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Money And Banking | by John Thom Holdsworth



There are many excellent manuals treating of the history and principles of money, of credit, and of the history, principles and practices of banking, but the author has not found any single book which presents in a concise way the whole general subject of money and banking, so arranged as to make it suitable for use as a textbook. The curricula of many schools and colleges limit the time given to the study of this subject to one year, and there has long been a demand for a textbook presenting the essentials of money and banking in such a way that it could be covered in that time. It is hoped that this book may in some measure meet this need.

TitleMoney And Banking
AuthorJohn Thom Holdsworth
PublisherD. Appleton And Company
Year1914
Copyright1914, D. Appleton And Company
AmazonMoney And Banking

By John Thom Holdsworth, Ph. D.

Dean The School Of Economics, And Professor Of Finance And Economics, University Of Pittsburgh

D. Appleton And Company

New York And London D. Appleton And Company

Copyright, 1914, By D. Appleton And Company

Printed in the United States of America

-Preface
There are many excellent manuals treating of the history and principles of money, of credit, and of the history, principles and practices of banking, but the author has not found any single book which...
-Part I. Money. Chapter I. Medium Of Exchange. 1. Division Of Labor And Exchange
The study of money-credit and banking is a division of the science of economics. Economics is the science which treats of the production, distribution, consumption and exchange of wealth. In other wor...
-2. Barter
Division of labor and exchange of goods have existed in some form almost from the beginning of organized society. In a very early stage people found by experience the advantage of each worker devoting...
-3. Money
In the course of time it appeared that among the numerous articles exchanged, there was one which nearly everybody wanted - shells, furs, grain, tobacco, or metals. Gradually men recognized that this ...
-4. Credit
We have seen how money came to displace the crude and clumsy barter system, making possible that division of labor and specialization which marks modern industrial society. In time, however, as exchan...
-5. Evolution Of Money
Various commodities have been used as money in different stages of economic development. In early times, the article which came to have wide acceptability and use as a medium of exchange was sometimes...
-6. Metallic Money
By experience men finally learned that the metals were best fitted to serve as a medium of exchange. Metallic money in some form was used at a very remote time in the world's history. Recent excavatio...
-7. Qualities Of A Good Medium Of Exchange
The first requisite in any commodity which is to serve as money is that it shall be something in unfailing demand, something having wide acceptability. It must exist in sufficiently large quantities t...
-8. Coinage
The practice of coining money began some hundreds of years before the Christian era, probably about 900 B.C. It is supposed that the first coins consisted of a certain quantity or weight of metal stam...
-Chapter II. Functions Of Money. 9. Medium Of Exchange
In tracing the evolution of money we have seen that primarily it performs two important functions - as a medium of exchange and as a measure or standard of value. Its function as a medium of exchange ...
-10. Measure Of Value
Closely linked with the service of money as a medium of exchange is its function as a measure of value. In its earliest forms money was a commodity desired by everyone, something that all were glad to...
-11. Store Of Value
In addition to serving as a medium of exchange and as a measure of value, money is a store of value; it embodies value in a convenient form for future use or for conveyance from place to place. In ear...
-12. Standard Of Deferred Payments
Money or the monetary unit serves not only as a measure of value for the present, but also as a standard for future payments. It is a medium for credit transactions or deferred payments. Most contract...
-13. Bimetallism
Bimetallism is a monetary system in which the standard money is composed of gold and silver, the two metals that civilized nations have used as standards of value in modern times. It is known also as ...
-14. Gresham's Law
This tendency of an overvalued money to displace one undervalued is known as Gresham's Law, so called from Sir Thomas Gresham, master of the English mint under Queen Elizabeth. He first clearly formul...
-15. Advantages Claimed For Bimetallism
The advocates of bimetallism claim for it various advantages, of which the most important, perhaps, is the greater stability of value of a double standard. They claim that since gold and silver are pr...
-16. The "Limping Standard"
But though the double standard has given place to the single gold standard, silver coins are used in the circulating media of all countries. Gold is coined at the mints freely and in unlimited amounts...
-17. The Gold Exchange Standard
A few countries, including Mexico, China, the Philippines and India, which are upon a silver basis, have been able to adjust their international relations with gold standard countries by adopting the ...
-Chapter III. History Of United States Coinage. 18. Adoption Of A Coinage System
The coinage system of the United States was established by Act of Congress in 1792, which followed closely the recommendations of Alexander Hamilton, first Secretary of the Treasury, in his report on ...
-19. The Silver Period
Under the coinage system thus adopted both gold and silver were made full legal tender and the mint was to be open to the free and unlimited coinage of both. At the market prices then existing a dolla...
-20. The Gold Period
In order to bring gold back into circulation, Congress in 1834 reduced the weight of the gold eagle to 232 grains pure gold; in 1837 the fineness was changed to 9/10 for both gold and silver coins, th...
