One of the most notable documents ever issued from the Comptroller's office was a circular letter addressed by McCulloch, in 1864, to the managers of national banks. This circular contains so many excellent suggestions and is so replete with wholesome advice in regard to sound banking methods and management that it can be very profitably read and closely followed by many bankers of the present day, as a safe guide in the conduct of their banking business.
The following are some of the salient features of this circular:
The business of a bank should be carefully and promptly conducted. The books at the close of each day should exhibit the amount of cash on hand, and the exact condition of the bank. In large banks all the books should be balanced daily. In small banks, weekly, or oftener; and as often as every quarter a careful examination of its affairs should be made by committees of the directors appointed for this purpose, and a report of the result of these examinations entered upon the minutes.
The officers of the bank, other than the president, should be appointed to hold their office during the pleasure of the board, and bonds should be executed accordingly. This will obviate the necessity of requiring annual bonds from these officers, and will prevent the occurrence of a time when they will not be under bond. Presidents being annually elected or appointed will, of course, be required to give annual bonds, and whenever an official is reappointed a bond should be required of him.
No loans should be made that are not secured beyond a reasonable contingency. Nothing should be done to foster and encourage speculation. Facilities should be given only to legitimate and prudent transactions. Discounts should be made on as short time as the business of the customer will permit, and payment of all paper at maturity should be insisted upon, no matter whether the bank needs the money or not. A note or a bill should never be renewed merely because the bank may not know where to place the money with equal advantage if the paper is paid. In no other way can the bank properly control the discount line, or make it at all times reliable.
Distribute the loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious and frequently unsafe. Large borrowers are apt to control the bank, and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer. Every dollar that a bank loans above its capital and surplus it owes for, and its managers are therefore under the strongest obligations to its creditors, as well as to its stockholders, to keep its discounts constantly under its control.
A bank should treat its customers liberally, bearing in mind that it prospers as its customers prosper, but the customers should never be permitted to dictate its policy.
If the propriety of discounting an offering is doubted, give the bank the benefit of the doubt and decline it. If the bank has any reason to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. The risk in such cases is greater than the profits.
In business, know no man's politics. Manage the bank as a business institution, and let no political partiality or prejudice influence your judgment or action in the conduct of its affairs.
Pay the officers such salaries as will enable them to live comfortably and respectably without stealing, and require of them entire services. If an officer lives beyond his means, dismiss him, even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. A man cannot be a safe officer of a bank who spends more than he earns.
The capital of a bank should be a reality, not a fiction, and it should be owned by those who have money to lend, and not by borrowers.
Every banker under the national system should feel that the reputation of the system, in a measure, depends upon the manner in which his particular institution is conducted, and that, as far as his influence and his management extend, he is responsible for its success. It should be the chief aim, therefore, of the managers of the banks, to make their respective institutions strong, not only to keep their capital from being impaired, but gradually to create a surplus that will be a protection to their capital and to their creditors in the trying times that will sooner or later happen to all banking institutions. There are few items that will have a better look upon the balance sheet, and none that is better calculated to give aid and comfort to the managers of a bank, and to secure for it the confidence of the people, than a large surplus fund. Create, then, a good surplus, if even for a short time the stockholders have to be kept on short commons in the way of dividends to do it.
Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done under the National Currency Act. "Splendid financiering" is not legitimate banking, and "splendid financiers" in banking are generally humbugs or rascals.
If the rules laid down by McCulloch in this circular were strictly followed by bank managers, bank failures would be few and far between and losses to depositors and stockholders would be reduced to a minimum.