Sometimes two parties, who keep different bankers, will adopt a practice of exchanging cheques. Their cheques are paid into the banks too late to be cleared on the same day; and hence the parties' accounts appear better the next day than they otherwise would be. Some failing parties, too, have recourse to forged or fictitious bills, which they put into circulation to a large amount. The best way for a banker to guard against loss from this practice is, to inquire in all cases about the accepters of the bills that he discounts, not only when his customers are doubtful, but even when they are deemed respectable. Indeed, it is only people in good credit that can pass fictitious bills.
The banker's rule is, that they who have discounts must keep a proportionate balance: this is useful, as the amount of balance kept is an indication of the circumstances of the party. "When a customer has heavy discounts, and keeps but a small balance, it may usually be inferred that he is either embarrassed in his affairs, or he is trading beyond his capital.
The operation which is called "nursing an account," sometimes requires considerable prudence, tact, and perseverance. A banker having made considerable advances to a customer, suddenly discovers that the party is not worthy of the confidence he has placed in him. If these advances should be called up, or discontinued, the customer will break, and the banker sustain loss. The banker must be governed by the circumstances of each case. It is sometimes best to continue to discount the good bills, and refuse those of a different character; and thus time Gilbart wrote, and are less liable to become void. It is, however, unwise, in most cases, to advance more than the surrender value of the policy, which in ordinary cases is from one third to two thirds of the amount of the premiums paid.
1 The evil effects of the weakness here alluded to have been very forcibly emphasized by the failures of the City of Glasgow Bank and the West of England Bank in 1878, both disasters having been brought about by the pernicious habit of "nursing" irredeemably bad debts.