BANKS AND BANKING.
We are told by an old chronicler of the quaint and curious that in
ancient times a number of Hebrews scattered in the cities along the
shores of the Mediterranean conducted a most profitable banking business
without the use of capital, by drawing one upon the other, in a perfect
circle, the draft upon one being taken up by the next banker in the
series, and so on _ad infinitum_.
Perhaps it will not do to scrutinize this story too closely, but there
are many instances of almost as odd and ingenious devices in the history
of banking. It was not until within a comparatively recent period that
banks began to issue circulating notes. The early bankers were for the
most part merely lenders of money, and this species of banker was called
into existence very early in the world’s history. In fact, he was the
natural result of the invention of money.
“A simple invention,” says Carlyle, “it was in the Old World grazier,
sick of lugging his ox about the country until he could get it bartered
for corn or oil, to take a piece of leather and thereon scratch or
stamp the mere figure of an ox (_pecus_), put it in his pocket and call
it _pecunia_, money. Yet hereby did barter grow sale; the leather money
is now golden and paper, and all miracles have been out-miracled; for
there are Rothschilds and English national debts; and whoso has sixpence
is sovereign to the length of sixpence over all men; commands cooks to
feed him, philosophers to teach him, kings to mount guard over him--to
the length of sixpence.”
It has been claimed on behalf of the bankers’ craft that they date back
to Abraham, because it is recorded that he weighed out four hundred
shekels of silver as the purchase-money for the cave and field of
Macpelah wherein to bury Sarah. But this is rather far-fetched. Livy,
however, writes of the tables of the money-changers in the Roman forum
existing 300 years before Christ, and later Latin writers refer to
deposits, checks and drafts, with all the familiarity of a financier of
the present day, as if they were in general use. In these days, when the
capitalists of the world are puzzled to invest their money safely to
yield them three per cent., it is refreshing to remember that the old
Greek bankers or money-lenders exacted as much as thirty-six per cent. a
year from the spendthrift youths or embarrassed merchants of that day.
Aristophanes, in one of his comedies, makes a money-lender bitterly
bewail the fact that he has only been able to get four per cent. on his
loan. The Greek bankers used the temples as safe-deposit vaults for the
storage of their treasures, and seem to have taken the priests into a
sort of partnership. Something of the same sort probably prevailed among
the Jews, and it is not difficult to believe that they were usurious,
for the Saviour, when He overturned their tables in the temple, called
them thieves--“My house shall be called the house of prayer, but ye have
made it a den of thieves.”
During succeeding ages, however, the methods of banking seem to have
been lost until re-discovered and re-established by the Jews. A bank was
established at Venice in the latter part of the twelfth century, another
at Genoa in 1345, and they came into existence in several of the Dutch
cities early in the seventeenth century. All of these were, in a sense,
state banks, lending money to the state, and exercising their functions
under its authority and protection. The Jews, and the Lombards, who had
been taught in their schools, were almost the only money-lenders of
Europe from the twelfth to the fifteenth century.
The first money-lender in England who at all approaches our modern idea
of a banker was William de la Pole, a shipping-merchant of Hull, who
loaned Edward the Third large sums to carry on his French wars, and in
return the king made over to him the collection of customs and internal
revenues. He collected the royal rents and acted as paymaster of the
army, and in a general way became the royal banker. Naturally a title
was conferred upon him.
The prefix of “Sir” was subsequently given to Dick Whittington, of cat
celebrity, for similar services to Henry the Fourth and Henry the Fifth.
The goldsmiths in those times acted as money-lenders and pawnbrokers.
After Charles the First grabbed about a million dollars, which they had
deposited in the mint for safe-keeping, the nobles began to deposit
their money with the goldsmiths, who allowed them interest thereon, and
from having the custody of their rents and their income it was a natural
step for them to request the goldsmiths to collect the money. The
goldsmiths gave written evidences of indebtedness for the sums intrusted
to them, and these were often transmitted by the holders in settlement
of debt. When one of these goldsmiths speculated unfortunately or his
business went wrong, his depositors naturally had to suffer.
