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 TALKS 
 
 ON 
 
 Banking and Elementary Economics 
 
 \v.\\ 
 
 1922-1923 ^/ 
 
 <S nov^-^ 
 
 To be delivered by the banker before the 
 higher grades of grammar schools, high 
 schools, colleges and universities, as well 
 as before Parents' Associations, Teachers' 
 Institutes, Farmers' Institutes, Chambers 
 of Commerce, Boards of Trade, Men's and 
 Women's Clubs, Rotary Clubs, Kiwanis 
 Clubs, Lions Clubs, Civitas Clubs, and 
 so forth. 
 
 Prepared by the 
 
 Cammittee on Public Education 
 American Bankers Association 
 Five Nassau Street, New York 
 
CONTENTS 
 
 TALK SUBJECT DATE OF DELIVERY 
 
 No. 1 —The General Idea of the Bank September 25, 1922. 
 
 No. 2 —The Bank Check October 25, 1922. 
 
 No. 3 — Loaning the Bank's Money November 25, 1922. 
 
 No. 4 — Character — The Basis of Bank Credit December 25, 1922. 
 
 No. 5 — Why a Corporate Trustee.'^ January 25, 1923. 
 
 No. 6 — The Bank and Your Investments February 25, 1923. 
 
 ♦No. 7A: — Our Relations and the Bank's Relations With the 
 
 Rest of the World March 25, 1923. 
 
 *No. 7B — The Relationship of Farmer and Banker March 25, 1923. 
 
 No. 8 — Relation of the Bank to the Federal Reserve 
 
 System April 25, 1923. 
 
 No. 9 — Analysis of a Simple Bank Statement May 25, 1923. 
 
 ♦Alternate. 
 
 (7 A suggested for city schools) 
 
 (7B suggested for country schools) 
 
BG 
 
 t.'^ 
 
 A5?. 
 
 NOTES FOR BANKERS 
 
 THE Committee on Public Education of the American Bankers Association, in its en- 
 deavor to aid in the greater prosperity of the people of America, has planned a series 
 of simple Talks on Banking and Elementary Economics to be delivered by the banker 
 to the students in the higher grades of the grammar school, the high school, the college, and the 
 university. 
 
 The Talks have been so designed, each lecture being preceded by an outline, that the 
 speaker may use liberally from his experience in fitting the Talk to the group which he may 
 be addressing. Many requests for speakers have come from Parents' Associations, Teachers' 
 Institutes, Farmers' Institutes, Chambers of Commerce, Boards of Trade, Men's and Women's 
 Clubs, Rotary, Lions, and Civitas Clubs, and so forth. The banker should regard it a duty 
 to the welfare of his country to respond to such invitations with an address which will make 
 better understood the important sphere of his activity. 
 
 In many states, the Secretaries of the State Bankers Associations have organized 
 Speakers' Bureaus, where are recorded the names of those bankers who have especially qualified 
 on some particular phase of banking, and may be called upon to meet engagements upon con- 
 vention programs, and the like. At the moment, a better public understanding of the need and 
 possibilities of the Federal Reserve System is important. Bankers should take every oppor- 
 tunity to inform the public more thoroughly as to how much our commercial prosperity and 
 progress is dependent on such a system. 
 
 It is conceded that the banker has much to learn from the teacher in regard to the 
 method of presentation, for which reason the closest cooperation between banker and teacher 
 is urged. Outlines of all the lectures have been prepared for the use of the teacher. If they 
 have not been furnished to the teachers before whose classes these talks are being given, they 
 may be had by applying to the Secretary of the Committee on Public Education of the 
 American Bankers Association, Five Nassau Street, New York City. It is respectfully sug- 
 gested that the banker familiarize himself with the Talk to be delivered, so that he may give 
 it extemporaneously and use local business activities as illustrations. 
 
 The bankers whose talks were of greatest benefit last year were those who, after each 
 third or fourth talk invited the teachers and the pupils of the classes to visit the banks to 
 visualize what had been discussed; who there took pains to make the visitors feel that they 
 were truly welcome and that a bank is, in a large measure, a public institution, created for the 
 best possible community advancement, and an institution which desires above all things to serve. 
 
 While bankers, not accustomed to public speaking, may approach this new duty with some 
 hesitation, they will soon find in it a charm that will make them want to continue a work 
 which must ultimately prove of inestimable value to the banker's community, and to the country 
 at large, to say nothing of the banking business itself to which many benefits will accrue from 
 a greater general prosperity. 
 
 Immediately upon receipt of these Talks, the banker should get in touch with the school 
 authorities nearest his bank, and arrange for the DATE and HOUR when he is to appear at 
 the school. 
 
 The local banker should endeavor to arrange with his newspaper for the publication of 
 these Talks as soon as possible after the date set for their release. 
 
 The Committee on Public Education bespeaks for this work the earnest and thoughtful 
 cooperation of the bankers of America. 
 
 Chairman, 
 Committee on Public Education. 
 
 ^ 
 
Outline for Talk No. 1 
 THE GENERAL IDEA OF THE BANK 
 
 L Definition of a Bank 
 
 A. A bank is an institution engaged in the business of 
 
 1. Receiving deposits 
 
 2. Making loans 
 
 3. Transferring money and credit 
 
 n. EKstorical Comment 
 
 A. The bank may be compared with the Greek temple where the money dbanger 
 used to sit upon a bench — ^Latin, Bancus ; Italian, Banco ; German, Bank ; 
 English, Bank. 
 
 B. Reference also may be made to the beginnings of the savings bank movement, 
 which grew out v of small savings societies created in England and on the con- 
 tinent of Europe, one of the first of which was started by Daniel Defoe, author 
 of "Robinson Crusoe." 
 
 ni. Organization 
 
 A. Selling stock 
 
 B. Stockholders 
 
 C. Building 
 
 rV. Operation 
 
 A. Liabilities 
 
 1. Capital stock 
 
 2. Deposits 
 
 B. Assets 
 
 1. Bank building 
 
 2. Furniture, fixtures, equipment 
 
 3. Cash on hand 
 
 4. Reserve 
 
 5. Loans and investments 
 
 V. Usefulness to * 
 
 A. Community 
 
 1. Cultivates habits of saving 
 
 2. Handles savings 
 
 3. Is medium of all financial transactions 
 
 4. Is available for loans to promote successful business 
 
 5. Servos for the safekeeping of money and valuables 
 
 B. Nation 
 
 1. Develops community life and industry 
 
 2. Promotes success and progress 
 
 3. Enlarges commercial field for its locality 
 
 Copyright, 1922, American Bankers AssociatJoa 
 
Talk No. 1 
 Public School Series 
 
 THE GENERAL IDEA OF THE BANK 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 THE purpose of 1113' talk today is to give you certain interesting facts about banks. If 
 you were asked to express your ideas about banks, each of you would doubtless have 
 a different answer. Perhaps you could tell only of some special way in which you 
 have known a particular bank used either by yourself or by some member of your family. 
 The bank, however, plays such an essential part in the life of every community that every 
 one ought to have a clear conception of what it is, and why it goes hand in hand with 
 human progress. 
 
 Today we shall not consider any of the special methods of banking. Our purpose is 
 to see how the bank affects the business life and welfare of all the people of our community. 
 
 Starting a Bank 
 
 One of our large city bankers, whose boyhood had been spent in a small toA\Ti, was re- 
 cently telling some friends about his early ideas concerning banks. When he was eleven 
 years of age, the first bank in his home town was started, his father being one of the mem- 
 bers of the board of directors. He watched the small banking house take shape, saw the 
 thick walls of the vault erected inside of the building, and observed the workers with the 
 greatest wonder, as they set into place the heavy vault door and heavier safe. To his youth- 
 ful mind, the town bank was merely a larger model of the small dime bank he kept at home. 
 He believed that the larger bank was just a good, safe strong-box in which people could 
 deposit their money. This idea seemed correct when, after a few months, the bank opened 
 for business. Each day the boy saw people leave their money in care of the bank, the duty 
 of which he supposed to be the protection of the money until it was again needed, when 
 the depositors could draw it out. 
 
 Very soon certain things began to puzzle this small boy, for he knew that the officers 
 and clerks of the bank were drawing salaries. One day he asked his father some of the ques- 
 tions about the bank which had come to his mind. The boy's first question was : "Father, 
 if a man takes a hundred dollars to the bank today, can he go to the bank tomorrow, and 
 draw it all out again.?" "Every cent of it," said the father. "Then," said the lad, "I 
 want to know how a bank can make any money for itself, and pay salaries and other ex- 
 
 Copyrlght, 1922, American Bankers Association 
 
penses." This started a new line of thought in the father's mind. Here was a boy who 
 wanted to understand something of the bank and its place in the affairs of the town. So the 
 father carefully began his explanation. 
 
 Why Banks Are Needed 
 
 "When our bank was first talked about, the gentleman chosen as president, because he 
 was one of our leading business men, came to me and asked if I would help to organize the 
 bank and buy some shares of stock at one hundred dollars each, the full subscription to 
 amount to fifty thousand dollars. I told him I had hoped for a long time that a bank would 
 be organized in our town. For years, the men who were operating the iron mills had to send 
 to a neighboring city for money to pay their employes. Our merchants had always had diffi- 
 culty in taking care of the money received in their business, and there had been no place to 
 care for the people's savings. Since the right men were heading the movement for the 
 new bank, I was glad to buy some of the shares. In a short time, the president told me 
 that the full fifty thousand dollars had been paid by different people of the town. This 
 money made up what is called the Capital Stock (Illustrate). The Capital Stock, in addi- 
 tion to furnishing money with which to start a bank, also serves as a protection to all 
 those who place their money on deposit." (Every bank chartered under the law must have 
 Capital Stock, the amount depending upon the size of the community and the kind of 
 business to be conducted.) 
 
 How Banks Operate 
 
 "Accordingly," said the father, "when the bank opened for business, its Capital Stock 
 was fifty thousand dollars. Soon Deposits came in from merchants, manufacturing plants, 
 farmers, churches, lodges, and other organizations, borough and township treasurers, wage 
 earners, and women and children, until at the end of the first month about one hundred thou- 
 sand dollars (Illustrate) had been deposited. The bank then had fifty thousand dollars 
 which it owed to its stockholders and one hundred thousand dollars which belonged to its 
 depositors, or a total of one hundred an 1 fifty thousand dollars. The Capital Stock and the 
 Deposits are referred to as Liabilities of a bank. Now listen closely," said the father. 
 
 "While it is true that the depositors could go to the bank the very next day and draw 
 out all they had previously put in, experience has shown that this is never done by all de- 
 positors at the same time. Therefore, the bank does not need to keep on hand all the money 
 that is brought in, but only enough to pay those who may wish to draw out part, or all, of 
 their deposits. Since every depositor tries to keep a fair-sized balance in the bank, there is 
 always more money on hand than is needed to pay those who are drawing against their 
 Deposits. The law requires that the bank keep a certain percentage of the Deposits in its 
 vaults in actual cash. This cash is called the bank's Reserve (Illustrate). At the end of 
 the first month, let us say, the bank had in its safe, as Reserve, about twenty thousand 
 dollars. There should always be enough cash held. by the bank to take care of the normal 
 amounts of money needed by its customers." 
 
 How Banks Earn Money 
 
 "Now," the father continued, "the question is this : What does the bank do with its 
 Capital Stock and with the balance of Deposits in excess of the cash held as its Reserve? 
 
Presently you will see how, if the management is experienced and careful, the bank is able to 
 pay salaries and, in addition, to earn some money. Part of the money that came from the 
 sale of shares of Capital Stock, of course, had to be spent for the bank building and its equip- 
 ment — vault, safe, furniture, adding-machine, typewriter, ledger, stationery, and supplies — aU 
 of which cost (in those days) about twenty thousand dollars (Illustrate). The balance of the 
 Capital Stock, which would be thirty thousand dollars, together with the balance of the De- 
 posits in excess of the Reserve at the end of the first month, which would be eighty thousand 
 dollars, or one hundred and ten thousand dollars in all, was either invested or loaned out at 
 interest to business people of good standing, who promised to repay the money to the bank in 
 thirty, sixty, or ninety days. The interest on these loans and investments provides the Earn- 
 ings of the bank, out of which salaries and other expenses are paid. This practice of loaning 
 money is called discounting, or giving credit, and when fully understood, credit is what the 
 bank deals in. Just as the merchant buys and sells goods, so the banker buys and sells money 
 and credit. 
 
 "The Assets of a bank, just as in the case of a store or other business, are the property 
 owned by the bank. They are Cash on hand, Promissory Notes representing the money loaned 
 out at interest to borrowers, the Bank Building, and so forth. In like manner, the Liabilities 
 are what the bank owes to others, to the stockholders, to depositors, and so forth. 
 
 **A8 the town grows and the business of the community expands, the Deposits of the bank 
 become larger. Other banks may organize, until, as in th^ case of cities, banks spring up in 
 many localities in order to handle the necessary money and credit transactions. No matter 
 how large our great city banks become, they are all organized and conducted upon the same 
 principle and for the same purpose as the bank in the small town." 
 
 This explanation by the father to his son sets forth the relation of the bank to all the 
 people of the community, and I hope that it has given you some new and clearer ideas about 
 banks. At another time, I may speak to you concerning a few of the special methods used in 
 the banking business. 
 
 Use of the Bank Helps Everybody 
 
 One thought, however, I want to leave with you today. Scarcely anywhere is there a 
 financial transaction in which the bank does not have a direct or an indirect part, either 
 through the stockholders, the management, or the depositors. Every successful business person 
 makes use of the bank for borrowing money, for the safekeeping of money and valuables, and 
 in other ways. The wonderful strides our country has made in the field of commerce can be 
 accounted for largely by the manner in which the banks have been made use of by the people 
 of just such communities as ours. It is important for you to see that as each American boy 
 or girl, man or woman, cultivates the habit of saving, and handles savings and all other 
 financial transactions through the bank, he is being a real help to his community. Why? Be- 
 cause the bank is the reservoir into which flow the savings of the people of the community, to 
 be used by the banker in helping to develop the industry and life of the community. The bank 
 helps the people to succeed, and the community to progress. Acquire habits that lead to suc- 
 cess. Use your bank and give the savings habit and the banking habit places of real prom- 
 inence in your life. 
 
 < 
 
 NOTE: This Talk is to be delivered 
 on or before September 25, 1922 (or as 
 soon thereafter as possible), after which 
 it may be released for publication. 
 
