Banking Principles And Practice Book

Banking Principles And Practice Book
  • Page 1

    BANKING PRINCIPLESAND PRACTICEByRAY B.WESTERFIELD, Ph.D.Assistant Professor of PoliticalEconomy, Yale University;Secretary-Treasurer,AmericanEconomic AssociationIN FIVEVOLUMESVOLUME IIIDOMESTICBANKING—CASHANDDEPOSITOPERATIONSNEW YORKTHE RONALD PRESSCOMPANY1921

  • Page 2

    Copyright, 1921, byThe Ronald PressCompanyAll RightsReserved

  • Page 3

    CONTENTSVOLUMEIII—DOMESTICBANKING—CASHANDDEPOSITOPERATIONSChapterPageXXVIIBank Administration —Shareholders and Directors511The Management ofaBankThe Shareholders ofNational BanksShareholders' MeetingsShareholders' Rightsand LiabilitiesElection ofBoard of DirectorsLegal QualificationsofDire...

  • Page 4

    IVCONTENTSChapterPageSignatoryAuthority ofCorporationsand PartnershipsAccount ofDeceased DepositorsTrustee's, Joint, and Other AccountsCertificationDepartment—Function and OrganizationOutstanding CertifiedChecks and IdentificationReceiptSystemPrecautions inCertifyingChecksDay Loansand Overcerti...

  • Page 5

    CONTENTSChapterPageReturnsClearingHouse Returns—Special DepositsCash Item ProofDuties of theCoupon CollectionDepartmentSorting and Recording theCouponsCollection ofCoupons and Departmental ProofXXXIVClearingHouses626Definition of ClearingHouseTermsThe Place ofClearing and ItsEquipmentAdministra...

  • Page 6

    VICONTENTSChapterAdvantages of the FederalReserve CollectionSystemOpposition toFederalReserve CollectionSystemThe Universal NumericalSystemXXXVIIThe TransitDepartmentPage686GeneralFunctionsandOrganizationoftheTransitDepartmentCollection ofCash Items—Work ofNight ForceCollection ofCash Items—W...

  • Page 7

    CONTENTSviiChapterPageMethod ofUsing Letters ofCreditMethod ofUsing Travelers'ChecksLetters ofCredit Issuedby ForeignBanksRecords of theDepartmentXLThe General Bookkeeper'sDepartment...746Importance ofBank BookkeepingDevelopment ofAccountingMethodsClasses ofRecordsOrganization of theGeneral Bookk...

  • Page 8

    FORMSAND ILLUSTRATIONSFigurePageio.IdealChart ofTypicalBank Organization538,53911.Paying Teller'sProof'54912.Deposit vSlip57013.Second Teller'sProof57414.Rack Proof forCash Letters57915.A.M. AssemblyRack Proof58216.Mail Teller'sSectional Proof584, 58517.Fourth Teller'sProof58618.Check Clerk's Sec...

  • Page 9

    Banking PrinciplesandPracticeVOLUME IIIDOMESTICBANKING—CASHANDDEPOSITOPERATIONS

  • Page 10

  • Page 11

    CHAPTER XXVIIBANK ADMINISTRATION—SHAREHOLDERSANDDIRECTORSTheManagement ofaBankWith theexception ofcertainprivatebanks, banks ingeneralarecorporate institutionsand as suchhave a representativeformofgovernment.The source ofauthorityand control istheowners—the shareholders;they electa board ofdi...

  • Page 12

    512DOMESTICBANKING—CASH AXD DEPOSITSships.Another officerappearing inbank administration isthecomptroller.Although hisposition isnot yet standardized, hegenerally dividestheexecutivework of thebank with the cashier,handling the personnel, auditing,planning, etc.The above officers constitute the...

  • Page 13

    SHAREHOLDERSAND DIRECTORS513cipal items isindicatedon the following chart forquinquennialperiods:Growth of CapitalizationofNationalBanks(Amounts, except forthenumber of banks, inthousands)Date

  • Page 14

    514DOMESTICBANKING—CASHAND DEPOSITSwhich requirestheconsent ofthe shareholders, theirassent,un-lessunanimous,must be given ata dulyconvened meeting.Itdoesnot suffice,exceptby specificprovision ofstatute or charter,toget the assent inwriting ofshareholdersowning enough stockto pass the action;no...

  • Page 15

    SHAREHOLDERSAND DIRECTORS5*5statesuperintendent ofbanks)and areexecutedby the receiverappointedby him; insome statesthe creditorshave the right tosue.The Comptroller's decisionthat it isnecessary toenforce theliability isconclusiveandmay not be questionedby a stockholder,nor does the right to sue...

  • Page 16

    516DOMESTIC BAXKIXG—CASHAND DEPOSITSElection ofBoard ofDirectorsAmong themost importantpowers oftheshareholders istheelection of the board ofdirectorswho manage the affairsofthebank.These are electedannually atwhat iscommonly calledthe ''annual" meeting.The annualmeeting ofnationalbanksmus...

  • Page 17

    SHAREHOLDERSAND DIRECTORS517fivemembers, but nomaximum number isfixed;banks, especiallytheones inlarger cities,havemany more than five,thepurposebeing togetamore representativeboardand secure a largergood-will inthecommunity.The directors are elected attheannualmeeting fora term ofone yearand unt...

  • Page 18

    518DOMESTICBANKING—CASH AND DEPOSITSthelaws ofa state,having deposits,capital,surplus,and un-divided profitsaggregatingmore than $5,000,000 iseligibletobe adirector inanybank orbanking association organized or operat-ingunder thelaws oftheUnited States.A statebank or trustcompany which hasbecom...

  • Page 19

    SHAREHOLDERSAND DIRECTORS519at its discretion, to grant,withhold, orrevoke such consent,andthe authority requires ittodefinewhat constitutes substantialcompetition.Anotheramendment permitsany directororother officer,agent, oremployee ofanymember bank,with theapproval oftheFederal Reserve Board, t...

  • Page 20

    520DOMESTIC BANKING—CASH AND DEPOSITSSelectionand Services of DirectorsThe directorsareput under oath to administer diligentlyandhonestly the affairsofthebank and tobe qualified.These oathsaresent to theComptroller of theCurrency and filed.A director isnotan agent of thebank;he cannot actsepara...

  • Page 21

    SHAREHOLDERSAND DIRECTORS521influence inthecommunity or of large capitaland business con-nectionstand a good chance of electionbecause ofthe businesswhich they willpresumably bring to thebank.It ishighlyim-portant thatthe directorsbemen ofgood financialrecordandpossessed of conservative business ...

  • Page 22

    522DOMESTIC BANKING—CASH AND DEPOSITSmanagement ofthe bank; thisexceeds the directors' authority.It isalways held that themaking of loansand discounts isaninalienable function ofthe directors,which cannotbe conferredupon officersbecause it isso vitalto thebank.The officermaynot make loansand di...

  • Page 23

    SHAREHOLDERSAND DIRECTORS523such favoritism isdangerous tothebank.Insome statesa loantoa director isprohibited;but thisprohibition isoftenevadedbya loan toanother person fortheuse ofthe director;such evasionisnot necessarilyunlawful,although thepurposed destination ofthe fundsmay beknown.The dang...

  • Page 24

    524DOMESTICBANKING—CASHAND DEPOSITSThe directorsand officersmay do wrongful thingsfavoringthirdpartiesand bind thebank,provided the factsasactually orconstructivelyknown to the third partiesdidnot constitute noticetothem ofthe wrongfulness of the transaction.An officerclothedwith the indicia of...

  • Page 25

    CHAPTER XXVIIIBANK ADMINISTRATION—THE OFFICERSThe President—Powers and ResponsibilitiesThe president ofabank inalmost every case ischosenby theboard of directorsfiom theirown number.The nationalbanksarerequired to elect theirpresidents in thismanner.The presi-dent isindifferently called"...

  • Page 26

    526DOMESTICBANKING—CASH AND DEPOSITSofhisactsby the board, that is,from the usages ofthebank.His ex officiopowers are scarcely greaterthan those ofany otherdirector.As head oftheboard hemay bring suit inthename ofthebank,and insuits againstthebank legalprocessesmay beservedupon him,whereas serv...

  • Page 27

    THE OFFICERS527In theappointment ofa president there isno impliedpromisetopayhim and hecannot sue forpay forserviceson that score,anymore thanany other directorcan.Inany bank, however,which requiresthewhole ora goodly portion ofthe president'stime, itiscustomary topay him, hiscompensation ordinar...

  • Page 28

    528DOMESTICBAXKIXG—CASH AND DEPOSITSareelectedyearly,but thetendency istore-electthesamemen from year toyear and thus getcontinuity ofpolicyandpractice.The CashierThe officeofcashier ofabank differsradicallyfrom that ofother institutions.He isby lawand longusage an executive offi-cerwho conduct...

  • Page 29

    THE OFFICERS529The Powers ofCashierThe powers thathavecome by court decisionsandcommonusage to be regarded as inherent inthe cashier's officeincludethefollowing:1.To draw checks or draftsupon thefunds ofthebank de-posited elsewhere.Checks sodrawn areknown as " cashier'schecks''and arehighly ...

  • Page 30

    53»DOMESTICBANKING—CASHAND DEPOSITSQ.To make orsupervise the transfer ofthebank's shares ofstock.10.To buy orengage tobuy government securities.Besides hisinherentpowers the cashiermay have delegated tohim specialpowers; such delegation arisesby statute.or charterprovision,by action ofthe stoc...

  • Page 31

    THE OFFICERS531subordinates unless itcan be satisfactorilyshown that the defaultwas occasioned or facilitatedby hisimproper or negligent per-formance ofduty.He isbound to exercisethemost thoroughsupervision practicableconsidering theamount ofbusinessandthemethod ofdoing it;negligence in thismatte...

  • Page 32

    532DOMESTICBANKING— CASHAND DEPOSITSthenumber of theiremployees,may yet handle onlyone orafewoperationsbecause the actualvolume isso great.Other depart-mentsmay be smallbut handle a variety ofminor operations,highly responsible perhaps,but less regular ormore easily dis-posed of.Insome departme...

  • Page 33

    THE OFFICERS533ing tellerisvested thefunction ofaccepting depositsover thecounter.And so on.Out ofthe cashier'sgeneralauthority theright ofpayingand receiving areexceptedand delegated to thesespecialsubordinates of his.Some courtsargue that thisdelega-tionexcludes the cashierfrom the exercise oft...

  • Page 34

    534DOMESTIC BANKING—CASH AND DEPOSITSthe operations.Management has been a subject ofmuch discus-sionand experiment in recent years.Severalsystems ofso-called"scientificmanagement" have been devised.The principles ofscientificmanagement were firstapplied toproduction within afactory;mo...

  • Page 35

    THE OFFICERS535None ofthesefunctionalbossescomes into directcontact withtheworker at actual production.The production itself isdirectedby fiveother bosses:i.The gang boss,who gets the materials, etc.,tothema-chine.2.The speed boss,who seesthatproper tools,speed, etc.,are used.3.The inspector,who ...

  • Page 36

    53^>DOMESTIC BANKING—CASHAND DEPOSITSIn the present stage ofdevelopment thedepartmental schemeismore largelyused inbank management than the others, al-thoughsome applications oftheothertwo types arefound inter-mixedwithit.Functionalizationappearsinthepersonneldepartment, which ischarged with...

  • Page 37

    THE OFFICERS537department orfunctionby function,theaccompanying chart(Figure 10)willprove helpful.The organization isofno ex-istingbank,and isidealizedinmany respects.The chart isdiagrammatical, itspurpose being tohelp the reader grasp therelationships ofthe various officialsand employees,and oft...

  • Page 38

    538DOMESTIC BANKING-CASH AND DEPOSITSSENIORVICEPRESIDENTSSTOCKHOLDERSDIRECTORSCHAIRMAN OF THEBOARD OF DIRECTORSPRESIDENT

  • Page 39

    THE OFFICERS539JUNIORVICE PRESIDENTSVICE PRESIDENTFederalReserveDistsNos4,b,6VICE PRESIDENTFederal ReserveDists.Nos7,8,9VICEPRESIDENTFederalReserveDists Nos.IO.lt.'VICE PRESIDENTFiduciaryBusinessVICEPRESIDENTForeignTradeVICEPRESIDENTIndustrialService1CashierI1Comptroller|r1r-T—-jComptroller|1As...

