Evening star. [volume] (Washington, D.C.) 1854-1972, 1928-07-29
WHAT BORROWED MONEY COSTS
BY FREDERIC ]. HASKIN.

, tween the banking business and, say,
the shoe business. The shoe merchant
buys shoes at wholesale for a given
amount per pair. Then he sells those
shoes at a price sufficiently above the
cost to enable HIM to pay his overhead,
that is, rent of his premises, clerk hire,
delivery costs, heat. light and. if posi-
BILE. profit. A bank does no differently.
The principal difference is that, while
the shoe merchant owns the shoes he
buys and the man in the street owns
them when he purchases them from the
shoe merchant, banks merely rent
money.
A deposition places his. money in the
hands Of bank. He receives 2, 3 and
sometimes as much as per cent inter-
est on his deposit. That Is the rent
which the banker must pay. 1t COM
pares with the Wholesale price the shoe
merchant pays for shoes. Then the
banker lends that money TO any one who
wants to borrow it: that is. any one
whose credit is good. In other words
he rents it out at higher rent than
what he has to pay for it.
Net Profits Of Banks.
Now, in 1927, the member banks paid
out $3.50 year for every 500 Of time
deposits. Time deposits are represented
| by money, such as savings accounts,
which are not subject TO immediate
check, but will remain in the bank for
some months. Upon demand deposits,
that is, chez Ing accounts subject to
withdrawal without notice, the banks
paid in 1927 S1.30 interest or rent and
upon deposits made by other banks they
paid 50 for every 500.
The lowest rent, the S1.30 item, was
/ S<~f t1. 1nr n
deposits in 1927 amounted to Sl7.862,-
o42,000. This was subject to check
without notice. Many banks pay no
| interest at all on such accounts. The
volume of time deposits for which the
banks paid $3.50 per 500 was S12.l38.-
| 287 900 and the deposits Of other banks
on which per cent interest was paid
was $4i19,518,000.
Other expenses include rent Of bank
ing quarters. salaries of officers and en-
ployeS, insurance and the many Incl
dentals which arise in conducting an
important business. Banks, more than
almost any other sort of business, must
have expensive buildings to be success
full. It seems to be part Of the pSy-
chology of successful banking The pub
lie, apparently, feels more confidence
in bank which has an imposing stone
edifice. Modern bank safes are ex-
tremeIy expensive.
Net Profits Of Banks.
Nevertheless, with all this cost the
member banks of the country in 1927
made net profits of SAT 100000 and
| while. as shown above, the profit per
mentS, high-class work is required and
management brought result of $751;
| 000, 600 better than 1926.
/ While by far the greater part of the
money lent by a bank is the money of
| depoSitors, 1t must have capital of its
1 own with which to start business. In
a broad sense, all the money is Jumped
| together, capital and deposits, and
| loans made from the pool. OF course,
a legal reserve must be maintained at
all times to insure prompt repayment
| of deposits
But in figuring what bank actually
makes one takes not the SO per cent
| figure shown as profit on loans as a
| whole. but the sum received in interest
on the whole fund, capital and depos-
its together, in relation to the capital,
/ which is the banks own money. BY
/ this rule 1t is shown that IN 1927 the
member banks of the country earned q
profit Of 800 per cent