CHAPTER X.

MATTERS OF MANAGEMENT AND POLICY.

Overdrafts.

The practice of allowing customer's accounts to be overdrawn is one that pretty generally prevails in the banking business without reference to locality, and so long as a due regard to the security of such overdrafts is had, the policy of allowing them is not necessarily attended with danger. It is a privilege, however, that may very readily be abused by the customers of a bank, unless great care and prudence is exercised by its officers, and undue laxity on the part of one bank is very apt to induce its competitor to pursue a similar course through fear of losing business.

In certain portions of the country and at certain periods of the year-notably in the South and West-the rapid marketing of the great crops of cotton, wheat, corn, etc., creates conditions under which overdrafts are for a season practically un

avoidable, and under such circumstances it is only necessary that the bank should look carefully to securing itself for these temporary loans, by warehouse or elevator receipts, or bills of lading, further protected by fire or marine insurance, in order to eliminate from the practice the chief elements of danger. Whenever it is practicable to do so, demand notes for the average amount of accommodation granted in this manner should be taken, and, of course, interest should always be charged for the use of money loaned in this way.

In reporting overdrafts in statements of condition to the Comptroller, the amount of same should not be deducted from "deposits" so as to decrease liabilities shown under this item in the report, but entered as an item of "resources." In classifying them in schedule on back of report, the "secured" should be separated from the "unsecured," and in stating amounts "standing" for certain periods of time named in the schedule, only overdrafts that have been continuously standing at fixed amounts for the periods named, without any change in the accounts in which they appear should be stated as "standing."

Renewing Paper by noting Payment of Interest on Same.

With some banks it is the custom to renew paper at maturity by simply noting or indorsing the payment of interest on it. The distance at which the customers of a bank live from it in some localities, the inconvenience they would undergo in coming personally to renew their notes at maturity, and other circumstances, make this course necessary in such cases, and sometimes desirable; but care should always be taken by the bank to see that no claim on any indorser or surety on the paper is forfeited by failure to give such indorser or surety proper and full notice, by protest or cther means, of its non-payment at maturity, and this precaution should be always taken when paper becomes overdue, whether interest is paid at maturity or not.

In extending paper by payment of interest, a full memorandum should be noted on it, in ink, of the amount of interest paid, the date on which it is paid, and the period of time for which it is agreed to extend it, so that these data may show the basis of the new transaction.

Renewal of Discounted Commercial Paper.

It sometimes occurs that paper originally discounted by a bank as "commercial or business

paper" is, at maturity, renewed with the mutual consent of all parties concerned. Unless the conditions warranting the discount of such paper remain practically unchanged at time of renewal, it is a question whether it does not then become accommodation paper, and as a consequence subject to the restrictions applying to " money borrowed."

Borrowing Money on Certificates of Deposit.

By the very nature of the terms in which it is couched a certificate of deposit evidences that a deposit of money has been made with the bank issuing the certificate prior to its issue, and it would seem proper and good banking practice, therefore, to confine the use of these certificates to this legitimate function, and that they should not be used in the stead of promissory notes for borrowing money, especially in cases where the money is not actually received by the bank until after the certificate of deposit has been issued.

It may be well to note here that certificates of deposit—which after a customary form bear interest if the deposit remains for a certain stipulated period of time-are in effect demand certificates, for by waiving the claim to interest the holder of such a certificate may demand payment of the deposit at any time.

These should not be confounded with time certificates, under the terms of which the holder has no right to demand payment except at the expiration of the period of time named in the certificate.

CHAPTER XI.

DIGEST OF NATIONAL BANK CASES.

Commencing with the year 1875 each annual report of the Comptroller of the Currency has contained a digest of court decisions in cases concerning National banks, and this digest, which has carefully been revised and added to from time to time, has now grown to be a very valuable feature of these reports.

In it the salient points in each case are stated as briefly and concisely as possible, conveniently arranged for reference, under the following general heads, taken from the index of contents appearing on pages 87 and 88 of volume I, Comptroller's report for 1889:

1. Constitutional law; 2. Powers and liabilities of National banking associations; 3. Ultra vires; 4. Stock; 5. Shareholders; 6. Officers; 7. Interest; 8. Insolvent associations; 9. Receivers; 10. Taxation; II. Jurisdiction; 12. Suits; 13. Evidence; 14. Crimes.

The decisions therein cited occupy twenty-five pages of the report (89 to 113 inclusive) and furnish a most reliable and convenient fund of infor