or less elaborate, ac- 
 cording to circumstances, for the purpose of settling daily, at one 
 time and place, the mutual demands arising between the banks. The 
 officers of such an association are usually a president, or chairman, 
 a secretary, treasurer and manager, with a Clearing-house commit- 
 tee, and such others as the wants of the association require. At 
 New York, in addition to the Clearing-house committee, there are a 
 committee on conference, a nominating committee, a committee on 
 admissions, and an arbitration committee. The manager is some- 
 times chosen by the association, usually by the Clearing-house com- 
 mittee, which generally has charge of all matters incidental to the 
 operations of the association not otherwise specially provided for. 
 The larger Clearing-houses have also an assistant manager. The 
 salary of the manager is fixed pursuant to the rules of the associa- 
 tion, and he gives bonds with approved sureties for the faithful dis- 
 charge of his duties. At New York the manager gives bonds for 
 $10,000, clerks for $5,000 each. He has, under the control of the 
 Clearing-house committee, immediate charge of all business at the 
 Clearing-house, so far as relates to the manner in which it shall be 
 transacted ; and the clerks of the establishment, if any, as well as 
 the settling clerks and porters or messengers of the associated 
 banks, while at the Clearing-house, are under his direction. 
 
 At a fixed hour, each day, representatives of the banks meet at a 
 specified place, called a Clearing-house, and exchange the checks or 
 other paper which they hold against one another. The paper 
 which the banks take to the Clearing-house is called the exchange, 
 and the total amount of paper exchanged is called the clearings, or 
 exchanges. Those banks which bring to the Clearing-house a less 
 amount in checks or other paper than they take away called debtor 
 banks pay at a later hour on the same day to the banks which 
 bring more than they take away called creditor banks a balance, 
 either directly or through the Clearing-house, in cash or its 
 equivalent. The payment of the balances by the debtor banks, and 
 the receipt of these balances by the creditor banks, complete each 
 
ORGANIZATION AND MECHANICAL ARRANGEMENTS. 22$ 
 
 day's settlements. As the aggregate amount brought is always the 
 same as the amount taken away, so the balances due from the 
 debtor banks must be exactly equal to the amount due to the 
 creditor banks. The clearing system is the application on a large 
 scale of the principle of set-off. " Clearing," says Mr. H. D. Lloyd, 
 in the Cyclopedia of Political Science, Political Economy, and the Po- 
 litical History of the United States, " is the settlement of mutual 
 claims by the payment of differences." The saving of time and in 
 the handling of cash is an obvious advantage flowing from the 
 union of banks in a Clearing-house. There are other advantages, 
 net less important, which will appear on further examination. 
 
 The mechanical arrangements used by the various Clearing-houses 
 in effecting their settlements differ according to the character and 
 magnitude of the operations carried on. At some of the smaller 
 Clearing-houses there is no permanent place for making the ex- 
 changes, the banks taking turns. Where the transactions are of 
 large amount, however, it becomes necessary to have a room spe- 
 cially fitted up for the purpose. The New York Clearing-house, 
 long quartered in the building of the Bank of New York, some 
 years ago secured more commodious quarters in a building which is 
 owned by the Association. Desks, one for each bank, are arranged 
 in three parallel rows, each desk having the name of the bank for 
 which it is designed lettered on a silver plate in front, and being 
 numbered with the bank's number. At Boston, the desks in the 
 Clearing-house are arranged in an oval or elliptical form, facing out- 
 ward, as they were in the old Clearing-house rooms at New York. 
 The method of doing the business is substantially the same in both. 
 The number of banks in the Clearing-house at Boston, December 
 31, 1883, was fifty-two, and at New York sixty-four, and the capital 
 and profits represented in the former is $50,500,000, against $ 101,- 
 930,700 in the latter; yet the clearings at New York are, on an 
 average, nearly eleven times as great as those of Boston, while the 
 balances are only about four times as great. 
 
224 
 
 PRACTICAL BANKING. 
 
 CHAPTER III. 
 
 PKEPABATION OP THE EXCHANGE. 
 
 The following analysis of Clearing-house transactions is specially 
 applicable to New York and Boston. The peculiarities of other 
 Clearing-houses will be noticed later on. Among the first things 
 done with exchangeable paper when received is its classification ac- 
 cording to the banks at which it is payable. The teller into 
 whose hands it comes usually has a pigeon-hole for each bank, 
 numbered with the Clearing-house number of that bank, in which 
 the paper payable thereat is placed. At many of our Clearing- 
 houses it is obligatory, and at all common, to place upon this 
 paper some distinguishing mark, usually the name and number of 
 the bank clearing it, to indicate the channel through which it has 
 passed. In preparing the exchange for the Clearing-house, the 
 amounts, merely of the various items making up the demands against 
 each bank, are entered upon a blank called an " Exchange Slip," 
 as follows : 
 
 &/ Teller. 
 
 No. i. 
 
 From No. 61. 
 FOURTH NATIONAL BANK 
 
 2:500 oo 
 500 
 
 000 
 
 150 
 
 800 
 
 5500 
 
 50000 
 
 40:000 
 85:000 
 
 I95J450 
 4 500 oo 
 50 oo 
 
 125 
 
 60000 oo 
 
 8,500 
 
 268 625 50 
 
 50 
 
 The figures here given, it will be 
 understood, are presented merely 
 by way of illustration, and not as 
 representing in character or amount 
 the transactions of the Fourth Na- 
 tional Bank. The first footing on 
 the Exchange Slip ($195,450 in 
 this case) represents the amount of 
 checks or other items deposited to 
 the close of business on a given 
 day for the clearing of the next 
 day. The addition of the items re- 
 ceived the next morning by mail 
 or otherwise in time for the clear- 
 ing, makes the second footing (in 
 this case, $268,625.50) being the 
 total amount of claims carried to 
 the Clearing-house by the Fourth 
 National Bank against No. i, the 
 Bank of New York. 
 
PREPARATION OF THE EXCHANGE. 
 
 22J 
 
 There is a different exchange slip for each bank, properly labeled,, 
 to show for which bank the exchange is destined. On this slip are 
 entered the amounts merely, of the different checks or other items- 
 taken to the Clearing-house. The items on each slip are footed up, 
 and the totals entered, the first ^footing in the first debit column,, 
 and the final footing in the second debit column of another blank 
 called the "Settling Clerk's Statement," ruled as follows, and con- 
 taining the names and numbers of all the banks, a 'part of which 
 are omitted to save space : 
 
 No. 61, FOURTH NATIONAL BANK. 
 
 Settling Clerk's Statement, January j6, 1884. 
 
 No. 
 
 Banks. 
 
 Debit. 
 
 Debit. 
 
 Credit. 
 
 
 i 
 
 2 
 
 Bank of N. Y. Nat'l Bkg. Ass'n. 
 Manhattan Co 
 
 195,450 oo 
 250,000 oo 
 
 268,625 50 
 310,000 oo 
 
 
 I 
 2: 
 
 3 
 
 Merchants' National Bank. . . . 
 
 50,000 oo 
 
 71,000 oo 
 
 
 f 
 
 4 
 
 Mechanics' National Bank 
 
 175,000 oo 
 
 200,000 oo 
 
 
 
 5 
 
 
 125,000 oo 
 
 145,000 oo 
 
 
 
 6 
 
 
 90,000 oo 
 
 125,000 oo 
 
 
 
 7 
 
 Phenix National Bank 
 
 225,000 oo 
 
 260,00000 
 
 
 7 
 
 
 ( Other banks omitted. ) 
 
 1,427,947 78 
 
 2,258,772 28 
 
 
 
 
 
 2,538,397 78 
 
 7,6^8, 7Q7 78 
 
 *,2Q7 12"? O4. 
 
 
 
 
 
 
 
 
 
 
 
 
 14I.O74 74 
 
 
 
 
 
 
 
 
 
 
 
 
 3,638,397 ?8 
 
 
 In order to have the exchanges seasonably and carefully pre- 
 pared, the first debit column is made up and footed at the close 
 of business each day for the next clearing, the entries consisting 
 of the first footings on the various Exchange Slips, as for instance, 
 $195,450 on the one given. The heaviest part of the work is thus 
 done the day before the clearing, leaving for the limited time left 
 in the morning only the work of completing the additions to the 
 exchange slips, and inserting the final totals ($268,625.50 on the 
 Exchange Slip above) in the second debit column, which shows 
 the total exchange sent. The credit column is left blank to be 
 filled up at the Clearing-house with the amounts of the return 
 exchange representing checks or other items payable by the Fourth 
 National Bank. 
 
 On the next page is reproduced an actual "Settling Clerk's State- 
 ment" of one of the Boston banks, showing an exact transcript o 
 the bank's transactions with the Clearing-house on a certain day.. 
 Besides the interest attaching to it as a record of actual transac- 
 tions, it will serve to make the subject clearer to those not familiar 
 with the details of Clearing-house business. 
 
PRACTICAL BANKING. 
 
 NATIONAL BANK. 
 
 Settling Clerk's Statement, 
 
 No. 
 
 .#*&?. 
 
 First Debit. 
 
 Total Debit. 
 
 Banks Cr. 
 
 No. 
 
 i 
 
 Massachusetts National. ... 
 
 118 28 
 
 6 118 28 
 
 
 
 2 
 
 National Union 
 
 7C 06 
 
 7C 06 
 
 I 287 TO 
 
 2 
 
 
 Old Boston National 
 
 \ ,082 O2 
 
 > 082 O2 
 
 
 
 
 State National. 
 
 2.OOQ 42 
 
 2 122 58 
 
 4C(X) OO 
 
 
 1 
 
 New England National 
 
 1,401 co 
 
 599 25 
 i 401 oo 
 
 38 95 
 40 c 20 
 
 i 
 
 -7 
 
 
 
 
 I OOO OO 
 
 ? 
 
 2 
 
 National Eagle 
 
 50 oo 
 
 I 268 57 
 
 IQ c. c6 
 
 g 
 
 
 
 
 
 120 60 
 
 
 IO 
 
 
 
 
 J ^ *T* 
 
 16 co 
 
 IO 
 
 II 
 
 
 I5Q 74 
 
 2 O7I 82 
 
 c 410 CC 
 
 ii 
 
 12 
 
 Atlantic National 
 
 14 70 
 
 14 7O 
 
 QI 15 
 
 12 
 
 H 
 
 Merchants' National 
 
 1,310 88 
 
 8 156 05 
 
 *JT* 
 
 664 C7 
 
 11 
 
 14 
 
 Traders' National 
 
 5 7O 
 
 5 70 
 
 
 14 
 
 1C, 
 
 Hamilton National 
 
 9 CO 
 
 900 
 
 14 42 
 
 IGJ 
 
 T6 
 
 Market National 
 
 60 QI 
 
 69 91 
 
 
 16 
 
 17 
 
 Second National 
 
 28 oo 
 
 1, 1*56 71 
 
 1,518 56 
 
 17 
 
 T8 
 
 Atlas National 
 
 10,054 68 
 
 10,054 68 
 
 648 11 
 
 T8 
 
 19 
 
 20 
 
 Shoe and Leather National. . 
 Shawmut National 
 
 164 14 
 601 40 
 
 164 14 
 
 2.884 05 
 
 ^ 
 112 64 
 
 1,284 6l 
 
 J 9 
 20 
 
 21 
 
 National Exchange 
 
 <: 
 
 809 01 
 
 1,251 14 
 
 764 10 
 
 21 
 
 22 
 
 ^3 
 
 24 
 
 National Bank of Commerce. 
 National Bank of N. America 
 Faneuil Hall National 
 
 II 7O 
 QQ 26 
 
 311 12 
 2 OQQ 26 
 
 9,175 33 
 164 oo 
 
 22 
 
 23 
 
 24 
 
 25 
 
 National Webster 
 
 46 71 
 
 46 11 
 
 22 l6 
 
 25 
 
 3 
 
 Eliot National 
 
 7OO 
 
 1C. -176 CO 
 
 306 oo 
 
 76 
 
 27 
 
 Howard National 
 
 4 -O 8l 
 
 41O 8l 
 
 112 87 
 
 27 
 
 3 
 
 Suffolk National 
 
 l6 QI 
 
 ^ff "J 
 
 IO QI 
 
 1,142 4Q 
 
 28 
 
 ^O 
 
 Globe National 
 
 
 
 
 2Q 
 
 3 1 
 
 "12 
 
 Freeman's National 
 Boylston National .... 
 
 63 36 
 
 68 16 
 
 203 05 
 
 1,264 ^o 
 
 31 
 72 
 
 -T7 
 
 Blackstone National .... 
 
 I 147 82 
 
 I ^O7 82 
 
 IAC 
 
 77 
 
 14 
 
 Boston National . . 
 
 221 55 
 
 22^ 5*5 
 
 714 64 
 
 ^A 
 
 je 
 
 Maverick National 
 
 2O 748 47 
 
 4.7 4OO 7^ 
 
 147 80 
 
 
 P 
 
 37 
 
 -so 
 
 National Hide & Leather. . . 
 National Bank Redemption. 
 First National .... 
 
 " 59 
 5,399 99 
 40 oo 
 
 294 04 
 
 105,686 79 
 
 241 4.1 
 
 294 77 
 32,307 33 
 
 2 QCO l6 
 
 37 
 
 7O 
 
 AQ 
 
 National Revere ... 
 
 4O 2? 
 
 21 I 7^ II 
 
 I 222 90 
 
 4O 
 
 41 
 
 -42 
 
 National Bank of Republic . 
 Continental National . . 
 
 l62 60 
 
 15,950 oo 
 
 162 69 
 
 1,053 80 
 2O IOQ OO 
 
 41 
 42 
 
 ^4/j 
 
 Mt. Vernon National . . . 
 
 610 83 
 
 610 83 
 
 2O 75 
 
 41 
 
 44 
 
 Third National 
 
 70 oo 
 
 70 oo 
 
 " /O 
 7O6 12 
 
 44 
 
 AS 
 
 Everett National . . 
 
 
 
 12 19 
 
 45 
 
 6 
 
 National Security 
 
 no 70 
 
 no 70 
 
 i 887 86 
 
 '2 
 
 47 
 
 Broadway National 
 
 
 
 217 4^5 
 
 47 
 
 4 8 
 
 49 
 SO 
 
 f 
 
 Nat'l Bank Commonwealth. 
 Central National 
 Manufacturers' National .... 
 Fourth National 
 
 355 08 
 22 45 
 7 oo 
 26 84 
 
 355 08 
 505 97 
 7 oo 
 17 647 81 
 
 i,775 97 
 
 30 oo 
 54,141 20 
 
 is 
 
 49 
 So 
 
 ei 
 
 *;2 
 
 Metropolitan National 
 
 f 
 
 2Q2 2O 
 
 292 26 
 
 65 10 
 
 52 
 
 e-7 
 
 Merchandise National. 
 
 
 
 50 oo 
 
 c-i 
 
 *?4 
 
 Lincoln National 
 
 228 04 
 
 228 04 
 
 241 Q5 
 
 CA 
 
 
 
 
 
 
 
 
 Footings . 
 
 51,128 80 
 
 271 212 l6 
 
 I5O 655 56 
 
 
 
 Balance , 
 
 
 
 120,576 80 
 
 
 
 
 
 
 
 
 
 
 
 
 271,232 36 
 
 
 A study of this statement will make apparent one of the great 
 economies effected by the Clearing-house system, namely, the con- 
 
PREPARATION OF THE EXCHANGE. 22/ 
 
 solidation into one item of the accounts with all the banks. Thus, 
 in the statement here presented, the forty-five debits are repre- 
 sented by the single total debit of $271,232.36, and the forty-eight 
 credits by the total of $150,655.56, while instead of fifty mutual 
 balances to adjust, the single item of $ 120,576.80 covers the 
 whole. 
 
 The first column represents the first footing on the exchange slip, 
 being the amount of clearing matter received up to the close of 
 bank hours for the next day's clearings. The second column repre- 
 sents the total debit, after adding the checks or other paper re- 
 ceived the next morning by mail or otherwise, in season for the 
 day's exchanges. The blank for the Settling Clerk's statement is 
 the same for all the banks. The blank used at Boston contains 
 another column between the two debit columns, designed for "Ad- 
 ditions," to show the exchange received each morning in season 
 for the day's clearing. As this column is not needed, and is fre- 
 quently not used, it is omitted in the form above given. The credit 
 column is filled up at the Clearing-house with the amounts of the 
 return exchange brought by the other banks. When the exchange 
 slips are completed and footed, each slip is attached to the outside 
 of the package of checks and vouchers which it represents, or the 
 amount is marked on the outside of a sealed envelope containing 
 them. The different packages are also arranged in the order in 
 which they are to be delivered at the Clearing-house, and placed in 
 a satchel or other enclosure to be carried thither. The entries in the 
 Settling Clerk's Statement are carefully verified and footed, showing 
 the bank's total debit against the other banks, and its credit, that is 
 the amount with which it is credited, at the Clearing-house. This 
 total is compared with the paying teller's footings, and if both agree, 
 the correctness of the statement is so far proved. It is rare that an 
 error occurs in the debit figures. The total debit is entered on an- 
 other blank called a " Credit Ticket," as follows : 
 
 No. 61. NEW YORK CLEARING-HOUSE, 
 
 January 17, 1884. 
 
 Credit FOURTH RATIONAL BANK $ 3,638,39? 7 
 
 J. SMITH, Settling Clerk. 
 
 The amount of the exchange for each bank is also entered in 
 another blank called a "Check Ticket," as follows: 
 
228 
 
 PRACTICAL BANKING. 
 
 No. 1. 
 
 BANK OF NEW YORK, 
 
 NATIONAL BANKING ASSOCIATION. 
 
 From No. 61, 
 Fourth National Bank. 
 $268,265.50. 
 
 A similar ticket is made up for each of the other banks, and is 
 delivered to its settling clerk at the Clearing-house, by which ta 
 "check" the entries in the credit column of his statement, since 
 every debit entry on one statement must, if the figures are cor- 
 rectly transcribed, correspond with a credit entry on some other 
 statement. These check tickets may be made up and delivered by 
 the settling clerks at the Clearing-house while the settlement is in 
 progress. 
 
 A copy of the debit columns in the Settling Clerk's statement is 
 made on another partly corresponding blank, with a space on the 
 right for signatures, instead of the credit column. This is called the 
 " Settling Clerk's Receipt," and is taken by the messenger who 
 carries also the packages of checks or vouchers. The settling 
 clerk carries his statement and the credit ticket. At all the larger 
 Clearing-houses each bank is represented by these two clerks, the 
 messenger or porter, and the settling clerk. At New York some of 
 the banks have two settling clerks; the whole force of clerks em- 
 ployed by the sixty-four banks being one hundred and sixty. 
 
HOW CLEARINGS ARE MADE. 229 
 
 CHAPTER IV. 
 HOW CLEARINGS ABE MADE. 
 
 At a few minutes before ten o'clock the clerks begin to arrive 
 at the Clearing-house, and each settling clerk as he enters passes 
 to the manager's desk, his credit ticket showing the amount of ex- 
 change with which his bank is to be credited. These amounts 
 are entered as rapidly as possible in the credit column of another 
 blank called the "Clearing-house Proof," which is given on a sub- 
 sequent page. So rapidly is this work done by an expert, that 
 within a very few minutes after the last credit ticket is received 
 the entries in the credit column are completed and footed, showing 
 the total exchange of the day if no error has been made. Just be- 
 fore ten o'clock a stroke of the manager's bell calls the clerks to 
 order. They take their places at their respective desks, the settling 
 clerks inside, and the messengers outside, the former with his state- 
 ment so far as completed, the latter with the " Settling Clerk's 
 Receipt," and the actual vouchers for the banks to which they 
 are to be presented. Another stroke of the bell, at ten o'clock 
 precisely, is the signal for the exchanges to commence. No varia- 
 tion from this time is allowed on any pretext whatever, and on 
 this point the Clearing-house is no respecter of persons. A few 
 years ago Mr. Windom, Secretary of the Treasury, desired to wit- 
 ness the exchanges, and was apprised of the inflexible punctuality 
 required. He arrived some minutes late, only to find that the 
 clearings had taken place just as if he had been an individual in a 
 private station. 
 
 At the second stroke of the bell, each messenger advances one 
 step, which brings him to the desk of the first bank at which he 
 is to deliver vouchers. He hands over the exchange package de- 
 signed for that bank, also the " Settling Clerk's Receipt," on which 
 the settling clerk enters his initials against the amount, as a voucher 
 to show that the exchange has been received. The receipt is then 
 handed back to the messenger, who passes on and repeats the 
 operation at the desk of every other bank for which he has any 
 vouchers, finally, coming around to his own desk after having de- 
 livered all his packages. Supposing him to have a package for 
 every bank except his own, each of the sixty-four messengers has de- 
 
230 
 
 PRACTICAL BANKING. 
 
 livered sixty-three packages. The number of accounts thus settled 
 between the banks is, therefore, 64 x 63 = 4032. The time required 
 for delivering the exchanges is ten minutes at New York, and five 
 minutes at Boston. In the old way of exchanging it would have 
 taken several hours. At Boston there is no " Settling Clerk's Re- 
 ceipt," and the messengers deliver at each desk the check ticket 
 already mentioned, showing the amount of each package delivered. 
 
 The messenger having completed his circuit, takes back to his 
 bank the return exchange left at the desk of his bank by the 
 messengers of the other banks, with a statement showing in round 
 numbers the result of the clearing. The return exchange, consist- 
 ing of the vouchers payable at the bank to which they are de- 
 livered through the Clearing-house, is, when brought to the bank, 
 delivered to the paying teller for examination, after which, if they 
 are all right and the drawers have sufficient funds, the checks and 
 other paper are delivered to the bookkeeper and charged to the 
 proper accounts, thus closing the transaction. All checks, drafts, 
 notes, or other items in the exchanges, returned as " not good," or 
 missent, are to be returned on the same day to the bank from 
 which they were received, and this bank must make good the 
 amount received through the Clearing-house for them; but when 
 returned for want of endorsement or informality, they may, after be- 
 ing certified by the returning bank, be passed through the ex- 
 changes of the following morning to the amount of $5,000. Errors 
 in the exchanges are also adjusted between the banks, the Clearing- 
 house not being responsible. 
 
 After the departure of the messengers from the Clearing-house, the 
 settling clerks continue their work, none of them being allowed to 
 leave until the settlements are completed, without the consent of 
 the manager. Each clerk, as soon as he has footed the credit col- 
 umn of his statement and carefully revised the work, strikes a bal- 
 ance between the total debit and the total credit exchange, which 
 shows how much his bank is to receive or pay. He then copies 
 these footings into what is called the " balance ticket," as follows i 
 
 No. 61. NEW YORK CLEARING-HOUSE, 
 
 January 17, 1884. 
 
 Debit FOURTH NATIONAL BANK amount received. .$3,297,323 04 
 Credit brought.. 3,638,397 78 
 
 $ Debit balance due Clearing-house. 
 
 Credit balance due THE FOURTH NATIONAL BANK. $341,074 74 
 
 This is passed to the manager's desk. The amount brought has \ 
 been already, as before stated, entered in the credit column of the r 
 Clearing-house proof. The amount received is now entered in the 
 
HOW CLEARINGS ARE MADE. 23! 
 
 debit column, and the balance in the column " Due Banks " against 
 the name of the Fourth National Bank. The next bank may have 
 a balance against it, which should be entered in the left-hand col- 
 umn under the heading " Due Clearing-house." When all the bal- 
 ance tickets have been delivered at the manager's desk, and the 
 entries from them made in the proof, the debit and balance col- 
 umns are footed, the credit column having been already added. As 
 the total amount brought must be the same as the total taken 
 away, the debit and credit columns of the proof will agree if the 
 work is correct, as also the totals "Due Clearing-house" and "Due 
 Banks." If the footings show this agreement, the proof is made, 
 and the settling clerks are allowed to leave. It is a very rare oc- 
 currence that the footings agree on the first trial. An inspection 
 of the Clearing-house proof will show that it contains about thir- 
 teen hundred figures. Each entry in the proof may represent the 
 result of sixty-three entries in the settling clerk's statement, and 
 these probably contain from 60,000 to 70,000 figures, made and 
 footed with great rapidity, the entries being frequently made with 
 pencil. The credit column of the settling clerk's statement, too, 
 must be made up and footed within the short time allowed at the 
 Clearing-house. Under these circumstances it is natural that mis- 
 takes should frequently occur, any one of which destroys the exact 
 balance which should exist between the debit and credit sides of 
 the proof. When the proof is footed, and the footings fail to 
 agree, the manager or his assistant announces the fact : " The dif- 
 ference is $5,530.25," or whatever the amount may be. While the 
 preparation of the proof has been in progress the clerks have been 
 at work verifying their figures by means of the check tickets and 
 otherwise, and the error or errors may have been discovered as 
 soon as the discrepancy is announced. Usually all errors are dis- 
 covered and corrected within an hour from the announcement of 
 the clearing, but sometimes an error occurs which defies detection 
 for a long time, and keeps the whole force of clerks at work for 
 two hours or more. Forty-five minutes are allowed for the comple- 
 tion of the settlement. Any delay beyond this subjects the delin- 
 quent bank to a fine. At 11.15 A. M. tne nnes are doubled, and at 
 12 M. quadrupled, so that the fines accumulate rapidly on the de- 
 linquent bank after 11.15. Tne object is to offer an incentive to 
 the banks to have at the Clearing-house clerks whose figures are 
 distinct and legible, and who are rapid and accurate calculators. If 
 the examination of the check tickets fails to disclose the error 
 or errors, the settling clerks are ordered by turns to pass around 
 to the different desks, each calling off the amount of his ex- 
 change to every other. This is usually the final method of re- 
 vision, and seldom fails to disclose the error. The Settling Sheets 
 are sometimes exchanged to facilitate the detection of errors 
 
2J2 PRACTICAL BANKING. 
 
 in the footings.. The corrections as fast as made are incorpo- 
 rated with the proof, and the figures appended to the footings, 
 added or subtracted, as the case may be, preserve a perma- 
 nent record of each correction. Finally, the manager, or his as- 
 sistant, calls off from a balance sheet corresponding to the two 
 main columns of the proof, the amount in thousands of dollars to 
 the debit or credit of each bank in the exchanges of the day, also 
 the time at which the proof was announced, and the fines and 
 corrections, which the settling clerks transfer to corresponding 
 blanks in their possession. These they take away for the informa- 
 tion of their respective banks, which thus have a record of the 
 Clearing-house dealings of all their associates. 
 
 The table on the next page is a specimen " Clearing-house Proof." 
 The totals show the actual transactions on the day named, but the 
 figures are transposed so that they do not show the actual trans- 
 actions of any single bank, these not being published. Conse- 
 quently, some of the banks appear as having much larger, and others 
 as having much smaller transactions than they actually had. 
 
 It is the custom at some Clearing-houses to add together both 
 the debtor and creditor sides of the proof, thus duplicating their 
 figures, but the footing of one side evidently represents the total 
 amount of the vouchers exchanged. The highest bank number repre- 
 sented below being eighty-two, the natural inference would be that 
 this was the number of members in the Clearing-house. An inspec- 
 tion of the proof will, however, show that there are eighteen missing 
 numbers, leaving but sixty-four members at the date given. The 
 missing numbers represent banks which were once members, but 
 are so no longer, most if not all of them having failed or dis- 
 continued business. The number eighty-two represents the total 
 number of members that have ever belonged to the Clearing-house. 
 The failure of the Marine National Bank makes another missing 
 number, leaving only sixty-three members, of which sixty-two are 
 National or State banks, and one the United States Assistant 
 Treasurer at New York, who joined the Clearing-house in 1878. 
 The Assistant Treasurer is almost uniformly debtor to the Clearing- 
 house, and rarely receives a balance from the associated banks. 
 
NEW 
 
 HOW CLEARINGS ARE MADE. 233 
 
 YORK CLEARING-HOUSE PROOF, THURSDAY, JANUARY I;TH, 1884. 
 
 Banks. 
 
 Due Clear- 
 ing-house. 
 
 Banks. Dr. 
 
 i ' 
 
 Banks. Cr. 
 
 Due Banks. 
 
 I 
 
 3 
 4 
 
 1 
 I 
 
 10 
 
 ir 
 
 12 
 
 '4 
 J 9 
 
 20 
 31 
 
 2 3 
 25 
 
 29 
 
 30 
 
 32 
 33 
 34 
 
 40 
 42 
 43 
 44 
 45 
 47 
 49 
 50 
 53 
 
 5* 
 O 5 ? 
 