-21. The Paper Standard Period
To meet the tremendous expenses of the Civil War, Congress in 1862 authorized the issue of United States notes, and within a few months $400,000,000 of these notes were forced into circulation. They w...
-22. Revision Of Coinage Laws, 1873
In 1873 Congress, anticipating the resumption of specie payments, made a general revision of the coinage laws in which the silver dollar was dropped from the list of authorized coins. This aroused no ...
-23. Trade Dollar
The coinage law of 1873 authorized the unlimited coinage of a silver coin, known as the trade dollar, which it was supposed might be used as a substitute for the Mexican dollar in our trade with the...
-24. The Free Silver Controversy
Shortly after the revision of the coinage laws in 1873, which suspended the free coinage of the silver dollar, the gold value of silver depreciated greatly and the silver question became the leading e...
-25. The Bland-Allison Act, 1878
Though the silver agitation did not result in the restoration of free coinage of silver, two compromise measures were passed by Congress under which enormous quantities of silver were added to the cou...
-26. The Sherman Act, 1890
Despite this aid to silver its price measured in gold continued to fall, and the advocates of free silver kept up their agitation both in and out of Congress. In 1890, therefore, another compromise me...
-27. Bond Issues
The repeal of the Sherman Act did not relieve the Treasury of its embarrassment nor provide a remedy for the currency ills. The gold reserve of the Treasury continued to decline until it had reached $...
-28. The Gold Standard Act, 1900
The single gold standard was legally established in 1873, and after resumption of specie payments in 1879 gold became the actual standard. The act of 1900, therefore, in providing that the gold dollar...
-Chapter IV. Paper Money. 29. Early Paper Money
Among the devices which commercial nations have developed to facilitate the processes of exchange, representative money in the form of paper has come to have a very large importance. In early times pe...
-30. Systems Of Paper Money
Paper money may be grouped under three general heads - representative, convertible or fiduciary, and inconvertible or fiat money. From the standpoint of the authority issuing it, paper money is divide...
-31. Convertible Or Credit Paper Money
Convertible paper money, otherwise known as redeemable, fiduciary, or credit paper money, consists of notes promising to pay in coin on presentation the amount expressed on the paper. Strictly speakin...
-32. Inconvertible Or Fiat Currency
Inconvertible paper money consists of notes promising to pay money to the bearer, but not actually redeemable in specie. Such paper may be issued by banks as well as by governments. It is known also a...
-33. Advantages And Disadvantages Of Inconvertible Paper
The use of paper money as an element in the circulating medium is justified on the ground that it economizes the use of metallic money. The production of gold and silver requires the outlay of much la...
-34. Bank Currency
In nearly all modern countries bank currency forms an important element of the circulating medium, and, as already noted, the banks are the sole source of paper money in the leading countries of Europ...
-35. Elasticity Of Bank Currency
It has been pointed out that government paper money lacks that prime essential quality of a good medium of exchange - elasticity - because it is issued primarily to meet the needs of the Government, w...
-36. Reserve Bank Notes
The Federal Reserve Act of 1913 introduced two new kinds of paper money into our currency system: reserve bank notes and Federal reserve notes. The Act contemplates the gradual retirement of the natio...
-37. Federal Reserve Notes
The Federal reserve notes are expected to supply the element of elasticity lacking in all other forms of our currency. These notes may be issued to any reserve bank applying for them, at the discretio...
-Chapter V. The Money System Of The United States. 38. Kinds Of Money Used In The United States
On June 1, 1914, there were eight different kinds of money in circulation in the United States. Since then two new kinds of paper money, reserve bank notes and Federal reserve notes, have been added. ...
-39. Metallic Money
The metallic money consists of gold coin and bullion, standard silver dollars, subsidiary silver and minor coins. The total stock of gold, including coin and bullion, amounts to over $1,931,000,000. T...
-40. Paper Money
The paper money of the United States consists of gold certificates, silver certificates, United States notes, and Treasury notes, issued by the Government; national bank notes issued by the national b...
-41. All Kinds Of Money At Par With Gold
The gold standard act of 1900 made it the duty of the Secretary of the Treasury to maintain all forms of money coined or issued by the United States at a parity of value with gold. In fact, since the ...
-Chapter VI. Value Of Money And Prices. 42. Value And Price
Before entering upon the discussion of the important question of the value of money and its relation to prices and profits, it will be helpful to get clearly before us the precise meaning of the terms...
-43. What Determines Value
The value of money is determined, like that of other commodities, by the principle of demand and supply. In the case of money, however, the conditions affecting supply and demand are somewhat complex ...
-44. Supply Of Money
Conditions which govern the supply of money are less complex than those affecting the demand. In the first place we must distinguish between the supply of money and the supply of the precious metals. ...
-45. The Quantity Theory Of Money
As stated by the early economists, the quantity theory of money holds that the value of money depends on its quantity, and that, other things being equal, prices vary directly with the amount of money...