Losses of this kind paved the way for the establishment of the Bank of
England in 1694. It was planned by a Scotchman named William Patterson,
who, however, derived many of his ideas from the Bank of Amsterdam,
which was then in successful operation. In return for a loan of twelve
hundred thousand pounds sterling to the government the lenders, who
organized the bank, were granted certain exclusive privileges, and their
concern became the depository of the government money and has remained
such ever since. It has now the accounts of many thousand private
depositors, pays the interest on the government debt, issues circulating
notes, and to a certain extent controls the rate of interest on money in
England.
As to the establishment of banking, Congressman Ben Butterworth, of
Ohio, says:
“In the forces of civilization we find the banker in the forefront. It
was a banker that first taught the world the maxim of an honest
commerce. It was the Bank of Venice that was the first to arbitrate
commerce and control the seas; it was a banker that first taught a
nation that the public fidelity was the right basis of all successful
effort in the business world. For six hundred years Venice maintained
unstained her honor, elevating the civilization of the world. In course
of time she was succeeded by Amsterdam and Antwerp, their bankers
honoring every check and paying every piece of paper, teaching the world
that there was a giant in trade and commerce capable of strangling a
nation. The bankers thus brought the world together, made the nations of
the earth one man, one commonwealth.”
Savings banks originated in Switzerland, and were instituted mainly for
the benefit of the poor. They were organized by benevolent persons, who
received no salaries for their services, and no capital was required.
The purpose was rather to induce working-people to save from their
earnings something for a rainy day or to provide for their old age, and
consequently but little effort at first was made to secure large
earnings on the deposits. The first we can learn of in Switzerland was
established in 1805. A dozen years later they were organized in Scotland
and England, and shortly after in France. In this country the first was
organized in Boston in 1816, and within a few years they were to be
found in New York, Baltimore, and Philadelphia, and their success in
these centres soon led to their establishment in all the large towns
throughout the country. They were chartered by the States, and were held
by the State authorities to account for their honest and prudent
management. Naturally the ideas of legislators in the various States
differed somewhat as to the nature and functions of the banks, and hence
there was a difference in their organization at the beginning, which
subsequent legislation has made still more marked. There are now in
existence three different classes of savings banks: the first is of the
primitive type, instituted without capital; the second are joint-stock
concerns, and the third are of the trust-company type, and transact a
banking business aside from the mere receipt and investment of deposits.
As population increased and the banks multiplied in number, and the
desirability of establishing these banks became more general, they were
no longer required to have a special charter in each instance, but were
permitted to organize under general laws. The deposits in these now
amount to a thousand million dollars, and the number of depositors in
the Northern and Middle States is about three millions. Objection has
been raised in some quarters to the joint-stock type of savings bank, on
the ground that its deposits must be loaned profitably for the payment
of dividends, and that consequently greater risks are incurred. This
risk is still greater where savings banks are permitted to do a
commercial business, as the paper which they discount may prove
inconvertible in a time of commercial depression or in a panic. In some
of the States the depositors are given the preference in such
circumstances.
Mr. T. H. Hinchman, a prominent banker of Detroit, says: “The change
from the purpose and policy of original savings institutions has been
progressive, but of questionable character. It was not the acquirement
of experience or the result of greater wisdom, but of enterprise by
those in pursuit of greater profit. Different aims and objects should be
under distinct, separate, and appropriate laws. Benevolent institutions
require different men and other management than those conducted on a
commercial basis for profit.” He argues that there should be separate
enactments for savings institutions and for trust companies, and indeed
a wise distinction is made by the laws of most of the older States.
These undoubtedly prove advantageous to all banks and bankers, as they
simplify and increase their business. Officers of banks doing a mixed
business are thereby relieved from error, responsibilities, risks, and
cares, and savings depositors escape commercial hazard, and are free
from risks caused by mismanagement of persons who advertise as savings
banks.