  • Page 40

    540DOMESTIC BANKING— CASHAND DEPOSITSThe Managerial FunctionsFor purposes of claritythemanagerialand executory func-tions in thisideal organization areseparatedwithsomewhat moredistinctionthan isthe case with actualbanks.The managerialfunctions are carriedout through vice-presidents ofthe junio...

  • Page 41

    THE OFFICERS541The credit,service,and new businessdepartments aremoreintimately related to the vice-presidentsthan any other depart-ments, but the vice-presidentmay directlyask orrequireany otherdepartment to provide certaindata orperform certain services.The Executory FunctionsThe executory func...

  • Page 42

    CHAPTER XXIXTHE PAYING TELLERGeneral Duties and QualificationsThe paying teller isranked as "first" tellerofa bank.Thisrank isdue to thehigh responsibilitiesdevolvingupon his office.His prime duties are tokeep thebank's cashand pay itout overthe counter, but therearemany ancillary dutie...

  • Page 43

    THE PAYING TELLER543isa veryimportant personage in the bank.He and the receivingtellercome intomost intimate contact with the publicand withthe bank's customers, though thewindow men inother depart-ments, forexample, thediscount department, theloan depart-ment,thecustomers'securitiesdepartment,th...

  • Page 44

    544DOMESTICBANKING—CASH AND DEPOSITSbank forpayments over the paying teller'scounter.Some largebankshave relativelyfew countercustomers and thebig bulk oftheirdepositsandpayments istransactedby mailand throughthe clearinghouse.Of thissort isthe bank,which thistextseeksprimarily toportray,situat...

  • Page 45

    THE PAYINGTELLER545boxes containing $20, and pennies in50-cent rollsinboxes con-taining $10.Thisarrangement of billsand coins greatly facilitatesboththeproving ofthecash at nightand itspaying out during theday.A "vault book," containingan accurate record oftheentryand issueofcash iskept...

  • Page 46

    546DOMESTIC BANKING—CASHAND DEPOSITSPayments and Receiptsby Mail and ExpressThat part of thebank's mail relating topayments ofcash isturned over to the paying teller.Thiscomes from allparts ofthecountryand includesrequestsforpayments tobemade onaccount of the 5 per centredemption fund, transfer...

  • Page 47

    THE PAYING TELLER547currency isfilled inand signedby themessengerand his assistantswho handled it.Currency isreceivedby expressand registered mail.Thebank's organizationmay be such that thesepackagescome directto thepaying tellerorthrough thenote teller.Ifthecurrencycomes ineitherway to thenote t...

  • Page 48

    54«DOMESTICBANKING—CASHAND DEPOSITSthe clearing house.The federalreservebankmakes the settle-ment forthemember; incase ofa debitbalance itpays themoneyto the clearinghouseand charges themember's account,and incase ofa creditbalance receivesthemoney and creditsthemem-ber'saccount.Corresponding ...

  • Page 49

    THE PAYINGTELLER549changes tothepaying tellerand he receivesthe creditsfrom theclearinghouse.Allchecks receivedover the counter are classi-fied intothreegroups: (i)checksby domestic customers on thePAYING TELLER'SPROOFDate.Balance forwarded.Exchanges forClearingHouse..Morning additionsTotalamount...

  • Page 50

    550DOMESTICBANKING—CASH AND DEPOSITSThe Payment ofChecksAlthoughmany otherkinds ofitems arepaidby thepayingteller,the greatmajority are checks.The high responsibility ofthe paying tellerappearswhen he cashesa check.Against himare pitted the cleverestwiles of forgersand crooks.Afterpayingout cas...

  • Page 51

    THE PAYINGTELLER551signatures of allaccounts.These cardsnot only have on them thesignatures ofthe officersof thevarious concernswho are author-ized todraw funds,but shouldcontain alsothe followingdataconcerning theaccount:bywhom introduced,nature of business,when opened,and instructionsconcerning...

  • Page 52

    552DOMESTIC BANKING—CASH AND DEPOSITSwould make no payments on old checks unlesspassed upon by thecheck desk bookkeeperswho have notice ofstop-payments.Thestop-payment cards should contain a description ofthe check, itsdrawer,number, date,amount, payee, a statement ofwhether aduplicate has been...

  • Page 53

    THE PAYINGTELLER553theday ofpresentment or earlier;topay postdated checkswouldcurtail themaker ofthe privilege ofstoppingpayment.On theotherhand thepaying tellermust be watchful of "stale1'checks.The duty ofthebank to honor acheck isnot affectedby itsage, at least within the period oftheStat...

  • Page 54

    554DOMESTICBANKING—CASH AND DEPOSITSpassed over the counter.Some ofthebank's correspondentsenclose in their advices thewritten signatures ofthe parties inwhose names the drafts aredrawn; these signaturesand advicesgenerally reach thebank beforethe draftsare presented,andmuch time and trouble ar...

  • Page 55

    THE SIGNATURE DEPARTMENT555The restof thedepartment areengaged inproving signaturesonthevarious items sent inby otherdepartments of thebank.Thesignaturesare divided intosectionsfollowingthecheck deskledgers,and the clerks arerotated from section to section lest themonotony cause the clerk togrow ...

  • Page 56

    556DOMESTICBANKING—CASH AND DEPOSITSnatures offoreigners are best handledby a specializedsubdivisionofthe foreign division, forthelawand custom offoreigncoun-triesdifferwidely from domesticlawand custom and arebetterknown tothe foreign division.Routine ofWorkThe generalroutine ofthe signaturede...

  • Page 57

    THE SIGNATUREDEPARTMENT557properlyauthorized signatures.Authority isvested differentlyforeach kind ofaccount.Unless otherwise advised,thedepartment assumes thatthepresident,vice-president,and cashier ofa nationalbank haveunrestricted authority to transacttheordinary business of thebank.Ittherefor...

  • Page 58

    558DOMESTIC BANKING—CASH AND DEPOSITSitiswell for the signature department to procurenew resolutionsfrom the directorsandnew sets ofsignatures.With respect tostatebanks,trustcompanies,andsavingsbanks,thesameprocedure isfollowed inprocuring signaturesand authorities,except that incaseofreceivers...

  • Page 59

    THE SIGNATURE DEPARTMENT559very fullormay be limited inscope.Ifpossible,thepower ofattorney procured should contain a clause tothe effectthat revo-cation shallbe recognizedonlyby notice inwriting serveduponthe bank.If,by reason ofdeath,marriage,bankruptcy, or trans-fer of interest, ofone of the p...

  • Page 60

    560DOMESTIC BANKING—CASH AND DEPOSITSTrustee's, Joint, and Other AccountsTrustees are usually designatedunder a willtoholdand man-age certain undertakings, such asa charity,or topay income tocertain persons untilthe occurrence ofsome event.Such testa-mentary trusteesmust qualify under thelaw of...

  • Page 61

    THE CERTIFICATIONDEPARTMENT561CertificationDepartment—Function and OrganizationIn a smallbank allthe certificationwork isdoneby thepayingteller;but inlargebanks, particularly inthe vicinity ofthe specu-lativeexchanges, thevolume ofbusiness islargeenough torequirea specialized certificationdepar...

  • Page 62

    562DOMESTIC BANKING—CASHAND DEPOSITScertifiedchecksbecome very current intimes of financial strin-gency.This enablespersonsnot wellacquaintedwith each othertodeal together promptlyand with safety, forthe credit ofthechecks isguaranteed orassumedby thebank,which iswellknown.Outstanding Certified...

  • Page 63

    THE CERTIFICATIONDEPARTMENT563It isunsafe to certify items before receipt ofthemorning mail,forthe mailmay includestop-payment orderson the very itemswhich were certified beforethat hour.Nor is itsafe to certifyafterbanking hours unlessthe certifyingbank isprotectedby awritten requestby themakers...

  • Page 64

    564DOMESTICBANKING—CASH AND DEPOSITSrespective bookkeepers,who make a detailed record ofthe entireorder.It isonlyvery recent stop-payment ordersthat givethecertificationdepartment anxiety, foroldstop-payments willhavebecome familiar,and besides the certificationdepartmentwouldnever certifyachec...

  • Page 65

    THE CERTIFICATIONDEPARTMENT565but conservativebanks insistupon the deposit of securities forcollateral,as well asthe giving ofa verysweeping collateralnote.Under theday-loan plan thebrokers agree tocover the loanbycheck attheend ofthe businessday and arechargedno interest.Requests forday loans ar...

  • Page 66

    566DOMESTICBANKING—CASHAXD DEPOSITStached,giving in briefthereason orreasons fornon-payment,such reasonsbeing"No advice received topay thisdraft—kindlypresent againon arrivalofnext steamer,"or"This draftisdrawn foraccount ofone of ourEuropean correspondents,and istobe paid only...

  • Page 67

    CHAPTER XXXTHE RECEIVING TELLERGeneral Duties and Organization ofReceiving Teller'sDepart-mentThe receiving teller isknown asthe"second1'teller.In very-smallbanks hiswork iscombined with that ofthepaying teller;but the firstlineofspecialization ina bank isthe separation ofthesetwo tellers' d...

  • Page 68

    568domesticbaxkixg—cashand depositswith a few sortersand entry clerks inother cages adjacentandsubsidiary.By the alphabetical division thebody ofcustomers assignedtoone tellercan be reduced to suchnumber asmay be personallyknown by him,and the personal factor,so desirable inany busi-ness,can be...

  • Page 69

    THE RECEIVINGTELLER569account, itsprobablepermanency, etc.Ifthe applicant passesthis test,the officerprepares a"new account " slip,which author-izesthe receiving tellerto receivethe depositsand issuea pass-bookand check book.A set ofsignatures isinvariably requiredofthenew customer.The ...

  • Page 70

    570DOMESTIC BANKING—CASH AND DEPOSITSThe items, the slip,and the pass-book arepresented atthe receiv-ing teller'swindow, and the teller,afterexaminingand countingat least the loose billsandcoin,entersthetotal inthe credits ofthe pass-book.(number)Depositedby(name)inthe.NationalBankofNew York(da...

  • Page 71

    THE RECEIVINGTELLER571factthat he procured thisright todraw by the directdeposit ofcashand cash itemsover the receiving teller'swindow doesnotclothehim withany differentorgreater rightsthan ifhehadprocured the right todraw by giving hispromissory note tothebank through the loandepartment.The depo...

  • Page 72

    572DOMESTICBANKING—CASH AND DEPOSITSIfthe checks are regular,they arehanded to assistants to sortaccording tothe ledgerheadings and to prepare for listing.Thenumber ofdailyover-the-window deposits ina largebank reachesintothehundreds and thenumber ofitems intothe thousands.Speedand accuracy at ...

  • Page 73

    THE RECEIVING TELLER573The clearing house checks are passed to clerkswho indorsethem with theclearinghousestamp.Thisisusuallydoneby an indorsingmachine.A packageismade upforeachsubdivisionintowhich the clearinghouse items are grouped.The checks arethen senttotheassemblyrackdepartment,where they a...

  • Page 74

    574DOMESTIC BANKING—CASH AND DEPOSITSThe Second Teller'sProofThe distributionoftheitemsmay now besummarized asfollows:From thesecond tellerthe transitdepartment receivesdirectlythe largecountriesand indirectly,through the city collec-tiondepartment, thesmall countries.The draftsand trustcom-pan...

  • Page 75

    THE RECEIVINGTELLER575accounts inone ledger.The grand totalofthese sheets isprovedagainst the totalamount charged todepositson thesecond teller'sproof sheet.To reduce the possibilityof errors toaminimum,from time totime during theday theaccumulated ticketsarepassed tothebookkeepers.The ticketsult...

  • Page 76

    CHAPTER XXXITHE MAIL TELLERGeneral Duties and Organization ofMail Teller'sDepartmentIn modern business a large part ofthecash deposits inbanksismade, not over the receivingteller'scounterbut by mailthrough themail teller.The mail teller iscalled the"fourth"teller.His department varies i...

  • Page 77

    THE MAIL TELLER577Since thecash lettersrepresent millions of dollarsand affectvitallytheaccounts ofthebank and in turn theircustomers, ex-pedition inhandling thismail isofprime importance.To thisend the day'smail inametropolitanbank ishandled inthree lots:thenight mail,themorning mail,and theafte...

  • Page 78

    578DOMESTICBANKING—CASH AND DEPOSITSThiswork isfacilitatedby dividing itinto sections.The regu-larcash lettersare sorted intosectionboxes arranged, say, asfollows:Section i.National banks,A-C.Section 2.National banks,D-M.Section 3.National banks,N-Z.Section 4.Statebanks.Section 5.(a)Trust compa...

