L. H. (Loyd Helvetius) Langston.

Practical bank operation online

. (page 1 of 27)
Online LibraryL. H. (Loyd Helvetius) LangstonPractical bank operation → online text (page 1 of 27)
Font size
QR-code for this ebook

This is a digital copy of a book that was preserved for generations on library shelves before it was carefully scanned by Google as part of a project
to make the world's books discoverable online.

It has survived long enough for the copyright to expire and the book to enter the public domain. A public domain book is one that was never subject
to copyright or whose legal copyright term has expired. Whether a book is in the public domain may vary country to country. Public domain books
are our gateways to the past, representing a wealth of history, culture and knowledge that's often difficult to discover.

Marks, notations and other marginalia present in the original volume will appear in this file - a reminder of this book's long journey from the
publisher to a library and finally to you.

Usage guidelines

Google is proud to partner with libraries to digitize public domain materials and make them widely accessible. Public domain books belong to the
public and we are merely their custodians. Nevertheless, this work is expensive, so in order to keep providing this resource, we have taken steps to
prevent abuse by commercial parties, including placing technical restrictions on automated querying.

We also ask that you:

+ Make non-commercial use of the files We designed Google Book Search for use by individuals, and we request that you use these files for
personal, non-commercial purposes.

+ Refrain from automated querying Do not send automated queries of any sort to Google's system: If you are conducting research on machine
translation, optical character recognition or other areas where access to a large amount of text is helpful, please contact us. We encourage the
use of public domain materials for these purposes and may be able to help.

+ Maintain attribution The Google "watermark" you see on each file is essential for informing people about this project and helping them find
additional materials through Google Book Search. Please do not remove it.

+ Keep it legal Whatever your use, remember that you are responsible for ensuring that what you are doing is legal. Do not assume that just
because we believe a book is in the public domain for users in the United States, that the work is also in the public domain for users in other
countries. Whether a book is still in copyright varies from country to country, and we can't offer guidance on whether any specific use of
any specific book is allowed. Please do not assume that a book's appearance in Google Book Search means it can be used in any manner
anywhere in the world. Copyright infringement liability can be quite severe.

About Google Book Search

Google's mission is to organize the world's information and to make it universally accessible and useful. Google Book Search helps readers
discover the world's books while helping authors and publishers reach new audiences. You can search through the full text of this book on the web

at http : //books . google . com/|

Digitized by





Graduate School


Business Administration


Digitized by




Digitized by


Digitized by


Digitized by


Digitized by


Practical Bank Operation

Pbepabed bt


Under the Direction of







Digitized by




Copyright, 1921, by
The Ronald Press Company

AU Rights Reserved

Digitized by





During the past few years there has been a growing desire
on the part of the general reading public and of students to
know of what goes on inside a bank. This is no illegitimate
desire. Of all business institutions perhaps banks come the
most closely into contact with the public by virtue of their
fiduciary relations. Again, banks in the last decade have
extended their services into new fields and it is to the interest
of the banks, as well as to that of the public, that as many
persons as possible should know of the scope and variety
of a modem bank's activities. Furthermore, banks through-
out the country are making calls upon schools and luiiversities
for new blood, while at the same time the schools are giving
increasing attention to a systematic study of banking as a
division of modem complex economic life. It is hoped, as
one of the purposes of this book, to provide the student with
a comprehensive and authoritative exposition of modem bank-
ing practice.

There is .also a commendable disposition among banks to
exchange information about themselves. While the National
City Bank makes no presumptuous claims in this connection,
yet, because of the innumerable requests for information that
are sent in by friends and correspondents all over the world,
there is justification for the hope that bankers everywhere
may find some advantage in knowing of this bank's method
of doing its work. It is also hoped that the National City
Bank may have the advantage of whatever criticism its friends
may care to make.

In preparing the work the endeavor has been to keep in

Digitized by



mind the needs of three classes of readers, viz.: the banker,
the special student, and the general reader. The aim is to
give an insight, in considerable detail, into the actual work
of a large international bank. Each banking operation is
set forth herein as it is performed in the National City Bank
of New York. No attempt is made to put forward. or develop
new theories of banking, nor, as a matter of fact, to deal with
theories at all. There are in existence already many books
which treat this subject in an admirable way. The actual,
rather than the ideal, is the subject matter of the present

It is obvious that this plan has its disadvantages. It is
virtually impossible to keep such a work up to date. Any
organization of considerable size is dynamic rather dian static;
it is constantly tmdergoing changes and improvements. Again,
one is under obHgation to show the defective as well as the
good if he would depict accurately the organization of a living
institution. No organization is perfect, much less one which,
like the bank of today, is just emerging from conditions
imposed upon it by international warfare. Nevertheless it is
hoped that the advantage of setting forth facts as they are
rather than as they will be at some future time, or as an
idealist might hope that they could be, will outweigh the
obvious disadvantages of presenting the practical side of bank-
ing in detail.