Those who remember the frightful confusion that prevailed before the
establishment of the National Banking system, when the notes of the old
State banks constituted a considerable portion of the circulating
medium, are among the most ardent admirers of the present system, at
least so far as its method for the issue and guarantee of notes is
concerned. In those days the laborer often went to his home on Saturday
night carrying the wages of his week’s labor in the shape of notes
issued by banks in half a dozen different States, and when his thrifty
wife went out to expend them in purchase of the necessaries of life for
her family she would be distressed to find that for some she could get
but ninety cents on the dollar, for others eighty cents, and that still
others were of too questionable a character to be accepted by the
shopkeepers at all. The farmer often received for the fruits of his toil
notes of which he could know nothing, and which would be subsequently
declared by experts to be worthless because the bank which had issued
them was in liquidation, and it was not at all uncommon to find a forged
note or two among them, for in the myriad issues of bills of every
conceivable design and character of engraving the forger had an easy
task.
The present National Banking system probably never could have been
called into existence except for the difficulties in which the
government was involved by the war with the South, for a scheme
overthrowing, as it did, so many other systems organized by the
authority of States would have met with an irresistible storm of
opposition. As it was, the act authorizing it was fought not only by the
opponents of the administration then in power, but by men like Roscoe
Conkling, of New York, and Senator Collamer, of Vermont.
Mr. Logan C. Murray, President of the United States National Bank of New
York city, thus speaks of the National Banking system:
“In 1863 the government of the United States, irrespective of State
lines, took hold of the bank question and made it a national one,
inaugurating a state of perfection which I believe is unparalleled in
the history of finance among the nations of the world.
“This child of the war between the States, born in the very travail of
the soul of the nation, is to-day full-grown, of five and twenty years,
comely, substantial, and has not been disappointing. Hard money was
scarce in 1861. There had been built upon this limited supply, through
the channels of credit, a massive structure; suddenly, as the storm
arose, the sky became dark and the curtains of night were let down
around State boundaries; with these parcels of credit, known as State
currency, far from home, with no foster parent hand near by to protect
it, intercourse cut off, we found ourselves depending upon a broken
staff which was as chaff in the mighty storm, commercial ruin on every
hand, and our shores strewn with the wrecks of a dismembered, useless
and faithless medium.
“We found the Secretary of the Treasury knocking at the doors of our
strongest moneyed institutions, asking from them aid in his great
distress, appealing to the wisdom, courage, patriotism and resources of
an almost forlorn hope. How nobly he was met is a matter of history.
“Not, however, until 1863, or two years afterwards, did the National
Bank system have its birth--born of despair, of want, blood-bought, yea,
in the very darkness of that midnight storm.
[Illustration: MANUFACTURES AND LIBERAL ARTS BUILDING.]
Yet it is but the survival of the fittest. And now let us see after the
uses which have been made of the system, and after the unparalleled
prosperity which has come to us as a nation under its influence, if the
parent of all this prosperity, to a greater or less degree, is to
breathe its last--if its strong arm is to be stilled, and if we are to
look for something better. Shall we wonder that men are bewildered when
we look into the future and ask what is to supply the vacuum caused by
the decay of the National Banking system? I for one answer:
“Do not fear, the National Banking system is not going to be destroyed.
In the fulness of time it will be yet better established.
“Let us divide the system into two parts, as it were, and treat them as
they may be. First, there is the Treasury of the United States, the
Secretary charged with certain duties, the Comptroller of the Currency,
the executive officer with each of the four thousand National Banks in
every section of the land reporting to him, responsible to him, and he
to the country at large--and by far his greatest responsibility is the
care, faithful preservation and safe return to the depositors of the
great mass of the deposits of the people made with these institutions.
This is one part, and the great part of the system--the care of the
deposits of the people and the careful and safe loaning of these
deposits to the commercial and manufacturing community by each
institution, all under its general supervision.
