Banks

“ Modern banks are banks of ‘deposit and discount,’ for though all loans made by banks are not in the form of discounts, the word is used in this connection to embrace all its loans. The advantage to society from banking operations consists in centralizing credits. The banker collects the money and wealth which would otherwise lie idle, and brings it into use. Through his agency, wealth which would lie idle and unproductive becomes useful and productive. ”

“ The banks in consequence have less to lend to the brokers, who are then bound to apply to the Bank of England, which compels them to discount their bills at its own terms, and the rate in the outside market, of course, advances. ”

“ Within the past twenty-five years there has grown up, almost as if by magic, the class of banks you have just mentioned, differing from State banks and State Savings banks only in one single respect, but that is an all-comprehending one. ”

“ The banks bought, say $100,000 of United States bonds from the Government for $60,000. These bonds they deposited with the treasurer, and the people were required to pay $6000 a year interest on them, while the banks received from the Government $100,000 in national bank currency with which they were set afloat. These notes were loaned to the people, who again paid an interest on the same capital of $6000, or 20 per cent. per annum—$12,000 on $60,000; and yet the bank men have made the people think that they are offering them great accommodations. ”

“ The unique powers of commercial banks to accept demand deposits, provide checking account services, and lend against fractional reserves permit the banking system as a whole to create a supply of 'money,' a function which is indispensable to the maintenance of the structure of our national economy. ”

“ Banks supply two kinds of currency, viz. bank notes—which are money; and bank deposits (or rights to draw) —which are not money. (2) A bank check is merely a certificate of a right to draw. (3) Behind the claims of depositors and note holders stand, not simply the cash reserve, but all the assets of the bank. (4) Deposit banking is a device by which wealth, incapable of direct circulation, may be made the basis of the circulation of rights to draw. ”

“ The introduction of banks, which perform the function of lenders and loan-brokers, with or without that of issuers of paper-money, produces some further anomalies in the rate of interest, which have not, so far as we are aware, been hitherto brought within the pale of exact science. ”

“ The later introduction of Banks brought along with it the custom, now continually widening in commercial countries among all classes of the people, of keeping one's funds with some banker, and making payments by written orders or cheques upon him. When the person making the payment and the person receiving it keep their money with the same banker, there is no need of any money at all passing in the premises, the sum being merely transferred in the banker's books from the credit of the payer to the credit of the receiver. ”

“ So the banker 347gets something for nothing, and the borrower pays for that which he never receives.”
Banks are run on the deposits, rather than on any capital the banker himself may have. The patrons of the bank furnish the capital, and also the security. The banker lends other people’s money to other people; on this he draws interest; he conducts his business on your money and his credit, which you furnish him. ”

“ Under every system of banking, whether that in which the reserve is kept in many banks, or one in which it is kept in a single bank only, there will always be a class of persons who examine more carefully than busy bankers can the nature of different securities ”

“ Since, however, almost all the money can be used as bank reserves, even national bank notes being so used by state banks and trust companies, the proportionate relations between money in circulation, money in reserves, and bank deposits will hold true approximately as the normal condition of affairs. ”

“ Origin of banks.—Attention has been called to the banks of the country as a most important part of the machinery of exchange. It is proper to describe more fully the nature of the machine and its operations. A clear understanding of the character and process of banking on the part of all the people both extends its influence and diminishes its dangers. Banking, like everything else in civilization, has had a natural growth. ”

“ What you have said about one bank in a town is equally true of two, three or four, or any number of banks, if you assume that every person in town does his entire business through the banks, providing, of course, that the banks get together, and offset all the checks and drafts they receive during the day. ”

“ We are studying in order the forms of commercial Credits, and we have now come to that one which is central in the operations of Banking, and accordingly this is the place for us to understand clearly what a Bank is, who a Banker is, and what are the motives actuating at once the Banker and his Customers. A Bank is an institution for the Creation, Management, and Extinction of Credits. Money of any kind plays a very subordinate part in the general operations of banks, which live and move and have their being in the sphere of pure Credits. Bankers are buyers and sellers of credits. ”

“ For the assets side shows that the banks hold 43 millions in cash and at the Bank of England, 48 millions in investments, and 6 millions invested in their premises—the buildings in which they conduct their business—and that 180-1/2 millions have been lent by them to their customers, either by the discounting of bills or by advances to borrowers, or by loans at call or short notice. ”

“ Banks are usually created for the purpose of making loans, and this in a medium, in theory at least, equal to money; not for the purpose of borrowing, or of raising means to eke out their daily existence by selling off their securities or their own paper. ”

“ While allowing that the great majority of our banks are prudently managed, it must be granted that banking history is a remarkably stormy one, though it is equally true that the surface of the waters has been but little ruffled during recent years ”

“ Through their connections with one another, the banks formed a perfect network of agencies gathering up the pennies and dollars of the masses as well as the thousands of the rich and pouring them all into the channels of business and manufacturing. ”

“ Although I have represented this species of banks, which I shall call banks of circulation upon mortgage, as peculiarly well adapted to countries where industry and trade are in their infancy, their usefulness to all nations, who have upon an average a favourable balance upon their trade, will sufficiently appear upon an examination of the principles upon which they are established. ”

