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Banking Principles And Practice | by E. L. Stewart Patterson



It would be impossible within the narrow confines of one volume to deal exhaustively with so extensive a subject as that of Canadian banking practice, but it is hoped that the parts of this subject dealt with herein will be found to be treated with due regard to their relative importance, and that no really essential information has been overlooked. As far as possible, all matters coming within the scope of the Bills of Exchange Act have been purposely omitted, because an intimate knowledge of the act itself is essential to every business man and banker.

TitleBanking Principles And Practice
AuthorE. L. Stewart Patterson
PublisherAlexander Hamilton Institute
Year1917
Copyright1917, Alexander Hamilton Institute
AmazonBanking Principles And Practice
Alexander Hamilton Institute

Alexander Hamilton Institute New York

Banking Principles And Practice

By E. L. Stewart Patterson

Superintendent of Eastern Township Branches, Canadian Bank of Commerce

Modern Business: Volume 16

A Series Of Texts Prepared As Part Of The Modern Business Course And Service Of The Alexander Hamilton Institute

Alexander Hamilton Institute New York

Copyright, 1911, 12, 13, 16, 17, By Alexander Hamilton Institute

Copyright In Great Britain, 1914, 17, By Alexander Hamilton Institute

The title and contents of this volume, as well as the business growing out of it, are further protected by laws relating to trade marks and unfair trade.

All right reserved, including translation into Scandinavian.

Registered trade mark, Reg. U. S. Pat. Off., Marca Regisitrada, M. de F.

Made in U.S.A.

