The Redwood gazette., 1935-07-04
Advice to Bankers 1863

In December, 1868, Hugh McCulloch,
then Comptroller of the Currency and later
Secretary of the Treasury, addressed let
ter to all national banks. Those institutions
had only lately been organized and their ex-
ecutiveS, one must assume, were more IN
need Of the Comptroller's sage admonitions
than bankers ever have been since. Here
are some of his paragraphs:
"Let no loans be made that are not secured
beyond a reasonable contingency. Do nothing to
foster and encourage speculation. Give facilities
only to legitimate and prudent transactions. Make
your discounts as short time as the business Of
your customers will permit, and insist upon the pay
ment of all paper at maturity, matter whether
you need the money not Never renew note or
bill merely because you may not know where to
place the money with equal advantage if the paper
is paid In no other way can you properly control
your discount line, make it at all times reliable
"Distribute your loans rather than concentrate
them in few hands. Large loans to single in
dividual or firm, although sometimes proper and
necessary, generally injudcious, and frequently
unsafe. Large borrowers are apt to control the
bank; and when this is the relation between bank
and it's customers it is not difficult to decide which
in the end will suffer. Every dollar that bank
loans above it's capital and surplus it for, and
it's managers are therefore under the strongest
holders, to keep it's discounts constantly under its
control.
"Treat your customers literally, bearing in
mind the fact that bank prospers as its custom
ers prosper but never permit them to dictate your
policy.
eff you doubt the propriety of discounting an
oer give the bank the benefit of the doubt and de-
cline it; never make discount if you doubt the
propriety of doing it. If you have reason to dis
trust the integrity of customer, close his account
Never deal with rascal under the impression that
you can prevent him from cheating you. The risk
in such cases is greater than the profits.
= "Pay your officers such salaries as will enable
them to live comfortably and respectfully without
stealing and require of them their entire services
If an officer lives beyond his income, dismiss him;
even if his excess of expenditures be explained
consistently with his integrity still dismiss him. Ex
travagance, if not crime, very naturally leads to
crime. A man cannot be safe officer of a bank
who spends more than he earns.
"The capital of bank should be reality, not
fiction; and it should be owned by those who have
money to lend and not by borrowers. The Comp
,troller will endeavor to prevent by all means within
his CONTROL the creation of nominal capital by ma
tional banks, by the of their circulation, or any
other artificial means; and in his efforts to DO this,
he confidently expects the cooperation OF all the
wel-managed banks.
pursue Straightforward, upright, legitimate
banking business. Never be tempted by the pros
pect of large returns to do anything but what may
be properly done under the National Currency Act.
Splendid fnanciering' is not legitimate banking,
and splendid fnanciers, in banking are generally
either humbugs rascals."
It remains to be added only that, inter-
esting as Mr.. McCulloch's ideas are now,
they might have been even more so four or
five years ago, and that they are no less
significant for bank borrowers and would-be
borrowers than for bank officers.