SUGGESTIONS 
 
 Talk No. 1 
 
 1. Each item referred to in the talk should be placed on the blackboard as the talk proceeds, 
 so that, at the close, a balance sheet is shown as follows : 
 
 THE HOMETOWN BANK 
 
 Assets Liabilities 
 
 Loans and Investments. . .$110,000.00 Capital Stock $ 50,000.00 
 
 Bank Building 15,000.00 Deposits 100,000.00 
 
 Furniture and Fixtures . . . 5,000.00 
 Cash Reserve 20,000.00 
 
 $150,000.00 $150,000.00 
 
 2. Questions on the subject matter presented may be invited from pupils after the talk is fin- 
 
 ished, but care should be used to keep the questions confined to the subjects treated in 
 the talk. 
 
 3. After the balance sheet is completed and either before or after any questions from the pu- 
 
 pils, it would be well to review the various items on the balance sheet with brief ex- 
 planations. 
 
 4. Each talk should always be accompanied with a suggestion that the pupils tell their 
 
 parents about it. 
 
 5. With each talk the speaker should point out that the word "Bank," wherever used, refers 
 
 alike to trust companies, state banks, and national banks — in short, to all banking in- 
 stitutions having a commercial department. 
 
 6. The time occupied for each talk should not exceed twenty minutes at the outside. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. Why are banks needed.'' 
 
 2. What is the name of the fund established when the bank is first 
 
 organized? 
 
 3. What sort of men are usually chosen as bank directors ? 
 
 4. How does the bank earn money.'* 
 
 5. What is the name of the fund held by the bank to pay depositors 
 
 who wish to draw out money from day to day.? 
 
 6. What name is used to describe the funds owed by the bank to 
 
 stockholders and depositors.? 
 
 7. What name is used to describe the notes, cash and other property 
 
 owned by the bank? 
 
 8. Who should use the bank? 
 
Outline for Talk No. 2 
 THE BANK CHECK 
 
 I. Bank Deals in Two Kinds of Deposits 
 
 A. Time — savings deposits 
 
 1. Not subject to check 
 
 B. Demand — commercial deposits 
 
 1. Subject to check 
 
 n. Historical Comment 
 
 A- Bank deposits may be compared with deposits of ore, coal, and so forth, in 
 nature. Consider the gold, money, and jewels deposited in the raults of the 
 goldsmiths, for safekeeping. Sealed in bags, and returned as put in. Today, 
 deposits change in character. Identical pieces of money not returned. Credit 
 given. Depositor paid fee to goldsmiths for service. Today bank pays depositor 
 interest for use of money. 
 
 III. Commercial Account 
 
 A. Signature card 
 
 B. Deposit shp 
 
 C. Pass book — record of deposits 
 
 D. Check — means of withdrawal 
 
 1. Definition 
 
 a. A check is a written order addressed to a bank, to pay, to a person 
 named therein, an indicated amount from the money at the credit of 
 the drawer. 
 
 2. Commercial instrument 
 
 a. Only about 7% to 7^2^ o^ *^ business transactions conducted with 
 actual money. 92% to 92^2% conducted with conunercial instruments; 
 one of the most important is check. 
 
 8. Endorsements. Checks should be endorsed as drawn on face. 
 
 a. Blank, or bearer, simply writing name. 
 
 b. Limited or full. "Pay to the order of." 
 
 c. Restricted. Payment to be made to one specific person. * "Pay to 
 only." 
 
 4. Benefits of checking account 
 
 a. Record of all items of income and expenditure 
 
 b. Cancelled checks are receipts 
 
 c. Good business methods and standing 
 
 d. Safety of money 
 
 e. Helps bank's abiUty to loan money in developing community. 
 
 Copyright, 1922, American Bani^ers Association 
 
\l). 
 
Talk No. 2 
 
 Public School Series 
 
 THE BANK CHECK 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 OUR Talk on the "General Idea of the Bank" taught us that banks acquire their 
 capital from the sale of shares of stock to the people of the community, and thus 
 provide themselves with the necessary funds and equipment to conduct business. 
 Today we shall discuss the "Bank Check," and consider some of the reasons for its great 
 importance and wide use. 
 
 Savings Not Subject to Check 
 
 In the first place, let us distinguish between the two kinds of deposits in which a 
 bank deals: Time Deposits and Demand Deposits. Time Deposits is the name given to 
 deposits made in Savings Accounts ; Demand Deposits is the name given to deposits made 
 in Commercial — that is. Checking — Accounts. Many of you have Savings Accounts. The 
 check is not used in withdrawing money from a savings account. In the rules printed in 
 your savings pass book, you have noticed a definite statement that savings are "not sub- 
 ject to check." Whenever you wish to withdraw money from your savings account, you 
 must go to the bank in person, where you write out a receipt and present it to the bank, 
 so that the money can be paid directly to you and so that the amount of the withdrawal 
 may be entered at once in your pass book. Since people do not frequently withdraw money 
 from their savings accounts, to appear in person causes little or no trouble to anyone. 
 Where money must be continually withdrawn for the payment of bills, a more convenient 
 method is necessary. Hence it is that the bank check is used extensively in everyday 
 business transactions, and has become a very important commercial instrument. Only about 
 7% to 714% of all our business transactions is conducted with money. Approximately 
 92% to 92^% is conducted with commercial instruments. One of the most important 
 is the check. 
 
 In order to make this clear to you, we shall consider the bank transactions of 
 Mr. Smith, the storekeeper, who has just started in business. In a general way his deal- 
 ings with the bank are like those of all other business people. 
 
 Need for the Bank Check 
 
 Storekeeper Smith's customers pay him both in cash and by checks for the goods he 
 sells to them. At the end of the first day he counts up the proceeds of the day's business 
 and finds his sales have amounted to $500. What use does he make of this money .f* He 
 owes most of it to business concerns from which he purchased the goods which he is selling. 
 
 Copyright, 1922, American Bankers Association 
 
Some of these companies are in Mr. Smith's town, and others are located at some distance 
 from it. Mr. Smith could send them cash by mail, but this method of payment would be 
 unwise because of the danger of the money being lost in transit. Again, he might buy 
 an express or postal money order for the amount due, but to do this regularly would 
 require a great deal of his time, and would involve needless expense. Besides, while a 
 money order is in reality a check drawn by the express company or by the post office, in 
 favor of some person or firm, the money order is not returned to Mr. Smith after it has been 
 cashed and cancelled, but to the express company or to the post office that issued it. On 
 the other hand, a cancelled check would be returned to Mr. Smith, who could keep it as a 
 receipt — as proof that the bill for the goods had been paid. More than this, in order to 
 keep accurate records, Mr. Smith wants to have one account in which all of his receipts 
 can be entered and out of which all payments can be made. He therefore adopts the 
 course that most other business men and women follow. He takes his $500 to the bank, 
 where it is safely kept and can be drawn upon as needed. 
 
 Opening a Checking Account 
 
 When Mr. Smith arrives at the bank, he tells an officer that he wishes to open a 
 checking account. Many banks, especially in the larger centers, require the new depositor 
 to be introduced by a person known to the bank. A card is handed to Mr. Smith on 
 which he is asked to sign his name exactly as he desires the account to be carried on the 
 records of the bank, as, for example, "J. L. Smith" or "John L. Smith." This signature 
 must be the same on all checks in 6rder to identify them as genuine. A deposit ticket 
 is then filled out (Illustrate) bearing his name exactly as written on the signature card, 
 and listing the currency (paper money), gold, silver, and each check separately. The 
 total is $500. The teller then enters this amount in a small pass book (Illustrate), which 
 is a record of the amounts deposited. The pass book is issued in Mr. Smith's name, and 
 is handed to him, together with a supply of blank checks, which are the means used to 
 withdraw money from a checking account. Mr. Smith is now ready to pay his bills by 
 check up to a total of $500. This is all that is required in opening a checking account, 
 regardless of the size of the deposit. 
 
 Paying Bills by Check 
 
 Upon returning to his store, Mr. Smith refers to his file of bills — bills for his stock of 
 canned goods, sugar, dried fruits, and other groceries. The first is for $20, covering a 
 barrel of sugar from Jones & Company, wholesale merchants in a neighboring city. He 
 turns to his check book (Illustrate with check having stub attached) on the stub of which 
 he has written his bank balance of $500. He fills out the check stub first, by writing the 
 date, the name of Jones & Company, the nature of the payment, namely, "barrel of sugar," 
 and the amount $20, and deducts this amount from his account. His balance is now $4*80. 
 He fills out the check (Illustrate) in the same way, signs it on the lower line, just as he 
 signed his name on the signature card and mails it, together with the bill, to Jones & 
 Company. 
 
 In order to cash or deposit the amount of this check, Jones & Company must either 
 write or stamp their endorsement on the back (Illustrate Blank and Full Endorsements). 
 The check will be received at any bank where the endorsement is known to be genuine. The 
 bank receiving the check will either pay or credit Jones & Company, and send the check 
 to the bank in which Mr. Smith deposits his money, where the amount will be deducted from 
 Mr. Smith's $500 balance and the check, after being properly cancelled, will be returned to 
 him at the end of the month. He will then have a complete record showing that he 
 
deposited $500, that he drew a check payable to Jones & Company for $20, that he has a 
 balance left of $480, and that the biU in question has been duly paid, since he has the can- 
 celled check with Jones & Company's endorsement upon it as evidence of payment. 
 
 The bank will pay all checks presented to it bearing Mr. Smith's signature as given on 
 his signature card in any sums up to the amount of his bank balance, which he continually 
 increases by deposits and decreases by checks drawn against his account. This process of 
 making deposits and issuing checks continues day after day, both the depositor and the 
 bank keeping their own records. 
 
 When you are told that millions of such transactions are handled every day by the 
 banks and trust companies of the United States ; that in one year more than two hundred 
 and fifty billions of dollars in checks have passed through the New York Clearing House 
 alone; and that payments of such vast sums have been made without the use of any actual 
 money, you begin to see what a wonderful system has been built up by the use of the small 
 slip of paper we call the bank check, and how essential the check is to the business and 
 commercial life of the present day. 
 
 Benefits of a Checking Account 
 
 But while the large figures lead us to think of the bank check as related chiefly to 
 large business dealings, let us remember that the person having financial transactions few in 
 number and small in amount will find the checking account just as valuable as the active 
 business man or firm. All banks are glad to have checking accounts of people of moderate 
 incomes, for the reason that the small depositor of the present is very likely to become the 
 more substantial depositor of the future. A checking account offers a number of advan- 
 tages, some of which are as follows : 
 
 1. It gives each depositor a record of all items of income and expenditure, and 
 the cancelled checks will always show where his money went, 
 
 2. Every check issued serves as a receipt for a certain sum of money to a certain 
 person or persons, and in case of a dispute is accepted as evidence of payment. 
 
 3. The depositor, by following this systematic method in handling his money, comes 
 to be recognized as a person of business ability. Good business standing is 
 always desirable. 
 
 4. Money kept on deposit in the bank is far less likely to be spent or lost than 
 if carried in the pocket or kept at home in the bureau drawer. 
 
 6. Each dollar deposited in a bank helps the general financial welfare by 
 increasing the amount that the bank can Ipan. It is largely through loans 
 made by the banks to the people of the community that business needs are 
 met and commercial progress facilitated. 
 
 One of the purposes of this Talk has been to help you understand how easy it is to 
 start a checking account, and how convenient it becomes for every family to handle house- 
 hold expenditures in this way. Every banker can tell of well-to-do families whose checking 
 accounts began with very small deposits and whose financial progress is largely due to their 
 use of right methods. Proper use of a checking account has helped to shape the career 
 of many a successful business man. Therefore, as soon as you have a regular income, 
 cultivate the habit of using a checking account, whether your transactions be small or 
 large. After all, it is your habits of industry and thrift that do most to bring you success 
 in life. In striving for success, learn to think of the bank as your partner. 
 
 NOTE: This Talk is to be delivered 
 on or before October 25, 1922, after 
 which it may be released for publication. 
 
SUGGESTIONS 
 
 Talk No. 2 
 
 1. In presenting this Talk the speaker should have with him for the purpose of illustra- 
 
 tion, a deposit ticket, a pass book, and a check with stub attached, each being written 
 out as indicated. 
 
 2. Speakers are requested to confine themselves to the subjects treated in each Talk in 
 
 order not to encroach upon subjects for future talks. 
 
 3. With each Talk the speaker should point out that the word "Bank," wherever used, 
 
 refers alike to Trust Companies, State Banks, and National Banks — in short, to all 
 banking institutions having a commercial department. 
 
 4. Where the circumstances permit, questions on the subject may be invited from pupils 
 
 after the talk is finished. , 
 
 5. Each Talk should be accompanied with the suggestion that pupils speak to their parents 
 
 about the subject presented. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. Describe how a checking account may be opened at the bank. 
 
 2. Trace from the beginning the course of a check sejnt to a distant 
 
 city in payment for merchandise. 
 
 3. What difficulties would business men have in paying bills, if there 
 
 were no banks.'' 
 
 4. Name some of the advantages of a checking account. 
 
1) 
 
 Outline for Talk No. 3 
 
 LOANING THE BANK'S MONEY 
 
 I. The Discovmting Fvmction 
 
 A. Earns money to pay 
 
 1. Interest on savings deposits 
 
 2. Expenses 
 
 3. Salaries of officers and employes 
 
 4. Dividends to stockholders 
 
 B. Three C's on which banker bases credit , 
 
 1. Character, shown by customer's integrity in all dealings 
 
 2. Capacity, shown by customer's ability to earn through honesty and industry 
 
 3. Capital, shown by customer's worth in money, merchandise, stocks and bonds, 
 or lands 
 
 C. Customer's statement 
 
 1. Assets (what he owns) 
 
 a. Cash on hand or in bank 
 
 b. Notes and accounts receivable 
 
 c. Merchandise 
 
 d. Buildings, fixtures, real estate, machinery 
 
 e. Stocks and bonds 
 
 2. Liabilities (what he owes) 
 
 a. Accounts and notes payable to banks and others 
 
 b. Mortgages, and so forth 
 
 D. Methods of loaning money 
 
 1. Straight note — without security 
 
 2. Endorsed note — double responsibility 
 
 3. Collateral note — secured by 
 
 a. Warehouse receipts, or bills of lading 
 
 b. Stocks and bonds 
 
 c. Mortgages 
 
 4. Bills receivable 
 
 5. Trade acceptances 
 
 6. Bankers' acceptances 
 
 II. Definition of Note 
 
 A. A negotiable promissory note is an unconditional promise in writing made by one 
 person to another, signed by the maker, engaging to pay on demand, or at a 
 fixed or determinable future time, a sum certain in money, to order or to bearer. 
 