-Preface
It would be impossible within the narrow confines of one volume to deal exhaustively with so extensive a subject as that of Canadian banking practice, but it is hoped that the parts of this subject de...
-Part I. Banking Principles. Chapter I. Historical Sketch
1. Introduction In an intelligent study of the Canadian banking system particular stress should be laid on the fact that the system has been evolved, not made; that it has grown up with the country...
-Banking Principles. Historical Sketch. Continued
This unsatisfactory situation was further complicated by independent ventures into the field of banking legislation by the Parliament itself, such as the Free Banking Act and the Provincial Note Ac...
-Chapter II. Kinds Of Banks
1. Commercial Banks In the Bank Act of Canada, no attempt is made to define the functions of a bank in general terms; the Act merely states that a bank means any bank to which this act applies. A...
-Chapter III. The Bank Act
1. The Bank Act Of 1913 The present Bank Act,1 which came into force on July 1, 1913, consists of one hundred and sixty sections or clauses. Its leading features may be briefly summarized as follow...
-The Bank Act. Part 2
6. Application Of The Bank Act (Sections 3-7) The provisions of the Act apply to the following banks: Name of Bank The Bank of Montreal ................ The Bank of Nova Scotia ..............
-The Bank Act. Part 3
12. General powers of directors (Sections 29-30). The directors may make by-laws for the regulation of all matters in connection with the business of the bank, the duties and conduct of the employe...
-The Bank Act. Part 4
18. Shareholders' Audit (Section 56, all new). Shareholders of a bank shall, at each annual general meeting, appoint and fix the remuneration of an auditor or auditors, chosen from a panel of not l...
-The Bank Act. Part 5
27. Bank Circulation Redemption Fund (Sections 64-69) Each bank must maintain with the Minister of Finance a deposit equal to at least five per cent of the average amount of its notes in circulatio...
-Chapter IV. The Bank Act (Continued)
1. Business And Powers Of A Bank (Sections 7683) The first section, 76, is of sufficient importance to give in full. It states that a bank may: (a) Open branches, agencies and offices; (b) En...
-The Bank Act (Continued). Part 2
4. Deposits (Sections 95-98) A bank may receive deposits from any person, whether qualified by law to contract or not, and may repay the same to such person unless the money is lawfully claimed by ...
-The Bank Act (Continued). Part 3
9. Insolvency (Section 125) In the event of the property and assets of a bank being insufficient to pay its liabilities, each shareholder shall be liable for the deficiency to an amount equal to th...
-Chapter V. Note Issues And The Branch System. 1. Monetary System
The monetary system of Canada consists of gold, paper currency, and silver and copper subsidiary coins, the latter, however, not being legal tender for amounts over $10 and 25 cents respectively. The ...
-Note Issues And The Branch System. 2. Dominion Notes
Dominion notes are legal tender for any amount, and may be redeemed at the offices of the Assistant Receivers General situated in the various provincial capitals. They may be issued in any denominatio...
-Note Issues And The Branch System. 3. Bank Note Issue
By the Bank Act, Canadian banks are empowered to issue notes of $5 and multiples thereof up to the amount of their unimpaired paid-up capital against the general security of their total assets on whic...
-Note Issues And The Branch System. 4. Security To Note Holder
To prevent the charging of discount on notes in case of suspension, notes of failed banks bear interest at the rate of five per cent per annum from the date of suspension until redeemed either by the ...
-Note Issues And The Branch System. 5. Elasticity
The most admirable feature of the note issue is its quality of elasticity. In every country, more especially every new country where the agricultural interests naturally predominate, the alternations ...
-Note Issues And The Branch System. 6. Seasonal Fluctuations
The study and analysis of the monthly circulation returns afford much interesting and useful information. The monthly and annual fluctuations show, year by year and season by season, every change and ...
-Note Issues And The Branch System. 7. Annual Changes
Figure 3 shows the amount of notes in circulation at the end of each month from January, 1901, to January, 1913, inclusive; and the average circulation in millions for each year of the twelve years is...
-Note Issues And The Branch System. 8. Monthly Changes
Figure 3 shows the difference month by month, six months of redemption and six months of issue. The months arrange themselves naturally into three groups, as follows: Months of Issue February. M...
-Note Issues And The Branch System. 9. Emergency Currency
The provision for a special issue during the crop-moving period, tho limited in operation, was found sufficiently useful to be incorporated in the Act of 1913. It provides that during the crop-moving ...
-Note Issues And The Branch System. 10. Central Gold Reserves
