Evening times-Republican. [volume] (Marshalltown, Iowa) 1890-1923, 1902-05-21
WHEN BANKS MAKE MONEY.

WHEN BANKS MAKE MONEY.
1t is in the idle discussion of street
versy that the popular mind is laid bare
and the average citizen does his think
ing out loud. Upon one of these occas-
ions recently the writer listened to
general discussion of business condi-
tons and dividends, when one remark
following another led up to the subject
informed, citizen made the assertion
that the banks were waiting eagerly
for hard times when they could make
large profits. 1t was then that another
citizen spoke up for the first time with
the opinions that the latter mans state
nlent wasa sfool remark" Strange to
say, he had an argument on his hands
right away.
The first man had heard that banks
everywhere had more money than they
could loan out, that interest rates gen.
eraly had fallen since the advent of
prosperous times, and he reasoned that
when hard times should come again
money would be harder to get and
banks could charge higher interest
rates, hence earn greater profits. His
was the popular idea.and yet most fall
Il,ciaus one. Ranks never make money
in hard times, in fact no one class of
bushes is so hard HIT in periods OF
business depression as bank, for the
banking business is done on confidence.
When times are prosperous everybody
has money to deposit, bank deposits
grow large. and as the law of averages
On which theghanking business Is based
has shown that only small per cent
az this money will be called for at one
time the bank, can loan out the renlain-
Ger. which.earns good interest and may
have cost nothing. Hence when de-
posts are large banks have plenty of
money to loan and can earn large
profits. 1t ma tiers little if for u time
bank happens to have more money
than it can loan. provided this surplus
comes from deposits that do not cost
interest, which are always large III
prosperous times.
A bank makes its money on It's de-
posits If it should have to depend
for profits on loaning it's capital and
money for which it pays interest the
business had better be done over roll
top desk as individual money loaners
do. The expense of maintaining
elaborate banking houses and high
priced clerks is for the purpose OF
receiving deposits subject to check and
it is only by loaning large volume OF
these deposits. that bank can make
any money at all for its stock hold
ers.
When hard times come, instead of
making greater profits from increased
rates of interest bank is in serious
trouble. Deposits are withdrawn, zach
days demands far exceed the normal
average and banks have to Keep
greater portion of their deposits always
on hand in cash, earning nothing. AS
deposits fall off loans must be called in,
and If a bank has only 100000 loaned
out earning interest where 1T once had
s400 000 the banks profits are reduced
al.
that much, for the rise in the interest
rate is only a small per cent. Added to
this is the uncertainty of panicky
retail failures, with the owners owing
large amounts to the bank and forcing
the bank to make good to the depositor
out of its earnings or capital, so that,
taken all in all, a bank not only makes
no money during hard times, but rather
suffers more and incurs greater risks
than almost any other business insti-
tuition On the other hand, many ma
tional bank lis today paying 4 and per
because deposits are so large that the
earnings from a large volume of loans
are enormous. Bankers everywhere
today will admit that banks have made
greater profits during the last two
years than ever before In the history
of banking, greater even than when
loans could be made at 2 per cent a
month, for the reason that the vol