Sacramento daily record-union. [volume] (Sacramento [Calif.]) 1875-1891, 1881-12-05
BANK DIRECTORS AND EXAMINERS.

Mechanics Bank at Newark, and points
out that it is impossible for an Examiner,
who makes only periodical inspections of
banks, to discover systematic frauds which
have baffied the vigilance of the Directors,
sometimes for years. He expresses the
opinion that the real responsibility in al
such cases must rest upon the Directors,
and ne suggests. that they should be made
severaily and individually answerable for
the funds committed to their care. This is
practical good sense. For if through the
appointment of Government Examiners the
publ;ctare led to transfer their confidence
from the Directors to these officials, and II
because OF the existence of such Govern
ment supervision, the Directors are led to
relax their watchfulnesa, it IS evident
that the measure which was adopted as
preventive will become a fresh source
of evil and loss. On general principles 1t
is bad thing to shift responsibility
on to the shoulders of any external
agency, but in this case it is worse than
foolish. since the Government cannot be
held pecuniarily accountable, and since
therefore the only consequence of the
change can be to make the Directors prac-
tically irresponsible. The function of
Bank Examiners is no doubt protective
and precautionary, but these officers can
not be substituted for the Directors. They
can discover when the affairs of bank are
unsatisfactory the books of the bank are
honestly kept, but if fraud is being re-
sorted to for the purpose of concealing the
actual condition of things it will require
much more careful and prolonged inquiry
than they can make to get at the truth.
The Controller suggests that periodical ex-
aminations of banks shall be made by
Commissions appointed for that purpose,
and which can devote the necessary time
to the work. This proposition, however,
is Objectionable for the reason already in-
dictated, namely, that it aims at relieving
the Directors Of responsibility.
If, under Commission system, bank
should make disastrous failure. the Di-
reetors could allege that the fault lay in
the negligence Of the Commissioners. Il
is far better to hold the Directors them
selves to a strict accountability, and we
see no reason for stopping short of the
responsibility imposed on such officers by
the law of Scotland, as illustrated in the
case of the City OF Glasgow Bank. In that
case the Directors were held accountable
to the last dollar OF their property, and
those who put themselves forward as GUS
todians of the peoples earnings ought to
be under pledges quite as heavy as this.
There is no sound reason for tightening the
burdens OF bank Directors in fact. No
good is ever done by making it easy to
establish banks. All such legislation is
sure in the end only to facilitate swindling.
When the law provides that Directors
shall only be liable for the amount of stock
they hold, it encourages the careless
transaction of banking business, induces
adventurers to undertake the business,
and paves the way for such financial dis
asters as California and Sacramento have
been made only too familiar with. The
main object of banking legislation should
be to give the public security, but too
frequently the main object sought in such
legislation has been to provide opportuni-
ties of evasion for the Directors.
What the people want is safe and con-
sentative banking, not banking of the
Ralston kind. And experience shows that
the only way to secure this kind of bank
ing is to make every Director responsible
for the losses of the institution without
limit other than the amount of his prop
erty. Directors who act under the con-
slant realization of their responsibility
may be trusted to look sharply enough
after the affairs of their banks Those SO
bound will not trust everything to
cashier, however pious and plausible, or
dashing and brilliant, he may be. They
will insist on learning from day to day how
their property stands. They will insist on
doing thoroughly safe business. They
will not be put off with fine assurances,
but will inspect the books. They will
learn what loans are made, and on what
sc ,urity what commercial paper is dis.
counted; what accounts are overdrawn.
They will in short inform themselves SO
completely that their cashier cannot, if he
would, deceive them, and in looking after
their own interests they viii guard the in
teresta of the public.
This is the one way to have safe bank
ing. You cannot make men care as much
for the interests of others as they do for
their own, but you can make their own
interests identical with those of others,
and then their own sel6shness will be a
guarantee to the public. If experience is
of any value it teaches us that Bank Di-
rectors ought to be made to carry the
whole responsibility of the monetary liza.
bilities of their institutions. The limited |
liability principle has in our judgment
been proved a failure by experiment. 1t
has been very fruitful in the production OF
new banking establishments, but it has
been the parent of innumerable collapses