 6a 
 
 03 
 04 
 
 a 
 
 72 
 
 74 
 
 1 
 
 81 
 82 
 
 B'k of N.Y. Nat'l Bk'g. Ass'n. 
 Manhattan Company 
 
 340,166 60 
 72,773 87 
 
 100,768 39 
 
 363,755 14 
 768,506 78 
 350,350 oo 
 
 20,378 71 
 2,879 28 
 171,677 53 
 302,353 98 
 118,407 94 
 
 i8,533 68 
 49,085 42 
 
 57,569 69 
 982,829 90 
 7,773 16 
 23,407 05 
 73,039 08 
 
 3,055 80 
 
 79,083 87 
 495,589 87 
 
 26,098 22 
 
 232,579 90 
 71,549 58 
 
 70,604 13 
 I3,86l 23 
 
 29,40691 
 349^169 67 
 
 30,811 55 
 
 555,426 59 
 145,288 58 
 4,992,040 48 
 1,558,990 98 
 391,230 71 
 3,953,478 88 
 355,740 06 
 295,991 67 
 327,909 22 
 3,172,963 98 
 361,734 69 
 2,238,239 44 
 5,3 I2 ,533 22 
 205,107 29 
 
 976,559 38 
 3,758,949 54 
 3,878,212 46 
 5,967,092 97 
 191,849 61 
 60,291 80 
 9,649,314 97 
 1,257,022 39 
 387,803 45 
 960,685 27 
 4,307,775 oo 
 1,207,505 86 
 236,562 7 1 
 229,831 48 
 187,623 38 
 3,087,088 42 
 529,928 31 
 1,157,77! 97 
 174,925 37 
 204,15* 12 
 191,562 14 
 
 2,375,331 70 
 175,124 66 
 50,190 04 
 96,509 06 
 
 8,041,705 30 
 2,500,726 63 
 3,797,522 36 
 3,576,107 39 
 8,436,107 93 
 2,8x5,333 78 
 3,297,323 04 
 5,040,416 87 
 282,296 79 
 516,945 63 
 1,838,598 47 
 479,168 18 
 2,843,717 oi 
 144,180 40 
 44,478 91 
 99,738 66 
 1,406,323 07 
 174,674 69 
 I3,98i,992 88 
 4,371,989 88 
 5,682,807 77 
 576,078 07 
 1,262,334 29 
 185,452 43 
 2,534,168 75 
 
 640,226 05 
 212,612 44 
 5,019,117 85 
 1,621,001 58 
 442,737 9 1 
 
 *370,'645 55 
 339,918 24 
 346,296 51 
 3,100,190 ii 
 465,735 40 
 2,243,398 34 
 5,6i5,593 10 
 104,338 90 
 612,804 24 
 2,990,442 76 
 3,527,862 46 
 5,995,624 06 
 171,470 90 
 57,412 52 
 
 9,477,637 44 
 954,668 41 
 
 269,395 Si 
 996,475 44 
 4,423,944 75 
 1,188,972 18 
 241,168 93 
 180,746 06 
 245,019 99 
 3,215,685 56 
 472,358 62 
 174,942 07 
 
 167,152 21 
 180,744 07 
 118,523 06 
 
 2,821,885 55 
 206,311 33 
 
 47, I 34 24 
 157,119 62 
 9,106,865 27 
 2,857,928 13 
 3,917,726 81 
 3,680,171 46 
 8,458,096 40 
 2,736,249 9 1 
 3,638,397 78 
 4,544,827 oo 
 411,134 69 
 490,847 41 
 1,606,018 57 
 407,618 60 
 2,938,415 45 
 73,576 27 
 30,617 68 
 121,461 32 
 1,829,143 74 
 145,267 78 
 13,988,451 65 
 4,520,951 88 
 6,269,436 oi 
 567,606 95 
 913,164 62 
 208,589 21 
 
 2,503,357 20 
 
 84,799 4f 
 67,32386 
 
 27,077 37 
 62,010 60 
 
 51,507 20 
 
 Merchants' National Bank 
 
 Mechanics' National Bank 
 
 
 Bank of America 
 
 Phenix National Bank 
 National City Bank 
 
 14,905 49 
 43,926 57 
 18,387 29 
 
 103,980 71 
 5,158 90 
 303,059 88 
 
 28,53* 09 
 
 35,790 17 
 116,169 75 
 
 4,606 22 
 
 57,39~6i 
 128,597 14 
 
 446,553 85 
 31,186 67 
 
 60,610 56 
 1,065,159 97 
 357,201 50 
 120,204 45 
 104,064 07 
 21,988 47 
 
 341,074 74 
 128,837 90 
 
 94,698 44 
 
 21,722 66 
 422,820 67 
 
 6,458 77 
 148,962 oo 
 586,628 24 
 
 23,136 78 
 
 Tradesmen's National Bank. . . 
 Fulton National Bank 
 
 Chemical National Bank 
 
 Merchants' Ex. National Bank. 
 Gallatin National Bank 
 
 J Nat'l Butchers & Drovers' B'k. 
 Mechs. & Traders' Nat'l Bank. 
 Greenwich Bank 
 
 Leather Manufac. Nat'l Bank. 
 Seventh Ward National Bank. 
 Bank of the State of New York. 
 American Exch. Nat' IBank... 
 National Bank of Commerce. . 
 National Broadway Bank 
 
 1 Mercantile National Bank 
 Pacific Bank 
 
 National B'k of the Republic.. 
 Chatham National Bank 
 
 People's Bank 
 
 Bank of North America 
 
 Hanover National Bank 
 
 Irving National Bank 
 
 Metropolitan National Bank... 
 National Citizens' Bank 
 
 Nassau Bank 
 
 Market National Bank 
 
 St Nicholas Bank 
 
 Nat'l Shoe & Leather Bank. . . 
 Corn Exchange Bank 
 
 Continental National Bank.... 
 Oriental Bank 
 
 Marine National Bank 
 
 Imp. & Traders' Nat'l Bank. . . 
 1 National Park Bank 
 
 Wall Street National Bank... . 
 North River Bank 
 
 East River National Bank 
 Fourth National Bank 
 
 Central National Bank 
 
 Second National Bank 
 
 Ninth National Bank 
 
 1 First National Bank 
 
 Third National Bank 
 
 N. Y. National Exch. Bank.. . . 
 Bowery National Bank 
 
 New York Co. National Bank. 
 German-American Bank 
 
 Chase National Bank 
 
 Ass't Treas. U. S. at N. Y 
 
 Fifth Avenue Bank 
 
 German Exchange Bank 
 
 Germania Bank 
 
 United States National Bank. . 
 Lincoln National Bank 
 
 Garfield National Bank 
 
 Fifth National Bank 
 
 15,134,538 05 139,096,548 03 139,096,548 03 5,134,538 05 
 
234 PRACTICAL BANKING, 
 
 CHAPTER V. 
 HOW OUTSIDE BANKS MAKE CLEAKINGS. 
 
 In addition to the banks which are members of the Association, 
 most of the other New York City banks effect their exchanges 
 through the Clearing-house by the agency of some bank that is a 
 member. The bank for which the clearing is done is required to 
 'keep an adequate fund on deposit at the clearing bank, both as a 
 compensation for the service rendered, and as a guarantee against loss. 
 The vouchers to be cleared are sent every morning or oftener to 
 the clearing bank, and are classified and distributed among the ex- 
 changes of the latter as if received by it on deposit. The return 
 exchange is also received by the clearing bank with its own 
 exchanges, as if payable by it, and after being charged to the bank 
 for which the clearing is done, is transmitted to it as speedily as 
 possible, usually by messengers dispatched by the latter directly 
 after the clearing. In case of the return of checks for want of 
 funds or other reasons, the matter would naturally be adjusted 
 through the agency of the clearing bank. The regulations of the 
 New York Clearing-house provide, that "whenever any member of 
 the Association shall send through the Clearing-house the ex- 
 changes of any bank or banks in the city or vicinity, who are not 
 members, such sending shall, ipso facto, and without other notice, 
 constitute said member the agent for said bank or banks at the 
 Clearing-house; and said member shall be liable in the premises 
 the same as for its own transactions, and its liability in all such, 
 cases shall continue until after the completion of the exchanges of 
 the morning next following the receipt of notice of discontinu- 
 ance of such agency." A similar regulation is in force at New 
 Orleans. 
 
 At Boston the Clearing-house embraced, in January, 1884, the 
 operations of twenty-four banks in the vicinity which were not 
 members ; at Pittsburgh forty-six, and at St. Louis four. At Boston, 
 banks outside availing themselves of the privileges of the Clearing- 
 house must pay towards its expenses a sum to be annually deter- 
 mined by the Clearing-house committee. At some of the Clearing- 
 houses, members are not allowed to make the exchanges of any 
 bank outside. This is the case at Indianapolis, Lowell and 
 Worcester. 
 
HOW OUTSIDE BANKS MAKE CLEARINGS. 235 
 
 A plan for clearing gold checks was adopted February 14, 1872, 
 and the exchange of such checks commenced in March following 
 and was continued until the resumption of specie payments, Janu- 
 ary i, 1879. This exchange was kept distinct from the exchange of 
 currency checks, but took place at the same time and place and 
 was conducted in the same way. The total of gold clearings dur- 
 ing this period of nearly seven years was $ 14,066,282,911.94, and 
 the balances paid in gold or gold certificates amounted to $2,236,- 
 317,602.24, or 15.9 per cent, of the clearings. 
 
PRACTICAL BANKING. 
 
 CHAPTER VI. 
 PAYMENT OP BALANCES. 
 
 The exchanges being completed, the next step is the payment of 
 balances. At New York the balances must be paid by the debtor 
 banks to the Clearing-house between 12% and ij4 o'clock, P. M., 
 either in actual coin, United States legal-tender notes, or in United 
 States or Clearing-house certificates. / At 1,% o'clock, or as soon 
 thereafter as the accounts can be made up, the creditor banks re- 
 ceive the balances from the manager at the same place, provided all 
 the balances due from the debtor banks have been paid. Should 
 any bank make default in the payment of its balances at the proper 
 hour, the amount of that balance must be immediately, on requisi- 
 tion from the manager, furnished to the Clearing-house by the 
 several banks exchanging with the defaulting bank in proportion 
 to their respective balances against that bank resulting from the 
 exchanges of the day. The amounts so furnished constitute claims 
 against the delinquent bank only, the Clearing-house being in no 
 way responsible. The defaulting bank is immediately suspended 
 from the Clearing-house. At several of our American Clearing- 
 houses the regulations provide that until the settlement is completed 
 .and balances are paid the exchange shall be in trust only, that the 
 vouchers delivered at the Clearing-house shall, until that time, re- 
 main the property of the bank presenting them, and that in case of 
 default by any member in paying its balances, such vouchers shall 
 be returned unmutilated to the banks from which they were received. 
 Some recent complications at New York, arising from the failure of 
 the Marine National Bank and of Grant and Ward, suggest the 
 .advisability of some similar regulation there. It may be stated 
 here that the operations of the Clearing-house have received legal 
 recognition, and a presentation of a demand through the Clearing- 
 house is a legal presentation by virtue of custom among bankers 
 .and merchants. 
 
 Errors in the exchanges, and claims arising from the return of 
 checks, or from any other cause, are adjusted directly between the 
 banks who are parties to them, and not through the Clearing- 
 house, the association being in no way responsible for them. 
 
 As the banks severally pay their balances the manager gives each 
 L receipt in the following form : 
 
PAYMENT OF BALANCES. 237 
 
 No. 6. NEW YORK CLEARING-HOUSE, 
 
 January 17, 1884. 
 
 Received from the Bank of America Two hundred and forty thou- 
 sand one hundred and sixty-six T 6 ^ dollars in full for balance due the 
 associated banks. 
 $ 240, 166.60. Manager. 
 
 Sometimes a current ledger account is kept with the Clearing-house, 
 charging it with all money or vouchers sent, and crediting it with 
 all that is returned ; and this receipt is charged as a voucher on 
 the books of the paying bank. The messengers also give to the 
 manager, in a book with suitable forms prepared for that purpose, 
 receipts for all balances delivered to them. It is only for a period 
 of about one hour, while receiving and paying the balances, that 
 the Clearing-house has the custody of any money, and during that 
 time only as trustee, receiving from one to pay another. 
 
 Reclamations for errors and deficiencies, in specie or United States 
 legal-tender notes, received at the Clearing-house, contained in bags 
 or packages, sealed and marked in conformity with the rules of the 
 Clearing-house, must be made by one o'clock on the following day 
 by the receiving bank against the bank whose mark the sealed 
 package bears. Notice of such error must be sent immediately upon 
 discovery, the Clearing-house not being responsible for the contents 
 of such bags or packages. Serious difficulties recently arose at New 
 York in a matter of this kind, growing out of the failure of the 
 Marine National Bank. On the sixth of May, 1884, this bank en- 
 closed in the usual manner in a sealed envelope, marked with the 
 aggregate amount, containing as items constituting its claims upon 
 the First National Bank for exchange through the Clearing-house, 
 three checks drawn by Ferdinand Ward upon the First National 
 Bank, amounting together to $215,000. As Ward at that time had 
 in the First National Bank only $2,213.98, the latter refused the 
 checks. The Marine National Bank having in the meantime failed, 
 after paying its balance of $550,000 at the Clearing-house, the First 
 National Bank informed the Clearing-house that the checks were 
 not good and claimed to be reimbursed by the associated banks or 
 the Clearing-house. 
 
 A special committee of the Association, appointed to consider 
 the subject, decided against this claim, but the affair resulted in the 
 adoption, June 4, 1884, of two amendments to the Constitution of 
 the Association. One of these authorizes the Clearing-house com- 
 mittee to examine any member of the Association, and to require 
 security for the payment of its balances to the Clearing-house; the 
 other provides that in case of refusal or inability of any bank to 
 refund the amount of checks, drafts, or other items returned 
 
238 PRACTICAL BANKING. 
 
 as not good, the bank holding them may, before one o'clock, re- 
 port to the manager the amount of the same, and the manager, 
 with the approval of the Clearing-house committee, is to take from 
 the settling sheet of both banks the amount of such checks or 
 other items so reported. This will, of course, increase any balance 
 due from the presenting bank, for which all the banks having bal- 
 ances against it are responsible. The Clearing-house has also re- 
 cently taken action on another matter which has been agitated for 
 many years, namely, the payment of interest on deposits. On the 
 recommendation of a committee appointed June 4, and subsequently 
 increased, the associated banks on July 29, 1884, adopted, subject to 
 the ratification of the banks individually, two amendments, one for- 
 bidding any member to pay interest on, or allow compensation for, 
 deposits after January i, 1885, the other providing that no checks 
 shall pass through the Clearing-house except those drawn on mem- 
 bers. Under this amendment, if it shall come in force, banks out- 
 side could still clear on one side through members that is, the 
 checks and other claims on the members but the Clearing-house 
 would be closed against checks drawn on banks outside, and these 
 checks would be less current. The outside banks may thus be forced 
 to become members, and bear a share of the expense from which 
 they have hitherto, to the prejudice of the members, escaped. 
 
CLEARING-HOUSE CERTIFICATES. 239 
 
 CHAPTER VII. 
 CLEARING-HOUSE CERTIFICATES. 
 
 The labor, responsibility and risk attending the handling of the 
 funds used in paying the balances have been greatly abridged by 
 the use of certificates. These are of three kinds Clearing-house gold 
 certificates, United States gold certificates, and United States legal- 
 tender certificates. Clearing-house gold certificates are issued in ac- 
 cordance with a plan adopted in September, 1853, against gold de- 
 posited with one of the associated banks, and are of the denomina- 
 tions of $1,000, $5,000 and $10,000. They are numbered, regis- 
 tered and countersigned by the proper officer, and are endorsed 
 when paid into the Clearing-house by the paying bank, and when 
 paid out are charged to the receiving bank, so that they can al- 
 ways be traced by the records. They are to be used only in settle- 
 ments between the banks, and any member of the Clearing-house 
 which shall pay or deliver to any party, not a member, any such 
 certificates, is subject to a fine of one hundred dollars. The Bank 
 of America was selected as the depository of the associated banks 
 at the time the Clearing-house was established. The issue of legal- 
 tender notes by the Government and the suspension of specie pay- 
 ments reduced all ordinary settlements to a paper basis, and the 
 issue of Clearing-house certificates was discontinued. In 1879, after 
 the resumption of specie payments and the discontinuance of fur- 
 ther issues of gold certificates by the Government, the Clearing- 
 house gold certificates were revived, the Bank of America being 
 again selected as the depository. The first of the new certificates 
 were issued October 14, 1879. The amount of these certificates out- 
 standing June 30, 1881, was $41,858,000, but has since been reduced. 
 United States gold certificates were authorized by Act of March 3, 
 1863, and were used for Clearing-house purposes soon after the 
 passage of the National Bank Act. The first issue was made No- 
 vember 13, 1865. They are issued against deposits of gold coin 
 and bullion made with the Secretary of the Treasury, in denomina- 
 tions of twenty dollars and upwards, corresponding with the de- 
 nominations of United States notes. Further issues were discon- 
 tinued December i, 1878, but were resumed under Act of July 12, 
 1882, and they have, in part, superseded the gold Clearing-house 
 
240 PRACTICAL BANKING. 
 
 certificates. The United States legal-tender certificates are issued 
 under Act of June 8, 1872, against deposits of legal tenders made 
 with the Secretary of the Treasury by any National banking asso- 
 ciation, in amounts of $10,000 and upwards, and are of denomina- 
 tions not less than $5,000. They are payable on demand in United 
 States notes at the place where the deposits were made, and are 
 counted as part of the lawful money reserve of the National banks. 
 Before the resumption of specie payments they were much used in 
 the Clearing-house settlements, being frequently called Clearing- 
 house legal-tender certificates,* and the amount outstanding June 30, 
 1875, was $59,045,000. The amount now in use is comparatively in- 
 significant, and they appear only to a small extent in the Clearing- 
 house settlements. The amounts and percentages paid in coin, cur- 
 rency and certificates in the Clearing-house settlements at New- 
 York, in 1883, were as follows: 
 
 Paid in gold coin $ 197,000 oo .... .o 
 
 United States gold certificates 564,213,000 oo .... 36. i 
 
 Clearing-house gold certificates 990,925,000 oo .... 63.3 
 
 United States legal-tender certificates.. 1,575,00000 .... .1 
 
 Legal tenders and change 7,768,09649 .... .5 
 
 $1,564,678,09649 100.0 
 
 It will be noticed that only one-half of one per cent, of the bal- 
 ances was paid in actual cash, and this amounts to only one-fiftieth 
 of one per cent, of the clearings. 
 
 The system of paying Clearing-house balances wholly or partially in 
 certificates has been adopted at Boston, Philadelphia, Chicago, Balti- 
 more, San Francisco, Milwaukee, and St. Paul. At Cincinnati, St. 
 Louis, New Orleans, Louisville, Columbus, and Memphis, the manager 
 of the Clearing-house issues checks or certificates on the debtor in 
 favor of the creditor banks, which must be paid to the satisfaction 
 of the latter. The form used at St. Louts, which will serve to il- 
 lustrate, is as follows: 
 
 $ 5,000. ST. Louis CLEARING-HOUSE, July 18, 1884. 
 
 In the settlement of the balances of the Exchanges made between mem- 
 bers of this Association to-day, there is due from (No. 6) the Commer- 
 cial Bank, five thousand dollars, payable on demand to ( No. 8 ) the Fifth 
 National Bank. 
 
 Not transferable, and without recourse \ 
 upon any other member of this Associa- > 
 tion after two o'clock P. M. of this day. ' E - CHASE, Manager. 
 
 The forms are different at different Clearing-houses, but their 
 purport is substantially the same in imposing upon some debtor 
 bank the duty of paying a certain sum to some creditor bank in 
 settlement of the balances. In this case the payment of balances, 
 
CLEARING-HOUSE CERTIFICATES. 24* 
 
 as well as the exchange of vouchers, is a matter settled exclusively 
 between the banks, the Clearing-house handling no money and hav- 
 ing nothing to do with the matter, except to apportion the pay- 
 ments. 
 
 At Providence, Hartford, New Haven, Worcester, Springfield,, 
 Lowell, Syracuse, and to some extent at Portland, Maine, balances 
 are paid by checks on New York or Boston, except where they are 
 for small amounts. This plan is similar in principle to that pre- 
 vailing in the British and other European Clearing-houses. The 
 handling of cash is entirely dispensed with, so far as checks drawn 
 on some common depository are used. The check issued in these 
 cases would be forwarded by the creditor bank to its New York 
 or Boston correspondent, which might also be the depository of 
 the debtor bank. If not, the check would be either collected di- 
 rectly, or through the New York or Boston Clearing-house. 
 
242 PRACTICAL BANKING 
 
 CHAPTER VIII. 
 
 pt 
 
 THE RECORDS KEPT AND THEIR USES. 
 
 The payment of the balances being completed there remains the 
 duty of making up a record of the day's business for preserva- 
 tion and future reference. This is a matter the importance of 
 which is sometimes overlooked. However small the transactions of 
 a Clearing-house may be they are destined to be of value in the 
 future as a means of measuring growth, if nothing else. There are, 
 too, many problems of interest to bankers, on which light would 
 be thrown by a study and comparison of Clearing-house data care- 
 fully and intelligently prepared. In the interests of philosophic in- 
 quiry it is worth while to preserve all facts relating to operations 
 of so interesting a character as those of the Clearing-house. At 
 New York, where the volume of business justifies it, very full and 
 elaborate records are kept, showing every important fact connected 
 with the business, and it is possible to learn there many particulars 
 of which no record is preserved at other Clearing-houses. A ledger 
 is kept in which are posted the daily footings of the proof, " ex- 
 hibiting a continuous history of the aggregate dealings of the 
 banks." The entire proof, also, is transferred into a book kept for 
 that purpose. " In like manner, the daily debit and credit exchange 
 of each bank is posted to its account, and shows not only the ex- 
 tent of its business, but measurably its character also. This is the 
 most essential of all the records. It is that which brings the banks 
 separately within the supervision and control of the Clearing-house 
 a necessary complement of the joint responsibility created by the 
 organization."* If the daily records of its transactions show that 
 its reserves are undergoing constant depletion without any known 
 source of replenishment, its credit at the Clearing-house is affected, 
 and it may be subjected to an examination by a committee con- 
 sisting of the Clearing-house committee and a committee of five 
 bank officers, which joint committee has power to suspend any 
 bank from the privileges of the Clearing-house, " in case of ex- 
 treme emergency," until the pleasure of the Association is ascer- 
 tained. To effect a suspension a majority of each committee must 
 
 * Gibbons' Banks of Mew York and the Panic of 1857. 
 
THE RECORDS KEPT AND THEIR USES. 243 
 
 be present and the vote must be unanimous. The Association 
 alone has the power of expelling a member. 
 
 A summary book is made up from the daily postings, showing the 
 total receipts and payments by each bank for the week, and also 
 for the month and year. The adverse balances of one period may 
 be compensated by the favorable balances of a succeeding period, 
 and thus the state of the reserve of each bank is followed up with 
 unfailing precision. "If at the end of a month it appears that a 
 bank has paid in to the House one million of dollars more 
 than it has received, and if it has no foreign sources of replenish- 
 ment, the conclusion is that it has supplied itself by purchase. If 
 the same result should be shown at the end of another month, 
 without signs of recuperation, and so on continuously, it becomes 
 evident that the institution is carrying a forced average of loans, and 
 it will receive a call from the committee. . . . But this extreme 
 case is most unlikely to happen. The credit that every member 
 derives from the Association is too valuable to be cast off or 
 treated with lightness. The action of the Association is too im- 
 partial and just to give offence, or to admit excuse for disregard- 
 ing its advice." 
 
 "A positive principle, or rule of financial government, has been 
 demonstrated by this action of the Clearing-house on the city 
 banks, that is, the restriction of loans by the necessity of maintain- 
 ing a certain average of coin [ or legal tenders ] from resources within 
 the bank. Borrowing from day to day will no longer do. It cannot 
 be concealed. The records will show conclusively whether the aver- 
 age is kept up by a healthy business, or by a forcing process."* 
 
 "The limitation imposed does not stop at the bank loans, but 
 passes through them into the commercial system. The loans rest 
 on the coin (or legal tender) average, this rests on the deposits, 
 and the deposits rest on the means of trade. The Clearing-house 
 has not created any new dependence of this kind, but it has brought 
 the facts into a manageable shape, and established something like 
 an axiom in the banking business. It is not a mere arbitrary re- 
 quirement that a specific average of coin (or legal tenders) must 
 be maintained, but it is the constitution of that average as a re- 
 sult, and the control of it by an organization which permits no 
 escape and works no injustice and what that organization is for 
 the City of New York, the city is for the country; a restrictive 
 power over the general currency of trade must be exerted through 
 this channel to its remotest sections." 
 
 Weekly publication of bank statements had been required by law 
 even before the establishment of the Clearing-house, but many ways 
 of doctoring such statements were devised, so that the objects of 
 the law were only partially realized. Each bank in the Clearing- 
 
 * Gibbons' Banks of Ntw York and the Panic of 1857. 
 
244 PRACTICAL BANKING. 
 
 house is required to furnish to the manager every Saturday, on or 
 before 12 o'clock M., a statement showing the average amount of 
 loans and discounts, of specie, of legal-tender notes, of deposits, and 
 of circulation, for the preceding week. These statements are tabu- 
 lated by the manager and given to the public. They have this ad- 
 vantage over the statements made under the law, that the daily 
 operations of the Clearing-house furnish a means of testing their 
 accuracy. Deception may still be practised, but it is likely sooner 
 to come to light than it would but for the searching test afforded 
 by the daily settlements. 
 
 "The improvement in the character of its loans is consequent 
 upon the fact, that if a bank becomes embarrassed by their impru- 
 dent extension, it can get a good class of paper rediscounted, and 
 thus obtain immediate relief; whereas if its discounted paper is of a 
 low grade, or if the assistance required is to help the directors 
 only, and not its dealers generally, it loses sympathy and reputation. 
 The character of its discounted bills is, therefore, its sheet anchor 
 in a storm. In fact, the credit of the Clearing-house Association 
 would itself be impaired if it should allow one of its members to 
 fail from inability to convert good assets into cash funds."* One 
 of the ways by which relief is afforded in such cases is by the 
 issue of Clearing-house certificates against a deposit of securities, 
 such certificates to be available in the settlement of balances at the 
 Clearing-house. In the late crisis at New York some $ 25,000,000 of 
 such certificates were thus issued to different banks against accepted 
 securities, certificates in no case being issued to an amount exceed- 
 ing seventy-five per cent, of such securities. This measure afforded 
 substantial relief, and the certificates were mostly withdrawn within 
 sixty days. The same plan was tried with good results in 1861-2 
 and in 1873. 
 
 Other records of Clearing-house operations may be made possessing 
 practical value. Says Col. W. M. Grosvenor, in a paper which was 
 read at the Convention of the American Bankers' Association in 
 1882: "In the mere observation of the course of exchanges in dif- 
 ferent sections and at different localities, many business men affirm 
 that they have gained important advantages. They have been 
 warned in season, when the business of a distant city was being 
 diverted to others, or depressed by social or political influences. 
 They have been advised in season, by gradually expanding ex- 
 changes, that industry in a distant region was reviving, and prompt 
 effort in that direction has been rewarded. Investors have been 
 guided in the choice of securities by evidence of rapid growth in 
 the business of cities. Lenders have been warned by unnatural 
 expansion and violent fluctuation in the exchanges at a particular 
 
 * Gibbons. 
 
THE RECORDS KEPT AND THEIR USES. 245 
 
 city, that excessive speculation was approaching its climax there, 
 so that loans were 'extra-hazardous.' Information of more general 
 importance has repeatedly been obtained. The inquiry is yet in its 
 infancy, and comparatively little is known of the meaning of rec- 
 ords which, in due time, will enable men to note the coming of 
 many financial storms as surely as the march of an area of low 
 barometer across the country is traced by the signal service." 
 
 At the last meeting (1884) of the Bankers' Association, Mr. 
 Comegys, President of the Philadelphia National Bank, suggested 
 that the Clearing-house might keep another record, with a brief 
 explanation of which we shall close this chapter. The risks and 
 losses growing out of the purchase of one-name paper are well 
 understood, especially among bankers. To lessen the risk thus in- 
 curred, he proposed that a credit-ledger should be opened in the 
 Clearing-house of any city, in which should be kept a record of 
 the names of payers and endorsers, and dates of maturity of all 
 notes amounting to one thousand dollars, or more, held by the 
 banks, purchased of brokers. The reports of such paper, he further 
 proposed, should be made to the Clearing-house anonymously, and 
 information concerning such names should be given only to mem- 
 bers of the Clearing-house. Large sums of money, he declared, 
 might be saved to banks by means of this information. 
 
246 PRACTICAL BANKING. 
 
 CHAPTER IX. 
 PINES. 
 
 The minor delinquencies of the banks in their relations with the 
 Clearing-house are dealt with by means of fines. The following 
 scale of fines at New York will serve as an illustration : 
 
 First. All errors on the Credit side of the Settling Clerk's Statement (i.e. in 
 the amount brought) whether of footing or entry, a"nd all errors causing 
 disagreement between the credit entries, the check tickets, and the ex- 
 change slips each $ 3 oo 
 
 Second. Errors in making the Debit (i. e. the amount received) entries, each $2 co 
 
 Third. Errors in the Tickets reported to the Clearing-house, causing dis- 
 agreement between the balances and aggregates each $ 2 oo 
 
 Fourth. Errors in footing the amount received $ i oo 
 
 Fifth. Disorderly conduct of Clerk or Porter, at the Clearing-house ; or dis- 
 regard of the Manager's instructions each offence $ 2 oo 
 
 Sixth. Clerk or porter failing to attend punctually with statements and 
 
 tickets complete at the morning exchanges each $ 2 oo 
 
 Seventh. Debtor banks, failing to appear to pay their balances before i% 
 
 o'clock P. M $ 3 oo 
 
 Eighth. Errors in delivery or receipt of exchanges each$i oo 
 
 Forty-five minutes are allowed for the proof. For all errors re- 
 maining undiscovered at 11.15 A. M. the fines are doubled, and at 
 12 M. quadrupled. Once in each month the manager reports to each 
 bank the amount of fines against it for the preceding calendar month, 
 with the total amount of fines from all the banks and the num- 
 ber of banks fined. Clerks are required to conduct themselves in 
 a quiet and orderly manner, to be attentive to their duties, and to 
 remain at their desks while the proof is being made, and until it 
 is announced. Loud conversation, or anything tending to create dis- 
 turbance or confusion, is not permitted. The fines, though not 
 large considering the amounts involved, are sufficient to make it 
 an object for banks to employ clerks who are rapid and accurate 
 in figures, though there are very marked differences of aptness in. 
 this particular. 
 
