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BANK; BANKER; BANKING. 



BANK; BANKER; BANKING. 



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of deposit, banks of issue, and banks which exercise both these 

 functions. 



Banks of deposit, strictly speaking, are those which, like the old 

 Bank of Amsterdam, simply receive the money or valuables of others 

 into custody, and keep them hoarded in their coffers till called for by 

 the depositors. However convenient such an establishment may be to 

 the persons by whom it is used, it must be evident that it can con- 

 tribute nothing to the general wealth of a community, and that the 

 only means of profit which it provides for those who conduct it, must 

 arise from payments made by its customers in the shape of com- 

 missions, or fines which partake of the nature of commissions. If, 

 instead of burying the clipped and worn coins of which its hoards were 

 composed, the Bank of Amsterdam had converted them into money of 

 the proper standard, and had lent the same at interest upon proper 

 securities, no commissions need have been required from its customers, 

 who would in so far have been benefited ; and a considerable capital 

 being set free for the prosecution of commercial enterprises, the 

 country might have thence derived continued additions to its 

 wealth. 



Banks of deposit, in this confined sense of the word, are now very 

 little used ; and the term is generally understood to mean an establish- 

 ment which lends as well as takes the property of others, and derives its 

 profits from charging a higher rate of interest than it allows. Some 

 banks of this description, such as most of the private banks in London, 

 do not allow any interest upon sums placed in their custody. 



In like manner there are few, if any, establishments which are 

 purely banks of issue. A banker sends forth his promissory notes, 

 after incurring the necessary expenses, that he may employ to his own 

 profit, during the time that the notes remain in circulation, the money 

 or property for which he may have exchanged them, and by this 

 course he gives to his establishment the mixed character of a bank of 

 issue and of circulation. The expression, bank of circulation, is fre- 

 quently understood to signify a concern which issues its own notes, 

 but it seems better, for the sake of perspicuity, to draw the distinction 

 here made. In general, those bankers who issue then- own notes and 

 circulate the money of others, which by that means comes into their 

 possession, likewise receive deposits : this at least is the practice in 

 this kingdom. In each of the cases described, with the exception of 

 the first, the practice of which has become nearly obsolete, the object 

 of the banker is to raise a borrowed capital, which he holds at call, and 

 with which he supplies the wants of others who are willing to pay for 

 its use. 



Persons who follow this line of business, and more especially asso- 

 ciations formed for the same purpose, usually possess considerable 

 wealth, and are thought deserving of confidence on the part of the 

 public ; and there can be no doubt, that so long as they conduct their 

 business with integrity and prudence, they are of material service in 

 giving life and activity to commercial dealings. They are, in fact, the 

 means of keeping that portion of the uninvested moneys of a country 

 fully and constantly employed, which but for their agency would 

 frequently lie dormant and unproductive for uncertain periods in the 

 hands of individuals. 



* The relation of a banker to his customer is that of debtor and 

 creditor : the customer's account consists in ordinary cases of money 

 which he lends to the banker upon call, that is, demandable at any 

 time, in whole or in part, by means of a cheque drawn by the customer 

 and payable by the banker, at sight, whenever it is presented to him 

 within the banking hours of his establishment. It is extremely im- 

 portant to bear in mind that in all cases of ordinary banking, where 

 the customer has an account current with the banking house, the 

 obligation under which the banker lies is to pay his customer's cheques 

 at all times within his usual banking hours, to the full extent of the 

 amount of the customer's credit account at the tune that each cheque 

 is presented for payment. For the more fully effecting this object, 

 the law looks upon the banker as bound to know what is his customer's 

 hand-writing, and what writing is not his : so that if the banker should 

 negligently cash a cheque purporting to be signed by a customer, the 

 customer's signature being in fact forged, the banker must bear the 

 loss, and not the customer. Also, if the banker should negligently 

 refuse to pay a customer's cheque, thinking that the customer had 

 at the time of presentation no funds in his (the banker's) hands, and it 

 turns out that the customer in truth had funds at the time in the 

 banker's hands to the amount of the cheque, the banker is liable to an 

 action at the suit of the customer, although the latter may not be able 

 to show that he has suffered any real loss from the refusal to cash his 

 cheque. Such cases depend on the leading rule which governs the 

 settlement of most of the questions that arise between bankers and 

 their customers, and which is simply this : When a loss arises, and it 

 is found that one of two innocent parties must suffer the loss, it is to 

 fall upon that one of the two whose conduct led the way and opened 

 the door to the fraud which caused the loss to be effectuated. 



At banker's business consists in borrowing the money of some in 

 order to lend to others. In banking conducted on pure principles, the 

 banker's capital is not used for the purpose of profit in the same way 

 in which he uses a part of the moneys that his customers deposit with 

 him ; his capital ought to be invested in government securities, yielding 

 him 3 per cent, per annum interest, which securities he can readily 

 convert into money in case of an unexpected demand upon him by 

 ABTS AKD SCI. DIV. VOL. I. 



his customers, for the return of the sums they have left in his keeping. 

