Banking company

“ Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from those rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous and frequently fatal to the banking company which attempts it. ”

“ A. I am quite convinced of that, if only for one reason, that I do believe the indiscriminate granting of credits to the individual is injurious to himself, the private bankers being too much in the habit of regarding old family associations and not so careful as the joint-stock company would be, and he has accustomed people to trade on the credit that they get from the banker. I do not think that is banking business. The bank ought never to supply the trader with working capital. ”

“ If bonds were to be sold, it might act as financial agent to market them. If it bought them itself, it would lock up its capital and become a canal or railroad company, not a bank. It might make temporary advances before stocks were sold or taxes collected; but if the bank was to stay sound, these must run but a short time and payment must be strictly secured. If banks were used otherwise than in these limits, they and the improvements must all fail together. This is what happened. The Bank of the State engaged at once in a supply of capital for speculative operations at Alton. ”

“ Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. ”

“ Now, this institution is not a 'bank,' by which term, in an unqualified presentation of it, is meant a bank of the ordinary kind. It is a Bank for Savings only. But if it still be a tank, that is to say, a common repository for people's money, having a bench or counter,-it is assuredly not a bank 'engaged in the business of banking.' The business of banking consists in buying, selling, and discounting commercial paper, with or without collaterals; in issuing notes; in making collections, and in receiving deposits of money and in paying them out on check, at call. ”

“ Among private people they are the principal depositors in the Bank; they are therefore particularly interested in its stability; they are especially interested in the maintenance of a good banking reserve, for their own credit and the safety of their large deposits depend on it. And they can bring to the court of directors an experience of banking itself, got outside the Bank of England, which none of the present directors possess, for they have learned all they know of banking at the Bank itself. ”

“ Commercial banks rarely confine themselves exclusively to the conduct of exchanges. Most of them also conduct savings departments and invest the funds intrusted to them through such departments in agricultural, industrial, or [Pg 7] commercial enterprises or loan them to public corporations. Commercial banking, however, is their main concern, their other departments being side issues of greater or less importance according to circumstances. Investment banks also frequently carry on commercial banking as a side issue. ”

“ In 1832, Lord Overstone observed:—'I think that joint stock banks are deficient in everything requisite for the conduct of the banking business except extended responsibility; the banking business requires peculiarly persons attentive to all its details, constantly, daily, and hourly watchful of every transaction, much more than mercantile or trading business. ”

“ Holding companies, which are probably the most prolific source of business iniquity and a curse to the country, generally will cease to mark American banking as a game of jugglery and sharp practice wherever the managers of double-headed or triple-headed banks are inclined that way. ”

“ Since there is no banking law banks, incorporated or private, are formed under the general corporation law, which limits the liability of the stockholders. Due to this condition, the national banks, being the more secure institutions, have preference over the State banks in popular confidence. ”

“ But apart from this obvious difficulty, can we contemplate with equanimity the prospect of the State monopoly of the ordinary banking facilities as they present themselves to the man in the street, namely, the provision of bank branches, the use of the cheque book, the custody of securities and any other articles that the customer wishes to leave with his bank? ”

“ I am sure that the days of small banks will before many years come to an end, and that the difficulties of large private banks are very important. In the meantime it is very important that large private banks should be well managed. And the present state of banking makes this peculiarly difficult. The detail of the business is augmenting with an overwhelming rapidity. More cheques are drawn year by year; not only more absolutely, but more by each person, and more in proportion to his income. ”

“ A national bank can 'exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt ”

“ We have witnessed not only the unrestrained use of bank deposits in speculation to the detriment of local credit, but we are also aware that this speculation was encouraged by the government itself. I propose that such speculation be discouraged and prevented.
Investment banking is a legitimate business. Commercial banking is another wholly separate and distinct legitimate business. Their consolidation and mingling are contrary to public policy. ”

“ If the great Bank secured through its branches, as it appears to have done, all the internal exchange business of the entire country, it would indeed, by promising to pay everything, never need to pay anything, but settle the whole by bookkeeping balances. ”

“ Only by having banks which employ in loans a part of depositors' capital lodged with them, can the best interests of the whole people be served, even if this entails something less than an absolute certainty of power to liquidate deposits on demand. That banking system must then be best which combines equally the largest measure of each of two elements: the use in commerce of funds deposited, and the certainty of paying depositors in money on demand. ”

“ Competition among banks exists at every level price, variety of credit arrangements, convenience of location, attractiveness of physical surroundings, credit information, investment advice, service charges, personal accommodations, advertising, miscellaneous special and extra services-and it is keen; on this appellees' own witnesses were emphatic. [45] There is no reason to think that concentration is less inimical to the free play of competition in banking than in other service industries. ”