HISTORY OF THE NEW YORK CLEARING-HOUSE. 247 
 
 CHAPTER X. 
 HISTORY OP THE NEW YORK CLEARING-HOUSE. 
 
 The first proposition for the establishment of a Clearing-house in 
 New York was made by Albert Gallatin in 1841. To Mr. Geo. D. 
 Lyman, the first manager of the New York Clearing-house belongs 
 chiefly the credit of systematizing its details and planning its rec- 
 ords in its earlier history. Mr. Lyman thus concisely sums up the 
 economy of time and labor effected by the Clearing-house: 
 
 "On the day when the Clearing-house began business, about 
 twenty-seven hundred open, active accounts on the ledgers of the 
 associated banks were balanced the most of them for the first 
 time,* and all of them finally. The business which had rendered 
 necessary this large number of accounts was thenceforth accom- 
 plished more quickly, with less annoyance to bank officers, arid 
 with greater safety to all concerned. The results may be briefly 
 enumerated as follows : 
 
 " First. The condensation for each bank of forty-eight balances 
 into one, and the settlement of that balance without a movement 
 of specie. 
 
 " Secondly. The avoidance of numerous accounts, entries and 
 postings. 
 
 " Thirdly. Great saving of time to the porters and of risk in 
 making exchanges and settlements from bank to bank. 
 
 " Fourthly. Relief from a vast amount of labor and annoyance 
 to which the great army of cashiers, tellers and bookkeepers were 
 subjected under the old system. 
 
 ' Fifthly. The liberation of the associated banks from all in- 
 jurious dependence on each other. 
 
 "Sixthly. The absolute facility afforded by the books of the 
 Clearing-house for knowing at all times the management and 
 standing of every bank in the Association." 
 
 Mr. Lyman remained manager of the Clearing-house until 1864, 
 a period of more than ten years. On the twenty-second of August 
 in that year he was succeeded by the present manager, Mr. William 
 A. Camp, who has brought the details of the business to a per- 
 
 * " The practice of the banks had been to draw settlement-checks on each other for even 
 thousands of dollars near the balance due, and the account was never settled to a point." 
 
:24& PRACTICAL BANKING. 
 
 fection not previously attained. Mr. Camp was born at Durham, 
 Connecticut, Sept. 23, 1822, was appointed in 1855 discount clerk 
 in the Importers and Traders' Bank of New York (his first bank- 
 ing experience), and was made first teller of the Artisans' Bank 
 in 1856. In June 1857 he was made assistant-manager of the 
 Clearing-house, so that he has now been connected with the es- 
 tablishment twenty-seven years, twenty years of that period as mana- 
 ger. To executive ability of a high order, he unites unusual accu- 
 racy and promptness in the despatch of business, as well as a wide 
 acquaintance, both theoretical and practical, with financial subjects. 
 It speaks volumes for the care and scrupulous accuracy with which 
 the business has been conducted, that in the entire history of the 
 Clearing-house, extending over nearly thirty-one years, its trans- 
 actions have always balanced to a cent. The only instance on 
 record of an error in any statement emanating from it occurred a 
 few years ago in the weekly bank statement, and this was due to 
 an error of one of the clerks in transcribing the figures. In making 
 the entries, the officials at the Clearing-house and their subordin- 
 ates use ink only. The clerks sent by the banks may at their 
 option make their entries in pencil. 
 
 The first day's clearing at New York, October n, 1853, was $23,- 
 938,182.25. The total of its gold and currency clearings to Decem- 
 ber 31, 1883, was $695,304,252,496.30, and of the balances, $30,250,- 
 .800,308.61. The largest transactions (clearings and balances com- 
 bined) in any one day were $295,821,422.37, February 28, 1881, 
 when the clearings amounted to $288,555,981.58. The largest ex- 
 change ever brought to the Clearing-house by any bank was on the 
 same day, $31,772,391.45, brought by the Bank of New York, its re- 
 turn exchange being $31,512,015.47. The largest balance paid by 
 any bank was $10,585,471.31, November 17, 1868. The smallest bal- 
 ance ever paid by any bank was one cent, September 22, 1862. The 
 -smallest balance ever paid to a bank was ten cents, November 16, 
 1863. No bank ever came out exact without a balance either way. 
 The largest amount ever cleared in one year was in 1881, $49,376,- 
 82,882.54, and the smallest in any whole year was in 1858, $5,376,- 
 151,036.92. Formerly bank notes were included in the clearings, 
 though to a less extent after the establishment of the National 
 banking system than before. The trouble of assorting the country 
 bank notes gave general dissatisfaction. "The Park Bank then un- 
 dertook, for a consideration of about five thousand dollars a year, 
 to assort the country bank notes of all the other banks in the city, 
 and this arrangement was prolonged for nearly two years, the plan 
 of working meanwhile gradually improving in efficiency, when it was 
 interrupted and superseded by the establishment of the Redemp- 
 tion Bureau in the office of the United States Treasurer at Wash- 
 ington, for the purpose of redeeming the notes of all National 
 
HISTORY OF THE NEW YORK CLEARING-HOUSE. 249 
 
 banks."* Bank notes may now be included in the exchanges, but, 
 in practice, are not. The paper exchanged now consists of checks, 
 drafts and certified notes. 
 
 Banks desiring to become members of the Clearing-house Asso- 
 ciation must apply to the committee on admissions, who make such 
 examination of the bank as they deem necessary. The personal 
 character and standing of its managers is also considered. The bank 
 may be admitted to the Association by a three-fourths vote (by 
 ballot) of the members present at any meeting, on such conditions 
 as three-fourths of those present may deem expedient. The new 
 member must assent to the Constitution and pay an admission fee, 
 varying from $1,000, where the capital does not exceed $500,000, 
 up to $7,500, where the capital exceeds $5,000,000. Any member 
 increasing its capital must pay an additional sum corresponding 
 with these rates. A bank may withdraw from the Association at 
 pleasure, first paying due proportion of all expenses incurred, and 
 signifying its intention to withdraw to the Clearing-house commit- 
 tee. The expense of printing for the several banks is apportioned 
 equally among them. The other expenses are met by an assess- 
 ment of $200 on each bank, and the balance necessary above that 
 amount pro rata according to the average amount sent to the Cleau- 
 ing-house for the preceding year. A fine of three dollars is imposed 
 on any bank not represented at roll call at any duly called meet- 
 ing without reasonable excuse. Any member of the Association 
 guilty of participation in any scheme for withdrawing legal tenders 
 from use may be suspended from the Clearing-house. 
 
 * Kinahan Cornwallis in International Review for Sept.-Oct., 1876. 
 
250 PRACTICAL BANKING 
 
 CHAPTER XI. 
 CLEARING-HOUSES OUTSIDE OP NEW YORK. 
 
 The Boston Clearing-house, like that of New York, has had but 
 two managers, Mr. Henry B. Grove, from the organization of the 
 Clearing-house in 1855 to his death in April, 1877, and Mr. Na- 
 thaniel G. Snelling, the present incumbent, from that date until the 
 present time. Mr. Snelling was assistant manager from 1861 to 
 1877, and has therefore been connected officially with the Clearing- 
 house for twenty-three years. The clerks and porters, as well as the 
 manager, give bonds. The daily routine is substantially the same at 
 Boston as at New York. The hour for clearing is ten o'clock, A. M. 
 The debtor banks are required to pay their balances by 12.15 p M - 
 and the creditor banks receive them at i% o'clock P. M. Thirty 
 minutes are allowed for the proof and for delivering check tickets, 
 and for each fifteen minutes' detention beyond that time two dol- 
 lars are added to the fine incurred. About half an hour is re- 
 quired to prepare the exchanges for the Clearing-house. The mes- 
 sengers complete the delivery of the packages at the Clearing- 
 house in about five minutes. They receive the return clearings in 
 about ten or fifteen minutes, and are generally back at their re- 
 spective banks by fifteen or twenty minutes past ten. The paying 
 teller completes the examination of the return exchange usually by 
 eleven o'clock, and then delivers the checks and vouchers to the 
 bookkeeper, who enters them on his books in ink of a different 
 color from that used in charging those paid over the counter. 
 Usually the bank sending paper to the Clearing-house marks its 
 number on the back of each check or voucher in blue ink, but 
 the practice is not uniform. Although the check tickets are usu- 
 ally prepared at the bank and delivered by the messengers, this is 
 not obligatory. It is sufficient if the check tickets are all de- 
 livered before half-past ten o'clock, for failure to do which a fine 
 of one dollar is imposed. No failure has ever occurred among the 
 banks connected with the Boston Clearing-house, though the Me- 
 chanics' Bank (No. 30) never came in, and the Metropolis (No. 
 38), discontinued business many years ago. Provision is made in 
 the Constitution for making one of the associated banks a de- 
 pository of coin against which certificates may be issued. But this 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. 251 
 
 provision is at present dormant, United States gold certificates being 
 used instead. In case of default by any bank in paying its balances 
 at the Clearing-house, the Constitution, in addition to provisions 
 similar to those of the New York Clearing-house, provides that 
 any bank responding to the manager's requisition for the deficiency 
 may have its exchanges with the defaulting bank canceled, and be 
 restored to the position in which it stood before the exchange was 
 made. Weekly statements are required from the banks, as in New 
 York. 
 
 At Philadelphia there are two clearings daily. The first, and 
 principal clearing is at half-past eight o'clock, A. M. The balances 
 of this clearing are paid in legal tender notes or United States cer- 
 tificates, between the hours of eleven and twelve o'clock. A second, 
 or " runners' " exchange, is held at half-past eleven, for the settle- 
 ment of the items formerly taken to the different banks by the 
 runners, namely, the notes and checks received by the morning 
 mail. The balances of this exchange are paid by due bill, which 
 goes through the next morning's exchanges. The clearing methods 
 are similar to those at New York. Weekly bank statements are 
 also published. 
 
 At Chicago the hour for clearing is eleven o'clock daily. Bal- 
 ances must be paid by the debtor banks between the hours of 
 twelve and half-past twelve, and the creditor banks receive them 
 between half-past twelve and a quarter of one o'clock. Balances 
 are, by the rules of the Clearing-house, payable in gold coin, legal 
 tenders, National bank notes, United States and Clearing-house cer- 
 tificates. It is customary, however, for the banks to save the hand- 
 ling of actual cash to a greater or less extent by the following ex- 
 pedient : A debtor bank sells to some creditor bank New York or 
 Boston exchange, and receives from the latter a check or order on 
 the Clearing-house, the form of which is printed on green paper, 
 and is as follows : 
 
 No CHICAGO 1884. 
 
 W. S. SMITH, Manager, 
 
 Chicago Clearing-house. 
 
 Pay or order 
 
 Dollars, 
 
 and deduct from balance due us this day. 
 
 Cashier. 
 
 The debtor bank delivers this voucher at the Clearing-house in 
 settlement of the amount which it represents, and it is available to 
 the Clearing-house in settling with the creditor bank without hand- 
 ling any cash. At St. Paul a similar usage prevails, the check or 
 order on the Clearing-house being printed on light yellow paper. 
 
252 PRACTICAL BANKING. 
 
 At Chicago all checks and vouchers exchanged at the clearing 
 are held in trust only by the member receiving the same until re- 
 turned, or the amount thereof paid. In case of failure on the part 
 of any bank to pay its balances at the proper hour, it is to return 
 such checks or vouchers, without mutilation, to the Clearing-house 
 before one o'clock P. M., and it is to receive back the vouchers it 
 sent. Elaborate provisions are made for the protection of the asso- 
 ciated banks in such cases. The work of clearing, in its various 
 stages, occupies about two hours. Thirty minutes .are allowed for 
 the proof. The paper exchanged is stamped "Paid through the Chi- 
 cago Clearing-house to " (name of member clearing same to be here 
 inserted), with the date, in lieu of written endorsements, and the 
 bank using such stamp thereby makes itself responsible for all items 
 so stamped by it, and for all informalities of endorsements thereon. 
 The business hours of the different members must be uniform, and 
 are regulated by the Association. Each member of the Association 
 is required to furnish to the manager, as often as five times yearly, 
 and at such other times as may be required by the Clearing-house 
 committee, a sworn statement of its condition, in the form and 
 manner prescribed for the statements of National banks, such state- 
 ments to be open to the inspection of the members, but to be 
 otherwise confidential. The scale of fines shows some peculiarities, 
 among which may be mentioned those for being late at the morn- 
 ing exchanges. For the first five minutes, or part thereof, late, the 
 fine is $3; for the second five minutes, or part thereof, $10, and 
 for being over ten minutes late, $25. Creditor banks are also fined 
 $3 in case of failure to take away their balances by 12.45 p - M - All 
 fines are collected by the manager at once. The manager may re- 
 quire from members the signatures of such persons as are authorized 
 to receipt for balances. The expenses of the establishment are 
 about $8,000 per annum, assessed upon the banks in a manner simi- 
 lar to that at New York. 
 
 At St. Louis the hour for making the exchanges is ten o'clock 
 A. M. Each clerk must report the debits against his bank within 
 twelve minutes after commencing; for failure to do which the bank 
 is fined $2, with two dollars more for every five minutes' additional 
 delay. The time required for completing the morning settlement 
 varies from fifteen to thirty minutes. At eleven o'clock the manager 
 issues his certificates of indebtedness by the debtor on the creditor 
 members, the form of which has been already given, each creditor 
 bank receiving, on an average, two certificates. The payment of bal- 
 ances, which are not handled at all by the Clearing-house, but are 
 settled wholly between the banks, occupies from one to one and 
 one-half hours. As at Chicago, the exchange and delivery of 
 checks at the Clearing-house is in trust only until the debit bal- 
 ances are paid, and such checks must be returned unmutilated by 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. 253 
 
 any defaulting member. All checks sent to the Clearing-house must, 
 in lieu of written endorsement, bear the impress of a uniform 
 stamp, showing the name and number of the bank sending it, and 
 the date, with the words, "St. Louis Clearing-house." The by-laws 
 define proper clearing matter as follows : 
 
 1. All checks or drafts upon, or certificates of deposits, demand or 
 matured, of any member of the Clearing-house or any bank clearing 
 through any member. 
 
 2. Any other matter specially agreed to by any member, or 
 bank clearing through it, until notice is given to the contrary. 
 
 3. Mercantile or other paper payable at any bank shall not be 
 cleared against such bank unless authorized by the same. 
 
 4. All unstamped checks will be considered improper matter for 
 clearing. 
 
 5. Any bank clearing paper not proper, as aforesaid, shall be fineid 
 for disregard of instructions. 
 
 Clerks duly authorized may return at the Clearing-house matter 
 not authorized according to the foregoing to the clerk of the bank 
 clearing it, who must receive and charge his bank with it in his 
 debit list. The initiation fee is only $25, and the expenses, amount- 
 ing to about $6,000, are paid by the members in proportion \o 
 their clearings. To be eligible as members, banks must have a paid- 
 up capital of $ 1 50,000. Instead of a " settling clerk's statement " all 
 on one blank, each clerk has two statements. One called a " C* edit 
 
 List," begins " St Louis Clearing-house . , 1884, 
 
 from Bank No ," and contains the exchange 
 
 brought by the bank. It corresponds with the debit column in the 
 "settling clerk's statement," as already given. The other statement 
 is called the " Debit List," and begins " St. Louis Clearing-house, 
 
 1884, on Bank No " 
 
 It corresponds with the credit column in the settling clerk's state- 
 ment. The manager compiles periodical statements showing the 
 condition of the banks from returns made by them. While tjhe 
 method of paying balances employed at St. Louis saves one hand- 
 ling of the funds so paid, it must usually happen that another 
 great economy effected by the Clearing-house is lost, namely, the 
 settlement of the whole debtor or creditor balance in one item. 
 It would be a very remarkable circumstance if the balance due 
 from any debtor bank should be exactly the same as the balance 
 due to some creditor bank. Whenever it is otherwise, the demand 
 due to the one, or from the other, must be divided into two or 
 more payments. The relative advantage of one or the other method 
 of paying balances must, however, be determined by the circum- 
 stances of each Clearing-house. What might be most convenient 
 under certain conditions, might be quite inconvenient or imprac- 
 ticable under different conditions. The manager and a porter have 
 charge of the Clearing-house. 
 
254 PRACTICAL BANKING. 
 
 The regulations of the San Francisco Clearing-house are very 
 similar to those at New York. As at Philadelphia, there are two 
 clearings daily, these being the only Clearing-houses in the country 
 having more than one. The hours of clearing are for ordinary 
 days ten o'clock, A. M., and two o'clock, p. M., precisely. At half- 
 past two o'clock, P. M., the debtor banks pay their balances to the 
 Clearing-house, and at three o'clock, P. M., the creditor banks re- 
 ceive their balances at the same place. On Saturdays the ex- 
 changes occur at eleven and half-past eleven o'clock, the settle- 
 ments being made at twelve. About ten minutes are occupied in 
 getting the proof, about thirty minutes in receiving debit balances, 
 and about twenty minutes in paying credit balances. United States 
 certificates began to be used in paying balances March 5, 1883, and 
 Clearing-house certificates June 5, 1883. Formerly the gold bal- 
 ances were paid in gold coin, the silver in silver coin, and the 
 currency in currency. This was the case before the resumption of 
 specie payments. There are no fines or penalties other than sus- 
 pension or expulsion. If a bank defaults in the payment of its 
 balances, the amount of that balance is furnished to the manager 
 in memorandum checks by the banks to which the defaulting bank 
 is a debtor, in proportion to the amount due each, and the claims 
 of the banks which have balances against the defaulting bank, and 
 the claims of the defaulting bank against banks which may, in 
 that exchange, have exchanged with it, shall be placed in precisely 
 the same position as before the exchanges commenced. New mem- 
 bers must pay an initiation fee of $ 500, as compared with $ 200 
 for the original members. To provide for the annual expenses, each 
 bank also pays an annual subscription of $ 1 50, any balance required 
 being made up by a pro rat a assessment according to the amounts 
 cleared by each bank. The work at the Clearing-house is in charge 
 of the manager and one clerk. 
 
 At Baltimore the banks make their exchanges daily at the Na- 
 tional Union Bank of Maryland, which is the depository of the 
 associated banks. The hour for clearing is 8.45 o'clock, A. M. The 
 balances are paid by the debtor banks at ten o'clock, either in 
 legal-tender notes or certificates, and are received by the creditor 
 banks at noon. 
 
 At New Orleans the hour for clearing is nine o'clock, A. M. At 
 11.30 o'clock, A. M., or as soon thereafter as the amounts can be 
 made up and proved, the creditor banks receive from the manager 
 at the Clearing-house in settlement of their balances checks on 
 the debtor banks, which checks are not transferable, and are \o be 
 in no case sent through the exchanges. The liability of the asso- 
 ciated banks on such checks ceases at two o'clock, p. M., on the 
 day of their issue. Any bank unable to pay its balances is re- 
 quired to notify the manager and other members of the Association, 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. 255 
 
 and if any bank fails to respond to the manager's checks before 
 one o'clock, P. M., such checks are to be returned to the Clear- 
 ing-house. The manager at once notifies the other associated banks, 
 and strikes from the lists the exchanges of the defaulting member, 
 which is required to hold in trust for the other banks the checks 
 received from them until called for by them. The manager then 
 makes a supplemental adjustment between the other banks, without 
 recalling the checks already issued by him upon the responding 
 banks. He charges back to them the checks brought by them 
 against the defaulting bank, and credits back to them, ist, the 
 checks brought against them by the defaulting bank, and, 2d, the 
 amount of the manager's checks issued to them upon the default- 
 ing bank. He then issues supplemental manager's checks for the 
 settlement of the balances which result from these debits and 
 credits. The defaulting bank ceases to be a member of the Asso- 
 ciation, and can only be readmitted by a three-fourths' vote of the 
 Association as in the case of new members. Each member of the 
 Association is required to keep on hand in coin, United States legal- 
 tender and National bank notes and sight exchange on New York, 
 twenty-five per cent, of its net liabilities subject to check as they 
 appear each morning after the exchanges, and twenty per cent, of 
 such liabilities in coin, legal tenders, and National bank notes. 
 Every member of the Association is required to furnish to the 
 Association every Saturday morning a report of its average condi- 
 tion for the week ending Friday morning, showing, ist, specie 
 (coin); 2d, United States legal tenders and National bank notes; 
 3d, cash items ; 4th, sight exchange on New York ; 5th, foreign 
 exchange ; 6th, due from distant banks and bankers ; 7th, loans and 
 discounts ; 8th, other cash assets ; 9th, circulation ; roth, deposits 
 (net, after exchanges); nth, due distant banks and bankers, sub- 
 ject to check; I2th, other liabilities to banks and bankers; I3th, 
 other cash liabilities. Members are required to pay an admission 
 fee, and the expenses (except printing, which is shared equally) are 
 apportioned according to the average amount of the clearings. No 
 exchanges are made with members before a-quarter to ten o'clock, 
 A. M., except through the Clearing-house. The exchanges are de- 
 livered at the Clearing-house in sealed envelopes. The clerks, as 
 well as the manager, must give bonds with sufficient sureties. 
 Minute rules prescribe the manner in which bundles of currency 
 must be assorted, wrapped up and sealed for greater security when 
 designed to be used in paying balances. 
 
 At Cincinnati the routine is substantially the same as at St. 
 Louis, the former having served as the model for the St. Louis, 
 Louisville and Columbus Clearing-houses. At all of these, except 
 St. Louis (as formerly at this, also), the official statements of clear- 
 ings and balances represent (or lately did) the total of both sides 
 
2$6 PRACTICAL BANKING. 
 
 of the Clearing-house proof, and must be divided by two to get 
 the true clearings. The same was formerly the case at Kansas City, 
 Milwaukee and St. Joseph. The hour for making the exchanges at 
 Cincinnati is two o'clock p. M. At half-past two the manager, in 
 settlement of balances, issues his checks or warrants upon the 
 debtor members to the creditor members, which must be promptly 
 paid to the satisfaction of the latter. If payment is not made be- 
 fore four o'clock on the same day the Clearing-house must be no- 
 tified immediately, otherwise the other members are free from re- 
 sponsibility on such checks. In case of default the other members 
 must make up the deficiency in proportion to the checks they 
 have cleared on the defaulting member on that day, and the latter 
 is required to return the checks it has received unmutilated, and 
 in case it refuses or cancels such checks, the same are treated as 
 if returned. 
 
 At Pittsburgh the hour for clearing is nine .o'clock A. M., and the 
 average time occupied is twelve minutes. The checks to be ex- 
 changed are put up in large, unsealed envelopes. The debtor banks 
 pay their balances in cash, inclosed in sealed envelopes, between 
 10^ and ti o'clock A. M., and the creditor banks receive them be- 
 tween 1 1 and 1 1 y* o'clock A. M., a receipt being given in each case. 
 All checks sent to the Clearing-house are marked with the stamp 
 of the bank sending them. The manager compiles periodical state- 
 ments showing the condition of the associated banks and of the 
 banks which clear through them. 
 
 At Providence, where there is no regularly organized Clearing- 
 house, nineteen banks clear through the Merchants' National Bank, 
 and fifteen through the National Bank of North America. The 
 routine, as stated by Mr. John W. Vernon, Cashier of the Mer- 
 chants' National Bank, is as follows : Each bank, instead of assort- 
 ing the checks and other clearing matter it holds, and depositing 
 the packages made up against every other bank, deposits its ex- 
 change in bulk with its clearing bank, and the latter assorts the 
 checks and notes, making up new packages against each bank. 
 When the two clearing banks have finished assorting the checks 
 and other items and making up the packages, they exchange with 
 each other, settling the balance in New York or Boston funds. 
 The time required for assorting and exchanging the checks and 
 notes is such that, although the exchange is to be deposited at 10% 
 o'clock A. M., the clearing banks are not ready to settle balances 
 until about one o'clock. Between one o'clock and three P. M. the 
 clearing banks pay the creditor banks, and are paid by the debtor 
 banks in cashiers' checks on New York or Boston banks, at the 
 option of the payee. The banks clearing through the National 
 Bank of North America stamp all the checks deposited by them 
 with a circle containing the clearing number of the bank. Each 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. 257 
 
 bank clearing through the Merchants' National Bank stamps the 
 checks it deposits with a triangle containing its clearing number. 
 National bank notes as well as checks are included in the ex- 
 changes. 
 
 At. Milwaukee the hour for clearing is 10^ o'clock A. M. The 
 various stages of the work occupy about an hour. Debtor banks 
 pay their balances to the Clearing-house at two o'clock p. M., either 
 in lawful money, National bank notes, or such Clearing-house cer- 
 tificates as may be agreed on from time to time. At 2X o'clock 
 p. M. the creditor banks receive their balances. In case a bank de- 
 faults in the payment of its balances the other banks are to make 
 up the deficiency on the manager's requisition in proportion to- 
 their balances against the defaulting member, and until the settle- 
 ment is completed the exchange is in trust only, and the vouchers 
 remain the property of the members presenting them and are to 
 be returned if required. Checks not good are to be returned before 
 12% o'clock to the member sending the same, which is to reim- 
 burse the holder by one o'clock. The expenses (about $850) are 
 borne by assessment to be fixed by the Clearing-house commit- 
 tee, and to be paid quarterly in advance. The members are re- 
 quired to keep uniform hours, and are not allowed to receive on 
 deposit checks upon any banks or bankers in Milwaukee which are 
 not members, unless such banks or bankers clear through some 
 member. The banks stamp checks sent to the clearing-house. Any 
 member may be subjected to examination, or required to furnish 
 security, upon representation that its capital is seriously impaired- 
 
 At Kansas City the hour for clearing is 12.30 o'clock p. M., and the 
 manager's certificates are issued in settlement of balances as soon 
 as the proof is made. They are, in form, identical with that used 
 at St. Louis, except that recourse may be had on the other mem- 
 bers up to 2*4 instead of 2 p. M. The Constitution is almost word 
 for word identical with that of St. Louis, and checks cleared are 
 stamped in the same manner. The hours of the members are to* 
 be uniform, as regulated by unanimous vote. Proper matter for 
 clearing, according to the by-laws, consists of checks, drafts, certifi- 
 cates of deposit, demand or matured, and any other matter specially 
 agreed upon, and any bank clearing paper not proper is subject to- 
 a fine. The manager makes monthly or quarterly statements, show- 
 ing the clearings and balances of each member for the month or 
 quarter, the amount of fines imposed upon each member, and the 
 causes thereof. Only National and State banks having a capital of 
 $50,000 or more are eligible as members. 
 
 The Louisville Clearing-house is modeled mainly after that of 
 Cincinnati. Checks only are cleared; balances are settled by mana- 
 ger's check, which must be collected on the same day, or the holder 
 loses recourse. 
 
258 PRACTICAL BANKING. 
 
 The Detroit Clearing-house is conducted on principles similar to 
 those of the Chicago Association. The clerks, as well as the mana- 
 ger, furnish bonds with sufficient sureties. The hour for clearing is 
 12.15 o'clock P. M. A fine of one dollar per minute is imposed 
 for tardiness, and the clearings are in no case delayed more than 
 five minutes by the absence of a member. Fifteen minutes are al- 
 lowed for the proof, but the average time occupied is only ten 
 minutes. Fines are doubled in thirty minutes, and quadrupled in 
 one hour. The debtor members pay their balances to the manager 
 between i and 1.30 p. M. in coin, legal tenders, National bank notes, 
 Clearing-house certificates provided for by the rules of the Associ- 
 ation, or New York exchange. At last accounts the practice, since 
 the Association was formed, has been to pay balances in New York 
 exchange only. At 1.30 p. M. the creditor banks receive their bal- 
 ances. The exchange is in trust, and vouchers remain the property 
 of the member presenting them until balances are paid, and in 
 case of default must be returned to the Clearing-house unmutilated 
 by 1.30 P. M. The defaulting bank is also entitled to receive back 
 the vouchers it has presented, and the exchanges with it are can- 
 celled. If the New York exchange given in settlement of balances 
 is dishonored, the deficiency is assessed upon the banks having 
 debit balances against the defaulting member in proportion to such 
 balances. To provide for expenses the members each pay $50, and 
 an equal share to the cost of printing. All beyond this is provided 
 by an assessment on the banks in proportion to their exchanges 
 sent to the Clearing-house. The paper cleared consists of checks, 
 drafts and certified paper. Some of the members affix some distin- 
 guishing mark to paper cleared, but this is not required by the 
 rules of the Association. 
 
 At Cleveland the clearings are made at one o'clock P. M. Bal- 
 ances of more than $ 1,000 are settled by New York exchange. 
 When balances are under $1,000, a balance check is given which is 
 put through the clearings of the next day. Consequently, no cash 
 is handled in paying balances. Checks cleared are marked with a 
 Clearing-house stamp. 
 
 At St. Paul the regulations are modeled after those at Chicago 
 and Milwaukee. The clearings are made at 10.30 o'clock, A. M., and 
 the average time occupied is seven minutes. Checks only are 
 cleared. A clerk of the First National Bamk of St Paul, where 
 the clearings take place, acts as manager. The "paid " stamp of the 
 sending bank is the only distinguishing mark affixed to checks pass- 
 ing through the Clearing-house. Balances are payable in coin, Na- 
 tional bank notes, legal tenders, and gold or silver certificates. No 
 silver dollars are ever offered by mutual understanding. 
 