  • Page 79

    THE MAILTELLER579Proving theCash LettersThe method used inproving thecash letters isthe"batch"method.When a sufficientnumber of checks isreceived inone ormore letters,they areproved inbatches,called"racks,"bydividing the items, say,as follows-i.Clearinghouse checks.2.Checks on...

  • Page 80

    580DOMESTICBANKING—CASH AND DEPOSITSAfter thebatches are proved, the clearinghouse checks arestampedby machine and sorted intotherack according to clear-inghousenumbers.No timeneed be taken toexamine indorse-ments, ifany check proves later tohave been irregular as to in-dorsements, itcan be tra...

  • Page 81

    THE MAIL TELLER581TheNew York ClearingHouse provides foran optional nineo'clock clearing,inwhich a largemajority ofthemembers par-ticipate.This early clearing greatly facilitatesthework ofthebanks, whosevolume of businesshastremendously increased inrecent years.The figures for thisearly clearing ...

  • Page 82

    582DOMESTIC BANKING—CASH AND DEPOSITS3fe-goooot«2 2 <i li& ^ M X ^!3 bn p)tS dd 6dbocX -*a: .ME"

  • Page 83

    THE MAILTELLER583companies.The amounts remitted are listedon themachine; theexchange charges arethen listedand added totheamount olchecks received;and the totalshouldprove with the grossamountwhich iscredited tothe collectionaccount ledger.The doublesare the letterswhich contain credits fortwo or...

  • Page 84

    )84DOMESTICBANKING—CASHAND DEPOSITSv <M

  • Page 85

    THE MAIL TELLER5»5suanja^jWid"IPXpuooag^unoooyuoi;33[io5s[-enpiAipujsaiuBdiuoj^H

  • Page 86

    5 86DOMESTIC BANKING—CASH AND DEPOSITS3.The countries, to the transitdepartment.4.The checkson thebank itself,to thecheck desk depart-ment.5.The cash (ofthe sundries), to thepaying teller.6.The cash returnand Collection account returns, to thecity collection department.7.The Canadian and foreig...

  • Page 87

    THE MAILTELLER587Handling theAfternoonMailThe mail received afterthemorning exchanges isspoken ofas the " afternoon" mail.It ishandled insomewhat thesamemanner asthemorning mail,but certain ofthemore importantdifferencesmay be noted.Themen from the otherdepartmentswho assistthe mailtell...

  • Page 88

    588DOMESTICBANKING—CASHAND DEPOSITSItfrequentlyhappens that trainsare delayed, resulting inanunusually largeafternoon mail.Thismust be givenprompt andcarefulattention; allstop-payment orders,5 per cent fund trans-fers,orders fortheshipment ofcurrency or coin,orders for thepurchase ofstock orbon...

  • Page 89

    CHAPTER XXXIITHECHECK DESKDEPARTMENTGeneral Functionsand Organization ofCheckDesk DepartmentThe functions of thecheck deskdepartment vary consider-ablyamong banks, sincethey arecombined indifferentdegreeswith those of the generalbookkeeper'sdepartment.The checkdeskdepartment handles alltheaccount...

  • Page 90

    59oDOMESTIC BANKING—CASH AND DEPOSITSexamination ofchecksand clearanceswould be doneby theproofdesk and itsaccessory signature desk,and the clerkswould bespoken ofas"proof clerk,"" signature clerk,""fillingclerk,""clearance clerk," etc.The division ofthe ...

  • Page 91

    THECHECK DESKDEPARTMENT591Ifthebookkeepers are distant from the cageswhich dealwithcustomers, it isimperative thatcommunication between them beaccurate as well asspeedy.Telautographs supplementedby inte-riortelephones arethe bestmeans ofreducing frictionand givingservice tocustomersand at thesame...

  • Page 92

    592DOMESTIC BANKING—CASH AND DEPOSITSIfthebank isone thatemploys the early nine o'clock ex-changes at the clearing house,the items received are handled inthe same manner.By the time the laterexchanges arrive allthe accounts currentclerks have been releasedby the mail teller.The laterexchangesan...

  • Page 93

    THE CHECK DESKDEPARTMENT593eitherpostdated or of staledate;theaccounts current clerkswatch fortheproperindorsement oflargechecks;and the fillingclerkreads the fillingsto see thatthey agreewith the figures.Any defects,when discovered, are referred to thecheck clerk.Insome instancestheitems areretu...

  • Page 94

    594DOMESTIC BANKING—CASH AND DEPOSITSOwing tothevolume ofchecks handled eachday it isnecessarytohave an infallible proofsystem, which isat thesame time con-ciseand simple.Usually two identical proofs aretaken, one forthe forenoon,and one forthe afternoon.The system canbeCHECK CLERK'S SECTIONAL ...

  • Page 95

    THECHECK DESKDEPARTMENT595ofthesending banks,and lesswhat itallows forthesame reason.The grand totalof thiscolumn representstheamount ofchecks re-Dr.CHECK CLERK'S TRIALPROOFDate.Cr.GeneralCertifiedPersonal:A-FG-0P-ZImpersonal:A-BC-DetcNational:A-CD-HetcState:A-HI-NO-ZForeign Division:A-CD-LetcFif...

  • Page 96

    596DOMESTICBANKING—CASHAND DEPOSITSThe Out column and Incolumn ariseas follows:When theaccounts current clerksare sorting theirchecksthey frequentlyfinditemswhich do not belong to theirparticular section.Theymight behanded directly to theproper clerk;but toavoid con-fusioneach clerk liststhemis...

  • Page 97

    THECHECK DESK DEPARTMENT597namely,bank accounts, im-personal accounts,and per-sonalaccounts;and eachclassissubdividedintoalphabeticalsectionsor" combines,"foreachofwhich aspecialledgeriskeptby a bookkeeper, co-operatingwithwhom arethree orfour accounts cur-rent clerks.The balancingofpas...

  • Page 98

    598DOMESTICBANKING—CASH AND DEPOSITSofthemonth; the three essentialcolumns are debits (checks),credits(deposits),and balances;othercolumnsmay be intro-duced forgiving the items indetailand total,and forotherpurposes.Every item, whether debit or credit,may be postedwith a distinctmark after it,t...

  • Page 99

    THE CHECK DESKDEPARTMENT599account.The interestbalance (theamount upon which interestispaid fortheday) isdeterminedby thebookkeeperand enteredon the interest sheet.The fixingofthe rateand the calculation ofthe interestare bestlodgedwith the generalbookkeeper,whothen,once amonth or oftener,accordi...

  • Page 100

    600DOMESTIC BANKING—CASH AND DEPOSITSAllstop-payments are entered inthe stop-payment book andafterwards checked by the stop-clerk.This record includes thedate of receipt,name of payee, number, amount, etc.;and ifacheck comes inon which astop has been placed, notation ismadeof that fact.Method o...

  • Page 101

    THE CHECK DESK DEPARTMENT'601received to cover theoverdraft inwhole or part,the returnedchecks toan equivalentamount are recalled.A closerecord ofoverdraftsshouldbe kept,and the creditdepartment should begiven notice ofthem, asthey reflecton the credit titleofthedrawer.In figuringan overdraft,&qu...

  • Page 102

    602DOMESTICBANKING—CASHAND DEPOSITSslipshowing theamounts credited tothe different ledgers.Theafternoonmail checkson thebank arecharged to thecheck deskdepartment,where they are sorted, proved,and distributed to thebookkeepers.Afterbanking hours the certifiedchecks are footedand then given toth...

  • Page 103

    THECHECK DESK DEPARTMENT603accounts arenot chargedupon receipt ofadvice of draftsdrawnbutupon presentation forpayment.Advices of credits in transitarehandled by thecheck clerk,who sees that theadvised remit-tances areduly receivedand credited.In case ofdelay inreceiptofan advised remittance, noti...

  • Page 104

    CHAPTER XXXIIITHE NOTE TELLER AND CITYCOLLECTIONSClassification ofItems for CollectionPurposesA bank receivesa great variety ofitemswhich are claimsagainst other partiesand which itproceeds to collectfrom thesedebtors.For the purpose of collectionthe items are divided intoclasses according to thr...

  • Page 105

    THE NOTE TELLERAND CITY COLLECTIONS605The operations ofthese various collectionsystems willbetreated in thisand following chapters.General Functions oftheNote TellerIn general,thedepartment ofthe note,or third, teller iscloselyrelated tothedepartments handling correspondence, collections,and disc...

  • Page 106

    606DOMESTIC BANKING—CASH AND DEPOSITShigher specialization ofthe otherdepartmentsand a reduction oftheirfewer functionstoa more stereotyped routine.Italsoresultsin fixing definiteresponsibility fortheperformance ofanheterogeneous group of operations.Some ofthemiscellaneousdutiescommonly assesse...

  • Page 107

    THE NOTE TELLERAND CITYCOLLECTIONS607ofthemaker oracceptor; thesetwo booksform a cross-index forready reference to the note.The notes are alsoentered ina tickleraccording tomaturitydates,and filedchronologically innote boxes,notes payable inthe city being placed inoneboxand thosepayable out oftow...

  • Page 108

    608DOMESTIC BANKING—CASH AND DEPOSITSCountry items sent forcollectionand requiring specialadviceofpayment are entered inthe country collectionblotteranddelivered to thecountry collectiondepartment forattention.Items payable inthe cityand depositedover thenote teller'scounter forcollection are d...

  • Page 109

    THE NOTE TELLERAND CITYCOLLECTIONS609Certificates ofdeposit are usually issuedonlyupon the ap-proval ofan officer.They are issued inthree classes,namely:demand, definitetime,and indefinitetime.The firstarepayableupon presentation;thesecond arepayable inaccordance withtheirtenor;the thirdarepayabl...

  • Page 110

    6lODOMESTIC BANKING—CASH AND DEPOSITSPaidand canceled vouchers returned formissing, wrong, orforged indorsements, are receivedby mailand over the counter.These vouchers are sent to the last indorser with therequest thathe corrector supply the indorsement.In the case ofa forgery,anaffidavitaccom...

  • Page 111

    CITYCOLLECTION DEPARTMENT611mail department.The creditsfrom the first,second, fourth,andfifth tellersare rareandodd items.Dr.THIRD TELLER'SPROOFDateCr.

  • Page 112

    612DOMESTICBANKING—CASH AND DEPOSITScollectionsofthedown-town bank.An itemon an up-towninstitutionmay be largeenough towarrant thedown-town bankto collect itdirectlyby specialmessenger inorder to get thefundsassoon as possible.TheNew York ClearingHouse recentlyestablisheda city collectiondepart...

  • Page 113

    CITYCOLLECTION DEPARTMENT613The department would then be organized as follows:Thecitycollection tellerand hisassistantwould have general super-vision ofthedepartmentand themessengers.A special collec-tion clerk,a sightdraft clerk,aredemption clerk,a returns clerk,a cash clerk,and a specialdeposit...

  • Page 114

    614DOMESTICBANKING—CASHAND DEPOSITSThe notes received forcollectionareentered ina "note book,"with complete instructionscoveringeach item,and then deliveredto thenote tellertobe collectedat maturity.Alltime draftsarelistedupon sheetswith a complete description ofeach itemandalso ofthe...

  • Page 115

    CITYCOLLECTIONDEPARTMENT615The credit ticketsareposted inthe credit journaland areturned over tothebookkeepers ofthecheck desk department.The specialcollection clerksattend to allthe items returnedunpaid, wiring or writing inorder to effectan early settlement ofeach draft.At theend oftheday the s...

  • Page 116

    6l6DOMESTICBANKING—CASH AND DEPOSITSsome fixedhour intheafternoon a clerkbegins to assortthechecksand cash received inpayment oftheitems collectedduring theday; the draftsreceived againstthebank itselfarecharged to thecheckdesk department, clearinghouse checks areassorted intotherackand charged...

  • Page 117

    CITYCOLLECTIONDEPARTMENT617through the clearinghouse.TheNew York ClearingHouse per-mitsmembers toreturnthrough theexchanges itemswhich areunpaidand returnedby reason of irregularindorsement.Thereturningbankmust certifytheseand isnot allowed tosendmorethan $5,000 inamount each morning.These items ...

  • Page 118

    6i8DOMESTICBANKING—CASK AND DEPOSITShandled likeother return items.As theredemption checks arepaid,they arechecked offthe list.The city collectiondepartment sometimes has a sectionwhichhandles the depositsand reports ofcertain specialcustomers, asrailroadsor steamship lines,which wish specialad...

