BANKS AND BANKING.

ART. 113. BANKS are of four kinds. Banks of Deposit, Banks of Discount, Banks of Issue, and Banks of Exchange. The first two and the last may be established by individuals or associations, the other only by special authority from the State.

BANKS OF DEPOSIT.

ART. 114. BANKS OF DEPOSIT are for the safe keeping of money.

A special deposit is made when the identical money is to be returned to the depositor, the bank being responsible only for the safe keeping; the loss, for instance, attending the failure of the banks whose notes are deposited being sustained by the depositor. In other cases, the bank or banker becomes indebted to the depositor, the banker being allowed to use the money as he pleases, but obligating himself to pay the depositor the whole or any part of the amount due him whenever it is demanded, if demanded during business hours. The improbability that all the depositors of a bank will call for the entire balance of their account at the same time, renders it safe for the banker to use a portion of the funds thus entrusted to him, in loaning to those who need the money but for a short time, and may therefore be relied upon for prompt payment. The interest money thus received is the banker's compensation for keeping the accounts of his depositors. Sometimes interest is paid by the banker for the deposit, but, as a general rule, that . this interest may be refunded, there is a strong temptation to loan too large an amount "on call," or to seek largely paying investments, with doubtful securities, which is against the interest of both banker and depositor.

When the depositor usually has a large balance with his banker, there is an implied obligation with the banker to give

such a customer or dealer the preference in "bank accommodation," if he offers equally good security.

The advantages to a business man in keeping a bank account are the following:

1st. If he has an honest prudent banker, his surplus funds are ordinarily safer than if kept by himself.

2d. The settlement of bills with checks drawn upon bankers is not only more convenient, but there is less liability of error, and if errors do occur, the vouchers, which should always be preserved, will aid in detecting them.

3d. He will lose less from counterfeit, broken, and uncurrent money, and will be relieved from frequent charges of paying out the same by throwing the responsibility upon his banker.

4th. By depositing his Bills Receivable and Drafts, he avoids much trouble and risk attending their collection. If by mistake, oversight, or neglect, drawers and endorsers are released from liability, the banker, by assuming the collection, becomes responsible for the consequences.

5th. It aids him in establishing his own credit, and learning the credit and responsibility of others with whom he wishes to do business.

The Bank of Hamburg is exclusively a bank of deposit, the silver in the vault always being equal to the amount of the deposits. This may be withdrawn at pleasure by the depositors, but the business is mostly done by checks, which have the effect merely of transferring the credits from one account to another. The expenses of the bank are met by a small percentage charged the depositors on the amount of business done. The currency of Hamburg being almost exclusively silver, exchanges are greatly facilitated through the means of this institution.

BANKS OF DISCOUNT.

ART. 115. Banks of Discount are closely connected with Banks of Deposit, and, indeed, they generally exist together in the same institution. Their object is the loaning of money, the discount being the interest taken in advance. The capital may belong to one individual, or to a company forming a copartnership, or to a corporation organized by authority of the State. The securities usually taken are endorsed names, stocks, bonds, and business paper. The primary object of banks of discount being to grant temporary loans, where the business requires at some seasons more capital than can be profitably employed through the year, and to aid in preserving an equilibrium in such regular business as may be disturbed by irregularity of receipts and disbursements, it is unwise to depend upon such institutions for any portion of the permanent capital needed in business. Continued loans and renewals from a bank of deposit are very unreliable. For when the bank calls for payment to supply the withdrawal of deposits it will generally be found to be just the hardest time to pay.

BANKS OF ISSUE.

ART. 116. Banks of Issue are those institutions that, by authority of the general government, put in circulation, to be used as money, their own notes, payable on demand in gold or silver coin. When payable at some future specified time, they are called post notes. Were banks of issue to retain in their vaults sufficient gold or silver to redeem all their circulating notes at once, there would be no profit to them from the circulation except so far as the notes should be lost or destroyed, and never presented for redemption, which has been found to amount, extraordinary losses excepted, to about one tenth of one per cent. per annum. If, on the other hand, they were loaned as money, and no actual capital kept idle to redeem them, the banker would receive the same revenue, until their

redemption, as he would from an equivalent amount of capital furnished him in gold and silver. In short, his credit would at all times afford him as much working capital as his notes in circulation amount to.

The value of bank notes as currency depends upon the ease and certainty with which they may be converted into gold or silver coin. Hence the importance of rigid restrictions being imposed by government to insure a prompt and certain redemption. Without these the field is open to frauds, limited only by the intelligence and forbearance of the community.

The paper currency of our country is furnished by twentyseven different States, each under somewhat different laws and regulations. In general, they can be classified under three different systems, a specie basis, a safety fund, and the "free banking" principle.

The specie basis requires a part, or all its capital, to be paid in coin, limits the amount of circulation in proportion to its capital paid in, and makes the assets of the bank, with perhaps the individual liability of the stockholders, furnish the means to redeem the circulating notes.

The "safety fund" system requires each of several banks to deposit, with a State officer or Board of Control, a certain percentage of its capital or circulation, which shall be safely invested as a "bank fund" to redeem the notes of any insolvent bank that may have contributed its due proportion for this purpose.

In "free banking" the circulating notes are secured by State stocks, to at least an equivalent amount at their marketable value. The stocks are deposited with an officer of State, for which he issues registered blank notes. These, when signed, are used as money by the banker, while he receives at the same time, the interest on the stocks deposited. If the bank fails to redeem, the stocks are sold, and the proceeds applied to the redemption.

BANKS OF EXCHANGE.

ART. 117. Nearly all banks are Banks of Exchange, their legitimate business being the buying and selling of drafts, by which remittances and settlements of debt at distant places are made without the transmission of money. The operation of this department of banking will be more full explained under the subject of "EXCHANGE." Those bankers who deal exclusively in buying and selling gold, silver, and bank-notes, are called "brokers" or 66 money brokers."

EXCHANGE.

ART. 118. When a purchase is made a satisfactory equivalent is rendered by the purchaser in various ways. It may be by labor or services, or he may give other commodities in exchange, which last transaction is called barter. He may give gold and silver, which are also commodities of an equivalent. value, but called money, because they are serviceable mainly in making other purchases, thereby facilitating several transactions in barter. Frequently, however, no equivalent is rendered; but an obligation merely on the part of the purchaser for a fixed amount is recognized by both purchaser and seller. This constitutes debt on the part of the purchaser, and credit on the part of the seller, and is expressed in the denominations of the "money of account." If now the debtor gives a written obligation to pay, in the form of a due bill or promissory note, this evidence of credit with the holder may he transferred as other property, and another become the creditor. In bookkeeping, the account with the seller is closed, and "Bills Payable" receives the credit. Instead of giving his own promissory note, he may use those which he himself has received in the same way; as for example, bank notes which were issued expressly for this kind of circulation. When bank-notes, or certificates of deposit, are held as evidence of debt against a bank, the debt is collected by the return of these to the bank.