“ As some philosopher once said of God—if such an institution did not already exist, people would certainly have to invent one, and, as we have no such institution permanently and legally established in America to-day, the prime essential of any sufficient banking plan is the equipment of our system in some way or other with the facilities of a bankers' bank. ”

“ The business of banking, including all the operations which distinguish it, might be carried on under state laws, either by corporations or private persons, and capital in the form of money might be invested and employed by individual citizens in many single and separate operations forming substantial parts of the business of banking. ”

“ In fact, every banking association is assumed to be a corporation of money lenders. Under ordinary circumstances this corporation is able to loan to individuals whose credit is good all of its capital not otherwise employed in the machinery of the bank, a considerable portion of deposits from its customers, and to a certain extent its own credit in the commercial world. In the case of a national bank a portion of capital is loaned to the government in the purchase of bonds, which are the basis of its circulating notes. ”

“ The banks put up their capital as an insurance fund, to protect their customers, and should handle their resources, and should keep such an amount of reserves on hand or at their command as to guarantee the payment of all depositors upon demand, or in accordance with their contracts. Since the banks, commerce and the people are all bound up together, the contracts of the banks with the people should take one common form, and each bank, from one end of the country to the other, should be compelled to assume its proper share of the burden, both as to paid-up capital and as to reserves. ”

“ The result to the public is about the same in both cases; the bank has little or no specie, and its place is supplied by the notes of other banks. The great vice of the banking system in the United States is in banking upon paper—upon the paper of each other—and treating this paper as cash. This may be safe among the banks themselves; it may enable them to settle with one another, and to liquidate reciprocal balances; but to the public it is nothing. In the event of a run upon a bank, or a general run upon all banks, it is specie, and not paper, that is wanted. ”

“ It should endeavour not to interfere in any business for which banks and banking houses now provide facilities, and it should try to promote working transactions on joint account with other banks, and should invite other banks to submit to it new transactions which, owing to length of time, magnitude or other reasons, they are not prepared to undertake alone. ”

“ Each bank is seeking, through its branches, to satisfy all the legitimate needs of the people for a circulating medium. When the note of a bank is in circulation it is earning money for the bank, but when it is in the vault or on the counter of the bank it is an idle and useless piece of paper. Hence every bank always pays out its own notes through its branches and sends the notes of other banks in for redemption, thus increasing its own circulation and strengthening its own reserve. ”

“ If, on the other hand, his business is unexpectedly large, giving opportunity to make bigger profits and creating the need for more capital, he will find the bank ready to increase his line of credit, provided the manager is satisfied that business conditions and prospects warrant expansion. Under no circumstances, however, must the customer of a bank seek to raise funds elsewhere unless he first gets the consent of his bank. If he sells his notes in the open market, he must do it with the [Pg 429] full knowledge of his bank or run the risk of being placed upon the "black list." ”

“ 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. ”

“ Commercial banks can and do discourage certain types of enterprises by refusing loans with their securities as collateral, or by requiring very heavy margins with such loans, but even these may be developed, and are with us on a large scale developed, on banking credit, advanced by the speculators and private bankers who borrowed it from the commercial banks with other securities as collateral. ”

“ But the massing of this power in a few vast, centralised units has been a development of the last ten or fifteen years only. That is, it has been coincident with the development of trusts and combinations. Big Business and Big Banking have gone hand in hand. Each has made the other possible. By law a bank cannot loan more than one-tenth of its capital and surplus to any one customer. But the customers have grown into behemoths. ”

“ The most obvious function of the joint-stock banks of England is the business of taking care of money for customers and meeting cheques drawn against their balances. Customers place money with them either on current or deposit account. ”

“ They include not only moneys invested in private banking, properly so called, but investments of individuals in securities that represent money at interest and other evidences of indebtedness such as normally enter into the business of banking. ”

“ An officer of a bank there asserts that banking in the north coast countries is not to any great extent a matter of handling currency or money funds. The intermediary system of brokers, merchants, and other middlemen between the producer and his market, to which we are accustomed, is lacking, and the banker must take the place of all of them. ”

“ In Chapter II, on the choice of a banker, an attempt was made to show why a customer should select a strong institution whose working resources are plentiful, and whose reserve of liquid assets is large enough to enable it to meet a drain of deposits during a run or a panic. The shareholder who guarantees the customers of a bank against loss to a limited extent will naturally take care that he is a partner in a company which maintains an adequate reserve of cash and securities as an insurance fund against those accidents which are quite beyond the control of the most able board of directors. ”

“ Apart from this danger of the over-multiplication of credit on an inadequate cash basis, the complete absence of any legal or other restrictions on the operations of English banking enables it to work with extraordinary ease and readiness. As long as good unpledged security, whether in the form of bills of exchange, commodities, or Stock Exchange securities, are [Pg 455] available in the hands of customers the banks can advance against them to any extent that they consider prudent. ”