  • Page 119

    COUPON COLLECTION DEPARTMENT619the larger institutionsthevolume and importance oftheworkwarrant theuse ofa specializeddepartment,whichmay be calledthe"coupon collection" department.Thisdepartment receivesfor collection,subject tocount, tobe creditedonlyon finalpay-ment, coupons,due bond...

  • Page 120

    620DOMESTICBANKING—CASH AND DEPOSITSoragencymust write orstamp across the face ofthe certificate"satisfiedas to the identityand responsibility of agent."This,ofcourse,shouldbedone onlywhen the signingagent isknownto the collectingagent.The ownership certificatesare of several classes,...

  • Page 121

    COUPON COLLECTION DEPARTMENT621alienasto theUnited States;that the record owner ofsaidstock iscorrectly listedabove and that saidrecord owneristhe representative inthe United States oftheunder-signedwith respectto said stock;and that alltheinforma-tiongiven herein istrueand correct.")II.Subs...

  • Page 122

    622DOMESTIC BANKING—CASH AND DEPOSITSwork of thisdepartment becomes especiallyheavy semiannuallyorquarterly,at thetimes of interestpayments; the busiesttimesareabout January iand July i.Sortingand Recording theCouponsThe firststep after the receipt ofthecouponsand bonds istosortthem into,say, t...

  • Page 123

    COUPON COLLECTIONDEPARTMENT623Next thecoupons aresortedaccording to theirplace ofpay-ment into,say,fourroutes,known as"bank,""bankers,""trustcompanies,"and "railroadcompanies."Each route isthen subdivided into asmany lots,commonly called"stops," a...

  • Page 124

    624DOMESTIC BANKING—CASH AND DEPOSITStogether with the checks and cash received, arehanded to thenote teller.Coupons returned unpaid are disposed of according to thereasons fornon-payment.The principal reasons for non-paymentare thatthe paying agents have not received funds, orhave notbeen inst...

  • Page 125

    COUPON COLLECTION DEPARTMENT625Coupons payable outsidethedepartment's collection districtarehanded to thecountry collectiondepartment,where they aretransferredfrom theirenvelopestoenvelopes ofthecountrycollectiondepartmentand treated inthesamemanner asothercollections.The onlychargemade istheordi...

  • Page 126

    CHAPTER XXXIVCLEARING HOUSESDefinition ofClearingHouse TermsThe term "clearinghouse" isused to denote eitheran asso-ciation ofbanksand financialhouses which clear theirmutualclaims,or the placewhere thisclearing isdone.In the lattersense itissimply a central officewhere messengersfrom t...

  • Page 127

    CLEARING HOUSES627isthe chiefdeterminant ofthe nature ofthequartersand ofthephysical facilitiesused.In smallertownsand citiesa singleroomwith tables issufficient.Thisroommay be rentedby the associa-tionormay be a backroom ofone of themember banks, themember banks agreeing to furnisha room inturn,...

  • Page 128

    628DOMESTICBANKING—CASH AND DEPOSITSforthe operation ofa clearing house.Of course, other servicesmay be performedby the clearinghouse which require additionalequipment, such as vaults, offices,a library,and the like.AdministrationA completely officered clearinghouse has a president, vice-presid...

  • Page 129

    CLEARING HOUSES629tary;thevoluntary association prevails intheUnited States.Opinion varies as totheadvantages ofincorporation.Either thearticles of association, ifitbe avoluntary organization, orthecharter,ifincorporated, willdetailthe purposes, officers,andgovernment rulesand regulations ofthe a...

  • Page 130

    630DOMESTICBANKING—CASHAND DEPOSITSported theUnited States Treasury intimes of distressby loans'co-operation.In fact,before theestablishment ofthe federalreservesystem theNew York ClearingHouse was regarded asthepalladium ofour financialsystem.TheNew York ClearingHouseClearing houses aroseby ac...

  • Page 131

    CLEARING HOUSES631Table Showing Increase inTotal Clearings(In billions)Years

  • Page 132

    632DOMESTICBANKING—CASHAND DEPOSITShave a capital ofat least$1,000,000.Admission feesare $5,000forbanks having a capital lessthan $5,000,000, and $7,500 forthose with capitalover that amount.The federalreservebankwas admitted asa specialmember November 13, 1914.Itwas notrequired to signthe cons...

  • Page 133

    CLEARING HOUSES633and thepackages are despatchedby messenger tothe clearinghouse.The bank hastwo representatives at the clearinghouse:themessengerwho deliversthepackages, orthe delivery clerk,and theonewho receives the returnpackagesfrom the otherbanks, orthe settling clerk.The time ofmaking thee...

  • Page 134

    634DOMESTIC BANKING—CASH AND DEPOSITSagreeswith theamount on the exchange slip.The completecircuitofthedesks takes about ten minutes.The delivery clerkcarriesback to hisbank atonce thechecks receivedby the settlingclerk,who stays to helpmake proof.The settling clerks,as soon as allthe packages ...

  • Page 135

    CLEARING HOUSES635economy of the clearing housemethod isthatonly the net bal-ances have tobe transported toand from the clearing house andnot the total receipts forchecks, aswould be necessary ifthechecks were presentedover thecounter at thedrawee banks.Thepercentage ofbalances to totalclearings ...

  • Page 136

    636DOMESTICBANKING—CASH AND DEPOSITSNew York ClearingHouse formerly required thedebtor institu-tions topay themanager between 12 130 and 1130 p.m.thebalancesagainstthem, inUnited States gold coin orgoldnotes or legal ten-dersor clearinghouse certificates;and, assoon as possible after1130 and af...

  • Page 137

    CLEARING HOUSES637inghouse issuedother certificates,as follows:clearinghouse goldcurrency certificates,against theUnited Statesgold bearer certi-ficates;clearinghouse legaltender certificates,againsttheUnitedStates legaltender notes;and clearinghouse silver certificates,againsttheUnited States si...

  • Page 138

    638DOMESTICBANKING—CASHAND DEPOSITSthemembers ofthe clearinghouseand inthesettlementofbalances; theloan certificatesare issued,however, only inemerg-encies,whereas the clearinghouse certificates are issued forevery-day use,and the loan certificateshave very different securityandeffects.Because ...

  • Page 139

    CLEARING HOUSES639owingby thedebtorbank iseasilycalculated,the rate, period,and principal oftheloanbeingknown tothecommittee;but thereisdifficulty inknowing the creditorsand theamount contributedby each.Oneway ofobtaining and using thisinformation isforthe clearing house to requirethemembers to r...

  • Page 140

    640DOMESTIC BANKING—CASH AND DEPOSITSloan inthe face ofa panicand rescue a failingbank and save thebusinesscommunity from collapseand disaster;at least,inmostof thetimes ofsevere stringency,when anymember hasfound itnecessary to take out certificates, alltheothermembers have alsotakenout certif...

  • Page 141

    CLEARING HOUSES641clearing house loan certificates,asrediscount operations willper-form theirfunction.Settlementby Book Entries withFederalReserveBankA thirddevice forsettlingbalances isby book entrieswith thefederalreservebank.Thismethod began inNew York inMarch,191 7, and hasbeen adopted inBost...

  • Page 142

    642DOMESTICBANKING—CASH AND DEPOSITScreditingthosebanks which appear as creditorsand debitingthosewhich appear as debtors, as a result oftheday's clearings.The federalreservebank could thenpay a net balance, takingintoconsideration itsown balanceand thosemembers who choosetouse the federalreser...

  • Page 143

    CLEARING HOUSES643These arethemethods thathave beenemployed inNew York.Of themethods adopted inother citiesand regionalclearinghouseswhich differfrom thoseused inNew York, threeexpe-dients areworth notice./.Borrowing and Loaning Balances.One device has inthepastcharacterizedthe Boston ClearingHou...

  • Page 144

    644DOMESTICBANKING—CASH AND DEPOSITScertificatesand istherefore with funds,abank which has loaneda balance willdemand payment; thebank simplyexchangesclearing house loan certificatesbackedby very high collateral forunsecured loans outstanding; inborrowing balances itanticipatesthehelp which wou...

  • Page 145

    CLEARING HOUSES645Items thatMay Be ClearedEach clearing house definestheitems whichmay be clearedthrough it.The regulations laidby theNew York ClearingHouse includethe following:1.Allchecks, drafts,notes, billsof exchange, and other itemssentthrough theexchanges are to bearstamped or written re-c...

  • Page 146

    646DOMESTIC BANKING—CASH AND DEPOSITSnon-member bank upon which they aredrawn.This ruleappliesalsotonon-members making theirexchanges throughmembers.8.Items shouldnotbe presentedthrough the clearinghouseon theday of theirdate.9.Documentary instruments arenot proper items fortheexchanges.10.Note...

  • Page 147

    CLEARING HOUSES647lectingbanks.It isarranged thattheitems areready fordeliveryto thepaying institutionat 10 o'clock,and the institutionagreestopayby certifiedcheck totheorder ofthe clearinghouseby 1 130o'clock.The checkmust beaccompanied with thereturn items,properlymarked with thereasons forretu...

  • Page 148

    648DOMESTICBANKING—CASHAND DEPOSITSreportsweekly,and cover thecondition ofthe clearingbanks as toreserves, resources, liabilities,and other features.The volume ofclearings isone ofthe best barometers ofbusiness activity, sinceover 90 per cent ofthe country'sbusiness isdoneby checksandthe fracti...

  • Page 149

    CLEARING HOUSES649into,correcting,andmaking recommendations with respect tominor irregularities,which ifunchecked aredestined to wreck thebank orimpair the faithofthe public inthe clearinghousemembers.These examinations areconductedby a specialcommittee ofthe clearinghouse,composed ofactive offic...

  • Page 150

    650DOMESTIC BANKING—CASHAND DEPOSITSCo-operativeCompetition ofMembersAnother group ofservices ofclearinghouses istopromote co-operativecompetition.By this ismeant uniformity of practices,theconducting ofbusiness in theopenand on a fairbasis,and theelimination of secret, underhand, unfair,orcutt...

  • Page 151

    CHAPTER XXXVCOUNTRY COLLECTIONSTransitsand CollectionsDefinedIn foregoingchaptershasbeen treated thehandling of:i.Itemsdrawn on orpayable atthebank itself,by thetellersand thecheck desk department.2.Clearinghouse items,by the tellersand assembly rackdepartment and the clearing house.3.City collec...

  • Page 152

    652DOMESTIC BANKING—CASHAND DEPOSITSthe collectingbank isunwilling to giveimmediate credit;theyinclude specialadviceitems and items requiring specialattentionand care,such items comprising notes, drafts, bills ofexchange,documentary bills,bonds,ormortgages tobe delivereduponreceipt ofmoney, etc...

  • Page 153

    COUNTRY COLLECTIONS653carriedon accountwith reserve citybanks counted alsoas re-serves ofthedepositingbank.The reserveand centralreservecitybanks acted as collectionagents for thecountrybankswhosebalancesthey carried;and tosecuretheseaccounts,both for theuse ofthese deposited balances and forthe ...

  • Page 154

    654DOMESTICBANKING—CASH AND DEPOSITS2.Items payable incertain specified citiesnearNew York,known as"par points."3.Items payable only at institutionswhichhad agreed toremit inNew York funds atparon theday of receiptthereof for allcash itemsdrawn on itand sentby themembers oftheNew York...

  • Page 155

    COUNTRY COLLECTIONS655theNew York bank drawn on another correspondent ofthatbank, theNew York bank collectedwithout expenseby debitingitatonce to thedrawee's account.Effect ofCollectionChargesProbably themost important effectofthese localdifferencesincharges for collectionwas the circuitousroutin...

  • Page 156

    656DOMESTICBANKING—CASH AND DEPOSITSNationalBank ofFar Rockaway, Chase National Bank ofNewYork,H.M. Reeve ofRiverhead, QueensCountyBank ofBrook-lyn,and thedrawee PeconicBank ofSag Harbor.Not allcheckswent soroundabout a journey,but these actual cases illustratethe absurdity ofthe situationthat ...

  • Page 157

    COUNTRY COLLECTIONS657clearing houseswas the establishment in1899 by theBostonClearingHouse of itscountry collectiondepartment.Itwasintroduced against serious opposition of certain localand countrybanks,some ofwhich refused toenter thescheme.The country collectiondepartment ofaclearinghouse issim...

  • Page 158

    658DOMESTICBANKING—CASHAND DEPOSITSchange charges aredeductedby thecorrespondent inmakingthese remittances.The country clearinghouse isa member ofthe cityclearinghouseand in thisway distributes returns to themembers and receives credits; thesereturns are cleared againstthedue billson theagreed ...