For some time it had been felt that the emergency currency and other expedients were only tentative measures, and that in the revision of the Bank Act a satisfactory solution of the difficulty would b...
-Note Issues And The Branch System. 11. Lost And Destroyed Notes
There is a very exaggerated idea in the mind of the public as to the amount of notes that are lost or destroyed, and never presented to the banks for redemption. So far as the banks themselves are ...
-Note Issues And The Branch System. 12. Branch System
Practically every country in the world except the United States has recognized the utility, if not the absolute necessity, of the branch system of banking in handling commodities as liquid as money or...
-Note Issues And The Branch System. 13. Branch System And Circulation
The branch system and the note issues are the two principal factors which have enabled the banks to assist so materially in the expansion and upbuilding of Canada. They are so closely connected and in...
-Note Issues And The Branch System. 14. Branch System And The Borrower
The economical and equable distribution of loanable funds made possible by the branch system has already been referred to. The control of these funds and the ability to direct them to different parts ...
-Note Issues And The Branch System. 15. Establishing A Line Of Credit
There are certain conditions covering the relation of Canadian banks with their borrowers which are invariably observed. One is, that no man can be a borrower from more than one bank, and it is only i...
-Note Issues And The Branch System. 16. Branches And Panics
It is apparent that the branch system not only gathers up money thruout the country, but distributes and varies the risk of the bank's investments. It does more than this, it distributes the risk of t...
-Note Issues And The Branch System. 17. General Review
A study of the Canadian banking system along the above lines will demonstrate clearly why it has been accorded such a high place among the banking systems of the world, not only on account of the equa...
-Note Issues And The Branch System. 18. Canadian Banking System Under War Conditions
Since the outbreak of the war in August, 1914, the branch system of banking combined with an asset currency gave another proof of its value for the equable and economic distribution of loanable funds ...
-Chapter VI. Analysis Of A Bank Statement. 1. Bank Statements
The Bank Act requires the banks to furnish the government with monthly statements of their assets and liabilities, and in addition to these, an annual statement to the shareholders. The latter differs...
-Analysis Of A Bank Statement. 2. Deposits Payable After Notice
A reference to the statement will show that nearly 60 per cent of the liabilities to the public consist of interest-bearing deposits or, as they are sometimes called, time deposits or savings bank dep...
-Analysis Of A Bank Statement. 3. Demand Deposits
Demand deposits represent amounts due to individuals and firms payable on demand. No interest is paid on these accounts except in special cases where a large dormant balance is kept which could otherw...
-Analysis Of A Bank Statement. 4. Deposits Elsewhere
These amount to $6.90 1 and represent deposits by individuals and firms made in branches outside of Canada. Part of these deposits in all probability bear interest. Combining them with the deposits ma...
-Analysis Of A Bank Statement. 5. Due Banks In Canada
Owing to the fact that practically every Canadian bank is represented by branches in the redemption centers and other large towns, there is no necessity for it to maintain balances with other banks fo...
-Analysis Of A Bank Statement. 6. Due To Banks In Foreign Countries
Under this heading are included all amounts due to foreign correspondents and represent balances which are maintained by banks of Great Britain, United States, Europe and elsewhere which have business...
-Analysis Of A Bank Statement. 7. Dominion And Provincial Governments
The branches of the banks act as depositaries of the Dominion and provincial governments, and transfer funds received at their various branches to Ottawa or to the several provincial capitals. All cus...
-Analysis Of A Bank Statement. 8. Circulation
The nature of this liability has been fully explained in Chapter V (Deposit Business) (Note Issues And The Branch System. 1. Monetary System). It will be noticed that the amount given in the statement...
-Analysis Of A Bank Statement. 9. Capital And Reserve
The total liability to the public is equal to $88.31 of the total assets, and the balance, $11.69, belongs to the proprietors or shareholders. The latter consists of capital, $6.33, and reserve and un...
-Analysis Of A Bank Statement. 10. Specie And Dominion Notes
Under this heading are included not only the gold and large legal tender held by the bank for its cash reserve and clearing house settlements, but it includes also the till and change money at the var...
-Analysis Of A Bank Statement. 11. Notes And Checks Of Other Banks
This amount represents notes and checks of other banks in process of clearing. These have been deposited by customers during the day, and in the ordinary course are presented and redeemed thru the cl...
