Rensselaer Semi-Weekly Republican, Volume 40, Number 21, Rensselaer, Jasper County, 19 November 1907 — THE FUNCTION OF A BANK [ARTICLE]

THE FUNCTION OF A BANK

Not Simply a Storehouse For >ipiM tors Bat the Palse of Business Enterprise. Many people, some of them for years patrons ot banks, have a distinctly wrong idea of the business function of these institutions, considering them simply depositories for the convience of the public. Some people apparently consider that deposited money should be placed in the vaults of the bank and retained there subject to call and that the banker should not invest it in any manner. The people should understand that the bank has a broader mission than to act as a depository only. It is the engine of the world’s business, and by its ;directors supplies to the manufacturer, the merchant, the stock dealer, the farmer, and every avenue of com merce the money with which to do business.

The money is the depositors and it is loaned oat to these agencies for a stipulated time for a per cent of interest that is the banker’s reward for maintaining his bank, and rhe banker can not recall these before they are due. Occasionally the controller of the treasury and the auditor of state call upon these bankers to publish in the newspapers a statement showing the exact condition of the bank on a certain day, set ting forth all its assetts and all its liabilities. The last statement called for was at the close of busi ness on Aug. 22, 1907, and the Republican a few days later published the statement of all three banks. , These statements showed that the aggregate deposits in these three banks was almost $700,000, while the aggregate amount of currency on hand was only about $36,000, or less than 6 per cent, of deposits. Had the banks shown that all the money deposited was in the vaults subject to demand the business of Rensselaer would have been at a standstill. The merchant would have had no money to discount his purchases, the employer of labor would have been compelled to lay off his hands, the farmer could have had no money to purchase more land the contractor could have had none to build with. The bank would have earned no money and would have gone out of business.

There would have been no deposits by the local banks with Lafayette, Indianapolis, Ohicago and Slew Tork banks, on the basis of which we are all supplied drafts used in the operation of business, and on the basis of which the transfer of money is made at the minimum ol cost. The bank statements showed where the money was. They showed that there was less

than 6 per cent of it on bands in currency, but they showed that they had deposited with various correspondents $182,393.58 and that they had an aggregate of $572,841.51 loaned onton securities approved by the directors of the banks. Occasionally there was an overdraft, where some customer had drawn beyond the amount of his acoount and the cashier, deeming his bank properly secured, had caused it to be paid.

And all these things, all these securities, not only equaled the amount of deposits but the other bank liabilities, which included the capital|stock of the bank, the banking properties, the undivided earn--1 ings, etc. Familiarity with the various business enterprises of any community would show that few business firms pass thru the year without being I indebted to the banker and this indebtedness is generally made in the purchase of goods or labor or lumber or stock or grain before the sorrower can get returns /or the

investment. For instance, the merchant has an aggregate of bills to the amount Ivhich he can get a cash 5 per cent, amounting to banker loans him the both profit by the traps vhen the farmer begins is prodnce—grain and pd garden truck — he of the merchant and to settle with the bank, he grain dealers and the stock buyers have had. to borrow the money to buy from the farmer, but they get it back and settle with the banker when they sell to the Chicago or Eastern markets. Probably the farmer, based on the pros pect of the coming crops, has found it necessary to borrow a little money to pay the labor to produce it, and he gets some depositor’s money and finds it profitable to pay a little interest for its use. Aud so it goes, endless chain. Your dollar today serves me to morrow and yon again some day next week and we never really owned it, just had it borrowed based on the security of our business.

The patron of a bank as creditor deserves to know something of that bank’s ability to make good on the obligation it assumes when it takes his money, and the law aims to satisfy this by requiring these quarterly or bi-monthly statements of condition, and to further protect the depositor by subjecting all the bank’s securities to the approval of examiners. State auditor Billheimer of Indiana, would send an inspector here in an instant should a statement show an unreasonable overdraft, and the federal authorities are just as particular in relation to national banks. Currency hoarded away is withdrawn from business and operates to the distress of the entire commercial world. It is the duty of every man, after satisfying himself of his bank’s dependability to place his currency there, for he injures himself, his neighbor, the price of every product and the value of his land if he hides it. / The local banks are in’Jthe very best condition, and the men bihind them have pledged their personal tor tunes to the protection of their obligations. It is therefore the duty of every man to keep the currency of the country where it can’be employed iu business, and that is in the trust of the banker. It will aid in lowering the price of every bushel of grain in Jasper county if you keep it hid away.