  • Page 159

    COUNTRY COLLECTIONS659Another natural resultoftheestablishment ofcountry clear-ings isthe abolition ofexchange charges.The Boston CountryClearingHouse inauguratedpar collections in 1900.Allbanks ofNew England were invited toagree to remit atpar forchecksproperlydrawn on them and presented forpaym...

  • Page 160

    660DOMESTICBANKING—CASHAND DEPOSITSstates,and a separate letter oftransmissionmade foreach state.Checks on institutionsnot in the collectionsystem were not per-mitted tobe deposited,and only cash itemsmight be deposited.No items bearing "special instructions"were handled.Whendepositsw...

  • Page 161

    COUNTRY COLLECTIONS66lNatureand Allocation ofCollectionChargesWhen abank cashes a checkon an out-of-town bank, or ac-ceptsone inpayment to itselfor for collection, itcan realizenoreturnfromsame until it ispresented directly to thedrawee bank,orindirectlythroughsome near-by institution,forpayment....

  • Page 162

    662DOMESTIC BANKING—CASHAND DEPOSITSjobber's account.The practice ofbanks should thereforevarywith the sizeoftheaccount;very smallaccounts bringsuch smallprofits in otherways as willnotcompensate fora lack ofpaymentfor the collection service,and a charge forthisaswell asthe otherservices islegi...

  • Page 163

    COUNTRY COLLECTIONS663Banks do not liketodiscount checks according to the firstmethod describedabove, forthereason thatsuch amethod oc-casionsan immenseamount of clericalwork and retardsbusinessunduly.The deduction ofdiscountwhen acheck iscashed isnotonlytroublesome tocalculateand account,but als...

  • Page 164

    664DOMESTICBANKING—CASH AND DEPOSITSableupondemand and thebank simply meets itsobligationwhether itpays over thecounter orby mail.Unless there isa specificunderstandingbetween thebank andcustomerwhen theaccount isstarted,that thebank istoprovideforthepayment incertain distant places ofchecksdra...

  • Page 165

    COUNTRY COLLECTIONS665ping charges,norwould it offerto selldrafts ata greaterdiscountthan theshipping charges; forintheformer case itwould pay theretailertoshipcurrency himself,and in the lattercase itwouldpay the localbank tobear theshipping chargeson currencyshippedhome.Within these limitsdomes...

  • Page 166

    666DOMESTICBANKING—CASHAND DEPOSITStheUnited Statesequalsapproximately thevolume of itsitemspayable elsewhereand due to it.Ithappens, therefore,that theitems sent toand fromany banking area equalizeone another,and thatany bank willbe able tomaintain itsbalances with abank inanother areaby simpl...

  • Page 167

    COUNTRY COLLECTIONS667petition with non-clearinghouse institutionsprevent rates thataretoo high.But intowns withone bank, or withtwo ormore banks thatabideby agreed rates,and where banking facilitiesare essentialto the business ofthe area, thebanks are ina position to chargecollectionratesthat in...

  • Page 168

    668DOMESTICBANKING—CASH AND DEPOSITStown where there isno member bank, itisnecessaryfortheclearinghouse orthe federal reservebank tocollectitemsonnon-parbanks through expresscompaniesand bear the cost ofshipping theitemsand the remittances.The Boston ClearingHouse tried thismethod in 1901, but ...

  • Page 169

    COUNTRY COLLECTIONS6694.Profitstothedrawee bank.5.Interestonthefaceoftheitemforthetimefromdate ofdeposit forcollectiontodateofreceiptofremittance(ifimmediate creditand availabilityaregiven).6.Cost ofmaintaining a balance at the reserve cityor ofshippingfunds tothat city.The firstfour or fiveeleme...

  • Page 170

    670DOMESTIC BANKING—CASHAND DEPOSITSMinimum Rates ofNew York ClearingHouse MembersforChecksand DraftsState

  • Page 171

    COUNTRY COLLECTIONS671bank, givesa writtenagreement at thetime ofsuch purchase ordiscount, toprovideNew York funds forthepayment ofsuchnotesor othertime obligationson day ofmaturity, the chargeshallbe discretionarywith the collectingbank.Theminimum charges fixedatother clearinghouses differ, ofco...

  • Page 172

    CHAPTER XXXVITHE FEDERAL RESERVE COLLECTIONSYSTEMGrowth oftheSystemInChapter XXII the chieffeatures ofthe federal reservecollectionsystem,and of itsauxiliary,the goldsettlement fund,were described,and a statisticalstatementwas given ofthenumber ofmembers and volume of collections.The reader willf...

  • Page 173

    FEDERAL RESERVE COLLECTIONSYSTEM673at lesscost possibly,and sincethebank could look hereafter tothe federal reservebank foraccommodation inemergencies, theoutlyingbank didnot feelasgreatneed ofretaining itsformercorrespondents.2.The forceofcompetitionbetweenbanks using and thosenot usingpar colle...

  • Page 174

    6J4DOMESTICBANKING—CASH AND DEPOSITSavailthemselves ofthepar collectionscheme,provided theycovered atpar checkson themselves sent forcollectionby thefederalreservebanks,and provided they kept a compensatingbalancewith the federalreservebank inan amount tobe deter-mined under the rules oftheFede...

  • Page 175

    FEDERAL RESERVE COLLECTIONSYSTEM675For allotheritemsimmediate creditentry atpar isgiven,butsuch credit isnot available as reserve or topay checksdrawnuntiltheproper period indicatedon thepar listschedulehaselapsed.These periods arebasedon themail time required toreach thepayingbank plusthemailtim...

  • Page 176

    676DOMESTIC BANKING—CASH AND DEPOSITSSince June, 19 18, the federalreservebanks have absorbed theexpense ofconductingtheirtransitdepartments,anexpensewhichup to thatdatehad been assessedupon themember bankson a per-item basis asa "service charge."They alsoabsorb thecost of telegraphic...

  • Page 177

    FEDERAL RESERVE COLLECTION SYSTEM677vice isalsogivensuchmember bank iftheitem isreturned unpaid,and ifso returned,whether protesthasbeenmade.When pay-ment ismade inNew York orotherexchange, credit isgiven sub-jectto finalpayment.By arrangementsmade with allthe other federalreservebankstheproceeds...

  • Page 178

    678DOMESTICBANKING—CASHAND DEPOSITSdrawn, or at which itispayable, or toabank located inthe placewhere the item ispayable, or to another agent forcollection,whether ornot theitem isaccompaniedby billof lading, securi-ties,orotherdocuments.The reservebank assumesno responsi-bilityotherthan fordu...

  • Page 179

    FEDERAL RESERVE COLLECTIONSYSTEM679deposit,but deferthe availability untilpayment hasbeen re-ceived ortime sufficientfor receipt ofpayment has elapsed.Thefloatno longer constitutespart ofthe reserves ofmember banks.Thenew system forcesthecountry bank and the reserve citybank to carryeach itsown p...

  • Page 180

    680DOMESTIC BANKING—CASH AND DEPOSITSThisamendment leftthe control ofexchange charges inthehands ofthe board whichhad stoodopposed to them.Counselfor theboard ruledthat thisamendment applied tonon-memberstatebanks thatdo notbecome depositors inthe federalreservebank and thusdo not avail themsel...

  • Page 181

    FEDERAL RESERVE COLLECTIONSYSTEM681device ofstamping legendson theirblank checks tothe effectthat the check isnot valid ifpresentation ismade through thefederal reserve banks.InNew York fora shortperiod oftimecertain recalcitrantbanksstamped theirchecks asnot payablethrough the express companies....

  • Page 182

    682DOMESTIC BAXKIXG—CASH AXD DEPOSITSclearanceofout-of-towncash items.Itsmembership includesboth the non-assenting banks and thememberswho have joinedreluctantly.TheyarepressingCongressionallegislationtoremedy their grievance.3 .The legislatures 01sixstates,namely,Mississippi,Louisiana,South Da...

  • Page 183

    FEDERAL RESERVE COLLECTIONSYSTEM683require nationalbanks,and statebanks which have joined thefederal reservesystem, tomake exchange charges against federalreservebanks.The enactment ofthese laws has necessitatedthat the federalreservebanks notify theirmembers thatcheckson banks inthe states thatd...

  • Page 184

    684DOMESTIC BANKING—CASH AND DEPOSITSBrooklyn isconsidered part ofNew York City;Kansas City,Kansas, ofKansas City, Missouri;and SouthOmaha ofOmaha.The stateswere divided into fivesections,theeastern,thesoutheastern,the central,the southwestern,and western.Ineach section the state containing the...

  • Page 185

    FEDERAL RESERVE COLLECTION SYSTEM685number 1-8 istheNational CityBank, asthenumber assignedNew York City is1and thisbank isnumber 8 inthe clearinghousenumbering.The number 50-5 istheMerchantsBank ofRochester, since 50 isthe state prefix forNew York Stateandthe cityRochester leads the listand this...

  • Page 186

    CHAPTER XXXVIITHE TRANSITDEPARTMENTGeneral Functions and Organization ofthe TransitDepartmentThe department which handles the operations incidenttocollectingcountry items iscommonly calledthe"correspond-ence," or "transit," department.The work of thisdepartmentnaturally divide...

  • Page 187

    THE TRANSITDEPARTMENT687Collection ofCash Items—Work ofNight ForceCash items arereceivedfrom the receiving teller,the mailteller,thenote teller,thepaying teller,the city collection tell-er,the foreign division,and some fewfrom other departments.The routinework ofthe transitdepartment iscut into...

  • Page 188

    688DOMESTIC BANKING—CASHAND DEPOSITSisrequired in order tohandle it.These packages ofchecks arelistedand proved againstthe slipsand letterson which they arereceived.Finally thenight forceends itswork by preparingandwriting thecash lettersfor the federalreservebank and countryclearing house.Coll...

  • Page 189

    THE TRANSITDEPARTMENT689missorts aredeductedfrom the charge to the rack, reassorted,and charged totheproper section.Form lettersareprepared induplicate,the originalstobesentforward tothe collectingbanks with the items,and thecarbon copies tobe kept asapermanent record ofthe itemshandled.These let...

  • Page 190

    690DOMESTICBANKING—CASH AXD DEPOSITS3.Through the federalreserve bank.These items are listedand described in the letterand a separate total ismade foreachperiod of deferred credit.At theend oftheday therackstender theirseparate proofs.These arecombined inthe generalproof of thedepartment, thecr...

  • Page 191

    THE TRANSITDEPARTMENT691A debitand credit ticketand an advice ofpayment are pre-pared foreach item handled.The carbon ofthe letterofadviceisfiled.The debit ticket is filedalphabeticallyas to thenamesofthe correspondents towhich the items are sent.The creditticket isfiledalphabetically according t...

  • Page 192

    692DOMESTICBANKING—CASHAND DEPOSITS1.Accounting theexchange charges.2.Analyzing the accounts.3.Watching the balances ofaccounts.4.Marking the mail.1.Accounting theExchange Charges.Checks receivedfromthevarious tellersby thetransitdepartment go firsttotheanalysisdesk so thattheymay determinewhat...

  • Page 193

    THE TRANSIT DEPARTMENT693

  • Page 194

    694DOMESTICBANKING—CASH AND DEPOSITScheck inthe " 1/8 " column;and thecheck isentered inthepropercolumn according to thenumber ofdays required for collection.The exchange on thisbatch ofcheckswould be 1/40 per centof $1,000,1/20 per cent of$4,000,1/10 per centof$2,000,1/8 per cent of ...

  • Page 195

    THE TRANSITDEPARTMENT695creditdepartment as to the desirability of certainaccountsandas to quantity or lines ofservicethatmay beextended to thecustomer.Cost ofHandlingan AccountTo give in detaila cost accountingsystem applicable tobankaccounts isbeyond thecompass of thisbook; a briefsuggestiveout...

  • Page 196

    696DOMESTIC BANKING—CASH AND DEPOSITSitems handled fora depositorwould give the cost of theaccountto thebank so faras these items areconcerned.To thisamountmust be added theexchange chargespaid forhandling the coun-tryitems for theaccount and the interestpaidon theaveragebalance, ifitbe an inte...