-Analysis Of A Bank Statement. 12. Deposits With Other Banks
These amounts represent the balances maintained in the United States, Great Britain and elsewhere in connection with exchange operations, and make also a very useful way of carrying a certain proporti...
-Analysis Of A Bank Statement. 13. Securities
The securities held amount to $7.59 of the total assets and consist of municipal bonds and other first-class investments. The banks are not restricted in their choice of this class of security, and ma...
-Analysis Of A Bank Statement. 14. Call Loans In Canada
Call loans in Canada represent advances made to brokers and other customers, principally the former, on the security of first-class stocks and bonds, with an average margin of some twenty points below...
-Analysis Of A Bank Statement. 15. Call Loans Elsewhere
The call loans carried by certain of the larger banks in New York and London subject them to a great deal of undeserved criticism, as it is a common belief on the part of the public and the average ne...
-Analysis Of A Bank Statement. 16. Reserves
Including call loans and securities the average reserve maintained by the Canadian banks lies between 35 per cent and 40 per cent of the total assets, of which about 10 per cent is in cash and Dominio...
-Analysis Of A Bank Statement. 17. Current Loans
Current loans form the largest individual item in the statement, and consequently represent the bulk of a bank's investment. This is an asset which requires the most careful and unremitting attention ...
-Analysis Of A Bank Statement. 18. Overdue Debts
These call for very little comment; the greater portion consists of notes which are overdue owing to temporary delays in settlement. Farmers are notorious delinquents in this respect. They have, howev...
-Analysis Of A Bank Statement. 19. Real Estate
The law is very strict as to banks holding real estate other than that required for their own premises, nor can they lend on mortgages. They may, however, take a mortgage as additional security for a ...
-Analysis Of A Bank Statement. 20. Bank Premises
The Bank Act permits banks to own real estate and erect buildings for the purposes of their business. It has always been a question as to whether banks have the right to erect a building and rent any ...
-Analysis Of A Bank Statement. 21. Profit And Loss Statement Of A Bank
A study of the profit and loss statement of the various Canadian banks for the past years shows very conclusively that, notwithstanding the large increase in the amount of deposits and the volume of b...
-Analysis Of A Bank Statement. 22. Interest On Deposits
From time to time it is advanced in the public press and elsewhere that the banks should pay a higher rate on their deposits than three per cent, especially in view of the fact that they are getting s...
-Analysis Of A Bank Statement. 23. Profits of the "Percentage Bank"
Referring to the statement of the Percentage Bank given on page 90 the following profit and loss sheet of that bank may prove of interest: Per cent of Total Liability to ...
-Analysis Of A Bank Statement. 24. Bank Premises
It is a sound theory in business life that no plant or building should be carried at cost on the books of an institution for any great length of time, but that each year a certain amount should be wri...
-Analysis Of A Bank Statement. 25. Reserve Fund
The rest, or reserve, fund of a bank is now looked upon in the light of a greater margin of safety to the depositors, and the aim of every bank is evidently to make the reserve fund equal to the capit...
-Analysis Of A Bank Statement. 26. Gross Profits
It has already been pointed out that the greater portion of a bank's profits is derived from the difference between the interest on its deposits and its loans. The gross profit, therefore, can be foun...
-Part II Banking Practice. Chapter I. Head Office
1. Directors The nominal executives of a bank are the president and board of directors, who are responsible not only to the shareholders but to the government for the true and faithful administrati...
-Chapter II. Head Office Records
1. Head Office Bookkeeping A distinction must be made between the head office and the main office of a bank. By head office is always meant the executive office of the bank, while the main office, ...
-Head Office Records. Continued
7. Circulation Records An important duty of the chief accountant is to watch the circulation closely and see that an overissue does not occur. Reports are received daily from the larger branches as...
-Chapter III. The Branch Staff
1. Manager The directors are obliged to rely on the general manager to a great extent for the competent administration of the bank's affairs, and he, in his turn, has to look to the branch managers...
-Chapter IV. Branch Books And Records. 1. Bank Accounting
The tendency of modern accounting is to adapt the books to a business, rather than the business to the books, and this practice is particularly noticeable in bank bookkeeping. Systems and devices may ...
-Branch Books And Records. 2. Books Of A Branch
