This section is from the "Practical Banking" book, by Albert S. Bolles.
An Englishman once remarked that twice he came near losing everything—once when he lost a lawsuit, and the other time was when he gained one. The story of speculation is very similar to the Englishman's legal experience. If one wins, he tries again; and when the passion for speculation is fully developed, it rarely stops, save with bankruptcy and the grave. Some banks have a by-law declaring that no loans shall be made to their officers— this can, in effect, be easily evaded by procuring loans through friends. A watchful board of directors might prevent its defeat by making careful inquiry into the relations of applicants with the officers of the bank.
Another side of this inquiry at which we shall look for a moment is the relation between compensation to bank clerks especially, and frauds. Very often when a fraud has been discovered, the remark is made: "Oh! that clerk was poorly paid!" Are frauds to any extent the outgrowth of inadequate pay? Do the higher officials perpetrate them because their salaries are too small? What kind of honesty is that which is gauged by the rate of compensation? It belongs to a peculiar species, and which, if really existing, should be carefully noted. For, evidently, it must be of a dangerous nature, inasmuch as the employer can never tell when he is paying enough to keep the recipient over the safe line of honesty.
Some clerks, who are dissatisfied with the compensation they receive, would be in any case. It is erroneous, however, to suppose that dissatisfaction is confined to them. That is a universal and needful ingredient in human nature; the tonic of mankind, stimulating to new and higher endeavor. It does not follow that an increase of compensation would, or should, satisfy men, so long as higher places and greater influence and wealth can be rightly gained. Increase the compensation, and only the form or type of dissatisfaction would be changed. On the other hand, some clerks do not think how much their superiors are dissatisfied with them, how imperfect is their work, how lacking in zeal and interest, and with what little regret their resignations would be accepted. They do not think how easy it would be to fill their places, and, perhaps, at lower salaries. There is a desire among banking employees, as among other classes, to wear better clothes and live in better houses than their incomes will justify them in doing. A person inflamed with such a desire is utterly destitute of the prime essential of a successful banker, namely, of making more than he spends. Moreover, we venture to remark that those having such a desire would probably suffer it to grow beyond any increase of salary, so that, whatever might be their compensation, their unsatisfied wants would in no wise be diminished.
While believing these things to be true, we would also add that if greater watchfulness were exercised over them, their lot might be improved, and their dissatisfaction and anxiety, in some cases, lessened or removed. If assistance were rendered in times of sickness or other unexpected adversity, they might feel more contented, and, perhaps, display a stronger interest and pleasure in their business. In many cases, too, banks could well afford to give more generous compensation, and might receive a yet more generous return, in the way of better service. Different practices prevail among banks in their treatment of employees, and the subject is well worthy of your considerate attention, for in it is bound tip not only their greater contentment and prosperity, but also the exercise of their best ability and faithfulness.
The last side of this inquiry is the punishment of delinquents as a means for deterring others from wrong-doing. The criminal laws are executed so poorly, that no longer do they possess much restraining force. The chances for escape, either by running away, or by compounding the crime, are so great, that persons with an evil intent do not fear of feeling the power of the State. In truth our criminal laws are a kind of half-believed and faintly-enforced declaration of the popular will. Their terrors long ago disappeared. Did not Ward startle the country more than a year and a half ago, and yet we have not learned that the officers of the law are particularly unhappy over his situation. It is true that he is now receiving his callers at Ludlow street jail, instead of his former home, but, if the jail be less elegant, the difference is not great enough to deter others from doing as he did whenever a similar opportunity shall occur. It is true that Eno is having a better time at Quebec. And his immunity from punishment is a shocking illustration of the defectiveness of our treaty relations with Canada. There he lives, almost within sight of the scene of his crime, where he can look at his victims and mock at them, and yet live in security. The safety of the banks and other institutions of both countries imperatively requires that this awful disregard of justice should cease. The business and social relations of the two countries are so close, their mutual protection so desirable, that neither country ought any longer to be an asylum for the criminals of the other.
This remark is closely linked with our final one, which is, cooperation among the banks to protect each other from frauds of every kind. When an officer learns something of the conduct of an official in another bank, which he thinks the president, or directors, or stockholders would like to know, and would thank him for telling, should he not, in a fitting way and time, impart his information? And if all bank officers showed this mutually helpful spirit, their institutions would be more secure than they are now. And this spirit might properly have a wider outflow to the giving of such knowledge concerning the perpetration of frauds from the outside, as would protect banks from forgeries and other bad paper, the paying of questionable checks and the like. Strong as nearly all the banks are, they would yet be stronger if seeking to sustain each other in all right ways; while the business would become more human and agreeable when thus conducted under the kindlier light of mutual interest and protection.
In concluding, we shall return to the general remark expressed at the beginning. It is easy to multiply guards, but they are attended with expense or delay in transacting business. On the one hand, the competition among banks to attract depositors is so great, that quite generally they adopt the quickest and most agreeable methods of business; and on the other, to attract borrowers, securities assigned in blank are taken, and other risks of varying nature are assumed. In other words, in many cases banks voluntarily and knowingly assume risks in conducting their business in order to increase it, or to save expense. This is the short statement of the matter. They can erect other guards if they desire, but in so doing must probably add something to their expense, and sometimes exact more of their depositors. Whether they are always justified in assuming their risks, it is not for me to determine. In a general way it may be said, if the banks resolved more unitedly to strengthen themselves against wrong-doing, they would conserve their own and their customers' interests, and exercise a stronger restraining influence on those who, living on sandy foundations, are in danger of slipping away, and of burying others beneath their own ruin.