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Assimilated Notes and Acceptances.-Notes and acceptances are often assimilated to the foregoing character to facilitate the procurement of loans. Two merchants will exchange notes, and offer each other's note at different banks, as business paper. Such notes are peculiarly hazardous by reason that the insolvency of either of the parties will usually produce the insolvency of the other. Acceptances are exchanged in the same way, and possess the same element of danger.

Kiling - Sometimes a country merchant will draw on a merchant of New York, and obtain thereon a discount at some country bank. The draft will have some months to run before it will become payable ; but when it is payable, the New York merchant will obtain the means of payment by drawing on the country merchant, payable some months thereafter, and getting a discount thereon in New York. Such transactions are termed " kiting.” They are practised on notes as well as on drafts; and by persons residing in the same place as well as at distant places. When practised by persons who live at a distance from each other, the operation is usually very expensive, by incidental charges of exchange and collection. Bankers should suspect the solvency of parties who resort to expedients so commercially disreputable. The real character of the transactions is rarely avowed by the parties inculpated in the practices; but a vigilant banker will soon suspect the operations, and not touch them, unless the security can be made very ample.

Dummies.A country produce dealer, or manufacturer, will, sometimes, place in New York an agent on whom to draw; or he may connect his operations with some person there of no capital, whom he will use as an acceptor. Such acceptances are no better than the note of the country dealer. They constitute, moreover, a hazardous class of paper, as you may rely somewhat on an assumed capital in the acceptors. Such methods are rarely practised except by persons who want to extend their operations beyond the limit to which a real consignee would restrict them. No prudential limit exists with the dummy acceptor, hence, the drawer is able to carry his operations to an extent unlimited, except by his own will, or his ability to find lenders; and men thus predisposed, and supplied with the requisite machinery, usually extend their speculations till they are overwhelmed in ruin.

Void Notes and Drafts.-Notes and drafts are often made to be sold at a usurious discount, by parties ostensibly solvent, but who are struggling to purchase a transient respite from bankruptcy, or to amend their fortunes by desperate enterprizes. Banks are, therefore, usually reluctant to discount paper offered by brokers and other persons who are known to practise usury; for such paper is, by existing laws, void as against makers and endorsers, in the hands of even an unconscious holder. In New York the defence of usury is said to be so discreditable, that few men will avail themselves of it. In the country, people seem less fastidious in this respect, and any debt which can certainly be avoided by means of usury, would be very apt to be uncollectable.

Of Gains. But the avoidance of loss is only a negation of evil. To make gains is the proper business of a banker, and as the principal source of legitimate gain is lending money, the bank must lend to the extent of its ability-erring on the side of repletion, rather than of io



anition; for a banker knows not how far his bank can bear extension till he tries; hence, if timidity, indolence or apathy, limits his loans in advance of necessity, he may injure the community by unnecessarily withholding pecuniary assistance, and injure his stockholders by unnécessarily abridging their profits. A banker must not, however, extend his loans regardless of the future, but like a skilful mariner, he should see an approaching storm while it is an incipient breeze, and meanwhile carry all the sail that will not jeopard the safety of his charge:-governing his discounts, at all times more by the condition of his funds, and his own prospective resources, than by any reputed scarcity or abundance of money in other places and in other banks.

When to be Moderate. If a banker can make reasonably good profits on his capital without much expansion, he may keep more restricted in his loans than a banker should who is less favorably circumstanced. Every banker must, however, remember that to be strong in funds and rich in profits, are natural incompatibilities ; hence the more money a banker wishes to make, the poorer in funds he must consent to become. In banking operations, as in most other, wisdom lies in a medium between extremes; and if a banker can keep funds enough for practical safety, he had better forego excess of funds, and receive an equivalent in gains. Physicians say that the human body can bear excess of food better than deficiency. The excess can be discharged by cutaneous eruptions, as we see sometimes in over-fed infants ; but deficiency of nourishment will not relieve itself: so in banking, a repletion of loans, if they are undoubtedly solvent, prompt and short, will soon of themselves work a relief to the bank; but a paucity of loans cannot, by any process of its own, cure the scant profits of the stockholders. Banks are rarely injured, therefore, by an excess of discounts. When banks fail, their disaster proceeds from the quality of their loans, not from the quantity.