The books in use at even a moderately sized office generally include those given in the following list: Books of Original Entry Cash Book. ...
-Branch Books And Records. 3. Loose-Leaf Accounting
The vast increase in the number and volume of commercial transactions during the past twenty years has made the use of loose-leaf ledgers and other books a practical necessity in modern accounting. In...
-Branch Books And Records. 4. Cash Book
This book contains a record of all the vouchers and entries representing the transactions of each day. Theoretically, the particulars of every item in the cash book should be entered in detail, but ow...
-Branch Books And Records. 5. Writing Up The Cash Book
Many labor-saving and ingenious rulings are to be found among the books of banks, and improvements are constantly being devised and adopted. The most essential book however, the cash book, remains pra...
-Branch Books And Records. 6. Supplementary Cash Book
In this book are entered all the deposit slips, checks, and other vouchers pertaining to the ordinary deposit and savings bank ledgers. The ruling is simple, requiring no printed headings, and consist...
-Branch Books And Records. 7. Discount Register
In this book, as its name implies, are entered all the notes and bills discounted by a branch. The book is ruled so as to provide space for a full description of every item, and the notes are entered ...
-Branch Books And Records. 8. Discount Blotter
This book is a valuable adjunct to the discount register and an excellent form is shown in Figure 8. In this book are entered the net total proceeds of the discounts to be credited to the various cust...
-Branch Books And Records. 9. Discount Diary
Figure 9 shows a useful form of diary for loans and local trade bills maturing, a page or part of a page being given to each day of the year. As each day's bills mature the notes are taken over and in...
-Branch Books And Records. 10. Trade Bills Remitted Diary
Only in the very large offices is it necessary to have a separate book for this diary. In the ordinary branch, the ruling given in Figure 10 appears at the foot of the discount diary. At the end of ea...
-Branch Books And Records. 11. Drafts Register
The first form given in Figure 12 is for drafts drawn on foreign correspondents. BILLS DISCOUNTED REMITTED, MATURING___________________________191______ B.D.R.No. Prom...
-Branch Books And Records. 12. Chech Lists
All debits between branches, including checks, drafts and money orders paid, and the like, are listed on a special form called a check list, and debited in one total to branch clearings account and th...
-Branch Books And Records. 13. Cash Items
All debits originating at a branch against other branches, with the exception of check lists, are debited to an account in the general ledger called cash items account or short date draft account....
-Branch Books And Records. 14. Remittance Book
This book was originally used simply to record the remittances from other Dr. REMITTANCE BOOK Cr. Sundry Branch Clearings Exchange ...
-Branch Books And Records. 15. Branch Clearing Statement
In a branch system there must, of necessity, arise each day numerous entries between the branches themselves, and between the branches and the head office. Direct accounts between branches are out of ...
-Branch Books And Records. 17. Head Office Entries
Head office entries, both debit and credit, originate with the branches in every case. The entries can be made either in red ink at the foot of the branch clearings statement, or else entered on a spe...
-Branch Books And Records. 18. Business With Other Banks
Transactions between Canadian banks are generally effected thru the daily clearing, and very seldom thru the medium of an account. Foreign correspondents generally carry a deposit account at one of th...
-Branch Books And Records. 19. Teller's Records
The teller's cash book or blotter consists of a skeleton ruling with no printed headings, these being written in daily by the teller according to his requirements. Were the headings printed it would r...
-Branch Books And Records. 20. General Ledger
The general ledger, next to the cash book, is the most important book in a branch; in fact it is equally important, tho in a different sense. The cash book is the book of original entry, and conTELLER...
-Branch Books And Records. 21. Current Deposit Ledger
The ordinary or current deposit ledger is a very active and important book in a bank, and one which calls for both accuracy and dispatch on the part of the clerk in charge, as errors can easily be mad...
-Branch Books And Records. 22. Savings Bank Ledger
This book is invariably in loose-leaf form, ruled as in Figure 23, in size gen-erallv about 8 x 11. In a small branch one ledger suffices as a rule, but in the larger offices half a dozen or more...
-Branch Books And Records. 23. Liability Ledger
This book bears the same relation to a bank's advances as the deposit ledger does to the deposits. The latter shows how much the bank owes each customer, and the former how much each customer owes the...
-Branch Books And Records. 24. Collection Register
