This section is from the "Practical Banking" book, by Albert S. Bolles.
As a banker will lend to the extent of his ability, that he may make for his bank all the gains in his power, he must be well acquainted with the pecuniary means and abilities of his bank. He can keep on his table a summary showing the precise amount of his funds and where they are situated, and of what they are composed ; also an aggregate of his various liabilities. Such a summary, when corrected daily, or more frequently if necessary, will constitute a chart by which he will be able to judge whether he can lend, or whether he must retrench existing loans. The funds that will be adequate to any given amount of liability a banker must learn by experience, embarrassed as he will be by a want of uniformity in the results of his experience, at different periods. Every bank must be liable, momentarily, to demands for payment of its deposits (and bank notes, if it issues any) beyond its present funds. Practically, however, if a banker has funds enough, day by day, to meet the requirements of the day, he has funds enough.
"Sufficient for the day is the evil thereof," is a proverb peculiarly-applicable in banking.
But a banker must not be satisfied by knowing that his funds of today will be sufficient for the wants of the day. He must possess a reasonable assurance that the same will be his position "tomorrow, and tomorrow, to the end of time." To gain this assurance, he ought to keep also before him one or more lists in detail of his prospective resources, showing what notes and acceptances will be payable to the bank daily for some weeks or months ahead, and where they are payable. With such lists, and a knowledge of the reality of the paper thus going onward to maturity, he will be able t6 judge whether his prospective resources will need the aid of his existing unemployed funds; or whether he may loan them, and even extend his liabilities in anticipation of a prospective surplusage of resources.
By means of such lists as we have just described, should a banker discover that his existing resources will be small during, say, the month of June, he can aid the defect by discounting in the preceding May, April or March, paper that will mature in June. By thus regulating, prospectively, his future resources, he can be always provided with funds. And that a banker may, at all times, be master of his resources, he should never promise prospective loans, or make loans with any promise of their renewal. The more he keeps uncommitted, the better will he be able to accommodate himself to future exigencies. Banking is subject to sufficient uncertainties, without unnecessarily aggravating them by prospective agreements. A banker may be unable to fulfill such pledges, and be thus compelled to falsify his promises; or, he may be able to fulfill them only at a sacrifice of the interests of his bank, and thus be placed in the unwholesome dilemma of injuring his personal character, or of preventing the injury only by a sacrifice of the interests of his bank.
A banker is compelled to employ officers to whom he intrusts his vaults and their contents. Robberies are often committed by persons thus intrusted, and some such robberies have remained long concealed. The banker cannot be responsible for all such occurrences; still, vigilance can accomplish much in the way of security against mischances, and the banker is responsible for the exercise of all practicable vigilance. Robberies and frauds possess usually some discoverable concomitants. No man plunders to accumulate property that is not to be used. Its use, therefore, which can rarely be wholly concealed, is a clue which a vigilant eye can trace to the plunderer. Nearly every plunderer is a prodigal, and may thereby be detected; nearly every plunderer is needy, and should therefore be suspected. The banker should know human nature, and be able to trace effects to their causes, and to deduce effects from causes. To this extent he is answerable for the safety of his bank. The sentinel whose post happens to be surprised by an enemy may escape punishment as a criminal, but he can rarely gain commendation for vigilance, or escape censure for carelessness.
To permit overdrafts is to make loans without endorsers, and without the payment of interest. It is, moreover, to empower a dealer to control your resources. No mode of lending money can be more inconsistent with all safe banking, and it should never be permitted. Still, every man who keeps a bank account can draw checks for an amount exceeding his balance in bank; nor can the banker personally supervise the payment of checks. A vigilant banker will, however, provide vigilant subordinate officers: " The eye of the master maketh diligent," say the Scriptures. An intelligent and careful teller will soon learn whom he must watch; but, after all precautions, an overdraft may be perpetrated, and, whether by accident or design, the bookkeeper should forthwith report to the banker the occurrence, and he must act thereon as his judgment shall deem proper.
No system of banking can escape the casualty of doubtful debts. Usually the most favorable time to coerce payments is when they first become payable. Then the debtor has expected to pay, and if he is then in default no certain dependence can be made on his subsequent promises. He is also usually less offended by a legal enforcement of payments when they are promptly enforced, and when he knows the creditor is disappointed by the default, than he is after the default has been tacitly acquiesced in by a long forbearance of coercive measures. Additional security, when necessary, can also be more readily obtained at the time of the default, than it can after the debtor has become reconciled by time to his dishonorable position. His credit is better now than it will be subsequently, and he can more readily now than subsequently obtain responsible endorsers. In relation to the extension of time on receiving additional security on a weak debt, any extension that is productive of security is a less banking evil than insecurity; just as any protraction of disease that results in health is a less physical evil than death.