The foundations of this book have been long in the mak-
ing. The original idea found expression a number of years
ago in various books for internal use in the bank. To teach
tiie work of the bank to new employees, and old ones as
well, was felt to be a most important duty. Accordingly
in 1912 Mr. J. H. Carter then chief clerk, now vice-president
of the bank, with the assistance of department and division
heads, prepared a book describing the work of each depart-
ment This book was followed in 1914 by a much larger

Digitized by



work which took the form of mimeographed copies of lectures
given by department heads and officers before a class in bank-
ing made up also of officers and department heads. This work
proved so successful that the idea underlying the present book
was brought to the front. Why not produce a book which
in addition to being useful in the bank's internal educational
work would also fit into any educational program which
would include those outside the bank as well ?

In developing this larger project it was seen that unity
would be attained only by employing an editor to devote his
whole time to collecting the available material and to pre-
paring the book. Accordingly a man was obtained who was
left largely to his own devices in preparing the projected book.
The result, while an excellent product, stressed banking history
and theory rather than exposition of actual bank operations.
A revision of the entire plan of procedure was therefore
determined upon.

At this stage in the work the present editor was called,
and an editorial committee consisting of Mr. E. E. Agger,
then assistant to the president of the bank, Mr. Jacob Wohn-
siedler, vice-president, Mr. G. A. Kurz, assistant vice-presi-
dent, Mr. E. R. Naar, assistant cashier, Mr. E. M. Earle, and
Mr. A. L. Billingsley, was chosen to plan and to direct the

After a survey of the ground and upon the basis of ex-
perience gained from previous efforts, the committee decided
that, inasmuch as the material collected by their predecessors
had become out of date, it was necessary to build from the
beginning. The editor, therefore, with the assistance of Mr.
Amo Hoppert and Mr. Harold H. Wylie of the bank's college
training class, has studied the work of each department of
the bank at first hand and set down herein what he observed.
Each chapter of the work has then been submitted to the
division and department heads concerned as well as to the

Digitized by



members of the committee and certain other specialists in the
bank for criticism and suggestions. A committee consisting
of Mr. William A. Simonson, executive manager, Mr. J. H.
Carter, and Mr. G. E. Gregory, vice-presidents of the bank
has passed upon the book from the standpoint of the manage-
ment. Mr. Gregory has also made many helpful suggestions
of a general editorial nature. The thanks of the committee are
also due the New York Clearing House Association for
assistance in gathering material for Chapter IV.

From the foregoing brief outline, it is apparent tiiat no
one man or small group of men can claim credit for whatever
of value there may be in the work. It is a result of joint
effort. Practically every officer and departmental executive
in the National City Bank has assisted in its production. To
them should go the credit, and to them are extended the
sincere thanks of the editor and of the committee. If this
book has any points of merit, it is a tribute to the co-operative
spirit which permeates the organization of the National City
Bank. It was this co-operative spirit which alone made the
production of the book possible.

The Editorial Committee,
The National City Bank
OF New York,
New York City,
February i, 192 1.

Digitized by




Chapter Page

I The PuNcnoNS op a Bank 3

Indl^ensable Banking Services
The Deposit Ptmction
Note-Issuing Function
The Exchange Function
The Loan Function
Fiduciary or Trust Functions
Auxiliary Ch)erati(ms
Summary of Banking Functions

II The Receiving Operations 13

General Statement of Receiving Operations
Nature of Receiving Operations

Function and Organization of Receiving Teller's Depart-
Incoming Deposit
Examination of Deposit
Exchange Charges
Depositor's Receipt

Despatch of Special Items for Collection
Sorting, Proving, and Distributing the Receipts
Disposition of Credit Items
Proof of Receipts
Disposal of Debit Items
Receiving Teller's Daily Proof
Mail Teller's Department
Divisions of Day's Work
The Morning Mail
Opening the Mail
Sorting the Mail
Work of the Rack Forces
Elimination of Collection Items
Proof of Batch

