The New York Herald Newspaper, November 1, 1859, Page 4

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4 BANES AND BANKING. A Complete Inside View of Financial Mysteries. How Bank Charters are Obtained and Banks Organized— How to Faselnate Depositors— Bow Directers Pay Theaselves—Discount- ing Arrangements The Philosephy ef Loans and Discounts How Annual Statements are Fabricated, ke, 0. &0., The prevalent ignorance of our community with respect to the method of banking in this metropo. lis ia not only deplorable, but @ matter to be sin- cercly reprobated, us presenting steady enoourage- ment to the perpetration of frauds and defalcations, remarkable simpiy from our persistence in oredu- Jous reliance upou a system of practical banking rotten at the core. It is moreover to be regret- ted that, while every business man deems it in- cumbeat to keep a bank account, and the nominal governors of bavks are especially drawn from commercial and trading classes, banking has neither attained the dignity of a profession nor an approximation towards scientific syatemization, lacking which no Gnancial operation cam be con- ducted with profit and in security. Political economy, a8 @ utilitarian study, having been generally neglected as a branch in mercantile education, metropolitan traders, active and not theoretical duanciers, are apparently content with baving economical wuths driven into their heads by dint of, experience from pecuniary causalities, in lieu of shaping monetary transactions in accord- ance with requirements of an investigated science. To compensate for this void in preliminary tuition, merchants acquire knowledge of their respective vecatious trough clerical apprenticeship, and con- sequently may be assimulated by well educated commercial men, as regards intellectuality in their calling, unto well favored proficients in wholesale pedling; for, with sorrow be it conceded, that our merchant princes bear little resemblance, socially or politically, to the Jacques, Coours and Medicis of past generauols. Honestly, admitting commercial magnates to be destitute of economical knowledge, can it be ra- tionally expected that the great mass of minor traders, of treffickers and of artisans, can either com- prehend or appreciate the practice of banking as being a deduction from theory, or as a scientific creation? On-the contrary, these people—the body of reliable bank dealers—simply regard bank- ing, and with great show of justice, to_be’a species of reputable pawnbroserage, under which the rich hypothecate with associated Lombards, notes, bonds and certificates of stock, for purposes of raising the wind, precisely in a manner and with a motive similar to the deposition of a day laborer's Buperfiuous apparel to the temporary guardianship of the unpopular hero of three balls. And, in truth, it does requue a pretty ingenious mind to define a distinction as to the vature ofa collateral, whether it be a railroad bond or a pair of boots. Moreover, this popular parallel can be substantiated by any cone who has been casually initiated into the work- ings of practical banking, or who has been pro- fessionally employed in the management of mone- tary institutions, in which the cardinal aim of the directors seeks to obtain the maximum of profit, even if attended by a proportionate risk as to loss. As banking is regarded by intelligent authorities to constitute an important branch in political eco- nomy, we naturally conclude that to carry on an advanced andenlightened practice of banking, ap- plicable to the emergencies of an extended com- mercial system, should demand a competent pro- ficiency in economics. In Burope, where bankers are not merely custodians, or loaners of moneys, but elements in political systems, regu- lating governmental forces, this is regarded as a fundamental necessity. Nevertheless, in our city, where bank directors stumble into the business through accident of stock ownership, and attempt to regulate joint stock associations combining dis- fonant trading interests, we have been unable to rise, through intellectual incompetency of these ac- cidental economists, above absolute mechanism in the occupation, and remain, as it were, pettifog. gers, practising without theoretic knowledge of Gnancial jurisprodence. Stationary, as to this stan- dard, will we ever remain until bank officials are se- lected from intelligent, professionally educated men, comprehending at least elementary principles of political economy and their application to inter- national commerce, in place of retired merchants, well-to-do mecbanics or speculating landholders, whore proudest aspirations are limited to the ad- vancement of local, selfinteresting projects for in- dividual emolument. The chronicles of metropolitan banking are replete with instances of inefiiciency in attaining the purposes of its design. During | every financial fever or monetary crisis our banks have exhibited themselves impotent to accom good, and all powerful in augmenting evil. They | have rarely assumed responsibility in, or direction of,moneyed matters, during an emergency, nor, warned by experience elsewhere, have endeavored to anticipate, so as to avert a coming storm. Quite the reverse. Each bank, actuated by sordid mo- tives for self-salvation, has devised separate and contradictory lines of conduct, and through intrin- sic weakness as to executive ability, derivative from fundamental organization, has contributed to render the confusion consequent upon the financial tempest the worse confounded. To save their capitals, our banks radically destroyed individual credit, which was jeopardized for a passing mo- ment, and could have been sustained either by pre- senting a combined opposition against sinister influence or by nursing precautionarily their re- spective dealers, and in this wise to present a common local barrier against pressure from foreign causes. They even transgressed the bounds of fra- ternal decorum, and suffered, through selfish sta- | pidity, many of their own craft to totter and fall, and thereby convinced the community, tbrough palpable example, of the utter hopelessness of seeking support during financial adversity from cor- porations unable to maintain themselves in credit. In few words, these metropolitan traders are ap- parently convinced, judging from effects withont ascending to causes, that existing banks, as regards ntilitarian purposes, are limited to a sphore of dis- count and deposit during seasons of prosperity; for experience has taught them that reliance upon their method of management, as an economical problem, during periods of embarrassment, is worse than that placed upon a decayed reed. Practical banking, contemplated and persisted in by our city institutions, is quite on a par with their theoretic pretensions; and of the thousands of stockholders and depositors, comparatively very few ever attgin correct information as to the inter: ped ag of banks, and as to how theiraffhirs managed, or rather mismanaged, as between directors and stockowners, officials and depositors, and the trading community at large. Dismissing acne rena ed theoretic ideas, we shall e nour tothe mysteries of pein vale] anaes. misapplication and frandulent favoritism, its abuses and facilities to cover peculation and defalcation. T6 compass tbis wim, we shall exibit a panorarms of'life behind a bank counter, with sketches of operations in the directors’ parlor and at tho cashier's desk, from the hour whence the bank date, like Solomon’s temple in th David the King, its building in the io itd president and directory. HOW TO GET UP A BANK. The General Banking law of the tate of New Sination of | to the number of aci | friends of the subordinates are the readiest vic- | tims, and are allured to the institution by extrava- | | brother traders, with representations whose falsity heart of | ry ry NEW YORK HERALD, TUESDAY, NOVEMBER 1, 1859.