The kind of Paper that a Banker should prefer.-No banker should keep his funds inactive when no better excuse exists therefor, than that the business he can obtain is not so lucrative as the business of some other place, or than his own business was at some other period. The legal rate of interest is so high, that the voluntary forbearance of its reception for even a short period, is ordinarily a greater pecuniary evil, than the reception of any common description of solvent loans. Any way, a banker who keeps his funds inactive, to await the offer of loans more lucrative than simply the interest of money, should be well assured that the future loans will be sufficiently lucrative to compensate for the forbearance. But no disadvantages of position must be deemed a sufficient apology for the assumption of hazardous loans. When no sale business offers, no business should be transacted by a banker who entertains a proper respect for himself, or a proper feeling for his stockholders. Gains may be impossible, but losses are measurably avoidable. If any location presents the alternative of no business, or great hazards, a banker is accountable for the choice which he may make between the two alternatives ; and he is accountable no further.

Selection of Loans founded on Incidental Circulation and Deposiles.-But ordinarily every banker is presented with more business

than he can assume, and he is enabled to select the more profitable and reject the less profitable. In speaking of the profits of banking we mean gains that proceed from some other source than the interest allowed by law for the use of the money. These gains are derived most largely from circulation and deposites; hence loans are advantageous to a bank, in proportion as they increase the circulation or deposites of the bank. Money is sometimes borrowed to pay debts to a neighboring bank; or to a person who keeps his money deposited in a neighboring bank. Such loans yield no profit to the lender except the interest on the loan, hence they are not so profitable as loans to borrowers who will take bank notes of the lending bank, and circulate them over the country in the purchase of agricultural products. While the notes remain in circulation, the bank is receiving interest on them from the borrower,-interest not for the loan of money, but for the loan by the bank of its promises to pay money when demanded. So on a loan made by a bank to one of its depositing customers, the bank receives interest on only its promise to pay the borrowed money when the borrower shall from time to time draw for the same. And when a deposite is thus drawn from a bank, the draft is not necessarily paid in money, but in bank notes which may obtain a circulation. This advantage is a usual attendant of the deposites of some customers, and makes their accounts doubly beneficial to a bank. Whether a depositor asks for more loans than his deposite account entitles him to receive, is a question whose solution depends on whether the bank can lend all its money to better depositing customers, or more profitably use it in loans for circulation. A banker should, however, estimate liberally the merits which pertain to a steady customer; not deciding on any proposed loan, by the amount of the proposer's deposite at the time of the proposal, but his antecedent deposites, which were doubtless made in reliance on the bank for a fair reciprocity of benefits. Competition for profitable customers exists among banks as eagerly, as competition among borrowers for bank loans; hence liberality to customers by a banker is as much a dictate of interest as of justice.

Selection of Loans founded on the place of their Repayment.-Notes and drafts discounted by country banks and payable in New York, Albany, Troy, and some other eastern places, are payable in a currency whose value is enhanced some half of one per cent. by the rate of exchange, which exists in favor of the east, and against the west. As country banks never allow any premium in the reception of such paper, the benefit of the exchange is a strong inducement to a country banker for preserring loans thus payable, to loans payable at his own counter. Borrowers will often take advantage of this predilection, and make notes payable artificially at New York, as a means of obtaining a loan of a country banker. Notes thus made are rarely paid at maturity, hence so far as a banker relies on their payment, and founds his business calculations thereon, they are hurtful. To the extent that he colludes with the maker and supplies him with funds by which any such note can be paid at New York, at a loss to the maker of the difference in the rate of exchange, the transaction is unlawful; and banking is not exempt from the ordinary fatality which ever in a long course of


business, makes honesty the best policy. To gain unlawfully must also be a poor recommendation for a banker, with any thoughtful stockholder; for if a man will collude to make dishonest gains for his stockholders, what security can the stockholders possess that he will not collude against then, to make dishonest gains for himself. A country banker may properly discount a note payable in New York when the maker's business will make New York the most convenient place of payment; though the borrower's residence may be in the country :such is often the case with drovers, lumber men and some manufacturers. Transactions of this circuitous nature must, however, be spontaneous on the part of the borrower; for a note is usurious if, in addition to the receipt of legal interest, the banker superadds, as a condition of the loan, that it must be paid at a distant city, and consequently in a currency more valuable than that the lender received. But when such loans are legal, and possess the best commercial character for punctuality and security, they are not always so advantageous to a country bank as notes payable at the country bank, and connected with the circulation of bank notes or with deposites. The force of this remark can perhaps be better seen in what follows:

