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 customers seeking credit from a bank.

Altho the practice of requiring statements from borrowing customers is by no means an innovation on the part of banks, it is only of late years that it has been found advisable to make the rendering of a statement an invariable condition of lending a bank's money. This necessity is due to several causes; one is the rapid expansion of the country and the opening up of branches in new territories; another is the gradual elimination of the personal element in modern business life, due to the incorporation of old-established firms into joint stock companies, a shareholder in which has only the amount of his investment in the company at stake, and not his whole fortune and the honor of the family name. The principal reason, however, is no doubt a response to the constant demand for efficiency and thoroness in all branches of business life. The granting of commercial credits, as the keystone of the whole structure, has been raised almost to the dignity of a profession. The excellent work accomplished by the various credit men's associations in the United States 1 has naturally extended its influence to Canada, and practically every business house of any importance has its own credit department doing invaluable work.2

1 Much credit is due to the late Mr. James G. Cannon, President of the Fourth National Bank of New York, to whose unremitting efforts in arousing public interest in this question may be ascribed the present high standard of credit requirements in the commercial world. Mr. Cannon is the author of many interesting and exhaustive articles and addresses on the subject of commercial credit, and he was instrumental in having the banks and credit associations thruout the United States adopt a uniform statement blank.

2 The Canadian Credit Men's Association, altho only started in

In analyzing a statement it is well to bear in mind the old saying that "A man tells his hopes to his banker and his fears to his lawyer," and further, that a statement of affairs is often an expression of opinion rather than a statement of facts.

In the course of one of his addresses on "Bank Credits," Mr. Cannon, in an interesting and instructive way, remarked on the necessity of an analyzed statement in loaning money:

The cornerstone of credit may be said to be the requiring from borrowers of statements of the condition of their affairs. This has now become an accepted custom in the relation between banks and borrowers on commercial paper. It has come to be recognized that the practice is of value to both the bank and the borrower, and this may be considered the reason for its success. Furthermore, the making of statements oftentimes renders concerns themselves aware of their weaknesses in their methods of operation, financial practices and results of business. The banker, having a substantial interest in the success of the customer, may frequently give wholesome advice or timely warning from his wide experience in commercial affairs and his foresight in monetary matters.

A statement, however, which is not submitted to analysis is a menace. Because, first, if errors have been made, if lack of judgment on the part of the management of the concern has been shown which is not brought to the attention of the borrower, if reckless methods have been indulged in or any dishonesty has been practised, the very fact that a statement has been received and accepted by a banker either lulls into a sense of security the careless or heedless borrower, confirms the reckless financial habit or establishes the dishonesty, if such exists. Frank and open statements,

Winnipeg in 1910, has extended its organization thruout Canada and has already accomplished much excellent work. XVI - 16 bearing upon their face the evidence of a true condition of affairs, are the greatest factors in establishing credit. Nothing will more firmly cement the union between borrower and banker than such a statement, and nothing will be of more value to a banker and of less harm to an honest, enterprising borrower. Hidden facts are revealed by analysis, and skill in reading between the lines is an important part of a manager's training. By this means, weaknesses may frequently be discovered and proper steps taken to avert trouble before acute difficulty arises.

A large number of statements will show on their face such evidence of weakness as to require no further investigation. This information, of course, is valuable to bankers, and they will at once decline to extend these applicants any accommodation; whereas, if, on the other hand they were only in possession of indefinite data, they might be disposed to extend a line of credit.

Many old firms, because they have been in the habit of conducting their business without revealing their financial affairs to any one, feel a natural reluctance to making a statement of their condition; but we should bear in mind the fact that great and deplorable mistakes have been made by banks in granting large lines of credit to old houses simply because they had an unblemished record and were supposed to be entitled to liberal consideration.

Notes, bills, drafts, checks, book credits, or any form of obligation resulting from a credit transaction, come into existence, not antecedent to, but as a consequence of, a transfer of goods involving futurity. Paper is purely fictitious and illegitimate which is not the outcome of an operation in goods; and we are enabled to test whether loans are legitimate or not according as we know whether the discounts are granted or not for actual transfers of salable goods. This test gives us the means of drawing the line between sound and unsound banking.

The manager as a rule trusts too much to his customer - if the latter wants money, presumably he is an ordinarily prudent man, and knows what to do with it; he must know his own business better than his banker, and it would be presumptuous in the latter to undertake to guide him. While this may be true of the well-trained and experienced merchant, it is very wide of the truth with hundreds of traders and small manufacturers all over the country. There are really very few men anywhere who can be trusted to handle prudently and safely unstinted loans of money. The proverb "Give him rope enough and he will hang himself" fitly illustrates the tendency of the average trader to get into difficulty when he is too freely provided with money.

With careful and prudent banking, however, much of the mischief would be prevented. Inflation is seldom developed to a very great extent without accommodation loans, and these would be very sparingly indulged in if not altogether avoided.

Credits would be carefully scanned and risks divided; and so the skilful banker, by simply following safe rules in his own business - rejecting here and encouraging there - cannot help saving his customers as well as himself from much trouble and loss. But in order to do this well he must be a man who thoroly knows his business; of strong self-reliance, a man who arrives at his opinions and judgments from observed facts, not from hearsay, and who is not to be frightened into altering his course to suit importunate and perhaps influential borrowers.