—TRIPLE SHEET. York, eupersediag the prior necessity of specific acts of incorporation, permite the organization of banking compantes in one of two manners—by individual baukers,a solitary millionaire or a copart- nership under @ banking title, er By artioles of aa- sociation, aigned by aubsoribers and limited to the purposes of banking as interpreted by the statute, This last basis is almost universally preferred in establishing a city bank, as much from difficulty in hunting up persons willing to contribute in copart- nership ® capital requisite for profitable invest- ment in this metropolis, where banking, like every othor channel of trade, is overflowed through com- petition, as from the facility with which certificates of shares can be hypothecated or sold at thé Board of Brokers; for stock of a reputable banking iasti- tation is a mercantile commodity, and thorein mo- neys thus invested essentially differ from copart- nerehip interests in individual banks. A knot of aspiring gentlemen having determined, from motives of either ambition, self interest or speculation, to create @ new banking institution, first secure a collection of names safficiently “strong” in 8 commercial point of view to engender confidence as to security for investment among the general mass of small capitalists, such as well to do artisans, widows with tolerable moans, and peo- ple with limited resources, generally unengaged in trading pursuits, and then opens books for subsorip- tion to the capital stock of a proposed bank, with an ingeniously euphonious appellation. Asa nest egg, or rather bait of toasted oheese, they choose for their president some meritorious or otherwise recognizable merchant, trader or manufactyrer, whose reputation forms the keystone to the pro- posed edifice, who, in appreciation of the couferred dignity, pledges himself as responsible for a large amount of the capital, probably about oue-sixth. In the selection of this important personage, the bank builders are governed in no respect by con- siderations as to bis bavking capabilities; for abank president, like him of our Union, is ever to be en- circled within a cabinet of sagacious worthies, while his ignorance as to finance is rectified by the transcendent wisdom of a cashier, an ex-teller from some popular institution, who, from having grown gray amid money bags, is presumed to have mas- tered all imaginable monetary intricacies. The chief requirements as to presidential eligibility are ge- nerally determined to be the possession of wealth, of commercial credit and of a sound, erthodox semi-clerical notoriety, and should he prove to be a mission trustee, tract society treasurer, or, other- wise, to flourish in a public and godly capacity, he will find greater favor in the sight of the children of Mammon as conferring a saintly halo around dis. count and deposit. To the master spirit should be conjoined a vice president, a man of influence among brokers, whose name is a household word in “the street,” shrewd, practical fellow, knowing a thing or two, whose re- ligion is of no account, provided he eschews drink, ing in public and owns an oily tongue, as his office compels him to “drum up” accounts, to negotiate sharp loans, and do “chores” generally outside, while the omnipotent, omniscient cashier “talks turkey” within doors. To attain this position the vice president contributes his proportion towards the capital and subscribes for one-half the sum al- lotted to the presiding functionary. 4 The eelf-created directors coalesce into a titular body, with equally as cautious coneiderations as to their individual availability; for upon their personal reputation, or public noturiety, depends the salva- tion of the ark about to be committed to turbid waters. Asa matter of precaution they choose each from diflerent business paths, for ancient adages rightly inform us that two of a trade never ee, and that variety constitutes the spice of life. Moreover, the merits of a direc- tor depend amazingly upon the locality surrounding the proposed concern, and the quality of the patronage to be solicited; fora man con- ceived to be a trump In one quarter, among a pat- ticular trading class, would prove a wet blanket in another among people of a different stamp. Ne- vertheless there are sundry individuals, exponents of specialities among dealers, who are in constant demand for bank directing purposes, such, for in- stance, asa leather dresser, sound on Swamp pa- per, a wholesale hardware man with extensive Western correspondence, a liquor dealer with a re- ligicus turn of mind, or a shipping merchant not wanting to borrow more than half the capital, and divers others of similar and especial mercantile repute. But in these latter times, when banks with their insurance appendices emulate patent medi- cine venders in business competition, almost any aspiring genius can become a director with ready money fo liquidate his quota towards bank crea- tion. ‘To illustrate in a familiar manner the method employed to fill up the subscription books, let us suppose the projected bank to require a capital of $600,000 jn 6,000 shares of $100 each. The em- bryo concern boasts twenty directors, qualifying their position by @ subscription of fifty shares each, to which estimate are to be added the shares for which the president, vice president and cashier are held responsible, personally or through friends, to secure tenure of office, and there remains an ap- palling balance to be subscribed for, to cover which the directors tax their ingenuity and resort to de- vices which would appear ladicrous did they not smack of Peter Funk charlatanry. In the first place, well knowing bank clerks to be ever expectant of promotion, difficult to be ob- tained in institutions to which they are for the | Moment attached. as changes therein rarely oceur unless through death or resignation, the directors | covertly advertise the chances of a superior desk | to young men, inducing friends to subscribe on their behalf to a given amount. As there are some six to eight openings in anew bank it is sagaciously estimated that the successful competitors for teller and clerkships can be regarded as reliable for at least 360 shares, apportioned among them according to respective salaries; and to such an incredulous ex- | travagance has been this banking simony exacted, that a few years since the position of notary, ever | @ point of competition, but which in a new estab- | Hshment fails to realize above $600 aunually, was | secured solely through a stock subscription of $10,000. While the influence of subordinate offi- cials is thus severely taxed, the directors are sim- ply expected to furnish additional subscriptions to | an amount equal to that required for their individu- | al qualification. Now, let us see how the capital | stands after exhausting the endeavors of those per- sonally interested in the enterprise:: | 20 directors (50 shares each). «. ». $109,900 Friends of ee divectors. se. 90,000 | President and friends... . 