-46. The Probable Future Of Gold Production
The steady rise in prices in recent years, due in part at least to the increased supply of gold, has provoked much discussion as to the probable future of gold production and its influence upon prices...
-47. Index Numbers
The value of money is measured, like the value of everything else, by the quantity of other commodities for which it can be exchanged. But because the values of commodities, as well as of money, are c...
-48. Different Types Of Price Tables
The most familiar price tables are those of Jevons, Palgrave, Sauerbeck, and the London Economist in England; Soetbeer and Conrad in Germany; and Falkner-Bureau of Labor, Dun's Review and Bradstreet's...
-49. Transmission Of Price Changes
It is a familiar economic phenomenon that price changes are not uniform or instantaneous, but spread in waves from commodity to commodity and from country to country. This can best be understood by tr...
-50. Effect Of Price Changes
Periods of rising prices are generally periods of business prosperity and of good times to the community as a whole. With a rise in prices business profits tend to increase and a general feeling of ...
-51. The Multiple Or Tabular Standard
Various proposals have been made from time to time to correct fluctuations in the price level and so to preserve a just relationship between debtors and creditors.1 In an earlier chapter we have refer...
-52. The Compensated Dollar
To secure stability in the purchasing power of money, Professor Irving Fisher has proposed a plan which has come to be known as the compensated dollar,2 and which has received much favorable commen...
-Chapter VII. Credit. 53. Nature Of Credit
The term credit is used with a great variety of meanings.1 A man is said to have good credit if he has the reputation among his business associates of paying his debts promptly when due. To give cre...
-54. Classes Of Credit
Credit may be classified in a variety of ways. A common and serviceable classification divides credit into five kinds: personal, commercial, banking, public and investment credit.3 In a broad sense al...
-55. Personal Credit
Personal or individual credit is the power of an individual to secure something* valuable in the present in exchange for a promise to pay in the future. Because personal credit is sought chiefly for p...
-56. Commercial Or Mercantile Credit
Commercial credit is the principal medium by means of which trade exchanges are carried on in the distribution of goods. The entire industrial organization of to-day is based upon credit giving. The p...
-57. Dating
The custom of dating, that is, dating bills a certain length of time ahead of the actual shipment of goods, is in effect a method of granting extra credit by the manufacturer or jobber in order to ind...
-58. Book Accounts
Another form of commercial credit which has been developed as a substitute for the promissory note and the commercial draft is the book account. With the disappearance of the long-time credit instrume...
-59. Instruments Of Commercial Credit
The two principal instruments of commercial credit, apart from book accounts, are the promissory note and the bill of exchange. A promissory note is a written promise to pay a certain sum of money to ...
-60. Banking Credit
Banking credit is the power of a bank to secure advances of funds in exchange for its promises to pay. As noted in the foregoing discussion, banking credit is intimately connected with all other forms...
-61. Instruments Of Banking Credit
The chief instruments of banking credit, other than bank notes, are checks, bank drafts, and letters of credit. A check is a written order on a bank for money drawn by one who has a deposit there. Che...
-62. Effect Of Credit On Prices
In discussing the value of money and price changes in a previous chapter, frequent reference was made to the fact that under modern conditions a considerable proportion of commercial transactions are ...
-Part II. Banking. Chapter VIII. Origin And Development Of Banking. 63. Early Banks
The authorities are not agreed as to the origin of the term bank. Some trace it to the banc or bench where the early money changers kept their coins and plied their trade. Others claim that it is ...
-64. Public Banks
The Bank of Venice, founded in the twelfth century during the time that the island republic was at war with the Roman Empire, is spoken of as the first public bank. Originally it was not a bank in the...
-65. Early Banking In England
The Jews were probably the first bankers in England. They came to the country with William the Conqueror. They knew the use of bills of exchange, and accumulated stocks of coins which they loaned at h...
-66. The Bank Of England
The Bank of England was founded in 1694, not to aid commerce and business primarily, but to provide funds for the Government. The origin of many banks, both before that date and since, can be traced t...
-Chapter IX. Banking Development In The United States. 67. Early State Banks
The early experiments in banking in the United States were concerned largely with the issue of circulating notes and with the fiscal operations of the Government. During colonial times several banks w...
-68. First Bank Of The United States
The first Bank of the United States was chartered by Congress in 1791, on lines laid down in a report by Alexander Hamilton, the first Secretary of the Treasury, as a part of the general scheme to sup...
-69. Second Bank Of The United States
During the War of 1812 with England the Government had to depend upon the state banks for financial aid and service. After the dissolution of the First Bank these state banks had sprung up in great nu...
-70. Independent Treasury System
After the removal of the public funds from the big bank and its branches, the state banks were used as government depositories and fiscal agents. This did not work well, however, and after the panic o...
-71. Suffolk Bank System
Reference has been made to some of the early banks chartered by the states, and to the rapid increase in the number of such banks, especially after the dissolution of the First Bank of the United Stat...