Exchange and Collection Items
Gash and Collection Returns
Interest Delays

Disposition of Debit and Credit Items
Special Instructions Force
Mail Teller's Proof
Rack Proof
Proof of Division
Mail Teller's Daily Proof

Digitized by



Chapter Page

The Work of the Foreign Tellers — ^Receiving Section
Standing and Special Instructions
Credit Advice
Summary of the Receiving Operations

III The Paying Operations 44

Nature of Paying Operations

Rdation to Receiving Operations


Counting Cash

Money Department

Scrutiny for Genuineness and Currentness

CountCTf eit Money

Raised Money

Mutilated and Worn Money

Preparation of Money for Storing |

Paying or First Teller's Department

Maintaining Supply of Cash

Replenishment of Supply

Disposition of Surplus Monw

Supply of Money tor Other Departments

StonngCash '

Cashing Checks


Stop-Payment Orders




Insufficient Funds


Payment of Checks Drawn upon Other Banks ^

Making Payment

Disposition of Items Received

Stmdry Payments

Currency Shipments

Sole of Gold Bars

Settlement of Clearing House Balances f

Paying Teller's Proof

The Petty Cashier


Pett^ Cash and Stamps

Certification of Instruments

Routine of the Certification Department

Delivery of Certified Instnmients

Miscellaneous Items Certified

Recording Caiafied Instruments -

Follow-Up of Outstanding Certified Items '

IV Clearing 70

Nature of Clearing Operations

The New York Qearmg House Association |

Clearing House Committees

Admission of Members

Digitized by



Chapter Page

Non-Members Clearing through Members

Functions of New York Clearing House

City and Cotmtry Collections

Regulation of Interest on Deposits

Interest Rates

Exchange Charges


Mutual Support in Times of Stress

Examinations and Reports

Report of Condition of Member Bank

Statement of Clearing House Banks

The Process of Clearing

Indorsement of Items for Clearing

Work of the Assembly Racks

Mail Teller's Work

Forms Required at Clearing House

Clearing Operations

Force for EfiFecting Clearing

Making Exchanges

Settling Clerk's Statement

Clearing House Proof

Settlement of Balances

Adjustment of Errors

Summary of Clearing Operations


Method of Collecting

Method in Use Before the Passage of Federal Reserve

Cotmtry Collection D^artment of Clearing House
Correspondent Bank Method
The Federal Reserve Bank Collection System
Methods of Collecting Through Federal Reserve Banks
Gold Settlement Fund

Organization and Routine of Transit Department
Division of Labor
Night Force

Morning and Afternoon Force
Sorting Material of Racks
Letters of Transmittal
Universal Transit Ntmibering System
Mailing Transit Items

Disposition of the Duplicate Letters — Charge Basis
Letters Sent on Transfer or Remittance Basis
Collection of Trusts
D^)artmental Proof
Sundry Reports

Assessment of Exchange Charges
Interest Delays
Data for Analyzing Accounts
Checking Incoming Bills for Exchange
Summary of Transit Operations

Digitized by


x contents

Chapter Page

VI City Collections 126

Collection of Cash Items

Collection Service

Uses of Collection Service

Miscdlaneous Collection Activities

City Collection Dg)artment

Territory of City Collection Department

Collection of City Cash Items

Disposition of Dishonored Cash Items

Sotm:e of Collection Items

Kjnds of Items Collected

Recording Collections

The Credit Journal

Settling for Collections

Procedure on Non-Payment

Arrival Drafts

Acceptance of Time Items

Recovery of Uncollected and Dishonored Items

Qearing House Redemptions

Cash Items DLshonored by Bank

Cash Returns

Qearing House Returns

Clearances and Redemptions

Missent and Hold-Over Items

Disposition of Receipts

Fifth Teller's Proof

Messengers' Depcutment

Messengers' Routine

Summary of City Collection Work

VII Collection of Notes, Coupons, and Country Items 156

Note Teller's Department

Receiving Items for Collection

Collection of Notes

Note and Acceptance Blotters

Timing the Itepis

Owners* File

Makers' and Acceptors' File


Note Boxes

Country Notes and Acceptances

City Notes and Acceptances

Collections Payable at Bank

Collections Payable at Clearing House

Settlement for Collection

Miscellaneous Functions

Deliveries Against Payment

Collection of Exchange Charges

Receiving Operations

^>ecial Deposits

Certificates of Deposit

Classes of Certificates of Deposit

Telegraphic Transfers

Digitized by



Chapter Page

Outgoing Transfers

Payments tmder Telegraphic Transfers
Issuance of Cashier's Checks
Issuance of Bank Drafts
Commercial Paper Purchases
Remittances Received Without Instructions
Returned Vouchers
Payment of Notes and Acceptances
Disposition of Receipts
Departmental Daily Proof
CoUection of Coupons
Ownership Certificates
Unmatured Coupons
Coupon Envelopes
Payment of Coupons
Unpaid Coupons

Coupon Collection Department Proof
Collection of Country Items
Collection Nvimber and Stamp for Country Items
Record Files

Settlement for Items Collected
Collection of Discotmts and Bankers' Acceptances
Collection Charges
Unpaid Country Collections

VIII Foreign Collections 192

Nature and Scope

Origin of Fordgn Items

SetUement of Foreign Debts

C. O. D. Transaction

Duplicate Items

Tenor and Usance of Drafts

Clean and Docimientary Drafts

Ocean Bills of Lading

Order Bills of Lading

Marine Insurance Policy

Miscellaneous Doctmients

Bases of Handling Foreign Items

Economic Aspects of the Foreign Collection Service

Voltmae of Foreign Collection Business

Export Collections

Items Payable Abroad

Receipt and Examination of Items

Export Collections Register


Letters of Transmittal

Forwarding Items to Collecting Agent

The Ticket Piles

Advices of Receipt and Acceptance

Follow-Up of Unpaid Items

Settlement Between Banks

Unpaid Items

Digitized by



Chapter Page

Settlement with Owner
Conversion of Foreign Money
Collections by Cable

Import Collections

Foreign Collections Department

Receiving Clerk

Cash and Collection Items

Separation of Cash from Collections

Advices of Credit

Import Collection Register

Conversion of Foreign Ctirrency Items

Collection Through Domestic Departments

Customers' Cards

Settlement with Owner

Unpaid Collections

Time Items


Records Pertaining to Discotmts


IX Credit 229

Controlling Investment Operations

Sources of Credit Information

Credit Folder

Contents of Credit Folder

Credit Files

Revising Information

Dissemination of Credit Information

Approval of Commercial Paper Names

Use of Credit Information in Maldng Loans

Application Ticket

Anal3rsis of Credit Information

Character and Capacity of Applicants

Analysis of Financial Statement

Cash Account

Notes Receivable

Accounts Receivable

The Inventory

Stocks and Bonds

Real Estate

Machinery and Fixtures

Sundry Assets

Self -Liquidation of Assets

Notes Payable

Accotmts Payable

Bonded Indebtedness

Anal3rsis of Profit and Loss Statement

General Impressions of Statement

Financial Position Expressed in Ratios

Financial Statements of Banks

Line of Credit

Agreement Under a Line of Credit

Application for Loan — Offering Ticket

Digitized by


CONTEkxS xiii

Chaptek Page

X Domestic Discounts 258

General Statement of Discount Operations

Open Book Accounts

Financing of Receivables

Trade Acc^tances

Borrowing in Open Market

Single- and Two-Name Paper

Safety of Unsecured Commercial Loan

Domestic Discoimts

Domestic Discoimt Department

Discotmt Blotter

Calculating Discoimt

Exchange Charges and BiH Stamps

Discount Tickets

Offering Book

Discount Tickler

Discount Files

Collection of Discounts and Purchased Paper

Unpaid Items

Collection of Rediscounts

Earnings of Discount Department

Discounts Secured by Receivables

Rediscounts with Federal Reserve Bank

Accounting for Rediscounts

Pledges to Secure Public Deposits

Departmental Proof

Auxiliary Records

Customers* Liability Ledgers

XI Foreign Discounts 284

Nature of Transactions

Foreign Discount Department

Customer's Letter of Instructions

Window Blotter

Credit Rating of Customer

List Book

Number Register

Examination of Documents

Methods of Negotiating Foreign Bills

Discount Rates

Tickets and Remittance Letters

Accounts Charged for Item Received

Remittances Abroad

Bills Drawn upon British Colonies

Time Sterling Bills

Dollar Items

Other European Colonial BiUs

Other Dollar Drafts

Settlement Required from Collecting Agents

Settlements Between Banks


Transactions Subject to Adjustment

Adjustment of Dishonored Items

Digitized by



Chapter Page

Notice of Collection for Customer
The Books of Record
Bills Registers
The Bills Discotmted Ledgers

XII Loans 312

Characteristics of Loans

Classification of Loans

Loans Secured by Stocks and Bonds

Merchandise Loans

Loans Made upon Receivables

Loans Made upon Arrival Drafts

Classification of Loans According to Time

Classification for Accotmting Purposes

Ptmctions of Loan D^>artment

Non-Stock Exchange Loans

How the Rate for Call Loans Is Determined

The Loan Contract

Method of Negotiating Day Loan

Loan Envelope

Examination of Collateral

Examination of Stock Exchange Collateral

Good Delivery

Proportions of Rails and Industrials


Examination of Non-Stock Exchange Collateral

Settlement with Borrower

Loan Cards

Loan Ledger and Tickler

Loans-Made Toumal

Collateral Substitutions and Withdrawals

Trust Receipts

Maintenance of Margins

Changes in Interest Rates

Collection of Interest

Collection of Coupons

Collection of Loans

Method of Calling a Loan

Collection of Time Loans

Prepayment, Part Payment, and Renewal of Loans

The Loans-Paid Journal

Earnings from Loans

Accounting for Loans Made for Customers

Loan Department Pitx)f

XIII Bonds 348

Btmk Transactions in Bonds
Privileges Carried by Bonds
Owner^p of Stocks
Assisting Government Financing
Purchase and Sale of Securities
Organization for Handling Bonds
Sources of Bond Supply
Purchase Ticket

Digitized by



Chapter Page

Receipt of Bonds into Vatdts
Botignt Register
Income from Bonds
Collection of Bond Interest
Pledging of Bonds
Borrowing and Lending Bonds
Sale of Bonds
"Bonds Sold" Register
Valtiation of Bonds
Records of the Department
Supplementary Statements and Reports
Bcoid Department Proof


XIV Commercial Credits— Import 373

Nature of Import Commercial Credits

Advantages to the Exporter

Advantages to the Irnporter

Bank's 6x)fit Under Commercial Credits

Dollar Credits Versus Foreign Ctirrency Credits

Advantages of Dollar Credit

Clean and Documentary Credits

Confirmed and Unconfirmed Credits

Fixed and Unlimited Capital

Import Commercial Credit Department

Passing upon Credit Rating

Method of Application

The Oflfering Slip

Arrangement with the Customer

The Letter of Credit

Operation of Import Credit

Receipt and Examination of Documents

Cash Payments tmder Dollar Credits

Acceptances under Dollar Credits

Release of Documents

Collection at Maturity

Anticipation and Increase of Credits

Settlement with Foreign Bank

Payment of the Bank's Acceptances

Records of Credit Department

Summary of the Accotmting Work

XV Commercial Credits — ^Export 400

Export Credit Departtnent
Reunbursement Credit
Advices of Credits Opened
Advising Beneficiary of Credit
Negotiation of Drafts Drawn tmder Credits
Examination of Doctunents
Transmission of Doctunents Abroad
Warehousing of Merchandise

Digitized by



Chapter Page

Pftyment by Cashier's Chedc
Payment by Acceptances
Domestic Letters of Credit
Examples of Domestic Credits
Advances on Export Bills
Department Records
Contingent Liability Ledger
Expiry Tickler
Summary of Book Entries

XVI Letters oe Credit and Travelers' Checks . . . 419

Letters of Credit

Travelers* Checks

Dollar and Foreign Currency Credits

Paid and Guaranteed Letters of Credit

Letter Issued Against Collateral

Travelers* Checks Issued for Cash

Classification of Credits

Letter of Credit Department

Application for Letter of Credit

Issuance of Letter of Credit

Ust of Correspondents

Guaranteed Credit

Issuance of Travelers' Checks

Interior Correspondents' Travelers' Checks and Letters

of Credit
Advices to Drawee Banks
Illustrations of Use
Expired and Exhausted Credits
Lost Letters of Credit and Travelers* Checks
Honoring Travelers* Checks and Drafts
Credit Cards and Piles
Cash Journal

List Book and Balance Book
Departmental Records
Payments Opened by Foreign Banks

XVII Foreign Drapts, Letter and Cable Transfers . 445

Methods of Transfer

1. Bankers* Demand

2. Letter Transfers

3. Cable Transfers

Online LibraryL. H. (Loyd Helvetius) LangstonPractical bank operation → online text (page 1 of 27)