95,000 | Vice president and friends. 45,000 | Cashier and friends. .... 25,000 | Clerks, notary and friends. . 35,000 | Attorney an counzel 10,000 | Total. $100,000 | And h ,000 to be raised among the community in the best manner possible, and to peged in before the association can claim membership in the Clearing House. Now comes the low comedy of the transaction. “ Tou- ters,” or brokers professionally trained for the bu- siness, are paid liberal commissions to entice new subscribers, and vauntthe praises of the proposed establishment with energies rivalling the energetic declaration of Balaam and the re-echoes of his horn, while the leisure time of clerks and directors is devoted to the siege of capitalists in their dens or the seduction of brokers in the street, antil, by promise of discount and unlimited favors, the last subscription is obtained, and the bank opens doers for business HOW TO FASCINATE DEPOSITORS The entire capital stock having been subscribed for, the first instalment paid.in, and the bank open for business, the next vital movement is to obtain depositors, for no bank can be expected to eara a reasonable dividend unless the amount of deposits equals that of its capital. To get hold of money deposited is, therefore, aa much a matter of iate- rest with the directors as the securing of payment of the capital; and here again have we an exhibition i of ingenious cajolery, wherein the influence of | directors and cierks comes into active play, which may be assimilated to the time honored practice of | Commercial “drumming.” Ag the inflnence of the clerks with the directors augments proportionally ots they can command, the gant promises of a discount line. Next, the direc- rs bore and bother friends, acquaintances and must be evident to any, sive a credulous and ex- pectant borrower; and finally, skillfal pleaders are employed, receiving a pecualary recompense or favors {a the way of loans, who artfully entrap | dealers by stereotyped declamation and entreaties. | These mavceuvres may seem in fra dig. to the old fogy, square dealiog merchants of the passing generation, but are rendered obligatory upon new Competito: bank busine: ‘or hawkiag, so fa ing monopolised by a fow sedate concerns, erated into a trade, requiring as much in puffing as other dubious specalations, cape When it is destined to be countenanced by has dege dire cialiy the Dick Dashatls of our new school of merchauts, who, like their great prototype, repudiate “Cupitall an old bugbear, never thonght of now; no—paper, discount, does it.” HOW DIREOTORS PAY THEMSELVES, It would be voutrary to human experience to ex- ect 8 knot of money makers, valuing their duy's ‘at extravagant rates, to bestow gratuitous eervice upon any branch of trade; hence te tionall, je no man to be 60 a theopia as to ocoupy his time at bank ‘ivectin without receiving relative compensation for his toil. But how can a bank Seo be paid, ia- qnires the unilluminated, when he can ro- ceive no salary? Just sv; but the stockholder and depositor do not comprehend practical baak ing, and, when infor » place reliauce upon published statements of the condition of the bank a3 required by law, and regard such docu- ments as bal ‘raw omar sheets. But when they come to learn that statements are mere tabu- lar fantasies, concocted by the general boukkeeper to mako all exda mect in the most favorable light, and sworn to by the cashier upon information and belief—mind, there is no positive personal know: pit juired of either cashier or nt in Bud- scribing documents to be used by the State banking department—they may be induced to believe that a slight correction of figures, transferring aums to their right places aud preserving the balance cor- rect, might show a different atato of affkirs. In teuth, these quarterly statements ere manufactured very much atter the manner of certificates of curca by popular remedies, avd analyzation by com- petent hands will prove but shadows of a perfect condition of things. But of these banking phantas- magoria we will speak more definitely in # proper place. The paseo of director is rendered em- phatically self-paying and positively lucrative from tacilities for borrowing, nt ouly at one institution, but in others of similar character; for the situation pyce toa merchant an advance of credit, respected y the bank men generally to such a degree, that to throw out paper drawn or endorsed by a bank director, must be construed into direct affront to the craftat large. Consequently the director is a professional and perpetual borrower, either on his own account or on that of the firm he representa in a direct manner, or from loaning his name at a pey centage to the paper of a needy friend, ao that nal es his influence it cau be legitimately grouad “in the mill.” At his own bank the director re- wards bimself by muintenance of a heavy liae of discount, which, by being insisted fe as a right, ia recognized by his brethren, equally intent upoo observance of similar privilege. In other banks, ho veptares upon equal indulgeace by ressov of bis official position, while ut the same time the very stock qualifying his directoral functions is pro- bably hypothecated at the insurance appen- dage, inevitably conjoined to the banking con- cern, in whose direction he assists. But if the di- rector be, as is frequently the case with banks of small capital, a retired trader, five chances to one he participates clandestunely in business of note shaving, aud thus secures the profits of rediscount upon paper which he has already privately dis- counted at a heavy shave. So thoroughly tenacious are directors of this pri- vilege of borrowing, that they in many instances commence operations even before the bank goes into public operation, by soliciting loans of the moneys paid in to secure subscriptions to the capi- tal. “Now for illustration: Suppose the first instalment on capital of $600,000, of twenty-five per cent, to be liquidated; it would, ualoaned, lay in the hands of the cashier unemployed; and the interest on $150,000 for even ninety days is an item. Hence the directors, contributing but $25,000 to this faud, forthwith borrow the balance towards payment of their second instalment or for other purposes; and in this manner, in the absence of claims fcom depo- sitors for discounts—for none can they have until the bank permanently opens—they coutrive to ap- propriate above four-fifths of the entries on the temporary loan book—which, by the way, is the favorite record of directorial borrowing, as, being wholly in the cashier's hands, and liable to no in- spection by his subordinates, almost a hermetical- ly sealed volume, which can be doctored secretly whenever prudence or a threateved examination suggests the necessity of a whitewashing of its pages. Besides, as the cashier holds tenure of of- fice under the directors, and the stockholders being to Lim merely ideal