The Washington herald., 1914-03-28
Is A BANK
NOT A BANK ?
CCopyrisht. 1914. by C. NJ. Keys. New Iatl

When the managers Of a big depart
ment store in New York few years ago
established a banking department in that
store. they invited everybody to come and
deposit money. the same as IL that bank
ing department were real genuine
bank. Now the store. the company that
founded the store. the individuals that
promoted the store. bank and all that
are In II, have fallen into deep and end
less trouble. The store has employed in
all something over 1000 people. They are
| thrown out of work According to the pa
pers. about 500 of them. mostly girls who
| work on small wages. have all their saw
| ings of years in the bank. There is no
reasonable expectation that the bank
can be iquidated to produce anything
worth while for these depositors.
That never was a bank in any reason
able sense OF the term No laws pre-
| scribed how the money should be used.
no ordinary safeguards of caution and
experience were thrown about the opera
tons OF the officers, and apparently no
efforts were made to control the kind OF
loans that would be accepted by the So
called bank. As a matter of fact. the
bank came to grief along with the rest
OF the corporation. principally because it,
loaned a very large proportion of the
money deposited in II to the stores them
selves and to the men who promoted
the stores Some of this money, il ap-
pears. was taken out of the bank directly
without any security and used by the
men in charge for their own purposes
and apparently without any regard tor
the fact that they were using other
peoples money.
That sort of thing. Of course, ought to
be utterly impossible in anv well-gov-
erned State or country. The principles
Of banking are well understood all over
the world. When a bank accepts de-
posit IL borrows money from the depos-
itor with no security. for all the de-
positor gets Is a pass book with some hg-
ures written in it Such borrower must
be compelled to follow certain rules in
his use of the money. or else he is get
ting an undue advantage over the de-
positor Between individuals. no such
transaction would be possible unless the
individuals knew one another and under
stood what was going to be done with
the money. and even then 1t would not
be a business proposition at all. but
matter of friendship or Of some other
personal basis. Certainly nobody goes
and puts money into the bank. or any,
thing that calls itself a bank. on the
understanding that the bank would be
able to use that money in any way II
likes, loan il without security to any,
body that it may happen to fancy, or
loan IL to a store as part of its work.
ing capital.
In the States where they regulate these
things we'll the laws governing savings
banks. trust companies and State banks
which solicit deposits from the people,
are strict and well worked out They are
the product of generations of experience.
They specify certain ways in which the
money can be used and sometimes they
expressly stipulate ways in which II
cannot be used. They tell a savings bank.
for instance, that IL may loan on bond
and mortgage. but they expressly stipu-
late that the mortgage must be a first
mortgage and that it must not be above
a certain amount OF a fair valuation. |
Then they limit the amount that can be
loaned on bond and mortgage, the idea
here being that since money loaned on
mortgage Is not liquid money. not more |
than a certain proportion Of the banks |
funds can be tied up in this way. They |
then go ahead and define the kind of
bonds that can be bought by the bank. |
They make the limits very strict. and |
they provide tremendous penalties |
against any bank that violates these |
rules. They further direct safeguards |
around the funds of the depositors so |
that their money cannot be loaned to |
individuals without security, and they
threaten terrible vengeance to officers of |
such a bank who use any OF their money |
for such purposes without security.
Similarly in a State bank or a trust |
company. the laws of such States as New |
York, Massachusetts,, New Jersey. Con-
necticut. and practically all the other
New England States, are direct. clear
and unmistakable. Every officer Of such
a bank knows perfectly well that. no
matter how close a friend he may be to
a business borrower. he has got to have
real security for his loans to that bor-
rover, or else he will render himself
liable to very heavy punishments. He
dare not take any money and hand II out
freely IN a department store or anybody
else without proper and well-defined Sc
curity.
Throughout the nation the s>of the
national system are regulated by laws
made in Washington. These laws, too,
are definite and distinct Sometimes they
are faulty and permit bad banking; but.
on the whole, they are good. and In any
event they are honestly designed to pre-
vent a dissipation of money that be-
longs to depositors or the loan of It
through unwise usage. These things are
as they should be. In every State there
is a department of the government whose
business 1t Is to investigate real banks
and see that they do real banking busi-
ness. No bank that is not under the
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