Evening star., 1921-07-24
FUNCTIONS Of THE
/ CREDIT SYSTEM
Demands References, State
ments, Analyses and Other
Important Data.
BY r. HI. FINGER,

An economist has said that banks
are institutions which receive de-
posits. and which extend and facili-
tate credit. We know that credit has
come to play most vital part In
modern international, national, state.
municipal, commercial and domestic
exchange. Credit utilizes small saw
ings: it transfers capital to more
productive hands: it furnishes a
strong motive toward saving; 1t
makes possible great enterprises. But
credit has its disadvantages as well
as Its advantages. Credit may pro-
mote Indebtedness, it may transfer
capital or a mere right or privilege
to less productive hands; 1t may lead
to overestimating prices and thus aid
In bringing on commercial crises. To
safeguard against the attendant dis
advantages and abuses Of credit. the
banks and trust companies have es-
tablished their own credit depart
ments.
In the larger banking institutions
the credit department has not only
guarding the interest of the bank.
but also 1t has come to be used by
their depositors and clients as
source through which reliable credit
Information may be obtained to safe
guard their interests. The para
h1OuhI lucd VI lHC SiCuiS oSpdA ShiSht
is to render service to the banks and
its depositors and clients. and also.
within reasonable bounds. to other
banks, general inquirers and mercan-
tile agencies, who avail themselves OF
its facilities.
Must Be Fully Equipped.
The credit department of a large
BILE. complete and detailed credit in
formation on any individual or COM
mercial. Industrial. agricultural or
financial institution. corporation or
firm located in any part of the world.
Credit department records are kept
include data on individuals, firms.
companies and corporations in the
United States and throughout the
world which have been collated from
tained from the record of other de-
partments. from offices and repre-.
sentatives at home and abroad, and
from affiliated institutions; personal
Investigations; investigations by cor
respondence: general balance sheets.
annual reports; mercantile agency re-
ports: newspaper clippings; invest
ment, commercial and Industrial man
uals and publications. and digested
analytical reports compiled in the
department.
The credit department of the Guar
anty Trust Company of New York
maintains a reference library which
contains, among other things. COM
plete file of investment. commercial
and industrial manuals and publica-
ftons from all parts Of the world in
all languages: annual reports con-
tanning general balance sheets and in
come profit and loss accounts OF all
commercial. Industrial, agricultural
and financial institutions in the
United States and throughout the
world: statistical reports obtained di-
rect from Offices and representatives at
fome and abroad and from affiliated
and correspondent banks throughout
the world. covering staple commodi-
ties; commercial, industrial, agricul-
tural and financial Institutions: stock
exchange quotations in all exchanges
throughout the world obtained from
direct sources and analytical reports
compiled from the library records.
Prepare Analytical Reports.
Analytical reports made from the
general balance sheets and the in
come-profit and loss accounts assist
the Investigator in determining
whether or not the firm Is financially
strong s ana eapa9y hand and
on the balance sheet, indicates the
position of the concern at a stated
moment, while from the income
profit and loss account. the report
0nO"0 no" the COnCcrh dCtalneu IHdI
position. The analytical section. by
Comparing the position Of a firm over
q period OF two or more years can de-
termine whether or not the. firm is
progressing. The value of the in
eome-pront and loss account lies in
safety for each year can be figured
and compared. and. II this margin Of
safety Is increased each year. It in
dicates a healthy financial condition
20 <ha
agement. AS an additional aid to the
Investigator in determining the
financial condition of the concern. this
section also carefully scrutinizes the
line Of business Of the firm, accounts
and notes receivable, accounts and
notes payable, depreciation and ap-
probation accounts, contingent liabil-
tiles, dividends paid. etc. and calls
attention to any deficiencies.
EmDl0ye Investigator.
The credit department employs q
stan OF investigators, each a special
ist in his line. Too much emphasis
competency of these men. They must
have a pleasing personality and a
businesslike appearance. They must
possess initiative. tact. diplomacy and
Intuition. They must have personal
various trades and means to get to
the source Of credit information. Much
depends upon the results of their in
terviews. which often bring to light
important information which does
not appear in the correspondence or
in the analytical reports compiled in
the department. The important in
formation which they bring into the
department In connection with inves-
tigations on prospective borrowers
and customers. and commercial papar
names, includes the amount OF Sc
cured or unsecured loans outstanding
and lines granted with other banks:
deposit balances maintained with
other banks: the general view which
other banks take Of the account and
name; how the name meets its trade
bills: up to what amount sold: how
the name is looked upon in the trade.
and other general useful information.
A credit department employs corre-
spondents who, by seasoned expe-
rience and training in credit work.
arc capable Of compiling and fur
nishing credit information with
proper discretion. They must know
the sources of reliable information
and be on the lookout at all times
for new sources.