“Now we come to the next part of the business of the system, and that is
issuing note circulation. Does it occur to you how small a proportion of
the circulation of the United States to-day the National Bank
circulation is? Let us say it is about one-fifth part. Now let us assume
that this shall gradually be cut off, as undesirable as that is; it is
gradually declining, while other mediums of circulation are advancing in
volume. We must remember that money, actual money, is about four per
cent. only of all commercial transaction; credit, and credit alone,
supplies the other ninety-six per cent.
“I do not think any National Bank or any other bank should emit any note
or bill, for circulation without it is secured. Is it not true that
there are very many National Banks in the United States to-day which do
not issue circulation, even though banks of a capital of $150,000 and
above are required to lodge but $50,000 of bonds with the Treasury, and
some of these do not take out circulation on those bonds--whereas a
small bank in Dakota is required to lodge one-fourth part of its
capital, say if it is $50,000, it is required to lodge $12,500 of bonds
with the Treasury, whether it takes out circulation or not? Why is it
so? If they issue no circulation, then no bonds should be required. If
large banks to-day are not issuing circulation on the small amount of
bonds required, say $50,000, even though its capital be $5,000,000 (as
is the case), then why require one-fourth part of the capital of a small
bank to be invested in high-priced bonds before beginning business?
“Therefore, repeal that part of the National Bank act which requires a
deposit of United States bonds from a bank which is to receive no
circulation. If a bank choose to lodge bonds, then give it the privilege
of issuing circulation on them, as of old.”
The reduction, and now the current purchase, of government bonds, which
serve as a basis of circulation for National Bank notes, have driven the
bonds to such a high premium that the banks some years ago began to
surrender their circulation at such a rate as to seriously contract the
currency and excite apprehension as to the result. But for the issue of
silver certificates, which have largely taken their place, a crisis
would, in the opinion of many financiers, have been reached long ago.
The profit on circulation was so seriously reduced by the high price of
the bonds, on which it is based, that a number of banks in New York city
and elsewhere surrendered their charters as National Banks and organized
under the law as State institutions. They were largely impelled to do
this by a desire to escape the restrictions imposed by the National
Banking laws and the scrutiny of the Comptroller of the Currency and
the officials of his department. The passage of the law forbidding
over-certification compelled a number of them to take this course. In
August, 1883, the Wall Street National Bank was forced to suspend. An
examination by the government officials showed that it had certified
checks of a firm $200,000 in excess of their balance in cash and that
this was the principal cause of the bank’s failure. The cashier was
indicted, but the bank was wound up, went out of existence, and the
intention of making a terrible example of the delinquent official, who,
however, acted with the approval of the president and directors, appears
to have been abandoned.
Touching the opposition shown in Congress and elsewhere to National
Banking systems, ex-United States Comptroller of the Currency John Jay
Knox says:
“The system has been of immense benefit to the government in its
disbursements and in funding temporary loans and also in the refunding
of its debt which, but twenty-eight years ago, amounted to
$2,845,000,000. The National Banking system rendered more valuable
service to the government than any other human agency in the resumption
of specie payments. The National Banks held on the day of resumption
(January 1, 1879) 125,000,000 of United States demand circulating notes.
Sixty-two National and State banks in the Clearing House of New York
unanimously voted to receive the legal tender notes upon an equality
with gold, and on the day of resumption the banks of that city, which
held $40,000,000 of legal tender notes, did not present a dollar then,
or subsequently to this day, for payment in coin. As at the commencement
of the war the banks parted with their gold for the benefit of the
government, so at its close and upon the resumption of specie payments
they relinquished the right of again demanding it, and were well
satisfied to receive instead the demand notes of the government, which
are redeemable in coin upon presentation. Yet, notwithstanding these
important services, the legislative department of the government has
never been strong in its friendship for this system. The statutes of the
government contain very much restrictive and very little friendly
legislation toward the institutions which were created by its fiat. A
few years ago, when the charters of most of the banks were expiring, it
was only after a long contest that an act was passed authorizing a
renewal of their privileges. If at any time favorable legislation has
been granted by Congress, it has been given ‘grudgingly’ and not as a
‘cheerful giver.’
“We have heard much of the surplus and the necessity of the reduction of
the revenue. Both parties profess to be in favor of such reduction.