 B. A note must possess the following: 
 
 1. It must be in writing and signed by the maker 
 
 2. It must contain an unconditional promise to pay a definite sum in money 
 
 3. It must be payable on demand, or at some fixed or determinable future time 
 
 4. It must be payable to order or to bearer 
 
 Copyright, 1922, American Bankers Association 
 
(f 
 
Outline for Talk No. 3 
 
 LOANING THE BANK'S MONEY 
 
 I. The Discounting Function 
 
 A. Earns money to pay 
 
 1. Interest on savings deposits 
 
 2. Expenses 
 
 3. Salaries of officers and employes 
 
 4. Dividends to stockholders 
 
 B. Three C's on which banker bases credit 
 
 1. Character, shown by customer's integrity in all dealings 
 
 2. Capacity, shown by customer's ability to earn through honesty and industry 
 
 3. Capital, shown by customer's worth in money, merchandise, stocks and bonds, 
 or lands 
 
 C. Customer's statement 
 
 1. Assets (what he owns) 
 
 a. Cash on hand or in bank 
 
 b. Notes and accounts receivable 
 
 c. Merchandise 
 
 d. Buildings, fixtures, real estate, machinery 
 
 e. Stocks and bonds 
 
 2. Liabilities (what he owes) 
 
 a. Accounts and notes payable to banks and others 
 
 b. Mortgages, and so forth 
 
 D. Methods of loaning money 
 
 1. Straight note — without security 
 
 2. Endorsed note — double responsibility 
 
 3. Collateral note — secured by 
 
 a. Warehouse receipts, or bills of lading 
 
 b. Stocks and bonds 
 
 c. Mortgages 
 
 4. Bills receivable 
 
 5. Trade acceptances 
 
 6. Bankers' acceptances 
 
 II. Definition of Note 
 
 A. A negotiable promissory note is an unconditional promise in writing made by one 
 person to another, signed by the maker, engaging to pay on demand, or at a 
 fixed or determinable future time, a smn certain in money, to order or to bearer. 
 
 B. A note must possess the following: 
 
 1. It must be in writing and signed by the maker 
 
 2. It must contain an unconditional promise to pay a definite sum in money 
 
 3. It must be payable on demand, or at some fixed or determinable future time 
 
 4. It must be payable to order or to bearer 
 
 Copyright, 1922, American Bankers Association 
 
* 
 
Talk No. 3 
 Public School Series 
 
 LOANING THE BANK'S MONEY 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 ONE of the most important services which the bank renders to the community is the loaning of 
 money. You will recall, also, that through this function the bank earns money with which to 
 pay interest on savings deposits, expenses, salaries of its officers and employes, and dividends 
 to its stockholders. The extension of credit to those who need financial help is called the discounting 
 function of the bank. 
 
 The Three G's of Credit 
 
 The banker bases credit on what are known as the three C's of credit — Character, Capacity, and 
 Capital. Because of the importance of these in the lives of business men and women, it is essential 
 that boys and girls know them. To be the kind of men and women who will succeed in life, it is 
 necessary that character and capacity be developed conscientiously during school life. 
 
 Character is an imperative business qualification. It is not formed in a day. Character is de- 
 veloped through honesty and industry practiced daily. The boy or girl who cheats in class today — 
 "putting one over on the teacher" — or who is dishonest in his dealings with his parents or friends, 
 is stamping on his character marks of dishonesty which in later life will count against him and his 
 success in business and in citizenship. 
 
 Allied with character is Capacity. Before making a loan, a banker takes into consideration, in 
 addition to character, the capacity of the applicant- — that is, his ability to earn through his honesty 
 and his industry. 
 
 Capital is a man's worth in money, merchandise, stocks and bonds, or lands, which may be given 
 as collateral to secure a loan or make it safe. 
 
 Today we shall consider some of the methods used by the bank in loaning money or extending 
 credit. In all cases, a promise to pay must be entered into, in the form either of a note, or of some 
 other credit instrument. 
 
 Let us again consider the business transactions of Mr. Smith, the storekeeper, who found it ad- 
 visable to have a checking account at the bank. He now finds that his business is increasing, and that 
 he needs a larger stock of goods. Also, some of his customers do not pay cash, and their accounts must 
 be carried until "pay day." He realizes that he must have more money for his business, so he goes to 
 his bank for advice. | 
 
 The Customer's Statement 
 
 The banker asks Mr. Smith to submit a statement of his business, showing his Assets (what he 
 owns) and his Liabilities (what he owes), just as in the case of the bank statement which we considered 
 in the first Talk. His Assets show Cash on Hand and in the Bank, Notes and Accounts Receivable (that 
 is, money owed to him by others). Merchandise, Building, Fixtures, Real Estate, and possibly Stocks 
 and Bonds. His Liabilities will be Accounts and Notes Payable (money due to others). 
 
 The banker will most probably ask Mr. Smith to submit such a statement at regular intervals, 
 at least once a year, and thus he will know at all times just how Mr. Smith's business stands and what 
 progress he is making. The banker knows the character and responsibility of Mr. Smith from his ob- 
 servation of Mr. Smith's dealings and from the confidence that people have in him. 
 
 The banker finds Mr. Smith's character, statement, and the progress that he has been making, 
 satisfactory, and is glad to consider the best method of loaning him the needed funds. 
 
 Methods of Loaning Money 
 
 Money is loaned by banks in the following ways: 
 
 (1) On a straight note, which means that a man's net worth and business standing are such 
 that the bank will loan to him without security. 
 
 Copyright, 1922, American Bankers Association 
 
* 
 
 (2) On an endorsed note, which means that the banker desires, in addition to the responsibility 
 of the maker of the note, the added responsibility of some person, in whom he has confidence, who 
 will consent to endorse the note. 
 
 (3) On a collateral note, which means that the maker of the note pledges specific securities, 
 such as stocks and bonds, or goods in warehouse or under bill of lading, or a lien or mortgage on 
 land. 
 
 (4) On bills receivable, which means that the banker accepts for discount the bills receivable 
 from his customer if these are made by responsible business men and if the customer is a responsible 
 person. 
 
 (5) On trade acceptances, which means that the banker also discounts the trade acceptances of 
 his responsible customers. 
 
 Definition of Note 
 
 A negotiable promissory note is an unconditional promise in writing made by one person to 
 another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, 
 a sum certain in money to order or to bearer. 
 
 Straight Note 
 
 Mr. Smith is told by the banker that, because he makes a satisfactory statement, which means that 
 he has a sufficient amount of money in his business and manages his business well, the bank will ex- 
 tend him a certain amount of credit without his putting up any security beyond his own word of honor, 
 evidenced by his note. Let us say that, in order to buy a larger stock of goods, and to carry his cus- 
 tomers who cannot pay cash, Mr. Smith needs a maximum amount of $2500 during his busiest season, 
 and that the bank has consented to grant him such a line of credit. This would mean that Mr. Smith 
 could come to the bank and make out a note for any portion of this amount, or for all of it, for any 
 time up to six months. To pay some bills he needs $500. He estimates that within sixty days he will 
 receive from those who have had their purchases charged, enough money to repay this amount. He, 
 therefore, makes a sixty-day note, which the banker, discounts at the prevailing rate of interest, let us 
 say 6%, and places the proceeds to Mr. Smith's credit. How much does he credit to Mr. Smith's ac- 
 count? 6% on $500 for sixty days equals $5. This amount the banker deducts at the time the note 
 is made, it being the interest which he charges Mr. Smith for the use of the money. He then credits 
 Mr. Smith with the proceeds of the note, or $495. When the note is due in sixty days, Mr. Smith has 
 received payment from his customers, and he pays the bank $500. The bank cancels the note, that 
 is, marks it paid, and returns it to Mr. Smith. 
 
 Endorsed Note 
 
 If Mr. Smith's statement to the banker were not sufficiently strong to warrant granting him a line 
 of credit entirely unsecured, the banker might say to Mr. Smith, "You will have to get the endorsement 
 of your friend, Mr. Jones." Should Mr. Jones, who is known to the banker as a very reliable and re- 
 sponsible business man, be willing to help Mr. Smith, he would be required to write his name on the 
 back of Mr. Smith's note. Should Mr. Smith be unable to pay his note when it matures, that is, be- 
 comes due, Mr. Jones will have to pay. Mr. Jones' act in writing his name on the reverse side of the 
 note has constituted a contract with the banker to pay Mr. Smith's note, if Mr. Smith does not pay it. 
 
 Collateral Note — ^Warehouse Receipts 
 
 In another case, the banker might say to Mr. Smith, "I shall be willing to loan you up to $2500, 
 but you must secure the loan with the goods which you purchase for that amount, and with some ad- 
 ditional goods." Mr. Smith would be compelled so to warehouse the merchandise used as collateral 
 that it might be easily identified through warehouse receipts as being the property of the bank until 
 Mr. Smith's note was paid. If Mr. Smith finally found himself unable to pay his note, it would be- 
 come the banker's privilege to sell the merchandise which had been warehoused and set aside as col- 
 lateral, and to use the proceeds thereof to pay the note; in the event that the sale of the goods brought 
 more than the amount of the note, the bank would pay the excess to Mr. Smith, or if the amount 
 realized were insufficient to pay the note, the bank would look to Mr. Smith to pay the difference. 
 
 Collateral Note — Stocks and Bonds 
 
 In the event that stocks or bonds are used as collateral, the stocks or bonds themselves will be 
 left with the bank, and the bank will be privileged to sell them upon non-payment of the note when due, 
 
and to treat the proceeds just as in the case of the merchandise. All of us have seen bonds of the 
 United States Government called Liberty Loan bonds (Illustrate). We know also that there are bonds 
 of the county, town, or city in which we live called municipal bonds. We know that the great railway 
 systems of the country and great industries, like the United States Steel Corporation, borrow money 
 by issuing bonds, secured largely by real estate, or other property used in their business, and payable 
 in ten, twenty, thirty, or more years, during which time the lender (the owner of the bond) is paid 
 interest for the use of his money. Shares of stock of great industries and of local business concerns 
 show that the stockholder is a part owner of the enterprise. For such securities there is a price at 
 which they can be bought and sold, which is called the market value. Many persons own Liberty and 
 other bonds and stocks. Many of you have invested in War Savings securities. 
 
 Collateral Note— Mortgages 
 
 Loans against farm lands are frequently made in country districts, and, from the standpoint of se- 
 curity, have many advantages. These loans are called mortgage loans. 
 
 If Mr. Smith's statement were such that the banker felt that he could not give him a line of 
 credit on his straight note, and were Mr. Smith unable to procure a satisfactory endorser, or secure 
 the loans with merchandise or stocks and bonds, yet had a farm free from debt, and of sufficient worth, 
 he might give the banker a mortgage on his farm as security. This would mean that he would give 
 the banker the right to sell the farm in the event that he, Mr. Smith, did not pay his note. 
 
 The procedure in regard to loans on land is somewhat different, however, from that of loaning 
 against stocks and bonds, or merchandise. Whenever the banker sells collateral, he must be careful 
 that the sale is of such a nature that the borrower can never hold him for not having received enough 
 for the collateral. Thus it is that sales of collateral are usually made in public after public notice of 
 the sale has been given. But there are further legal requirements in the foreclosure of a mortgage. The 
 law, realizing the useful place which the farm owner and the home owner occupy in our social scheme, 
 protects each in a special manner when loans are made on his land. In the desire to protect him, the 
 law says to the lender, "You must give this owner of land one year (which is the usual time after serv- 
 ing notice upon him that you expect to sell his land), for the purpose of paying his mortgage and re- 
 deeming his debt." This period is called the period of redemption. Many city banks prefer not to 
 make mortgage loans on the theory that a bank should have its money so loaned that it can be collected 
 easily and readily on the date of maturity, rather than at the end of a long period of redemption. The 
 security element, as you see, does not enter into consideration here, since farm loans, when well made, 
 are usually very secure. It is the lack of liquidness, or easy collectibility, which makes them undesir- 
 able bank collateral. 
 
 Bills Receivable 
 
 Mr. Smith has still another method open to him for obtaining funds from his banker. He has 
 sold, let us say, a considerable bill of merchandise to a dealer in a smaller community, who wishes first 
 to sell the goods to his customers before paying Mr. Smith. The bill of goods, which Mr. Smith has 
 thus sold, amounts to $500. Mr. Smith says to Mr. Brown, the dealer in the neighboring community, 
 "If you cannot pay me cash, give me your ninety-day note for the amount of the bill of goods." This 
 Mr. Brown consents to do. Mr. Smith then takes Mr. Brown's note to the bank, and asks the banker to 
 give him credit for the note. As this note was taken by Mr. Smith from Mr. Brown as an accommoda- 
 tion to Mr. Brown, Mr. Smith says to Mr. Brown, "Because I am compelled to pay 6% interest to 
 my banker to get the cash on your note, since you cannot pay cash, I shall want you to pay that in- 
 terest." Mr. Brown, therefore, makes his ninety-day note for $500 and interest at 6%. This means 
 that Mr. Brown will have to pay at the end of ninety days $500 in principal and 6% interest, $7.50, 
 or a total of $507.50. When Mr. Smith takes this note to the bank, the bank gives him credit for $500. 
 However, when the bank collects the note, it collects $507.50, the $7.50 being its charge for the use of 
 the money. 
 
 Trade Acceptances 
 
 Mr. Smith might have taken from Mr. Brown a commercial instrument which is coming much 
 into use today, and serves practically the same purpose as does the note. It is known as a Trade Ac- 
 ceptance. In evidence of the trade, that is, the sale of the merchandise by Mr. Smith to Mr. Brown, 
 Mr. Brown accepts a draft drawn on him by Mr. Smith at the time the goods are shipped, and made for 
 the time Mr. Brown feels that it will take him to sell the merchandise, and for the cost of the mer- 
 chandise. This serves to acknowledge the trade in all of its conditions; that is, the acceptor, Mr. Brown, 
 indicates by writing his name across the face of the draft that he has received the merchandise which 
 he purchased, that it is satisfactory, and that he has agreed to pay for it in ninety days. 
 
Bankers' Acceptances 
 
 The Banker's Acceptance, too, is a comparatively new instrument. It differs from the trade ac- 
 ceptance in the fact that Mr. Brown, who ultimately pays the S500 for his purchase of merchandise, 
 instead of accepting Mr. Smith's draft himself, arranges with his bank to do so; and when the period 
 of ninety days has elapsed, by agreement made beforehand, he turns over to the bank the funds to pay 
 the acceptance. You will observe that the bank does not loan its funds in this case. The guarantee of 
 the bank establishes the credit, for which Mr. Brown pays a small commission. The banker's accep- 
 tance is used mainly in large transactions and in foreign business. 
 
 Should People Borrow Money? 
 