personages, he degencrates into a apple creature in the hands of those ap- pointing him, especially as his bread and butter de- pene upon acquiescence in their wishes. And s0 arsbly has this dependence grown upon salaried officers, that it is firmly believed, were the cashiers of ovr banks to be anmmoned fo give evidence per- sonally, and of their own knowl , tL wauld be discovered that one-half the entries on the call loan book are either memoranda or locked loans, never intended to be called, beyond the act of serge payment of interest—all suggested to and enforce upon the cashier by the directors against his better judgment avd SRuCHIEOR, as well aa contrary to the spirit of bank loaning upon call. When the bank goes into operation, and the di- rectors are compelied to disgorge funds advanced on call, recourse is had to discount, and the natare of their obligations 1s changed nominally, for the moneys heretofore on the loun book turn up among bills discounted, perpetually renewed until, with respect to convertibility, they are as much of dead accounts as protested paper. In this ingenious ‘ay, 9s the capital of the bank is consecrated to bills discounted, and moneys deposited employed for temporary loans, the “little joker” changes place, and the pea showsitself ander the thimble of discount, although formerly entered under head of loans. Then, again, discounted paper has the ad- vantage of ad libitum manufacture, while loans re- quire a resemblance in basis to a tangible wercan- tile commodity; for accommodation notes are super- excellent material for the discount process, but fail in absolute value as collateral to temporay Joans, the security for which shonld be of sucha character as to command instantaneous realization should the call remain unrespoaded to for a rea- sonable period of tine. HOW DIRECTOKS WORK A DISCOUNT LINE. As the requirements of the State Banking Depart- ment weigh heavily upon the system of loans to di- rectors, by insisting that the gore, statement shall furnish precise information as to moneys “due from directors,” very few directors keep an individual account in the institution they pretend to supervise, but, by employing the title of the firms to which they belong, dex yusly avoid comultance with the departmental suggestion. Their individual accounts can be found ome other banks, where- in a partner or personal friend officiates among the directory, and favors them reciprocally with the fullest extent of discount; for the greater the nam- her of bank accounts the strcnger grow a trader's credit and facility for borrowing. For plainer illnstration of the commercial advan- teges of a directorship, provided the operators have adequate shrewdness to comprehend and skill to avail themselves of the game within grasp, we will discard commentary and instance pian facts, to be © \sily recognized by one versed in bank dealings. Three ambitious traders—Smith, Jones and Brown—joining in copartnersbip, with a nominal capita) of $100,000, and a real one of $20,- 000, find themselves pelled to resort to banking assistance to borrow the ¢ apital they are sapposed to possess, by investing that they really hold at command, Simith, qualifying himself out 0! the co- partnership funds, becomes a director in the Bun- combe Bank; Jones, in a jike man: flourishes at the board of the Bank of Gotham, while the junior takes a place in the direction of the Buncombe Fire Insurance Company and thus by au expenditure of $15,000 in stock, all three obtain what, in mercan- tile technicality, is known as “positions.” Thiy done, and their creditestablished, they purchase on time, their paper being cheerfully taken and freely discounted on accouut of their banking standing, and as a matter of course, they sell on time ° provide for bills payable, they first deposit the 35,000 caeh in Buncombe Bank, Smith director, and, with their bills receivable as collateral, establish a line of discount for $20,000, which leaving a balance of twenty-five per cent—sufficient to gratify the avarice of any bank~-yielde $15,000. The same nest egg in cash is tran: ed to the Bank of Gotham, with a similar yield; during this while the stock | qualifying the director+bips of smith and Jones is hy pothecated with the Buncombe insurance Com- pany, upon call, prodacing at least $),000, while i e atock undergoes a simnilar process ¥ or both of the banks, and apon ite deposit he ix enabled to maintain a discount lice of $15,500, giving generally mmodation paper to replace apy lack of business material. Smith takes $4,500 of the money borrowed of the insu- rance company, and opens an individaal account in Jones’ bank; and Jones, with his share, retarns the compliment to Smith's institntion. and each reapec- tively have business or accommodation paper done to the tone of $13,500. Now, it does not require deep calculation to discover that by this ingenious investment of $15,000 in-self-paying stock and their employment of $5,000 cash, the firm of Smith, Jones and Brown are constant borrowers of $34,500 to sustain their «pecnlations, at the rate of abont 9 per cent per annam, besides bemg enabled to maintain an almost inexhaustible credit with the mercantile community. Let no skeptical financier conceive this to be an overcharged picture of transactions, which, if they do not occur with every institution, are attributable solely to lack of cunning in the individuals composing the ee While dealers nre compelled to observe certain formalities in offering for discount, besides submis sion to a canvass of their discount and deposit lines, and a secret consultation on their personal credit, abits and relations, by members of the directorial conclave. the di i whing at eit proceedings My and have their paper du it individnally, as it is termed, * for instance, who, at the } F lent philippics against “pocketbook” paper, small acconnts, and urged the pr y of ¢ ng without discount: ing a dollar, returns, a half hour after adjournment, ere —s—s—‘“‘“‘i—“ tttststststSti(‘(s and informs the President that his firm has a note dué that day for $5,000, which must be renowed. The President ascertains from the note teller that such is tho case, then proceeds to overhaul & bundle of collaterals, tendered by Jones, consisting of nutes, drawn by men of wi names he has ig beiee board, one Rae eto puns pay- le at lon; vi geo; 088 isthe remainder fall due at the store of atch, while Sones" firm in the city, Although thi tig Sonea would Mica of calling such ‘seul Tell able business paper, still, upon his representations, the President passes the renewed note, and Jones leaves the office to make room for a brother direc- tor on a similar errand, which he accomplishes upon a deposit of collateral of as much reliability #8 that hy potherated: by Jones; and in this wise a ortion of the bank capital is applied to the usc of favorites, while a score of dealers are disappointed in reasonable expectations, and forced to dispose of good business paper at sacrifices in “the street,” where Jones” collateral would not) be touched with a forty foot pole. It the directors supropriste the epoils during days of prosperity, during “tight times” they be- comés perfect cormorants, inasmuch aa, regarding themselvos identified in credit vaith that of the