-72. Safety Fund System
In New York two systems of regulating note issues were adopted: the safety fund system, and the free banking system. The safety fund system established in 1829 was a plan for the mutual insurance of b...
-73. Free Banking System
Prior to 1838 bank charters in New York were granted by special act of the legislature and in many cases they were given as patronage to political favorites. As a result of the bank monopoly thus deve...
-74. State-Owned Banks
During this period of state banking several of the states established banks owned entirely or in part by the state. There was some question as to the right of these state institutions to issue circula...
-Chapter X. Functions Of The Bank. 75. Classification Of Banking Institutions
Before taking up the discussion of the functions and operations of the bank, it may be well to make a classification of the various types of banking institutions with which the modern world is familia...
-76. Private Banks
Private banking is, perhaps, the oldest form of banking, and some of the most powerful banking concerns in the world to-day are private institutions. They are distinguished from public or incorporated...
-77. Savings Banks
Savings banks are of two general kinds: mutual and stock. The mutual savings bank has no capital and consequently no stockholders. It is organized for the exclusive benefit of the depositors. Apart fr...
-78. Trust Companies
Trust companies were originally created to act as incorporated trustees, that is, as executors and administrators of estates, as guardians to minors, and as custodians of funds or property held in tru...
-79. Commercial Banks
Commercial banks are classified according to the source of their charters, into state and national banks. National banks are organized under the national bank law of 1863 and its amendments. Later cha...
-80. Functions Of Commercial Banks
Commercial banks are also called banks of discount and deposit, and this term fairly summarizes their essential functions. They receive deposits of cash, checks and drafts, and make loans to the bus...
-Chapter XI. The National Banking System. 81. Origin Of The System
The national banking system established in 1863 grew out of the financial difficulties of the Civil War. It will be remembered that after the adoption of the independent treasury system in 1846 the Go...
-82. Bond Deposit And Circulating Notes
The national banking act provides that banks incorporating under it shall buy government bonds1 and deposit them with the Treasurer of the United States, and that they may receive in return circulatin...
-83. Reserves
To insure prompt payment of its deposit liabilities each national bank is required to keep a reserve of lawful money which includes gold and silver coin, gold and silver certificates and United States...
-84. Powers
The national bank act gives national banks the following general powers: to receive deposits; to discount promissory notes, drafts, bills of exchange and other evidences of debt; to buy and sell excha...
-85. Relation To The Treasury
The policy of separating the fiscal activities of the Government from banks and banking which was adopted with the establishment of the independent treasury system, was abandoned when the national ban...
-86. Organizing A National Bank
The first official step in the organization of a national bank is an application to the Comptroller of the Currency, signed by at least five persons who expect to become stockholders. This application...
-Chapter XII. Administration. 87. Stockholders
Great care should be exercised in selecting the stockholders of a bank for they are the source of all ultimate authority. The national bank act provides that stockholders must be natural persons, th...
-88. Directors
The national bank act requires that every national bank shall have at least five directors. There is no legal limit to the maximum number and some of the large city banks have boards of fifteen, twent...
-89. Duties And Responsibilities
In recent years no question affecting banking affairs has been more widely discussed than that of the duties and responsibilities of directors. The legal duties and responsibilities are clearly define...
-90. President
The president of a bank is selected by the directors from their own number and is usually reelected from year to year. He generally presides at their meetings, reports to them or has the cashier repor...
-91. Cashier
The cashier is the chief executive officer and has general oversight of the internal workings of the bank. He should be thoroughly familiar with the details of all the departments. Generally he has ha...
-92. Paying Teller
Next in rank after the cashier is the paying teller who is the disbursing officer of the bank. He has immediate charge of the cash required for current business and is responsible for all out-going fu...
-93. Receiving Teller And Deposits
The receiving teller ranks next in importance after the paying teller; in reality he is the first assistant to the paying teller. In small banks where the business does not justify a separate note tel...
-94. Note Teller
The note teller, sometimes called the third teller, has important relations with the receiving teller's department, with the department of collections, and with that of discounts and loans. He share...
-95. Discount Clerk
The chief duty of the discount clerk is to take charge of the loans and discounts of the bank after they have been negotiated by the proper officers. He keeps a record of the promissory notes and acce...
-96. Bookkeeping Of The Bank
Having described the principal departments of the bank's work, and having noted briefly the systems of record in each, we may now pass to a brief description of the general bookkeeping department, whe...
-Chapter XIII. Deposits And Depositors. 97. Kinds And Sources Of Deposits
As previously stated the main function of the commercial bank is the buying of deposits and the selling of credit in the form of loans. Making loans through the purchase or discount of commercial pape...
-98. Deposit Ticket And Pass Book
The customer in making his deposit fills out a blank deposit ticket or slip furnished by the bank with the date and his name at the top. He enters separately the different kinds of funds he wishes to ...
-99. Interest On Deposits
As a general rule banks do not pay interest on general or demand deposits. Many trust companies, and in recent years commercial banks also, do allow a low rate of interest on daily balances where the ...