 We have now outlined the main methods of making bank loans. Some people think that to incur 
 a debt at the bank is in itself unwise, or a reflection on their business standing. Certainly this is not 
 the case where the debt is contracted for legitimate business purposes. Incurring a debt so that one 
 may live beyond one's income is something that no thrifty person would do. Careless use of credit 
 leads to extravagance and disaster, but wise borrowing is an encouragement to thrift and industry. 
 Oftentimes it is advisable to go into debt for goods or property, or to borrow money to make a profit- 
 able investment that would not otherwise be possible. Many a successful business man will tell you 
 that his business was unprofitable until he borrowed money. The obligation itself made him put forth 
 every effort to make the enterprise successful, and to save part of his income in order to pay the debt. 
 The necessity for repayment made him more careful and energetic. 
 
 You will understand from previous Talks, that the first function of the banker is to encourage in- 
 dustry and thrift, so that a large fund of deposits may be accumulated. This fund is often likened to a 
 reservoir in which water is accumulated for community needs. The banker then loans from this fund 
 to those furthering the business of the community, so that wages may be paid which, when saved, create 
 new deposits. We see, in these processes, the interdependence of all who constitute a community. 
 First, through work we produce; then the sale of what is produced pays wages; the savings from these 
 wages are lodged in the bank; the bank then uses these accumulated savings to loan further sums, so 
 that we may continue to work and save. 
 
 Very few business men can so conduct their business affairs that at no time will they need to 
 borrow money. Situations are constantly arising in which the help of the bank is required. How im- 
 portant it is that our personal conduct now, when we are building character and capacity, be such 
 that in the conduct of our affairs later on, when striving for success in business and life, we shall merit 
 the confidence and help of the bank. 
 
 NOTE: This Talk is to be delivered 
 on or before November 25, 1922, after 
 which it may be released for publication. 
 
 SUGGESTIONS 
 
 1. In presenting this Talk the speaker should have with him for the purpose of illustration a 
 
 plain promissory note (either single name or joint and several), a collateral note, and an 
 acceptance form of draft. It would also be of help to exhibit the other forms, such as mort- 
 gage, warehouse receipt, and bill of lading. 
 
 2. Please refer to list of suggestions accompanying previous Talks. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. When credit is needed for business purposes, through what source is it or- 
 
 dinarily obtained? 
 
 2. Is it wise to keep the bank fully informed regarding one's business affairs? 
 
 Why? 
 
 3. If you have money invested in goods, stocks or bonds, how can they best be 
 
 used when you need cash? Explain the method. 
 
 4. Describe the form in which real estate loans are handled. 
 
 5. Explain the purpose of the warehouse receipt and the bill of lading. Why 
 
 does the bank loan money on this security? 
 
 6. What is a trade acceptance? Tell why it is a desirable form for granting 
 
 credit to business men? 
 
 7. When may a debt be termed unwise ? 
 
 8. (For advanced pupils) Describe the banker's acceptance. 
 
Outline for Talk No. 4 
 
 CHARACTER— THE BASIS OF BANK CREDIT 
 
 I. Credit 
 
 A. Use of term 
 
 1. Money deposited is credited to depositor's account 
 
 2. In loaning money, a banker extends a line of credit 
 
 3. Money on endorsed note is extended on joint credit 
 
 4. Bonds are issued on credit of corporation, railway, or government 
 
 B. Basis 
 
 1. Credit implies confidence, and confidence rests on character 
 
 a. Honesty, industry and thrift are necessary to strong character and busi- 
 ness success 
 
 (1) Credit standing of business concerns is usually known to banks 
 
 (2) A man must pay what he owes. Never contract a debt which you 
 are not reasonably sure of paying 
 
 b. "Every good tree bringeth forth good fruit, but a corrupt tree bringcth 
 forth evil fruit." 
 
 2. Good management is shown by ability to save money 
 
 C. Examples of wise uses of credit 
 
 1. It is desirable to contract a debt 
 
 a. For the purchase of a home 
 
 b. To complete one's education 
 
 c. To purchase good bonds 
 
 D. Examples of unwise uses of credit 
 
 1. It is undesirable to contract a debt 
 
 a. For speculative ventures 
 
 b. For pleasure-giving possessions 
 
 II. Character in Bank Management 
 
 A. Officers and bank command confidence and respect by adhering to same standards 
 as expected of patrons : irreproachable business methods, sound standards, capable 
 management 
 
 III. Need for Banking Education 
 
 A. People should understand that banks are trustees of their deposits, and must 
 safely guard and safely invest them 
 
 B. Banks are public servants and are managed and examined in the public interest 
 
 C. Bankers are human, and may make mistakes, but they are, as a rule, of high 
 integrity, and are eager to serve 
 
 D. A better understanding of bankers and banks will bring greater benefits to com- 
 munity and country 
 
 IV. Historical Allusion 
 
 A. As examples of strong character, built upon the strict policy of honesty, industry, 
 and thrift, consider Abraham Lincoln and Benjamin Franklin. 
 
 NOTE: Additional literature on Honesty may be secured by ad- 
 dressing National Honesty Bureau, 115 Broadway, New York City. 
 
 Copyright, 1922, American Bankers AssociatioD 
 
Cm 
 
Talk No. 4 
 Public School Series 
 
 . CHARACTER 
 THE BASIS OF BANK CREDIT 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers ahke to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 IN former Talks on "Taking the Mystery Out of Banking," you have been told of a 
 number of transactions that make up a part of the daily round of a bank's work. These 
 have revealed certain business ideals and business methods, STANDARDS OF ACTION, 
 we might call them, which are adhered to both by the bank and by all who rightly use its 
 services. You will recognize that the basis of all bank credit as well as all business credit 
 is CHARACTER. 
 
 The Meaning of Credit 
 
 In banking, the word "credit" has various meanings. We say banks deal in credit. For 
 example, when you deposit money, your account receives credit for the amount deposited, 
 and the bank continues to owe you until you withdraw your money. Again, in business 
 language, the bank extends "a line of credit" to a customer by agreeing to lend him reason- 
 able amounts whenever he needs money. When you borrow money on your note at the 
 bank, you are granted credit because of your promise to repay. When you endorse the 
 note of a friend who borrows money from the bank, the loan is made upon the joint credit 
 of both ; if your friend does not pay the note when due, you are required to pay it. When 
 a railroad, a manufacturing concern, a town, or a government issues bonds, it uses its credit. 
 Those who bu}-^ the bonds rely for repayment of their money, when the bonds mature, upon the 
 maker's credit standing and promise to pay. When a merchant buys goods without paying 
 cash, at the time of purchase, credit is granted him. When goods are sold over the counter 
 to a customer who carries a charge account, credit is granted. In both cases, credit is 
 granted in the belief that later on the bills will be paid. Thus credit enters into all busi- 
 ness, and particularly into the business of banking. Without credit, our present day busi- 
 ness system could not exist. 
 
 Credit implies confidence. Credit transactions are possible only because people have 
 CONFIDENCE in each other, and confidence can exist only where good character exists. 
 Without good character, there is little chance of sur-cess in any business undertaking. The 
 business man of strong character has fixed habits of honesty, industry, and thrift. Like 
 Longfellow's "Village Blacksmith," he can "look the- whole world in the face". He has noth- 
 ing to conceal. When he needs the help of the bank, he presents to the banker all the facts 
 concerning the financial situation, ar']. because he deals openly and frankly, he wins the 
 
 Copyrighi, 1922, American Bankers Association 
 
4 
 
 banker's confidence, and sound advice as to the right course to pursue. Bankers are in 
 constant touch with the credit standing of local business concerns, and have much to do with 
 their general reputation. Every successful business man looks upon his credit standing at 
 the bank as a most valuable asset, and he maintains it by square dealing. He knows that 
 the bank can help him in many ways to establish and maintain a good business and credit 
 reputation. 
 
 There is truth in the old adage, "honesty is the best policy". It pays to be honest. 
 Doubtless there are a few men who are honest in business largely because it does pay, but 
 most men are successful in their business and in their lives, because their characters are built 
 on the policy of honesty and industry. 
 
 A MAN MUST PAY WHAT HE OWES. If he refuses to pay his debts, it soon be- 
 comes known that he is not of good character, and is not worthy of confidence. Those from 
 whom he would buy, refuse to trust him. The bank declines to grant him credit. Then 
 come business failure, and a long up-hill fight to get on his feet again, and to live down the 
 mistakes and dishonor of the past. The habit of honesty should be formed early in life, 
 and adhered to under every circumstance. Make it your fixed purpose never to contract a 
 debt that you are not reasonably sure of being able to pay. 
 
 Good Management 
 
 Honesty is not the only factor involved in credit. One may be extremely careful to 
 keep promises or agreements, and yet may not deserve credit at the bank. Here, for instance, 
 is Mr. Jones, a man of forty, of excellent morals, who has enjoyed a fair income for many 
 years, and who now sees an opportunity to purchase a business for himself. He requires 
 financial assistance. He calls on a banker, who has known him for a long time, and asks 
 how he may obtain the necessary credit. The banker inquires as to the nature of the busi- 
 ness, what the cost will be to purchase it, and what Mr. Jones can command in ready money, 
 or other resources. The banker learns that Mr. Jones, at the age of forty, has no money, 
 or property of his own. It is clear to the banker that Mr. Jones lacks the ability to man- 
 age wisely his affairs. He has not had enough determination and strength of character to 
 save money. He has not learned to adapt his expenses to his income, and so has not yet 
 proved that he could make financial progress, even under more favorable circumstances. 
 Moreover, it is usually true that, if men do not invest some of their own money, that is, 
 have an interest in the business they take up, they lack incentive and become easily dis- 
 couraged. The business lags and eventually fails, in which case, those who have provided 
 the capital for it lose their investment. The banker knows that it would not be wise for 
 anyone to assume such a financial risk, and Mr. Jones probably finds that the bank can do 
 nothing for him. He must give up his opportunity to some one else who has saved money. 
 
 Banks are public servants, but that does not place them under obligation to serve those 
 who are unfair in their business dealings or who are lacking personally in the great princi- 
 ples underlying opportunity. Therefore, to be known as a careful and thrifty person is the 
 best assurance that the bank will extend financial help when it is needed. 
 
 How essential it is that each of us cultivates the habit of saving! On every hand we 
 see reckless waste. It is not always easy to practice thrift, but such practice leads to suc- 
 cess. The ability to save money, even in a small way, has much to do with future business 
 success and prosperity. Some one has said, "Opportunity does business on a strictly cash 
 basis. She smiles upon those with a bank account, and laughs at those without one." 
 
]^ 
 
 Mistaken Ideas About Owing Money 
 
 Many people who are unfamiliar with business think that one should shun contracting 
 a debt, as one would shun an attack of malaria. They fail to distinguish between con- 
 tracting wise and unwise debts. It is desirable and wise to use one's credit, that is, go 
 into debt, for the purchase of a home, because such a debt encourages the family to save, 
 and to live on a sound basis. The earnest young student should, if necessary, borrow a 
 reasonable amount of money to complete his education. This is an investment in personal 
 ability, and will pay dividends in greater success. Another wise use of credit is to borrow 
 for the purpose of buying good bonds. Suppose you desire to buy a Liberty Bond for $100. 
 You can pay $20 down, borrow $80 from the bank, and pay this latter amount out of sav- 
 ings. Such a debt would be regarded as a wise investment, and would help you to financial 
 success, because you would save, in order to pay the amount borrowed. Many a prosper- 
 ous business man began his fortune with such accumulations. 
 
 There are circumstances, however, under which one should never borrow money. Never 
 incur a debt in a speculative venture. Many people become afflicted with the "get-rich- 
 quick" fever. In their attempt to gain sudden wealth, they invest not only their own 
 money, but often that borrowed from others. Beware of the lust for easy money! OF 
 THE PEOPLE WHO SPECULATE, NINETY-FIVE PER CENT LOSE. 
 
 Neither should debts be incurred for the purchase of pleasure-giving possessions. Such 
 debts are an abuse of the charge account. They are millstones around the necks of count- 
 less families. The person who lives beyond his income, is destroying the very rock upon 
 which his future success must be built. 
 
 Life's success rests on the principles of character. "Every good tree bringeth forth 
 good fruit, but a corrupt tree bringeth forth evil fruit." If we form unwise habits, we shall 
 be as the corrupt tree, which is hewn down. If we form wise habits, we shall be as the good 
 tree, and enjoy happiness and prosperity. 
 
 Character in Bank Management 
 
 The progressive bank adheres to the same standards that are expected of its patrons. 
 Because it is well managed, it commands the confidence of its customers. Its business 
 methods are beyond reproach. It excludes business of doubtful reputation. It has no part 
 in the feverish struggle for sudden wealth, but holds steadily to those sound standards well 
 known to all successful men of affairs. Well-managed banks are regarded with great re- 
 spect, and they assume a place of ever increasing importance in the business life of the com- 
 munity. With the bank, as with the individual, success is a matter of character and 
 capable management. 
 
 Need for Banking Education 
 
 Some thoughtless people criticize banks, because they do not make loans more freely. 
 It must be remembered that the bank whose business it is to receive deposits, as well as to 
 grant loans, stands chiefly as a trustee of the money belonging to its depositors. It has the 
 care and control of their funds, and must so hold and invest these as to insure their return, 
 upon demand, to the depositor. Aside from the safeguards thrown about bank deposits by 
 law, such as the required legal reserve referred to in a previous talk, and regular examina- 
 tions of all banks by either the Federal, or State Banking Commissioners, the banker's 
 
t 
 
 judgment and experience must dictate the course to be followed by his bank. He must 
 know when to expand his loans, and when to curtail them. Being hmnan, bankers also make 
 mistakes of judgment. As a rule, they are men of high business integrity, eager to serve 
 their communities ; men who deserve pubhc confidence and good will. When the public thor- 
 oughly understands the workings, and services of the bank, greater benefits will be derived 
 by the community and by our country as a whole. 
 
 NOTE: Additional literature on 
 Honesty may be secured by addressing 
 National Honesty Bureau, 115 Broad- 
 way, New York City. 
 
 NOTE: This Talk is to be delivered 
 OK or before December 26, 1922, after 
 which it may be released for publication. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. How does credit enter into bank transactions? 
 
 2. What has character to do with credit .'' Explain. 
 
 3. How can you establish confidence in your ability to manage.'' 
 
 4. Why is it difficult to get credit with which to start in business, if 
 
 you have no money of your own? 
 
 5. What is meant by "character" in bank management? 
 
Outline for Talk No. 5 
 
 WHY A CORPORATE TRUSTEE? 
 
