the last depositor has come in, and the last payer of a collection has settled. For instance, the payment of a single draft or note after banking hours, necessitates the holding open of several sets of books or the erasure and changing of various totals by the bookkeepers. It is a very mistaken, but popular, idea that the bank employes practically are through with their duties at the close of banking hours. The fact is, that the usual hours for the employes are from eight till five, and it is no uncommon thing for the clerk and officers to be hard at work many hours after the business houses have closed.

Yet many persons think the bank very disobliging if it refuses to transact business after hours. One unreasonable individual insisted that he had until sundown to pay his note on the day it was due. When the collecting bank told him it would be protested if not paid before the end of banking hours, he became very abusive and wanted to know who gave that bank the power to say how late he could pay. He was politely referred to the law makers, but this did not lessen his resentment against the bank.

The foregoing are statements of actual daily occurrences and are only fair samples of the injustice with which many persons treat the banks. And it is mainly the result of ignorance of the laws and customs, which the banks must obey.

  XII

THE LOAN DEPARTMENT

As a preface to the remarks on this department, the following simple and concise statement is taken, by permission, from that excellent book, "Money and Banking," by Mr. Horace White. (Book II, Chapter I, page 235, Edition of 1895.)

"FUNCTION OF A BANK"

"A bank is a manufactory of credit and a machine of exchange. Mr. H. D. McLeod's analysis of the mechanism of banking is substantially this: A man has $5,000.00 of his own money. He starts a bank. His neighbors deposit $45,000.00 with him. This money becomes the absolute property of the banker. The depositors have simply a right to withdraw an equal amount whenever they like, which right can be enforced by law. The banker owns the money and the depositor has a claim, or right of action, against him for an equal sum. But the depositors will not draw the money out immediately; if they had intended to do so, they would not have deposited it at all. The banker finds by experience that some of his customers will deposit as much money as others draw out, so that $50,000.00 is on hand all the time. He concludes that if his own $5,000.00 in connection with his good reputation, is considered by the public a guarantee for $45,000.00, then the whole $50,000.00 will serve as a guarantee for at least $200,000.00. When he begins, his balance sheet reads in this way:

"He now begins to discount the commercial paper of his customers running say ninety days at 6%. When he discounts a bill of exchange for $1,000.00, he deducts the interest for ninety days ($15.00) and credits the customer the remainder ($985.00) on his books. This $985.00 is called a deposit, because the customer has the right to draw it out by his check exactly as he could draw out an equal sum of gold deposited by him in the same bank. In the eye of the banker, and of the customer, and of the law, it is a deposit. In ordinary times it is like any other deposit. That is, the proportion remaining uncalled for at any time will be about the same as the proportion of actual money deposited. Yet it is nothing but a bank credit. Hence the word deposit, when thus used, is clearly a misnomer, since, by derivation and common understanding, a deposit means a thing laid away, or given in charge of somebody. It must be borne in mind, therefore, that bank deposits consist of two different things, namely, (1) money, (2) bank credits, and that the latter may be four or five times as large as the former.

"The process continues till the banker has $200,000.00 of discounted bills in his portfolio. Then his accounts stand thus—

"This is Mr. McLeod's exposition and it is the correct one. It follows that the banker has manufactured something which serves as a medium of exchange to the extent of nearly $200,000.00. This something is credit. Goods can be bought and sold with it as readily as with money, since the checks drawn against these deposits are universally accepted. The whole $200,000.00 of bills are not discounted in a lump, but gradually, so that some are always maturing and bringing money in to meet the checks of customers, in an endless chain of deposits and discounts. It is found in practice that $200,000.00 of loans and discounts may be easily carried on $50,000.00 of cash. Thus, the loans of all the National banks in the United States in October, 1894, were $2,000,000,000.00, and their cash (including silver certificates and silver dollars) was a trifle less than $400,000,000.00, or only one-fifth of the amount of the loans. The other four-fifths was credit, and perfectly sound credit too, for it had passed through one of the severest panics in our history."

The foregoing quotation is an unanswerable argument for the need of banks as manufacturers of credit in every community. The greater the banking capital in any section, the easier it will be for the people of that section to carry on and enlarge their business.

The Loan Department is not only the most important, but it is the money-making end of the bank. If it makes no loans it will pay no dividends. If, on the other hand, it makes bad loans, it will go out of existence.

It can be understood readily that the successful bank officer, whose duty it is to accept or reject loans, must be a person of large experience and wide knowledge of men and affairs. He must be an excellent judge of human nature. Not too conservative, nor yet too venturesome. He must be a constant student of financial conditions; and must expand or contract his loans as the sea of finance is placid or stormy. His responsibility is great. He must lend, but he must lend judiciously, millions of other people's money. He can not allow feelings of personal friendship to warp his judgment. He must be thoroughly familiar with the laws concerning the making and the collection of notes.

In an address to the National Banks in 1863, the Hon. Hugh McCulloch, the first Comptroller of the Currency, gave this sound advice:

"Do nothing to foster and encourage speculation. Give facilities only to prudent and legitimate transactions. Distribute your loans rather than concentrate them in a few hands. Pursue a straightforward, upright, legitimate banking business. Treat your customers liberally, bearing in mind that a bank prospers as its customers prosper."

In lending, the bank should encourage the business interests of its community and should discourage speculation.

If every one, before asking a loan, would put this question to himself, "Would I take this risk," his banker would be saved much