-100. Securing Deposits
For reasons that have been stated elsewhere, every bank constantly strives to increase its deposits and thereby to enlarge its loaning capacity, Various methods are employed to obtain and increase de-...
-101. Guaranty Of Bank Deposits
Within the past few years laws providing for the guaranty or insurance of bank deposits have been enacted in several of the Western states. Oklahoma adopted a guaranty law in 1907 levying an assessmen...
-Chapter XIV. The Clearing House. 102. Functions
A clearing house may be denned as a device to simplify and facilitate the daily exchange of checks and drafts and the settlement of balances among the banks associated together for the purpose. In rec...
-103. Clearing
Before describing the process of clearing checks, mention should be made of the preparations at the bank. During the day as checks are received, those drawn upon city banks are placed in pockets or pi...
-104. Settlement
The method of settling balances varies in different cities. The banks which have debit balances against them are required to send to the clearing house before a certain hour, usually twelve or one o'c...
-105. Other Functions
In recent years clearing houses, especially in the West, have extended the scope of their original function so as to include all questions affecting the mutual welfare of banks. Some clearing house as...
-106. Organization
The organization of the various clearing houses depends upon local conditions, but generally they are voluntary, unincorporated associations acting under rules and by-laws drawn up for their own regul...
-107. Collections
Having described the method of collecting checks on city banks through the clearing house, or by direct collection in the case of those banks and bankers which do not have clearing house connections, ...
-108. Regional Clearing Houses
As can readily be seen this collection service rendered to the depositor by the bank involves a great deal of labor and expense. Formerly the banks made collections for their customers without charge,...
-Chapter XV. Domestic And Foreign Exchange. 109. Domestic Exchange
One of the most important functions of banks is to facilitate domestic and international trade transactions through dealing in domestic and foreign exchange. Just as banks in the same city settle thei...
-110. Currency Movements
The varying balances between credit and debit accounts due to the payments and collections constantly going on between different cities and sections of the country, and the offsetting of these account...
-111. Treasury Operations
This situation was aggravated by the operations of the United States Treasury in its clumsy method of making collections and disbursements. At certain seasons of the year government receipts from cust...
-112. Foreign Exchange
International transactions are settled by means of foreign bills of exchange on the same principles and in much the same way as domestic transactions are settled by the use of domestic bills of exchan...
-113. Supply And Demand Of Foreign Exchange
Before taking up the mechanism of foreign exchange it may be well to examine briefly the sources of supply and demand which give rise to foreign bills. Basically the supply of and demand for foreign e...
-114. Rates Of Exchange
The quotations for exchange are the prices at which the right to receive money in a foreign country is bought and sold in another country and vary according to supply and demand. Distinction must be m...
-115. Correctives Of Foreign Exchange
When sterling exchange; reaches either the gold exporting point or the gold importing point, certain forces, known as correctives of the exchanges, come into operation to restore the international e...
-116. Gold Movements
London is the world's great primary gold market, and the bulk of the raw gold mined in South Africa and Australia goes direct to that center to be sold at the best price available. Practically all the...
-117. Varieties Of Foreign Exchange
There are three principal forms of foreign exchange - the commercial bill of exchange, the banker's or finance bill, and the letter of credit. Commercial long bills are drafts drawn by shippers of mer...
-118. Banker's Bills
Foreign exchange bankers keep balances in several financial centers against which they draw and sell demand drafts or checks, as they are commonly called. As the name indicates, they are payable on...
-119. Finance Bills
The third kind of bankers' long bills are finance bills. A finance bill is a draft drawn by a banker in this country on a foreign banker for the purpose of securing funds here for the time being and w...
-120. Arbitrating
Arbitraging in exchange may be briefly defined as the purchase of exchange on one country through another country. Thus, for example, when exchange on Paris is more plentiful in London than it is in N...
-121. Dealing In Futures
The dealing in contracts for future delivery of exchange arises from two broad classes of operations. Bankers who buy and remit to their foreign correspondents large amounts of exchange, including bot...
-122. Letters Of Credit
Letters of credit issued by bankers to their customers are of two kinds: travelers' letters of credit and commercial letters of credit. The demand for letters of credit by the great and increasing num...
-123. Commercial Letters Of Credit
The commercial letter of credit is somewhat similar in principle to the traveler's letter, but it is used to pay for merchandise purchased from exporters in foreign countries. In effect it authorizes ...
-124. The Foreign Exchange Department
The rapid extension of our foreign trade and the increasing numbers of Americans traveling abroad has resulted in a demand for wider banking facilities to handle international transactions. Formerly t...
-125. Foreign Operations Of Federal Reserve Banks
Under the Federal reserve system it is expected that both Federal reserve banks and member banks will have greatly improved facilities for engaging in foreign exchange and for promoting international ...
