BANKS AND BANKING 



577 



BANKS AND BANKING 



city to-day who can identify me. What do 

 you advise me to do?" 



The banker learned that the boat Robbins 

 named actually did sail on the date claimed; 

 that Robbins was first mate; that the vessel 

 was never again heard from, except that wreck- 

 age was later reported by other vessels. Little 



by little ,the Robbins story was substantiated, 

 and when the bank was assured of his identity, 

 the man who had left $1,000 for safekeeping in 

 the hands of an institution he felt he could 

 trust was handed more than double that 

 amount in cash, the original principal sum and 

 its accrued interest. 



The Business of Banking 



A bank has two principal functions, that of 

 receiving from the people their money on 

 deposit, and the loaning of money at interest, 

 safeguarded by good security. The money 

 which it receives on deposit is in turn lent to 

 other customers. A bank, therefore, is a mid- 

 dleman between those who have money to 

 lend and those who want to borrow. 



Functions of a Bank. The functions of a 

 modern bank may be treated under two head- 

 ings, banks as borrowers and banks as lenders. 

 The term borrow, however, is not used here in 

 a technical sense. Banks are custodians, keep- 

 ing funds available for demand at any time, 

 and the deposits of their customers cannot, 

 in the real sense, be called loans. On the 

 other hand, the moneys in their keeping are 

 invested and made to produce, and are repaid 

 to the depositors; thus the banks in effect act 

 as borrowers. It is not necessarily money that 

 is lent and borrowed; frequently the loan con- 

 sists of the important thing called credit, with- 

 out which modern business organizations would 

 come to a standstill. 



Banks as Borrowers. The man who intrusts 

 his money to a bank does not, as a rule, think 

 of his deposit as a loan; in fact, he usually 

 puts his money in a bank for safekeeping or 

 for convenience, but the bank uses the money 

 to lend to those who need it. This is the 

 greatest service which a banker performs for 

 the community. He collects small amounts 

 which would lie idle and unproductive, ami 

 then in position to lend larger amounts 

 for productive enterprise. 



The money which a bank receives on de- 

 posit is usually subject to call. It may be 

 drawn out by the depositor in person, or on 

 vrittcn order. Such an order is a check, or 

 cheque. The depositor pays his debts by 

 ordering the bank to pay money from his 

 account to a third person. He need not carry 

 on his person large sums for which he has no 

 immediate use, and he has a further advantage 

 in that the check, when endorsed and paid, is 

 a receipt for the payment he has made. 

 37 



The bank renders another important sen-ice 

 to the depositor. A large commercial bank 

 each day receives hundreds of checks which it 

 credits to the accounts of its depositors. These 

 checks may be drawn on as many hundred 

 different banks, but the bank in which they 

 are deposited collects them all. If a check 

 is drawn on a distant city, a small charge, called 

 exchange, is usually made for the service. If 

 the check is drawn by one depositor in favor 

 of another depositor in the same bank, pay- 

 ment of the check is merely a matter of making 

 proper entries in the books of the bank. If 

 the check is deposited for collection at another 

 bank than that on which it is drawn, the pay- 

 ment is seldom made by the transfer of cash 

 but usually through the clearing house (which 

 see). Besides collecting checks, a bank will 

 collect money due on notes, bond coupons and 

 other commercial paper for its customers. 



If money deposited in a bank is regarded 

 strictly as a loan, the depositor is entitled to 

 interest. The many services which a commer- 

 cial bank renders to its customers, however, 

 are usually considered to outweigh this right. 

 On small checking accounts a bank almost al- 

 ways loses money, the expenses of keeping 

 them being practically as much as in the case 

 of large accounts. It takes as much clerical 

 work to record a deposit of $10 as one of $1,000. 

 For this reason most banks fix a minimum 

 balance which a depositor is expected to keep 

 if he wishes to draw checks against it. This 

 minimum may range from $50 in a small-town 

 bank to several hundred dollars in a large city. 



For people who want interest on their de- 

 posits a savings account is the best plan. 

 Most large banks now have savings depart- 

 ments, and there are also many special savings 

 banks. These usually pay interest at the rate 

 of three per cent a year. Under normal condi- 

 tions a savings bank will pay its depositors on 

 demand, but it reserves the right to ask previous 

 notice, usually of sixty days, to prevent de- 

 mands which might orca.-i.>n . mturra-.-mrnt 

 if a good portion of its funds were out on 