  • Page 197

    THE TRANSITDEPARTMENT697thecurrent period with thosemaintained inthe past.When anaccountshowsan unusual falling offin itsbalance, that fact isbrought to the attention ofthe officerincharge ofthat district.TRANSITDEPARTMENT ANALYSISSHEET

  • Page 198

    698DOMESTIC BANKING—CASHAND DEPOSITSNature ofTelegraphicCommunicationsA reserve citybank uses codes to cover almost alltransactionswith correspondents.These codes serve:1.To reduce the cost oftelegraphiccommunication.2.To providea certainsecrecy forthe operation.3.To provide against errors inco...

  • Page 199

    TELEGRAPHIC OPERATIONS699thetelegraphcompanies arereceivedand time-stamped,and theopen messages separated from those incode.The coded mes-sages aretranslatedby a clerkand the translationcheckedbyanother clerk toreduce the possibility of error.Testword tele-grams aresent to the officersincharge of...

  • Page 200

    700DOMESTIC BANKING—CASH AND DEPOSITScashier'scheck isdeliveredby messenger toB.B's letterofadvice ischecked against thetelegram;and, ifinorder,B'sadviceandthebank'sadviceareenclosedandsenttoA.Payments to individuals are handled ina similarmanner.Letters are also received requesting thebank tom...

  • Page 201

    CASHIER'SCHECKS701forthem.Such wiresusually state thatthey are remitting tothebank by mailfunds tocover.Every request of thissort isreferred to the officerin charge of the area inwhich the request-ingbank islocated; ifthebank wouldmake a desirable corre-spondent, the officerwillmost likelyhave th...

  • Page 202

    702DOMESTIC BAXKIXG—CASHAND DEPOSITSbank doesnot charge forthe service,no charge ismade to theapplicantand no profit ismade.Ifcharges aremade fordrawinga draft,they are fixedby an officer,and he takes intoconsidera-tiontheconditions in thedrawee city,the size ofthe applicant'saccount,who theapp...

  • Page 203

    THELAW OFCOLLECTIONSAND ACCEPTANCE703given astothe disposition ofthe collateral,itissent tothecorrespondent.Paper issometimes purchasedby correspondentsunder anoption,and theysometimes exercisethe privilege ofreturning it.When this isdone, thecodedepartmentmakes record accordinglyand returnsthepa...

  • Page 204

    704DOMESTIC BANKING—CASHAND DEPOSITStageswhichmay be expected from the account, it ispreventedtherebyfrom availing itselfofthe pleathat itscontract iswithoutcompensation.A bank receivingpaper forcollectionbecomes generallytheagent ofthepartyfromwhom it isreceived,but not theagent ofthemaker oft...

  • Page 205

    THELAW OFCOLLECTIONSAND ACCEPTANCE7°5the lastone,which has to effectthe actual collection.Ifa de-positorputsan item inbankA forcollectionandbankA engagesbankB as itscollectingagent,and bankB inturn engages bankC, which does the finalcollecting,the question arisesas to theresponsibility ofbanksB ...

  • Page 206

    706DOMESTIC BANKING—CASH AND DEPOSITSstatesandby theUnited StatesSupreme Court,and isbased onthe principle ofagency that the firstagent is liableforthe actsof allthe subagents employedby him.The Massachusetts ruleisthatwhen the firstbank transmits theitem withdue care toacorrespondent selected ...

  • Page 207

    THELAW OFCOLLECTIONSAND ACCEPTANCE707according toa ruleadopted in 1898, when a court decisionwashandeddown thata bank receivingsuch paperwas amere agentand not responsible forgenuineness afterpayment oftheproceedsto itsprincipal.The banks atoncefrownedupon restrictiveindorsements sincetheywished ...

  • Page 208

    708DOMESTICBANKING—CASH AND DEPOSITSlaw requires forthe protection ofthecustomer.Ifthebank dis-regardsany ofthese instructionsand loss isincurred, it isliable.These instructionsare given in theremitting letteroron a ticketattached tothe item.Ifabank misreads itsinstructions itisliable,but ifrea...

  • Page 209

    THELAW OFCOLLECTIONSAND ACCEPTANCE709ablemeans to findthedrawee or hisagent.Presentmentmustbemade atthe place ofbusiness or the domicile ofthe drawee,andifthedrawee isnot at his officeorhome, the presentershouldwaitareasonabletimeforhisreturn.UndertheUniformNegotiableInstrumentsLaw, thedrawee isa...

  • Page 210

    710DOMESTICBANKING—CASH AND DEPOSITSplace ofpayment isnamed, presentment at the place ofdate issufficientdemand to charge thedrawer or acceptor afternoticeof protest.When a billor notemade payable atabank ispresent there,with the knowledge of thebank and ready tobedeliveredupon payment, suchmer...

  • Page 211

    THELAW OP COLLECTIONSAND ACCEPTANCE711theirpaperfrom protestand protect theirgoodnames and credit,in thisway gaining the favor of itscustomers.The purpose ofprotest istobind themaker and indorserand secure reliableevidence ofdishonor.The item isturned over toa notarywhopersonallymakesdemand again...

  • Page 212

    712DOMESTIC BANKING—CASH AND DEPOSITSholds for collection.Ifthebank accepts acheckby thedraweeupon funds inthebank to hiscreditand thebank charges itofftheaccount ofthedrawee, it isequivalent tothe receipt ofmoney.If ittakes a checkon anotherbank, itbecomes ipso facto agentofthemaker incollecti...

  • Page 213

    CHAPTER XXXVIIISPECIALSERVICEDEPARTMENTSGratuitous ServicesbyBanksA bank, in itscompetitive efforttogetand retain businessandgood-will, willperformmany linesofservice forwhich itchargesno commission or feeand which aregratuitous in the sense thatthey arenotdoneon a directquid pro quo basis.The se...

  • Page 214

    714DOMESTIC BANKING—CASHAND DEPOSITSbanks.It islegitimate fora commercialbank toundertake anyservice which doesnot involve itin risksand operationsun-suited to thefundamental principles ofcommercial banking,andthe service ofacting as custodian of itscustomers' securities isone such properundert...

  • Page 215

    SPECIALSERVICEDEPARTMENTS715Internal OrganizationThe internal organization ofthe customers' securitiesdepart-ment varies,ofcourse,with thevolume ofbusiness ofthe sortdescribed which isdone forcustomers.Ithas awindowmanwho receivesfromand delivers tocustomers over the counter,under specificor stan...

  • Page 216

    716DOMESTICBANKING—CASHAND DEPOSITSsuchtemporary withdrawal isfortransfer,registry,exchange,or toget definitivebonds forinterim certificates.The book isexamined everytwo orthreedays toseethat the entriesareclosed out oraccounted for.4.The transientbook covers allsecuritieswhich pass throughthed...

  • Page 217

    SPECIALSERVICEDEPARTMENTS7*7ledgers.Credit ticketsareprepared inadvanceand laidasideagainst receipt ofthedividend checks,when the creditsareputthrough.A record of allsuch credits iskept inadividend book.Ifany stocks forwhich the transferbooks are to closethe fol-lowingweek arefound standing innam...

  • Page 218

    718DOMESTICBANKING—CASH AXD DEPOSITSing securitiesof alldescriptions;these areread toascertain ifanything ofimportance isimminent thatwould directly influencesecuritieslodgedwith thedepartment, such, forinstance, as call-ing ofbonds,reorganizations,receiverships,issuancesofnewstock,etc.The depa...

  • Page 219

    SPECIALSERVICEDEPARTMENTS7 :9handled forcustomers occasionseveralspecialactivitiesandresponsibilitiestothedepartment; forinstance,thecareofincome, inheritance,and transfer taxes.Alldeliveriesofse-curitiesinthehome cityaremade by messengerand only underadequate instructionsand against receiptorpay...

  • Page 220

    720DOMESTIC BANKING—CASH AND DEPOSITSIt ishighlyimportant that the officers ofabank actupon in-formation that isstrictlyup todate and accurate.The statisti-caldepartment, therefore, fulfilsa very responsible office.Theclientsofthebank generallyhave limited facilitiesforgatheringand filingstatis...

  • Page 221

    SPECIALSERVICEDEPARTMENTS721library,which islikewisea source ofinformationon allsorts ofeconomic subjectsboth for officersand employees ofthebankand forclientsand prospective clients,particularly ofthehomecity.The IndustrialServiceDepartmentOne ofthe latestforms ofserviceperformedby abank isthata...

  • Page 222

    722DOMESTICBANKING—CASH AND DEPOSITSmethods ofdoing business, scientificcostaccounting, efficientmanagement, etc.,thereby creatingmore determinable bases forloansand discounts.Itsupplements the present creditinforma-tionwith factsand angleson thecondition ofprospective cus-tomerswhich shouldbe ...

  • Page 223

    SPECIAL SERVICEDEPARTMENTS723scientificsocietiesare fostered,supported,and utilizedby it.The organization ofsuch a department consists ofthree divisions:i.A division forinspectionand appraisal, consisting of ex-perienced industrialengineerswho visitthe plants ofindustrialcustomers orprospective a...

  • Page 224

    724DOMESTIC RAXKING—CASH AND DEPOSITSbank has no foreignbranches,thecommercialrepresentativeabroadmay be resident or traveling, native or American.The branch orcommercial representative collectstheinforma-tion in the fieldand sends ittothehome office,where it isfurtherdigestedand synthesizedand...

  • Page 225

    SPECIALSERVICEDEPARTMENTS725write lettersofintroduction forforeign businessmen about tovisittheUnited States,where thehome officearranges thattheymeet desirable clientsand assiststhem asmuch as possible.Incaseunusuallygood opportunitiesopen for particular linesofbusiness,the representativemay cab...

  • Page 226

    726DOMESTIC BANKING—CASH AND DEPOSITSWork ofHome OrganizationThe home organization performsa verydiversifiedwork,theultimateend ofallofwhich istodevelopand maintainforeignbusiness forthe bank.Itanalyzes, files,and editsthereports sentby the commercial representative,and givesthempublicityby let...

  • Page 227

    CHAPTER XXXIXTRAVELERS'CHECKS AND LETTER OFCREDITDEPARTMENTGeneral Dutiesand Organization oftheDepartmentA travelers'letterofcreditisa creditinstrument issuedprincipallyby banksand usedby travelersasamedium throughwhich theirfunds aremade available.It isalsocalleda "circu-larletterofcredit&q...

  • Page 228

    728DOMESTIC BAXKIXG—CASH AXD DEPOSITSThe internal organization ofthe department for the handlingof thiswork willvary with thebank and depend chieflyon thevolume ofwork tobe done.A convenient arrangement istodivide itintothree sections:i.One tohandle thebank's lettersofcreditand cleancreditsopen...

  • Page 229

    TRAVELERS' CHECKSAND LETTERS OF CREDIT729traveling, thesetwo conversions are lessdesirablethan theoneconversion requiredwhen a dollar credit isprocured.Americanbanks also issue,when desired, lettersof credit inthecurrencyofa particularcountrywhen it isforuse inthat country alone.The application f...

  • Page 230

    730DOMESTICBANKING—CASH AND DEPOSITSTheBank ofNew YorkCircularLetter ofCreditNoNew York ....(Date)Gentlemen:We beg tointroduce toyou the bearer,whom we commend toyour usual courtesies.We hereby authorizetodraw at sight inpoundssterlingon The Union ofLondon& Smith'sBank, Ltd.,London, E.C,or ...

  • Page 231

    TRAVELERS'CHECKSAND LETTERS OF CREDIT731The dollarletterofcreditinusetoday(Figure28)readssomewhat as follows:TheBank ofNew YorkLetter ofCreditNoNew York,(Date)Gentlemen:We beg to introduce toyou and torecommend toyour courtesiesa specimen ofwhose signatureappears inthe accompanying listof corresp...

  • Page 232

    73 2DOMESTICBANKING—CASH AND DEPOSITSseparatefrom the relative letterofcreditand incase eitherthelistor the letter islost it isworthless tothe tinder.The listofcorrespondents consists ofthenames ofbanksand bankers inevery city ofimportance throughout theworldwhich willact aspaying agents,and co...

  • Page 233

    TRAVELERS'CHECKS AND LETTERS OF CREDIT733letter.In casetheneed ofanother letterarisesthe travelershouldcommunicate with the issuingbank directlyorthroughfriends athome intime tohave a second letterforwarded toadesignated place beforethe firstone isexhausted.The firstone,with a smallamount unused,...

  • Page 234

    734DOMESTIC BANKING—CASH AND DEPOSITS3.A letterofcreditmay be issuedagainst the deposit ofmarketable securitiesas collateral;a certain margin, say,20 percent, isrequired,depending upon the character of the securities.The same charges aremade for thisform as fortheguaranteedform.Ifthe beneficiar...