The form shown in Figure 26 is an economical ruling, as it only occupies one page and gives all required particulars. If necessary, two lines can be used for an item which requires a fuller descriptio...
-Branch Books And Records. 25. Collateral Register
The collateral register is generally a loose-leaf book with an alphabetical index, ruled as in Figure 27. A page is given to each account, and the balance should always show the amount of notes held a...
-Branch Books And Records. 26. General Statement Books
In connection with the monthly return to the government each branch forwards to its head office a complete financial statement of its affairs at the close of business on the last day of the month. Thi...
-Branch Books And Records. 27. Balance Book
The balance book is used to record the trial balances and adjustments of the different accounts in the office. The balances should be taken off on loose leaves and filed in a binder, either continuous...
-Branch Books And Records. 28. Overdraft Register
It is very important that the manager should be fully informed of the amount and nature of the overdrawn accounts in his office. This register should be written up each morning and placed on the manag...
-Chapter V. Deposit Business
1. New Accounts As a rule, no new account is opened in a bank except under the authority of the manager or accountant, expressed by initials on the deposit slip. In other words, the privilege of a ...
-Deposit Business. Part 2
7. Accounts With Married Women In the Province of Quebec, on account of the restrictions imposed by the law of that province on married women, it is essential that the fullest particulars should be...
-Deposit Business. Part 3
9. The Ledger It is the rule in most banks that no entries shall be made in any ledger by any officer other than the accredited ledger-keeper. All entries are made from: (a) Checks, acceptances,...
-Deposit Business. Part 4
14. Guarding Against Fraud Fraud has been perpetrated upon employers by confidential clerks making false entries in a bank pass-book, or by keeping a spurious pass-book for the eye of their employe...
-Deposit Business. Part 5
18. Duplicate Pass-Books Where the identification of the depositor is without question, and the manager is fully satisfied that the pass-book has been lost, the balance of the account should be wit...
-Chapter VI. Loaning A Bank's Money 1. Experience The Only Teacher
David Harum's definition of banking, Loaning your money and get-tin' it back presents the gist of this chapter in a few words. A bank must naturally expect to make some losses in its business but...
-Loaning A Bank's Money. 2. Causes Of Failure In Business
A study of the principal causes of business failures may be useful in demonstrating the relative importance of the various factors of weakness. The accumulated experience of many years has been shown ...
-Loaning A Bank's Money. 3. Statement Of Affairs
Reference has already been made to the necessity for obtaining a knowledge of a borrower's net worth. This information is arrived at by an analysis of the business statement which is required from all...
-Loaning A Bank's Money. 4. Science Of Credit
The following analysis of the principles and rules which govern a credit man in his work were suggested by Mr. Cannon: principles: 1. To reduce losses 2. To eliminate disproportionate risks 3...
-Loaning A Bank's Money. 5. Form Of Statement
Altho for many reasons it is preferable to have a statement rendered on one of the standard forms supplied by a bank, the main object is to obtain information, and frequently a statement made up by a ...
-Loaning A Bank's Money. 6. Cash
The cash on hand should always be a To the Manager ......................................BANK. .............................................19 As a basis for credit with the above bank I/ we ...
-Loaning A Bank's Money. 7. Merchandise
Stock on hand or merchandise calls for most careful consideration and analysis. Old and unsalable stock accumulates rapidly, especially under poor management, and even if the stock is reasonably new, ...
-Loaning A Bank's Money. 8. Bills And Accounts Receivable
Bills receivable in the statement of a Canadian merchant are generally few in number, as practically all his trade paper is discounted, or else left with the bank for collection. With the facilities o...
-Loaning A Bank's Money. 9. Machinery And Fixtures
Real estate, machinery and fixtures are known as fixed assets and should only be considered as offering an unknown support to quick assets. In fact, real estate should be practically ignored unless a ...
-Loaning A Bank's Money. 10. Current Liabilities
Current liabilities generally consist of amounts due the bank and the wholesale trade for goods purchased. If due to any other creditors the circumstances should be explained. As already stated, amoun...
-Loaning A Bank's Money. 11. Mortgages And Other Factors
Mortgages should invariably be shown as a liability, and the relative real estate as an asset. The equity alone should never be considered. The position of a mortgage in regard to taxes, interest and ...
-Loaning A Bank's Money. 12. Sundry Information
