Evening star. [volume] (Washington, D.C.) 1854-1972, 1905-07-13
FALSE CERTIFICATES.
Little Chance of Detection When
Pledged for Loans.
From the New York Times.

From the New York Times.
Attention this past week has been drawn
to the risk which banks incur in accepting
collateral for leans without assuring them
selves Of the genuineness of the certificates
that are pledged security. The Gaskill
incident In Philadelphia brings clearly to
light the fact that banking institutions are
readily imposed upon by false certificates
of stock, and at first glance the ease with
which the Philadelphia institutions were
defrauded seems to suggest the imperative
necessity of the adoption of methods that
would make the repetition of such frauds
more difficult than 1t has been in the past.
The fact Is. however tnat such a fraud
could not be perpetrared on bank by any
one except one in good standing in the
financial community. No stranger could
secure money on a false certificate of stock
for the mere fact that he was unknown
would lead to the most careful investiga-
ton, even were the question of making
him loan considered at all. 1nasmuch as
only those who command respect among
bankers are in a position to commit such
frauds the chances of loss are not great
after all. and In the final analysis the mat
ter comes down to this, that banks
are forced to trust to the good faith Of
those with whom they deal The only
alternative is not to deal on credit at ALL
and that is tantamount to going out of
business.
Banks every day IN the year accept mil
lions of dollars of securities of all kinds
as collateral, and to have each certificate
examined with a view to determining its
genuineness would be well nigh physical
mpossibility. The most effective way to
test a certificate, Of course, is to present it
for transfer and secure a new certificate
about the validity of which there could be
no doubt. But this could scarcely be done,
especially not In the case of temporary
loans which sometimes run no longer than
the time II would take to enter the certh-
cate for transfer and secure the new one
in return. Moreover, as matters now stand,
the transfer tax would stand in the way
of the transfer OF stock by the banks, for
the amount earned as interest would be
seriously reduced, II not wiped out, by
paying the transfer tax each time the Sc
curity was given as collateral. Take for
example a loan Of say 100000 on low
priced stocks such as Steel common. rms
would call for the deposit Of say 1900
shares Of stock. The daily interest on the
loan at per cent would amount to "a AZ,
and II 1t ran say for four days, the bank
would receive in interest $21.92 The trans
fer tax on the 1900 shares at the rate of
~ a hundred shares would amount to $50,
or nearly four times the interest for four
days Even on stock selling as high as 120
the interest would be wiped out by the
transfer tax.
The fact is that there are some ways in
which banks can very easily be defrauded.
but the safeguard for the banker lies In
the fact that those in a position to defraud
them are not likely once in ten thousand
times to do so. Any member of the finan-
clal community in good standing could
secure money on a forged check. but
fortunately there are few of those with a
reputation to lose who DESCEND to such
practices. Banking can only be done on
the basis Of the responsibility of those
with whom banks deal. and nothing but
the morals OF their customers will save the
bank from loss in their transactions with
the public