The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1859-11-01


discount, does it,
now DIRECTORS PAT TuEASKIvEs.
II would be contrary TO human experience 10 ex-
pect knot Of money makers, valuing their day q
labor at extravaganza rates, to bestow gratuitous
service upon any branch Of trade; hence We "a
tionally conclude no busness man to be 90 phlan-
tiropic AZ to occupy his time ut bank directing
without receiving relative compensation for his
toll. But how can bank dirootor be paid, in
qiires the uniiluminated, when he can re-
ceiye no salary just 50 but the stockholder
and depositar do not comprehend practical bank
Ing, and. when seeking information. place reliance
upon published statements OF tho condition of tho
bank % required by law, aud regard such docu.
ments satisfactory balance sheets. But when they
coma To learn That these statements are moro tabu
lar fantasies ooncocted by the general bookkecpe per
to mako all ends meet IN the most favorable light.
and sworn to by the cashier upon Information and
bolief-mnd, there IL no positive personal know
ledge required OF either cashier or president in SUB
scribng documents 10 be used by the State banking
dcpartnent-they may be induced 10 believe that q
slight correction OF figures. transferring sums TO
their right places aud preserving the balance cor
rect might show different state Of affairs. In
truth, these quarterly statements manufactured
very much after the manner Of certificates Of cures
by popular remedies. and upon anayzation by com.
petent hands will prove but shadows Of perfect
condition Of things But of these banking phantaa-
magOria we will speak more definitely in u proper
place. The position OF director Ia rendered en-
phatically selfpayiug and positively lucrative from
facilities for borrowing. not ouly at one institution,
but In others Of similar character for the
gives TO merchant an advance Of credit, respected
by the bank men generally to such degree, that
to throw out paper drawn or endorsed by a bank
director must he construed into direct aIr0nt TO
the craft ut large. Consequently the director is
professional and perpetual b0rro wer, either on his
own account or on that Of the firm ne represents
In direct manner, or from l0anng his name at q
pes centsge TO the paper Of needy friend. that
through his influence it eau be legitimatey grouad
lin the mill" At his own bank the director re.
wards himself by maintenance of heavy liac OF
discount, which, by being insisted upon right,
ia recognized by his brethren, equally intent upon
observance of similar privilege. Ia other banks, he
ventures upon equal indulgence by asoD Of his
Official position, while at the same time the very
stock qualifying his directOra functions is pro-
baby hypofhecated at the insurance appen-
dage, inevitably conjoned to the banking con.
Germ, in whose direction he assists. But if the d.
rector be, as is frequently the case with banks OF
email capital, retired trader five chances to one
be participates clandes,lney in business of note
shaving, aud thus secures the profits Of redscount
upon paper which he has already privately dis.
counted at heavy shave.
So thoroughly tenacious are directors Of this pri-
vilese of borrowing, that they in many instances
commence operations even before the bank goes
into public operation, by soliciting loans of the
moneys paid in to secure subscriptions to the CAPT
tai. Now for illustration: Suppose the first
instalment capital Of 5000 GEO. of twenty-five per
cent, to be liqudated; it would unoaned lay in the
hands Of the cashier unemployed; and the interest
on $50. 900 for even ninety days is an item. Hence
the directors contributing but $25 900 to this fund
forthwith borrow the balance towards payment of
their second instament or for other purposes; and
in this manner in the absence of claims fcom depo-
sltors for discounts-for none can they have until
the bank permanently opens--they contrive to APP.
propriate above four-ffths of the entries on the
temporary loan book-which, by the way, is the
favoIte record of drectorial borrowing, as, being
wholly in the cashiers hands, and liable to no in
specton by his subordnates. almost hermetical-
~ sealed volume. which can be doctored secretly
whenever prudence or threatened examination
suggests the necessity of a whitewashng of its
pages. Besides as the cashier holds tenure of Of
fee under the directors, and the stockholders being
to him merely ideal personages, he degenerates
into supple creature in the hands of those ap-
pointing him. especially as his bread and butter de-
pend upon acquiescence in their wishes And 80
harsbly has this dependence grown upon salaried
officers, that it is firmly believed were the cashiers
Of our banks to be summoned to give evidence per-
soDally, and of their own knowledge, IL would be
discovered that onehaf the entries on the call loan
book are either memoranda or locked loans never
intended to be called, beyond the act of insuring
payment of intereat-all suggested to and enforced
upon the cashier by the directors against his better
judgment and experience, as well as contrary to
the spirit Of bank oaning upon call.
When the bank goes into operation, and the d.
rectors are compelled to disgorge funds advanced
call is had to disco cunt and the nature
Of their obligations Is changed nominally, for the
moneys heretofore Oh the loan book turn up among
bills discounted, perpetualy renewed until, with
respect to convertbii,y, they are as much of dead
accounts as protested paper. In this ingenious
way, as the capital of the bank is consecrated to
bills discounted, and moneys deposited employed
for temporary loans, the ''little joker" changes
place, and the pea showsitsef under the thimble Of
discount although formerly entered under head of
loans. Then again discounted paper has the adj
vantage Of ad ltbitu manufacture, while loans re-
quire resemblance in basis to tangible Dercan-
tile commodity; for accommodation notes are super
excellent material for the discount process, but
(nst abs Iy,fn ugII N 10 nr0u
loans the security for which should be of such a
character as to command instantaneous realization
should the call remain unrespondeo to for rea
sonable period Of time.
| HOW DIRECTIONS WORK DISCOUNT LINE.
| As the requirements of the State Banking Depart
ment weigh heavily upon the system Of loans to di
rectors. by insisting that the quarterly statement
| shall furnish precise information AS to moneys
educ from directors" very few directors keep An
individual account in the institution they pretend tc
supervise, but, by employing the title of the firms
to Which they belong dexterously avoid compllance
! with the departmental suggestion. Their individual
accounts can be found In some other banks. where
in partner or personal friend oificates among the
! directory, and favors them reciprocally with the
fullest extent of discounts for the greater the nun
her of bank accounts the strt niger grow traders
| credit and facility for borrowing.
For palmer illustration Of the commercial advan
| tsges Of o dictatorship, provided the operators
have adequate sbrewdness to comprehend and
| skill to avail themselves of the game within
/ grasp, we VIII discard commentary ana instance
plain facts, to be silly recognized by versed in
bank dealings. Three ambitious traders--Smith
Jones and Brownie Joining in copartnership, with q
nominal capital OF O.000 and real one Of $40,
Oo0 find themselves compelled to resort to banking
assistance TO borrow the capital they are supposed
! 10 possess, by investing that they really hold al
command Smith, qualifying himself out o the CO
partnership funds. becomes director in the Bun
combe Bank: Jones. ia ike manner, a0urishes al
the board Of the Sank Of Gotham, while the junior
takes place in the direction of the Buncombe Fire
! Insurance Company and thus by expenditure OF
SIS 900 in stock, all three obtain what. in mercan
tile technicalIty, is known as positions This
done and their credit established, they purchase on
time, their paper being cbeerfuy taken and freely
discounted on account OF their banking standing
and as matter Of course, they sell on time. To
! provide for bills payable, they first deposit the
| IS 600 cash in Bmcombe Bank Smith director, and
with their bills receivable collateral establish
line OF discount for $50 GOO, which leaving balance
OF twenty-five per cent sufficient to crafty the
avarice Of any bank--yelds SIS 900 The same nest
/ egg in cash is transferred to the Bank of Gotham
with similar yield; during this while the stock
/ qualifying tho dire M off. init and 10