in- stitution, should they find themselves “shaky” the: absorb all available resources to sustain their indi. vidual credit, under the specious plea that the event of their failure would Public confidence in the bank they assume to direct. Again, during imes of pressure, directors, heretofore non-bor- rowers, stimulated by desire of reaping excessive gains through purchase of depreciated securities torced into the market, insist upon their claims for discount, and threaten resignation in case of non- compliance, ® proceeding on the part of a mau known to be sound,in the highest degree delete- rious to an institution during a panic, as the public rarely fail to place a@ sinister construction upon such a withdrawal. Here, again, the director tri- umpbs, and employs for his portent advantage money which should be allotte taper! Sate ia Ud depositors, upon whom the effects of both actions, although eventuating differently to the interests of the bank, weigh with equal force. Although operations of this character cannot fail to be recognized by intelligent subordinates, 4 knowledge of favoriti#m rarely penetrates to the stockholders. Such an occurrence is anticipated by the imposition of an oath of secresy upon all book clerks, who thus wear a lock upon their lips, and are dewied even allusion to transactions behind the counter. Should any subordinate break through this ban of secresy, and the corruption of the governing officials be exposed, he inours the enmity of directors, who fai! not to revder his position so disagreeable as to render his ars POET compal- sory sbould it be impossible to enforce dismission by impeachment of his integrity. Beside, bank clerks are too dependent upon the directors fur tenure of their office, and, having no means of sus- tenance in other business, bow meekly and blindly to the financial tyrants, until, after the commis- sion of some frauds on their own part, they employ their knowledge of prior bank dviags to avert any punishment which might otherwise follow their misdoings. Then their relations change, apd the directors—honest, honorable men—find it to their advantage to compound the felony of a dis- honest servant, pay, even to advance him money to leave the metropolis, from a well grounded appre- hepsion that he may compromise the institution by disclosing some mysteries of their calling. Asa general rule, independent, intelligent clerks despise and contemn their presumed masters, while dis bonest ones feather their own nests, and terminate by defying prosecution at the hands of men whose clbcastegs are far from thoroughly unimpeachable. And let us remark, parenthetically, that the retire ment of a clerk of acknowledged capacity and in- tegrity from a bank should be regarded by the shareholders as a matter of as much significance as the resiguation of a director; for, upon investiga tion, it will prove almost a certainty that his retire- ment originated from reluctance to loan his con- science to the conservation of secresy as regarda directorial mancwuvres repugnant to his seuse of moral right. THE PHILOSOPHY OF LOANS AND DISCOUNT. Money is usually borrowed froma bank by its dealers in three different ways: by overdraft, call loan and discount. An overdraft is a casual and exceptional accommodation, granted by the first teller, with the sanction of the cashier, who charges interest daily during its continuance, relying gene- rally upon the security of notes and acceptauces, lodged by the dealer for collection, as guarantee against loss. Now, as checks, creating these over- drafts, are held by the teller as cash items, and are counted as evidence of “his cash on hand without be recorded in any book, the casper of allowing overdrafts is the most reprehensible and dangerous form of bank accommodation, and against which the Bank Department at Albany has apparently directed its suspicions by requiring the quarter! Statements to furnish specific information on thi point; which, however, it never receives, inaamuch as the overdraft is almost invariably counted in the teiler’s cash; and should a further concealment be reguisite, the cashier removes it thence to the account of temporary loans. At all events, over drafts are a fruitful Source of fraud; and from being generally intended to gain good will from directors, rokers and the officers’ personal friends, are mat- ters of favoritism, designedly encouraged te escape revisatory examination by the Board of Directors, which had better be rendered apparent by regular entries, ag call loans, should the teller be honestly inclived to serve the shareholders. But it is chiefly through overdrafts that the caehier manages to propitiate foreign bankin; friends, whore checks are paid in expectation o! receipts of remittances by mail,ashe urges iu ex- planation, if detected by the president; still remit- tances, being transmitted directly to the bank, should invariably arrive anterior to documents, passing through the hands of a second party. Over- drafts by bankers constitute a system beyond direc- torial comprebension, and are cousequently blindly committed by the cashier, as a professor of econo- mics, whore fiat of “all right” is accepted as being with them law and gospel. The sum total of bills discounted, according to correct‘banking, should never exceed that formed hy adaition of the capital to surplas and reserved profits; for all other’ moneys, being held in trast liable to instantaneous liquidation, should be loaned insuch a manner as to be convertible iato cash within a reasonable time. Discounted paper bears on its face a definite term for payment,and the pro- ceeds of bills discounted remain unavailable until after their payment, while temporary loaas, being paystle on demand, are based upon moneys depo- sited, and collectable as the drain of depositors ren- dersa payment requisite. But this simple distinc- tion as to the method of loaning bauvk funds rarely paces in tne brain of officers, who, bewildered ny a threatened pressure in the money market, seek saivation by un indiscriminate onslaught upon borrowers, slashing’ and cutting down loans er dis- connts, as may suit their convenience, until that pees in inception is rendered confused in practice. oans founded upon money deposited, which are generally given to dealers at retail,and to orokers and private bankers at wholesale, should be ad- vanced only upon notes payable on demand and se- cured by a hypothecation of marketable securities, with a margin in valne adequate to cover probable interest and cost of conversion iuso specie. A bill discounted can optionally be renewed upon being due, or compromised after protest, for the bank deals in its own money; but, on the other hand, a loan called should be met forthwith, or the security sold in default, for the banker, having employed the money of a depositor, held in trust, must replace it on the depositor’s demand; otherwise he is faithiess to his charge. Finally, such a thing as a “locked” or dead loan—one upon which neither principal nor interest can be collected—should never be in exist- ence, for should it be discovered to exist, itis evi- dence not only of the banker’s lack of discretion, but of absolute calpability in disregarding the only ich moneys deposited can be le- iy applied without implied breach of faith While bank officials rarely iudulge applicants, non- dealers, offering unquestionable securities, they find to lend upon cull in large amounta, interest, to brokers, who relend to aa inferior orser of the same tribe, who put the mo- bey out again to speculators in stock or note shiv: ers in the street. Here, then, to avoid trouble, bank ofticivis have chosen to prefer indebtedness from three grades of borrowers, whose securities dimmish Ipaportapetey to their gradation, instead of acting as their own brokers, and loaning, as a shrewed business man would do, to personal appli- canta. The consequenees of sach indiscretions aro readily estimated when a “tightness” occurs. The depositors claim their funds; the cashier calls his ‘loans; borrower No. 1 falls on No. 2; No. 2 recedes upon No. 3.and No. 3 stirs up friends and acquaint ances generally, to the sore discomfort of steady traders and the [oat alarm of the community, needlesely excited by a bungling method of di- rectly loaning and indirectly calling # few thousand dollars. In addition to this consideration, loans to brokers, by diverting available capital into a chan- nel of stock speculation, must be deemed antago- nistie to the fundamental principles of genuine banking, which aims to employ dormant resources in the possession of non-trading parties, to encou- rage and stimulate legiumate, honest and healthy development of trade and commerce. HOW THE DEALER'S PAPER IS DISCOUNTED. Although it is selfevidént that depositors are equally valuable to a bank with shareholders, con- tributing,as they generally do, an equal amount of Money on which to sustain the operations of the inttitution, they are generally treated with leas fa- vor than a stockholder, especially by the directors, who appear to consider the claims of depositors to discount us dependent wholly on their. courte sided by this estimation, thé directars invariabl take precious care to impress upon offerers atthe Board a dae sense of their conciliatory condescen: sion, when, after looking after their own wants and gratifying those of their immediate friends, they dis- cover some surpl from the capital doled forth among maltifasio gen 1 deposita his offer, Us wht dealer, desirous of &@ noto, conseived with a of epiatola: phason the discount box, ou ite o pein of the Buard meeting, whence it is taken b; the clerk, who enters on the “ offer book” the name of dealer, descriptions of notes, their endorsers, or collaverul, as may bo the case, his averazo balance and amount under discount. After ig these entries, the clerk re-encloses the Se in ite original Spree la it and sends er with the dealer's memoranda, before , when it ia taken ol of by the cashier, who reads it, with cuitable com- mentaries, to the direotora. alors frequently injure their own by @ want of, pricks in observing the preliminuries of St of , many resort x) dations, ductive of derision? For tatasce, one ventiros on a narrative of his dealings with the bank, and thus, inadvertently, alludes to official ignorance of their own business; another only want ount to keep a balance; a third that he will nos draw unti) the end of the m ; @ fourth merely requires certificates of deposit to be sent to the West, while a fifth will draw the discount in small bills to pay off mechanics in the heart of Pena- aylvania. Still, with shrewd officers all tuese be; ok dodges are ‘played out,” and are more likely SS pusiie prejudice ‘against, than favor for, the er, ‘The President, aided by the cashier, having pre- viously studied the mathematioal charactor of the bank statement, or daily exposition of the Nabilities and resources of the institution, and added up the receipts to be derived from: bills discounted for the coming three days, as entered on the teller'’s “tiokler,” announces cach offer successively, and requests the opal of the directory asto the pro- ity of pr ig oF Senne them. This proceed- Ba opens the gate to a desultory conversation, during which are canvassed the business habits personal manners, general repute and matrimonial relations of dealers, drawers and endorsers, usually terminating in a gossi ng coramentary upon men and things in general. Uuless the offerer has a personal friend at the Board the discussion closes with the rejection of his paper or its reference to the subsequent action of the governing officers. Tt is during these conversational discussions that the peculiar opinions of the directors develope themselves in a mannér by no means creditable to their estimation of human virtue. “Tsay, Mr. President,” vehemently interposes Slocum, a pale-faced church member, not notorious for Sabbatarian proclivities, “ you don’t want u3ito discount pager. on the strength of beiag endorsed Dobbs, do yor? Who is this man Dobbs, I'd like to know?” “Dobbs,” reopens the President, pracia is reported to us by the mercantile agency as being amen of propriety and a leading member of the Presbyterian church.” “Oh!” interposes Slocum again, “he’s sound; I thought he was Dobbs, the son of old Dobbs, who lived in— “Yes,” interrupts Popkins,a director who has been heretofore in a semi-dose, “I know him, but then he’s married Stubbs’ daughter.” “What if he did?” indignantly resumes Slocum; “ ho’sa perfect rum barrel. Why, I’ve seen him tight—” “ Have you?” breaks in Sniggins, the funny man of the Board; “you wouldn't have a ram barrel leak, would you?” Taking advantage of the ebulition of laughter in- | variably following Sniggins’ sallies, the President announces that the paper, endorsed by Dobbs, of the Presbyterian church, and not Stubbs’ son-in- law, has deen accepted, and therenpou marks a capital A opposite to its entry on the offering book. “The next subject is one of Smuthson’s notes for $200, offered by Dovson and endorsed by another person. We'll do these.” “Hold on,” shouts Director Bangem, “T want to know about that ere paper. I don’t often come to the Board, but whend does I want to discharge my duty without any favors to the stockholders.” ‘Mr. Bangem is a member of the firm of Bangem, Swetem & Co., whose duty to the stockholders con- sists chiefly upon his having, on their behalf, a line of 60,000 discount and as much more on account of Pulley & Hawley, of which he is a special partner, and he therefore finds the bank jeopardized by the loan of $200 to a mechanic on treble named paper. Copsequently, to appease Mr. Bangem’s notions of dignified financiering, Smitbson’s offer is thrown out, while, at his particular request, a note for five times the amount is discounted for a friend “‘a little tight for the hour.” x In this wise the Board progress with their labors, until it is discovered by the Cashier that the funds to be appropriated for discounts have been run out and all bunds turn to a reyision of their work, which is parrowly watched by the assembled directors, through fear that any of their friends, tor whom they have promised ood word or two,” should be cut down, when, x a myriad of ingenious calculations, the balance to be awarded is narrowed down to the smallest possible limits and its a] plica- tion left discretionary with the Presidential judg- ment. By this dexterous movement the growls, rants and anathemas of disappointed dealera are shifted to the ample shoulders of salaried