 At Indianapolis the manager receives at the room of the Asso- 
 ciation from members, between 12 o'clock noon and 12^ * M., 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. ,759 
 
 the checks, drafts and notes to be exchanged, and immediately 
 afterwards collects from or pays to each bank at its place of busi- 
 ness the balances resulting from such exchange. No member is 
 allowed to receive in payment a check on any Indianapolis bank 
 not a member, and no paper payable at any bank not a member 
 is allowed to pass through the Clearing-house. All checks received 
 by members after one o'clock must be certified. All paper cleared 
 must bear the endorsement of the sending bank, either in writing 
 or by stamp, as an acknowledgment of payment and not as a 
 guarantee, except as to the genuineness of other endorsements. The 
 maker of a check dishonored for want of funds is discredited, the 
 members are all notified, and no uncertified check of such a person 
 is allowed to pass through the Clearing-house until his credit is 
 restored by vote of the Association. All notes ahd acceptances 
 must be certified before passing through the Clearing-house. The 
 manager takes up the checks delivered to and by any defaulting 
 member, and returns them. Expenses, except as provided for by 
 fines, are paid by the banks in proportion to their capital and de- 
 posits. The manager is to be a notary and has the privilege of 
 protesting such paper as the members have for protest, his fees 
 being his only compensation. 
 
 At Hartford the business of clearing is done by the members in 
 turn, each for one month at a time, some officer of the clearing 
 bank being manager. The hour for clearing is 10 o'clock and 5 
 minutes, and the time occupied averages fifteen minutes. The debtor 
 banks pay their balances to the Clearing-house at or before n)4, 
 A. M., in checks on New York, except balances of less than $ 100, 
 which may be paid in currency. The creditor banks receive their 
 balances at 12 M. The matter cleared includes notes, drafts and 
 checks, also bank notes of the members to a very limited extent. 
 All paper cleared must bear the written or stamped endorsement 
 of the bank sending it. In case of default the other banks make 
 up the deficiency as at New York and Boston. All checks not 
 good must be returned to the sending bank by 12 o'clock noon. 
 
 At Minneapolis the clearings occur at eleven o'clock A. M. The 
 constitution is not printed, but the routine appears to be in general 
 similar to that at New York. 
 
 At New Haven, as at Hartford, the banks take turns, each bank 
 acting as the Clearing-house for three months. The exchanges are 
 made at 9.15 A. M., and include checks, acceptances, notes certified 
 the day before, and in fact everything in the form of an order on 
 any member. Balances are to be paid by noon in drafts on New 
 York. 
 
 At Memphis the exchanges occur at nine o'clock A. M., and the 
 time consumed by the manager in the adjustment of balances is 
 about thirty minutes. In settlement of balances the manager draws 
 
26o PRACTICAL BANKING. 
 
 tiis check on the debtor in favor of the creditor members in the 
 following form : 
 
 MEMPHIS CLEARING-HOUSE, 
 
 MEMPHIS, TENN 1884. 
 
 BANK. 
 
 Pay to G. in settlement of balances this morning Six thousand 
 five hundred and fifty $& dollars. 
 $6,550^- Adjuster. 
 
 Instead of writing the name of the payee in full, the initial letter 
 or letters simply are used. The amount of checks brought by each 
 bank is entered on a credit slip, and the amount taken away on a 
 debit slip. This latter also contains additional rulings to show the 
 balance due to or from the bank, and against the initials of each 
 bank is written the amount of checks drawn upon it or in its favor 
 to settle this, balance. Balances must be settled in current funds. 
 Checks only are cleared, and they are delivered in sealed envelopes 
 designated on the outside as follows. 
 
 MEMPHIS CLEARING-HOUSE, 
 
 July i, 1884. 
 U. $10,000 from Commerce. 
 
 That is Union and Planters' Bank $ 10,000, from the Bank of 
 Commerce. 
 
 At Peoria the clearings are made at 11.30 o'clock A. M., and 
 occupy about half an hour. The clearing matter consists of checks. 
 Members are to report upon balances resulting from the exchanges 
 before one o'clock, after which hour the balance becomes the debt 
 of the bank. Balances must be paid by the debtor banks at the 
 counters of the creditor banks before three o'clock, in currency, 
 unless arrangements have been made before that hour for payment 
 in exchange on other points. Checks not good must be returned 
 before . 1.30 P. M. 
 
 At Portland the six National banks, without being formally or- 
 ganized as a Clearing-house, settle daily at ten o'clock A. M. The 
 time occupied is about fifteen minutes. Portland checks only are 
 included in the clearing. Balances are paid in legal-tender notes, 
 or checks on Boston or New York. 
 
 The Worcester and Lowell Clearing-houses are organized on the 
 same plan. Each bank belonging to the Association is required to 
 make a deposit fixed by vote of the Association with the Clearing- 
 house Committee as its proportion of a clearing fund. This fund 
 is deposited with one of the banks selected as the clearing bank,. 
 
CLEARING-HOUSES OUTSIDE OF NEW YORK. 261 
 
 free of interest, as a compensation for services and expenses. The 
 clearing bank is changed each year at Lowell. The cashier of the 
 clearing bank is, ex officto, the manager of the Clearing-house. No 
 bank is allowed to make the clearings of a bank that is not a 
 member. At Worcester the hour for making the exchanges is 12 
 o'clock noon, and the time occupied is about fifteen minutes. At 
 Lowell the hour of clearing is eleven o'clock, and the time occu- 
 pied is from seven to ten minutes. The clearing matter of both 
 consists of checks, drafts and notes. At Worcester paper cleared 
 is marked as follows : " Pay only through Worcester Clearing-house 
 
 to " At Lowell no distinguishing mark is affixed. At the 
 
 latter balances are paid by drafts on New York or Boston ; at 
 Worcester by checks on Boston. 
 
 At Springfield the exchanges occur at eleven o'clock at the 
 Chicopee National Bank, and occupy about twenty minutes. One 
 clerk for each bank performs the duties of messenger and settling 
 clerk. All kinds of paper are cleared, each item being stamped 
 with the stamp of the sending bank. Balances of less than $ 200 
 are paid in currency; if more than that by New York or Boston 
 drafts. 
 
 At Columbus, Ohio, the representatives of the banks clear at the 
 Board of Trade Rooms in City Hall at two o'clock P. M. The ex- 
 changes occupy ten minutes, the adjustments twenty. Clearing 
 matter consists of checks to which no distinguishing mark is affixed. 
 Balances are paid by manager's checks on the debtor banks. 
 
 At Norfolk the banks select one of their number to be the Clear- 
 ing-bank for one year, and the cashier of that bank is ex officio 
 manager of the Clearing-house. The hour for making the exchanges 
 is eleven o'clock precisely. At 12% o'clock the debtor banks pay 
 their balances at the Clearing-house in currency, and the creditor 
 banks receive their balances at one o'clock. Checks not good must 
 be returned by 12 M. to the bank sending them, and must be 
 satisfied by 2.30 p. M. All checks presented in payment of notes 
 and drafts (except when presented by the runner) must be certi- 
 fied by the bank on which they are drawn. Although the rules 
 require the payment of balances in currency they are, as a matter 
 of accommodation between the banks when exchange is plentiful, 
 often paid by checks on New York, Philadelphia, or Baltimore. 
 
 At Syracuse the exchanges take place at 10.20 A. M., and occupy 
 five minutes, the paper cleared being checks, certified notes and ac- 
 cepted drafts. No distinguishing mark is affixed to paper cleared. 
 Balances are paid as convenient within two hours following the 
 clearing in drafts on New York. 
 
 Notwithstanding the space given to the foregoing particulars in 
 relation to the various Clearing-houses in the United States, many 
 matters of interest have been necessarily omitted, while others of 
 
262 PRACTICAL BANKING. 
 
 importance, familiar to those connected with Clearing-house busi- 
 ness, may have been overlooked. In the collection of such a va- 
 riety of data from so many different sources, errors, both of omis- 
 sion and commission, are liable to occur. Enough has, however, 
 been brought together to furnish material for suggestive compari- 
 sons as to the methods in use at the various Clearing-houses. 
 When all the Clearing-houses, however unimportant their operations 
 may seem, shall preserve full and accurate records of their busi- 
 ness in its various details, such comparisons will shed increased 
 light upon the movements of our internal commerce, and, still bet- 
 ter, repay careful study. 
 
FOREIGN CLEARING-HOUSES. 263 
 
 CHAPTER XII. 
 POEEIGN CLEARING-HOUSES. 
 
 Of foreign Clearing-houses, by far the most important is that of 
 London, embracing twenty-seven banks, including the Bank of Eng- 
 land, which only became a member about twenty years ago, and 
 clears only on one side, that is, its charges on other banks. These, 
 being obliged as members of the Clearing-house to keep an ac- 
 count with the Bank of England, pay in their charges against it 
 to the credit of their account. A considerable number of London 
 banks in high credit have so far been refused the privilege of mem- 
 bership in the Clearing-house. Indeed so exclusive was it formerly 
 that until 1854 the joint-stock banks were refused admission. The 
 West End and Scotch banks and others not yet admitted, clear 
 through members. 
 
 The number of daily clearings at London is three, as follows: 
 Ordinary Days. 
 
 "Morning clearing to open at 10.30. Drafts, &c., to be received 
 not later than 11. Morning clearing must be closed by 12. 
 
 "Country clearing to open at 12. Drafts, including returns, to 
 be received not later than 12.30. Country clearing must be closed 
 by 2.15. 
 
 " Afternoon clearing to open at 2.30. Drafts, &c., to be received 
 not later than 4. Returns to be received not later than 5, except- 
 ing on settling days, when the last delivery shall be at 4.15, and 
 returns at 5.15." 
 
 Fourths of the Month. 
 
 " Morning clearing to open at 9. Drafts, &c., to be received not 
 later than 10. Morning clearing must be closed by 12." 
 
 Country clearing takes place as on ordinary days, and afternoon 
 clearing as on settling days, except when the fourth of the month 
 occurs on Saturday, in which case the hours are as on ordinary 
 days. 
 
 Saturdays {not being Fourths'). 
 
 "Morning clearing to open at 9, Drafts, &c., to be received not 
 later than 10. Morning clearing must be closed by n. 
 
 "Country clearing to open at 11. Drafts, including returns to be 
 received not later than 11.30. Country clearing must be closed by 1.15. 
 
-264 PRACTICAL BANKING. 
 
 "Afternoon clearing to open at 1.30. Drafts, &c., to be received 
 not later than 3. Returns to be received not later than 4." 
 
 In explanation of certain terms used at the London Clearing- 
 house it may be stated that an "article" is a bill, "or check or 
 dividend warrant, or banker's payment slip, or memorandum for 
 country notes, or indeed any article that is paid into the clearing 
 for settlement there." 
 
 "A 'charge' is a batch of articles (i.e., bills, checks, bankers' pay- 
 ments, &c.) sent into the Clearing-house by one banker to be 
 charged by him against another. 
 
 " ' Returns ' are any articles which may be returned into the Clear- 
 ing-house unpaid, from want of funds, irregularity of endorsement, 
 no advice, or from any other cause." 
 
 The officer having charge of the clearing is called an inspector, 
 and not a manager, as in this country. The London Clearing-house 
 has two inspectors. Instead of blanks, such as are used at Ameri- 
 can Clearing-houses, books are used. The checks and bills to be 
 presented by any one clearing banker upon any other are entered 
 at home in the "Out-clearing book." There is also the "In-clearing 
 book," in which are entered the amounts of the checks received in 
 the exchange; the Out returns, the In returns, the Clearing Bal- 
 ance Book, the Clearing Difference Book, &c. 
 
 The London Clearing-house is a plain oblong room with rows of 
 desks in compartments round three sides and down the middle. 
 A small office for the two inspectors stands at one end. Each 
 bank sends as many clerks to the house as may be requisite for 
 the rapid completion of the work, some of the banks having as 
 many as six clerks. The mode of conducting the business, as de- 
 scribed in the last edition of Gilbart on Banking, is substantially 
 as follows : 
 
 The matter cleared at the morning clearing consists, as a rule, 
 -of bills and marked checks. These bills are bills which have 
 been discounted by the bank or held for collection on account 
 of customers. During the afternoon of the day before they fall 
 due, they are passed from the bill department into the clearing de- 
 partment, so as to let the clearing clerks get an early start next 
 morning. On the morning of the day on which they mature, the 
 clearing clerks sort them into various packages, one for each of the 
 other twenty-five (or if the Bank of England twenty-six) clearing 
 banks. Thus those which fall due at the London and Westminster 
 Bank are sorted into one parcel, and the same in other cases. The 
 amounts only are then entered in the spaces left under the respec- 
 tive headings of the other banks in the Morning Bill Book. The 
 clearing clerks then sum up the entries in this book, and check 
 the aggregate of the various totals with the sum supplied to 
 them on a memorandum by the bill department of the bank. 
 
FOREIGN CLEARING-HOUSES. 265 
 
 If right, their clearing work is checked so far, and they then 
 transfer the various totals into the Out-clearing Book. Having done 
 this they next proceed to deal with the " marked checks." These are 
 checks which have been paid in by customers on the afternoon of 
 the day before, too late for the day's clearing. Every afternoon 
 each bank sends these checks out to the other banks upon which 
 they are drawn to be marked for payment. This marking consists 
 of the initials of one of the cashiers put upon the checks as an 
 acknowledgment that they are all right and will be duly paid in 
 the clearing next morning. The banks send out these checks to 
 be marked chiefly for the convenience of their customers, but 
 partly for their own protection in case a cashier might pay against 
 an uncleared check which might afterwards prove to be bad. If a 
 banker chose not to send out such checks for marking, no ques- 
 tion could be raised by his customer as to want of due presentation, 
 because it is distinctly stated on the pay-in slips with which each 
 customer is supplied, or the customer is acquainted in some other 
 form, that checks not paid in by half-past three may not be cleared 
 the same day. These marked checks are sent to the Clearing-house 
 the first thing in the morning along with the bills, and the two to- 
 gether form what is termed the " first charge." Some of the banks 
 try, and some manage, to get the remittances received in their 
 morning letters into their first charge ; but as the morning clearing 
 closes for delivery at eleven o'clock, none but those bankers who 
 begin business very early can put through so large an amount of 
 work with any degree of satisfaction in time for the morning 
 clearing. 
 
 Although the afternoon town clearing nominally begins at 2.30 
 P. M., and closes for delivery at 4 P. M., the Clearing-house clock 
 is always kept five minutes behind Greenwich time, so that the 
 representatives of the various banks have always five minutes grace 
 allowed them. 
 
 To the afternoon clearing, which is the heaviest in the day, the 
 banks, as a rule, send in some six or seven "charges." But, in 
 exceptional times, for instance, during the progress of dividend 
 payments, or when, from any cause, business is particularly brisk, 
 many more charges are sent in. But in ordinary times about half- 
 a-dozen is the usual number. At the opening of the afternoon 
 clearing the first charge delivered is usually composed of remit- 
 tances received in the morning letters. Then about three o'clock 
 the second charge is sent in, and is composed of the checks and 
 other vouchers received over the counter during the morning by 
 the cashiers for the credit of customers. Then, about every twenty 
 minutes or so, from three o'clock till four, charges of the same 
 description are sent in. At two or three minutes past four (by the 
 bank clock) a final charge, consisting of a few articles of large 
 
266 PRACTICAL BANKING. 
 
 amount, or articles which, for some reason, the banker may be par- 
 ticularly anxious to clear, may be sent in. There is thus a clerk 
 running between each bank and the Clearing-house from time to 
 time, delivering the charges he has upon the other banks. 
 
 The first charge sent to the Clearing-house during the day is 
 marked on the back of the last check thereof, with the total amount 
 which in our Clearing-houses is entered on the exchange slip attached 
 to the checks. 
 
 Country notes are not exchanged at the Clearing-house, but are 
 taken round to the bankers who are agents for the country bankers, 
 and exchanged for tickets, which are passed through the afternoon 
 clearing. 
 
 As the clerks reach the Clearing-house with their successive 
 charges they distribute their packages around the room to the 
 desks of the clerks representing the several paying banks. These 
 clerks, corresponding to our settling clerks, immediately begin to 
 enter these charges in the In-clearing Books, in columns bearing at 
 the head the name of the presenting bank. As soon as this is 
 done the vouchers are immediately sent away to the bank at which 
 they are payable, where they are critically examined and, if correct, 
 posted in the ledgers. In case there is cause for refusing payment, 
 either for want of funds, irregular endorsement, or irregularity of 
 any kind, they are sent back to the clearing and returned to the 
 delivering banker with a distinct answer marked upon each check 
 of the cause of the return. These returns must be sent back to 
 the Clearing-house not later than 5 P. M. on ordinary days, and not 
 later than 5.15 in any event, and are entered again as a reverse 
 claim by the bank dishonoring them on the bank presenting them. 
 The clearing clerks do not wait for the returns before they begin 
 the balancing for the day. The moment the Clearing-house clock 
 strikes four (five minutes past by Greenwich time) they begin the 
 process of balancing, leaving the returns, if any, to be entered af- 
 terwards. Notwithstanding the vast daily transactions of the Lon- 
 don Clearing-house, the aptitude of the clerks for their particular 
 work renders errors of infrequent occurrence. The system of mark- 
 ing the first and largest charge on the back facilitates the balanc- 
 ing by the opportunity it gives to each clerk of checking the major 
 part of his work early in the day. 
 
 The In-clearing Book of each clerk ought to agree, of course, 
 with the portions relating to him of the Out-clearing Books of the 
 other clerks. The Out-clearing Book, it will be remembered, is writ- 
 ten up inside the bank, and carried to the Clearing-house at four 
 o'clock for the purpose of checking. Each clerk compares his 
 work with that of the other clerks, one by one. If he is right 
 with all he then balances, and there is no further trouble; but if he 
 is wrong with any, to any large amount, he is bound to discover 
 
FOREIGN CLEARING-HOUSES. 267 
 
 his error before leaving the house. The total amount of the morn- 
 ing and country delivery must be agreed by each before leaving 
 the Clearing-house. As to the other clearing, a difference of ^1,500 
 over (the in-clearing clerk being always supposed right), or of less 
 than ;i,ooo short, is allowed to stand over until the following day 
 if it cannot be readily discovered. Considerable confusion some- 
 times arises from shouting corrections across the room from one 
 clerk to another. 
 
 The country clearing was introduced by Sir John Lubbock in 
 1858. Every bank in London receives during the day a large num- 
 ber of checks upon country bankers. Upon these checks the name 
 of the London agent is printed. Every clearing banker in London is 
 the agent for one or more country banks. Thus the London and 
 Westminster Bank is the London agent for the North and South 
 Wales Bank, the Nottingham and Notts Bank, and Hall, Lloyd & Co. 
 On the checks drawn on these country banks the name of the Lon- 
 don & Westminster Bank is printed as their respective agents. So 
 when the clearing clerks of each bank get such checks from the 
 cashiers, correspondence department, and other sources, they pro- 
 ceed to arrange them for clearing as they do town checks, sorting 
 them and putting them up in packages according to the London 
 agents at which they are payable. No credit is given in the clear- 
 ing for these country checks on the day on which they are delivered. 
 The amounts are simply settled by the delivering clerks and the 
 receiving clerks, and then the articles are taken to the respective 
 banks, whence they are sent by post the same evening to the 
 country bankers by whom they are payable. If these checks, on 
 reaching their destination, are found to be in order, they are cred- 
 ited in account with the London agent, and advised; but if any 
 of them are not in order, either from insufficient funds or irregular 
 endorsement, or any other cause, such irregular checks are returned 
 direct to the banker whose crossing they bear. All country checks 
 not returned or advised by the morning of the third day are assumed 
 to be paid, and credit is accordingly given for them in the clear- 
 ing of that day and the amount is settled for, along with those 
 advised paid, in the final balance. All country checks held by Lon- 
 don bankers, returned unpaid, must be returned into the hands of 
 the clerk representing the delivering bank by half-past twelve on 
 the third day, and they are simply deducted from the total of the 
 country checks on the day of settlement. The balance only of the 
 country clearing is brought into the final settlement on each bank's 
 town clearing balance sheet, as will be seen by reference to the 
 form given below. "C. H." on the same form means Clearing- 
 house, and is meant for the adjustment of differences, and " Bank " 
 means Bank of England. 
 
268 
 
 PRACTICAL BANKING. 
 
 SPECIMEN FORM OF A LONDON BANKERS' CLEARING BALANCE SHEET. 
 THE NATIONAL PROVINCIAL BANK OF ENGLAND. 
 
 Debtors. Creditors. 
 
 
 
 
 s. 
 
 d. 
 
 Alliance .... 
 
 
 
 
 s. 
 
 d- 
 
 
 
 
 
 Barclay. 
 
 
 
 
 
 
 
 
 
 Barnett 
 
 
 
 
 
 
 
 
 
 Bosanquet 
 
 
 
 
 
 
 
 
 
 Brown 
 
 
 
 
 
 
 
 
 
 Central 
 
 
 
 
 
 
 
 
 
 City 
 
 
 
 
 
 
 
 
 
 Consolidated. . . . 
 
 
 
 
 
 
 
 
 
 County 
 
 
 
 
 
 
 
 
 
 Dimsdale .... , 
 
 
 
 
 
 
 
 
 
 Fuller 
 
 
 
 
 
 
 
 
 
 Glyn 
 
 
 
 
 
 
 
 
 
 Imperial 
 
 
 
 
 
 
 
 
 
 Joint . . 
 
 
 
 
 
 
 
 
 
 Bank .. 
 
 
 
 
 
 
 
 
 
 London & Southwestern 
 London & Westminster.. 
 Martin. 
 
 
 
 
 
 
 
 
 
 Metropolitan .. 
 
 
 
 
 
 
 
 
 
 National. . 
 
 
 
 
 
 
 
 
 
 Prescott 
 
 
 
 
 
 
 
 
 
 Robarts 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Smith 
 
 
 
 
 
 
 
 
 
 Union 
 
 
 
 
 
 
 
 
 
 Williams 
 
 
 
 
 
 
 
 
 
 Country Clearing 
 
 
 
 
 
 
 
 
 
 C. H 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 This sheet when filled up shows the account of the National 
 Provincial Bank of England with all the other clearing banks, their 
 names being abridged to save space. It nearly corresponds with 
 the settling clerk's statement in the New York Clearing-house, the 
 name of the bank whose accounts it represents being given at the 
 head and omitted in the body of the statement. 
 
 Balances are settled at the close of each day by transfers on 
 the books of the Bank of England, at which a special account is 
 kept, called the " Clearing Bankers' Account," in addition to the 
 separate account of each bank. When the result of the day's 
 clearing is a balance against one of the banks, Barclay & Co., for 
 example, the transfer is made in the following form : 
 
 SETTLEMENT AT THE CLEARING-HOUSE. 
 
 LONDON, July i, 1884. 
 To the CASHIERS OF THE BANK OF ENGLAND : 
 
 Be pleased to transfer from our account the sum of Fifty-one thousand two 
 hundred and one pounds 45. 2d., and place it to the credit of the account of the 
 Clearing Bankers, and allow it to be drawn for by any of them (with the knowl- 
 edge of either of the Inspectors, signified by his countersigning the drafts). 
 ^51,201 43. 2d. BARCLAY & Co. 
 
 * This is the Southwark branch of the London & Westminster Bank which clears sep- 
 arately. 
 
FOREIGN CLEARING-HOUSES. 269 
 
 For which the Bank signs the following certificate: 
 SETTLEMENT AT THE CLEARING-HOUSE. 
 BANK OF ENGLAND : y u l y i, 1884. 
 
 A transfer for the sum of Fifty-one thousand two hundred and one pounds 48, 
 ad., has this evening been made at the Bank from the account of Messrs. Barclay 
 & Co. to the account of the Clearing Bankers. 
 
 j5i,2oi 45. ad. FOR THE BANK OF ENGLAND. 
 
 This certificate has been seen by me, 
 
 Inspector. 
 
 On the other hand, when the balance is in favor of the bank, 
 the National Provincial, for instance, the following forms are 
 used : 
 
 SETTLEMENT AT THE CLEARING-HOUSE. 
 
 LONDON, July i, 1884. 
 To the CASHIERS OF THE BANK OF ENGLAND : 
 
 Be pleased to credit our account the sum of Two hundred and thirty-six thousand 
 and forty-four pounds 2s. ad. out of the money at the credit of the account of the 
 Clearing Bankers. FOR THE NATIONAL PROVINCIAL BANK OF ENGLAND 
 
 ^236,044 2s. 2d. A. B. 
 
 Seen by me, 
 
 Inspector at the Clearing-house. 
 
 For which the bank gives the following certificate : 
 
 SETTLEMENT AT THE CLEARING-HOUSE. 
 BANK OF ENGLAND: LONDON, July i, 18/84. 
 
 The account of the National Provincial Bank of England has this evening been 
 credited with the sum of Two hundred and thirty-six thousand and forty-four 
 pounds as. 2d. out of the money at the credit of the account of the Clearing 
 Bankers. FOR THE BANK OF ENGLAND. 
 
 ^236,044 2s. 2d. 
 
 As the balances paid and the balances received are the same 
 (errors excepted), so the amount credited to the clearing bankers' 
 account each day must be the same as the amount debited. It 
 is only a means by which the debtor banks pay the creditor 
 banks on each day by a simple transfer, without handling any 
 cash. Previous to 1854 balances were paid in cash. The per 
 cent, of balances to clearings is considerably greater at London 
 than at New York, and has shown a marked increase. In 1810 
 the balances were 4.68 per cent, of the clearings; in 1839, 6.94 
 per cent., and in 1879-80, 12.16 per cent., as compared with 4.96 
 per cent, at New York in 1879. The balances are probably greater 
 on account of the country clearings. 
 
 By having three clearings instead of one, and allowing banks to 
 bring so many successive charges at intervals to each clearing, instead 
 of one charge delivered precisely at a given hour, the Clearing-house 
 work occupies very much more time than at New York, where the 
 transactions are considerably larger. In fact, substantially, the whole 
 day is spent by the clearing clerks at the Clearing-house, or in going 
 
270 PRACTICAL BANKING. 
 
 to and from it, whereas at New York an hour, or less, for each 
 clerk and messenger suffices for the whole work. On the other 
 hand, by having so many clearings, and the heaviest at the close 
 of the day, mercantile paper sent through the clearing is more 
 promptly presented. 
 
 The Manchester Clearing-house was established in 1872, and has, 
 since that date, been under charge of Mr. D. T. Brewer, as inspector. 
 The work there is performed on loose forms, and not in account 
 books, as at London. The work is done more nearly on the plan 
 prevailing at New York, which is, in several respects, an improve- 
 ment on that prevailing at London. There are two clearings daily 
 at the Branch of the Bank of England, the first at 11.15 A - M - 
 (a preliminary one), and the second at 2.15 P. M. The clearing 
 is quickly accomplished, and "goes on with noiseless ease, strongly 
 contrasting with the turmoil of the London house." This is, 
 of course, owing in part to the immensely larger transactions 
 effected at the latter. At Manchester each of the twelve clearing 
 bankers is represented by a single clerk, who delivers and receives 
 the vouchers and adjusts the accounts. The balances for the day 
 are settled after the close of the second clearing by transfers on 
 the books of the Bank of England, the forms being very similar 
 to those used at London. The Clearing-house at Newcastle-on- 
 Tyne was established January 2, 1872, and embraces seven members. 
 On ordinary days there are three clearings daily, usually at 11.15 
 A. M., 2.15 and 3.15 P. M. On January ist there is one at 10.30 A. M. 
 On Saturdays and holidays there are two clearings, usually at 11.15 
 A. M. and 1.15 P. M. Articles dishonored are returned through the 
 Clearing-house on the same day, not later than forty-five minutes 
 after the commencement of the last clearing. The methods of do- 
 ing the business and paying balances are similar to those in use at 
 Manchester. The total of its transactions in twelve years has been 
 ^332,470,125, as compared with ^1,043, 360,000 at Manchester. The 
 operations of the Newcastle Clearing-house are conducted at the 
 Branch of the Bank of England, under charge of a committee, of 
 which the agent of the bank at present Mr. J. B. Fairley is chair- 
 man. 
 
 There are also Clearing-houses at Liverpool, Edinburgh and Dub- 
 lin. At Edinburgh there is one general clearing daily, opened at 
 one and closed for delivery at fifteen minutes past one P. M., except 
 on Saturday, when it opens at eleven and closes at fifteen minutes 
 past. The Bank of Scotland and the Royal Bank of Scotland un- 
 dertake the settlement each alternate month. There is also a note 
 exchange daily at 10 A. M., except on Monday, and a second ex- 
 change at 1.30 p. M. on Saturday for large notes only. On Monday 
 and Thursday the balances are included in the general settlement 
 of the exchange and clearing. On other days the settling bank re- 
 
FOREIGN CLEARING-HOUSES. 2/1 
 
 ceives from the debtors and gives to the creditors exchange 
 vouchers for the respective balances within one hour after the 
 closing of the Clearing-house, and these vouchers are brought into 
 the next clearing, and bear interest, included in them, at two per 
 cent, until that clearing. Each document cleared, except notes, is 
 to bear a Clearing-house stamp, containing the name of the clear- 
 ing bank and the date, also the stamp of any district branch at 
 which it may have been cashed. Documents dishonored are settled 
 between the banks, unless drawn on a branch, in which case they 
 may be sent through the clearing the next day. These banks use 
 clearing books having every alternate sheet perforated down the in- 
 side margin. The charges against the other banks are written up in 
 pencil on the unperforated sheets, and by the aid of a sheet of 
 carbonized paper placed underneath, an impression of the items is 
 taken on the perforated sheets. These duplicates are then torn 
 out and handed over with the corresponding articles to the clerks 
 of the other banks, who simply compare the one with the other, 
 so as to save the time and trouble of taking down afresh in their 
 own books the amounts of the various articles. When the clerks 
 return to their respective banks, these duplicates are gummed upon 
 the margins from which their own delivering sheets had been de- 
 tached, preserving a convenient record of the articles delivered to, 
 and the articles received from, each bank following each other. All 
 abstracts of totals, balances and the like, are kept in a permanent 
 form, written in ink. The paid-up capital of the Edinburgh clear- 
 ing banks is ; 8, 250,000. 
 
