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others held a contrary view. One institution states that in the case of country banks the paper is frequently ineligible, due to maturity or otherwise, but that the rated paper received occasionally from city banks who borrow on demand or rediscount would be eligible. The matter, of course, depends in large part upon the extent to which borrowing institutions employ the Federal Reserve Bank when borrowing on receivables, which was mentioned above.

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Consideration of data regarding the bank-the statement of condition. Analysis of the statement in general involves consideration of the absolute size of various items as compared with other items. In no case were ratios formally calculated, extra large items merely being considered. One bank places little reliance upon statement analysis, as it holds that "a good statement may be rotten at the core." The items to which attention is paid, and the "subjective" ratios, as they may be termed, which are considered, are of course fairly standardized. Among these will be the ratio of deposits to capital investment, as indicating whether deposits are sufficiently large to do a profitable business; and the growth of the institution, as evidenced in particular by growth of deposits and surplus and undivided profits, or dividend record, giving attention to opportunities arising to ascertain whether the bank is properly and promptly charging off slow assets or depreciations. On the other hand, attention must be paid to see that the volume of business done is not too great, and here, as a test of "overloaning," the ratio of loans to deposits may be considered, as well as the ratio of deposits to capital investment. The second group of items deals with the character of assets, in particular the proportion of fixed assets, such as bank building, real estate, furniture and fixtures, or such items as "other real estate," as related to the capital investment; and assets of a possibly slow character, such as stocks and bonds (other than Government securities), as well as the reserve maintained. Third, the borrowing of the institution will also be observed, and frequently information will be possessed as to the total lines granted by other correspondents, in order to consider the amount of total borrowings. The lines expected from New York correspondents are usually larger than the amounts borrowed from correspondents of lesser loaning ability. The overdrafts shown may, of course, be significant.

Handling of the account by the borrower.-This is naturally regarded as affording one of the most valuable indications of the character of management and business methods of the borrowing institution. Certain matters are generally pointed to in this connection. The general significance of balances was indicated above. A balance which continually fluctuates in an erratic manner might also indicate poor

management. The significance of the overdraft record was likewise indicated above. One institution states that when the account becomes unsatisfactory by reason of overdrafts it makes inquiry in the town and immediate vicinity where the bank is located to ascertain the general local situation, as well as any special reasons which exist for the condition of the account. "The matter of prompt reconcilement of monthly statements of accounts is also carefully watched," states a leading institution, "as lack of diligence in these respects is frequently significant," and likewise with the promptness or otherwise with which a bank makes substitutions for maturing receivables.

Suggested Readings on Chapter VIII.

Langston, L. H.-Practical Bank Operation, Chapter V-VIII.
Scott, W. A.-Money and Banking, pages 117-121.
Phillips, C. A.-Bank Credit, Chapter XV.

Questions and Problems on Chapter VIII.

Two banks, A and B, write in to their correspondents asking that they be granted rediscounts. The bank can accommodate only one of them. On the basis of the following statements, which should be granted the accommodation?

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2. Suppose a depositor in a bank in Lancaster, Pennsylvania, deposits a check on a Hartford, Connecticut, bank, which collects through Philadelphia, New York, and Boston. Make a time-table showing how long it would take to collect it and the shifts in the balances of the various banks involved. 3. Explain the paradox that checks are used more frequently in cities than in the country but that each check in the country passes through more hands.

4. In what ways is a system of large banks acting as correspondents for many small banks superior or inferior to a Federal reserve system or a system of large banks with branches scattered over the country? Consider the following points: local control, attention to needs of locality, distribution of credit, and control in time of crisis.

5. Explain how a bank determines the amount of balance it requires a bank to keep in return for acting as its correspondent.

6. Why does a bank ever wish to rediscount? Why was it formerly considered as a sign of weakness to rediscount?

7. Which gains the greater advantage from the correspondent relations: the larger or the smaller bank?

CHAPTER IX.

BANK ORGANIZATION AND MANAGEMENT.

The board of directors are chosen by stockholders and must be stockholders. They choose officers and are responsible for the general policy of the bank. The loan committee passes on loans and discounts.

The president, in small banks, is often little more than a figurehead. In large banks he often chooses the board of directors. He looks after the general policy and the general organization of the bank.

The vice-president is not important in small banks, except in the absence of the president. Large banks have numerous vice-presidents, who are department heads.

The cashier, in small banks, often runs everything. In large banks he is the chief executive officer. He keeps the minutes of the board, makes out the reports, employs the clerical help, and signs the checks.

The paying teller has charge of the cash, pays and certifies checks, prepares the payroll, and settles clearing house balances.

The receiving teller receives deposits and turns the items over to the proper departments: cash to the paying teller; clearing house checks to the clearing department; other local checks to the collection department; out-of-town checks to the transit department.

The discount clerk and note teller has custody of the notes and presents them for payment.

Problems of Bank Management.

I. The control of the personnel.

2.

The care of the portfolio or the arrangement of loans. 3. Getting new business.

4. The management of the reserves.

5.

The loaning policy with reference to the business cycle.

Materials on Chapter IX.

Investments of National Banks.

From the Report of the Comptroller of the Currency for 1921, p. 30.

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Claims, warrants, judgments, etc..

Collateral trust and other corporation notes issued for not more than one

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National Bank Investments in United States Government Securities and Other Bonds and Securities, etc., Loans and Discounts (Including Rediscounts), and Losses Charged Off on Account of Bonds and Securities, etc., and Loans and Discounts, Years Ended June 30, 1918 to 1921,

Inclusive.

From the Report of the Comptroller of the Currency for 1921, p. 58.

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