This section is from the "Practical Banking" book, by Albert S. Bolles.
Country banks being subject, at certain seasons, to a demand for currency, every judicious banker will endeavor to so select the loans which he makes during a year, that large amounts of them will become payable at the precise periods of the spring and fall when funds will be most needed. This is imitating the conduct of Pharaoh, who, during the years of plenty, accumulated provisions for the periods of apprehended famine. Many months of every year are months of plenty with every well-conducted bank. The paper which is selected for the future contingency will be useful in proportion to its reliability; and paper payable in New York, or other eastern cities, may be more useful than any other. No rule of banking is more practically valuable than the foregoing.
As banking is liable to panics and pressures which may arise without being preceded by any long premonitory symptoms, a banker must invest his funds in short loans, which measurably accomplish the feat that is proverbially impossible, "to have a cake and eat it at the same time:"—that is, by means of short loans, the bank keeps its funds always available within a short period, and yet keeps them always loaned out on interest. The banks of large cities are able to make loans payable on demand, or in a few days' notice; while country banks possess no such opportunities, but are able usually to deposit their spare funds in some bank in New York, subject to a repayment on demand, or on short notice; and in the mean time to receive interest on the deposit. Experience, however, has painfully demonstrated that the convenience of an interest-paying depository is not exempt from danger.
What is every person's business is proverbially nobody's; hence the safety of banks depends less on boards of directors than on some one person to whom the bank is specially confided. He is to be always present, and always responsible, in his feelings and in public estimation, for the prosperity of the bank; and for these services he ought to be well compensated, pecuniarily, so as to stimulate the faculties to their best efforts. We mistake human nature when we expect great efforts from any man, and supply no proper motive therefor.
In large cities, discounts are generally made to persons who are known personally or by reputation to some of the directors, but in country banking, the borrowers and their endorsers in many cases are residents of remote places, and unknown, personally, in the locality cf the bank. A country banker, who should insist on a personal acquaintance with the makers and endorsers of all the paper he desired to buy, might find his business restricted to a circle too small for the employment of his capital. In vain will such a banker insist that he ought not to make loans to persons of whom he possesses no knowledge; the answer will be that he should acquire the knowledge. It is indispensable to his bank. He is bound to know a sufficient number of persons to enable his bank to employ its capital advantageously. Every note, therefore, that he rejects for want of knowledge, is ostensibly a slight reproach on him, in cases where he has not a sufficiency of known borrowers; while every note that he rejects or accepts by means of his knowledge of the parties is a tribute to his industry and vigilance.
The preceding remarks will show why country banks are specially liable to loss from forgeries. Moreover, many of the makers and endorsers who deal with country banks write poorly, and their signatures bear but little internal evidence of genuineness, even when you are partially acquainted with the parties; for the same person will write differently at different times, and especially with different pens and different qualities of ink; and he varies these continually. Still, the greater the danger, the greater is the caution which the banker must exercise. He must bring to the difficulty all the scrutiny of which the case is susceptible, or he will not stand excused for consequent losses. A comparison of any proffered signature with one that is genuine, though encumbered with difficulties as above explained, is a guide that should not be neglected; and it is often the best that can be resorted to. Banks, therefore, keep a book in which every person who deals with the bank inserts his name. The signatures should be placed alphabetically, to facilitate a future reference to them. The endorsers may never visit the bank; but, when a note is paid, the names of the endorsers may, with the consent of the maker, be cut from the note, and pasted into the book, in their proper order. In no very long time, a mass of autographs may be thus collected. Some names on notes may not be deserving of such preservation; and in this particular, as in all others, the banker must exercise his judgment.
The law in relation to endorsers renders them liable only on due notice of the non-payment of the endorsed note. This avenue of loss is felt but seldom in large cities, but in the country it produces constant danger. A country banker, therefore, must know where endorsers reside, and usually the information can be obtained most readily when each note is discounted, and from the person who brings it for discount. The information can be written on the note under the name of the endorser, and it will serve as a direction to the notary public, should the note be protested for non-payment. The laws of New York required, formerly, that the notice of non-payment should be forwarded by mail to the post-office nearest to the residence of the endorser. This imposed on the banker a knowledge of postal locations that added much to the difficulty of his position. The law has since meliorated the difficulty by rendering a notice sufficient if directed to the town in which an endorser resides.