Both parties have proposed to reduce the tax on the ‘filthy weed,’ and
both parties proposed legislation granting relief to the whiskey
manufacturer and the whiskey drinker; but not one officer of the
government, nor one man of either House, has had sufficient courage to
propose the lessening or the repeal of the tax on the circulation of the
banks, which now amounts to less than $1,700,000 and which is the last
of the remaining ‘war taxes,’ except the tax upon the two deleterious
articles referred to, which are considered by the leading civilized
nations as the most fit subjects for ‘high taxation.’
“Yet no class of corporations since the organization of the government
have contributed so largely toward the support of the State and the
nation, and no class of corporations have ever been so unmercifully
taxed as the banking institutions of this country. Not only have
Congress and the different State Legislatures imposed high rates of
taxation, but the courts of the country, including the Supreme Court of
the United States, composed as it is of able jurists who should be
devoid of all prejudice, have construed the questions which have been
brought before them with rigor worthy of the bitterest enemy of the
system. While other corporations engaged in precisely the same line of
business are authorized to do business almost without legislative
restrictions and without taxation, the very highest rates that can be
imposed are placed upon these institutions, whose only source of profit
is the loaning of money at the rates of interest fixed by the same high
authority which imposes the taxation. Yet, notwithstanding the
opposition of Congress and the unfriendly decisions of the courts and
the bitter enmity of individuals, the system has steadily and rapidly
grown in favor, until the institutions organized under it from the
beginning number nearly four thousand, some of which are located in
every State and Territory as well as in every considerable village in
the land.”
As the steady reduction of the national debt proceeds, students of
financial questions are casting about for some substitute for the
present outstanding circulation, which has now dwindled to about
$150,000,000. Mr. Edward Atkinson, of Boston, the well-known
statistician and economist, presents this novel suggestion:
“Will any Congress dare to reduce the revenue to such an extent as to
leave any considerable amount of debt unpaid at the end of the present
century, whether it be bonded debt or demand debt represented by legal
tender notes? I submit these as the possible conditions which may make
it an absolute necessity for the people of this country _to invent a new
instrument of exchange_, to take the place of the legal tender notes and
of the bank notes secured by United States bonds, unless the whole
circulating medium is to consist either of bullion, or of certificates
of the government backed by bullion, dollar for dollar. The tendency of
events is to cause the withdrawal from circulation of uncovered paper,
to wit: National Bank notes and legal tender notes, leaving only in
circulation certificates of deposits of gold or silver, backed dollar
for dollar by actual coin, and also gold and silver coin in specie.
“No position could be stronger than this; but the difficulty will arise
in the fact that even were the annual revenues and expenditures of the
government equalized, the working of the Sub-Treasury Act in dealing
with such large sums as now constitute the financial transactions of the
government might seriously interfere with the money market at times.
Under present conditions it is becoming apparent that it is impossible
for the government to adjust its transactions to the ordinary conditions
of the money market; it is also impossible for the government to perform
the functions of a bank of issue; the tension is now very great, and the
conditions cannot possibly be continued for any length of time. The
issue of certificates of deposit of gold or silver would not meet the
varying conditions of supply and demand for instruments of exchange or
circulating notes, and there will soon be no government bonds available
as securities for bank notes. There is a volume of other securities in
existence--Railroad, State and City bonds--which would form an absolute
security for a circulating medium covered in part only by a reserve of
actual coin. Can the arrangements be made and the authority established
for a selection among these securities of those which ought to be made
available to secure the notes which might serve as instruments of
exchange? Can a central bureau, bank or other form of administration be
established by a permissive act, with branches in different parts of the
country, to supply an elastic, safe and suitable paper currency
convertible into coin on demand, on a separate foundation and under a
separate administration from that under which banks of deposit and
discount may continue to be organized?”
