Ultimate Payment In Settling Centres

Another point to be borne in mind is that, no matter what branch may be drawn upon, payment will, in most cases, be made, ultimately, by a branch in one or other of the big settling centres, Montreal, Toronto, Winnipeg. The practice of the banks in the small places is to settle their differences by drafts on these places; and that means that everything between banks, practically, is settled and paid for in the big cities. That is one reason why the supply of "legals" and gold is concentrated at the central branches.

Competition In Exchange

But, though all these things enter into the profit and loss calculation when a draft is sold, the bank cannot allow for them in its negotiating with the customers. To be on the safe side it must assume that the funds will have to be transferred in every case to the branch Dn which the draft is drawn. The collateral gains and losses have to be taken as they come. One of the results of over-competition in banking is a tendency among the banks to forego or reduce their commissions on remittances, transfers, and drafts, with the idea that the collateral or extra profits will suffice to bring them out on the right side.

At the best, this is a haphazard kind of banking. It is a real service the banks do for their customers when they collect for them moneys payable in other places, and when they make payments on their customers' behalf in the sundry cities and towns where the customers have payments to make. Because the banks are able to make a great many of these collections and payments at little or no cost is no reason why they should perform the services without charge. Their ability to perform them economically is very largely due to the establishment of complete systems of branches and the gathering together of large volumes of business, wherein it happens every day that many debit and credit transfers offset each other. It would certainly seem that the bank stockholders were properly entitled to a considerable share of the benefits resulting therefrom.

Drawing On Other Banks

It quite frequently happens that customers desire to get drafts on points where the bank has no branches If other banks are represented in these places it is open to the bank to use them. It may be that there is represented another bank with which the bank has a general arrangement for the reciprocal encashment of drafts at par. In that case the draft is drawn on an agreed-upon branch, and across the end is written a request for the other bank to pay it at par.

If there is no bank at a point whereon a draft is wanted, with which a reciprocal arrangement is running, all that can be done is to add to the amount which the customer wishes to remit ten cents or thirteen cents, or 1-10 or 1/8 per cent. and to request one of the banks located there to cash it less that commission. In the first case the bank retains the whole of the commission received from the customer, but pays the other bank through extending par facilities to all of its branches; in the second, it divides up the commission with the other bank, or makes an extra charge on the customei buying the draft. It has been found in practice that the real cost to the bank is about the same in both instances.

Another form of drawing is when the draft is drawn on a bank with which the bank maintains a running balance. Then the bank occupies the same relation to the drawee bank as its own customers occupy towards itself. These accounts or balances with other banks are generally on the basis of quid pro quo. The one institution maintains a balance with the other, or pays it in some other way, for the privilege of drawing at par on a complete set of branches.