This section is from the "Practical Banking" book, by Albert S. Bolles.
Two purposes would be accomplished by such management of the money deposits. In the first place, the portion put away in the vault would be doubly secured; and, in the second place, as the portions in the possession of the receiving and paying tellers would be lessened, they could be more easily counted, and thus facilitate the work of comparison with their daily proofs.
In this connection may be mentioned the keeping of securities, bonds, stocks, etc., of which many banks hold large quantities, either as owners or as collateral for loans. It is easy enough to contrive endless records for their safe keeping. The burden and danger, however, finally center on the person with whom they are entrusted. What checks can be devised to prevent him in an evil hour from making a wrongful use of them? From inquiries made cf some great banking-houses, this is the most serious part of their business. Among other precautions, the use of the double lock and key is worth mentioning. Sometimes the risk is divided by depositing the securities in several places; when they are not to be often changed or renewed they might be put under triple lock and key, thus further diminishing the risk of loss. May not other and much better protection be created by invoking the power of the State to enact and enforce laws prohibiting the circulation of wrongfully-taken securities? Suppose, for example, that convenient places were established by law where all the stocks and bonds of railroads and other companies might be registered, and which, after registration, should be declared non-transferable except by the owner, and if fraudulently transferred without his knowledge, could be recovered, even if in the possession of an innocent holder; would not a regulation of this kind make every purchaser careful, and render negotiation by a fraudulent holder difficult? Effective regulations have been made for the registration of Government bonds. In our judgment the system might be greatly extended without inconveniencing the parties wishing to buy or sell or pledge them. To a considerable extent, pledgees have the contracts, whereby securities are assigned to them, fully written out, and, of course, in such cases, fraudulent negotiation is effectually prevented. The more generally this practice is observed the better. From an early period the courts and legislatures have been alert in protecting the parties to bills of exchange, promissory notes, and similar instruments, against loss through fraud or otherwise; enormous quantities of securities exist in the country, and the holders and pledgers have been singularly remiss in protecting them from fraudulent circulation. Why could not statutes-be enacted, making the purchasers of stolen securities, in some cases,, at least, participants in the crime? Perhaps statutes could not be enacted broad enough to cover all cases. But they certainly could cover the employees of all banking institutions and depositories. Let us put this idea in a more concrete form. Suppose the law required every purchaser of bonds, stocks certificates, or written or printed securities of any kind, to inquire of the seller his residence and business or occupation, and if the purchaser shouM know or believe that the seller was an employee (or the confederate of one) in a corporate or private bank or banking-house, trust company, depository or Savings bank, that the seller must show his authority in writing, under seal, to sell the same. And suppose, when such, an employee should offer to sell securities of the nature described,, the statutes should declare that the purchaser was presumed to know the business of the seller, thus requiring the purchaser to prove that he did not know or believe the seller to be an employee (or confederate of one) of a banking concern. If such statutes were enacted, making the buyer criminally as well as civilly liable, they would not, we believe, prevent the honest negotiation of securities, but would lessen their wrongful negotiation.
We confidently believe that if the subject were considered in a comprehensive and thorough manner, a system of protection could be devised that would commend itself to legislative bodies, andr through them, be transformed into law. We know of no body of. men more fit to undertake the work than this association.
Having briefly covered a part of our subject, we shall proceed to inquire what guards, if any, can be erected to prevent defrauding by the higher officers. Some persons maintain that none can be, that with them the risk must be taken; that character alone is the only guard on which stockholders and depositors can rely. But why cannot an auditor or examiner be appointed by a bank, or by several of them, who shall examine carefully and constantly into the transactions of the institutions included in his appointment? This is the English method of guarding against fraud and error. Several years ago one of the largest banking-houses in our country, having been defrauded by an employee, concluded, after a thorough consideration of their mode of doing business, that the most effective check against fraud and error would be a constant examination of their business by a person in whose character and ability they had complete confidence. He was called an auditor, and given a good salary. After a long trial his work is regarded with much satisfaction. Occasionally, he discovers an error, and at all times there is a feeling of security attending his supervision, which amply justifies the expense. Of course, it is as practicable for banks to have an auditor or examiner of this kind as for that banking-house. It is a question of adding to the expense, for the purpose of increasing the security; and many of the larger banks especially could well afford to incur it. Several of them might unite in employing one. In the country a much larger number might unite—perhaps ten, twenty, or thirty banks, and, by thus uniting, the expense would be small.