The New York banks are naturally the richest and most powerful in the
country, and New York, no doubt, always will be the monetary centre of
this country. But her absolute dominancy of the rest of the country,
which she held for so many years, is passing away. The severest blow to
New York’s banking supremacy perhaps was the passage of the law
permitting the importation of foreign goods in bond direct to interior
points. Formerly the grain from western fields was consigned to New
York, and the contract for its shipment abroad made there. The New York
banks were drawn upon for funds, and earned a commission upon every
bushel of wheat that went out through the Narrows. In like manner, all
goods brought from abroad found a resting-place there, and the duties
were paid in New York, and it was New York capital which forwarded them
to their destination.
But all that has been changed. The merchant in Chicago or St. Louis now
buys his goods in Manchester or Paris and consigns them direct to his
own city. The West reaches out over New York’s head and helps herself to
whatever she wants in the Old World. So, too, with what she has to sell
in Europe. A single rate is made from the western prairie to the dock at
Liverpool. Wheat is rushed through without the intervention of any New
York factor. As new towns and cities have sprung up in the interior, and
new manufacturing centres have been established, and the mineral wealth
of the country has been developed, the West has grown rich, and many of
the banks in the interior now carry lines of deposit which would have
seemed very large to the most important institutions in the East a few
years ago. The increase in the number of “reserve cities” made by act of
Congress two years ago was regarded at the time as destined to increase
the amount of funds in the western banks at the expense of those on the
coast. Up to that time there were but sixteen “reserve cities” in the
United States. Each of these was required to keep on hand at all times,
in loanable money, twenty-five per cent. of its deposits, while every
bank outside of these cities was required to keep but fifteen per cent.
of its deposits on hand. Any of these fifteen per cent. banks were
permitted to keep three-fifths of this fifteen per cent. in the banks of
any of the sixteen cities referred to, and any bank located in the
reserve cities might keep, if it wished to do so, one-half of its
loanable money reserved in the city of New York. The theory was that New
York was the monetary centre of the country, and the other fifteen
cities were the respective centres of the sections in which they were
located. The law, moreover, made provision for counting, as a part of
the required reserve, a portion of the balance which it was supposed the
conditions of trade would require them to keep at the local centres, and
at the general centre.
The new law of 1887 added a number of other cities to the list, with
regard to reserves which New York had held up to that time. The
amendment, however, left money free to seek its natural channels and
reservoirs, assuming that the drift of the current had changed since the
passage of the original act. But experience since has shown that trade
requirements bring a large proportion of the reserves to New York, and
so the new legislation has wrought comparatively little change. The
tendency to withdraw funds from New York under the amended law has been
checked by the fact that as soon as any city takes on its new dignity of
a central reserve point, it can no longer keep a portion of its reserve
in New York, but must keep its full twenty-five per cent. reserve in its
own vaults idle. Chicago and St. Louis have become full central reserve
cities like New York, and, as higher interest rates rule in these cities
than in New York, it is natural that many accounts should be transferred
from the latter city; and this has happened, as is demonstrated by
Chicago bank returns. The drift of currency from New York last fall for
the purpose of moving the crops, demonstrates that, while the western
banks hold more money for current wants, New York must still be drawn
upon for the large sums needed to move grain and cotton harvests.
The frequency of paragraphs in the daily papers announcing the departure
of another cashier for Canada demonstrates that there is something loose
in the methods of banking institutions. The president of the bank does
not give sufficient attention to the actual transaction of business. He
is usually too familiar and easy-going with his cashier and other
important officials. It is seldom that he emerges from his parlor to go
behind the counter and see what is actually going on. As for the
so-called examinations made from time to time by directors, they are in
ninety-nine cases out of every hundred simply farcical. The president of
the bank tells the cashier some fine morning: “Get things straightened
up now, Jimmy, the directors are coming to-morrow, and we want
everything in good shape.” The advent of the directors being thus
heralded, everything presents a fair appearance on the occasion of their
visit. They chat and chaff each other, glance casually over the
statements presented by the president, and then adjourn to indulge in a
luxurious luncheon on the floor above. So ends their examination.