 I. Administration of the Estate 
 
 A. Disposition of estate 
 
 1 . By will ; every person of legal age can make a will 
 
 2. If no will is left, law declares disposition of estate, and heirs may have indi- 
 vidual or trust company appointed administrator 
 
 B. Executor or administrator 
 
 1. Title given to person or company' named to administer estate 
 
 a. Executor, named in will 
 
 b. Administrator, named by heirs or court 
 
 2. Duties 
 
 a. To take charge of all money in bank, stocks, bonds, real estate, crops, 
 and other property on hand 
 
 b. To settle estates ; property may be sold in order to paj' debts and expenses 
 
 c. To turn remainder over to heirs after all expenses and debts have been 
 paid 
 
 3. A trust company or bank preferred above individual 
 
 C. Guardian 
 
 1. Appointed, either in will or by court for child under legal age 
 
 2. Duties 
 
 a. To use money for child's maintenance and education 
 
 b. To account to court Avhcn child becomes of age and estate is turned over 
 
 3. Corporate guardian usually more satisfactory than individual 
 
 D. Trustee 
 
 1. One named to hold or manage property for the benefit of others during their 
 lifetime 
 
 2. Corporate trustee 
 
 a. A well-organized, financially responsible, perpetual corporation under 
 strict supervision of the state 
 
 b. May be a trust company or qualified bank 
 
 c. Required by law to keep funds for each estate separate 
 
 d. Experience sliows their dealings uniformly kind and sympathetic 
 
 E. Business trusteeship 
 
 1. Trustee named to continue management of business, after death of owner, 
 for benefit of heirs 
 
 2. Corporate trustee preferred above individual 
 
 a. Complex laws, taxes, accounting, and so forth, make administration of 
 estate difficult for any individual 
 
 b. Officers of trust companies, or banks authorized to perform such services, 
 experienced, trained, and equipped in these principles, laws, and duties 
 
 c. Has means of providing special financing 
 
 Coprrlsht, 1922, Amerlcaii Bankera AjwoclaUoa 
 
Ir 
 
 Talk No. 5 
 Public School Series 
 
 WHY A CORPORATE TRUSTEE? 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 THERE is a service rendered by trust companies and many other banks, which, sooner 
 or later, is needed by every person owning property. Under our law, every person 
 has a right to own property, and to transfer it to others. Property may be passed 
 on as a gift, during the lifetime of the owner. Suppose, however, a property-owner dies. 
 What then becomes of his property? 
 
 The Right to Make a Will 
 
 The law permits every person of legal age to make a will, designating to whom his 
 property shall go, and whom he desires to manage it after he dies. Where no will is 
 left, the law declares that a person's property shall be used first to pay his debts, and that 
 the remainder, if any, shall go to his next of kin. The law states exactly who is to 
 receive the property, and in what proportions. If a person fails to make a will, his heirs, 
 in order to pay his debts and distribute what is left among the members of his family, may 
 have an individual, or better still, a trust company, or qualified bank, appointed adminis- 
 trator. Where a will is left, the one named to manage the estate is called the executor. 
 
 It is the duty of the administrator or executor to take charge of all money in the bank, 
 stocks, bonds, real estate, crops growing in the fields, and all other property on hand at 
 the death of the owner. Part, or all, of the property may be sold in order to pay the 
 debts and the expenses of settling the estate. Every debt must be taken care of before 
 distribution is made. 
 
 Duties of Guardian 
 
 When a child under legal age inherits money or property, there must be a guardian 
 to receive the money or property and manage it in the interest of the child, until he becomes 
 of age. A parent can name a guardian for his children in his will, but if he fails to make 
 a will, the Court will appoint a guardian to hold and invest the child's property. A bond 
 must be given guaranteeing the safety of every dollar. It is the duty of the guardian to 
 use this money for the child's maintenance and education. The Court insists that a guardian 
 must first of all provide proper food and clothing. His next duty is to see that the child 
 obtains a good education. By consent of the Court, the guardian may spend whatever is 
 necessary in order that the child, his ward, may be equipped for life. 
 
 When the child becomes of age, the guardian must account to the Court, showing in 
 detail how he has managed his ward's estate. The balance remaining on hand is then paid 
 to the ward. Experience has shown that, as a rule, a corporate guardian is more satisfactory 
 than an individual. The growing practice, therefore, is to appoint a trust company or 
 
 Copyright, 1922, American Bankers Association 
 
qualified bank as guardian of the estate of a minor. Officers of the trust company or bank 
 supervise the buying of clothing for minor children, arrange to have them sent to good 
 schools, and see to it that they are provided with wholesome food and environment, so that 
 they may grow up to be good, strong, healthy, and useful men and women. 
 
 Services of a Trustee 
 
 We have spoken of executors, administrators, and guardians. There remain trustee- 
 ships. First of all, what is a trustee? We have seen that an executor or administrator is 
 one who settles up the estate and, after paying the debts and expenses, turns over the 
 remainder to those entitled to receive it. A trustee is one who holds or manages property 
 for the benefit of others. As a rule, a trustee is named in a man's will to administer his 
 property upon his death, when he can no longer work for his wife, children, and others near 
 and dear to him. The trustee manages the property for their benefit. Every man who 
 has proper regard for his family desires that they shall be protected during their entire 
 lifetime. Most wives and mothers find their chief interest and usefulness in the home. They 
 feel unable or reluctant to master the details of business. Women, who inherit money, 
 which has been accumulated during a lifetime by a husband or father, are often the victims 
 of designing persons who succeed in taking from them the property inherited. Lacking busi- 
 ness ability and experience, these women are likely to make unwise investments, and thus lose 
 their inheritance. Therefore, the wise course is to appoint a trustee, who will carefully 
 manage the estate for the benefit of the heirs. 
 
 The Corporate Trustee 
 
 Formerly, people appointed their personal friends to act as trustees and manage their 
 estates. There is always the chance, however, that the friend may die, become ill, or go 
 away on a vacation. He may abuse the confidence placed in him, or he may lack business 
 ability. He may be busy with his own affairs and have little time to attend to an estate. 
 One can readily see, therefore, that a well-organized, financially responsible, perpetual cor- 
 poration under strict supervision of the state, such as a trust company or a qualified bank, 
 is better equipped to act as trustee of estates than is an individual. Corporate trustees are 
 organized for this very purpose. They never die. They do not go on vacations. If one of 
 their officers is absent, another officer takes charge of his duties, thus providing continuous 
 service- 
 But, you ask, do not corporate trustees sometimes fail.'' Yes, this has happened. The 
 safeguard lies in the fact that, under the law, trustees must keep the money and other 
 property of each estate separate and apart from the money and property of every other 
 estate, and separate and apart from their own money. You see, therefore, that if a corporate 
 trustee should fail, the estates under its care are still secure. Owing to this requirement, 
 each estate is preserved intact and secure. In very few' instances has any trust company ever 
 lost a dollar of the trust funds committed to it. 
 
 Some may say that the corporate trustee is lacking in personal touch with people, that 
 it does not sympathize with the troubles, sorrows, and difficulties of families, that it does 
 not concern itself about these matters, as would an individual. The answer to this is that 
 the men who are officers of a trust company or bank possess the same sympathy and feel- 
 ings as do other people. Friendliness is a part of their training. Experience shows that 
 they have been as tmifomly kind and sympathetic in the care of those for whom trusts 
 were created as individuals have been. 
 
Business Trusteeship 
 
 It frequently happens that a man who, by his own efforts, has built up a good busi- 
 ness during his lifetime, wishes to have the business continued after his death, for the 
 benefit of his family, or until a son grows to manhood. He has the right, under the law, 
 to give the business into the hands of a trustee, to be operated under such conditions as 
 he may name. In trusteeships of this kind, the trustee is not expected to make good, out 
 of his personal estate, the losses which might occur in carrying on the business, although 
 he is relied upon to use diligence and good judgment. In other words, the trustee takes the 
 place of the man himself, in order that the business may be kept in the family. Sometimes, 
 also, it is a good plan for a man to protect his interest in a partnership in the same way, 
 in order to keep his estate from being sacrificed. In caring for a business, the corporate 
 trustee is preferable for the reason that a group of experienced business men will guard the 
 interests of the owner, will carry out his wishes impartially, and will bring their combined 
 judgment to bear upon all business problems as they arise. Where special financing is 
 needed, the corporate trustee has at hand the means for providing it. 
 
 Broad Experience Essential 
 
 Aside from the question of better service in general, the corporate trustee has today 
 become practically a necessity. Formerly, it was a comparatively simple matter to settle 
 a man's estate. It was not even necessary, in many cases, to submit an accounting. Heirs 
 could often agree among themselves as to how the property should be handled,- and could 
 thus keep the facts within the possession of the family. Now, however, the state and 
 federal governments make careful inquiry into all estate matters. Inheritance taxes must 
 be paid. Income taxes must be accounted for. The laws governing these taxes are very 
 complex. Hence, broad experience is essential in the handling of the many details involved. 
 Unless proper methods are used, the trustee is very likely to meet with difficulty. The work 
 must be handled so that, when reviewed by state and federal authorities, it may be above 
 censure and penalty. 
 
 Nowadays, a man of business ability hesitates, even under the will of a friend, to accept 
 a trusteeship. His responsibilities are great. He may be tempted to favoritism. His 
 freedom is restricted. Often when he wishes to be away, the duties of the trusteeship require 
 his presence. His services must cease sooner or later. 
 
 Hence, trust business is growing rapidly. Each year a greater number of persons 
 create trusts by will. Trust companies and banks authorized to perform similar duties are 
 being called more and more into this service, and their officers are being trained in all of 
 the many principles and duties involved. Therefore a trust company or bank should be 
 chosen as executor, administrator, guardian, or trustee, because it specializes in the manage- 
 ment of propert}-^, and in the settlement of estates. 
 
 NOTE: This Talk is to be delivered on 
 or before January 25, 1923, after which 
 it may be released for publication. 
 
Talk No. 5 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. How can an owner of property control its use after his death? 
 
 2. Explain the term executor, administrator. Tell something of 
 
 their duties. 
 
 3. What are the duties of a guardian.'' 
 
 4. Why is it advisable to appoint a trust company or qualified bank, 
 
 rather than a person, as executor, administrator, guardian, 
 or trustee.'' 
 
 5. How can a man perpetuate his business after his death.'' 
 
 6. What can you say about the need for experience in handling all 
 
 estate and trust business.'' 
 
Outline for Talk No. 6 
 
 THE BANK AND YOUR INVESTMENTS 
 
 I. An Investor 
 
 A. A school child invests time and effort for future return in ability 
 
 B. The taxpayer invests in public school for future return in citizenship 
 
 C. The farmer invests time, effort and money in his land for dividend in harvest 
 
 D. In business sense, one who uses money in acquiring ownership of property, part 
 of great financial machine which each year gathers up and puts to worli wealth 
 of our country for benefit of all 
 
 1. Ownersliip may represent 
 
 a. Entire possession— home, and so forth 
 
 b. Partial ownersliip — stock in corporation, partnersliip, and so forth 
 
 C. Conditional ownership — mortgages, bonds, and so forth 
 II. All Property Owned by Individuals 
 
 A. Laws provide equal protection for all investors 
 
 B. All property, houses, lands, railroads, factories, public buildings, farm stock, 
 automobiles, furniture, large corporations, small stores, have owners, like our- 
 selves 
 
 III, Some Evidences of Investment 
 
 A. A bond, a U. S. Liberty Loan bond, for example; or a mortgage, as evidence of 
 money invested as loan 
 
 B. A certificate of stock, as evidence of partial ownership 
 
 C. A deed, as title to land 
 
 D. A bank pass book, as evidence of a bank deposit 
 
 E. A life insurance policy 
 
 F. Actual possession of merchandise 
 
 IV. How To Be an Investor 
 
 A. Start with savings account; build for future by saving through self-denial and 
 hard work 
 
 1. Few people know how to save, and fewer know how to invest 
 
 B. The small sums soon add up. An investment of $1000 made last year at 6% 
 adds $5 a month every month this year to j^our income 
 
 V. Safety 
 
 A. Never buy investments unless you understand them 
 
 1. Avoid fake-stock promoters and salesmen with get-rich-quick schemes 
 
 2. Get your advice from those of experience in investing. Responsible invest- 
 ment houses are glad to serve you 
 
 3. Ask your banker for information and help 
 
 B. Keep away from high rates of interest 
 
 1. Consider safety of principal above interest or dividend 
 
 2. Never buy high rate speculative investments. Stick to safe, fair rate invest- 
 ments 
 
 C. Before you invest, investigate 
 
 Copyright, 1922, American Bankers Association 
 
# 
 
Talk No. 6 
 Public School Series 
 
 THE BANK AND YOUR INVESTMENTS 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 OUR Talk on Character showed us that our success in life depends upon the invest- 
 ments we make each day of our talents and time. Our future return will be gain or 
 loss, according to these investments. That is a law of life which controls the invest- 
 ment of our money, just as it controls the investment of our talents. As we make good or 
 bad investments with our money, so will we have future gain or loss. 
 
 Every one an Investor 
 
 By attending school, you make an investment of your time and effort. If your invest- 
 ment is properly made, you will receive, as your return, a much richer lifetime. The tax- 
 payer, who annually puts millions of dollars into the public school system of America, is 
 making an investment which, he hopes, will bring great returns in educated citizenship. The 
 farmer, who ploughs and fertilizes the ground, who sows the seed and cultivates the grow- 
 ing crops, is also making an investment from which he hopes to reap a dividend at harvest 
 time. Hence, we see that in practical life we reap a future return from whatever good or 
 bad investment we make today, of ourselves, of our talents, of our work, or of our money. 
 
 In the business sense, the word investment relates to the use of money in acquiring 
 ownership of property. The laws of our country permit us to enjoy this right. Our owner- 
 ship may represent entire possession of property, as in the case of buying a home; it may 
 represent partial ownership, as in purchasing stock in a corporation; or it may be condi- 
 tional ownership, as in the case of buying a mortgage or a bond. In buying mortgages and 
 bonds, we are merely loaning our money for a certain period at a certain rate of interest. 
 In a previous Talk, we said that, in borrowing money, some form of promise to pay had to be 
 entered into, and that great corporations, railways, and governments often borrowed money 
 by issuing bonds to be sold to people who have money to invest. These bonds are a form 
 of promise to pay, just as is a note. They promise to pay interest during the time of the 
 loan and to pay the principal at maturity. 
 
 When we speak of having made an investment in United States Liberty Loan bonds, in 
 mortgages, or in railroad or corporation stocks and bonds, we mean that we have used our 
 money to buy them. They have become our property, they cannot be lawfully taken from us, 
 and we will receive the interest or dividends which they earn as long as we own them, or until 
 they mature. . Thus it is plain that all property, such as houses, lands, railroads, factories, 
 public buildings, farm stock, automobiles, furniture, and so forth, have owners who are persons 
 just like ourselves. 
 
