Furthering The Bank's Interests

The matter of the identification and endorsement being settled, the next thing is to obtain for the bank all possible benefit from the transaction. The bank's interests are always advantaged by its having the goodwill of the people who deal with it. They are the more disposed, then, to transact business with it and to influence others the same way.

For some cheques the teller knows that nothing but cash will do; there are others out of which a deposit may be gained. In the case of these latter doubtful ones, it is good policy sometimes to inject the idea of depositing freshly into the payee's mind. This can be done by asking him: "Do you wish to deposit or to draw cash?" It may be that a new deposit account will be gained. If he elects to take cash, in whole or in part, there is still the question of the circulation. The bank wants to get as wide and large a circulation of its notes as it possibly can.

Pushing The Note Circulation

When it pays a cheque drawn on itself with its own notes it conserves its actual cash assets. It redeems its deposit liability through increasing its note liability. Perhaps the simplest way to explain the benefit derived from the note circulation is that while the notes are outstanding or in circulation the bank has the value for them in its possession. When they come in for redemption it parts with that value. By way of illustration let us take two banks, each of which has a capital of $2,000,000 and deposits of $10,000,000. One of them, however, has $1,800,000 of notes in circulation; the other has none. The one with the circulation has just that much more loanable resources than the other. Further, the resources which a bank .gains through issuing and keeping in circulation its notes are free of interest. It has to pay interest to its depositors for most of the resources contributed by them; but it pays no interest to the note-holders. The only expenses in connection with the uncovered and untaxed note issues are the cost of paper and printing, of transportation, and a little clerical hire.

Why Small And Clean Notes Are Best

A considerable number of the payments over the counter do not give good circulation. The parties receiving the notes at once pay them over to another bank, or pay them to customers of another bank, who deposit them immediately. The circulation only lasts two or three days, and is of hardly any value. But the parties receiving other payments will carry the notes, scattering them, through the medium of their own payments or purchases, among a number of persons, who may again pass them on to others.

The denomination of the notes has something to do with the length of time they stay in circulation. Fives and tens are handier for making payments than are twenties and fifties; they pass more freely from hand to hand. Clean, new notes are better than old, dirty ones. Therefore a payment with new fives or tens will generally give better circulation than one of old bills or of large bills. The bank will probably benefit more from it. But, of course, the convenience of the payee has to be considered in this matter. He may ask specially for certain denominations. Ones, twos, and fours, being Dominion Government notes, are not pushed into circulation. To circulate them would have the same effect as the circulation of notes of another bank. Therefore, they are paid out only in making change and when specially asked for.