As previously stated the main function of the commercial bank is the buying of deposits and the selling of credit in the form of loans. Making loans through the purchase or discount of commercial paper is the chief business of the bank and the one that makes money for its owners, but the bank's loanable funds come mainly, not from its own capital, but from funds deposited by its customers. These funds also supply the basis for deposit currency with which the great bulk of our business exchanges and transactions are carried on.
Bank deposits are of two general kinds - special and general. Special deposits consist of money, bonds, jewels, anything of value left with the bank for safe-keeping. General deposits consist of money or the right to receive money. Legally the relation created between the bank and the customer by a general deposit is that of debtor and creditor. The bank in accepting the deposit contracts to pay the debt or any part of it on demand, or in the case of a time deposit on or after a stipulated time. On the other hand the title to a. special deposit does not pass to the bank, but remains in the depositor. It has been held that a bank is bound to exercise only reasonable care in protecting a special deposit, the same care as in protecting its own securities; but greater care must be exercised if it accepts a consideration for keeping such deposits.
Many banks now provide safe deposit vaults in which boxes are rented to customers for the safe-keeping of securities, wills, deeds, jewels and other valuables. Not only is this a direct source of profit to the bank, but it also brings customers into touch with the bank and its officers and thus leads them to open savings and commercial accounts with these departments of the bank.
The general deposits of a bank come from various and varied sources. In these days every business man keeps an account at a bank. It provides credit facilities which he cannot do without. He deposits the cash received from day to day: " cash items," that is, checks, drafts and bills of exchange which the bank collects for him; and he sells to the bank promissory notes and acceptances, received in the course of business transactions and usually discounted and deposited to his credit. Deposits flow in from corporations of all kinds in the same way. Many persons who are not engaged in active business keep "accounts" at the bank. More and more, too, people of smaller means are finding it advantageous to deposit their salaries, wages, or other income and check upon their deposits in payment of their bills. Banks in the larger financial centers, especially in New York, get a large volume of deposits from banks in smaller cities. These "country" banks keep "accounts" in New York for two reasons: first, in order that they may meet the demands of their customers for bank drafts or "exchange;" second, because they cannot always lend their funds at home and the banks of the large centers pay them a small rate of interest. The banks of New York especially can afford to pay interest on "bankers' balances" as they can lend these funds on call to brokers and others engaged in stock transactions. Finally, many national banks receive deposits, temporary or permanent, from the United States Government. Banks receive deposits also from other public sources - state governments, municipalities and school districts.
Because a bank's loaning capacity, and consequently its earning power, depends largely upon its deposits, it is always striving for more customers and larger deposits. In the better type of bank, however, close attention is given to the character of its customers and the probability of profit from their accounts. Usually a person wishing to open a general deposit account with a bank, unless he is personally known to the officers or is introduced and recommended by another customer of the bank, should present letters testifying to his character and financial reliability. In some banks, each new customer is required to fill out a blank giving his name and address, his business and its location, and the names of his sponsors. He writes his signature in one or more books kept for the purpose or on a signature card which is filed so that his signature upon checks, notes and other instruments that will be presented for payment may easily be verified.