* This Paper was prepared and read by Albert S. Bolles, at the Chicago Convention of the

The surrounding of the deposits and securities held by the corporate and private banks and bankers, with the most effective guards possible against fraudulent loss, is a matter of far-reaching importance. Guards have been multiplied from time to time, with the expansion of business and the growth of experience, but the defalcations 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 unwelcome occurrences.

In approaching the subject, it is fitting to remark that, notwithstanding 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 private business, conducted quietly and not subject to public examination, 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, considering 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.

American Bankers' Association, Sept. 24th, 1885.

With this introduction we advance to the subject itself. Our first proposition is—the more elaborate the machinery for conducting 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 elaborate, 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 maintained? To gain greater security. The system is so arranged that the action of each officer is a check on every other, thereby rendering the perpetration of frauds more difficult. Their small number, considering the magnitude of the operations of the Government, 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 personal responsibility, followed, however, by three important consequences: 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 Gash, 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 portion 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 now infrequent. Note tellers, too, have sold notes not matured, and appropriated the proceeds; happily, such frauds are rare. Frauds are confined principally 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 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 depositor for a longer time, and, for this reason, is not always desirable. Moreover, many banks receive deposits without counting, depositors trusting entirely to the honesty and accuracy of the bank officials. In such banks, of course, the system just described would be useless.