-Chapter XVI. Loans And Discounts. 126. Loans
As stated in a previous chapter the chief business of the commercial bank is making loans through the purchase or discount of commercial paper. In exercising this function banks perform their most use...
-127. Discounts
Time loans arise largely through the discount of notes running for thirty, sixty or ninety days. When a manufacturer or dealer sells goods on credit he may take in payment his customers' promissory no...
-128. How Loans Are Made
The process of discounting or of making a loan varies with different banks. In some banks no loans of large amounts are made until they are approved by the board of directors or a finance committee of...
-129. Collateral Security
By collateral security is meant stocks, bonds, and other evidences of property deposited by the borrower to secure a loan made to him by the bank. Such securities are deposited as a pledge or guarante...
-130. Loans On Real Estate
Prior to the enactment of the Federal Reserve Act in 1913, national banks were prohibited from loaning on real estate, though state banks in most of the states are permitted to do so under certain lim...
-131. Rediscounts
In this country rediscounting has never been a feature of banking practice to any such extent as in Europe. Indeed it has generally been looked upon as bad banking and an evidence of weakness on the p...
-132. Call Loans
The bulk of call loans, known also as demand loans, are made to stock exchange brokers on stock and bond security. As the name indicates, call loans are made subject to call at any time; the borrower ...
-133. Call Loans And The Stock Exchange
It has been estimated that from 60 to 70 per cent of the reserve money carried by big banks in New York and Chicago has been loaned to brokers on stocks and bonds. A typical illustration will serve to...
-134. Substitutions
It frequently happens that the borrower needs some of the collateral which the bank is holding in order to make delivery of the stock he has sold on the exchange. He is permitted to withdraw the stock...
-135. Interest Rates
The interest rate on call loans flue. tuates considerably from time to time. The rate is made on the Stock Exchange and is determined by the demand and supply of loanable funds in the money market. Th...
-136. The Weekly Bank Statement
Because of the close connection between brokers and the banks every broker and operator is vitally interested in the condition of the money market. At times the stock market asserts its independence a...
-137. Commercial Paper And The Note Broker
We have already noted the technical difference between loans and discounts, namely, that banks discount paper for their Reserve excess in Boston. 3,117,143. Increase, 1,611,286. Excess with Reserve Ag...
-Commercial Paper And The Note Broker. Continued
Most note brokers have regular customers among the banks and trust companies to whom they offer the commercial paper. They issue weekly sheets containing the names of the makers of the notes, indorser...
-138. The Credit Department
The credit department is one of the most recent, yet most important in the organization of the modern commercial bank. In the large city bank having a great variety of customers and activities, it is ...
-139. Elements Of Credit
In any analysis of credit, emphasis is always laid on four main elements - character, capacity, capital and collateral. It is not enough that a borrower shall be of undoubted integrity and honesty; th...
-Chapter XVII. Bank Supervision. 140. Reports And Examinations
Every national bank is required to make to the Comptroller of the Currency at least five reports a year showing in detail its resources and liabilities. No regular dates are set for these reports; the...
-141. Bank Examinations
In addition to the reports and statements which banks are required to make they are subject to a variety of examinations as a precaution against negligence and fraud. National banks are examined perio...
-142. Unofficial Examinations
The report of the national bank examiner is made to the Comptroller of the Currency and is seldom, if ever, seen by the officers of the bank. Yet it is the officers and directors who are held responsi...
-143. Bank Failures
Banks may be closed either by voluntary retirement or by involuntary retirement or failure. Since the national bank act went into effect over 500 national banks have been placed in the hands of receiv...
-144. Liquidation
If the bank is hopelessly insolvent the receiver proceeds to wind up its affairs, and in so doing he seeks to protect the claims of the depositors. All available assets are converted into cash, and if...
-Chapter XVIII. Savings Banks. 145. Functions
The function and the methods of the savings bank are very different from those of the commercial bank. The latter, as we have seen, serves the business man who needs current funds or credit to carry o...
-146. Management
The organization and management of a savings bank are much like those of the commercial bank. The control is in the hands of a board of directors or trustees composed of men chosen for their responsib...
-147. Deposits
When a depositor comes to a savings bank to open an account his name is entered on a card or in a book, with his residence, place of birth, and other information useful in establishing identity, and h...
-148. Withdrawals
When a depositor wishes to draw out money he takes his pass book to the paying teller's window and states the amount desired. Some banks have a blank form of draft which the depositor fills out, or th...
-149. Interest
The accounting system of a savings bank is not materially different from that of other banks except in the matter of keeping the interest accounts of the depositors. Most banks compute interest at sem...
-150. Investments
The first consideration in the management of the savings bank and the money in its care is safety. In most states, therefore, the law places rigid limitations upon the invest incuts of the bank. In a ...
-151. Postal Savings Banks
Nearly all the leading countries of the world now have a system of postal savings banks. Strictly speaking, they are not banks but agencies or adjuncts of the Government which, through its post office...