  • Page 235

    TRAVELERS'CHECKSAND LETTERS OFCREDIT735The Issuance ofTravelers'ChecksBefore thewar travelers'checkswere issuedby Americanbanks indenominations of $10, $20, $50, and $100, and statedon theirfacethe exactequivalentwhichwould be paid intheforeigncurrencies.Theseconversionsweremadeatfixedarbitrary r...

  • Page 236

    736DOMESTIC BANKING—CASH AND DEPOSITSo:5ft)CI55*paaa GPhOS3 °O "QC dOJ3fco(U

  • Page 237

    TRAVELERS'CHECKSAND LETTERS OFCREDIT737bursement offices,which inturn chargedthem tothe issuingbank'saccount with the usual additional 1/8 per centadded forthemselves.Fluctuation ofexchange ratesand the restrictions ofwar onforeignexchangebusinessforcedourbankerstolimittheirtravelers'checks todol...

  • Page 238

    73«DOMESTICBANKING—CASH AND DEPOSITS

  • Page 239

    TRAVELERS'CHECKSAND LETTERS OFCREDIT739checks itadvisestheNew York bank on blanks sent to itforthatpurpose,and sends, incase ofa letterof credit, itsguarantyandspecimens ofthe holder's signature.The interiorbanks generally issue these lettersofcreditandtravelers'checks against cash,and theNew Yor...

  • Page 240

    74°DOMESTIC BANKING—CASH AND DEPOSITSchecks are forwarded for collection.In allcaseswhere a charge isthusmade the itemsmust be sent directly to theBankers TrustCompany for collectionwith the chargesadded.Arrangementsforencashment are alsomade withbanks inCanada and abroad.The interiorbankmay b...

  • Page 241

    TRAVELERS' CHECKSAND LETTERS OFCREDIT741itsface that itisagainst theNew York bank's letterof credit,NoItissentby theItalianbank toitsLondoncorrespondent forcollectionand credit.The London draweebankcomparesthetraveler'ssignaturewiththespecimensenttoitbytheNew Yorkbankadvisingtheissuanceofthe cred...

  • Page 242

    74 2DOMESTIC BANKING—CASH AND DEPOSITSIfthe travelers'checkhad been lostthe travelerwould havenotifiedtheLondon drawee bank,which inturnwould havewritten to thebanksnamed on theback ofthecheckand askedthem tostoppayment.On theexecution ofan affidavitand anapprovedbond ofindemnity, the faceamoun...

  • Page 243

    TRAVELERS'CHECKSAND LETTERS OFCREDIT743holder'ssignaturetothebanknamed asthereimbursementoffice.2.The SpeciallyAdvised Credit.This isgenerallyaddressedtoa singlebank and theamount ofthe credit isavailable at thatbank alone.Sometimes they areaddressed toseveral banks,thenames ofsome oftheNew York ...

  • Page 244

    744DOMESTIC BANKING—CASH AND DEPOSITSRecords of theDepartmentThe records ordinarily kept insuch a department consist ofthe following:i.For letters ofcredit issuedby thisbank:(a)A card index of beneficiaries, alphabeticallyarranged,containing sufficientinformationtoenable thede-partment toreply ...

  • Page 245

    TRAVELERS'CHECKSAND LETTERS OFCREDIT7453.For lettersof credit ofotherbanks:(a)A book containinga record ofaccreditivesopenedandlettersofcreditdrawn on thebank by foreignbanks.(b)A book containing a record of lettersof creditissuedbydomestic correspondents inwhich thisbank hasbeennamed asthereimbu...

  • Page 246

    CHAPTER XLTHE GENERAL BOOKKEEPER'SDEPARTMENTImportance ofBank BookkeepingInno other lineofbusiness isexactand comprehensive book-keeping so absolutely indispensable as inbanking.Accuracy isenforcedby business necessityand by government orvoluntaryregulation, and the necessity isintensifiedasthe s...

  • Page 247

    THE GENERAL BOOKKEEPER'SDEPARTMENT747arationofthesestatements arethefunctions ofthegeneralbookkeeper.Development ofAccountingMethodsSincethefundamentaloperationsarealikeinallbanksregardless of size,thebookkeepingmethods in allhave a certainsimilarity;the differences ariseinthedegreeand ways inwhi...

  • Page 248

    748DOMESTIC BANKING—CASH AND DEPOSITSingenious.The machinemethod ofbookkeeping alsopromotestheuse ofthe loose-leaf book.To a considerabledegreeeach bank has worked out a systemofrecordsadapted to itspeculiar needs.The system isan his-toricalgrowth; ithasevolvedby the process of trialand improve...

  • Page 249

    THE GENERAL BOOKKEEPER'SDEPARTMENT749stock isactive, containsa record ofthe transactionsday by dayand isposted into the stock ledger.The stock certificatebookconsists of stock certificatesand stubs giving thename ofthestockholder, date,number ofthe certificate,number ofshares,name ofthe transfero...

  • Page 250

    75"DOMESTICBANKING—CASH AND DEPOSITSand secondgroups areantecedent, preparatory,and adapted tothese controllingbooks.The whole process isone ofconcentra-tionandsummation intothe general ledger of thebank.Thedivision ofthebooksbetween thecheck desk bookkeepersand thegeneralbookkeeper as des...

  • Page 251

    THEGENERAL BOOKKEEPER'SDEPARTMENT751sponsibility, to expedite thework that requiresimmediate atten-tion,tokeep the clerks usefullyemployed ata fairproportion ofthe totalwork, etc.The most important,most comprehensive,and the control-lingbook of thebank isthe general ledger.To facilitatepostingto ...

  • Page 252

    752DOMESTICBANKING—CASHAND DEPOSITStosee that theamount and thename upon the face ofthecheckagreewith thebook record.The credit isthen charged outandthechecks canceledand filed.The total ofchecksdrawn areproved eachday againstthe general ledger.The outstandingcashiercheckswould be proved, say, ...

  • Page 253

    THEGEXERAL BOOKKEEPER'SDEPARTMENT753tendent's),etc.The subdivisionsoftheoperatingexpensesincludeadvertising,cab hire,carfare,cartage,clearinghousemembership, directors' fees,examinations, expressage, furnitureand fixtures,insurance,lunches (food,help, supplies, utensils),mechanicalequipment,maint...

  • Page 254

    754DOMESTIC BANKING—CASH AND DEPOSITSitspresident or cashier, to theTreasurer oftheUnited States, oftheaverageamount of itsnotes in circulation forthe sixmonthspreceding the firstday ofJanuary or July.The tax appliesonlyto those notes strictlyoutstanding incirculation.Paymentmaybemade by deposi...

  • Page 255

    THEGENERAL BOOKKEEPER'SDEPARTMENT755legalonly incase otherbanks aretaxed in practically thesameway."1The courts arenot infullagreement as tothemeaning of"moneyed capital" inthe statute.The bank shares aretaxedby local officersunder the generalproperty tax orundersomeuniformmethodpr...

  • Page 256

    756DOMESTICBANKING—CASHAND DEPOSITSbelow the generalproperty taxratethatthisdouble taxationisdeemed towork no greatinjustice.Thistaxispayablesemiannually.4.The Federal Capital Stock(Excise)Tax.By thelaw of1918, domestic corporations are subject toa tax of$1 foreachfullSi,000 ofthe average fairv...

  • Page 257

    THE GENERAL BOOKKEEPER'S DEPARTMENT757ofa bank from the fullamount ofgross income, which consistsofthe totalrevenues derived from the operationand manage-ment ofthebank's business together with allamounts ofincomefrom other sources,the following deductions aremade:(a)The totalamount of allordinar...

  • Page 258

    758DOMESTIC BANKING—CASH AND DEPOSITSsecond bracket.The taxmay not inany case bemore than 20per cent oftheamount ofnet income inexcess of $3,000 and notinexcess of $20,000, plus 40 per cent oftheamount ofthenetincome inexcess of $20,000.7.Tax on Undistributed Net Income.In addition to the in-co...

  • Page 259

    THEGENERAL BOOKKEEPER'SDEPARTMENT759memoranda of salesor deliveries of,or transfers of legal title to,shares or certificatesof stock,on each$100 of facevalue or frac-tion thereof,a 2-centstamp;on draftsorcheckspayable other-wisethan at sight orondemand, promissory notes,exceptbanknotes issued for...

  • Page 260

    760DOMESTIC BANKING—CASHAND DEPOSITSbondsloaned,showingtowhom loaned,date,classification,amount loaned,amount returned,and date returned.A secondbook containsa record ofthechanges intheUnitedStatesbonds tosecure circulation .These changesembrace:i.A substitution of 2per centbonds forotherthan 2...

  • Page 261

    THE GENERAL BOOKKEEPER'SDEPARTMENT761the interestbalancebook isfooted todetermine the totalamountofthe balancesupon which interest isdueand theamount ofinterestpayable daily.The interestperiodon balances willbesetby thebank, say,from the26th ofonemonth up toand in-cluding the25th ofthenext month....

  • Page 262

    762DOMESTICBANKING—CASH AND DEPOSITSupon therecordsY haskept toshow theoriginalloss,thepayments received,and the receivables stilluncollected.The General JournalAlldouble ticketsmade by any department ofthebank aresenttothe general bookkeeper's department afterthey havebeen approvedand signedby...

  • Page 263

    THE GENERAL BOOKKEEPER'S DEPARTMENT7 6 3National,A-C, D-H, I-M,N-P, Q-S;T-ZTrust Companiesand Savings BanksForeign,A-B,C-G, H-L, M-O, P,Q-S, T-Z"Our Accounts," Foreign, DomesticDr.GENERAL JOURNAL PROOFDate.Cr.General Accounts:Cash AccountPersonal Accounts:A toFG toOPto ZImpersonal Accou...

  • Page 264

    764DOMESTICBANKING—CASH AND DEPOSITSassembling and recapitulating of theproofs ofthe second, third,fourth, fifth,and foreign tellers,general journal,the certificationdepartment, thecheck desk,and the transitdepartment.Theseproofsaresupposed tobe giventothe generalbookkeeper'sdepartment earlyeac...

  • Page 265

    THEGENERAL BOOKKEEPER'S DEPARTMENT765counts ofwhich accounts current arekept.These items are fullydescribed,and insuch away thatthey can be easilytraced atanytime.The ledger clerkdevotesmuch time tocollecting debitandcreditjournaltickets,whichheprovesagainstthegeneraljournal,and to collecting cre...

  • Page 266

    766DOMESTIC BANKING—CASH AND DEPOSITSmost completeand extensive of all,must be publishedby thebanks themselves,and theircombined totalsare publishedby theComptroller in his"Abstracts of Condition."2.Special reports whenever in hisjudgment they are neces-sary to a fulland complete unde...

  • Page 267

    THE GENERAL BOOKKEEPER'SDEPARTMENT767were devised inthe latterpart of 191 7.The report covers theUnited States securitiesowned, loans securedby United Statesbondsand certificates, allother loansand investments, reservewith the federalreservebank, cash invault,netdemand depositson which reserve is...

  • Page 268

    768DOMESTICBANKING—CASH AND DEPOSITSsoldwithagreement torepurchase; thebank'sown time draftsissuedand outstanding;money borrowed inother forms;unusedcommercial and travelers' creditsissued orguaranteed, forwhichpayment hasnot been received;acceptancesmade forthebank'sown accountunder commercial...

  • Page 269

    THEGENERAL BOOKKEEPER'S DEPARTMENT769certificates,comptrollers'waivers,attachments, wills,and certi-fiedcopies of willsand guaranties orbonds ofindemnity, and alsocertaincorrespondenceand forms ofthe Comptroller ofthe Cur-rency,the federalreservebank,and the clearinghouse.Thevariouspapers areinde...

  • Page 270

    CHAPTER XLITHE AUDITINGDEPARTMENTQualifications ofBank AuditorAn auditor isa person orfirmappointedand authorized toaudit orexamine an account oraccounts,compare thechargeswith thevouchers,examine the partiesand witnesses, allow orreject charges,and statethe balance.The auditmay bemadeby an audit...

  • Page 271

    THE AUDITINGDEPARTMENT771courage, as the finalarbitrament ofthepropriety ofa chargeagainst thebank, itsofficers,orcustomers, ismade by him, or atleastthe decisionwhether toreportand reproveand correctirregularities restswith him.An auditorwith these virtues isatower ofstrength toany bank-Duties o...