 The Dublin Clearing-house comprises four banks all the banks 
 of issue in Ireland and was established in 1845. The capital of 
 the four banks is ,5,040,000. There are two clearings in the fore- 
 noon, for notes and checks at 10 o'clock ; afternoon, final clearing 
 for checks at two o'clock. On Saturdays the hours are 9.30 A. M. 
 and 12 M. Banks are admitted to the exchange for fifteen minutes 
 after these hours. Balances are paid in Exchequer bonds, except 
 for fractional parts of 500, which may be paid in notes of the 
 debtor bank, the Exchequer bonds to be used for no other pur- 
 pose, and to be stamped "Dublin Exchanges." Each bank is re- 
 quired to maintain its quota of a total of ,400,000 of these bonds. 
 The exchanges are made at the Bank of Ireland. All orders payable 
 on demand, whether in Dublin or in country towns, are to be 
 passed through the Clearing-house. Documents returned dishon- 
 ored are not allowed to pass through the Clearing-house. Those 
 banks in Dublin which are not banks of issue are not members of 
 the Association, but deposit the checks they hold on other banks 
 with the Bank of Ireland, with which they keep an account. 
 
 In preparing the foregoing account of British Clearing-houses free 
 use has been made of Gilbart on Banking and Jevons' Money and 
 
272 PRACTICAL BANKING. 
 
 the Mechanism of Exchange, and of a series of articles recently- 
 published in the London Banker's Magazine on the Clearing-house 
 system. 
 
 The Liverpool Clearing Association was formed, according to 
 United States Consul S. B. Packard, about 1878, and embraced, in 
 1882, ten of the Liverpool banks, leaving six establishments, mostly 
 private banks, outside. These banks keep clearing accounts with 
 each other of all checks drawn on any of their number. Each 
 bank every evening makes up in its own books the accounts with 
 each of the other clearing banks, and settles the balances due from 
 or to it by means of transfers through the Bank of England's 
 Liverpool branch, with which all the clearing banks keep an account. 
 The capital of the Liverpool clearing banks, exclusive of two private 
 banks, was, in 1882, ,3,815,110. 
 
 Clearing-houses were established at Paris and Vienna in 1872. At 
 the latter, in fact, there are two Clearing-houses, the Bankers' 
 Clearing-house, and the Arrangement Bureau, or Stock Exchange 
 Clearing-house. The latter alone has transactions of any great mag- 
 nitude. The volume of the check exchange is small, as most of 
 the public find bank notes cheaper and more convenient than 
 checks, which are subject to a tax of two kreutzers (about i cent) 
 each, regardless of size. The Paris Clearing-house has been al- 
 ready noticed. In 1876 a system of check exchange was started 
 in Berlin, and developed to such proportions that in 1883 Clearing- 
 houses were established in Berlin (April 2d), Frankfort-on-the- 
 Main (April 25), and Cologne, Stuttgart, Leipsic, Dresden, and lastly 
 Hamburg, in the course of the summer. The President of the 
 Imperial Bank Directorium states that these institutions are not 
 widely different from the Clearing-houses of London and New York. 
 The most important of the German Clearing-houses are those of 
 Berlin, Hamburg, and Frankfort-on-the-Main, the others falling far 
 behind these. Previous to last December the volume of transac- 
 tions at these Clearing-houses was not published. For December 
 the aggregate for all was 887,546,700 marks, and in January, 1884, 
 930,707,700 marks, or at the rate of 11,168,492,400 marks or about 
 $2,680,000,000 for the year. This is a little more than Chicago, 
 and a little less than Philadelphia. There are fourteen Clearing- 
 houses in Italy, located at Milan, Leghorn, Genoa, Catania, Rome., 
 Bologna, and other places. The transactions of these six Clearing- 
 houses amounted, in 1884, to 1,685,345,781 f., or about $325,000,000, 
 those of Milan and Leghorn being the only ones of importance. 
 
 The Banks' Clearing-house of Melbourne, Australia, is analogous to 
 the other British Clearing-houses. On ordinary days there are six 
 clearings ; on Saturdays four ; on Mondays eight ; on Tuesdays 
 five. An exchange slip accompanies each charge delivered at the 
 Clearing-house. There is a special clearing for checks returned dis- 
 
FOREIGN CLEARING-HOUSES. 273 
 
 honored for any cause. Balances are paid every Tuesday, all even 
 sums of $oo and upwards in sovereigns or parchment vouchers. 
 These vouchers are issued against a deposit of sovereigns at one 
 of the banks under the care of trustees, and are of denominations 
 of .500 and j i,ooo. The total issue is ^500,000. All sums under 
 ^500 are settled by checks, which are paid into a Clearing-house 
 account kept at one of the banks. Bank notes have been included 
 in the clearing since 1876. 
 
374 PRACTICAL BANKING. 
 
 CHAPTER XIII. 
 COUNTRY CLEARINGS. 
 
 At London, as already stated, the country Clearing-house has been 
 in operation since 1858. But in this country clearing methods have 
 hitherto been applied only to transactions among banks situated in 
 the same place or its immediate vicinity, though susceptible of ex- 
 tension to transactions between different monetary centers and 
 possibly even to international settlements. The establishment of 
 some system for the more speedy and economical collection of 
 country checks is a matter of growing importance owing to changes 
 in the methods of doing business. Mr. C. B. Patten, Cashier of the 
 State National Bank of Boston, furnishes some interesting facts in 
 this connection in reference to New England, which doubtless hold 
 good elsewhere. Formerly under the State bank system it was the 
 allmost universal custom for merchants in the interior to pay their 
 bills in Boston by sending the money or a check on a Boston 
 bank which they obtained from their nearest country bank, paying 
 for the same the usual charge for exchange. But in later years a 
 different practice has been growing up. The country trader now 
 sends his Boston creditor a check upon the country bank where 
 he keeps his account. The country banks, of course, expect to pay 
 these at par at their own counters, but they will not as a rule pro- 
 vide funds to meet them in Boston without a charge for exchange, 
 varying from one-tenth of one per cent, on the larger checks to 
 one-quarter or even one-half of one per cent, on the smaller ones. 
 So keen is the competition among traders, however, that these 
 checks are taken by them at par, and the banks driven also by com- 
 petition usually do likewise. To avoid the charges made by the 
 country banks, checks are frequently sent home by the most cir- 
 cuitous routes, travelling about from city to city and from bank to 
 bank for several days. An instance is given where a check for $48 
 on a bank in Mt. Gilead, Ohio, deposited at Columbus, was sent 
 successively to Cincinnati, Cleveland, Urichsville, Coshocton, New- 
 ark, back to Columbus, and then to Cardington, before reaching 
 its destination, being out eight days and traveling 650 miles when 
 sixty miles would have sufficed. As the check was not paid it had 
 to be sent back through the same channels. Another case has been 
 
COUNTRY CLEARINGS. 
 
 275 
 
 given of an item returned protested nineteen days after it started 
 for presentation toward a paying bank twenty hours distant. It is 
 easy to see how by these delays endorsers may be discharged to the 
 serious loss of some holder of the check, not to mention other con- 
 tingencies. It would be difficult to show that due diligence was 
 used in presenting a check by such a circuitous route. It is said, 
 too, that these cases are by no means unusual. 
 
 The growing importance of the subject led to the consideration 
 of the remedies to be adopted at the annual meeting of the Boston 
 Clearing-house Association, April 9, 1877. A committee was ap- 
 pojnted consisting of Messrs. George Ripley, John Cummings, Ed- 
 ward Sands, Edward L. Tead and Geo. R. Chapman, representing 
 respectively the Hide and Leather, Shawmut, Traders', Exchange 
 and Merchants' National banks. This committee in August made 
 a majority report signed by Messrs. Ripley, Cummings, Sands and 
 Chapman, and minority report signed by Mr. Tead. From the ma- 
 jority report it appears that the daily outstanding balances due to 
 fifty of the fifty-one associated banks on account of New England 
 country collections then amounted to $2,187,329. This had increased 
 in November, 1883, to $4,300,000. The number of checks daily sent 
 out in 1877 was 4,080, probably increased in like proportion, and 
 the number of letters sent daily was 1,670, although there were 
 only 272 towns in New England which had National banks. The 
 amount paid yearly for exchange and expenses was computed to 
 be $119,647, and interest on the outstanding balances at five per 
 cent, reached $109,366, making a total annual cost of $229,013, in- 
 creased to $398,000 in 1883. The cost of collecting each check 
 was found by the committee to be, for exchange, .045 of a dollar; 
 other expenses, .048; interest, .085, giving a total of .178 of a dollar, 
 or about nine times the United States stamp tax on a check, which 
 was justly complained of by business men and banks alike. The 
 cost for each letter was forty-four cents eleven cents for exchange, 
 twelve for expenses, and twenty-one for interest. Under the ar- 
 rangements then and still existing, remittances from country banks 
 vary in frequency from once a week to once a month, in exceptional 
 cases perhaps oftener. It was believed that by a consolidation of 
 the business the amount of the outstanding balances might be re- 
 duced one-half by more frequent remittances; that the item of 
 exchange largely made up of charges upon small checks of less 
 than $200 could be very much reduced by having the remittances 
 made in larger sums; and that the sending of 272 letters daily, 
 one for each town having a National bank, would suffice, thereby 
 saving 1,400 of the 1,670 letters daily sent out, and largely reduc- 
 ing the clerical expenses. The danger of loss resulting from delay 
 in presenting checks would also be reduced to a minimum by 
 the introduction of a better system. The majority of the commit- 
 tee reached the following conclusions 
 
276 PRACTICAL BANKING. 
 
 " i st. That the business of making collections throughout New 
 England, as now conducted, is attended with great unnecessary labor, 
 risk and expense. 
 
 "2d. That its extent, though now large, will inevitably increase 
 with the growth of our city. 
 
 "3d. That the only way materially to reduce the labor, risk and 
 expense connected with it is to consolidate the business." 
 
 To this -end they recommended the establishment of a National 
 bank to be used as an agency in making such collections, the stock 
 of the bank to be subscribed by members of the Clearing-house 
 Association. 
 
 The minority report combats the proposed plan as exposing too 
 much the business of each bank, and as not reducing the expenses 
 as much as the majority anticipated. It was shown that ten banks 
 having the largest foreign bank accounts, made more than one half 
 of all the New England collections at an expense of 5^ cents 
 each, exclusive of interest, and that the superior facilities acquired 
 by these banks after years of experience, could not be transferred 
 to the proposed collection bank, but would be irretrievably lost to 
 themselves by the proposed change. The indirect advantages de- 
 rived by the banks from their collection business, in enlarged ac- 
 quaintance and the maintenance of a more lively interest between 
 the Boston banks and those of the country, were deemed a full 
 equivalent for the necessary labor and expense involved. 
 
 It was found, on inquiry, that as a National bank cannot sub- 
 scribe to the stock of another National bank, the proposed plan 
 was not feasible. The steady increase of the business, however, 
 again forced the matter upon the attention of the Association. 
 Another committee was chosen, consisting of Messrs. George Ripley, 
 John Cummings, Charles A. Vialle, A. L. Newman, and Walter S. 
 Blanchard, representing, respectively, the Hide & Leather, Shawmut, 
 Republic, Commonwealth, and Metropolitan National banks. This 
 committee, in November, 1883, reported unanimously in favor of 
 establishing an agency similar to the Clearing-house, which should 
 have no capital and make no charge for its services, but whose ex- 
 penses should be borne by the banks in proportion to the business 
 done. On account of the expense attending such an organization 
 this plan was defeated. The whole matter remains, therefore, in 
 its previously unsettled condition. Mr. C. B. Patten, Cashier of the 
 State National Bank, has suggested that the banks contract with 
 one of their number to undertake this business for all, as more 
 economical than the proposed Clearing-house for country checks, 
 since an established bank " is already in possession of the ' plant ' 
 necessary for the transaction of such business, and could make 
 money out of it, with a charge for exchange which would not sup- 
 port an independent Clearing-house." The unwillingness of the 
 
COUNTRY CLEARINGS. 277 
 
 banks to expose their business to one of their number, or to give 
 the collecting bank the advantage it would thus enjoy for obtaining 
 country deposits, is likely to interpose a serious obstacle to the 
 adoption of this plan. 
 
 The matter of country collections has also been discussed by the 
 bankers of Pittsburgh and vicinity, where Mr. E. B. Isett, President 
 of the Altoona Bank, submitted a plan for the formation of a Clear- 
 ing-house among the country banks themselves, at some central 
 point, by which the daily settlements could, it is claimed, be ef- 
 fected with nearly as much celerity for a district reached by one 
 day's mail as in the Clearing-house of a city. Such an institution 
 could but be a source of union and strength to the banks .them- 
 selves, as well as a great convenience to the business community. 
 It would enable the banks to exert a coercive power over those that 
 refused to take part in the movement by rejecting their checks. 
 These Clearing-houses would furnish an easy means of communica- 
 tion between banks in different parts of the country, and establish 
 on a permanent basis, the system of par redemption for country 
 checks at certain central points. The great difficulty with this 
 plan is to arouse the country banks to a- sense of their duty in the 
 matter. Under the present system they enjoy, at the expense of 
 banks at the great centers, all the advantages of par redemption 
 of their checks. It is not just that the city banks alone should 
 bear this expense. The receipt of country checks at par by banks 
 in the great cities is a matter of common interest, not to them 
 alone, but to the country' banks and to their customers alike, and 
 all should be required to share the necessary cost. 
 
 The commercial unity of the country demands a recognition in 
 all business arrangements. Isolated action on the part of individual 
 banks cannot permanently cope with the problem now before us. 
 Concerted action among the banks at the principal commercial cen- 
 ters is necessary. If all cannot be induced to unite at first, let enough 
 join in some common movement to give it a strength and prestige 
 that shall gradually bring all into the arrangement. Those who are 
 familiar with the history of the Suffolk Bank system for the par 
 redemption of New England bank notes know what bitter opposi- 
 tion that system at first encountered on the part of the country 
 banks. The Suffolk Bank, with the six banks which first inaugur- 
 ated the movement, was styled in derision the " Holy Alliance," and 
 sometimes the " Six-tailed Bashaw." Yet the system finally triumphed 
 over all opposition, and became firmly established, to the great bene- 
 fit of the country banks themselves. For forty years this system 
 gave a unique and peculiar character to New England banking, by 
 virtue of which New England bank notes attained, even in remote 
 parts of the Union, a credit which was frequently refused to the 
 issues of the local banks. The country banks will, no doubt, now 
 
278 
 
 PRACTICAL BANKING. 
 
 cling to the small benefits they derive from the delays in present- 
 ing checks, and the charges they impose for exchange, until they 
 can be made to take a broader view, and measure at their true 
 value the indirect advantages which they themselves will realize 
 from a comprehensive and liberal policy in extending increased busi- 
 ness facilities to their customers. The internal commerce of the 
 country should not be subjected to a tax on transactions between 
 city and country nine times as great as the stamp tax on checks. 
 This is one of the very evils that existed in England before the estab- 
 lishment of the country clearing. The latter has proved a complete 
 remedy there as it would no doubt here. The details of some work- 
 ing plan must be elaborated by the bankers themselves, but that 
 business is fast outgrowing the present system, if it has not already 
 outgrown it, is a proposition which will receive very general assent. 
 
 As some of the Clearing-houses have until within a few years 
 made no returns, while others have only recently begun to make up 
 their statements by calendar years, an entirely accurate comparative 
 statement cannot be given. The following shows approximately 
 the stupendous growth of the system in this country: 
 
 
 No. of As- 
 sociations. 
 
 No. Reporting. 
 
 Aggregate Exchanges. 
 United States. 
 Millions. 
 
 Exchanges Outside 
 New York. 
 Millions. 
 
 1853 
 
 I 
 
 I 
 
 * $ 1,304,9 
 
 
 1854 
 
 X 
 
 I 
 
 5,798,6 
 
 
 1855 
 
 I 
 
 I 
 
 5,673,7 
 
 
 1856 
 
 2 
 
 2 
 
 8,404,2 
 
 $ 1,057,4 
 
 1857 
 1858 
 
 2 
 
 5 
 
 2 
 
 3 
 
 8,591,4 
 7,215,7 
 
 1,395,3 
 1,839,5 
 
 1859 
 
 5 
 
 3 
 
 9,069,3 
 
 2,470,5 
 
 1860 
 
 5 
 
 3 
 
 10,022,1 
 
 2,628,2 
 
 1861 
 
 6 
 
 4 
 
 7,507,4 
 
 1,991,0 
 
 1862 
 
 6 
 
 4 
 
 10,120,1 
 
 1,885,3 
 
 1863 
 
 6 
 
 4 
 
 20,442,4 
 
 3,oi4,7 
 
 1864 
 
 6 
 
 4 
 
 30,053,5 
 
 4,4i3,4 
 
 
 8 
 
 5 
 
 30,437,0 
 
 4,579,0 
 
 1866 
 
 ii 
 
 7 
 
 36,235,9 
 
 4,769,4 
 
 1867 
 
 ii 
 
 7 
 
 30,322,2 
 
 4,5 II ,o 
 
 1868 
 
 12 
 
 7 
 
 36,079,7 
 
 4,920,0 
 
 1869 
 
 14 
 
 9 
 
 41,157,1 
 
 5,616,0 
 
 1870 
 1871 
 
 3 
 
 9 
 
 10 
 
 32,849,7 
 
 37,200,5 
 
 5,763,4 
 6,557,5 
 
 1872 
 
 20 
 
 13 
 
 43,58i,5 
 
 7,212,0 
 
 1873 
 
 21 
 
 J 3 
 
 37,686,6 
 
 7,846,2 
 
 1874 
 
 23 
 
 4 
 
 31,822,1 
 
 7,372,0 
 
 1875 
 
 
 
 32,339,7 
 
 8,025,9 
 
 1876 
 
 26 
 
 18 
 
 29,579,8 
 
 8,103,2 
 
 1877 
 
 27 
 
 23 
 
 3i,944,2 
 
 8,143,5 
 
 1878 
 1879 
 
 2 
 
 24 
 24 
 
 3o,i33,i 
 
 38,59!, 2 
 
 7,732,0 
 
 9,355,5 
 
 1880 
 
 29 
 
 26 
 
 50,H3,9 
 
 n,499,5 
 
 1881 
 
 30 
 
 2 7 
 
 63,414,6 
 
 14,037,7 
 
 1882 
 
 3<> 
 
 29 
 
 60,877,4 
 
 13,960,5 
 
 1883 
 
 3i 
 
 3i 
 
 51,827,1 
 
 14,392,8 
 
 
 Total. . . 
 
 
 $870.706,6 
 
 $175,092,4 
 
 
 
 
 *r "/^oy^J^ 
 
 
 * Three months only. 
 
PART IV. 
 LOAN AND TRUST COMPANIES. 
 
HISTORY AND SCOPE OF LOAN AND TRUST COMPANIES. 2&1 
 
 CHAPTER I. 
 HISTORY AND SCOPE OP LOAN AND TRUST COMPANIES. 
 
 Loan and trust companies may, with propriety, be termed Ameri- 
 can institutions. They had their birth in this country. Charters 
 under which some are working to-day date back sixty to seventy- 
 years. One corporation in Philadelphia, doing a loan and trust 
 business, was organized in 1812, and another in 1832. In New 
 York one was granted a charter in 1822, and another in 1830. But 
 the great majority have come into existence within the past twenty 
 years. Twenty-five years ago but few of the loan and trust com- 
 panies now doing business were in existence ; hence it may be 
 said that they are a modern institution. In many of the larger 
 cities one or more may now be found. In New York there are 
 eleven, in Philadelphia nine, in Boston eight, and in Chicago four, 
 while in many prominent commercial centers there are none. 
 
 The original design of the early corporations was that of insur- 
 ing lives and granting annuities. The business of holding trusts 
 and procuring capital for various enterprises was a secondary con- 
 sideration. Life insurance with some of the older companies was 
 looked upon as the chief source of revenue. But the tendency of 
 business toward specialization has had its influence upon these 
 great financial corporations, as it has upon almost every depart- 
 ment of business and social life. The business of life insurance 
 has become a gigantic enterprise of itself, far surpassing in financial 
 importance the operations of loan and trust companies. It is one, 
 however, which does not come for consideration within the limits 
 of this treatise. 
 
 The usefulness in the financial world of loan and trust companies 
 is well understood. In some respects they are similar to banks; in 
 others they are widely different. They receive deposits and make 
 loans, but they do not issue currency nor undertake the general 
 collection of commercial paper. The purposes for which they are 
 organized and the services they perform are numerous. The scope 
 of their business has broadened to correspond with their growth 
 of capital and to keep pace with the vast sums of money they 
 have charge of. By the great breadth of their charters they ac- 
 cept and execute all kinds of trusts. They act as registrars and 
 agents for the transfer of stocks and bonds, as trustees for corpora- 
 
282 PRACTICAL BANKING. 
 
 tions, and as executors, administrators, guardians, and receivers of 
 money for courts in complicated litigations. They do a general 
 financial business for bankers and others, make investments, collect 
 interest, and perform many other financial services. They are or- 
 ganized under special charters granted by the legislatures of the 
 respective States in which they are located. 
 
LOAN AND TRUST COMPANIES. 
 
 CHAPTER II. 
 HOW BUSINESS IS CONDUCTED. 
 
 A number of persons desire to construct gas works. The city 
 where the works are to be built promises a liberal support to the 
 enterprise. The project has been fully discussed by the business 
 men and property owners of the place, and a number of them de- 
 cide to combine their efforts in carrying it through. To build the 
 works and lay the pipes requires a large expenditure of money. 
 It is learned that for a good part of the necessary capital outside 
 assistance must be asked. There is nearly always plenty of money 
 for all such enterprises, provided it can be shown that the security 
 is ample. In the large financial centers, it is known, there may 
 be secured the desired means at a fair rate of interest when the 
 investment can be shown to be a safe one. What steps are best 
 to be taken? The promoters of the scheme propose to organize a 
 joint-stock company. 
 
 Estimates have been made, which show that fifty thousand dol- 
 lars will make a reasonable start towards carrying the project along. 
 A canvass shows that capital stock to this amount would be sub- 
 scribed for. The company is formed, a charter granted, and per- 
 mission given by the city authorities to lay and maintain the pipe 
 lines. Further estimates are now made, and it is shown that to 
 build the works and lay sufficient piping for present needs there will 
 be required, besides the already paid-in capital of the company, 
 about two hundred thousand dollars. This must be secured by a 
 loan. 
 
 The company decide to issue first mortgage bonds for the amount 
 of money needed. If they can find persons in their own city or 
 among the stockholders who are in position and are willing to 
 loan the money they need not call for outside assistance. But in 
 this they do not succeed. They then must go to some financial 
 metropolis where money is seeking investment. Here they are con- 
 fronted with the inquiry: How do we know that our investment 
 will be a safe one ? What assurance have we that your company is 
 properly organized, and that the proper authority has been given for 
 it to make this loan ? And each person who might be willing to 
 purchase some of the bonds demands the right to have an agent 
 examine into all the facts, and report upon the conditions, before the 
 
2$4 PRACTICAL BANKING. 
 
 money could be paid over. In this case the company must pay the 
 expenses and fees of the agents and lawyers. They see such a 
 course is going to make it exceedingly expensive. But the money 
 must be procured, and what shall be done? 
 
 A happy thought occurs to them. They will go to a loan and 
 trust company. They visit one of these institutions, and learn that 
 they will have no trouble about securing the required loan, if a 
 clear title to the property to be mortgaged can be shown, and the 
 other usual requirements of investors in such securities are found 
 satisfactory. "We will transact your business for you," says an 
 officer of the trust company. "In the first place we must put 
 the matter in the hands of our attorneys, who will report upon the 
 legal status of your company. We must know how much of your 
 capital has been paid in. The amount of work you have done in 
 the new enterprise. What your assets and liabilities are. The re- 
 cording of the mortgage bond of your company may be left with 
 us, or our attorneys will look to see that it has been properly at- 
 tended to. We will issue the bonds from our institution, make all 
 transfers, and pay the interest for you when it becomes due. In fact^ 
 we will transact the whole business, turning over the money from 
 the sale of your bonds as it is paid in. How much money do you 
 want to procure ? " 
 
 "We wish to procure two hundred thousand dollars, or what 
 will come from a two-hundred-thousand-dollar bond. We have 
 invested about forty thousand dollars. The money procured is to be 
 applied in completing our works and in extending the pipe lines." 
 
 "If you have invested only about forty thousand dollars and are 
 free of debt, we would suggest that the loan be made in install- 
 ments. We could not undertake to issue the whole amount of the 
 bonds, excepting as the work progresses, and until we are assured 
 that the money received for bonds issued had been properly applied 
 in the construction of the works. We would issue, say, twenty-five 
 thousand dollars as the first installment, then we could issue fifty 
 thousand as the second installment, and so on, increasing the issue 
 according to the increase in the value of the security offered." 
 
 " And on what terms would you undertake this business ? " 
 
 "We would charge you by the year, according to the amount of 
 business transacted, or liable to be transacted. You would pay for 
 the fees necessarily incurred at the start, and thereafter probably two 
 hundred to three hundred dollars a-year, according to circumstances 
 and arrangements." 
 
 An agreement is entered into. The officers of the gas company 
 are put to no further inconvenience or delay. When they inform the 
 
 money-lender that the Loan and Trust Company have charge 
 
 of their mortgage business, and are issuing the bonds, no inquiries 
 are made as to the legal status of the company or the mortgage. 
 The capital is secured, and the company pushes ahead with its work. 
 
LOAN AND TRUST COMPANIES. 285 
 
 Loan and trust companies have often proven of great service in 
 the construction of railroads. Of course railroads would be built and 
 bonds disposed of without the mediation of such agencies, but the 
 trust companies have greatly facilitated the work and reduced the 
 expenses. 
 
 A party of gentlemen, for instance, organize a company to build a 
 railroad which shall run through several States. They cannot among 
 themselves raise the necessary capital. They are willing to risk a rea- 
 sonable amount of money in the project, if the amount required to 
 complete the road can be secured after their own investment shall 
 have been expended. They find, among wealthy capitalists, persons 
 who are willing to advance the funds, but they do not wish to as- 
 sume any risks as stockholders. They prefer to loan the money at 
 a fair rate of interest. If the scheme is successful the projectors 
 can pay the money back and own the property, thus derive all the 
 advantages accruing from their wisdom and risks. 
 
 The following is the form of a receipt and transfer voucher : 
 
 No 
 
 
 New York, 18.... 
 
 
 For value received 
 
 do hereby assign and trans- 
 
 Folio 
 
 fer unto 
 
 
 
 
 
 Folio Certificates. 
 
 
 . . Shares of the Capital Stock of 
 
 
 the * 
 
 
 
 
 .... name on the books of said 
 
 
 company. 
 
 
 
 
 
 When the promoters of the project visit a loan and trust com- 
 pany, they lay the facts before the officers of the company. They 
 are told that when they have constructed a certain amount of road 
 the trust company will undertake to place their loan on the mar- 
 ket. First, the mortgage securing the loan must be recorded in 
 every county of each State through which the road is to run. Sat- 
 isfactory evidences that the mortgage is so recorded must be in 
 the possession of the trust company. Arrangements can then be 
 made to the effect that, as certain sections of the road are con- 
 structed, a certain number of bonds will be issued. The amount 
 to be issued will depend on the cost per mile of constructing the 
 road. Purchasers of the bonds rely on the loan and trust company 
 to see that there is never an over-issue of bonds. 
 
 * The title of the corporation printed in full. 
 
366 
 
 PRACTICAL BANKING. 
 
 Suppose the understanding between the purchasers of the bonds 
 and the railroad officials provides that for the completion of each 
 ten miles of road there are to be issued bonds to the amount of 
 fifty thousand dollars. It becomes the duty of the trust company to 
 know that this amount is not exceeded. Any excess in issue would 
 depreciate the value of the security. It is seen in this how the 
 
 For explanation of Forms, see closing paragraph of this chapter. 
 Right hand page. 
 
 REGISTER OF CERTIFICATES OF STOCK. 
 Countersigned by the 
 
 Date of Surrendered 
 Certificate Can- 
 celed. 
 
 No. of 
 Ctf. 
 
 No. of 
 Shares. 
 
 In Name of 
 
 Remarks. 
 
 
 
 
 
 
 
 trust company serves the interests of both borrowers and lenders. 
 The trust company not only attends to the business of the railroad 
 company in securing funds, but guarantees to purchasers of its se- 
 curities that there is no wrongful or over-issue. The part taken by 
 the trust company is one, then, not only to transact the business 
 for the corporation, but to supplement this service by aiding in se- 
 curing the faith and confidence of investors that the securities they 
 take are in every case what they are represented to be. 
 Another important service is rendered by loan and trust com- 
 
LOAN AND TRUST COMPANIES. 
 