“ Seeing that the banks themselves discount trade-bills for their customers, the necessity of a middleman or bill-broker between the person who discounts a bill and the banker who supplies the capital is not very apparent, but the broker’s “turn,” when he re-discounts with the banks, is extremely small ”

“ The country banks lend their surplus resources in the form of deposits at interest to the banks in the larger cities, and the banks in the principal money centres commonly expand their credits as much as practicable by lending on call such sums as they deem it unsafe to lend on time or by discount of commercial paper. ”

“ Banks which hold the public money are often tempted by a desire of gain to extend their loans, increase their circulation, and thus stimulate, if not produce, a spirit of speculation and extravagance which sooner or later must result in ruin to thousands. ”

“ Thus he can apply far more directly than the manufacturer or railroad manager the economies and efficiencies of Big Business.
Banking—the business of dealing in money and credit—is the most logical of trusts. And in practice it has justified the theory. Where banks have become larger they have become stronger, where co-operation and concentration have gone far, there safety and effectiveness have reached a high pitch.... Banking is the one central business of all—it is the business of businesses. ”

“ Bank Loans Related to Currency and Loan Funds.—And note now that it is precisely because the business of a bank [Pg 138] is to furnish to its borrower a present purchasing power for his own use that the business of banking becomes the source of the larger part of the circulating medium of society. In their service to their customers the banks create currency; and in creating currency they create loan funds which, in the hands of the holders of them, are available like other currency for any purpose, either lending or other. ”

“ Six per cent. of the profits are to be paid semi-annually to the State as a tax, the interest on the bonds deposited not to count in the profits; no bank to circulate any notes which are not at par, nor any notes of any bank outside of the State for less than $5. Specified banks may come under this law and retire their old circulation. ”

“ Was there ever such an autumn? And yet there was never such a panic and hard times in the commercial world. The merchants and banks are failing all the country over, but not the sand banks, solid and warm, and streaked with bloody blackberry vines. You may run on them as much as you please, even as the crickets do, and find their account in it. They are the stockholders in these banks, and I hear them creaking their content. ”

“ The bank is as necessary to the thrifty farmer as it is to the greatest railroad or the most wide-spread trust.
Banks are depositories for money not in circulation.
Banks have facilities for the safe-guarding of money which the ordinary business man could not provide for himself. ”

“ It is our contention [422] that deposits made in banks very greatly overcount trade.
Deposits made in banks include taxes and other public revenues; they include loans and repayments, and interest-payments; they include gifts and benevolences, money sent by parents to children away from home, pensions, payments of insurance losses, annuities, dividends on stocks, payments to and from savings and loan associations, fines, contributions to churches, and other non-commercial organizations, etc., etc. None of this represents trade. ”

“ The third thing which I pointed out as necessary to lay the foundation for sound business and prosperity is a well-regulated and safe banking system, as a depository of business funds and a machinery for business exchanges. How supremely important a part of our economic organism banks have become I need not explain. ”

“ Undoubtedly our people pay by check much more commonly and much more largely than people of any other country. We settle smaller transactions by check; our banks are willing to carry smaller accounts. Indeed, the rapid industrial development of our country is probably due [Pg 154] in no small degree to our system of independent banks and the facility with which we have permitted banks to be established. ”

“ Bank described.—A brief description of the most modern form of banks under state or national restrictions will help to understand how these institutions serve the world of commerce.
In simplest terms, a bank is a company founded for the sole purpose of dealing in coin and current certificates of credit of every form, the prime object being the convenience of people in making exchanges of any kind. Sometimes a bank is called upon simply to make change, or, as we say, to break a valuable coin or a bill of large denomination into smaller pieces. ”

“ The State legislatures should be immediately urged to relinquish the right of establishing banks [383] of discount. Most of them will comply, on patriotic principles, under the convictions of the moment; and the non-complying may be crowded into concurrence by legitimate devices. ”

“ Besides the two essential functions of all banks, namely, the receiving of deposits and the discounting of bills, most of them perform a variety of other legitimate operations in Credit, which must be classed among the advantages of Credit. They buy and sell debts of all sorts. They make collection of debts for their customers. They sell their own drafts on distant places. ”

“ In the small country towns, however, the banks’ rates are higher, but then, of course, the paper they discount there is not of the same class; and a capitalist, be he a money-lender or a banker, raises his rate in proportion to the risk he runs, the one thinking a bill so doubtful that 100 per cent. ”

“ Intoxicated by this pecuniary nectar, the fortunate, those privy to the secret, try to raise more capital by hunting for financial instruments they can convert to cash in Western banks. A bank guarantee, a promissory note, a confirmed letter of credit, a note or a bond guaranteed by the Central Bank - all will do as deposited collateral against which a credit line is established and cash is drawn. ”

“ Just as an individual bank economizes and mobilizes and makes flexible in amount the funds of individual members of a community, so a bankers' bank mobilizes and economizes and makes flexible in amount the money of the banks. ”

“ Their interests are not limited to the banking business. They have affiliations with great transportation companies and manufacturing interests, and therefore control large bank deposits everywhere that the banks want and are always working to get. ”

“ By compelling the Bank of England, and all other banks, to hold constantly in their coffers a vast amount of treasure, which must be issued at a fixed price, it leaves them no resource for defraying its charges but pushing business, and getting out their notes to the uttermost. ”