It is because cashiers are relieved from all practical surveillance that
so many of them are led to ultimately test the climate of Canada. A
broker, speaking to the cashier some fine morning, says: “By the way,
Jones, Erie is going to have a big rise; you’d better buy yourself a
couple of hundred.” “Oh, I never speculate,” says Jones; “haven’t got
the money to do it with.” “That’s all right,” says the broker, “I’ll buy
a couple of hundred for you, and if there’s any loss you can make it
good; but I’m sure you’ll make money on it.” Possibly the cashier
accedes to this proposition, but more frequently, if he be a cautious
and circumspect man, he uses the broker’s point in a different way. He
has possibly seen the broker grow rich within a few years and envies
him. Here is a tempting opportunity to make a handsome turn, for his
salary is comparatively small, and he could put a few thousand dollars
to exceedingly good use. It may be, then, that he borrows from a friend,
or draws upon his own savings for money which he secretly deposits as
margin with some stock firm and buys two hundred Erie. It goes down. His
margin is exhausted. The brokers tell him it will probably decline very
little more. But they want more margin. Right under his hands are big
fat packages of bills of large denominations. What shall he do? If his
brokers sell him out, the savings of years are gone in the twinkling of
an eye. If he is a weak man, he argues, “Why not take a thousand dollar
bill out of this package marked $50,000? It would never be missed.” Erie
is sure to go up to-morrow, when he can withdraw the amount from his
brokers and put it back in the bundle. He will be saved from every loss
and nobody the worse for it. Unfortunately, things do not turn out that
way. Erie goes lower. The thousand dollars is gone. What shall he do?
His theft, for such it now plainly has become, will probably not be
discovered for some time. What shall he do? Speculate in some other
stock and try to make up the loss. And he does it. It is useless to
pursue the theme any further. Grown more desperate from day to day, he
plunges; his losses become too large to be longer concealed, and one
day, fearing exposure, he takes to flight, possibly carrying off
additional funds of the bank. It may be that the first money he took was
not to speculate with but to pay some household bill. But it leads to
the same result in the end.
Now, if the president were in the habit of casually dropping around to
the cashier’s desk and looking over his cash, the initial step in this
march to ruin would be prevented. Suppose the president picks up
hap-hazard any one of the many packages of bills and counts them over to
see that they tally with the total marked on the wrapper. The knowledge
that he is liable to do that at any time will deter the cashier from
abstracting that first bill, and he is saved from the subsequent crime
and disgrace.
Unfortunately, dishonesty in banks is not confined to cashiers. Many a
bank director amasses large sums by means which are quite as disgraceful
as embezzlements, although they are not so harshly punished. Mr.
Moneybags, for instance, is a director in several large banking
institutions. He is also in all probability a very heavy speculator in
the stocks of railroads in which he has inside information. As director
of bank No. 1 he sees that a certain man has pledged a block of the
stock of a certain corporation as collateral security for a heavy loan.
As director in bank No. 2 he perhaps learns that the same man is
borrowing largely from that institution and on another block of the same
stock. It is clear that the speculator in question is very heavily
loaded--probably carrying more of that stock than is prudent. Anything
which would seriously depreciate the market value of that stock would
probably force him to throw overboard a considerable portion of his
holdings. The director of easy conscience quietly puts out a line of
shorts in the stock in question at the ruling high prices. At the next
directors’ meeting of bank No. 1 he tells his fellow-directors that he
hears rumors affecting Mr. Speculator’s credit, that he is overloaded
with the stock of the road in question, and suggests to the president
that it would be prudent to invite Mr. Speculator to return the money he
had borrowed and take away his stocks. Possibly he causes similar action
to be taken by the other bank of which he is a director. Mr. Speculator,
so unexpectedly called upon to return very large sums of money, is
embarrassed. He is obliged to go into the market and sell a large amount
of the stock in question. The price falls sharply in consequence and the
director covers his shorts at a handsome profit. It is doubtless true
that a majority of bank directors are above this sort of thing; but
there are bank directors, and not a few of them either, who contrive to
turn their official positions to their personal profit.
[Illustration: MACHINERY HALL.]