This section is from the "Practical Banking" book, by Albert S. Bolles.
Merchants in distant cities usually make their notes payable in a New York City bank and remit the money to pay them previous to their maturing. These remittances contain a letter of instruction which is delivered to the paying teller who pays the obligation when it is presented. After canceling it, the note is returned to the person who sent the money.
Before paying an endorsed check the holder must be identified. A great many persons holding such checks present them for payment and are surprised to learn that identification is necessary. A check drawn "payable to bearer" requires no identification, and if a bank should pay it, in no event would it be the loser; but if it should pay a check payable to order to the wrong person, then it would be required to pay a second time. It is to guard against payment to the wrong person that checks are drawn payable to order. It is a form of security which should not be omitted. Even if a check should be lost or stolen, and the endorsement of the person to whose order it was payable was forged, and payment was demanded and made, the bank would be required to pay a second time to the rightful owner of the check. As this is the law, banks cannot exercise too much care in paying checks to the persons who are entitled to the money, and no one can reasonably complain if the utmost precaution is observed in making needful inquiries concerning those who present checks for payment. Nevertheless, such inquiries are sometimes vexatious and annoying. It is not always easy to find a person who is willing to go to the bank, or who can, to identify the checkholder. A great many suits have arisen from time to time concerning the liability of banks for the payment of checks to the wrongful person.
Endorsed checks paid to the Clearing-house are regarded as guaranteed by the bank from which they come. Any bank will guarantee the endorsement of a dealer who is well-known to it.
Drawers sometimes direct that checks which they have given be not paid on presentation. As a check on a bank is an order for the payment of money belonging to the drawer, he has the right to revoke it, and if such a revocation is given, and the bank does nevertheless pay, it assumes a new risk. It is therefore very important to keep a record of the checks whose payment has been stopped. Books are prepared for this purpose, one for each ledger, and arranged alphabetically, so that the dealer's page may be referred to as quickly as possible. The direction to stop payment must be in writing, and all the particulars concerning the check on which payment has been stopped must be carefully entered with full extracts from the letter giving directions to the bank concerning the matter. Some banks have a form which they send to their dealers to be filled out when they wish to stop the payment of a check.
As soon as payment has been stopped, the notice is sent to the paying teller. He examines it, and puts his initial on it, and turns it over to the bookkeeper, who records the fact. He is the person to watch the matter, because he has the record. When exchanges come from the Clearing-house, he compares them with the stop list after they have been arranged alphabetically, and runs them over, and can speedily determine whether any check has been stopped. In some banks as soon as a check of this kind appears, he takes it immediately to the cashier. Nothing important is done without his action.
There are other ways by which the bank may pay and receive checks than by the first teller. First, the note teller may receive them in payment of a note. Secondly, the receiving teller may take them on credit; and, thirdly, the runner in payment of a draft. For example, if Smith has a balance of $5,000 in a bank he may draw that sum from the paying teller, or he may give his check for it to another person for deposit in the same bank, or he may take up a note with it at the note-teller's desk, or he may pay a draft to the runner with it. Hence he may draw out $ 15,000 though having but one-third of this sum on deposit. Of course such a transaction is fraudulent and rarely happens. But it is possible.
If checks are not paid when sent through the Clearing-house they are chargeable to the depositor's account. But if a check is deposited in the same bank as that on which it is drawn it is paid when taken by the receiving teller, as truly as if the first teller paid money in discharge of it. In such a case if the check should not be good, the bank might be obliged to look to the drawer of it and not to the depositor. So, if a dealer A took up his note with the check of another dealer B on the same bank, the bank would look to the drawer of the check and not to the dealer for the money.
When the time for serving dealers has expired, the paying teller makes up a statement of the day's business. This is called a Proof. This proof is a test of the accuracy of the day's transactions. The footings of cash on hand must agree with the "balance of cash." If there is any discrepancy it must be hunted for until found, and the necessity of going over figures and recounting cash, after the close of a hard day's work, is often an exasperating trial of the teller's patience.
On the next page is the paying teller's Proof of the Arctic National Bank for July 24th. The form of Proof differs in banks. Some tellers have a simple form, like that given here, others have a much more elaborate form: