banking principles and practice volume 3 domestic banking—cash and deposit operations

BANKING PRINCIPLES AND PRACTICE By RAY B. WESTERFIELD, Ph.D. Assistant Professor of Political Economy, Yale University; Secretary-Treasurer, American Economic Association IN FIVE VOLUMES VOLUME III DOMESTIC BANKING— CASH AND DEPOSIT OPERATIONS NEW YORK THE RONALD PRESS COMPANY 1921 Copyright, 1921, by The Ronald Press Company All Rights Reserved CONTENTS VOLUME III— DOMESTIC BANKING—CASH AND DEPOSIT OPERATIONS Chapter Page XXVII Bank Administration — Shareholders and Directors 511 The Management of a Bank The Shareholders of National Banks Shareholders' Meetings Shareholders' Rights and Liabilities Election of Board of Directors Legal Qualifications of Directors— Clayton Act Amendments to Clayton Act Selection and Services of Directors Functions and Powers of Boards of Directors Limitations and Responsibilities of Directors XXVIII Bank Administration — The Officers . . . 525 The President— Powers and Responsibilities The Vice-President The Cashier The Powers of Cashier The Departmentalization of a Bank Methods of Growth and Expansion Types and Systems of Management Committee System An Illustrative Organization The Managerial Functions The Executory Functions XXIX The Paying Teller 542 General Duties and Qualifications Internal Organization of Paying Teller's Department Handling the Bank's Cash— The Money Department Payments and Receipts by Mail and Express Payments at the Clearing House — Pay-Rolls The Paying Teller's Proof The Payment of Checks "Stop-Payment" Orders Raised, Postdated, and Stale Checks Identification of Presenter The Signature Department — Duties and Organization Identification of Signatures Routine of Work Procurement of Signatory Authority IV CONTENTS Chapter Page Signatory Authority of Corporations and Partnerships Account of Deceased Depositors Trustee's, Joint, and Other Accounts Certification Department —Function and Organization Outstanding Certified Checks and Identification Receipt System Precautions in Certifying Checks Day Loans and Overcertification Certified Checks and Bookkeeper's Department XXX The Receiving Teller 567 General Duties and Organization of Receiving Teller's Department Opening an Account and Making a Deposit Nature of Deposits and Deposited Items Handling Deposited Items The Second Teller's Proof XXXI The Mail Teller 576 General Duties and Organization of Mail Teller's Depart- ment Sorting the Morning Mail Proving the Cash Letters The Assembly Rack Proof The Charging and Distribution of Items Handling the Afternoon Mail XXXII The Check Desk Department 589 General Functions and Organization of the Check Desk Department Sorting the Items Examining the Items The Proofs The Ledgers Routine of Bookkeepers in Check Desk Department Posting the Exchanges Method of Handling Overdrafts and "Holds" The Balancing of the Accounts Other Duties of the Check Desk Department XXXIII The Note Teller and City Collections Classification of Items for Collection Purposes General Functions of the Note Teller Handling of Notes for Collection Miscellaneous Collections Miscellaneous Duties Bookkeeping and Proofs Functions of the City Collection Department Special Collect inns Sight Draft Collections 604 CONTENTS Chapter Page Returns Clearing House Returns — Special Deposits Cash Item Proof Duties of the Coupon Collection Department Sorting and Recording the Coupons Collection of Coupons and Departmental Proof XXXIV Clearing Houses 626 Definition of Clearing House Terms The Place of Clearing and Its Equipment Administration Functions The New York Clearing House The Process of Clearing Making Settlements Clearing House Certificates Clearing House Loan Certificates General Purpose of Loan Certificates Settlement by Book Entries with Federal Reserve Bank Other Methods of Settlement Items that May Be Cleared City Collection Department Statistical Work Examination Department Co-operative Competition of Members XXXV Country Collections 651 Transits and Collections Defined Collections Through Correspondent Banks Exchange Rates and Collection Charges Effect of Collection Charges Country Clearing Houses— Organization Method of Making Country Collections Advantages of Country Clearing Houses Growth of Country Clearing Houses Nature and Allocation of