 287 
 
 panics to corporations. That is, issuing certificates of stock, and, in 
 case of sale from one person to another, making transfers of same. 
 Many corporations leave the business connected with stock opera- 
 tions almost entirely in the hands of some loan and trust company. 
 The purchase and sale of stocks of corporations, especially those 
 whose stocks are on the market, is made mostly in some of the 
 important financial centers of the country. Here too, is where the 
 loan and trust companies are located. It is a special advantage to 
 
 Left hand page. 
 
 
 
 ........ . . . Loan and Trusi 
 
 ' Company. 
 
 
 Date of New Ctf . 
 Countersigned and 
 Issued. 
 
 No. of 
 Ctf. 
 
 No. of 
 Shares. 
 
 In Name of 
 
 Remarks. 
 
 
 
 
 
 i 
 
 
 holders of stocks to be able to have the necessary record made 
 on the books of the company, showing that they are the holders, 
 without having to forward the certificates to some remote place for 
 that purpose. By an arrangement between the loan and trust com- 
 pany and the corporation, the former becomes the custodian of the 
 transfer books. When an election of officers of the corporation 
 takes place the transfer and stock books must be in the hands of 
 the inspectors of the election. To meet this requirement the books 
 
288 
 
 PRACTICAL BANKING. 
 
 are forwarded or handed over to the officers of the corporation by 
 the loan and trust company. 
 
 When the holder of shares of a corporation sells his stock, and 
 the purchaser wishes the transfer recorded on the books of the 
 company he must present to the transfer clerk at the office of the 
 loan and trust company the stock of the seller. This stock be- 
 comes the voucher of the transfer clerk, showing his authority for 
 making the transfer. 
 
 RECORD OF MORTGAGE BONDS OF THE BEE LINE R. R. COMPANY. 
 1884. Bonds Received. 
 
 Oct. 
 
 10 
 
 Rec'd from the Bee Line R.R. 
 
 
 
 
 
 
 Company per Jacob Trusty, 
 
 
 
 
 
 
 President, 150 First Mort- 
 
 
 
 
 
 
 gage Bonds, Nos. i to 150 
 
 
 
 
 
 
 inclusive. To be issued ac- 
 
 
 
 
 
 
 cording to the terms of 
 
 
 
 
 
 
 agreement, in installments 
 
 
 
 
 
 
 of ten each, upon comple- 
 
 
 
 
 
 
 tion of ten-mile sections of 
 
 
 
 
 
 
 said railroad. 
 
 
 
 
 
 
 Par value, $ 1,000. 
 
 150 
 
 150,000 
 
 
 On pages 286 and 287 the formular arrangement of a register for 
 recording transfers of stock certificates is given. The form on 286 
 represents the left-hand, and on page 287 the right-hand pages of 
 such a register. The headings over the several columns serve to 
 explain fully the nature of the entries to be made in the book. 
 The blank line at the top of the right-hand page is left for writing 
 the title of the corporation from which the certificates are issued. 
 The register is kept by the trust clerk. A separate register is kept 
 for each corporation. 
 
 Loan and trust companies' records of mortgage bonds of corpora- 
 tions are made in a book with the ordinary journal-rulings, a 
 column being added for giving the number of bonds received and 
 
LOAN AND TRUST COMPANIES. 
 
 289* 
 
 issued. The form on page 288 represents the left-hand, and the- 
 form on page 289 the right-hand page of such a register. These 
 books are merely books of record and do not form any part of 
 the general set of books kept by loan and trust companies. 
 
 Much of the bookkeeping of loan and trust companies is simi- 
 lar in character to that of banks and bankers generally. These 
 corporations often do a large banking business, and have dealers 
 who keep running accounts. They more generally, however, have- 
 
 HELD IN TRUST AND DELIVERED BY THE , 
 LOAN AND TRUST C 
 1884. Bonds Delivered. 
 
 
 ... 
 
 0. 
 
 Oct. 
 
 25 
 
 Delivered 
 
 
 
 
 
 
 To J. C. Smith 3 Bonds at 
 
 
 
 
 
 
 market value of $900 
 
 
 2,7OO 
 
 
 
 
 To A. Goodfellow 2 Bonds 
 
 
 
 
 
 
 at market value of $ 900. . . 
 
 2 
 
 1,800 
 
 
 
 
 To John Topheavy $ Bonds 
 
 
 
 
 
 
 at market value of $ 900. . . 
 
 5 
 
 4,500 
 
 
 the accounts of a class who do not so frequently disturb their de- 
 posits. Depositors with such companies as a rule are paid interest 
 on their credit balances. This requires a slight alteration in some 
 of the usual banking books to make them available. The dealers." 
 or depositors' ledgers, for instance, are ruled with special columns 
 for crediting interest on deposits. 
 
 The other records are kept through the use of an ordinary set 
 of double-entry books. Of the various trusts managed by sucba 
 companies there are required to be entered in the books of ac- 
 count only such items as affect the revenues and conducting ex- 
 penses. The "Trust Account" is a record of the revenues arising;, 
 from this department of the companies services, etc. 
 
APPENDIX* 
 
BANKING AS A PROFESSION FOR YOUNG MEN, 293 
 
 BAJTETNG AS A PBOPESSION FOB YOUHQ MEN.* 
 
 It is generally true in mercantile life and in the learned profes- 
 sions, and always true in banking, that in order to insure success, 
 a young man must have some end in view towards which all his 
 exertions shall tend. Every young man should have some well-de- 
 fined plan of life marked out before him, and all his energies should 
 be directed to the realization of it. 
 
 Many have some general object in view, such as getting rich, or 
 getting beyond hard work at some time of their life ; while but few 
 have a specific, noble mark, towards which they are aiming. This is 
 the reason why there are so many second-rate young men to be 
 found in every profession, and why so many men of riper years are 
 neither one thing nor another strung up and dangling between 
 something and nothing breathing in the unsatisfying east wind of 
 a glorious mediocrity, and hoping that an undefined something may 
 turn up one of these days, which shall relieve them and place them 
 in an undefined blissful somewhere. According as a young man 
 aims, so will his arrow fly. According to the energy with which 
 he strives, and the talents which he brings to bear, so will 
 he rise. But what are the objects to be aimed at by a young 
 banker? For what end should he strive, and what is there ahead to 
 reward his toil? What are the advantages of the banker's profes- 
 sion? The advantages enjoyed by persons in this profession, for the 
 attainment of everything desirable in life, are very great, and the 
 inducements held out by the profession to ambitious, enterprising 
 young men, are enough to satisfy any reasonable person. A high 
 eminence and a name are as sure of attainment as in any other 
 business. 
 
 It should be the object of every young man who enters the pro- 
 fession, to become thoroughly acquainted with every part of it. 
 He should strive to become familiar with it all, from the great 
 general principles down to the minutest detail. While in a sub- 
 ordinate situation, he should not be satisfied with merely doing the 
 
 * The excellent ideas contained in this chapter first appeared in the Banker's 
 nearly thirty-five years ago. Time has not impaired their value. They were written by 
 George P. Bissell, a banker in Hartford, Conn. 
 
294 PRACTICAL BANKING. 
 
 work which is laid upon him, but while in this situation, he should 
 be fitting himself for the next place above him. His aim should 
 be to rise as rapidly as is consistent with a healthy growth, till 
 he has placed himself at the head of an institution; and then his 
 ambition should be, to be first in his profession, to reach an emi- 
 nence and carry his bank with him. To aim merely at a cashier- 
 ship, or to be president, is a low aim; but to be known as the 
 best cashier or president in the country, is an aim well worthy of 
 any man, and is the only one which should satisfy a young man 
 entering this profession. A young man can rise as rapidly and as 
 surely in this, as in any other profession; he can also rise as slowly 
 and as surely, and he can remain as immutably stationary, as in 
 any other calling under heaven. There are plenty of stopping places 
 adapted to all phases of mediocrity, and these stopping places are 
 very tenacious of their prey. A man once fixed in any of them, 
 is there for life. 
 
 No one should enter the business unless he is determined to 
 reach the top of the ladder. If a man is not somewhat ambitious, 
 and unless he can see through a pretty long transaction, he gener- 
 ally becomes a fixture. Any one can tell, in the course of his first 
 year, whether he is adapted to the business, and whether he will 
 succeed. If a ) r oung man begin to feel the trap-door of a second- 
 rate station, or a subordinate clerkship, pressing him down as he 
 is trying to ascend the ladder, let him make a desperate effort to 
 raise it; but if he cannot succeed, let him at once betake himself 
 to some other ladder, under some other opening. 
 
 Let no one enter this profession with the expectation of becom- 
 ing suddenly, or even speedily, rich, for this expectation will be 
 disappointed ; neither let any entering the profession be afraid of 
 ever becoming poor. Labor is generally liberally rewarded, and 
 talent is generally appreciated. There are some, it is true, in banks, 
 who receive but small pay, and who delve for years in subordinate 
 situations, but such are generally men not largely endowed with 
 talent, whose aim is nowhere, and who consequently are paid about 
 as much as they are worth. A man of talents and energy is al- 
 ways sure of good pay; sufficient for all the expenses attendant 
 upon a genteel style of living, besides a handsome margin for mod- 
 erate investment for the satisfaction of that great maelstrom ac- 
 count generally known as " sundries." He is always sure of a com- 
 petence. 
 
 A competence is all we can enjoy, 
 
 O be content where Heaven can give no more. 
 
 It is impossible to name exactly the amount of salary a young 
 man may expect to receive. It depends a little upon the locality 
 and size of the bank, and a great deal upon what the young 
 man himself is. A moderate young man in a moderately-sized bank, 
 
JANKING AS A PROFESSION FOR YOUNG MEN. 295 
 
 generally has a salary very nicely fitted to him, while an energet- 
 ic, talented young man, in a good institution, can be the recipi- 
 ent of almost any sum that he has the face to ask for. Some idea 
 upon which to base expectations may be formed from a knowledge 
 of the fact, that tellers' salaries range from $500 to $1,800 per 
 annum ; cashiers' from $ 800 to $ 5,000, and presidents' about the 
 same.* In some banks the office of president is a mere sinecure; in 
 such banks the president receives no salary, but takes it out in 
 honor. Let a young man fix in his mind the salary that he thinks 
 he ought to be worth, and then work for it, and he will generally 
 receive it. A banker, from the nature of his position in the finan- 
 cial world, has often opportunities thrown in his way for making 
 money besides his salary, but this should not be counted upon by 
 a young man, for it is very uncertain. If a young banker is work- 
 ing for a name, a reputation, and, which follows as a matter of 
 course, for a high salary, his best course is to keep himself free 
 from anything like speculating, shaving or dabbling in stocks. He 
 should engage in no other business but his bank, and he should 
 keep himself as far as possible from any course in which there is 
 the least possibility of becoming in any way involved or embarrassed. 
 
 There is less anxiety of mind in this profession than in most 
 others. It is true that the banker has a great many cares, and his 
 mind has about as much as it can well do, but there is none of 
 that terrible anxiety of mind which waits upon the merchant who 
 has his warehouses full of goods, prices falling, and money scarce. 
 The merchant at times is elated by prosperity, and again he is 
 weighed down by anxiety, and either extreme, or the transition 
 from one to the other is very wearing; but the banker has at 
 all times enough to think of. He is never troubled with the 
 alternations of excitement and depression ; his mind is constantly 
 active, not overtasked, and consequently its action is always healthy. 
 During business hours he works hard, but at night he can 
 throw off all care, and devote himself, if he choose, to literary pur- 
 suits, and to self-improvement. 
 
 There are times in great commercial distress when confidence is 
 destroyed, that banks are crowded and pressed very hard ; but with 
 ordinary management they can be carried safely through. No bank 
 ever failed where there was good management and no speculation. 
 All that is required is caution and prudence: but the most inces- 
 sant exercise of caution and prudence will not amount to that anxi- 
 ety which produces sleepless nights. 
 
 A banker can have a great deal of time to devote to mental 
 culture, and to the acquisition of useful information. He generally 
 has his evenings to himself free from care, and much can be done 
 
 * Since this was written these salaries have increased until they are now (1884) about 
 doubled. 
 
296 PRACTICAL BANKING. 
 
 t>y the improvement of such hours. His business is of such a 
 nature that this is not incompatible with being first in his profes- 
 sion. There are some, however, who work night and day, and make 
 slaves of themselves, but such are generally men who care but little 
 for mental improvement, and whose whole aim seems to be to re- 
 main in a bank, and yet realize a treadmill. Let them work. 
 They have the satisfaction of knowing that they are not always the 
 best bankers. The best in any profession are those who have room 
 enough in their brains for more than one idea, and who take time 
 for something besides dollars and cents. A banker can, if he will 
 apply himself, so cultivate his mind that he will shine as brightly 
 in social life, and appear as well, even in literary circles, as men of 
 liberal education. 
 
 These are some of the advantages of the banker's profession, and 
 these are some of the inducements which are held out to those 
 who wish to enter it. 
 
 A young man in order to succeed should maintain a straightfor- 
 ward course, both in his own affairs, and in the affairs of the 
 t>ank; he should be possessed of a clear head, a mind not easily 
 carried away by tempting offers for speculation, a disposition to re- 
 ceive very fair stories with considerable allowance ; he should have 
 urbanity combined with firmness and decision, and above all, he 
 .should have a deep-seated, stubborn passion for good security. 
 
 These are the traits which are absolutely necessary to insure success 
 in banking. Without them, no young man should enter a bank. 
 Without them, a young man should rather take himself to some 
 one of the other professions, where even a fool can sometimes make 
 a happy hit. In banking there are no happy hits to be made ; the 
 life is one long, dead pull upon talent, energy, and perseverance. 
 
ADVICE TO DEPOSITORS. 
 
 297 
 
 ADVICE TO DEPOSITORS. 
 
 If you are a stranger to the officers, and wish to open an account, 
 get some respectable person who is known to them to introduce you 
 either to the President or Cashier. Do not ask him to vouch for 
 anything beyond your integrity and fairness in dealing. Tell your 
 own story about capital, business, property, and other matters 
 which pertain to your commercial prospects and exaggerate noth- 
 ing. There is no humbug that will recoil upon yourself so surely 
 as an attempt to palm off big tales on a bank officer. Your deposit- 
 tickets, your checks, your bills receivable, your endorsements, and 
 your ledger account, make together a history that dispels all shams, 
 and leaves little to say. A man who begins with an exaggerated 
 account of himself is measured by it afterwards, and appears rela- 
 tively small. 
 
 Borrow no money of your neighbors to swell your first deposits. 
 This is a common practice, with the idea that it will make a favor- 
 able impression on the officers. They see through it at once, and 
 take it as a proof of weakness. 
 
 Never try to bargain for special indulgences, such as the certifi- 
 cation of your checks before your deposit is made, or the discount 
 of your paper by the -officers without its submission to the Board of 
 Directors. The character of your account will settle these matters 
 much more satisfactorily to all parties. 
 
 Let your intercourse with the officers be candid and courteous, 
 and be sparing in your personal solicitation for discounts. Choose 
 the earlier hours of the day for your interviews, and especially 
 avoid the last hour before three o'clock. 
 
 Write your signature with the same freedom that you do in your 
 own office, and never vary the style of it. 
 
 Teach your clerks to use always the deposit-tickets furnished by 
 the bank, to examine the date and endorsement of every check, 
 and also to see that the writing of the amount corresponds with the 
 figures. Instruct them to learn and to follow the rules of the 
 bank with respect to getting checks certified before deposit. 
 
 Make your deposit as early in the day as possible. If you are 
 accustomed to have many checks, or large packages of bank bills, 
 
rr8 PRACTICAL BANKING. 
 
 it is better to make two deposits one at an early hour than to 
 hand in all at once just at three o'clock. Never change checks 
 with other people merely to make larger figures. It causes need- 
 less labor to the bank clerks, makes you responsible for the debts 
 of others, and is a real prejudice to your credit. 
 
 Never try to put in your deposit before those in advance of you, 
 but take your place in the line, and wait your turn patiently. 
 Never make deposits without your bank-book, if you can help it. 
 Avoid all unnecessary conversation with the clerks, especially with 
 the tellers. 
 
 Never get angry if the paying teller examines your account be- 
 fore certifying your check ; nor if he keeps you waiting a few sec- 
 onds before he can pay it. 
 
 Make it an invariable rule to give checks only out of your own 
 check-book, and at your own office. When you want the endorse- 
 ment of the person to whom you give it, if he wishes to draw the 
 money, let him endorse the check in your presence, and write your 
 own name below his signature, to assure the teller that it is right. 
 
 Never give out checks dated ahead. When you have need to cut 
 checks out of the end of your check-book, mark in the margin 
 what they are for to supply duplicates, or otherwise. Keep your 
 check-books out of the sight and reach of strangers. Never give a 
 stranger a check unless you have some evidence that he is not 
 seeking it for fraudulent purposes. Never draw checks against your 
 account, on the ground that you have sent some abroad that will 
 not return immediately. Always consider a check paid when you 
 give it out. 
 
 Never attempt to pay a note with an uncertified check, at a bank 
 where you keep no account. If you make your promissory notes 
 payable at a bank, give the paying teller a list of them on Monday 
 morning for the current week. 
 
 When you want notes discounted, offer them on the regular days, 
 and in good season for the clerk's convenience. Never call on bank 
 officers to discount notes between the board meetings, if you can 
 wait until the following discount day. Do not put off the offering 
 of notes for discount until the last day of your need. It is better 
 to keep from ten days to a fortnight ahead, and to let your bal- 
 ances remain in the bank until you require them. The loss of in- 
 terest is very trifling at best. You lose more by anxiety and unfit- 
 ness for business. 
 
 When you want your bank-book balanced, or entries made in it, 
 apply to the bookkeeper early in the day. Never ask a service of 
 him later than one o'clock if you can wait till the next morning. 
 Do not allow your book to run too long without being balanced, 
 and when balanced, examine your canceled checks without delay. 
 
ADVICE TO DEPOSITORS. 299 
 
 If the bank ledger shows a larger balance in your favor at any 
 time, than your own check-book, acquaint the bookkeeper with it 
 immediately. As you value your credit with the bank, never take 
 advantage of deposits wrongly entered to your account, but let your 
 dealings be strictly honorable. 
 
 If you have any cause of complaint against the clerks, state it 
 directly to the officers. The clerks act under their instructions, 
 which they dare not disobey. 
 
 The bookkeeper is the proper person to apply to, to know if col- 
 lection notes are passed to your credit. 
 
 The collection clerk will inform you of the maturity of notes 
 for a future time. In the case of discounted notes apply to the 
 discount clerk. The discount clerk, or the collection clerk, will 
 commonly tell the exchange or charges for collecting foreign paper. 
 
 When you have notes to send abroad for collection, deposit them 
 in ample time for deliberate record and transmission by the bank. 
 
 If the drawers of any notes lodged as collateral to loans or dis- 
 counts should fail, do not wait for the bank officers to discover 
 it, but substitute good notes for them without delay. 
 
 The observance of these rules, and such others as may be sug- 
 gested by your own observation, will be a great economy of time 
 to yourself as well as to the bank clerks, and promote your real 
 credit with the institution. 
 
300 
 
 PRACTICAL BANKING. 
 
 SUGGESTIONS TO YOUNG CASHIERS ON THE DUTIES 
 OP THEIR PROFESSION.* 
 
 Banking has become a part of the very framework of our system 
 of business. Even Mr. Calhoun said, as long ago as 1816, when 
 the whole banking capital in the United States was only eighty 
 millions of dollars, that " the question whether banks are favorable 
 to public liberty and prosperity was one purely speculative. The 
 fact of the existence of banks, and their incorporation with the 
 commercial concerns and industry of the nation, prove that inquiry 
 to come too late. The only question was, on this hand, under 
 what modifications were banks most useful," etc. Banks now exist, 
 in some form or other, everywhere, and will continue, probably, as 
 long as property shall be bought and sold on credit. In all com- 
 ing time, therefore, we are to have a class of men to deal in 
 money, in promissory notes, and foreign and domestic exchange. The 
 avocation has ever been honorable, to the last degree responsible, 
 and exposed to many and to peculiar temptations. 
 
 The world, seemingly more inexorable with our profession than 
 with others, deals out its direct maledictions upon those of us 
 who err, and will hardly forgive the managers of a broken bank, 
 or the officer whose "cash is short," even when there is no other 
 guilt than credulity, too easy good nature, or incapacity. To stand 
 upon our defence against unjust accusations, and to do what we 
 can to diminish the causes of corporate and of individual delin- 
 quency, are duties which we owe to ourselves and to those who 
 are to succeed us. Dispersed, as we are, over a vast extent of 
 country, we can best correct public sentiment, and afford counsel 
 and admonition to one another, as well as render our knowledge of 
 banking available as common stock, by means of the work estab- 
 lished for, and devoted to, our benefit. 
 
 Banks, with us, both public and private, differ as none need to 
 be told in many things from those of England and of Continental 
 Europe. It is known, also, that our system is riot perfect, and that 
 essential improvements can be made in it. Hence, whatever the 
 value of essays upon foreign banking, papers devoted to our own 
 are far more useful to us, regarded as a class; and hence, too, the 
 
 * This essay, by Lorenzo Sabine, of Framingham, Mass., was originally published in the 
 Banker's Magazine in January, 1852. A few changes have been made to adapt it to the 
 present work. 
 
SUGGESTIONS TO YOUNG CASHIERS. 301 
 
 necessity for a free interchange of thought by bankers in different 
 parts of the Union. 
 
 I pass now to topics immediately connected with the duties of a 
 Cashier. The limits of this essay do not admit of elaborate reason- 
 ing, but demand, indeed, that mere suggestions shall be made with 
 the brevity of proverbs. I may be permitted, then, to address my- 
 self to the young officer, directly, and, as it were, personally. 
 
 You are to lead a life so confined, sedentary, and, in some re- 
 spects, so mechanical, that, unless you observe great care, you will 
 become, in the lapse of years, a sort of machine for computing 
 discounts, counting money, writing letters, and keeping books.* You 
 are to transact business, and to have a constant intercourse, with 
 men of every shade of character, of every variety of disposition, 
 and of every degree of intelligence. Your temper is to be tried by 
 interruptions at the most unseasonable moments, to attend to the 
 calls of the impatient, or to answer the inquiries of the ignorant 
 or inquisitive. You are to be tempted to embark in speculations 
 in stocks : to be solicited to allow overdrawings and other irregu- 
 larities by the companions of your social hours, and it may be, by 
 one or more of your own directors ; and you are to have the 
 same domestic cares and afflictions, the same personal aches and 
 pains as other men ; and yet you are expected to be ever at your 
 post, to be ever courteous, to stand fast in your integrity, and to 
 seem cheerful, and even happy. In a word, and as Girard said, at 
 the decease of his old and faithful cashier, " the bank must go on" 
 whatever your private griefs or individual disabilities. Your position 
 is thus one of much difficulty, responsibility and peril ; and you 
 need a knowledge of the laws of your physical being, the counsel 
 of wise friends, strict and daily self-examination, and deep religious 
 principle, to enable you to sustain it in health and honor. But be 
 of good cheer; be a true man, and you will overcome every ob- 
 stacle in the way of a long and of a useful life. 
 
 Your bank has secrets ; and, that they be kept inviolable, adopt 
 a rule to speak of its affairs only to persons connected with you 
 in its management. 
 
 You should embrace every opportunity to acquire information as 
 to the standing of your customers; and whatever is imparted to 
 you on the subject, whether in confidence, or otherwise, should be 
 communicated to your directors, and to them alone. 
 
 * Every person of observation will attest to the need of the caution in the text. Long and 
 close application to one branch of business, and the habit of being at one place for a course 
 of years, produce wonderful transformations in the character. The case of Mr. Rippon, the 
 late chief Cashier of the Bank of England, furnishes an illustration well worth citing. He 
 was connected with that institution for more than half a century, and asked but for a single 
 leave of absence from his post during the entire period, and in this instance, even, he ap- 
 plied at the suggestion of his physician, on the ground of ill health. Permission was granted, 
 and our bank officer departed from London to be absent two weeks. But the country was 
 without charms . idleness preyed upon his spirits, and the habit of years was so strong that, 
 at the end of three days, he returned to the bank, solely to become happy again. 
 
302 PRACTICAL BANKING. 
 
 You should become acquainted with the laws relative to bank- 
 ing, and especially with those of your own State; and should be 
 familiar with some work which treats of notes and bills, of the 
 liabilities of sureties, drawers and indorsers. I recommend, as the 
 easiest way to obtain, and to retain, knowledge in these particu- 
 lars, that you make a manual, or brief digest, with marginal ref- 
 erences to the authorities which you consult. The best books are 
 Daniel on Negotiable Instruments, and Morse on the Law of Banks 
 and Banking. To master these works, or even to obtain common 
 knowledge of the immense learning which they contain, will require 
 time much time. But the leading principles applicable to promis- 
 sors and other parties to commercial paper, are easily fixed in the 
 memory, and no time should be lost in consulting the latter treatise, 
 at least. I recommend to the young cashier to devote a part of 
 his leisure to professional reading of a more general nature. The 
 history of the system of credit is not only curious, but interesting 
 and instructive. Strangely enough, as he will find, banking owes its 
 origin to the Crusades, for the earliest institutions of which there 
 is any account was a mere bank of deposit, established at Venice, 
 late in the twelfth century, for the purpose of aiding those 
 who fought to win the Holy Land from its unholy possessors. 
 Such was the first element, and the degree of security and facility 
 of commercial transactions of the period may be seen in the fact 
 that, in England, contracts between individuals were discharged by 
 payments in cattle, horses, dogs, and even hawks ; and that rents, 
 fines, and taxes due the crown were paid in the same kinds of 
 property, in products of the soil, and in merchandise generally. In 
 a word, the idea of paper money based on the precious metals, or 
 on personal estate and credit, or on lands, had not been conceived, 
 we may fairly conclude, anywhere. Next, if the notes of my own 
 reading be accurate, and equally strange, we hear of some sort of 
 paper credit, early in the thirteenth century, not in any trading 
 country of Europe, but in far-off, and, as we commonly say, in bar- 
 barous China. So, again, toward the close of the last-mentioned cen- 
 tury, we are told that the hated and hunted Jews and Lombards 
 invented the bill of exchange, which afforded means for the silent 
 and secret transfer of funds from country to country, to the in- 
 finite discomfiture of robber kings and of robber outlaws. Next, 
 probably, in chronological order, was the promissory notes, which 
 strange device, grave and learned judges, in solemn wig and er- 
 mine, dared at length to pronounce to worn and weary litigants, 
 might, if traffickers so willed, pass current from one person to 
 another, and be lawfully collected by the final owner.* Still, again, 
 
 * As late down as the reign of William and Mary, the courts of England refused to con- 
 sider an inland bill of exchange a legal instrument; nor was it until the time of Anne, 
 that a promissory note, in the hands of an indorsee, could be collected by law, of the maker. 
 
SUGGESTIONS TO YOUNG CASHIERS. 303 
 
 about the middle of the fourteenth century, we meet with the ori- 
 gin of public scrip in the governmental certificates of Florence, 
 which, I suppose, were the first ever issued in Europe. Thus, we 
 have five elements in modern banking. Two others, namely, those 
 of discount and circulation, were yet wanting. Neither power was 
 conferred upon the Bank of Amsterdam, which, founded near the 
 opening of the seventeenth century, was designed merely, as it would 
 seem, to check the evils of a clipped and worn metallic currency. Nor 
 was the Bank of Hamburg, which was established immediately after, 
 hardly more than an institution for deposit and transfer. In the 
 progress, however, of civilization, or commercial dealing and necessity, 
 we come at last, and toward the close of the seventeenth century, to 
 the Bank of England, which was invested with authority to receive 
 deposits, to buy and sell exchange, to aid in the management of 
 public securities, to discount promissory notes, and to issue a paper 
 currency. And so it appears from this rapid view, that more than 
 five hundred years elapsed before all the elements of modern bank- 
 ing are combined, arranged, and reduced to a system in which 
 statesmen and merchants reposed confidence. 
 
 The young cashier having, by his researches, convicted me of 
 inaccuracy, or having established the truth of the foregoing out- 
 lines of bank history, may, as opportunity occurs, pursue the sub- 
 ject still further. The first charter of the Bank of England is ac- 
 cessible, and he may study it with profit, and to ascertain the im- 
 mense progress which has been made in the principles of banking, 
 whether as relates to rights of stockholders or to public conve- 
 nience and safety. He will find valuable lessons in the legislation 
 of his own country; in the issue of paper money prior to the rev- 
 olution, which at times flooded the colonies, and which in spite of 
 the clamors of our fathers, was suppressed by Parliament ; the mar- 
 velous tales and traditions which have come down to us of the 
 never-to-be-forgotten "continental money," without which the bonds 
 of colonial vassalage would not have been broken when and as 
 they were ; in the earlier charters of the different State Govern- 
 ments, and in the two charters of Congress of the great National 
 institution which has now ceased to exist. 
 
 This general inquiry concluded, he will have improved his own 
 mind, and be ready to meet and to reason with those who, be- 
 cause the system has not been perfected in a century and a-half 
 (dating from the establishment of the Bank of England), demand 
 its entire abolition, or at least such changes as would render it 
 powerless for good, alike to individuals and to communities. He 
 can say and prove that CREDIT, wide, liberal, beneficent credit, be- 
 longs to the era of liberty, and that it was unknown even in free 
 England until after the expulsion of the Stuarts, and until the rev- 
 olution there had secured personal freedom. He may stand upon 
 
304 PRACTICAL BANKING. 
 
 the emphatic declaration of a great statesman,* that the system 
 of credit, as it now prevails, is the vital air of commerce, and that 
 "it has done more, a thousand times, to enrich nations than all 
 the mines in all the world." He should, indeed, admit that its 
 fluctuations, its ebbs and flows, sometimes cause desolation and ruin; 
 yet he should not fail to insist that good and wise men steadily 
 strive to improve it that, as sweeping conflagrations allow of the 
 straightening and widening of streets, and as disasters in traveling 
 by steam suggest more careful management and better machinery, 
 so do bank failures and the delinquencies of bank officers, however 
 appalling the circumstances at the moment, serve to discover and to 
 apply new checks and new remedies. 
 
