Passaic City record., 1893-09-02
BANKS AND BANKING.
BY GEO. F. SWAIN

such an idea has become SO uni
versal is a mystery to me, as the
men entertaining it are of the class
who do not seek to invest their
money except at a profit
To have Bank, it is necessary
that a number of men organize
themselves into a corporation, and
invest their money in such amounts
as to make the total capital of suf-
ficient size as to inspire confidence.
This done, the Bank is ready TO in
vite depositors and to do business.
The stockholders hope and expect
to do business on such scale that
they will not alone pay expenses,
but declare fair and reasonable
dividend semi annually upon the
amount of money they have in
vested as guarantee against loss
to the depositors doing business in
their Bank.
Few depositors realize what it
costs Bank to carry depositor s
account per year. 1t strikes me as
fair estimate. taking Banks, as
they run, that this cost will aver
age about sixty dollars a year for
each depositor's account opened
by the Bank. If this is correct,
then depositor, in order that his
account shall not prove losing
one to the Bank, must keep on de-
post an average daily balance of
one thousand dollars. AS mat
ter of fact, there are many depos-
itors who do not keep anywhere
near such an average daily bal
ance, while few may keep great
deal more. Even if all kept the
correct daily balance, there is no
profit in the deposits to the Bank,
as the depositors do not pay sim
gle cent for the care and safety of
their money. 1t follows, as mat
ter of course, that the Banks, in
order not to be losers by receiving
deposits for which the depositors
pay no consideration, must look
elsewhere for their profit. This
they find in securities, in buying
notes one the market, and in dis
counting paper for their customers.
There are seasons in every year
when the Banks are unable to loan
or invest money to advantage, and
then come seasons when they are
asked to invest more than they can
supply. When these last seasons
come, the Banks strain themselves
to meet the demand, not alone to
accommodate their customers, but
to enrich themselves, on the prin-
ciple of z making hay while the
sun shines" At the close of some
such prosperous season, panic. if
it is to occur at all, is bound to take
place. Depositofs then rush to
their Bank and want their money,
and want it at once. 1t is useless
to tell them that the Bank has
three dollars in securities for every
dollar due the depositors, the de-
positors only considering that they
deposited money and not securities,
and want to draw their own money
out. To add to the general con
fusion, the parties to whom the
Banks have loaned money, lay
down, giving the Banks the option
to carry them or else sell out their
securities, thus depressing their
value. The customers who have
had notes discounted demand re-.
newa1s, or the Bank may take the
alternative of suing. which if itdoes,
ties up so much money indefinitely.
Now, as the depositors have not
paid the Banks single cent for
taking safe and proper care Of their
money, and the Banks, having
guaranteed them against loss by
obliaing the stockholders to put up
so much money in the shape Of
capital as security. and make them
selves liable for as much more, if
the capital put up does not prove
sufficient, it is, to put it mildly, a
senseless and graceless proceeding
On the part of the depositors to
make run on any Bank, thus in
viting loss to themselves, and in
many cases imposing loss on the
Banks who have done their busi-
ness without charge.
know Of but one way to deal
with such depositors, and that IS
for the Banks to charge them
certain per cent. per annum for
taking care of their money; per
cent. large enough to cover ex-
penses and pay 2 profit, and
then leave their deposits in the
safe subject to call
Every once in awhile ! hear 9
Rrowl from some otherwise good
man, against one Of our Banks or
the other, about refusal to give
him = discount Or ! renewed with
out some confederation. Such =
groWl generally ends With . threat
4 = = Il