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, some of them desirable, others neutral, and many undesirable. A consideration of the origin and intention of these small accounts is of interest. Roughly speaking, they may be divided into eight classes: the last class, No. 8, however, is the one to which particular reference is made, owing to the per item cost with no compensating balance to support fixed charges.

1. A balance created by the payment of notes or other items collected by the bank for a customer. These accounts are generally closed by one withdrawal.

2. Proceeds of discounts credited. These accounts are generally inactive and the balance left comparatively small, a few dollars as a rule.

3. Money left for safe-keeping and generally withdrawn in one amount.

4. Funds deposited from time to time to meet certain payments ; inactive and generally withdrawn in one amount.

5. Balances of subsidiary business accounts of large customers, such as coupon and dividend accounts, pay check accounts, etc., the checks for which would otherwise go thru the general account; therefore a matter of bookkeeping convenience to the customer, and as a rule a convenience to the bank. Include in analysis of general account.

6. Private checking accounts of partners, managers and other officers of a company, and occasionally their wives. These accounts are generally carried willingly by the banks as a matter of courtesy. Such accounts frequently have good balances in the savings department.

7. Seasonal accounts. The balances of these accounts during the greater part of the year are generally small, with practically no entries, and represent the balance left over after a season's operation in a certain class of business, such as agriculture or lumbering. These classes of business as a rule maintain satisfactory balances during the height of their activity and are carried as a courtesy during their period of comparative inaction.

8. Small checking accounts with a maximum of entries and minimum of balance.

The bank, for this last class of accounts, practically acts as bookkeeper and saves the depositor in some instances $5 or more per month in that connection. Experience has shown that these accounts are more fruitful of trouble and risk to the bank than any other accounts, and once a mistake is made the loss is seldom recovered. Forgeries, raised checks, and other forms of criminal financing are frequent. "Eternal vigilance is the price of safety." Beyond the personal equation of the customer and his good opinion, whatever that is worth, there is little or no value in these accounts. The balances are small and of such a fluctuating nature that practically 100 per cent cash reserve has to be carried to meet their requirements. Furthermore, as the deposits would probably show that about 90 per cent of the amounts consist of checks and bills redeemable at other banks in the city, there is in many cases a real overdraft in the account, pending the clearing of these items.

The entries on these accounts, credit and debit, cost at least three cents each. Accounts of this character take up a great deal more of the time of the manager and staff than practically any of the desirable accounts. As a rule checks are issued before the deposit is brought in, and frequently it is necessary to call up the customer by telephone in order to protect his checks from protest.

It must be remembered, however, that in many small branches a number of these unprofitable accounts can be carried under certain conditions without any actual money loss to a bank. The reason for this is obvious. A small branch, especially if newly established, has certain fixed charges to maintain irrespective of the business done. For several years after opening, it has men and machinery to spare to handle this class of account without any additional expense. It is only when the business has increased and more men and office accommodations are required that these accounts become burdensome. This explains why some banks advertise for and encourage small accounts. They enable the manager to become acquainted with his neighbors, and frequently a small account may later turn out desirable or bring desirable connections.

The same arguments do not, however, apply to a small savings bank account. Such an account is not intended to be checked against. It should have practically no expense except the cost of opening, calculating the interest and holding the reserve.

The tendency to check against savings bank accounts is to be deplored for many reasons. The banks have no machinery for handling these checks. The cost amounts to about six cents per entry, as practically every signature has to be looked up with each presentation, the pass-book called for, etc. Moreover, this abuse of the savings bank account is an open door for forgeries and other frauds.

The increasing activity in the savings bank business is constantly adding to the expenses of that department, owing to the number of checks that are now being issued on the various accounts and the practical elimination of any notice, or deduction of interest in lieu thereof. No bank can afford to pay a higher rate than three per cent under present conditions. In fact, a study of the statements of the various banks in Canada graphically demonstrates this fact. See Section 21, page 114.