This section is from the "Practical Banking" book, by Albert S. Bolles.
Every bank should know as much as possible concerning each of its dealers, and the information obtained should be carefully recorded 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 dictate 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 accompany 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 1, 2, 3, and the entry in the index would therefore be, say, as follows: John Smith & Co., Book No. 1, page (say) 2/183
, which would mean that on section 2 of page 185, in scrap-book No. 1, 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 require systematic and regular attention, which usually cannot be given by either the cashier or president, and therefore a clerk must 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 reasons. For many years the title page of the Banker's Magazine has borne the following words, uttered by a successful and eminent banker of Boston, Nathan Appleton: " No expectation of forbearance 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." Notwithstanding 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 extraordinary occasions. Human experience will not avail much at such times. If the bank manager does not comprehend the situation, so much the worse for him and for all concerned; any lesson 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.