 If your bank is old enough to have been through " a crisis," and 
 if you have not served in it as an inferior officer, you have much 
 to learn of its past business. Such an institution, for example, has 
 a "suspended debt" account, or at best overdue paper secured by 
 mortgage or other collateral ; and assets of this description always 
 have a history, and sometimes a very intricate, a very perplexing 
 one. But you must become master of that history. Directors change 
 every year ; and in a little time, all who were at the " Board " when 
 this class of paper was taken will have vacated their seats; while, 
 then, some are still in the direction, make written memoranda of 
 the principal facts. 
 
 Let it be manifest to your associates and stockholders, that you 
 feel an interest in everything which relates to their welfare. To 
 work the whole of your capital and of your deposits, to keep both 
 actively employed at all times, and yet to be always able to meet 
 the demands on you, require great wisdom ; and the most skillful 
 and experienced financiers sometimes find themselves at fault for the 
 moment. Your duty requires continual experiments to effect this 
 great object. 
 
 Need I suggest the benefits of a fixed system, and of method, 
 even in matters seemingly of little consequence ? Everybody finds 
 as seamen have it that "a stern chase is a long chase." The 
 business of to-day should never be deferred till to-morrow. Answer 
 letters, and file papers, at the instant. Remember everything, if 
 possible ; but trusting to memory in nothing : let your books con- 
 tain a record of all transactions. Allow no outstanding bills against 
 the bank ; and have a voucher for the smallest item charged to 
 " Expense Account." 
 
 You can be, and you ought to be, ready for an " examination " by 
 the " Commissioners," or other functionaries of the Government, and 
 of your own " Board," without previous notice, and without the 
 slightest special preparation. In fine, close your vault daily with 
 
 *Mr. Webster. 
 
SUGGESTIONS TO YOUNG CASHIERS. 305 
 
 the reflection that no act has been neglected, and that, if sickness 
 or death should occur " the bank can go on " with no loss to your 
 family, sureties, or stockholders. Do not smile, if I add, that your 
 banking-rooms should be swept, and your desks and counters be 
 dusted daily ; that one " slut-hole " is ample for all the twine 
 and waste-paper; and that the accumulation of official papers and 
 memorandums in your private drawer will cause both you andl 
 your associates serious delays and much inconvenience. 
 
 Panics and pressures are as certain in banking as storms in winter.. 
 When either exist, firmness and courage, if not really possessed,, 
 must be assumed. You are presumed to know the nature and ex- 
 tent of your resources under all circumstances, and at periods of 
 general distrust especially; and if the amount of those immediately 
 available are insufficient for every possible call upon you, thus advise 
 your directors without delay. 
 
 A knowledge of human character is indispensable. Study it. The 
 " actions, looks, words, and steps " of your customers " form an al- 
 phabet : " and your " eyes are spectacles to read others' hearts with." 
 Careful, close, and continued observations will enable you to detect 
 a counterfeit man as readily as you now do a counterfeit bank- 
 note. My own experience is, that those who change countenance, 
 or the weight of the body from one foot to the other, when meet- 
 ing a full, searching and fixed gaze, are not truthful ; that those 
 who ask for additional accommodations, prefacing the request with 
 a story divided into acts like a drama, are already bankrupt; and 
 that those who petition in whispers, in an unnatural tone of voice, 
 in a cant, or a whine, are hypocrites. Some years hence, I shall 
 be glad to ascertain how nearly your experience accords with 
 mine. 
 
 You should be courteous and respectful to all. Self-command is 
 a great virtue; indulgence of passion is a great fault. Impertinence 
 and stupid ignorance might sometimes be rebuked, were it not for 
 the danger of contracting a morose and irritable habit of speaking. 
 There is no loss of dignity, or of self-respect, in perfect silence 
 under the greatest provocation, and that, accordingly, is your safest 
 course. The cashier's popularity or unpopularity gives character tt> 
 a bank. The directors are seldom visible, and sometimes unknown; 
 to occasional customers; but their executive officer is an ever- 
 present and a known man, and should bear in mind the Latini 
 proverb, namety, to "be cautious what he says, when, and to> 
 whom"* 
 
 Should you acquire a reputation, you may be solicited to change; 
 your place; or, becoming discontented, may seek to do so on your 
 
 * A "bill-broker," says Mr. Windham Beaves, "should avoid babbling, and be prudeat 
 in his office, which consists in one sole point, that is, to hear all and say nothing." 
 
306 PRACTICAL BANKING. 
 
 own motion. In the former case you are to consider your direc- 
 tors as your friends, and, stating all the facts fairly, obtain their 
 views before taking a single step to meet the overture made to you. 
 This is an imperative duty; and performing it in honor, and acting 
 under the advice of wise counselors, you can hardly come to a 
 wrong conclusion. I assume here that your bank is sound, and 
 that it is under the direction of competent and safe men. If un- 
 fortunately otherwise, if your reputation be at stake, and your di- 
 rectors, or a governing part of them, are ignorant or regardless of 
 the principles of banking, or are "speculators," who seek their own 
 accommodation, you should retire at once. But upon this point I 
 will not dwell, since it is to be hoped that such institutions and 
 such men have nearly passed away. 
 
 It is related that the eminence of the five brothers Rothschild, as 
 bankers, is to be attributed in a great measure to their strict observ- 
 ance of their father's dying injunction, to "remain united." Well 
 may it be so. Unanimity in the direction of a bank is always an 
 element of success; and the result of my observation in this regard 
 is, that more losses occur from divisions, than from any other single 
 cause. Accommodation notes, large and standing loans to particular 
 parties, and similar departures from legitimate banking are only to 
 be tolerated in cases which receive the assent of the entire direc- 
 tion. Yet I have known one and all of these departures to be con- 
 summated, time and again, by directors who owned the smallest 
 A possible amount of stock, in opposition to the remonstrances of 
 older and abler associates who were large stockholders; and years 
 I, when legal remedies had been exhausted, and levies and 
 set-offs had failed to restore more than costs of suit, have person- 
 ally made wearisome journeys and devoted weeks to the service of 
 closing up, as I best could, these unfortunate illustrations of the 
 rule that " a majority should govern " in the directors' room, as in 
 politics. In short, such, in my view, are the evils of the majority 
 principle in this connection, that I would counsel a cashier, 
 whether young or old, to insist upon a reasonable change, and a 
 change refused, to seek an institution more wisely, more safely con- 
 ducted. 
 
 You may be discontented without cause. I remember to have 
 read a story, in which one of the characters was in possession of 
 everything that heart could ask, but was miserable from this very 
 circumstance, or because he wanted a want. Such persons exist in 
 real life. Be not of that unhappy class. Accommodate yourself to 
 your condition. Do not seek for happiness in change of place, but 
 in change of disposition. "The lazy ox wishes for the trappings of 
 the horse, and the steed sighs for the yoke," is an old saw that 
 has not yet lost its meaning. Nor should the topic be dismissed 
 without recalling the pithy epitaph composed for the hypochondriac, 
 
SUGGESTIONS TO YOUNG CASHIERS. 307 
 
 who quacked himself into his grave: "I was well\ but by endeavor- 
 ing to be better am here." Let the young cashier heed the moral 
 contained in these several apt sayings, and remember that care and 
 perplexity exist everywhere. To smoothe and fashion the rough 
 stone of life is a religious duty. The change of one's home in- 
 volves a change of society, of privileges of worship, of schools, of 
 facilities in traveling, of household expenses, of access to books, 
 and various other essentials; and should be carefully considered in 
 every aspect before it is actually undertaken. And I bestow the 
 more attention upon the point, because the propensity to remove 
 from one place to another is so common, and because within the 
 circle of my acquaintance, many have been ruined, and but few 
 have improved their condition or increased their happiness, by seek- 
 ing a new abode. In middle age, the experiment is doubly 
 hazardous. Take up a full-grown tree, and will it live unless some 
 of the old earth go with it? Sunder the ties of sympathy and af- 
 fection; exchange old faces and associates for new ones, and what is 
 the condition of a man ? 
 
 To resume my personal address to the young cashier, you 
 should not possess an overweening desire of praise, nor invite com- 
 mendation. Nor should you be intoxicated with your own merits. 
 
 You should never speak of your official acts, except in explana- 
 tion and in self-defence. In all pleasantry, I will add, that, in old 
 age, you may tell the son who succeeds you what you were in your 
 youth ; but, now, be content with the quiet appreciation of others. 
 Delicate attentions and marks of respect are the surest and best 
 manifestations of regard, and if you have these, do not pine in 
 discontent or discouragement. 
 
 In your official intercourse with the president and directors, ob- 
 serve great deference ; and at the " Board " it may be proper to ad- 
 dress the former by his title. 
 
 Never speak of the real or supposed faults of character of a di- 
 rector in the social circle, nor bear tales or remarks from one director 
 to another. Whatever your preferences, likes, and dislikes and you 
 will probably have both your conduct should be uniformly respect- 
 ful to all. Whenever your opinion is asked, or given, without so- 
 licitation, state your views modestly, and in a conversational tone 
 of voice. Should the " Board " differ from you in judgment, and de- 
 cide contrary to your convictions, betray no feeling, but promptly 
 and cheerfully execute their vote. 
 
 Frequent communications with the directors, relative to the gene- 
 ral concerns of the bank and to your own particular duties, will 
 be of essential service : since they will thus obtain a knowledge of 
 details, and you will have the benefit of their reflections and sugges- 
 tions. " Conference," says the wise Lord Bacon, " maketh a ready man." 
 
 Your style of living is a matter of momentous consequence ; and, 
 
308 PRACTICAL BANKING. 
 
 possibly, the hinge on which your final destiny will turn. Not only 
 live within your income, but so regulate your expenses that, un- 
 avoidable misfortunes or sickness excepted, you shall be sure to 
 save at least a quarter part of your salary, as a fund for old age, 
 unless, indeed, your patrimonial estate be ample for such a pur- 
 pose.* But, whatever be your receipts or expectations from other 
 sources, do not allow your expenditures to exceed your personal 
 earnings. Be this the great economic maxim of your life. 
 
 Economy is the parent of honesty, of freedom, and of mental 
 ease and quiet. Poverty can never enter your abode, if content 
 with satisfying your real wants; while you will never enjoy inde- 
 pendence, if you live in accordance with the world's caprice.t If 
 you possess an inordinate craving for great wealth, or a desire to 
 indulge in luxuries and amusements such as men of fortune alone 
 can afford, you have mistaken your profession, and should abandon 
 it. For your life, if you remain in it, will be a perpetual struggle 
 against your natural inclinations ; and the danger is, that, finally 
 yielding to them, you will involve yourself in irretrievable woe. 
 
 The road to disgrace is short. Persons who have traced the 
 footsteps of more than one unhappy bank officer that has trodden 
 it, have found that extravagance and defalcation were but a few 
 
 * I designed to say a word in the text on the subject of salaries. As a general rule, the 
 compensation to bank officers is too small. According to a return to Parliament, in 1832, the 
 number of persons employed in the Bank of England and its branches, was nine hundred and 
 forty, who (to average the salaries) received only 225, or about eleven hundred dollars each, 
 per annum. Since several who filled the higher posts were paid very much larger sums, it is 
 evident that a considerable part of this numerous corps could not have received more than a 
 moiety of the above average. Yet, as at the same time there were one hundred and ninety- 
 three on the pension list who enjoyed annually (on the average) 161, or about eight hun- 
 dred dollars each, the faithful officers of that institution who were then in actual service, 
 could hope for relief in their declining years. In the United States, the system of pensions 
 is not, perhaps, practicable or desirable. But since marriage, a flock of little ones, the owning 
 of a house unincumbered 'with mortgage, and a choice collection of books, are all Virtue's 
 sentinels, directors ought always to have reference to the support of a family in fixing the 
 compensation of their executive officers. Indeed, such officers, like capable and faithful men 
 in other pursuits, should be allowed to provide something for old age. It is fair, I suppose, 
 to assume that the expense of the executive department, as a common thing, is not far from. 
 one per cent, on the capital stock, or, in the proportion of one thousand dollars salary to one 
 hundred thousand dollars capital. If this be so, it is manifest, at a glance, that a large part 
 of the bank officers in the United States ( as gentlemen are now compelled to live both in city 
 and country) are required to consult the maxims of "Poor Richard" every day in order to 
 secure a moderate competence. The interests of stockholders are not promoted in the long run, 
 by low salaries, for low salaries not infrequently, as experience shows, induce speculations in 
 stocks, and other irregularities, which terminate in defalcation. As a class, bank officers are 
 not so well paid as officers of railroads and manufacturing establishments, while their duties 
 are quite as responsible. 
 
 t The great English banker, Thellusson, who, at one time, was partner with Mr. Neckar, 
 the celebrated French financier, left three sons, and a fortune of three and a half millions of 
 dollars, which estate, he said, he acquired by " industry and honesty." In his will he re- 
 marks : " It is my earnest wish and desire that my sons avoid ostentation, vanity, and 
 Pompous sho-w" etc. The three, it may be added, became members of the House of Com- 
 mons, and the eldest, a peer of the realm. 
 
SUGGESTIONS TO YOUNG CASHIERS. 309 
 
 strides apart.* A sensual man is disqualified, by his very physical 
 organization, for any office in the executive department of a bank, 
 and ought no more to be there than in a pulpit. I make the re- 
 mark considerately for good reasons and not to round out a 
 period. And should this essay meet the eye of the father of a 
 son ready, by age and education, to enter upon some employment, 
 I venture to counsel that, if banking be thought of, the moral 
 qualities and the strength of the appetites, as developed in early 
 life, are the first things to be considered. The youth who, in child- 
 hood, stole slyly to the closet for his mother's sweetmeats, who was 
 never content at table with the share of niceties allotted to him, 
 who shirked his known tasks, and imposed their performance upon 
 a younger and more dutiful brother, and who, as years wore on, 
 evinced a disposition to rely upon others, and to earn nothing for 
 himself, but yet who showed a determined purpose to feed on the 
 best, and to dress in the finest such a youth, though as quick at 
 figures as Colburn himself, should never be placed in a bank. 
 
 " Speculation in stocks " is another fruitful source of ruin, and I 
 cannot forbear a word of admonition. The careful investment of 
 your earnings or patrimony, and a similar service for friends and 
 customers, define, in my judgment, the general limits of your opera- 
 tions in the stock market. To say nothing of thei hopes and fears 
 consequent upon the adventures of a dealer, and nothing of their 
 influence upon your mind and temper already sufficiently tasked 
 I may ask, in all seriousness, what assurance have you, what as- 
 surance can you have, that your virtue will resist the temptations 
 sure to beset you? Once embarked and afloat on the stock ex- 
 change, either alone or with partners, you cannot move without 
 means: and who shall answer for the money intrusted to your 
 care? Who shall answer that you will not "borrow" from your 
 vault as others have done feeling sure that you can "return" the 
 sum you need " in a few days with interest ? " At the outset you 
 will not ' risk much ; " you desire only " to gain something to add 
 to a moderate salary." But encouraged, at length, by your own 
 success in small operations, or excited by the real or reported good 
 
 * "The London banker of the old school," says Mr. Lawson, "had little resemblance to the 
 modern gentleman who is known by the same title. He was a man of serious manners, plain 
 apparel, the steadiest conduct, and a rigid observer of formalities. As you looked in his face, 
 you could read in intelligible characters that the ruling maxim of life, the one to which he 
 turned all his thoughts and by which he shaned all his actions, was : ' That he who would 
 be t> usted with the money of other men should look as if he deserved the trust, and be an 
 ostensible pattern to society of probity ', exactness, frugality , and decorum.'" And further, 
 says the same writer : " The fashionable society at the West End of the town, and the 
 amusements of high life, he never dreamed of enjoying, and would have deemed it nothing 
 short of insanity to imagine that such an act was within the compass of human daring, as 
 that of a banker lounging for an evening in Fop's Alley at the opera, or turning out for 
 the Derby with four grays to his chariot, and a goodly hamper swung behind, well stuffed 
 -with perigord pies, spring chickens, and iced champagne." 
 
3 IO PRACTICAL BANKING. 
 
 fortune of those around you, the resolution may be formed to win 
 a competence at a single cast of the die: you lose, and are ruined \ 
 Be warned, I entreat, in time. No bank officer in charity, we may 
 believe ever meant to be a defaulter; no one, at the beginning of 
 an irregular course, thought defalcation and disgrace possible. Yet, 
 alas for the many victims of self-deception ! alas for the self-confi- 
 dent, and for those who neglected the great duty of self-examina- 
 tion ! Most affectionately and earnestly do I charge you, as you 
 value your peace, as you would save your integrity, as you would 
 not be driven forth, a broken and shunned man, to resist every 
 seduction of avarice from within, and every solicitation of com- 
 panions from without. No matter what pretence or excuse a stifled 
 conscience may allow you to frame, the cash in your vault is not your 
 cash, and you touch it for your private benefit, or relief even, as a 
 robber, and at the peril of your soul! Think, ere you yield, of the 
 long roll of sad-faced men who once were honored and trusted, 
 but who, when tempted, fell ! Think of those who, wrecked in 
 character, in fortune, and in hope, have become bloated, ragged 
 wanderers ! Think of those of whom fathers and mothers, and even 
 wives and children, dare not speak save in whispers, and at the 
 family fireside ! Think of those who have been hurried to the 
 prisons and to the tribunals! Think of the graves of the suicides! 
 
 A single warning more, and I pass to less painful topics of dis- 
 course. Allow no customer to overdraw his account upon your 
 own responsibility or without the express sanction and authority 
 of directors.* The habit is a bad one, every wa)% under any cir- 
 cumstances ; and I wish it could come to an end at once, every- 
 where and forever. But if it be permitted in particular cases in 
 your bank, have neither part nor lot in the matter, save to execute 
 a positive order. Discourage the practice in every possible man- 
 ner, and if fortunate enough to put an end to it, you will deserve 
 the praise of every correct banker in the country. At your post r 
 and in bank hours, you are to have no friends to indulge with 
 favors, no enemies to punish with refusals. Then and there all men- 
 should be alike to you. The motto of the Banker's Magazine should 
 be yours, without reservation or condition.! In fine, perform no 
 act that you would omit in the presence of the full " Board," 
 or in that of the sureties on your official bond. This rule will 
 carry you safely through every difficulty and every temptation. 
 
 Pardon me if I now suggest the importance of maintaining a 
 reputation for strict, exact veracity. An aged judge is said to have 
 
 * I believe that no customer of the Bank of England, whatever his rank, is allowed to over- 
 draw. 
 
 t " No expectation of forbearance or indulgence should be encouraged. Favor and benev- 
 olence are not the attributes of good banking. Strict justice and the rigid performance of 
 contracts are its proper foundation." 
 
SUGGESTIONS TO YOUNG CASHIERS. 31! 
 
 remarked, ironically, that " half the cases he had tried on the 
 bench arose from good understanding between the parties ; " and by 
 this he meant, that half-made bargains and agreements lead to 
 disagreement and litigation. Avoid misunderstandings from this 
 source. Many, indeed most, of your transactions will be upon verbal 
 contracts. But you may use words so terse, so precise, that mis- 
 conception will be hardly possible. 
 
 The honor of a cashier and the honor of a woman are alike. Sus- 
 picion of either in the public mind is as fatal to reputation as con- 
 victed guilt. Stand by, stand for your honor, then, against all comers, 
 and to the last. Preserve your own respect, though you be fed by 
 the hand of public or of private charity. Napoleon, at the hour of 
 his downfall, deposited the remains* of his fortune with Laffitte, and 
 refused an offered and customary certificate, saying : " I know you 
 I hold you to be an honest man." The Paris banker, in the 
 course of events, became a cabinet minister ; but such a testimonial 
 to his probity from a man whose estimate of human virtue was too 
 low to be just, and who, at the moment he uttered it, was, as he 
 imagined, the victim of faithlessness and treachery, will be remem- 
 bered when the records of his political honors are torn and scat- 
 tered. But yet, any man, in his own circle, may, if he will, have 
 ,t said of him : " I know you I hold you to be an honest man." 
 My young friend now starting upon a banker's career burn these 
 words deep into your memory! 
 
 As in some things there are marked distinctions between banks 
 in different sections of the country, and between country and city 
 banks in the same State, and corresponding differences in the duties 
 of a cashier, it is obvious that no series of " suggestions " can be 
 alike applicable to all. But I may still hope that the young and in- 
 experienced officer will not fail to find some useful hints in the 
 preceding remarks, whatever his particular position or special 
 charge. 
 
 And while this may be so, the country cashier may yet need cau- 
 tions and recommendations adapted to his peculiar official and social 
 relations. Such, then, as I deem the most important, I shall briefly 
 and respectfully offer. First, as it sometimes happens that the per- 
 son selected for the executive department has had little or no ex- 
 perience in banking, and is to be connected with directors whose 
 knowledge is as limited as his own, the duty of consulting well- 
 informed officers of city banks is manifest. The country cashier 
 is often alone. Without paying or receiving tellers, bookkeeper, or 
 discount or collection clerks, but invested with the functions of 
 all, skill, system, and an economical use of time, are indispensable 
 to success. I have known gentlemen who, though possessing auick 
 
 * Five millions of francs. 
 
312 PRACTICAL BANKING. 
 
 and clear perceptions, and almost every other natural endowment, 
 were still, at the time of their election, incapable of opening or of 
 properly keeping a single bank-book. Some of these, remarkably cau- 
 tious in their habits of business, and profiting by mishaps, escaped 
 serious losses, and, in the end, became accomplished officers; while 
 others, more sanguine in temperament, and more self-confident, and 
 unwilling to seem novices, involved themselves in difficulties which 
 caused them much mental disquietude and pecuniary embarrass- 
 ment. Now, it is apparent at a glance, that both classes, had they 
 started right, might have avoided a great deal of painful experi- 
 ence. 
 
 I commend to you, therefore, if not bred to banking, the sources 
 of information, which are open to you, and to all who desire to in- 
 crease their knowledge. Accuracy in the count of money is the 
 first, accuracy in the keeping of accounts is the second, qualifi- 
 cation in a country cashier ; and, while you may acquire the 
 first by practice, you may go wrong with your records all your 
 life. 
 
 A small bank should be conducted on a plan as systematic and 
 as regular as a large one. Experience has shown, I think, that 
 bank accounts should be kept in " double entry," and that each 
 department of bank business requires a separate book. Thus in an 
 institution with a capital of only fifty thousand dollars, I consider 
 that a general and deposit ledger, that books for cash, deposits, 
 discounts, credits, collections and trial-balances, are as essential as 
 in one of a million of dollars. And the same remark is true of 
 stockholders' and directors' records, of a book to show the state 
 of the bank, and of another to exhibit the paper to mature in any 
 given week. 
 
 The general and the deposit ledger may be one ; the former oc- 
 cupying some seventy-five or one hundred pages, and embracing 
 accounts with things, the latter with persons. The cash should be 
 settled daily at the close of business, when, also, a trial balance 
 should be taken of the general ledger postings. On the last busi- 
 ness day of the month, the depositors' accounts should be adjusted, 
 and the balance of each be transferred to the trial-balance book 
 to ascertain whether the deposit ledger has been correctly posted. 
 The daily settlement of the cash neglected in some country banks, 
 unless the reform has been very recent need occupy but a few 
 minutes, since a vault-book accurately kept, leaves for actual count 
 the cash in drawer only. " Memorandum checks," and similar 
 vouchers to say nothing of the grave consequences which some- 
 times result from their use are great pests in a cashier's drawer, 
 and should not be allowed there, except in the most urgent cases. 
 Some cashiers keep " ragged bills," never intended to be reissued, 
 in vault for months, and even years ; but the practice is at- 
 
SUGGESTIONS TO YOUNG CASHIERS. 
 
 3'3 
 
 tended with obvious risk and inconvenience, and should not 
 exist. 
 
 As already intimated in another connection, your directors, how- 
 ever worthy and respectable as citizens and gentlemen, may be 
 poorly versed in the science of banking, and may not, at first, ap- 
 preciate the force and the reason of the rules which you deem 
 necessary to adopt in transactions with them and with others. But 
 evince no impatience. I assume that a majority of any and of 
 every "Board" are men of honor, and mean to do right; and that, 
 in explanations and conversations with yours, you have but to 
 calmly point out the evils likely to arise from a course opposite to 
 that which you insist upon, to obtain their approbation. Yet you 
 yourself should be well assured that these rules are consonant 
 to law, or are such as are imposed in well-regulated banks, or 
 such as, in your peculiar position and relations, are imperatively de- 
 manded. 
 
 It is possible that your predecessor allowed improper indulgences 
 to a particular director, or had favorites among your customers, and 
 that you will feel constrained to put an end to these and to similar 
 irregularities. To accomplish this, in harmony, will require all the 
 wisdom and good-nature that you can command. It is possible, too, 
 that overtures may be made to you to grant favors inconsistent 
 with your duty ; but, as such cases will arise from thoughtlessness 
 or ignorance, as often as from unworthy motives, you should be 
 silent, except when corrupt intentions are too apparent to be mis- 
 taken, or the importunities of the same person become so frequent 
 as to be troublesome. 
 
 The customers of a country bank, unlike the merchants of large 
 and busy cities, expect of the cashier some inquiries about their 
 families, and remarks upon the news of the day, upon the crops, the 
 weather, and other matters of personal or local interest. To a 
 reasonable extent this expectation should be gratified. But discus- 
 sions across your counter on topics of sectarian theology and party 
 politics are to be avoided entirely avoided. Nor, if you hear, should 
 you reply to, or take part in, tales of scandal and neighborhood 
 gossip. Polite to all, sociable to a degree not to interfere with 
 your duties, inviting and giving friendly greetings, your deport- 
 ment is yet to be dignified, and such as becomes a well-bred gen- 
 tleman. 
 
 You will transact business with persons who cannot even write 
 a note of hand in proper form ; with those who cannot be made 
 to acknowledge the necessity of a notice to an indorser; and with 
 those who will pertinaciously insist upon having their own way, 
 whatever your reasoning or objections to the contrary. Teach the 
 ignorant, without giving them pain ; be firm with the self-willed, 
 without evincing impatience or anger; for the smart of a sharp 
 
314 PRACTICAL BANKING. 
 
 word, or of a proud toss of the head, is sometimes felt for years. 
 " Contempt," says an Eastern proverb, " will penetrate the shell of 
 a tortoise;" be sure to remember it will pierce deeper into the 
 epidermis of a fellow-man. 
 
 To require, and to insist upon, regular bank hours will occasion 
 some difficulty in some places. People whose business at banks is 
 rare, seem to forget that a cashier, like other men, has a love of 
 fresh air, or that he needs exercise and relaxation ; and thus can- 
 not or will not understand why he is not ready to accommodate 
 them early in the morning, and late in the evening. These per- 
 sons seek him in his moments of rest and recreation, ask him to 
 receive money at his house, or in the village stores, and complain 
 if he refuses such reasonable requests. You will be unjust to vourself 
 if you submit to these, or to similar demands. The intervals be- 
 tween bank hours are yours by positive contract, and by the very 
 necessities of your physical and mental being.. Do not permit in- 
 roads upon them, save in extraordinary exigencies ; in these, leave 
 your bed even, to serve a customer. Still, as loose and unsafe 
 habits may have been encouraged by your predecessors, or counten- 
 anced by directors, measures of reform will be odious, unless grad- 
 ual. Under kind and considerate treatment your laggards may be- 
 come punctual, and untimely requests to open your vault entirely 
 cease. 
 
 A single " suggestion " more. The private and social relations 
 of a country cashier are of consequence, and ought not to be over- 
 looked. And, first, a salary officer, under ordinary circumstances, 
 needs not to be in debt for his personal or family expenses ; and, 
 as cash payments are sure to show whether he is "living beyond 
 his means," may I not commend the safe rule of " paying as you 
 go?" 
 
 Again, may I not be allowed to suggest the duty of constant at- 
 tendance at church, even though you cannot worship with persons 
 of your own faith ; and also of manifesting an interest in schools, 
 public lectures, lyceums, and other means employed to promote the 
 welfare of society ? The community in which you live have a claim, 
 upon you, not only for an exemplary life, but for contributions ot 
 money in proportion to your ability, to aid in the maintenance of 
 the religious, literary and benevolent associations established among 
 them. 
 
 To conclude. Should it be thought that I might have omitted 
 the discussion of some topics, and have treated others with greater 
 brevity, I submit, with deference, that I have endeavored to be a 
 careful observer. More than twenty-five years have elapsed since 
 the commencement of my connection with banks and banking ; and 
 as I 'now look back and recall the facts elicited by judicious inquiry, 
 and the facts embraced in other well-authenticated accounts which 
 
SUGGESTIONS TO YOUNG CASHIERS. 315 
 
 relate to bank officers who have fallen, never again to rise, or 
 whose lives have been saddened and embarrassed by want of firm- 
 ness in resisting the allurements of pleasure, or the solicitations of 
 the companions of their social hours by an overweening self-confi- 
 dence by too great faith in others; as, too, I remember the com- 
 plaints against another class, who, though without a moral stain, 
 have still injured themselves and the institutions with which they 
 are concerned by churlishness and irritability ; I find no cautions 
 and admonitions to omit, no recommendations that may not, I 
 think, assist in forming the character of the officer for whom these 
 suggestions are intended. 
 