Selection of Loans founded on the sale of Exchange.--Banks can usually make as many loans as they desire to borrowers who will use the loan in purchasing from the bank some drast on New York or other eastern city, whereby the bank will obtain a premium on the sale of the draft, in addition to the interest on the loan. The operation becomes peculiarly advantageous to the bank when the loan is itself payable in New York, for while the borrower pays in such a transaction, a half of one per cent. to the bank for a bank draft on New York, he subsequently repays in New York the borrowed money without receiving any return premium from the bank. But how lucrative soever such a transaction seems, banks can rarely transact profitably much of such business. Should the entire capital of a safety fund bank of three hundred thousand dollars be employed in discounting drafts on New York payable at three months from the time of discount, and should the bank pay therefor sight drafts on New York, charging for them a premium of a half of one per cent, the bank could not pay its stockholders above six per cent. the year in bank dividends. To pay that much the bank would have to earn nine per cent. the year on its capia. tal, as follows:

Dividend of six per cent. the year on $300,000 is $18,000 00 Half per cent to be paid to the safety fund,

1,500 00 Salaries, taxes, stationery and other contingencies during the year, at the lowest calculation for such a capital, 7,500 00

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Making a total which is equal to 9 per ct on $300,000 $27,000 00 Being just what such a bank would earn during a year, if it transacted no other business than the discount of drafts as above supposed. The calculation shows that the sale of exchange must be deferred to business which brings with it circulation or deposites. They are the only sources of large profits, as well as the great instruments of legitimate

banking. Brokers can deal in exchange as well as banks, and banks should make loans predicated on the sale of exchange, for only so much as can be thus sold without impairing the ability of the bank to lend money for circulation, &e. The ability of a bank to lend for circulation is impaired by the sale of exchange, because such sales take the funds with which country banks redeem their bank notes; and no banker is willing to issue bank notes for circulation except in proportion to the amount which he possesses of redeeming funds.

Selection of Loans founded on a Commission for their Collection. Banks often make loans that are payable at places, where the currency that will be received in payment, is worth less to the lending bank than a payment at its own counter. But banks turn to a profit this disadvantage, by charging, in addition to the interest, a commission for collecting payment of the loans. Notes payable as above are given extensively by country merchants to the persons of whom they purchase goods, and the commission charged by banks for collecting the payment of such notes, varies according to distance, and the facilities which exist for making the collections; but whether a bank can make money by such collections, depends on the arrangements it is able to make : for instance, a bank at Buffalo may receive one per cent for collecting a note payable at Utica, while a bank at Urica may receive one per cent. for collecting a note payable at Buffalo; hence, if the two banks can exchange this paper with each other, each bank will be paid at its own counter, and gain the one per cent., without any inconvenience except the trouble of corresponding with each other, and the expense of postage. Every good banker endeavors to acquire correspondents of the character indicated, for in banking as in other business, competition keeps down profits; so that much gain is impracticable except as a result of good management.

Selection of Loans founded on the Time they are to Endure.--As every loan is usually attended with some advantage to the bank, in the ways we have explained, beyond the interest paid by the borrower, the sooner the loan is to be repaid to the bank, the more frequently will the bank be able to reloan the money, and obtain a repetition of the incidental advantages. Loans, however, that are not longer to run than sixty days must be discounted at the rate of six per cent., the year interest, instead of seven, by all safety fund banks; hence, when a safety fund banker makes such loans, the incidental benefits must be sufficient to countervail this loss of interest, or longer paper will be more profitable.

Time Estimated with reference to the Prospective Wants of a Bank. As country banks are subject every spring and fall to a revulsion of their bank notes, every judicious banker will endeavor to so select the loans which he makes during a year, that large amounts of them will become payable at the precise periods of the spring and fall when funds will be most needed. This is imitating the conduct of Pharaoh who during the years of plenty accumulated provisions for the periods of apprehended famine.' Many months of every year are months of plenty with every well conducted bank. The paper which is selected for the suture contingency, will be useful in proportion to its reliability, and paper payable in New York or other eastern cities will be more useful

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