 Their deposits, for the larger part, he employs in such a manner as to 

 derive interest from the loan of them to persons who are willing to 

 pay for the use of the money thus advanced to them. The mode of 

 doing this is usually by the discount of bills of exchange, not having 

 long periods to run, and the amount of which the banker receives from 

 the acceptor of each bill when it has arrived at maturity. The rest of 

 the deposits made by his customers in ordinary times, to the extent of 

 one-third or one-fourth of the whole sum deposited by all his customers, 

 he keeps in cash in his till, to meet the daily claims made upon him 

 by his customers by cheques. This, in ordinary times, is found to be 

 sufficient, because in such times the payments out and the receipts are 

 found nearly to balance every day. 



A banking business consists therefore in dealing in money and 

 credits, and in order that his credit may never for an instant become 

 impaired, he will always have a sufficient capital as a reserve, which, 

 being invested as above-mentioned, he can always be able to realise at 

 a short notice, when a season of pressure or mercantile crisis renders it 

 apparent, that demands are coming upon him more rapidly than he 

 shall be able to meet, by withdrawing the moneys of his customers that 

 he is making use of, and profit by, in the way of loans. The influence 

 upon the public as affecting their opinion of the stability of the bank, 

 arising from their having a superabundant capital, is immense. The best 

 and safest mode of employing the funds deposited with the banker is 

 considered to be, by the highest authorities on this subject, the dis- 

 count of good mercantile bills of exchange, that is, bills which represent 

 tond fide transactions of trade and commerce. Advances are also some- 

 times made by bankers on the deposit of Exchequer bills, or other 

 government securities, or railway debentures, and sometimes on goods, 

 produce, or dock warrants ; but these last three descriptions of securities 

 are not considered to be of the most eligible class, because they are 

 attended with more risk, trouble, and delay in converting them into 

 money. Mortgages on land are, for similar reasons, also regarded as 

 securities which it is unwise in a banker to invest his customer's money 

 largely in ; but it is not meant to lay this down as an invariable rule. 

 In a large business, where experience shows that, in ordinary times, but 

 a small proportion of the whole amounts deposited is necessary to be 

 retained in the shape of cash in the till that is, Bank of England 

 notes, gold, silver and copper coins to meet the average daily out- 

 goings, it may not be altogether objectionable that investments, to 

 some extent, should be made in mortgages on land : the extent to 

 which this should be done being matter for the discretion and judg- 

 ment of the banker, founded upon his knowledge of the character of 

 the borrower, the value of the land, whether it is already under mort- 

 gage to any extent, and other considerations, of various kinds, depending 

 on the nature of each transaction. 



The qualities, therefore, which are required to be possessed by every 

 banker, are prudence, caution, vigilance, assiduity, together with know- 

 ledge of the character and dealings, and the particular descriptions of 

 business, of the persons to whom he advances loans. Besides this, 

 dealing in credits as he does, the most scrupulous integrity and fair- 

 ness is exacted from him by the law. " It appears to be assumed, 

 that a failure of a banker ii by itself evidence that he has been acting 

 dishonestly. The customers of a banker have a right to look to him 

 for the exercise of cautiousness and circumspection, for undeviating 

 adherence to the purest good faith and strictest integrity, in the use of 

 their money which they have lent him as a banker ; they have a right 

 to expect that he will confine his trade to its legitimate field, namely, 

 of discounting bills, and of purchasing, or advancing money upon, 

 proper securities." (Grant's ' Law relating to Bankers and Banking/ 

 pp. 315, 316.) 



Hence all engaging hi pursuits of a speculative character, such as 

 mining, is invariably declined by prudent bankers. A very large pro- 

 portion of the failures that have taken place in banking concerns, are 

 traceable to errors of this description. Banks, in the commencement 

 perfectly sound, have often sunk from the results of having been led 

 on in such business as the following : A customer manufacturing 

 largely applies for an advance, offering a mortgage of landed property 

 on advantageous terms as security ; the advance is made, but after a 

 time the customer returns representing that he has made bad debts 

 which cannot at present be realised, and that he is in want of cash to 

 carry on his concerns, and that if he is not accommodated the result 

 will be that he must stop, in which case, in the present posture of 

 affairs, the banker will in all probability be a loser. The banker, 

 therefore, consents to a further loan, taking perhaps as security a bill 

 of sale of the manufacturer's plant and machinery. Such cases too 

 frequently end in the banker suffering great loss, which becomes 

 known; his credit is accordingly impaired, the customers become 

 alarmed for the safety of their deposits, a run upon the bank ensues, 

 and it is obliged to stop payment, and the end is bankruptcy and ruin. 

 Then in cases of bankruptcy, the disclosure of reckless dealings of 

 this nature, or other misconduct, such as allowing a partner greatly to 

 overdraw his private account with the bank, without exacting from 

 him proper security ; permitting unnecessary litigation, wrongful 

 dealings by way of transfer, pledge, or any kind of conversion, with a 

 customer's securities that may have been lodged at the bank for safe 

 custody ; failure to keep proper books, ignorance of what the books 

 show to be the real state of the bank ; are all matters which press 



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