 A single word more. Many of the cashiers whose private virtues 
 and professional ability adorn the annals of banking in the United 
 States, receive salaries nearly equal to the emoluments of cabinet 
 ministers, or military officers of the highest rank, and are intrusted 
 with powers so ample, that they seem to be private bankers, wield- 
 ing their own capital. These gentlemen have attained the crowning 
 honors of their profession. Let the "young cashier" aim to reach 
 the same eminence among men and among bankers. Let him re- 
 member that, whatever the influence of friends at the outset of 
 his career, his position in the maturity of his years must, in the 
 Very nature of things, depend upon himself, upon his capacity, his 
 courage, and his probity. 
 
 I have here spoken to him as to my only son, and take my leave, 
 in the earnest hope that, in the labors of some one of his seniors, 
 communicated to the "Magazine" upon the invitation which, per- 
 haps, I have unwisely accepted, he will be sure to find a path 
 marked out for him which will lead him to the rewards of a well- 
 spent life. 
 
ON THE PROTECTION OP BANKS AND OTHER MONEYED 
 INSTITUTIONS FROM LOSSES THROUGH 
 DEFAULTING OFFICERS.* 
 
 The surrounding of the deposits and securities held by the cor- 
 porate and private banks and bankers, with the most effective guards 
 possible against fraudulent loss, is a matter of far-reaching import- 
 ance. Guards have been multiplied from time to time, with the 
 expansion of business and the growth of experience, but the de- 
 falcations that have happened within the last two or three years, 
 have led many a banker to inquire whether it was not possible 
 to devise and apply more effective protection against these unwel- 
 come occurrences. 
 
 In approaching the subject, it is fitting to remark that, not- 
 withstanding the number of defalcations among bank officials, there 
 is no reason for concluding they are more wicked in general than 
 other persons. Nearly all the prominent banks throughout the 
 country are public institutions, and consequently their errors and 
 wrongdoings are exposed to the public eye. Of their managers, 
 so long as they behave well, nothing is said, but the moment 
 they depart from the right way, they learn that the public eye 
 is on them, and that the voice which is slow to praise, while 
 they do right, is quick to condemn when they do wrong. In pri- 
 vate business, conducted quietly and not subject to public examin- 
 ation, many a confidential clerk, or other trusted person, embezzles 
 without public exposure. In railroad and other companies also, 
 these events occur, yet remain unknown except to a few. Now 
 and then a case of this kind comes to light. The much larger 
 number, doubtless, are safely entombed from public knowledge. If 
 the entire record of frauds of this nature were known, consider- 
 ing the amount of money and securities handled by the two 
 classes those employed in banks and those employed in other 
 kinds of business it is believed that the record of the former 
 class would be much whiter than the record of the other. 
 
 * This Paper was prepared and read by ALBERT S. BOLLES, at the Chicago Convention of the 
 American Bankers' Association, Sept. 24th, 1885. 
 

 ON THE PROTECTION OF BANKS. 317 
 
 With this introduction we advance to the subject itself. Our 
 first proposition is the more elaborate the machinery for conduct- 
 ing the banking business, so long as undivided direct responsibility 
 is maintained, the more complete is the security. The mode of 
 receiving and paying the public money is a good illustration. Those 
 who are familiar with the system adopted by Hamilton, and 
 somewhat improved by his successors, know that it is very' elab- 
 orate, giving rise to the name of " red tape." If the Government 
 sought to receive and disburse the public money in the most direct 
 manner possible, it would throw aside no inconsiderable part of the 
 machinery now used. Why, then, is a system so cumbrous main- 
 tained ? To gain greater security. The system is so arranged that 
 the action of each officer is a check on every other, thereby ren- 
 dering the perpetration of frauds more difficult. Their small num- 
 ber, considering the magnitude of the operations of the Govern- 
 ment, have long ago proved the wisdom of the experiment, and 
 amply justified the cost of maintaining it. A bank can multiply 
 its checks or guards against fraud and error without mingling per- 
 sonal responsibility, followed, however, by three important conse- 
 quences : First, the employment of more men ; secondly, increasing 
 the expense; and, thirdly, diminishing the facility for transacting 
 business. A bank desires to transact its business economically and 
 quickly, especially in saving the time of its customers. How far it 
 can prudently go in increasing its expense or in taking the time of 
 its customers in order to erect stronger guards against loss for the 
 benefit of all, must obviously be left to the determination of each 
 bank. We shall make some remarks in another place that may be 
 of use in forming an answer. Before doing so, however, we shall 
 pass to another side of our subject. 
 
 Frauds and errors happen, for the most part, among those who 
 handle the securities or cash, by which is here meant money bills 
 and specie. There is not much opportunity of perpetrating fraud in 
 receiving checks, which, of course, constitute by far the larger por- 
 tion of bank deposits. Nor is there much danger among bookkeepers 
 of making false entries. Sometimes, it is true, they have forged 
 checks, passed them off, and entered them in their ledgers and in 
 the books of depositors, but cases of this kind are nov infrequent. 
 Note tellers, too, have sold notes not matured, and appropriated the 
 proceeds ; happily, such frauds are rare. Frauds are confined princi- 
 pally to those who handle the money or have control of it. What 
 guards, therefore, can be erected, to prevent them from abstracting 
 the money entrusted to their keeping? 
 
 Let us consider the receiving teller first. Some banks require the 
 money of depositors to go through the hands of two receiving 
 tellers. The first one will take it and count it, and enter it on his 
 book and give a ticket for the amount, and then return it to the 
 
318 PRACTICAL BANKING. 
 
 depositor, who takes it to the second teller, by whom it is received 
 as well as the ticket, recounted and entered on his book. In posting 
 such deposits it will be seen that an admirable system of checks is 
 created ; for the keepers of the individual ledgers may post from 
 the first teller's record, while the general bookkeeper may make his 
 posting from the second teller's record, and thus a good check is 
 established all around. But such a system must detain the de- 
 positor for a longer time, and, for this reason, is not always desirable. 
 Moreover, many banks receive deposits without counting, deposit- 
 ors trusting entirely to the honesty and accuracy of the bank of- 
 ficials. In such banks, of course, the system just described would 
 be useless. 
 
 Another guard might be established. The depositor might be re- 
 quired to make two tickets describing his deposits, leaving one with 
 the discount clerk or other designated official, and the money and 
 .second ticket with the receiving teller. Then the general bookkeeper 
 might post from one set of tickets and the individual bookkeepers 
 from the second set, and thus a good system of checks be estab- 
 lished. 
 
 Another thing can be done, namely, after counting the money of 
 the depositor, to return it and have him deposit it in a proper re- 
 ceptacle, and which the receiving teller cannot open. If this were 
 done he would have no money whatever in his possession, save 
 during the count. But then it would be necessary for somebody 
 to handle it, and when this was done the risk of loss would be in- 
 curred. Many of the recent defalcations have been by receiving 
 tellers, who have made false entries of the amount received. Some 
 of them would have been sooner detected by writing up the books 
 of depositors more frequently, or by having them compared with 
 the books of the bank by other officials than those who made the 
 entries. The practice of writing up the books of depositors with 
 regularity is falling into disuse ; a reform in this regard ought to be 
 made at once. Moreover, why could not a rule be made, or stat- 
 ute enacted, if necessary, requiring depositors to present their books 
 within stated periods thirty, sixty, or other days and, if not ob- 
 served, absolving the bank for all losses from error that may have 
 occurred? It may be fairly presumed that errors could be more 
 easily corrected soon after their happening than they can be at a 
 much later time. Surely a bank ought not to suffer for the contribu- 
 tory negligence of its depositors. 
 
 Now, let us consider the paying teller. He must be entrusted 
 with money for making payments. But, why could not a clerk or 
 other person be detailed every day for counting the paying teller's 
 cash in the morning before beginning business, and after his proof 
 is made at the close of the day, for the purpose of finding out 
 whether any error or fraud has been committed ? What is the pres- 
 
ON THE PROTECTION OF BANKS. 319 
 
 ent system ? The paying teller makes out his proof at the close of 
 the day and submits it to his superior officer; but whether his 
 cash corresponds with his statement, who knows? When Scott, the 
 paying teller of the Manhattan Bank of New York, ran away with 
 a large amount, a few months ago, it was assumed that he took it 
 during his last day of service, but on what reason is the assump- 
 tion founded ? May he not have abstracted money from time to 
 time for a long period from the time, in fact, since the last count 
 had been made by others ? Well knowing that his cash was re- 
 counted only at considerable intervals, he was quite safe in helping 
 himself if he desired. This judgment, therefore, of a sudden rob- 
 bery is not tenable, so long as the present system is continued ; 
 whether the paying teller's proof is correct or not is purely a mat- 
 ter of faith. Why is it not practicable and also desirable to desig- 
 nate a man every day to go over the paying teller's cash after him, 
 and thus make more certain the truth of his statement? Of 
 course, if the examiner and paying teller should combine to com- 
 mit fraud, it would be just as easy as before. We would suggest 
 the designation of a different person from day to day : sometimes 
 the president doing it, sometimes the cashier, and, again, a director 
 might be willing to make an examination of that kind; and so, by 
 varying the examination constantly, might we not with reason hope 
 that the paying teller would exercise greater care in making up his 
 statement than he does at present. 
 
 In suggesting such an examination to a bank officer, not long 
 since, he remarked that no paying teller would submit to it; but 
 another bank officer of longer experience remarked that a paying 
 teller who would not submit was quite unfit for his place, that no 
 honest officer objected to any investigation, however searching or 
 frequent. If it were general, and not spasmodic or casual, and ap- 
 plied to all paying tellers without distinction, it is believed they 
 would not object to the examination. We all know that examina- 
 tions are constantly made, of one kind or another; moreover, it 
 should be remembered that all checks and investigations are for a 
 twofold purpose to discover errors as well as frauds, for it is inev- 
 itable that, in conducting a business with the utmost care, errors 
 will occur, and investigations are always in order to prevent and dis- 
 cover them. 
 
 A similar examination might be daily conducted of the receiving 
 teller's cash. By counting the amount in the morning and the first 
 set of depositors' tickets above mentioned, and his cash at the close 
 of the day, it would seem to be impossible for him to commit fraud, 
 except through collusion. 
 
 Another precaution that may be mentioned in this connection, is 
 that of keeping the largest possible amount of money under double 
 lock and key, so that conjoint action will be necessary to get it. 
 
320 PRACTICAL BANKING. 
 
 Some banks keep their reserve in this way, but why not extend the 
 precaution further? Each bank, of course, must determine for it- 
 self how far it can go in this direction. Probably a little thought 
 bestowed on this matter would be quite enough to show the prac- 
 ticability of diminishing very largely the amount of ready money in 
 the absolute possession of the receiving or paying teller. Why 
 would it not be practicable, whenever a given sum was received, 
 say, $15,000, $20,000, or $25,000 or more, to have it counted, and, 
 perhaps, recounted by another, and labeled, and put away under 
 double lock and key, and on the other hand, of giving to the pay- 
 ing teller a comparatively small sum from time to time as the occa- 
 sion required. 
 
 Two purposes would be accomplished by such management of the 
 money deposits. In the first place, the portion put away in the 
 vault would be doubly secured ; and, in the second place, as the 
 portions in the possession of the receiving and paying tellers would 
 be lessened, they could be more easily counted, and thus facilitate the 
 work of comparison with their daily proofs. 
 
 In this connection may be mentioned the keeping of securities, 
 bonds, stocks, etc., of which many banks hold large quantities, either 
 as owners or as collateral for loans. It is easy enough to contrive 
 endless records for their safe keeping. The burden and danger, 
 however, finally center on the person with whom they are en- 
 trusted. What checks can be devised to prevent him in an evil 
 hour from making a wrongful use of them? From inquiries made 
 cf some great banking-houses, this is the most serious part of their 
 business. Among other precautions, the use of the double lock and 
 key is worth mentioning. Sometimes the risk is divided by deposit- 
 ing the securities in several places; when they are not to be often 
 changed or renewed they might be put under triple lock and key, 
 thus further diminishing the risk of loss. May not other and much 
 better protection be created by invoking the power of the State to 
 enact and enforce laws prohibiting the circulation of wrongfully-taken 
 securities? Suppose, for example, that convenient places were estab- 
 lished by law where all the stocks and bonds of railroads and other 
 companies might be registered, and which, after registration, should 
 be declared non-transferable except by the owner, and if fraudu- 
 lently transferred without his knowledge, could be recovered, even 
 if in the possession of an innocent holder; would not a regulation 
 of this kind make every purchaser careful, and render negotiation by 
 a fraudulent holder difficult? Effective regulations have been made 
 for the registration of Government bonds. In our judgment the 
 system might be greatly extended without inconveniencing the parties 
 wishing to buy or sell or pledge them. To a considerable extent, 
 pledgees have the contracts, whereby securities are assigned to them, 
 fully written out, and, of course, in such cases, fraudulent negotia- 
 
ON THE PROTECTION OF BANKS. 321. 
 
 tion is effectually prevented. The more generally this practice is ob- 
 served the better. From an early period the courts and legislatures 
 have been alert in protecting the parties to bills of exchange, 
 promissory notes, and similar instruments, against loss through fraud 
 or otherwise; enormous quantities of securities exist in the country, 
 and the holders and pledgers have been singularly remiss in pro- 
 tecting them from fraudulent circulation. Why could not statutes- 
 be enacted, making the purchasers of stolen securities, in some cases, 
 at least, participants in the crime? Perhaps statutes could not be 
 enacted broad enough to cover all cases. But they certainly could 
 cover the employees of all banking institutions,*^ depositories.- 
 Let us put this idea in a more concrete foprrT Suppose the law 
 required every purchaser of bonds, stoc^k^t5ertincates, or written or 
 printed securities of any kind, to inquire of the seller his residence 
 and business or occupation, and if the purchaser shouM know or be- 
 lieve that the seller was an employee (or the confederate of one) 
 in a corporate or private bank or banking-house, trust company, 
 depository or Savings bank, that the seller must show his authority 
 in writing, under seal, to sell the same. And suppose, when such 
 an employee should offer to sell securities of the nature described, 
 the statutes should declare that the purchaser was presumed to 
 know the business of the seller, thus requiring the purchaser to 
 prove that he did not know or believe the seller to be an employee 
 (or confederate of one) of a banking concern. If such statutes 
 were enacted, making the buyer criminally as well as civilly liable, 
 they would not, we believe, prevent the honest negotiation of se- 
 curities, but would lessen their wrongful negotiation. 
 
 We confidently believe that if the subject were considered in a 
 compreher sive and thorough manner, a system of protection could 
 be devised that would commend itself to legislative bodies, and, 
 through them, be transformed into law. We know of no body of. 
 men more fit to undertake the work than this association. 
 
 Having briefly covered a part of our subject, we shall proceed *to> 
 inquire what guards, if any, can be erected to prevent defrauding 
 by the higher officers. Some persons maintain that none can be,, 
 that with them the risk must be taken ; that character alone is the 
 only guard on which stockholders and depositors can rely. But 
 why cannot an auditor or examiner be appointed by a bank, or by 
 several of them, who shall examine carefully and constantly into the 
 transactions of the institutions included in his appointment ? This 
 is the English method of guarding against fraud and error. Several 
 years ago one of the largest banking-houses in our country, having 
 been defrauded by an employee, concluded, after a thorough consider- 
 ation of their mode of doing business, that the most effective check 
 against fraud and error would be a constant examination of their 
 business by a person in whose character and ability they had com 
 
322 PRACTICAL BANKING. 
 
 plete confidence. He was called an auditor, and given a good salary. 
 After a long trial his work is regarded with much satisfaction. 
 Occasionally, he discovers an error, and at all times there is a feel- 
 ing of security attending his supervision, which amply justifies the 
 expepse. Of course, it is as practicable for banks to have an auditor 
 or examiner of this kind as for that banking-house. It is a ques- 
 tion of adding to the expense, for the purpose of increasing the 
 security; and many of the larger banks especially could well afford 
 to incur it. Several of them might unite in employing one. In the 
 country a much larger number might unite perhaps ten, twenty, or 
 thirty banks, and, by thus uniting, the expense would be small. 
 
 They are, perhaps, more needed in country banks than in the 
 larger city banks, for the reason that in the former class, which 
 have fewer officials, fraud can be more easily perpetrated. When a 
 bank has a cashier, and only one or two assistants, whose president 
 is a nominal officer, and whose board of directors do not actually 
 participate in the direction, it is not difficult for the cashier to per- 
 petrate a fraud, if he be so inclined. In the earlier days of the 
 National banking system, there was no little opposition to public 
 examinations ; happily, this feeling has quite died away. It may be 
 that banks yet opposed to them would favor private examina- 
 tions. In this connection another thought may be thrown out, namely, 
 that the examiner might be appointed by the stockholders from 
 year to year, and, consequently, act quite independently of the board 
 of directors and officers, and so, very properly, serve as a check on 
 them. It must be remembered that his duties would consist simply 
 in examining and reporting ; he would have nothing whatever to do 
 with the management. If such persons were appointed generally, 
 the absence of such a man in a bank would be a notice to the 
 world that it did not wish to do business with the care and cir- 
 cumspection exercised by similar institutions. The appointment of 
 this official, therefore, might well be by the stockholders, thereby 
 making him independent of the president, cashier, and directors, 
 and granting to him such power to examine and report to the 
 stockholders as they should deem expedient. 
 
 It may be objected that private examiners would imperfectly per- 
 form their duties, and sometimes serve as a blind for wrong-doing 
 instead of preventing it. "Can any better service be expected of 
 them," remarks the objector, "than is now rendered by the National 
 bank examiners, and is not that imperfect ? " No time need be 
 wasted in explaining to you the difficulties in their way. You well 
 know they are required to examine too many banks to do their 
 work thoroughly, however competent they may be. This is the 
 chief difficulty in the way of adequate National bank examinations. 
 If, however, they were conducted by order of the stockholders, the 
 work of the examiners could be so narrowed as to ensure the high- 
 est degree of efficiency. 
 
ON THE PROTECTION OF BANKS. 323 
 
 After devising the best possible machinery, can perfect security 
 be obtained against fraud? Certainly not. The system of checks 
 may be so perfect that one, or two, or three wrong-minded officials 
 cannot perpetrate them, but, if enough combine, they can. The 
 element of trust cannot be wholly eliminated, and, wherever it is 
 placed, fraud is possible. Therefore, after establishing all the guards 
 which are likely to prove effective, honest men must be employed. 
 It is useless to attempt to make or keep men honest through the 
 magic of machinery. This may, indeed, prevent a dishonest man 
 from accomplishing his evil purposes, but cannot change them. How, 
 then, can a bank secure honest officials ? Darwin's process of natural 
 selection throws no light on our inquiry. With some brief thoughts 
 on three of the many sides of this inquiry, we shall conclude our 
 paper. One of the most common evils to which bank officials succumb 
 is speculation. Concerning the prevalence and consequences of it, 
 nothing need be said here. We all know that by far the greater 
 number of bank defalcations issue from this poisonous spring. Pos- 
 sibly it may be said that such defaulters were fated, and if they 
 had not wrecked themselves and, generally, others, too, by specu- 
 lating, they would have done so in another way. We shall not 
 push the inquiry so far. The clearly-exposed fact is lying before 
 every eye, that speculation of the kind with which we are most 
 familiar, is the most frequent cause of defalcations. The practical 
 question to be considered is : How shall officials be treated who 
 engage in speculation ? The other day I asked a highly successful 
 banker the question : " If you found out that one of your clerks 
 was speculating, what would you do with him ? " He replied : " I 
 would discharge him instantly." Perhaps you imagine that this 
 banker knew all about speculating, yet it ought to be said that I 
 am quite sure that he does not speculate. Probably there are bank 
 officers who would not employ speculating clerks, yet who speculate 
 themselves. In such cases, they would answer that, having more 
 means, their operations are less hazardous to themselves, and, conse- 
 quently, their business can be conducted with a cooler head, and 
 without anxiety. Nevertheless, we must face three disturbing series 
 of facts : First, the defalcations of prominent officials possessing 
 wealth, cool heads, and sagacity; secondly, a long and nearly un- 
 broken line of decisions by the courts, declaring the business to be 
 gambling, and contracts of this nature illegal and not enforceable at 
 law;* and, thirdly, no bank whose officers are known as speculators 
 
 * It is well settled that when the parties to an executory contract for the sale of prop- 
 erty intend that there shall be no delivery thereof, but that the transaction shall be settled 
 by the payment of the difference between the contract price and the market price of the 
 commodity at the time fixed, the contract is void. First National Bank v. Oskalousa 
 Packing Co, Albany Law Journal, Aug. 8, 1885, p. 118; Gregory v. Wattowa, 58 
 Iowa 711; Murray v. Ocheltree, 59 Iowa 439; Pixley v. Boynton, 79 111. 353; Logan 
 v. Mustek, 8 1 111. 415; Corbett v. Under-wood, 83 111. 324; Bigelow v. Bendedict^ 70 
 New York 202; Ir-win v. Williar, no U. S. 499; Thompson v. Cummings, 68 Ga. 125; 
 Barnard V. Backhaus, 52 Wis. 593; Flagg v. Baldwin^ 38 New Jersey Eq. 219; Calp 
 v. Prell, U. S. Cir. Ct. 38 Bank. Mag. 622; Melchert v. Ant. Un. Tel. Co. 11 Fed. 
 Rep. 193; Gregory v. Wendell, 39 Mich. 337. 
 
324 PRACTICAL BANKING. 
 
 enjoys the high credit, especially in times of financial distrust and 
 disaster, which is enjoyed by the banks whose officers do not specu- 
 late. These are the undeniable facts. What opinion ought to be enter- 
 tained of an officer who pretty regularly attended horse races, and 
 bet on the results? There was a bank defaulter of this type last 
 year. And what opinion ought to be entertained of an officer in 
 any place of trust, who is engaged in a business which the law plainly 
 declares to be gambling, and which so often leads to disastrous re- 
 sults ? The speculator knows, when putting up his margins, that if 
 he succeeds, some other person must necessarily lose ; it is not a 
 business in which both parties can gain, as in an ordinary exchange. 
 In view of the clear, legally-defined nature of speculation, and of 
 the disastrous consequences to which it constantly leads, cannot the 
 banks, when seeking to render themselves more secure against fraud, 
 post better sentinels than speculators at their gates? 
 
 An Englishman once remarked that twice he came near losing 
 everything once when he lost a lawsuit, and the other time was 
 when he gained one. The story of speculation is very similar to 
 the Englishman's legal experience. If one wins, he tries again; 
 and when the passion for speculation is fully developed, it rarely 
 stops, save with bankruptcy and the grave. Some banks have a 
 by-law declaring that no loans shall be made to their officers 
 this can, in effect, be easily evaded by procuring loans through 
 friends. A watchful board of directors might prevent its defeat by 
 making careful inquiry into the relations of applicants with the 
 officers of the ba'nk. 
 
 Another side of this inquiry at which we shall look for a mo- 
 ment is the relation between compensation to bank clerks es- 
 pecially, and frauds. Very often when a fraud has been discovered, 
 the remark is made : " Oh ! that clerk was poorly paid ! " Are 
 frauds to any extent the outgrowth of inadequate pay? Do the 
 higher officials perpetrate them because their salaries are too 
 small? What kind of honesty is that which is gauged by the 
 rate of compensation ? It belongs to a peculiar species, and which, 
 if really existing, should be carefully noted. For, evidently, it must 
 be of a dangerous nature, inasmuch as the employer can never 
 tell when he is paying enough to keep the recipient over the 
 safe line of honesty. 
 
 Some clerks, who are dissatisfied with the compensation they 
 receive, would be in any case. It is erroneous, however, to suppose 
 that dissatisfaction is confined to them. That is a universal and 
 needful ingredient in human nature ; the tonic of mankind, stimu- 
 lating to new and higher endeavor. It does not follow that an 
 increase of compensation would, or should, satisfy men, so long as 
 higher places and greater influence and wealth can be rightly 
 gained. Increase the compensation, and only the form or type of 
 
ON THE PROTECTION OF BANKS. 
 
 325 
 
 dissatisfaction would be changed. On the other hand, some clerks 
 do not think how much their superiors are dissatisfied with them, 
 how imperfect is their work, how lacking in zeal and interest, and 
 with what little regret their resignations would be accepted. They 
 do not think how easy it would be to fill their places, and, per- 
 haps, at lower salaries. There is a desire among banking employees, 
 as among other classes, to wear better clothes and live in better 
 houses than their incomes will justify them in doing. A person in- 
 flamed with such a desire is utterly destitute of the prime essential 
 of a successful banker, namely, of making more than he spends. 
 Moreover, we venture to remark that those having such a desire 
 would probably suffer it to grow beyond any increase of salary, so 
 that, whatever might be their compensation, their unsatisfied wants 
 would in no wise be diminished. 
 
 While believing these things to be true, we would also add that if 
 greater watchfulness were exercised over them, their lot might be 
 improved, and their dissatisfaction and anxiety, in some cases, 
 lessened or removed. If assistance were rendered in times of sick- 
 ness or other unexpected adversity, they might feel more con- 
 tented, and, perhaps, display a stronger interest and pleasure in 
 their business. In many cases, too, banks could well afford to give 
 more generous compensation, and might receive a yet more gener- 
 ous return, in the way of better service. Different practices pre- 
 vail among banks in their treatment of employees, and the subject 
 is well worthy of your considerate attention, for in it is bound 
 up not only their greater contentment and prosperity, but also the 
 exercise of their best ability and faithfulness. 
 
 The last side of this inquiry is the punishment of delinquents as 
 a means for deterring others from wrong-doing. The criminal laws 
 are executed so poorly, that no longer do they possess much re- 
 straining force. The chances for escape, either by running away, or 
 by compounding the crime, are so great, that persons with an evil 
 intent do not fear of feeling the power of the State. In truth our 
 criminal laws are a kind of half-believed and faintly-enforced declar- 
 ation of the popular will. Their terrors long ago disappeared. Did 
 not Ward startle the country more than a year and a half ago, and 
 yet we have not learned that the officers of the law are particularly 
 unhappy over his situation. It is true that he is now receiving his 
 callers at Ludlow street jail, instead of his former home, but, if the 
 jail be less elegant, the difference is not great enough to deter 
 others from doing as he did whenever a similar opportunity shall 
 occur. It is true that Eno is having a better time at Quebec. 
 And his immunity from punishment is a shocking illustration of the 
 defectiveness of our treaty relations with Canada. There he lives, 
 almost within sight of the scene of his crime, where he can look 
 at his victims and mock at them, and yet live in security. The 
 
326 PRACTICAL BANKING. 
 
 safety of the banks and other institutions of both countries impera- 
 tively requires that this awful disregard of justice should cease. The 
 business and social relations of the two countries are so close, their 
 mutual protection so desirable, that neither country ought any longer 
 to be an asylum for the criminals of the other. 
 
 This remark is closely linked with our final one, which is, co- 
 operation among the banks to protect each other from frauds of 
 every kind. When an officer learns something of the conduct of an 
 official in another bank, which he thinks the president, or directors, 
 or stockholders would like to know, and would thank him for tell- 
 ing, should he not, in a fitting way and time, impart his informa- 
 tion ? And if all bank officers showed this mutually helpful spirit, 
 their institutions would be more secure than they are now. And 
 this spirit might properly have a wider outflow to the giving of 
 such knowledge concerning the perpetration of frauds from the out= 
 side, as would protect banks from forgeries and other bad paper, the 
 paying of questionable checks and the like. Strong as nearly all the 
 banks are, they would yet be stronger if seeking to sustain each 
 other in all right ways; while the business would become more 
 human and agreeable when thus conducted under the kindlier light 
 of mutual interest and protection. 
 
 In concluding, we shall return to the general remark expressed at 
 the beginning. It is easy to multiply guards, but they are attended 
 with expense or delay in transacting business. On the one hand, 
 the competition among banks to attract depositors is so great, that 
 quite generally they adopt the quickest and most agreeable methods 
 of business ; and on the other, to attract borrowers, securities as- 
 signed in blank are taken, and other risks of varying nature are 
 assumed. In other words, in many cases banks voluntarily and 
 knowingly assume risks in conducting their business in order to in- 
 crease it, or to save expense. This is the short statement of the 
 matter. They can erect other guards if they desire, but in so doing 
 must probably add something to their expense, and sometimes exact 
 more of their depositors. Whether they are always justified in as- 
 suming their risks, it is not for me to determine. In a general way 
 it may be said, if the banks resolved more unitedly to strengthen 
 themselves against wrong-doing, they would conserve their own and 
 their customers' interests, and exercise a stronger restraining influ- 
 ence on those who, living on sandy foundations, are in danger of 
 slipping away, and of burying others beneath their own ruin. 
 
 IXTIMI-TI 
 
UNIVERSITY OF CALIFORNIA LIBRARY 
 
 This book is DUE on the last date stamped below. 
 Fine 
 
 liar on seventh day overdue. 
 
 OCT -3:4 1947 
 
 OCr J.61347 
 
 REC'D LD 
 
 bCT10'63-IPM 
 
 <#";. 
 
 '. 
 
 WOV 10 1947 
 
 1948 
 
 19551. 
 24W63AC 
 
 
 LD21-100m-12,'46(A2012s 6)4120 
 
THE UNIVERSITY OF CALIFORNIA LIBRARY