Imágenes de páginas
PDF
EPUB

CHAPTER II.

GENERAL IDEA OF A COMMERCIAL BANK FROM ITS BALANCE SHEET.

The bank engages in many transactions which are common to all forms of business:

Purchasing building and equipment.

Raising capital.

Paying running expenses.

Making profits or suffering losses.

Paying dividends.

In addition, the bank engages in many transactions which are more or less peculiar to its own business:

[blocks in formation]

The balance sheet of a bank is a statement of its condition at the end of some business day. Since a bank is dealing in money and claims for money, it is a simpler matter for a bank to draw up a balance sheet than it is for a mercantile or manufacturing concern. In fact, the ordinary bank makes up a balance sheet each day.

The public is fairly familiar with the balance sheets of banks, as the Federal law and most of the State laws require their publication at intervals. The national banks must publish the statement five times a year.

Sometimes the statement does not represent the true condition of the bank. Assets are concealed:

To evade taxation when capital items are heavily assessed.

2.

To discourage competition by concealing profits: insiders may defraud other stockholders.

Methods of concealing assets:

I. Don't list them.

2.

3.

Undervalue them.

Credit each shareholder's deposit.

4. Issue a certificate of deposit to some one as trustee for the stockholders.

Why liabilities are concealed:

1. To offset shortage in cash.

2. To cover wrongdoing of dishonest officials.

2

Materials on Chapter II.

Brief Explanation of the Principal Items in the Balance Sheet

of a Bank.
Resources.

Loans and discounts.-In the commercial banks, loans and discounts make up the bulk of the resources. They represent money advanced to business men for short periods. In the loan, the interest is paid after the time has elapsed. In the discount, the interest or discount is deducted in advance.

Overdrafts. When depositors draw checks for amounts greater than their balances, the bank may pay the checks. If it does so, it has a resource in the amounts it will collect from its customers.

Customer's liability on account of acceptances.-When a bank agrees to accept a bill of exchange for a customer, it takes a liability (the bank must pay the bill when presented). To protect itself, the bank requires the customer to promise to pay the sum. Sometimes this promise is supported by collateral security.

United States Government bonds.-These bonds are a prime investment. In addition, the bonds may be deposited with the United States Treasury to secure national bank notes which the bank issues or to secure Government deposits.

United States certificates of indebtedness.-These are short-time obligations, and consequently make good investments for commercial banks.

Other bonds, securities, etc.-These may be purchased if the demand for commercial loans does not exhaust the funds of the bank. Frequently, banks buy the municipal bonds of the cities in which they are located.

Stock of the Federal reserve bank.-All national banks are required to subscribe to the stock of the Federal reserve bank in their district. Properly qualified State banks may subscribe.

Banking house.-The bank may own the building or buildings in which its business is carried on.

Furniture and fixtures.-The equipment utilized by the bank is

an asset.

Exchanges for the clearing house.-Checks on other banks, when deposited in the bank, are collected if possible through the clearing house. Checks awaiting collection constitute claims on the other banks.

Checks on out-of-town banks.-These checks, which have been cashed or received as deposits, will be collected through the Federal reserve bank or through correspondents.

Lawful reserve with Federal reserve bank.-Banks have demand obligations in the form of deposits. The law forces the banks to keep on deposit in the Federal reserve banks a sum equal to a proportion of these deposits in order to protect the depositors. If the bank is short of cash, it may get cash from the Federal reserve bank.

Cash in vault. This cash is held to meet depositors' claims. It may be the result of heavy deposits which shortly will be loaned or invested. Other cash items.-These are items payable on demand, such as checks on other banks.

Due from banks.-In some of the more detailed statements, the amounts are divided as due from National and from State and private banks. These deposits in other banks arise in connection with the collection of out-of-town checks and the holding of balances in financial centers against which to sell exchange. The bank holding the balances is called the correspondent of the first bank.

Redemption fund with United States Treasury. Each National bank issuing notes must keep deposited in lawful money in the Treasury of the United States 5 per cent of the amount of notes outstanding. Any unused portion of this fund is an asset of the bank.

Interest earned but not collected.-To be accurate, the bank computes the sums of interest on loans and investments which have accrued since the latest payment.

Liabilities.

Capital stock paid in.-The bank owes this sum to its stockholders. The capital stock acts as a guaranty fund to protect depositors, noteholders, and other creditors of the bank.

Surplus. This fund performs the same function as capital. It is owed to the stockholders, because it has been built up out of earnings or from direct contributions. It carries no double liability as the stock usually does.

Undivided profits.-In this account are placed the earnings of the bank and from it are paid the expenses of the bank. It is owed to the stockholders. At intervals sums may be transferred from undivided profits to surplus. In many cases, the account reads, "undivided profits less expenses." At the end of some period, such as the month, the amounts expended are subtracted.

Individual deposits subject to check.-The bank owes its depositors the sums they have intrusted to it. The item is usually the largest liability of the bank.

Circulating notes outstanding.-Only National banks and Federal reserve banks can issue notes. A circulating note is the promise of a

bank to pay the bearer on demand, issued in an even amount. The bank owes the face value of the note to the holder of it.

Due to banks.-The correspondent banks mentioned above have deposits of banks. These show on the balance sheet as in this item.

United States deposits.--This item was formerly more important, as the Government used many banks as depositories. Now, most of the Government funds are kept in the Federal reserve bank.

Certified checks.-When a check is certified, the bank deducts the amount from the maker's balance and assumes the liability.

Cashier's checks outstanding.-These checks are orders for the bank to pay money signed by the cashier. They arise when the bank pays its bills. Until they are paid, they are liabilities of the bank.

Certificates of deposit. These represent sums of money left with the bank, often for a definite period. Thus the bank owes the holders certain amounts.

Dividends unpaid.—When a bank declares a dividend, it owes the stockholders that amount.

Bills payable with the Federal reserve bank.-The bank borrows from the Federal reserve bank, and so becomes the latter's debtor.

Acceptances. As was explained above, the bank assumes a liability to pay the acceptances, but has as an offsetting asset the customer's liability on the acceptances.

Discount collected but not earned. This is simply a subdivision of undivided profits. It calls attention to the fact that the discount which is collected at the time the note is presented to the bank has not been really earned until the note becomes due.

The Effect of Bank Operations on the Balance Sheet of a Bank.

The balance sheet of a bank shows what the bank owes and what it has with which to pay. Mathematically, it is an equation. The equality is not disturbed if an equal amount is added to or subtracted from items on each side, or if the same amount is added to and subtracted from items on the same side.

In the following transactions, an increase in an item is indicated by the plus sign and a decrease by the minus sign. The resources are on the left side of the page and the liabilities on the right.

[blocks in formation]
« AnteriorContinuar »