A Simple Explanation of Modern Banking Customs

Part 1

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A SIMPLE EXPLANATION OF MODERN BANKING CUSTOMS

HUMPHREY ROBINSON

Edited from a Legal Standpoint by W. Overton Harris, Former Judge of the Jefferson County (Kentucky) Circuit Court, Dean of the Louisville (Kentucky) Law School

Designed for the promotion of closer and more satisfactory relations between the public and the banks; for the information of depositors generally, and of those just entering the banking business.

Boston Small, Maynard & Company Publishers

Copyright, 1909, 1910 By Humphrey Robinson

Entered at Stationers' Hall

CONTENTS

PAGE

I. General Remarks 9

II. The Choice of a Bank 14

III. Opening a Bank Account 17

IV. How to Deposit 22

V. Your Account on the Bank's Books 26

VI. Stopping Payment of a Check 32

VII. How the Bank Collects the Checks you Deposit 33

VIII. The Clearing House 36

IX. A Certified Check 49

X. Protesting Notes, Drafts, etc.,--why Necessary and how it is Executed 53

XI. The Local Collection Department 64

XII. The Loan Department 77

XIII. New York Exchange 99

XIV. The Method of Issuing National Bank Notes 102

XV. The So-called "Special Privileges" of Banks 109

Part 2

A SIMPLE EXPLANATION OF MODERN BANKING CUSTOMS

GENERAL REMARKS

After some years of work in a bank, it has been impressed daily upon the writer that, if the depositors were fully informed about the details of the conduct of banks, closer and more satisfactory relations would result. Hence this attempt to explain, in a simple and concise way, avoiding as much as possible the use of technical terms, certain things that every depositor should know.

For ten years the writer was "in business." For an equal length of time he has been connected with a large city bank. He remembers his utter lack of comprehension of banks and their ways, and his consequent mistakes, perplexity, and embarrassment in dealing with them. Also the unfairness and prejudice with which he often judged them.

Recalling all this, he believes that, without giving offense, he can state these facts.

Many men having constant transactions with the banks do not realize the importance of the choice of a bank; few understand the correct way in which a note should be drawn, or how to determine the exact due date of a sixty or ninety-day note, or acceptance; what "protesting" a note or draft really means, and what effect it has on the drawers or endorsers; the functions of the Clearing House and the simplicity of its methods; why the banks are compelled to pursue a certain course in the collection of paper sent them, even though this course may be very objectionable to the payers; how checks are collected; the effect of certifying a check; and many other details. Also that very few depositors have ever seen a copy of the National Bank Act, or are familiar with the laws governing their own State Banks and Trust Companies.

This lack of knowledge of the laws and customs, from which there can be no safe departure, is undoubtedly the cause of many unreasonable requests; assertions of fancied rights; remonstrances, and irritating misunderstandings. This condition should not exist. One explanation for it may be, that the work in a bank is so strenuous, everything having to be accomplished in so short a time, that the officers and employes do not have the opportunity to explain fully the reason why.

Many seem to think that the details of banking are very complicated. But there is no mystery about these details. They are very simple and sane. The methods of bookkeeping are really elementary, principally mere addition and subtraction. Of course the science of banking and political economy involves deep and profound study, but these are not treated here, and the writer has attempted merely to give an idea of the daily routine of a bank.

This can be stated with certainty. The interests of the public and the banks are identical; and an acquaintance with banking customs will enable any man to conduct his business with much greater intelligence, satisfaction and profit. Also that banks want to accommodate, as far as possible, not only their own customers, but others, because they are possible customers.

It is hoped that this writing, in some small degree, may hasten the time, when the political orators, remembering that the day of the private banker has passed, and that the people now own the banks, will cease inciting the public against them; when the law makers, elected by the stockholders and depositors of banks, will cease oppressing them by unequal and unjust taxation; when the public generally, realizing the necessity and importance of banks to every community, will cease being prejudiced against them and their ways, and, by reason of a better understanding, will feel closer and more cordial toward them.

So "here's to a better acquaintance" between the public and the banks.

THE CHOICE OF A BANK

The choice of a bank should be most carefully considered, especially by a business man.

The same care should be exercised in selecting a bank as would be used in choosing your lawyer or your doctor. Having done this, make it a rule to be as frank and open and straightforward with your banker as with your lawyer or your doctor. You will never lose by it. All banking relations must be founded on mutual confidence. Once let your banker get the idea that you have deceived him, and naturally he is forced to view your statements with suspicion. Tell him the whole truth about your business and your resources, even though it hurts sometimes. It is primarily to his interest to help all his customers build up their business as much as possible, and to keep them going, and your success contributes to the general success of your bank. He should be, not only your banker, but your intimate financial adviser and your very good friend.

In deciding upon your bank, did you inquire into the character and disposition of its President and Cashier? Are they men whose business sagacity and honorable careers are such that you are glad to seek their advice; and can you repose every confidence in their keeping inviolate your business secrets? Will they fulfill to the letter their promises of protection to the best of their ability in times of financial stress? Or, have they exaggerated their resources and facilities and made all kinds of suave, but very general promises in order to get your account?

Have you gone a little further and considered the personnel of the Board of Directors of your chosen bank? That Board is supposed to approve or disapprove all loans and business arrangements. Or, did you open your account with some bank merely because of convenience of location, or because some friend suggested that institution?

III

OPENING A BANK ACCOUNT

In opening your account with a bank, you will be asked to give your signature and your address. Write your name naturally, as you are in the habit of signing it. The paying teller has to accustom himself to the peculiarities of the signature of every patron of the bank, and has to be constantly on the lookout for forgeries; for if he pays a forgery, the bank must stand the loss. He soon gets to know your signature as he knows your face. So don't have your signature on the bank's books as, John P. Williams, for instance, and then sign numbers of your checks, J. P. Williams. The letter "J" might stand for James or Joseph, and, if the account is in the name of John P. Williams, the bank is taking an unreasonable risk in paying out your money on a check signed, "J. P. Williams." It would have to make good any loss that might result thereby. A woman, for instance, will open an account as Florence Perkins Smith, and then send out checks signed "Florence P. Smith"; or "F. P. Smith"; or if married, will sign, Mrs. Harry B. Smith.

Then the paying teller must see that every endorsement on the check is technically correct. For instance, that a check made payable to John P. Williams is not endorsed "J. P. Williams," and again that a check payable to "J. P. Williams, Trustee," is not endorsed by J. P. Williams only, and not as "Trustee."

Before going to the paying teller's window you should endorse any check you are collecting; even though it is made payable to "Cash" or to "Bearer." If the check should turn out "no good," the teller can then see at a glance who cashed it, and communicate with the proper party. Compliance with these points saves much delay.

Every check should be endorsed exactly as it is made payable on its face. Many firms, as well as individuals, overlook this point daily.

The paying teller must watch for raised or altered checks. The law holds that any legal instrument is void if altered in any material way.

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