No statement can be analyzed by rule of thumb. The points brought out in this chapter are by way of suggestion only. To many accounts, of course, they would not all be applicable. No unfavorable fact,...
-Loaning A Bank's Money. 13. Preparing The Application
The consideration of a customer's statement along the lines suggested in the previous sections should assist a manager in promptly deciding whether he will grant a loan or not. A prompt no is often ...
-Loaning A Bank's Money. 14. The Application
The most severe test of a manager's ability and soundness of judgment is found in the writing of a letter of application. The reasons for recommending the loan should be concisely stated and no pertin...
-Loaning A Bank's Money. 15. Guarantees
Guarantee bonds are a dangerous form of security, liable to be voided by what may appear to be a most trivial incident not affecting in any way the equities of the situation. A special form used by...
-Loaning A Bank's Money. 16. Customers' Wills
Under ordinary circumstances and speaking generally, the business in which a man is engaged at the time of his death must be liquidated by his executors, or, if he is a member of a firm, by the surviv...
-Loaning A Bank's Money. 17. Power Of Attorney
The original of any power of attorney should be permanently lodged with the bank, unless it has been filed in a city or county registry office, in which case a certified copy under the hand and offici...
-Chapter VII. Classification Of Loans. 1. Call Loans
The subject of call loans in Canada, or elsewhere, as an asset of the bank has already been dealt with in Chapter VI (Analysis Of A Bank Statement. 1. Bank Statements) (Loaning A Bank'S Money 1. Exper...
-Classification Of Loans. 2. Loan To Joint Stock Companies
A joint stock company has been defined as an association of individuals possessing corporate powers, enabling them to transact business as a single individual. Such companies may obtain incorporation ...
-Classification Of Loans. 3. Loans To Municipalities
The conditions governing loans to municipalities, school districts and other public bodies differ in the various provinces and also in the case of cities incorporated under special charter. As the law...
-Classification Of Loans. 4. Loans To Professional Men
Loans to professional or salaried men cannot be considered desirable from a banking point of view, or from any point of view for that matter. Even where the applicant is possessed of private means, a ...
-Classification Of Loans. 5. Loans To Farmers
Under certain conditions of farming, more especially in the West, credit for a farmer is more or less a necessity, and loans to responsible farmers is a desirable and legitimate business for a bank. I...
-Classification Of Loans. 6. Loans To Retail Merchants
As a general rule, retail merchants are not entitled to unsecured advances on their own name. A storekeeper who takes considerable credit from the wholesale trade should be able to obtain all his cred...
-Classification Of Loans. 7. Loans To Manufacturers And Merchants
Naturally the bulk of the loans of a commercial bank consists of advances to manufacturers and wholesale merchants. Both classes are considered highly desirable customers. They are at times heavy borr...
-Classification Of Loans. 8. Collateral Notes
There are several reasons why it is preferable sometimes to make advances against notes as collateral instead of discounting them. The borrower may need, perhaps, only part of the face value of the no...
-Classification Of Loans. 9. Accommodation Paper
Accommodation paper is most dangerous when, as is generally the case, it is carefully concealed. A proof of a banker's sagacity will be best seen in his detection of the accommodation taint wherever i...
-Classification Of Loans. 10. Overdrafts
The strong objection which all banks have to making advances by way of overdrafts is based on sound principles, which are not generally understood fully or appreciated. The principal reasons why this ...
-Chapter VIII. Advances On Warehouse Receipts And Assignments. 1. Sections 86 And 88
Before studying the special conditions governing a bank's advances on the security of merchandise, etc., it is necessary to grasp thoroly the difference between security afforded by warehouse receipts...
-Advances On Warehouse Receipts. 2. Section 88
Under this section banks are permitted to make advances: To any wholesale purchaser or shipper of or dealer in products of agriculture, the forest, quarry and mine, or the sea, lakes and rivers, or...
-Advances On Warehouse Receipts. 3. Promise
When advances are made to facilitate operations extending over a season or for a certain period of time, as, for instance, in a lumber or grain business, it is obvious that the bulk of the security wi...
-Advances On Warehouse Receipts. 4. Assignment
The assignment or pledge is in the exact form prescribed by the Bank Act or of like effect (Figure 48), and is a legal transfer to the bank of the title of the customer to the goods described in it. A...
-Advances On Warehouse Receipts. 5. Declaration
Every borrower under this section should be required to furnish a statement at least monthly, even if estimated, showing what stock he is holding at that date under assignment to the bank. This declar...
