The Appropriations

Suppose the occasion is the end of the fiscal year. There will be the appropriations to make. The loans and discounts at every branch are carefully valued. The general manager decides on the sum which will be amply sufficient to provide for all probable losses from bad and doubtful debts, and, on its being authorized by the directors, the amount is debited to profit and loss account, and credited to a contingent fund or deducted from the book value of the assets. Similarly, if there is depreciation in the bonds or investments, an amount is taken from profits and applied to write down the value of the bonds as they appear on the bank's books. If it be thought advisable to provide any other reserve for a contingency or certain purpose, the funds are taken from profit and loss account. Such appropriations as these are often taken from profits before the declaration to the stockholders.

Bad And Doubtful Debts

The general opinion among expert bankers is that the safest policy in this regard is not to publish the amount of appropriations for losses, as the publication might have an injurious effect, sometimes, on a bank's credit; therefore, in the annual reports of practically all banks is found the statement that "after making provision for bad and doubtful debts the profits were," etc. After the declaration is made, other appropriations are made for such purposes as writing down premises, contributions to officers' pension and guarantee funds, to other special purposes, for additions to the rest, and for the payment of dividends to stockholders.

These items are commonly published, as the stockholders have a right to know how their profits have been disposed of, and the information can be advertised without fear of doing injury. With regard to the other secret items, it is to be said that, although the rank and file of the stockholders are not informed about them, their representatives, the directors, are fully cognizant of all that is done.

Writing Down Bank Premises

The accepted theory about bank premises is that no matter how valuable the various properties may be for the bank's business, it is not good banking to have them figure indefinitely in the balance sheet as assets for amounts equal to their cost. It is assumed that every year there will be a depreciation in value; and besides, some attempt is made to have them carried on the books at values about or below what they would bring at a slaughter sale. That is why it is that the conservative banks each year make appropriations of round amounts to write down premises account. The special contributions referred to - to pension and guarantee funds and for other purposes-are made in the interests of the banks making them.

Rest Now Held Sacred

The rest, or reserve fund, as understood in Canada, is merely an aggregation of the stockholders' funds, accumulated from profits, or paid in as premium on new stock. Originally, the purpose of the rest was largely to provide for unexpected setbacks. A certain propor tion of the profits was reserved to be available against a possible evil day. The rest thus formerly served as an equalizer of the dividends. That is to say, the fund was accumulated in good years with the idea that in lean years it might be available for maintaining dividends unchanged, even if profits fell off considerably. Latterly, the rest has come to be regarded as a very necessary reinforcement of the bank's credit and of its loanable resources. Nowadays, a responsible bank management would hesitate long before breaking into the rest in order to maintain a given rate of dividend. To break into the rest for any purpose is looked upon as being only less serious than wiping out part of the capital itself.

This change in sentiment has had the effect of making the rest almost as sacred as the capital, so it has been necessary in order to guard the established dividend rates, and to be ready for an evil day, to provide secret reserves, and to build up the profit and loss balance. One of the ablest and most experienced general managers, in a recent annual address, spoke on this subject as follows:"We think it wise to keep a substantial amount in profit and loss account, an amount which we think sufficient to provide for any reasonable contingency. A large balance at the credit of profit and loss account is a more desirable and available reserve and a greater protection to shareholders than the same amount in rest account."