 Copyright, 1922, American Bankers Association 
 
# 
 
 All Property Owned by Individuals 
 
 The ownership of the great corporations of America is vested in individuals — perhaps even 
 your next door neighbors or yourselves — who have invested money in shares of stock or in bonds 
 of these corporations. Many people regard the ownership of the United States Steel Corpora- 
 tion, for example, as differing from the ownership of the workshop just around the corner. Yet 
 the people who have invested their money in shares of stock of the Steel Corporation are en- 
 titled to the same rights, under the law, as is the owner of the little workshop. In the corpora- 
 tion, the owners hold certificates of stock (Illustrate) as evidence of their investment, whereas 
 the owner of the little workshop holds a deed as title to his land, and the actual merchandise 
 in which he deals as evidence of his investment. Thus, our great railroads and other corporate 
 resources are owned by individuals. 
 
 The laws of our country stand for the equal protection of all investors. Because of this 
 protection, it is possible and profitable for us to make good investments. It gives us an incen- 
 tive to work hard and to invest our money, in order to develop and improve the conditions 
 under which we live. Investments represent past effort, since the person who wishes to pur- 
 chase them must first work and accumulate funds with which to do so. Every American 
 citizen who is thrifty can store up dollars for investment. He will then be a better citizen, 
 because he will be interested in preserving his investment, whether it be stocks and bonds, the 
 house in which he lives, or other things which administer to his comfort or to that of his 
 family. 
 
 The person who carries life insurance, fire insurance, or, in fact, any kind of insurance, 
 has a conditional investment or equity in the large amounts of bonds carried by these in- 
 surance companies in order to meet amounts which may become due him, as a policy holder. 
 
 Bonds are always secured by mortgages on lands, or on the buildings or other property 
 of the corporation, in the construction of which the money has been used. Eventually, when 
 a bond matures, the money must be repaid to the one who has loaned it, that is, to the owner 
 of the bond. Thus, all investors are a part of a great financial machine which, year in 
 and year out, constantly gathers up and puts to work the wealth of our country, for the 
 mutual benefit, prosperity, and well-being of all. 
 
 Sometimes the investments of wealthy people are referred to as if they differed from 
 the investments of those who have less to invest. No matter what a man's income is, it can 
 be spent, or hoarded (which seldom occurs), or invested again for the common good only 
 by the person receiving it. The person receiving a large income can eat only three meals 
 a day; he can wear but one suit of clothes and live in but one house at a time. He cannot 
 appropriate his wealth to himself unless he locks it up in a strong box, where it serves 
 neither him nor any one else. The man of wealth never does this, because he knows that 
 after paying his expenses, taxes, and so forth, he can promote the general welfare by 
 sending the surplus of his income back into the channels of trade. 
 
 Investing Means Self-Denial 
 
 In America, it is possible for any one who is willing to pay the price of self-denial 
 and hard work, to be an investor — to make investments of money. Good investments made 
 in early life, in acquiring ability while at school and in saving such small sums as it may 
 be possible to save, lay the foundation for providing the comforts of later years, when it 
 is harder to earn a livelihood and when poverty often becomes the condition of those who 
 have not practiced thrift in youth. It is only because so many people do not carefully guard 
 their expenses that eighty out of every one hundred die penniless. 
 
Something saved out of' the money we have today, for use next month, or next year, 
 or in the years to come, will make our tasks at that time so much easier. One thousand 
 dollars saved and invested at six per cent, last year, increases our income by five dollars 
 each month for every month of this year. Should we save and invest a like amount this year, 
 our income will be increased by more than ten dollars each month for every month next year. 
 Smaller savings, of course, accumulate in like proportion. Thus it is that men prosper 
 through investment, having first learned to save their money. For this reason, as boys and 
 girls, we must learn the value of thrift, of saving now for future rewards, even though, at 
 first, the amounts are very small. In every field of human endeavor the principle is the same. 
 Our progress is in proportion to the amount we have wisely INVESTED. For the vast 
 majority of people, the very best way to make financial progress, is by means of the SAV- 
 INGS ACCOUNT, in which small amounts saved above living expenses are deposited. If 
 the boys and girls of America wish to become prosperous, they must become investors. They 
 must start by using the savings account. 
 
 Above All, Invest Safely 
 
 It is not wise to take for granted that those without experience know how to make 
 safe investments of money. There is only the slightest chance of success, unless the invest- 
 ment is guided by those who know. For this reason, it is essential that the following 
 important suggestions be left with you. 
 
 1. Never Buy Investments Unless You Understand Them 
 
 Many companies are constantly being organized to promote unsound schemes which you 
 hear referred to as "wild-cat." There are always solicitors ready to relieve people of their 
 savings by the PROMISE of big returns on ill-conceived investments. Attractively-printed 
 statements are set before you showing, on paper, how impossible it is for these companies to 
 lose money. It is usually difficult to verify these statements. The lure of great wealth, 
 always a temptation, is placed before you. In this way, thousands upon thousands of 
 thrifty people are deprived of hard-earned savings every year. Widows and orphans wlio 
 have inherited money are frequently sought and made the targets of these fake-stock sales- 
 men. Misery and suffering are the usual results. Beware of these scheme promoters ; have 
 nothing to do with the suggestions they bring to you. 
 
 2. Keep Aw^ay From High Rates Of Interest 
 
 Many people with small means lose money because they very often insist on getting 
 a high rate of interest on their investments. To lose one's money is a very serious matter, 
 and we should consider safety of principal above large returns in interest or dividends. 
 Therefore, we should never buy high-rate, speculative investments, in which there is great 
 risk, but should stick to investments which pay a fair rate and which are known to be safe. 
 
 3. Get A Successful Man's Advice 
 
 Whenever you wish to know whether an investment is worth buying, go to a banker, 
 or a successful business man, who has had experience in making investments and in whom 
 you have confidence. Find out his opinion and then ACT in accordance with it. In all 
 probability this will mean the difference between successful investment and total loss of your 
 money. The banker deals with investments every hour of the day and desires to give you 
 all the help and information he can. He believes that you should have a clear understanding of 
 an investment, before it is purchased. He knows the need for avoiding stock promotion 
 
€ 
 
 schemes and get-rich-quick propositions, because he has observed many cases where these 
 have brought poverty and suffering. He has learned the need for great caution in all invest- 
 ments, and is less likely to make a mistake than those without experience. Responsible 
 investment houses are always glad to give you advice. While many states have endeavored 
 to pass laws protecting the public against the promoters of fake investments, thousands of 
 people annually fall victims to their visionary schemes, because they fail to seek advice of 
 those experienced in making investments. 
 
 Careful Investing Brings Success 
 
 Increasing numbers of people are learning that care in the use of money brings success. 
 Nearly every one knows how to work, but too large a proportion of our workers have not 
 yet learned how to save. Of those who know how to save, there are many who know very 
 little about how to invest. If due care is used, success will follow honest effort as surely 
 as day follows night. 
 
 The men who successfully use and invest their money are not necessarily men of any 
 special profession or ability. Thousands of wage earners are owners of good investments. 
 They are men of strength and purpose who have determined not to expect sudden wealth, 
 but, by strict economy and careful investing to provide for themselves and their dependents. 
 They stick to SOUND investments — investments which can usually be relied upon for an 
 assured income and which give a sense of deep satisfaction to the investor. 
 
 No matter what the present circumstances may be, every young person should decide 
 to become, as soon as possible, an owner of investments. The lessons of thrift practiced 
 early in life are very important and have much to do with the future. If you keep the 
 investment idea before you as a desired goal, there is very little danger that you will ever 
 lack the necessities of life. 
 
 NOTE: This Talk is to be delivered 
 oa or before February 25, 1923, after 
 which it may be released for publication. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. In what sense is every one an investor.? 
 
 2. Who owns the railroads and other great corporations of the 
 
 country ? Explain. 
 
 3. What becomes of the income of all investors .'^ 
 
 4. How can you become an investor of money.? 
 
 5. Give the rules for safe investment. 
 
 6. Why are bankers specially qualified to give advice on investments? 
 
Outline for Talk No. 7A 
 
 OUR RELATIONS AND THE BANK'S RELATIONS 
 WITH THE REST OF THE WORLD 
 
 1. Foreign Trade 
 
 A. International exchange of goods 
 
 1. Examples 
 
 a. Tea and coflFee 
 
 b. Materials used in making telephone 
 
 c. Materials used in making shoes 
 
 d. Eskimo pies and player-pianos 
 
 (1) The increased demand for cocoa, after invention of Eskimo pies, re-established a 
 market for the cocoa of Ecuador, so that it was able to import player-pianos 
 
 2. American life dependent upon products from everj' continent 
 
 B. Importers and exporters 
 
 1. Traders who make it their business to buy tiie things produced in other countries, and to seU 
 other countries things produced in our country 
 
 II. Foreign Exchange 
 
 A. The use of the services of foreign departments of banks in settling international financial trans- 
 actions 
 
 B. Instruments used, bills of exchange and commercial letters of credit 
 
 1. Definition of a draft or bill of exchange 
 
 a. A written order or request from one person to another, desiring the latter to pay to 
 some person designated, a certain sum of money on account of the drawer 
 
 2. Each creditor paid in the coin of his country 
 
 a. Francs and centimes in France 
 
 b. Pounds sterling, killings and pence in England 
 
 c. Marks and pfennigs in Germany 
 
 d. Lire and centissimi in Italy, and so forth 
 
 3. All banks can make necessary arrangements for foreign payments through their relations 
 with large banks, which have branches and agencies throughout the civilized world 
 
 4. Daily advice received as to rates of exchange 
 
 a. Market value of our money in terms of other currencies 
 6. Many people having relatives in foreign countries send money by foreign draft which can 
 be secured at any bank 
 
 III. Depreciation of Some Foreign Currency 
 
 A. Russian rubles 
 
 1. Normal rate of exchange fifty cents each; August, 1922, several million for a dollar 
 
 B. German marks 
 
 1. Normal rate of exchange about twenty-five cents; August, 1922, 400 to 600 for a dollar 
 
 C. Cause of depreciation 
 
 1. No gold basis 
 
 IV. Travelers' Checks and Letters of Credit 
 
 A. Can be purchased at any bank 
 
 1. Make for safety in carrying money while traveling 
 
 V. Lesson of War 
 
 A. No country can live unto itself 
 
 B. Interdependence of all countries of globe 
 1. American money invested abroad 
 
 C. Our progress and prosperity dependent upon our intelligent dealing with all international rela- 
 tionships 
 
 VI. Historical Comment 
 
 A. Ancient money changers 
 
 1. The money changer in the temple at Jerusalem, exchanging coins for traders from Egypt, 
 Assyria, or Babylon, who desired to purchase goods at Jerusalem 
 
 B. Possible origin of bill of exchange 
 
 1. The Lombards 
 
 a. Originally lived in Italy 
 
 b. Leaders of foreign trade in middle ages 
 
 c. Carried actual money from country to country 
 
 d. Because of dangers of travel, a credit and ddbit system essential 
 
 e. Bill of exchange doubtless developed from some necessary form of request for payment 
 
 f. Traces of Lombards 
 
 (1) Lombard Street, London 
 
 (2) Three golden balls of the pawnbroker. 
 
 C Pound sterling the recognized standard of value in foreign trade 
 
 a. Due to position of Great Britain as the world's great trading nation 
 
 b. Since the war, dollar exchange recognized 
 
 Copyright, 1922. American Bankers Association 
 
Talk No. 7A 
 
 (See Alternate Talk No. 7B) 
 
 Public School Series 
 
 OUR RELATIONS AND THE BANK'S 
 
 RELATIONS WITH THE REST 
 
 OF THE WORLD 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 THE subject of my Talk today is Our Relations and the Bank's Relations With the 
 Rest of the World. I purpose to use only a few simple and familiar illustrations, 
 so that we can all readily understand what is meant by Foreign Trade and Foreign 
 Exchange. 
 
 Foreign Trade 
 
 Foreign Trade is the international exchange of goods, in our case, the selling of Amer- 
 ican products to the people of other countries, and the buying by Americans of the products 
 of other lands. In this country we use a great many more things that come from other 
 countries than most of us realize. Their use has become so common that we accept them 
 without thinking of our part in foreign trade. The most familiar illustrations of this are 
 tea and coffee and some of the sugar with which we sweeten them. Much of our tea comes 
 from the Far East — from China and Japan. Santos, Brazil, ships more than ten million 
 bags of coifee every year, eight millions of which come to the United States. A full bag 
 weighs 137 pounds, which gives you an idea of how much coffee we drink. 
 
 Let us take two other simple and familiar illustrations, shoes and telephones. We all 
 wear shoes, and every one here has used a telephone. No doubt, shoes have been worn ever 
 since human beings walked on two feet. The telephone, however, was invented by an 
 American, only a few years ago. The inventor died very recently, and was then only 75 
 years old. 
 
 Most shoes are made chiefly of leather, but there are other materials in them with which 
 you are not so familiar. You probably take it for granted that the shoes you wear are 
 made wholly of American materials. Because they are made in this country, you naturally 
 believe them better than any other shoes in the world, which is quite right. You will be 
 surprised to learn of the variety of materials that go into your shoes, and the number of 
 countries that supply these materials. We know that a great many cattle and horses are 
 raised in this country, the hides of which are finally tanned and made into leather, and that 
 much of this leather is used in the manufacture of shoes. But not all the leather for shoes 
 manufactured in this country is made from the hides of cattle and horses raised here. Our 
 shoemaking industry has grown so^great that our tanners and leather makers are buying 
 hides and skins in almost every country of the world. 
 
 Copyright, 1922, American Bankers Association 
 
Every good shoe has a sole made of heavy leather, called sole leather. The best sole 
 leather comes from the hides of steers raised in the southwestern part of the United States, 
 particularly in Texas, and also in the Argentine Republic. Less than half of the sole leather 
 used by our shoe manufacturers is made of American hides. The hides which are bought in 
 Argentina form a part of our foreign trade. The soles of your shoes may have been made 
 from foreign-raised hides. You will thus see that foreign trade touches every man, woman, 
 and child in the United States. 
 
 A study of a high-grade patent leather shoe, such as girls wear to parties, developed 
 further interesting facts. The vamp of this shoe was made of horsehide from Russia. Some 
 of you may be wearing Cordovan shoes. The vamp of these shoes is also usually made of 
 horsehide, which may come from almost any part of the world, — little coming from Russia 
 now, because of the ruin of its foreign trade, and that is one of the big reasons for the 
 terrible suffering of the Russian people. 
 
 While the Russian horsehide that made the vamp of the patent leather shoe was tanned 
 in the United States, the chemical substance called bichromate of potash, used in the tanning, 
 was produced chiefly in Germany. The soft top of the shoe was made of goatskin which was 
 produced in India, in South America, or possibly in China. Since few goats are raised in the 
 United States, we import many of the millions of goatskins used by our shoe makers. Then, 
 we noticed that the shoe had an especially fine, soft tongue. This was made from the skin of 
 the kangaroo, raised in Australia. 
 