officials, while the directors congratulate themselves with having done the “clean thing” as regards his own selves and particular friends. The experience of almost every bank dealer con- vinces him of the irksomeness of soliciting discount, so he prefers, especially if he be a small trader, to establich credit with private, rather than corpor- ated, bankers, for with the one it is the interest to advance him loans, while directors of the other are remorseless, insatiable, although indirect borrow- ers. HOW STATEMENTS ARE PABRICATED. By the State jaw all city banks are compelled to publish weekly statements of their condition, at- tested by the affidavits of their cashiers, and a quarterly one, declaring their financial position on tome day desiguated by the Bank Superintendent, this last to te more elaborate in detail and further verified by a furat, sworn to by both President and’ Cashier. The weekly atate- ment is likewise incorporated on the records of the Clearing House, and should, on this account, be regarded as more reffabie evidence of banking solvency, from being open to a corrective comparaison with the daily entries on the ledger of that institution. Being, however, fimited to a statistical exhibition of averages of discounts, Hees circulation and deposits, without allusion to the specific nature of the items thus congregated, the we statement is calculated to afford very little information to the general stockholder or dealer, whose iutimacy with the mysteries of the Clearing House is equally limited with those of tho banks themselves. As long as a bank pays its daily deficiencies at the Clearing House exchange, it fulfils its aliotted duty, for the constitation of the house vest in its efficers neither executive, le- gislative nor suggestive powers touching matters beyoud the liquidation of mutual obligations in a geberal cupacity—it being merely a bank for bank de posits. It i'hot to he expected that officials, never par- tioularly tevacious us to the strict. interpretation of duties ia their more circumscribed spheres, will overexert their consciences in the preparation of public documents, and consequently even the vague formalities shadowed forth in the weekly state- ments are distortions of what was intended by law to be plain facts, so that beyond the item of circulation, the sheet undergoes a variety of “doc- terings” so as to place the institution in’ the best possible light befure the community. Inffact, judg- ing from official statements ~ published “con- formably to the law the solvency of the Island City, Bowery and other banks could = in bo wise be questioned, and it was only after the concerns passed into the hands of ré- ceivers, managing third parties, that the fictitious nature of their assests and the evasive manner of their business transactions, became detected. A row of figures may oftentimes represent a deter- mined quantity, while the quaiity naturally repre- sented to makeup the requisite quantity can re- main a perplexing aud insulved algebraical pro. Dlem. foans and discounts are, as we have shown, susceptuble of a variety of transmutations, devisa- ble at pleasure; spec ing bullion, ture is @ generic term, embrac- uige, plate and a pile of o4, While deposits may consist of wed at interest, or placed to imagi- Dary accounts, consequently, viewed in ese several lights, capable of being produced at plea- sure hy a few turns of a banking kaleidescope, a practical accountant is apt to place but little reli- ance pon bank figures, as demonstrating unknowa qualities for undetermined measures of Cath Yo those measures which a bank pacticularly copdems in a dealer, the officers resort without hesitation when they find themselves with a pecu- niary difficulty, and it is an admitted fact that there can be found no more skilfal “kitera,” than these self sume bank officers, whenever emergency demands exercise of their talents. Particularly is thier nae nnity exerted te meet the requirements of the weekly stutement—as apparent in the newspapers— for,whcre a bank is continuously beaten at the Clear- ing House, coofidence in its credit will ‘haken, unless by some master stroke of policy the tide can be changed without attracting public attention, Then resort is had tomaugment the st average dy redi-count, bullion. borrowing, and purchase of coin at heavy rates, taxed upon profits, while in a aigilar wise, to preserve the deposits, real or inagi- nary, for a few strokes of the pen can create a do- positor,and a bank may keep fictitions accounts, as well ag individuals, upto the average. Accomino- dation loana are granted to remain undrawa, the principal of which paid out of the snrplns reserve i employed, nominally hy individuals, bat in reality by the bank for pmposes of bullion brokor- seo, oftentimes at the highest street rates, and re- ceposited to maintain a deceptive specie basis. ‘And still 9 diligent examination of the books would expoge none of these exceptional proceedings; for entries of which, without to ee as fineat ote dreipuered ow a eee om satcrsonta transmitted to the Basic Depertment are still more poke requirements as to ions are concealed by tae defeat frm of the re bo ia satisfied with general items, which amount te nothing in a critical tof view. Thus, ertel nthe Ofte ates itoue tena 8 e hundred other evidences of in " to availlable ‘but which can in no wiss ofa demand fot-apecile information, to a a ry fo ia canjoined ‘the. suspense fl F E ie E F i HH a u i H F i i ee ai it btedness thisend it can on] pe end it can only be re; an ceuteeng cemene perfect! satisfactory im- amen a8 to co ormation as to the “4 ral dealing. It should insist upon ascertaining, only the amount of living loans and of counted, but the date of toale ranking. ip heir eecurity; how much upon and corpe- ation bonds, whether foreign or city; how much upon business paper, the inate of such pe 3; how the jscount are |, how many are held protested and finally how much to be renewed or held subject to iWgetion. And a similar explanation should se- company every other item of a generic character as regards es § items, moneys due from banks, from directors or brokers, stocks, real estate, specie, how much American coin, how musk foreign, how much buliion and the nature of its re- resentation, and partic an elucidation of the joss and expense account. ese, and a few other abstract details, are strictly necessary for the com- rehension of a bank's solvency, as well by the te Department as by the community Senerally who, under the existing system, wander blindfe over an area of figures without being afforded the slightest test as to their accuracy or bearing. t will be observable from our remarks that thé existing system of banking vests entirely too much ae the hands of officera and directors, whe are suffered to cloak their transactions with a secresy almost impenetrable unto even the super- visionary department at Albany; that upon published statements little or no reliance can be placed by the community—in fact that, as an eco- nomical system, our practical banking is near a) a delusion, which perverts unemployed capital to the emolument ® single class, while crpsiing ey rai of the trading community as a geome alt es ‘. Commerce of the United States—Blunder- ing in