Collection Charges Methods of Handling Interest Charges on Collections Allocation of Exchange Charges Justification of Exchange Charges Profits on Collections Opposition of Small Banks to Par Collection System Elements of Collection Charges Existing Exchange Charges Defects of the Former System of Country Collections XXXVI The Federal Reserve Collection System Growth of the System Transit Items Collectible Under System Routing and Clearing of Items Non-Transit Items Collectible Under System Procedure in Making Collections 672 VI CONTENTS Chapter Advantages of the Federal Reserve Collection System Opposition to Federal Reserve Collection System The Universal Numerical System XXXVII The Transit Department Page 686 General Functions and Organization of the Transit Department Collection of Cash Items —Work of Night Force Collection of Cash Items — Work of Day Force Collection of Non-Transit Items The Analysis of Accounts Cost of Handling an Account Profit on Handling an Account Nature of Telegraphic Communications Telegraphic Payments, Transfers, and Deposits Cashier's Checks and Exchange Drafts Commercial Paper of Correspondents The Law of Collections and Acceptance Responsibility of Collecting Bank as Agent Responsibility for Selection of Agent Restrictive Indorsement of Items Instructions for Collections Time of Presentment for Acceptance or Payment Place of Presentment for Acceptance or Payment Person to Whom Presentment for Acceptance or Pay- ment Is Made Protest Acceptable Tender XXXVIII Special Service Departments 713 Gratuitous Services by Banks The Customers' Securities Department Internal Organization Records of Securities Department Miscellaneous Duties Relationship to Other Departments The Statistical Department The Industrial Service Department The Foreign Trade Department —The Commercial Rep- resentative Work of Home Organization XXXIX Travelers' Checks and Letter of Credit Depart- Gcneral Duties and Organization of the Department Application for Letter of Credit Typical Letter of C red it Identification of Holder of Letter of Credit Methods and Terms of Issuance The Issuance of Travelers' Checks Letters of Credit and Travelers' Checks Issued by Inte- rior Correspondents 727 CONTENTS vii Chapter Page Method of Using Letters of Credit Method of Using Travelers' Checks Letters of Credit Issued by Foreign Banks Records of the Department XL The General Bookkeeper's Department . . . 746 Importance of Bank Bookkeeping Development of Accounting Methods Classes of Records Organization of the General Bookkeeper's Department The Cashier's Check Book The Expense Ledger Taxes Borrowed Bond Books The Interest Balance Book The Suspense Ledger The General Journal The Recapitulation Book The General Ledger The Statement Book Bank Reports Card tiles XLI The Auditing Department 770 Qualifications ot Bank Auditor Duties of Auditing Department The Reconcilement of Domestic Accounts The Investigation of Domestic Accounts The Verification of Domestic Accounts Reconcilement and Investigation of Foreign "Our" Accounts Reconcilement and Investigation of Foreign "Their" Ac- counts and Verification of Foreign Accounts The Verification of Canceled Coupons The Checking of Expense Bills The Balancing of Pass-Books The Filing ot Statements and Checks Bank Examinations Manner of Conducting Examinations Illustrated FORMS AND ILLUSTRATIONS Figure Page io. Ideal Chart of Typical Bank Organization 538,539 11. Paying Teller's Proof ' 549 12. Deposit vSlip 570 13. Second Teller's Proof 574 14. Rack Proof for Cash Letters 579 15. A. M. Assembly Rack Proof 582 16. Mail Teller's Sectional Proof 584, 585 17. Fourth Teller's Proof 586 18. Check Clerk's Sectional Proof 594 19. Check Clerk's Trial Proof 595 20. The Boston Ledger 597 21. Third Teller's Proof 611 22. Fifth Teller's Proof 618 23. Proof of the Coupon Collection Department 624 24. Exchange Charge Sheet 693 25. Analysis Sheet of Transit Department 697 26. Application for Travelers' Letter of Credit 729 27. Typical Travelers' Letter of Credit in Use Before the War . . . 730 28. Typical Travelers' Letter of Credit Now Used 731 29. Typical Pre-War Travelers' Check 736 30. Typical Travelers' Check Now Used 738 31. Double Ticket for General Bookkeeper's Department 762 32. General Journal Proof 763 Banking Principles and Practice VOLUME III DOMESTIC BANKING—CASH AND DEPOSIT OPERATIONS [...]