Evening star. [volume] (Washington, D.C.) 1854-1972, 1926-08-08
DAILY AUDIT BANKING SCHEME
BEING USED TO THWART CROOKS
Most Experts Agree That There's No Way to Check
Thief If He Breaks Out in Institution, But Plan
Might Catch Him More Quickly.

growing the crops, of taking to mar
ket, of turning raw material into
disable form, all of which calls for
credit, which credit can best be tur'
nished by banking. By the operation
of banking credit, one dollar of money
does the work of four, and by using
money as the basis of credit credit
may, in ordinary times, be EXTENDED
on the ratio Of four to one, thus multi
plying the usefulness and enectlVe-
ness of metallic money fourfold. Bank
ing makes money a potent force. II
makes credit elastic and safe.
The first bank was a banker. The
individual who conducted banking
business as part of his mercantile op-
erations soon found that he could en-
ploy more capital than he had, and SO
he associated others with him. II
thus became a partnership. In the
course of time 1t was found advisable
to incorporate under the banking
laws, or to apply for special charter
lin early days most banks were Gre
ated by special act), in order that the
business might be perpetuated, ana
that it might expand with the chang-'
ing needs of the community.
Banking was originally common
law right Any citizen could be
banker-if his neighbors would trust
him; but the business being more or
less of public character, isasmuch as
it deals with money, credit and credlt
instruments, and by the functions 1t
enjoys soon became a special prlVl-
lege, granted by law or the legislature.
While some men could be trusted 70
use these privileges wisely, II Woulo
not do to permit any one to receive
deposits, issue notes and loan money
for the power would be abused. mere
fore. public control, both in the grant
ing of the privilege and Inspection
thereafter, became necessary Tor the
common good.
Organization and Administration OF
Bank.
The organization of a bank may De
due to any one of several reasons
such as q desire on the part OF bank
man for an official position; the WORK
of a professional promoter; dlssension
among the directors of one bank, which
results in a rival institution; public
spirit, which appreciates the need and-
benefits Of banking institutions; but
in the last analysis, a bank IS Gre
ated from the desire on the part OF
those who have capital, to employ 1t
effectively through such an lnstltu-
ton. To organize a bank there must
be an accumulation of capital. AS
basis Of it's own credit this is abSo-
lutely essential.
The law stipulateS how much capt.
tai there shall be, and regulates the
capital to the population of the city
where the bank operates. Thls Is nun
damentally wrong, for the capltal
should not be adjusted to the place
but to the volume of business. But II
works out fairly well, for as a broad
proposition q country bank will not
have the growth that will attend
city bank.
The organization Of q bank is
legal matter that must follow certain
prescribed lines and conform to legal
requirements. There must first be
the association of five or more men
who unite for the purpose of applying
for a charter. The application must
be made to the Controller of the Cur
rency, if a national bank, and to the
State banking department. if a. State
institution. Inquiry is then made to
satisfy the authorities-first, that the
incorporators are acting in good faith,
are representative men of business,
whose connection with a bank will
bring credit and probable success to
the institution; second, that it has a
fair chance of success: and third, that
the capital requirements have been
complied with.
1nasmuch as the stockholders own
the bank. they are the controlling
factors. They elect the directors, the
directors elect the officers, and the Off
GERS select the clerical staff
Banks Defined and Classified.
Banks may be divided into three
classes: Cd Banks Of discount, COM
prising national banks, State banks,
private and individual bankers; (2)
trust companies, which in most in
stances do general banking bust
ness, and in connection a trust, and
in many cases a savings bank bust
ness: (3 savings banks, which are eS-
sentially investment institutions, re-
ceiving small deposits for cooperative
investment.
The Functions of Bank.
The functions of the bank are
fourfold: a. To assemble capital and
make it effective; (2) to receive de-
posts; 81 to pay checks; and az to
loan money.
One-This it does by assembling
capital of it's own, and by attracting
idle private capital. In the organiZa-
ton of a bank the stockholders Sub
scribe to the stock, which means
that they unite their private capital
with that of the other stockholders, so
that the aggregaed fund becomes the
paid-ins capital stock" The stock
holders are the partners in the enter
prise. The profits belong to them;
the losses must be shared by them in
proportion to their holdings. AS a
general rule the liability Is twice the
amount of stock held; that is, If
stockholder owns $500 worth of stock
par value, he is liable to have his stock
Cancelled and be subject to an assess
ment of $500 in addition, in case the
bank fails.
Fortunately for every one, banks
seldom fail. This is generally spoken
of as the stockholders double liabili-
ty," and is done solely for the protec
ton of the depositors. With this fund
as a starting point, the bank is ready
to do business. 1t loans this fund to
borrowers and thus makes profit.
But if the capital funds were all the
bank had with which to work, it
would not prove a profitable under
taking, for after deducting expenses
and losses, the profits, if any, would
be small. 1t, therefore, invites the
public to open accounts with it, and
it thus assemblies another fund, the
deposits, which it also employs in
making loans and buying securities,
SO that we have not only an additional
fund, but another function of the
bank, namely
Two-Contrary to the prevailing
idea. the bank does not receive the
money offered it for safekeeping.
Neither does it receive the fund for
mutual investment as is the case in
mutual savings banks; but the bank of
discount in receiving the deposit be-
comes the absolute owner Of the fund,
and the relation of debtor and creditor