The Washington times., 1925-07-16
FIND INCREASE
IN BANKING
COSTS
Improbable Accounts Assume
Added Importance in Light
of Lessened Returns
BY RICHARD HATTON.


taken in any subject discussed at
the recent convention OF District Of
Columbia bankers than that ere
ated by the reports and recomnen-
dattons regarding "unprofitable ac-
counts" In line with the prob
lem faced by banks in carrying dc-
counts at loss is the equally i'm
portant matter, according to many
Washington bankers, Of general
cost accounting. Unquesitonably
the cost of carrying on the bank.
ing business has mounted tremen-
dously in recent years and the
bank, declare those who ar5 con-
versant with the subject, which
fails to provide IN its prolific for
the present heavy costs Of opera
ton win find that it is not build
ing upon a sound foundation.
Notwithstanding the fact that
the banks are now giving variety
Of services unheard of q few years
dent OF the Equitable Trust Com
pany of New York, in a~recent adj
dress, they are getting less IN
return from the depositor than
they did thirty years ago when
they were mere lenders of money.
This statement is by on means
theoretical We have only to
analyze our earnings statements to-
day in comparison with those OF
thirty years ago, to find that a
radical change has taken place in
the ratio of net TO gross earnings
in banks. Net earnings have grad
ually decreased from one-third Of
gross earnings to approximately.
one-quarter.''
Interest on Deposits.
Pointing out that the interest
paid on deposits by banks IL one
of the largest items in the expense
account and that operating ex.
penses may be said not to have
increased IL the amount paid de-
positors in interest is deducted
from them. Mr.. Loasby said: ''Tt
il interesting to note, also, while
we are on the subject OF bank
earnings and expenses, that we
now pay out of our profits about
twice as much in interest on de-
posits as we pay to our stock
holders. in dividends.
This condition. it was pointed out
by a local banker today, actually
makes the depositcr somewhat OF a
cI1dL CltO14Ci lAAG O1tlA anu 0IAlAEo
the depositor in direct interest in
the question Of the improbable ac-
count; /. e.. the accountwhich IL so
small as to be } liability instead
Of an asset to the bank by reason
Of the expense OF handling it and
the impossibility OF its earning any
return to the barb.
THE activity Of an account plays
an important part In the final an
alysis Of costs" declared Mr.. Loas-
by. and this statements Is borne out
by local bankers who point out the
heavy overhead expenses borne by
the bank. the cost Of handling
checks and bookkeeping. although.
at stated by Mr.. Lcasby. 1T Is not
an easy task to refuse the account
Of a prospective derositor or. tell an
old depositor thai his account is
not profitable and must be placed
upon a different basis or with
Volume is Lesser Factor.
Nevertheless. there is a growing
feeling in. local banking circles that,
from the standpoint of actual bust
ness value. the volume Of accounts
carried is not so important as is
the question of whether they are
profitable or Improbable.
IF we know our cost Of opera
tion," declared Mr.. Loasby, "and
after an analysis Of an account
find it Improbable, we have a per-
fectIy legitimate reason for an.
preaching any business man. even
though his average balance has
been a substantial one. provided we
take pains to acduaint him with all
the facts and show him Just why
his account is costing the bank
money rather thar showing a fair
profit
This view is generally upheld
by bankers in Washington who
agree that # is the general concen-
ton Of the depos!tor that any ac-
count is profitable to a bank. but
who. also, are Of the opinion that
the great majority of depositors
have. no desire to receive banking
service which actually causes the
bank loss. It is. In the opinion OF
many Washington bankers. merely
necessary to call the attention Of
the banking public t. actual condi-
lions in this regard to make DOS
sible change in the system now
in vogue in most bahhs Whereby
every account carried will at Least
lay its own way.
Opportunity of Bank.
1t is not impossible for the bank,
itself, to become a factor in placing
sa account upon a profitable basis.
10 the benefit OF the customer as.
well as the bank, and according to-
Mr.. Loasby, this is the policy Of his
own hank. In this regard he snid:
When an otherwise desirable ac-
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