... responsible heads, and performing a set of allied operations The number of departments varies directly with the volume of business to be handled and the possibility of separating the operations into more or less routine elements Some of these departments, though large in DOMESTIC BANKING CASH AND DEPOSITS 532 the number may yet of their employees, operations because the actual volume ments may is handle only... negotiable property of the bank collect debts due to the bank and perform the necessary paper, nor give 6 To incidental operations 7 To borrow money in the regular course of business and give the bank's note and pledge collateral 8 To receive deposits and evidences issue certificates of deposit or other DOMESTIC BANKING CASH AND DEPOSITS 53 Q To make or supervise the transfer of the bank's shares of... it, and, directors are limited in their powers They can use the funds and property of the bank only for proper banking functions and and to the bank's abilities charities or advantage in the best way that their knowledge They cannot vote to contribute to They cannot needlessly and gratuitously can devise make gifts assume actual or contingent liabilities for others DOMESTIC BANKING CASH AND DEPOSITS... officer or bank, banking association, or trust employee of same more than one company organized or operat- ing under the laws of the United States, either of which has deposits, capital, surplus, and undivided profits aggregating than $5,000,000; and no private banker or person tor in any bank or trust who is more a direc- company organized and operating under DOMESTIC BANKING CASH AND DEPOSITS 518 the... obtained not imposed if such limitations were DOMESTIC BANKING CASH AND DEPOSITS 520 Selection The and Services of Directors directors are put under oath to administer diligently honestly the affairs of the bank and to be qualified are sent to the Comptroller of the Currency and and These oaths filed A director is not an agent of the bank he cannot act separately and independently of his fellow-members... upon dangerous and may amount to the delegation of the DOMESTIC BANKING CASH AND DEPOSITS 522 management of the bank; this exceeds the directors' authority always held that the making of loans and discounts is an inalienable function of the directors, which cannot be conferred It is upon not because officers make officer loans and discounts unless specifically approved amount, time, and other directors... of : DOMESTIC BANKING CASH AND DEPOSITS 534 Management has been the operations sion and experiment in recent years a subject of much discus- Several systems of so-called management" have been devised The principles of scientific management were first applied to production within a factory; more recently they have been adapted to sales, business It is not unusual nowadays to find in a modoffices, and. .. and may may specialize in also continue to manage the and others department from which they were elevated to assistant cashier511 DOMESTIC BANKING CASH AXD DEPOSITS 512 Another ships comptroller appearing in bank administration officer Although his position is generally divides the executive work of the handling the personnel, auditing, planning, The above officers constitute the is the not yet standardized,... to and under proper regulations as to time and place, the books, records, and documents of the bank State courts may compel national bank officers to permit a stockholder to inspect its records and documents for a proper purpose inspect, for proper purposes Shareholders may transfer their shares to competent parties, and they have the right to demand that the bank execute the transfer on its books and. .. office and be clothed by the board with express or implied authority to conduct the bank almost as he wills and his policy determines that of the bank The amount and nature of the duties conferred upon him vary with the practice and by-laws of the bank Provided the president is competent and conservative, the one-man bank the bank that is dominated by its president may be highly successful and desirable; . Ticket for General Bookkeeper's Department 762 32 . General Journal Proof 7 63 Banking Principles and Practice VOLUME III DOMESTIC BANKING CASH AND DEPOSIT OPERATIONS