-Chapter XIX. Trust Companies. 152. Functions
The trust company is a comparatively new type of banking institution and its functions are not yet clearly defined. The earliest trust companies were organized to carry on life, fidelity and title ins...
-153. Individual Trusts
Trust companies execute a great variety of trusts for individuals under private agreement. A leading authority says: These trusts come from many different classes of people - from active business men...
-154. Superiority Over Individual Trustee
As a trustee the trust company has many advantages over the individual. In the first place, it usually has superior responsibility. Though an individual executor or administrator gives bonds for the f...
-155. Trustee And Agent For Corporations
In recent years trust companies, especially in the larger centers, have been prominent as trustees and fiscal agents of large corporations, acting as trustee, registrar, transfer agent or receiver. On...
-156. Insurance Department
Most of the old trust companies which originally carried on a life insurance and annuity business have surrendered that activity to the life insurance companies. So, too, the fidelity insurance busine...
-157. Banking Department
Most trust companies conduct a general banking business, the operation of which has little to distinguish it from that of the commercial bank. Their savings departments, too, are conducted in substant...
-Chapter XX. Foreign Banking Systems. 158. The English System
The origin and early history of the Bank of England have been sketched in a previous chapter. In 1709 it was granted a quasi-monopoly by a decree of Parliament that no other corporation or partnership...
-159. Bank Act Of 1844
The Bank Act of 1844 made radical changes in the charter and established the Bank of England on its present basis.1 It divided the bank into two distinct departments, one to carry on banking operation...
-160. Bank Of England
The Bank of England located in London with its eleven branches in the principal cities of the country is the center of the banking system of England. It acts as banker to the British Government, being...
-161. Joint Stock Banks
Important as the Bank of England is as the central reserve agency of the English banking system, the fiscal agent of the Government, and the source of note circulation and coin supply, it does a relat...
-162. Bank Acceptances
A striking characteristic of the English and other European banking systems is the wide use of bank acceptances. In the United States the usual form of credit is the direct promissory note of the borr...
-163. Discount Houses
The great volume and diversity of bills of exchange coming into the London market constantly has given rise to a special class of dealers in bills, known as discount houses. They act as a kind of inte...
-164. The Scottish System
The Scottish banking system is often referred to as one of the best in the world. Its functions, however, are essentially similar to those of the English system described above. The system consists of...
-165. The French System
As early as 1716 the celebrated John Law created the first French bank of issue. It was a great success until it began to promote Law's speculative schemes in the colonies. When the bubble burst in 17...
-166. Leading Features
Perhaps the most striking feature of the French banking system is the undeveloped condition of deposit currency and the large use of bank notes supplied exclusively by one central institution. These n...
-167. The German System
The Imperial Bank of Germany, or Reichsbank, was organized in 1875 on the foundations of the old Bank of Prussia established one hundred years earlier. The Bank of Prussia was originally a state insti...
-168. The Reichsbank
The Reichsbank is a private institution but is much more closely under the control of the Government than are the Bank of England and the Bank of France. It acts as the fiscal agent of the Government ...
-169. The Canadian Banking System
The Canadian banking system consists of twenty-three chartered banks with some 2,200 branches scattered throughout the Dominion. These banks are privately owned and managed, but they operate under a...
-170. Elasticity Of Note Issues
Each chartered bank is allowed to issue notes in amount equal to its capital without deposit of security of any kind. Since 1908 the Canadian banks have had the right to issue during the crop-moving s...
-171. Branch Banking
The effect of the branch system and the freedom of note issues is to keep interest rates steady and fairly uniform throughout the entire country. Practically all the chartered banks are national insti...
-172. Supervision
A weakness of the Canadian banking system has been the absence of outside inspection of the banks. The Minister of Finance may call for a report of condition of a bank at any time, and the Canadian Ba...
-Chapter XXI. Defects Of National Banking System. 173. Defects Of National Banking System
Reference has been made at various places in the foregoing pages to the defects of our banking system. In this chapter we shall try to summarize these defects and present a brief statement of the prob...
-174. Inelasticity Of Note Issues
One of the principal defects of the banking system was the absolute rigidity of the currency. A national bank could issue notes only by depositing government bonds with the Treasury. As bonds usually ...
-175. Immobility Of Reserves
Probably the most vital defect in our banking system in the past was the inelasticity and immobility of bank reserves. All national banks, and quite generally state banks also, are required to keep a ...
-176. Absence Of A Discount Market
The weakness of the system of diffused cash reserves was accentuated by the absence of a general and active market for commercial paper. Under the former system banks buying good short-time commercial...
-177. No System Of Bank Acceptances
The establishment of a broad market for commercial paper would be greatly facilitated by legalizing the bank acceptance. By the decision of the courts national banks have not been permitted to accept ...
-178. No Regulation Of International Flow Of Gold
Our bank ing system has lacked the power to exercise effective cooperative control over the international flow of gold. One of the important functions of the great central banks of Europe is to regula...