  • Page 272

    772DOMESTIC BANKING—CASH AND DEPOSITSi.That some accounts are domestic and some foreign,andthat the foreign accountsmay be "our" accounts withforeign customers or "their" accounts with the bank.2.That thework tobe done isthe dailyroutine ortheperiodic examinations.3.That the...

  • Page 273

    THE AUDITING DEPARTMENT773classificationis,however, typical inthesense that the dutiesspecifiedareincumbentupon allbanks (exceptionmay bemadeof the foreignaccountsand branches)and the specialization ofclerksand subdivisionsalong these linesproceeds asthebankgrows in size.The Reconcilement ofDomes...

  • Page 274

    774DOMESTIC BANKING—CASHAND DEPOSITScounts the statement willbe likelytocontain the injunction,"Please examineand reportany errors atonce to thebank, asthisstatement willbe considered correct unlesswe are notifiedtothe contrary."The Investigation ofDomestic AccountsThe usual policyand...

  • Page 275

    THE AUDITINGDEPARTMENT775thevariousinteresteddepartments.Upon theirreturntheyareexamined toseethattheyhave been properlyexecuted andinitialedbytherespectivedepartmentheads.The balancereportedby thebookkeeper isverified,theforms presented tothe officersforsignature,and thedateon which they areretu...

  • Page 276

    776DOMESTICBANKING—CASH AND DEPOSITSstatisticsfortheComptrolleroftheCurrency,theclearinghouse,and thefederalreservebank.Of the various requestsforinformation which thedepartmentmay receivethe follow-ingareillustrative:i.The amount and kinds ofmoney shipped to thebank orby the bank.2.The distrib...

  • Page 277

    THE AUDITING DEPARTMENT777i .Cashier's Checks.The stubs detached from cashier's checksby those authorized tosign arecollected,sorted, recordedbynumbers,and filed,and the totalamount verifiedagainst thegeneralbookkeeper's figuresat the close ofbusinesseach day.Ifthere areany missingnumbers, theche...

  • Page 278

    778DOMESTICBANKING—CASH AND DEPOSITStheauditingdepartment,whichimmediatelychecksthe in-strument againstthevarious records inthecommercial creditdepartments.3.Commercial Letters of Credit.Offering slipscovering theestablishment ofcommercial lettersofcreditare referred to theverifying subdivision...

  • Page 279

    THE AUDITINGDEPARTMENT779thoseauthorizing thebank's correspondents tomake paymentsare translatedand the entriesresultingtherefrom arecheckedto theirproper accounts.Allconfirmations ofcablegramsandtelegrams,allmoney transfersand receipts forcurrency ship-ments,and alloverdrafttelegrams are careful...

  • Page 280

    780DOMESTIC BANKING—CASH AND DEPOSITSWith cash lettersthat arecharged against a collection ac-count, an advice ofreceiptby thecorrespondent isnot required,for these accounts are closelywatched toseethat indue coursethere isreceiveda check inpayment or elseinstructions todebitthe reserveaccount....

  • Page 281

    THE AUDITING DEPARTMENT781action pending with the closedbank istobe referred to officialattention.13.Recordson File.Certain dailyrecords ofvarious depart-ments,such asthe receivingteller'sdeposittickets,allcashand collection lettersreceived,carbon copies ofthebank's remit-tance letters,coupon adv...

  • Page 282

    782DOMESTICBANKING—CASHAND DEPOSITSterestallowed orcharged thisbank, checking the entrieson theabstractagainst thisbank's ledger,which should contain corre-sponding entries forevery transactionappearingon the abstract.A thorough investigation ismade ofallexceptionsand theseexceptions are listed...

  • Page 283

    THE AUDITINGDEPARTMENT783duplicates, bearing the cablecompany's stamp, arereturned tothe auditor.They are firstcompared toseethat there isa con-firmation foreach cableon the listof testwords.The cablesarethentranslatedandverifiedagainsttheoriginalcontracts.These contractsmust be officiallysigneda...

  • Page 284

    784DOMESTIC BANKING—CASHAND DEPOSITShands ofthe postage clerkare proved with the requisitionsandpurchases of stamps.Through the auditor's control ofexpense,the adding machines and otherbank apparatus are directlyunderhischarge.The Balancing ofPass-BooksAccounts havingwhat isknown asa"depos...

  • Page 285

    THE AUDITING DEPARTMENT785thenexamined tobe certain thattheyhave been canceledandthat they aredrawn against thisbank.They arethen filedac-cording todate ofpayment, each account having itsown com-partment, untilreturned to the depositor with hisstatement orpass-book.Upon receiptofstop-paymentinstr...

  • Page 286

    786DOMESTICBANKING—CASH AND DEPOSITSi.The directors ofthebankmay appoint a committee fromtheirown number, ormay engage a professionalauditingcom-pany, toauditand examine thewhole bank, ora certain depart-ment ordepartments,atregularorirregularperiods.Theirpurpose isto fulfiltheirlegaland moral ...

  • Page 287

    THE AUDITING DEPARTMENT787Reserve Board.Whenever the directors of the federal reservebank approve theexaminationsmade by the state authorities,suchexaminationsand reportsmay beacceptedinlieuofexaminationsmadebyexaminersselectedorapprovedbytheFederalReserveBoard.The boardmay orderspecialexaminatio...

  • Page 288

    788DOMESTICBANKING—CASHAND DEPOSITSTo perform the examinations the auditingdepartment hastwo organizations:i.The subdivisionforexamining thedepartments ofthebank.Thiswork isincharge ofa clerk called,say,"chief ex-aminer,"who has a force of clericalassistants.When the chiefexaminer exa...

  • Page 289

    THE AUDITINGDEPARTMENT789arechecked with the loan cards.Instead of thismethod, listsfrom theloancardsmay be preparedand sent tothe customersfor confirmation of their correctness.2.The Customers' SecuritiesDepartment.In the examinationofthecustomers'securitiesdepartmentlettersarewrittenenumerating...

  • Page 290

    79°DOMESTICBANKING—CASHAND DEPOSITStheamount which thebank has investedinbonds.Inthegeneral ledgertheinvestments in securitiesare classifiedinto:Bonds Owned and Unpledged;Bonds Loaned; Bonds Borrowed;Bonds Pledged toSecure Circulation, toSecure PostalSavingsDeposits, to SecureGovernment Deposi...

  • Page 291

    THE AUDITINGDEPARTMENT791Where itemspayable out oftown arenot found inthenoteboxes,the records ofthecountrycollectiondepartmentareexaminedand their figuresused to effectthe proof.The billsreceivableheld as collateral securityareexamined to determinethatproper margins are maintained.5.ForeignDivis...

  • Page 292

    792DOMESTICBANKING—CASHAND DEPOSITSarebeing returned unpaid,and whether theacceptancesundercommercial lettersofcreditare being paid astheymature.As thereconcilements oftheaccountswhich foreign corre-spondentskeep with thisbank ("their" accounts) are receivedby the auditing department,...

  • Page 293

    INDEXAcceptance,auditing of,777bank, available for collection,677law of,703-712dishonor of item,709itemsrequiringpresentment,708person towhom presented,708,710place of presentment, 709protest,710time ofpresentment, 709Accounting(See"Audits and audit-ing";"Bookkeeping";"Ch...

  • Page 294

    794INDEXAudits and auditing—Continuedrecordson file,781statementsand paid checks,784statementsand reports,779statisticaldata forComptroller ofCurrency,775telegraphic depositsand payments,778verificationofdomestic accounts,776-791BBalances, certification of,778Banks (See also"Nationalbanks&...

  • Page 295

    INDEX795Bookkeeping—Continuedtrialproof,596valueand importance of,746Books, right ofshareholder to inspect,515Boston country clearinghouse,659compulsorymembership in,667Boston ledger,with form, 597Branchoffices,commercialrepre-sentatives,724Business information,gatheredbyindustrialservicedepart...

  • Page 296

    796INDEXCheck deskdepartment—Continueditemsfrom exchanges,592itemsfromotherdepartments,592itemshandled by,591items missent,596ledger proofs,598marking ofmail by,598organization of,589overdrafts,600posting exchanges,599preparation of statements,602proof desk,590sectional proof of,594Form, 594sto...

  • Page 297

    INDEX797Clearances—Continueddefinition of,617handledby check desk department592handlingof,bycitycollections,617posting of,on ledger,599process of clearing,632unpaid,616Clearing house,balances at,634borrowing ofbalances,643buildings of,626certificates,636checks,receivedby receiving teller,573&qu...

  • Page 298

    798INDEXClearinghouse—Continuedstatisticalwork of,648terms used,626time of clearing,633Code department, 698-701Collateral,ascommercialpapersecurity,702Collections,bank acceptances, 677bonds, 607,677city(See "City collections")classification of items for,604country(See "Countrycol...

  • Page 299

    INDEX799Correspondents—Continuedcommercial paperboughtand soldfor,702lettersaskingforprotectionofnotes,563listof,fortravelers'lettersofcredit,731relationtocountry clearing house,658sale ofexchange draftson,701travelers'lettersof credit,adviceregarding,734use ofcodes, 698Costs,analysis of,691not...

  • Page 300

    booINDEXCurrency—Continuedreceivedby receiving teller,573shipments of,handled by payingteller,546used for lettersof credit,728Customers' accounts(See also"De-positors")cost ofhandling,695openingnew, 568overcertification,564precautionsincertifyingchecks,563profiton handling, 696reconci...

  • Page 301

    INDEX801Deposits—Continuednature of,570routine for,569slip,569Form, 570disposition of,574telegraphic, 699auditing of, 778Directors,ClaytonAct on interlocking,517federalreservebank,Kern amend-ment concerning,518nationalbank,compensation of,520composition ofboard of,516election of,516functionsand...

  • Page 302

    802INDEXExchange charges—Continuedparcollectionsystem,oppositionto,667par point defined,653profitson,666rates,669established,666New York Clearing House, 653,670receipt ofpayment by note teller,608remittances, methods of,665routing of items,655service charge,667absorption of,676under federal res...

  • Page 303

    INDEX803Fourthteller(See"Mailteller'sdepartment")Fraud,detectionbypayingteller,550Jointaccount, signatory authority,56oJournal, general,762Generalbookkeeper'sdepartment(See also"Bookkeeping")card filesof,768importance of,746location of,750organization of,750reportsprepared by,...

  • Page 304

    804INDEXMail—Continuedincoming—Continuedcash letters,578classification of,576receivedfromclearinghouse,577sorting of,577marking of,forinterestcharges,598,697outgoing,preparation forclearinghouse,581Mail teller'sdepartment,acknowledgments, 588afternoon mail,587assembly rack,577charging of item...

  • Page 305

    INDEX805Note teller'sdepartment—Continuedreceiptofpaymentofexchangecharges,608Notes,citycollectiondepartment,613Numericalsystem,forassigningbanks, 683-685Oath of office,directors,520Officers(Seealsoundernamesas"Cashier";"Comptroller";"President"; etc.)clearinghouse...

  • Page 306

    8o6INDEXProof—Contin tiedcheck deskdepartment—Continuedsectional,593Form, 594trialproof,596citycollectiondepartmentcashitems,618clearinghouse balances,634coupon collection department, 624Form, 624journal sheets,762Form, 763mail teller'sassembly rack,581Form, 582mail teller'sdaily,Form, 586mai...

  • Page 307

    INDEX807Reserves, deposited, with city corre-spondents,obviatedby federalreserve system,678Restraint oftrade,acts toprevent,by banks,519Returneditems,chargedtofifthteller,593Returns,city collection department, 616handling cash and collection itemsreturned,583Salaries, directors',520Scientific man...

  • Page 308

    8o8INDEXStockholders—Continuedmeetings,513nationalbanks,512-515nominees in,716rightsand liabilities of,514transfer of shares,515Stock ledger,748Stock transfer journal,748Stop-payments,auditingdepartment'sinvestiga-tion,785bookkeeping treatment,600entered in stop-payment book, 600handlingbycheck...

  • Page 309

    INDEX809Travelers' letters of credit—Continuedcommission charge for,734definition of,727deposited collateral,734dollar credits,728domestic letter,734forms issuedby foreign banks, 742guaranteed letter,733identificationof holder of,731issue of additional letter,732issuedby interior correspondents...

  • Page 310

  • Page 311

  • Page 312

  • Page 313

  • Page 314

    mThisbook isDUE on the lastdate stamped belowForm L-9-15t?i-7,'32

  • Page 315

    sicfle Id -_3115801166 2888BRANCHCALlFORh\RYES, CALIF.UCSOUTHERN REGIONAL LIBRARY FACILAA001184 461o

  • Page 316