Statistics. TO THE EDITOR OF THE HERALD. A correspondent in your paper of day before yeater- day, signing himself a “New York Merchant,” falls inte two gross blunders, as will be seen from tho following extract, both of which are put forward as pleas for a higit tarift:— The democratic party of tho North has always sue- cumbed upon this question to the democratic party of the agers what is the positive, the actual state of adaira & Look at it:— Our foreign imports from January 1 to October 8, inst. ‘amount to 184,880,566 Our exports » + 48,161,798 Balance of imports over exports, 136,727,756 ‘Against this we have shipped, dui same Period in gold and silver, the euormous amount of $66,677,117, leaving us still in debt upon this year’s importationg $80,060.088, with a basis below a fair average. It is use e6s to bi the question; tho facts are patent. The high tariffs of 1828, 1832 and 1842 prove that the democratic party of the North has not always succumbed to that of the South on “this qi y? (of a high tariff). Mr. Van Buren and his friends at one time voted for @ high tariff, and the writer admits that Mr. Buchanan fa- vors a high duty on iron. But the most amusing part of his communication is seen in his array of figures,and he ts no better merchant than ho is a statistiolan, we should think his business would inevitably fail him. Like the statistician of the Courier and Enquirer and other wil- fully blundering or rant defenders of a high tariff (it- self in conflict with the interest of New York erate} he fixes upon New York as the éole point of importa exports for the wholo United States. His table roctified, Tiaports to New ‘York from lst Janvary to 84 October ris into New Yor! m ist Jan’ 1860 } ood Balane’.....sssssessveseres sence sasenss 6 880,110, ‘The writer claims that this statement shows a antes of trade agaist the United States, in nine months of 1869, to the amount of $80,110,043, which is to be reduced hore- after by a high tariff’ He makes a mistake of $60,000 im his substracuons, and sets down the balance at $80,060,- 038, instead of the true amount we have given above from his own figures. ‘We would ask this sapient merchant if the South ex- ported no produce direct to Eurupe in the same poriod, such ag cotton, rice, tobacco and naval stores, tho value of which, though enormous, he has failed to ‘allude to® Besides, we would ask where he obtained his figures from, even for the port of New York’ If he will turn t tho commercial head of the Heratp of October 7, he will find that the value of our imports and exports at the port of New York for nive months, from the Istof January te tho let of October, 1859, were as follows:— Imports of foreign merchandise for nino months im 1859...... é $207,579,000 Exports ‘for produce... .. Do. do. of specie arent alae +++ +4$105,360,000 This makes the case still more alarming tor our mer- chet, and on his false supposition, would demand « eull higher tarif wo reetily rovably a total probibition? But how stands the case? To rebut this ap- parent balance, wo must bring in tho domestic exports fiom New Orleans, Mobile aud other Southern ports. We have no exact fgures at hand showing the large exports from these cities for the nine months wamed, but, tating cotton alone, and we think it quite within the range oe truth to say that at least 2,000,000 bales of the crop of 3,800,000 bales, were shipped’ direct to Furope frou Southern ports, which, at the average value of $60 per bale, gives $10,000,000, thus reducing the Merebant’s balance of | trade materially, and, ac- cording to our figured, leaving ouly $6,000,000 to be sunk, against which we ‘will put the diréct exports frons the Southern ports of rice, tobacco, naval stores, flour and grain, ond which, wo think, will not leave this “Mor- chant” a doilar’s ‘balance’ to stand upon; and with the disappearance of which we suppose his argument for high tariff will disappear with it, ‘The two classes of men who generally run mad upew figures, and misstate statistics to blind’ and delude the public, are bigh tariff men and abolitionists. ‘They are always pitching into the South and at tue same time at- tompting to induce Congress to levy a high protective tariff, with the viow of compelling that agricultural sectiom of the country to pay higher prices to Northern mannfae- turers for goods than they could obtain them for olse- where. COMMON SENSE, TO THE EDITOR OF THE HERALD. In your paper of Sunday I observe an article signed “New York Merchant.” 1 think he cannot'be a mor= chant, or he never wonld have written such monsense as he did, when he says that our imports are, from 1st Janu- ary to October, $184,889,552, and our exports only $48,¢ 161,797 in produce, and $56,677,717 in specie. Like moa writers of such articles, he takes it for granted that the oxports from this port are the entire exports of the coun- try. Itis perfectly well known that dve-cighths of ail the imports come to this port, but the principal articles of ex- port go from the South. ‘As to what he says about the trade on the Western Jakes for the year 1856 being $630,- 000,000, I must call on him for the ‘proof. Stich random assertions are scarcely worth replying to. It may be of service to. him to show. bin. how nearly the lake trade rivals our foreign commerce. The amount of shipping engaged in our foreign trade is 2,499,741 of register- cae tons, and there entered the United States of Coreigm tonnage 2,209,403 tone, whilst the amount of tonnago en- rolled at the lake ports is only 326,412 tone. ANOTHER NEW YORK MERCHANT. Abatement of Tenement House Nuisances. TO THE EDITOR OF THE UERALD. Naw Yor, Oct. 31, 1860. ‘Tho Hxratn seems to be the only paper that hasan room to devote to the adveeacy of measures of great pub- Jic importanco, and necessary to the permancnt prosperity” of the city, tho health and comfort of its citizens; amd that also has the independenee and boldness to attack abuses and corruptions in various forms which have disgraced our city. Will you have the kindness to the attention of those in powor to the importance of com~ pelling owners of tencment houses to furnish proper boxes for the reception of ashes and garbage, and also to fur- nish those houses with proper sewers for waste water? There are mavy of these establishments in various part® of the city, whose ocoupants, without regard: to deconoy” or their own comfort or health, are in the habit of shrow= ing ashes, garbage aud filthy water into the streets; notwithstanding the portions of the streets im which thesa houses are situated are now cléaued two or throo times & week, they are continual’y Kept in a flithy and disgusting state, emitting putrid’ and umwholesome smells, to the injury of the health and property of all good citizens living near, offending the nostrils of pagsers by, and. dtt- gusting al\ strangors with our city It is of the greatest importance. to the health pen fort of our citizens, and the reputation of New. York, and the iret steps to be tokon to secure permanently clera strects, to make rigid Inws regulating these establish~ ments, compelling avaricious rica to have some ré~ ard for {he neighborhoods of these naisancos. fata for tbe neighborhoods of these nulsNMGae ag wp,

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