-179. Clumsy And Wasteful Treasury System
It has generally been recognized that no reform of our banking and currency system can be adequate which does not take the United States Treasury out of the banking business. The independent treasury ...
-180. Plan Of National Monetary Commission
The panic of 1907 brought sharply to the attention of the whole country the inherent weaknesses of our banking and credit system and stirred Congress to action. In 1908 the Aldrich-Vree-land law was e...
-Chapter XXII. The Federal Reserve System. 181. Federal Reserve Banks
In previous chapters reference has been made at different places to the terms and operations of various features of the Federal reserve system. We shall now try to summarize the new law as a phole, po...
-182. Management
Each Federal reserve bank is to be conducted under the supervision and control of a board of nine directors holding office for three years and divided into three classes, designated as classes A, B, a...
-183. Federal Reserve Board
The act creates a Federal Reserve Board of seven members with sweeping powers of supervision and control over the new system. The Reserve Board is composed of two members ex-officio, the Secretary of ...
-184. The Federal Advisory Council
To advise and consult with the Federal Reserve Board and to keep it in touch with business and banking conditions and needs throughout the country, the Act creates a Federal Advisory Council, composed...
-185. Functions And Powers Of Federal Reserve Banks
The chief functions of the Federal reserve banks are suggested in the preamble to the Act, namely, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a mo...
-186. Rediscounting
The chief business of the Federal reserve banks, presumably, will be the rediscounting of commercial paper for member banks. As we have seen, one of the most serious defects of our banking system has ...
-187. Open Market Operations
Anticipating that redis-counting for member banks may not keep all the funds of the Federal reserve banks actively employed, provision is made for them to engage in certain open market operations. The...
-188. Control Of Gold Supply
In an earlier chapter reference was made to the devices employed by the great central banks of Europe to conserve their gold supply, and to the absence under our decentralized banking system of any su...
-189. Note Issues
One of the purposes of the Federal Reserve Act, as stated in the preamble, is to furnish an elastic currency. The new system leaves all forms of currency issued by the Government practically unchang...
-190. Refunding 2 Per Cent Bonds
The plan for retiring the national bank notes is closely tied up with the disposal of the 2 per cent bonds. As noted above, the Federal reserve banks may be required to purchase annually $25,000,000 o...
-191. Federal Reserve Notes
By the issue of Federal reserve notes the new system is expected to provide an elastic currency. The clause providing for these notes reads as follows: Federal reserve notes, to be issued at the disc...
-192. Danger Of Inflation
As a result of our disastrous experience with the greenbacks and free silver there has persisted to this day a lively fear of over-expansion or inflation, as it is generally called. While the Federal ...
-193. Reserves
The most serious defect in our banking system in the past has been the scattering of the reserves among twenty-five thousand banks, and the absence of any central reservoir from which these banks coul...
-194. Rigidity Of Reserve Requirements
As we have seen the new system continues the policy of requiring banks to carry a fixed minimum reserve. Though our own experience has demonstrated the weakness of this principle and the experience of...
-195. Clearings And Collections
One of the most important functions of the new reserve system is that of clearing and collecting the checks and drafts which constitute so large a proportion of the credit instruments used in conducti...
-196. Relations Of New System To The Treasury
In a previous chapter reference was made to the clumsy and archaic system of conducting the financial operations of the Government through the Independent Treasury system, The United States is the onl...
-197. New Powers Of National Banks
The new law grants to national banks several additional powers that will widen their service and their opportunity for profit. Under special permit of the Federal Reserve Board, when not in contravent...
-198. State Banks And The New Law
One of the requisites of banking reform outlined in the previous chapter was solidarity - and unity - of the whole banking system. Since there are at present nearly three times as many banks operating...
-199. Emergency Measures Of 1914
Pending the inauguration of the new system, the Aldrich-Vreeland Act of 1908, which would have expired by limitation June 30, 1914, was extended to June 30, 1915, and the tax on emergency currency aut...
-Emergency Measures Of 1914. Continued
At the close of the cotton conference Secretary McAdoo appointed a committee to draft a report embodying suggestions for the solution of the problems presented at the conference. The report of this co...
-200. Organization Of Federal Reserve System
The Federal Reserve Act provided that, as soon as practicable, the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency, acting as The Reserve Bank Organizatio...
-Organization Of Federal Reserve System. Continued
The Committee announced that it was impressed with the growth and development of Washington, Oregon and Idaho, but that on the basis of six per cent of the capital and surplus of the banks which had a...
-201. Appointment Of Federal Reserve Board
On June 15, the President sent to the Senate the names of five nominees who, together with the Secretary of the Treasury and the Comptroller of the Currency, as ex-officio members, should constitute t...
-Appletons' Business Books
Fundamentals of Salesmanship, by Norris A. Brisco Retail Selling and Store Management, by Paul H. Nystrom Advertising and Selling, by H. L. Hollingworth The Business of Advertising, by Earnes...









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