 Into that patent leather shoe have gone materials from Asia, Australia, South America, 
 Europe, and the United States. Africa furnished the gums that went into the combination 
 used in the brilliant black polish of the patent leather. That composition contained Amer- 
 ican lampblack and turpentine, amber from the shores of the Baltic Sea, sandarac (resin) 
 from Africa, divi-divi (a plant containing tannic acid) from Borneo, and tragacanth (a 
 mucilaginous substance) from Persia. 
 
 A man's shoe has a broad, solid heel, usually made of leather from the tough hides of 
 water buffalo, which are the chief beasts of burden in India, the Philippines, and other 
 tropical countries of the Far East. The lifts, or layers, of such heels are fastened together 
 with nails made from steel, in which manganese from Brazil or India is an essential part. 
 Another nail used in shoemaking is made out of the soft, tough iron produced in Sweden, 
 mined with machinery made in the United States. 
 
 The vamp of the patent leather shoe that we have been examining was sewed to the 
 welt with linen thread. Before the war, the linen was made from flax grown in Russia and 
 spun in Scotland. The welt was cemented to the edge of the sole with a composition in 
 which rubber fxom either Brazil or the Malay Peninsula formed a part. 
 
 Most shoes have an inside lining. American cotton furnished the twill for the lining 
 of the patent leather shoe. The products of half a dozen of our states were used in pre- 
 paring it. One does not think of wheat as supplying an essential part of shoes, but the 
 paste used by the shoemaker is made partly from wheat flour. The stitching silk came 
 from China, and Chinese silk was used in weaving the label that carried the maker's name. 
 
 There was nothing unusual in the makeup of that shoe. Yet, it had in it materials 
 from every continent on the globe, and from several of the countries of some of the con- 
 tinents, as well as something from many of our states. The girl who wore this shoe to 
 her party, probably knew nothing of its foreign trade romance. 
 
 We spoke also of the telephone as an illustration of foreign trade. This handy little 
 instrument which enables you to talk to any of your friends whenever you wish, also con- 
 tains materials from every continent on the globe. 
 
 How many of you know what connection there is between an Eskimo Pie, and the export 
 trade in player pianos? There is a clear and close connection. It is this. Eskimo Pie, as 
 
you know, is a slab of ice cream covered with chocolate. Chocolate is made from cocoa. 
 Ecuador, in South America, is the chief producer of cocoa in the world. Just before 
 Eskimo Pie appeared in the United States, Ecuador was having a great deal of trouble, 
 because the market for cocoa was over-supplied. The price of cocoa was so low that the 
 cocoa-raisers in Ecuador could not get enough money for their product to enable them to 
 buy what they wanted. The Eskimo Pie supplied a new use for cocoa, and as it immediately 
 became very popular, millions of Eskimo Pies were eaten in this country. As this increased 
 the demand for cocoa, Ecuador was able to increase the sale of her chief product, and to 
 get a better price for it. Consequently, her producers were able to resume buying the 
 things they needed, or wanted, one of which was player pianos. The invention of Eskimo 
 Pie in the United States actually improved the export of American-made player pianos to 
 Ecuador. It improved other lines of export trade at the same time. 
 
 You have now seen how important is our foreign trade. Our life has become so highly 
 developed, that we are dependent upon the products of every continent, for many of our 
 ordinary conveniences, for the food we eat, and for the clothing we wear. But there is another 
 side to foreign trade. Since we need and want certain things that come from other countries, 
 there are traders among us who give their time and attention to getting these things for 
 us. They buy and import goods, so that every year they have a large bill to pay for 
 thousands of articles that come from all corners of the globe, from the wilderness, from 
 the desert, from icy barren wastes, from the depths of the sea, and from centers of popula- 
 tion and civilization. 
 
 Foreign Exchange 
 
 How do they pay these bills? In a very simple and easy way. They really settle their 
 obligations by paying with the things produced in this country, which the people of other 
 lands need and want. Just as we buy and use the things they produce, and we do not; they 
 buy and use things that we produce. Each country produces those things for which it has 
 natural products, called raw materials, such as the tea and coffee I spoke of in the begin- 
 ning; such as the cotton that forms so large a part of the production of our southern 
 states ; such as the rubber of Brazil and the Far East, and a long list of other things. 
 You will see from what I have said that our Imports are paid for, in part, by our exports. 
 
 When we say that people in distant lands pay with things produced in their country, we 
 do not mean, of course, that the man in Alabama who produces the cotton which is sold in 
 Spain, or in England, or in Japan, or in some other foreign country, actually gets his pay 
 in the product of one of these countries. He does not have to take Japanese silk, or Spanish 
 olive oil, or English cutlery, for his cotton. He is paid in money, American money, and is 
 able to buy with American money, many things produced in other countries. Just so, the 
 man, let us say, in England, who buys Alabama cotton pays for it in English money, and 
 also sells his cutlery, which is exported to the United States, for English money, that is, 
 pounds sterling, shillings, and pence. 
 
 Here is where the bank dealing in foreign exchange serves us. All these financial trans- 
 actions are conducted with the help of the foreign departments of banks, by bills of exchange 
 or commercial letters of credit. Each producer, or trader, receives payment for his goods 
 in the coin of his country, francs and centimes in France, marks and pfennigs in Germany, 
 lire and centissimi, in Italy, and so forth. Even our smaller banks which have no foreign 
 departments can help make all necessary arrangements for foreign payments of money, 
 through their relations with the large city banks. These large banks, some of which have 
 branches and agencies in all parts of the civilizi'd world, receive advice every day as to the 
 market value of our money in terms of the money of any other country. We call this 
 valuation the rate of exchange. For example, your bank can know any day the exact 
 number of French francs, or Italian lire, or any other currency which you can get for a 
 
dollar. If you wish to send $5, let us say, to some one in Paris, all you have to do is 
 go to the bank, and buy a draft. A foreign draft is a bank's order on its foreign corre- 
 spondent "to pay." The banker will draw the draft upon a correspondent bank in Paris, 
 perhaps the Credit Lyonnaise. He will look up the number of francs and centimes you 
 can receive for $5 that day, and fill out the draft which asks the Credit Lyonnaise to pay 
 that number of francs and centimes to the person or company to whom you wish the money 
 sent. Many people, who have relatives in foreign countries, send them money in this way. 
 This is the way practically all money is sent abroad or is received from abroad. Imports to 
 this country are paid for by foreign drafts drawn on banks in the countries from which we 
 buy goods, just as exports are paid for by drafts drawn on banks in this country. 
 
 Depreciation of Some Foreign Currency 
 
 During the war this system of sending money abroad was broken down entirely between 
 certain nations. Enemy nations do not recognize the obligations of each other. Therefore, 
 there remained no basis of mutual confidence. Even today there are certain nations whose 
 currency values vary so widely from week to week, and even from day to day, that it is im- 
 possible to deal with them. The paper money of some European countries no longer rests 
 on a satisfactory gold basis, and is worth less than the paper upon which it is printed. 
 Russian rubles, that in 1914 were worth about fifty cents each, now have a value of several 
 million to the dollar. The German mark and the Austrian krone are also very unstable. It 
 is possible to get great quantities of them in exchange for American dollars, because the 
 value of our dollar is based on a strong reserve of gold. . 
 
 Traveler's Checks and Letters of Credit 
 
 The present system of foreign exchange enables people who wish to travel to purchase 
 and take with them into any other country foreign drafts, traveler's checks, or traveler's 
 letters of credit, and exchange these into the money of that country. All banks supply them 
 to their customers. As people are travelling more and more, our banks are constantly being 
 brought into direct contact with the rest of the world. 
 
 The Lesson of the War 
 
 The late war brought home to us the lesson that no country in these modern times 
 "liveth unto itself." In view of the billions of dollars of American wealth now invested in 
 the bonds of European, Asiatic, and South American countries, and the large amount of 
 trade it is necessary for us to conduct with these countries, you will see that we must have 
 an intimate concern in all that enters into commerce between nations. Our future progress 
 depends largely upon the manner in which we deal with these relationships. 
 
 Note: This Talk is to be delivered on 
 or before March 25, 1923, after which 
 it may be released for publication. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. What do we call the process of exchanging the money of different 
 
 countries ? 
 
 2. What references are made in the Bible to this process .f* 
 
 3. Who were the Lombards .f* 
 
 4. Why has English money been* largely used as a standard of value.'* 
 
 5. How do banks send money abroad.'* 
 
 6. What use is made of traveler's checks and letters of credit.? 
 
Outline for Talk No. 7B 
 
 THE RELATIONSHIP BETWEEN 
 FARMER AND BANKER 
 
 I. Banks Encourage Scientific Methods • 
 
 A. By studying the farmer's problems 
 
 B. By demonstrating and distributing of facts developed by colleges of agriculture 
 and departments of agriculture 
 
 C. By helping to secure good roads and better rural education 
 
 D. By cooperating with county farm agent 
 
 1. In aiding in the establishment and financing of county farm bureaus 
 
 2. In helping to direct farmers and their families, in adopting more scientific 
 methods 
 
 3. In helping to finance seed shipments, improved farm plans, and the purchase 
 of pure bred stock 
 
 4. In aiding boys' and girls' agricultural clubs to secure pure bred stock, seed, 
 and so forth 
 
 6. In making bank center of enthusiasm and encouragement for continual com- 
 munity improvement 
 
 6. In promoting exhibits of farm products, both inside and outside of bank 
 building 
 
 E. By loaning money, and helping farmer to make greater success through better 
 farm management 
 
 F. By learning to know each customer personally, dealing with him frankly, and 
 understanding his problems and his needs 
 
 II. Bankers' Associations 
 
 A. American Bankers Association 
 
 1. Has important Agricultural Commission which conducts Banker-Farmer 
 magazine in interest of banker-farmer movement 
 
 2. Has aided in securing national laws for improved farm loan facihties and 
 marketing 
 
 3. Gives prominent place on program to discussion of agricultural problems 
 
 B. State Associations 
 
 1. Have agricultural committees 
 
 2. Cooperate with state departments of agriculture and agricultural colleges 
 III. Caution in Investing 
 
 A. Do not purchase stocks and bonds without understanding them fully 
 
 B. Before you invest — investigate 
 
 C. Consult your banker, who will give information and help. Get to know your 
 banker-neighbor. Maybe you'll like him. 
 
 Copyrlsbt, 1822, American Bankers Association 
 
Talk No. 7B 
 
 (See Alternate Talk No. 7A) 
 Public School Series 
 
 THE RELATIONSHIP BETWEEN 
 FARMER AND BANKER 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks- in short, to 
 all banking institutions having a commercial department. 
 
 THIS series of Talks on the work of the bank would not be complete unless it included 
 the Relationship of Farmer and Banker. Yet no one would claim that all banks and all 
 farmers are actively linked together. City banks, though lacking personal contact with 
 the farmer, are giving much thought and attention to the work of developing our farm re- 
 sources. Farmers are realizing more and more this genuine interest in their welfare. One of 
 the most important commissions of the American Bankers Association is the Agricultural 
 Commission. Much good must come from the cooperation of bankers who take a real interest 
 in rural welfare movements and of farmers who likewise are interested in all projects for the 
 betterment of farm life. 
 
 Awaking to Our Opportunities 
 
 Only within the last few decades has the truth been brought home to bankers, to farmers, 
 and to people in general that the nation's greatest single business opportunity is the improve- 
 ment of our farm methods and resources. Agricultural schools in the important agricultural 
 states have done much to show how larger returns are to be had from soil cultivation — facts, 
 which once demonstrated and understood, are bringing greater profit to the farmer. So many 
 fine results have followed the use of new methods on the farm, that no one longer doubts their 
 value. We all realize that even our best farming sections can be made to yield greater profits 
 through more scientific knowledge and handling. Bankers everywhere are striving to do what 
 they can to help farmers in their localities. They are trying to loan them the money they re- 
 quire, and, what is even more important, they are studying the farmers' problems, and are 
 taking an active part in all movements for the benefit of the farming community. 
 
 The Bank and the County Farm Agent 
 
 Out of the greater interest that has been developed in rural life in nearly all farming 
 sections, there have been established county farm bureaus. Banks have been glad to help, 
 and a great many of them contribute to the support of the county farm agent. Bankers are 
 working hand in hand with him for the good of the entire community, and are helping to direct 
 the farmer and his family, from the more or less narrow habits of former days, into the 
 broader, more scientific, and more satisfactory methods prevailing at the present time. The 
 banker may justly claim that he has with great effectiveness favored and supported the work 
 of the county agent. 
 
 Copyright, 1922, American Bankers Association 
 
The good resulting from the cooperation of the county agent and the banker can scarcel}- 
 be estimated. If the farmers of a certain section desire pure-bred stock, cash capital is 
 needed to buy in carload lots. If the project has the sanction of the county agent, the banker 
 usually relies on his recommendation, and stands ready to handle the financial end. In this 
 manner also, the banker helps to provide boys' and girls' pig clubs, calf clubs, and other sim- 
 ilar associations, with pure-bred livestock. Membership in the boys' and girls' clubs in 1914 
 was 23,000, while in 1922 the total membership was 600,000. The increased farm production 
 credited to these clubs is almost incredible. For instance, the average yield per acre in the 
 United States is 31 bushels of com and 115 bushels of potatoes. The boys' and girls' clubs 
 forced a yield in 1921 of 60 bushels of corn, and 179 bushels of potatoes per acre. These fig- 
 ures mean almost double the production of corn, and seventy-five per cent greater yield of po- 
 \ tatoes. This increased yield made by the clubs comes at a time when the United States faces 
 
 the problem of an average lower yield per acre in all farm products than that of farming 
 countries of Europe and South America. 
 
 Another purpose of these clubs is to improve the quality of farm animals until "scrubs" 
 shall disappear from American farms, and in their stead shall appear farm animals in which 
 the owner can find satisfaction and profit. 
 
 This same banking support is back of much of the work of the county agent. Often a 
 farmer feels that he should be using improved methods in raising his crops and in operating 
 his farm, but realizes that he must have money in order to develop his plans. The bank is al- 
 ways ready to consider granting him a loan, especially if the county agent approves the plans. 
 In hundreds of cases this contact of the banker, the farmer, and the county agent has reacted 
 to the advantage of each of them, and to the community as well. The willingness of the bank 
 to help in financing every sound business enterprise of the community is here demonstrated in 
 the aid extended the farmer. 
 