-Advances On Warehouse Receipts. 6. The Note
Altho an ordinary promissory note form can be used in conjunction with either the promise or the assignment, it has been found more convenient in practice to adopt a special form of note Promissory...
-Advances On Warehouse Receipts. 7. Making Advances
Before making advances the manager should be able to answer the following questions : 1. Is the customer a wholesale dealer, manufacturer or farmer within the meaning of the act? 2. Are the good...
-Advances On Warehouse Receipts. 8. Warehouse Receipts
The bank may acquire and hold warehouse receipts and bills of lading as collateral security for the payment of any debt incurred in its favor, but it is necessary that the warehouse re-ceipt be acquir...
-Advances On Warehouse Receipts. 9. Substitution
Section 88 of the Bank Act authorizes a bank to allow pledged goods taken from a wholesaler, purchaser or shipper to be removed and other goods substituted therefor. The permission to substitute is ac...
-Advances On Warehouse Receipts. 10. "Current season."
There is no special limit to the time during which the bank can hold security on goods properly assigned to it. For example, an assignment from a grain customer, dated August, would be effective in th...
-Advances On Warehouse Receipts. 11. Default
Provision is made in the Bank Act (sub-section 3 of Section 88) for the sale of goods, in case the bank finds it necessary to realize on its security, owing to the non-payment of the debt. A distincti...
-Advances On Warehouse Receipts. 12. General Remarks
The whole question of making advances under Sections 86-90 demands careful study of the Act, as well as of the definite instructions issued by every head office on the subject. Losses are generally ma...
-Chapter IX. Internal Inspection
1. Branch Inspection At irregular intervals and at least once a year every branch is visited by an inspector and his assistant from the head office, and a thoro audit of the books and assets of the...
-Internal Inspection. Continued
Check all entries for authorities, powers of attorney, etc., with list of authorities held. See that proper entries have been made in deposit receipt account in the general ledger for all receipts ...
-Chapter X. Bank Cost Accounting. 1. Need Of A Cost System
Practically every bank of any importance in the United States has installed a system of cost accounting and made a careful study of the principles involved. In Canada, however, very little attention h...
-Bank Cost Accounting. 2. Principles Of Cost Accounting
There are a great many factors entering into what constitutes a profitable account to a bank. The amount of credit balance maintained is not the principal factor to be considered, but the per item cos...
-Bank Cost Accounting. 3. Small Checking Accounts
The steady increase in the number of small current accounts is becoming a serious problem in banking, owing to the difficulty and expense of operating them. There are several classes of small accounts...
-Bank Cost Accounting. 4. Branch Expenses
A service which the Canadian banks render the country, and which is usually but poorly appreciated, is the branch service. It speaks well for their progressiveness in this connection when the number o...
-Bank Cost Accounting. 5. Inland Exchange
The transfer of funds between banks, or from one branch to another, is a serious source of expense, a fact which is frequently overlooked by the banks in attempting to meet competition and the demand ...
-Bank Cost Accounting. 6. Cost Data
The loanable value of the balance maintained must be determined by each individual bank for itself according to its net earnings. It can be arrived at in various ways but, generally speaking, it avera...
-Bank Cost Accounting. 7. An Account Analyzed
In order to illustrate some of the more elementary features of cost accounting, the following brief analysis will be useful. The account shows an average weekly credit balance of $7,000 for the year, ...
-Bank Cost Accounting. 8. Method Of Analysis
The work of analyzing an ordinary account is not very onerous, especially if systematically followed out. The course of the deposit balances is the main information required. Wholesale and other accou...
-Bank Cost Accounting. 9. Exchange Received On Items Deposited And Collected
Gross earnings are derived from the value of the credit balance and from the exchange received on items deposited and collected. Profits on special transactions, such as letters of credit, foreign exc...
-Bank Cost Accounting. 10. Checks Paid At Par At Other Branches
Reference has already been made to the loss sometimes entailed in granting this privilege. In the case of checks cashed at par by another branch, the ledger-keeper should make, in the ledger account o...
-Bank Cost Accounting. 11. General Remarks
The question of cost accounting for banks offers a large field for study and investigation, and it is impossible in a volume of this nature to deal exhaustively with the subject. However, the broad fu...









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