This section is from the "Practical Banking" book, by Albert S. Bolles.
All checks that have passed the paying teller's examination are given to a clerk for entry on his check list, and are charged to their respective accounts in the ledger, except by those banks which use the Boston system of ledgers, to be hereafter explained, in which ■the check list is not used.
In paying checks the teller must think of three things: first, is the signature genuine; secondly, is the account of the drawer good; and, thirdly, is the person presenting the check entitled to receive the money.
Much might be said under the first head. A great many forged checks are presented and paid. It is one of the terrors of banking. All kinds of devices have been invented for preventing forgeries. Various kinds of paper have been tried. The use of green ink on the United States and National Bank notes was to render their forgery more difficult. And indeed it has proved one of the most effective of preventives. Private marks in signatures are sometimes used. This must be said, however, concerning them: if a forger finds out what the private mark is and successfully counterfeits it, the paying teller is more likely to be deceived than he would be if no such mark were employed.
One of the universal precautions observed by banks to prevent forgeries is to require every depositor to write his name in a signature book. With this the paying teller compares doubtful signatures. Every drawer should always sign his name in the same manner, or, if varying it, should acquaint the paying teller with the variation.
The paying teller must also satisfy himself concerning the genuineness of the endorsement on every check presented for payment.
The second inquiry is, has the drawer a sufficient deposit to pay the check. In every large bank several hundred depositors transact business with it. They have various times and methods of depositing. Some draw many checks daily, and some only a few, or at rare intervals. The deposits of a bank, therefore, are constantly varying in amount. How then can a paying teller recall the condition of every depositor's account?
We cannot describe how a paying teller performs this important part of his work any better than Gibbons has done. By carefully examining the deposits and checks of a dealer, it is easy to judge whether they are the proper returns from his business, or whether they are mostly transfers between different persons and accounts; also to what extent his balances are maintained by loans and transient accommodations. It is not difficult to ascertain whether a man uses his credit excessively or with prudence; nor to get information of his personal habits, associations, and general character. The contact of the teller with merchants in all branches of trade affords many opportunities of inquiry which, with those in possession of the bank officers, enable him to classify the dealers, and thus to assist his memory.
In the first-class stand those of known large capital, who never give out their own notes. They may sell on credit, but they always buy for cash. Their deposits in bank are generally far greater than their immediate wants. When their checks are presented, the teller may safely pay them without reference to the condition of their accounts; for if they should even appear overdrawn at the moment, he knows that they will make an ample deposit before the close of the day. In addition to this, they are likely to have a considerable amount of promissory notes lodged in the bank for collection, which are collateral security.
The middle class of dealers are the most numerous. Less independent with regard to capital, and relying on the bank for loans, they are yet generally safe and trustworthy. They will not transgress its rules, lest they forfeit its confidence. The teller pays their checks commonly without examining their accounts, depending on their integrity and self-interest to rectify possible errors by overdraft or otherwise.
Next come the retail shopkeepers, mechanics and small manufacturers. Many of this class keep accumulating accounts, and seldom call for loans; or if so, to a very moderate extent. Separately, their deposits are not large, but in the aggregate, they add materially to the loaning facilities of the bank. They draw but few checks, and their accounts are not liable to sudden changes. The teller soon acquires such a knowledge of them as to remember which need watching; and the bookkeepers aid him in this by an alphabetical list of balances. An old bank gradually expurgates its ledgers of troublesome accounts, while a new bank, from competition for business, or non-acquaintance with the character of dealers, is likely to fall heir to them.
By these precautions the paying teller is able to tell what checks ought to be paid and what ought not to be. Now and then an overpayment is made, but rarely. But a method of getting money from a bank is sometimes practiced, which though illegal is successful. Two persons who keep accounts in different banks may exchange checks, and each person deposits the check of the other. Afterward, they draw out money on their own checks. Of course, if the checks originally given were paid, no loss would ensue to either bank, but in case they are not paid, the banks lose. When a check is thus deposited, if the deposit teller should have any doubt concerning the payment of it, he would inform the paying teller of the fact, and that eventually when the depositor presented his check for payment he would get no money. Such a thing would not happen with a new depositor, for a bank would not be likely to pay out money when it had received none. But when a person has been depositing for a considerable time, if he should thus slip in the check of another, the payment of which was doubtful or impossible, he might be able to check against it and in that way defraud the bank. This process of exchanging checks and drawing against them is called "kiting," and the persons who practice it are regarded dangerous by a bank. No one would be likely to succeed a second time with the same institution; indeed, when a person is detected of doing it, his account is closed, and the bank refuses to have further dealings with him.