For reasons that have been stated elsewhere, every bank constantly strives to increase its deposits and thereby to enlarge its loaning capacity, Various methods are employed to obtain and increase de-posit accounts. Mention has been made of the growing practice of paying interest on deposits. Not the least val uable service rendered to the depositor is the collection of his checks, drafts and other items of credit. Again, banks are naturally disposed to lend to depositors on more advantageous terms than to casual customers; the latter will be required to furnish satisfactory collateral security while the former may, possibly, borrow on his personal credit. This preference in favor of the regular depositor is of the greatest importance when in times of "tight" money or panic all banks are refusing loans except to their own depositors.
In former times it would have been thought undignified for a first-class bank to solicit accounts or even to advertise in the papers and journals. Under the stress of keen competition, however, even the most powerful and conservative banking institutions now use every honorable means of building up their business, and many of them employ representatives to solicit deposit accounts. By means of letters, booklets and advertisements calling attention to particular advantages and services of the bank, appeals are made for patronage. One bank may have developed a strong bond department, whose officers are always ready to advise with patrons as to the purchase or sale of stocks and bonds; another bank may emphasize its foreign business, the purchase and sale of foreign bills of exchange and the issue of letters of credit; still another may emphasize its superior facilities for handling promptly commercial drafts and documented bills.
Though banks generally are eager to secure new customers and to increase their total deposits they are giving increasing attention to the cost or profitableness of their accounts. Cost accounting holds just as essential a place in the banking business to-day as in a manufacturing plant. Some of the services which the modern bank under the stress of competition extends to its customers have already been noted and others will be stated more fully in connection with collections and loans. In general it may be said that a profitable account is one which yields in the form of interest on loanable funds more than the cost of carrying the account. Various methods have been devised to distribute to the depositors the expenses of running the business. These expenses when balanced against the average deposits provide a basis for determining the value of individual accounts.1
A bank may have a customer who deposits a very large number of small checks, the recording, handling and collecting of which involves more time, labor and expense than large deposits. In such case the customer may be required to keep a large balance in the bank to compensate for the heavy expense involved in carrying the account. Some banks have a rule requiring depositors to keep an average deposit of at least $500 or $1,000 or even a larger amount. It may happen that a particular account is of itself unprofitable to the bank, yet it may be good business to carry it because of the influence that particular patron may have upon other depositors whose accounts are profitable. Accurate knowledge of the cost of active accounts is valuable to the bank as it furnishes an important guide in extending loan accommodations. Thus a customer whose balance is always large and who draws or deposits comparatively few checks may properly expect to borrow funds from the bank on more favorable terms than the firm which keeps a small or fluctuating balance and deposits a multitude of checks, drafts and other items for collection.
1 For methods of determining the value of accounts, see Patten: Modern Banking Methods, p. 139; also, Moxey: Practical Banking, p. 143.