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                                BANKING


                                  BY

                    William A. Scott, Ph.D., LL.D.

          Director of the Course in Commerce and Professor of
           Political Economy in the University of Wisconsin


                                CHICAGO
                          A. C. McCLURG & CO.
                                 1914


                               Copyright
                          A. C. McCLURG & CO.
                                 1914

                         Published April, 1914

                     Copyrighted in Great Britain


                 W. F. HALL PRINTING COMPANY, CHICAGO




EDITOR'S PREFACE


In Europe the average man looks upon the bank as a benefactor. Through
its agency he secures capital at low rates for his business. In
America the bank is too often regarded as a necessary evil, certainly
not with affection. Yet it plays a most important role in the nation's
economy. Our banking laws are obsolete, unsatisfactory, and actually
in some instances detrimental to the best and widest use of the
nation's resources. Europe has many lessons for us in the problem of
how best to use our accumulations. With agriculture demanding and the
railroads calling for more capital, the question of scientific banking
assumes new proportions. This book, with its chapters on commercial
and investment banking, will help to a better knowledge.

                                                            F. L. M.




AUTHOR'S PREFACE


The purpose of this book is to supply the general reader with a simple
statement of the principles and problems of banking. Since it is
designed primarily for American readers, special attention has been
given to conditions in this country. An effort has been made clearly
to draw the line between commercial and investment banking and to
indicate the problems peculiar to each. That it may assist the average
person in understanding present-day banking problems and thus
contribute towards the formation of a sound public opinion regarding
them, is the author's hope and desire.

                                                       WM. A. SCOTT.

  _University of Wisconsin._




CONTENTS


                                                                PAGE

  Chapter I. The Nature, Functions, and Classification of
             Banking Institutions,                                 1

    1. Services Performed by Banking Institutions,                 1
    2. The Economic Functions of Banks,                            4
    3. Classification of Banking Institutions,                     6

  Chapter II. The Nature and Operations of Commercial Banking,    11

    1. Commercial Paper,                                          11
    2. The Operation of Discount,                                 13
    3. The Conduct of Checking Accounts,                          15
    4. The Issue of Notes,                                        19
    5. Collections,                                               22
    6. Domestic Exchange,                                         25
    7. Foreign Exchange,                                          31

  Chapter III. The Problems of Commercial Banking,                35

    1. The Supply of Cash,                                        35
    2. The Selection of Loans and Discounts,                      40
    3. Rates,                                                     44
    4. Protection against Unsound Practices,                      46
        (a) Capital and Surplus Requirements and Double
            Liability of Stockholders,                            46
        (b) Inflation and Means of Protecting the Public
            against It,                                           49
        (c) Other Means of Safeguarding the Interests of
            the Public,                                           59
    5.  Adequacy and Economy of Service,                          62

  Chapter IV. Commercial Banking in the United States,            68

    1. State Banks,                                               68
    2. National Banks,                                            70
    3. The Independent Treasury System,                           75
    4. The Interrelations of These Institutions,                  78
    5. Operation of the System,                                   82
        (a) Conflict of Functions and Laws,                       82
        (b) Loan Operations,                                      85
        (c) Treasury Operations,                                  88
        (d) Operation of the Reserve System,                      91
        (e) Lack of Elasticity in the Currency,                   95
    6. Plans for Reform,                                          97

  Chapter V.  Commercial Banking in Other Countries,             101

    1. Common Features,                                          101
    2. The English System,                                       104
    3. The French System,                                        111
    4. The German System,                                        119
    5. The Canadian System,                                      126

  Chapter VI. Investment Banking,                                136

    1. Saving and Savings Institutions,                          136
    2. Trust Companies,                                          141
    3. Bond Houses and Investment Companies,                     144
    4. Land Banks,                                               147
    5. Stock Exchanges,                                          163
    6. Some Defects in Our Investment Banking Machinery,         166

  References,                                                    171

  Index,                                                         173




BANKING




CHAPTER I

THE NATURE, FUNCTIONS, AND CLASSIFICATION OF BANKING INSTITUTIONS


The terms, "bank" and