 Rural banks are deeply interested in exhibits of farm products. Displays of this sort, 
 generally conducted with the help of the county agent, tend to arouse keen rivalry among 
 farmers who, of course, are proud to receive credit and recognition for good results obtained. 
 Many banks throughout the country hold such exhibits in their own banking rooms. Thus 
 people living on the farm become familiar with the bank's interest in what the farmer is doing. 
 It has been said that with the bankers and other business men continuing their support of the 
 county agent, another ten years will witness great advancement in all that relates to rural 
 life. 
 
 What Bankers' Associations Are Doing 
 
 In nearly all meetings of bankers, we find a prominent place given on each program to 
 the discussion of questions of better agricultural methods and more favorable conditions of 
 rural life. For years the American Bankers Association thyough its Agricultural Commission 
 has been expending time, effort, and money in carrying forward tliis great movement. Since 
 1913 it has been publishing a magazine called the Banker-Farmer, the purpose of which is to 
 suggest ways in which the banker can aid the farmer. Banks receive this magazine each 
 month, and so are kept in touch with what others are doing. The leaven is working. Each 
 year a greater number of bankers become interested in studying the banker-farmer relation- 
 ship, and new banker-farmer projects are developed. Likewise, state bankers' associations 
 have their agricultural committees which cooperate very effectively with state departments of 
 agriculture, and with agricultural colleges in promoting state-wide agricultural projects. 
 Partly by reason of the influence of the American Bankers Association we have national laws 
 affording farmers improved facilities for making farm loans, and for marketing their products. 
 The banker's influence has also helped in securing improved roads, better rural education and 
 so forth. Underlying all this activity is the economic truth that upon the welfare of the 
 farmer rests national prosperity. 
 
n 
 
 Personal Contact 
 
 In farming sections the banker and the farmer are in close personal contact. They believe 
 in each other and are perfectly frank about their desire to work together. It pays the farmer 
 to talk over his business affairs with his banker, and it pays the banker to be in the confidence 
 of his customer. 
 
 One difficulty is that many farmers do not like to borrow monej* They shrink from the 
 idea of contracting a debt of any kind. There are times, however, when greater profits are 
 made possible through the use of borrowed money. Those who are putting business manage- 
 ment into their farming go directly to their banker for his help in determining the solution of 
 money questions. The plan of "borrowing for profits" prevails in all commercial lines, and 
 many farmers mark the beginning of their larger success from the time when they were first 
 willing to incur a debt. It pays the banker to help make the farmer more prosperous, and 
 both can work to greater advantage under relations of perfect frankness and mutual friendli- 
 ness. The usual way to start such a relationship is by means of a savings or checking account. 
 Every banker wants to know his depositors personally in order to respond to their business 
 needs more efficiently. Personal contact always counts. 
 
 Banking Along Broader Lines 
 
 There is a time-honored idea that the typical banker is a man dealing in dollars who has 
 no human interests, although he may, now and then, be persuaded to grant a small loan. In 
 the olden days there were, it is true, some bankers who felt that the only satisfactory way to 
 conduct the banking business was to have all borrowers make their approach with fear and 
 trembling. Perhaps such a banker could be discovered somewhere today, if a long enough 
 search were made. The modern bank is everywhere operated on the principle that it helps 
 itself only when it helps others. The bank customer worthy of the name need never contend 
 with any coldness, or holding at arm's length, on the part of the banker. The bank that ren- 
 ders the same financial service to each patron gets the business 
 
 In hundreds of rural sections, banks have started in business where conditions at first 
 held out very little promise of prosperity. The men at the head of such banks have been leaders 
 in their communities in bringing the farmer to see the great advantage of good farm stock, 
 good farm buildings, crop rotation, and comfortable home surroundings. In the state of 
 Pennsylvania, before the days of farm bureaus, one entire county was made prosperous by a 
 splendid dairying enterprise, developed under the direction of a progressive bank. 
 
 The message that needs to find its way into the home of every farmer in America is that 
 the banks of America are learning how to cooperate with the farmer. There still remains 
 much to be accomplished, but through cooperation we are making headway towards greater 
 achievements in farming, achievements which will eventually reveal the "Acres of Diamonds" 
 which surround us on every hand. 
 
 Caution in the Purchase of Investments 
 
 I would not feel justified in closing this Talk without uttering a word of caution regarding 
 the purchase by the farmer of stocks and bond s. Do not purchase stocks or bonds with which 
 you are not entirely familiar, or without consulting your banker. In other words, BEFORE 
 YOU INVEST, . INVESTIGATE. 
 
 Note: In order to make this Talk as 
 effective as possible, reference should be 
 made to specific kinds of co-operative 
 agricultural work being done in each 
 local community. 
 
 Note: This Talk is to be delivered 
 
 on or before March 25, 1923, after 
 
 which it may be released for publica- 
 tion. 
 
Talk No. 7B 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. Tell something about state agricultural colleges. How do they 
 
 help the farming industry? 
 
 2. What is the purpose of the county farm agent? 
 
 3. How does the bank aid the county farm agent? 
 
 4. Explain the attitude of bankers' associations toward improved 
 
 agriculture. 
 
 5. Why do banks want to help the farmer in every way they can? 
 
 6. What about the results of personal contact between banker and 
 
 farmer ? 
 
Outline for Talk No. 8 
 THE FEDERAL RESERVE SYSTEM 
 
 I. Banking a System 
 
 A. Contrast of banking system with various business organizations 
 
 1. Telephone compajiies 
 
 a. Interdependent organizatioas 
 
 2. Chain stores 
 
 a. Individual organizations, governed and supplied from one source 
 
 II. Banking in the United States before the Establishment of the Federal Reserve Systan 
 
 A. Banks independent 
 L Advantages 
 
 a. This form fundamentally suited to our democratic ideal 
 
 b. Each bank a unit dealing in credits through loans and discounts 
 2 Disadvantages 
 
 a. No centralized organization 
 
 b. Legal reserve required under law reduced bank's loaning capacity 
 
 (1) Comparison with situation in small town with water supply from wells or cisterns 
 
 c. Currency not flexible 
 
 d. Stability of bank endangered in time of money stringency 
 
 B. Contrast of our banking system with those of other countries 
 
 1. Canada 
 
 a. 17 joint stock banks with 8^00 branches 
 
 2. Great Britain 
 
 a. 38 joint stock banks with 9,500 branches 
 
 III. Banking in the United States under the Federal Reserve System 
 
 A. Origin of System 
 
 1. The panic of 1907 made clear the need of a new banking system 
 
 2. The present Federal Reserve system established by Act of Congress in 1914 
 
 B. Purpose of System 
 
 1. An eflFort to combine the advantages of 
 
 a. Centralized business organization 
 
 b. Branch banking system 
 
 c. Independent banking system 
 
 C. Organization of System 
 
 1. Banks still independent units with local oflScers and directors 
 
 2. Federal Reserve banks 
 
 a. Located in twelve cities so as to supply all member banks in district with adequate 
 service 
 
 b. Governed by board of directors 
 
 (1) Six elected by member banks, three appointed by Federal Reserve Board 
 
 c. Supervised by Federal Reserve Board 
 
 (1) Appointed by the President of the United States 
 
 d. All stock held by member banks 
 
 D. Function of Federal Reserve banks 
 
 1. Cash reserves of member banks held 
 
 a. Comparison may be made with reservoir holding adequate water supply for a town 
 
 2. Loans made to member banks when necessary 
 
 a. Loaning capacity of member banks increased by ability to rediscount at Federal Re- 
 serve banks 
 8. A flexible currency provided 
 
 a. New currency issued 
 
 (1) Put out by demand 
 
 (2) Returned automatically when demand ceases 
 
 b. Old currency redeemed 
 
 4. Checks for member banks collected 
 
 a. A saving in time 
 
 (1) Time cut in half 
 
 b. A saving in expense 
 
 (1) No collection charge 
 6. Federal Reserve banks the fiscal agents for the Government 
 
 a. Bond issues handled 
 
 (1) Liberty bonds, and so forth 
 
 b. Three functions of sub-treasuries taken over 
 
 (1) The supplying of currency and coin 
 
 (2) The redemption of currency and coin 
 (8) The cashing of Government checks 
 
 Coprrlght, 1922, American Bankers Association 
 
Talk No. 8 
 Public School Series 
 
 THE FEDERAL RESERVE SYSTEM 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers ahke to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 THE Talks already given have treated principally of the relation of each person to 
 the local bank or banks in his community. We have learned that the bank 
 receives our money on deposit and loans out part of it to those in need of funds 
 to conduct their business. When we make a deposit or secure a loan from the bank, the 
 transaction is evidenced either by a credit on the books of the local bank, or by the execu- 
 tion of a "credit instrument," such as a note, a mortgage, or a trade acceptance. The 
 business of the bank is, therefore, a matter of credits. We have seen also that the local 
 bank is always required to keep a reserve on hand in proportion to its credits or deposits, 
 so as to be ready to meet the demands of those who desire to draw out money. 
 
 Bankings a System 
 
 Today, however, our subject treats of the relation of each local bank to our present 
 banking system. Just as a local telephone station is valuable to you and to me, because 
 it belongs to a telephone system whose wires reach to all parts of the nation, so the local 
 bank is valuable because of its connections with other banks in the United States. We 
 cannot thoroughly understand the work of the bank by merely watching its local opera- 
 tion, any more than we can understand the telephone by so doing. Like the telephone, the 
 local bank finds its strength and its usefulness only because it is part of a system. It is 
 true that we had a banking system before the Federal Reserve System came into being. 
 Even now not all banks or trust companies are members. Every one, however, realizes that 
 the Federal Reserve System is today the chief cornerstone in the banking business of America. 
 
 Importance of Reserves 
 
 A vital element in banking is the question of the bank's reserve. Money on deposit 
 must always be ready for depositors when they desire it. In like manner, the bank must 
 be ready to do its part towards loaning money, whenever needed, to its customers. Other- 
 wise, the business of the community is hampered. In other words, all prosperity depends 
 largely on bank RESERVES. The problem of handling our reserves has been difficult to 
 solve. Let us now consider briefly the results attained under the Federal Reserve System. 
 
 Development of Banking in the United States 
 
 First, in order to understand the difference between banking and other business, let 
 us go down town to shop, or to visit the ice cream parlor or the post office. You notice 
 
 Copyright, 1922, American Bankers Association 
 
several dignified offices with bronze signs reading, First National Bank, Peoples State Bank, 
 Citizens Trust Company, or something of the kind. Since you have been having talks on 
 the subject of banking, you know that these are banks, and you know something of what 
 they do. You also know that each of these banks is managed by its own officers and direc- 
 tors, elected by its own stockholders, and that these men are practically all of them residents 
 of our town, and have grown up with it. They are interested in helping the town to grow, 
 and in making it prosperous because it is their home town. 
 
 The banks in our town are just like those in thousands of other cities in the United 
 States. I wonder if you realize that there are in our country over 30,000 banks (Dot map) 
 all operated independently like those here at home. Many other lines of business have, 
 during the past twenty-five years, organized on nation-wide lines, as for example, the tele- 
 phone companies, of which we have spoken earlier in the Talk, the great steel companies, 
 and merchandising organizations with branches in many cities, such as the five and ten cent 
 stores, chain groceries, chain cigar stores, and the like. You know when you see one of these 
 stores, that it is part of a great organization owning similar stores in many towns. When 
 you take a trip, however, and see First National Bank signs in different towns, you must not 
 think that they are branches of the same bank. They are separate and independent banks. 
 
 / 
 
 Comparison with Foreign Banking Systems 
 
 Ours is the only important country in the world which has such a system of independent 
 banks. Fundamentally, a system of this sort suits our ideal of democratic organization. 
 How greatly our banking system differs in this respect from the systems of other countries, 
 you will understand when I tell you that Canada has only 17 banks, but these 17 banks 
 have 3,500 branches, and that Great Britain has only 38 joint stock banks, with 9,500 
 branches. These branch systems are strong and develop bankers of great skill. Our dis- 
 tinctly American system, on the other hand, has certain advantages which have led our 
 people to prefer it to a branch banking system like those of other countries. 
 
 Defects in Former System 
 
 For many years, however, it has been recognized that we lacked certain advantages 
 which are obtainable through branch banking. A plan was sought whereby these could be 
 obtained by having our thousands of separate and independent banks get together and co- 
 operate for the improvement of our banking system, and for mutual protection in emer- 
 gencies, for themselves and for the customers they serve. Business men and bankers recog- 
 nized that we had periodical money panics, disturbing to business, and chargeable, in large 
 part, to defects in our banking and currency system. There was no central bank from which 
 the individual banks could get assistance in time of trouble, no flexible means of adjusting 
 the amoimt of money in the country to the varying needs of business. Consequently, panic 
 conditions caused weak banks to fail,^ and even strong and sound institutions to be endan- 
 gered by the general lack of confidence. When the people of a community lose confidence in 
 their bank, it is a serious matter for every one. In 1907, an especially severe panic occurred, 
 and led bankers, business men, and leaders in Congress to make a careful study of banking 
 practice in other countries. The result was that seven years later Congress passed a law 
 providing for the establishment of twelve great Federal Reserve Banks, each designed to serve 
 as a sort of central bank for such banks in its allotted territory as might become members 
 of the Federal Reserve System. 
 
 Development of Federal Reserve System 
 
 Now let us examine the general outlines of this new system. It began to operate at 
 an opportune time — the fall of 1914, shortly after war broke out in Europe. There was 
 
retained, as before, our American system of independent banks doing business under the 
 management of the same local directors and officers. About 10,000 banks have become mem- 
 bers of the Federal Reserve System, and thus acquired the services of the Federal Reserve 
 banks. The member banks own the entire stock of the Federal Reserve banks, and elect two- 
 thirds or six out of the nine members of the board of directors by which each Federal Re- 
 serve bank is operated. The other three directors are appointed by the Federal Reserve 
 Board at Washington, which is the Governmental body having supervision over the Federal 
 Reserve banks, though it does not operate them. The members of the Federal Reserve Board 
 are appointed by the President of the United States. 
 
 Functions of Federal Reserve Banks 
 
 Now you will want to know what the Federal Reserve Banks do. That we will take up 
 now under five headings. 
 
 1. They hold member banks' reserves. 
 
 They hold member banks' reserves amounting to about $1,800,000,000. Before we had 
 a Federal Reserve System, each bank carried in its own vault the amount of cash required by 
 law to be held as a legal reserve, that is, ready to pay depositors on demand. The really 
 huge gold supply of the country was thus scattered among the thousands of independent 
 banks, each holding a relatively small amount to which it was obliged as a matter of self- 
 preservation to cling tightly. This method of banking may be likened to the old-time method 
 of obtaining a water supply in a town or village. Each house had to depend on its individual 
 well, or tank, or cistern. Picture to yourself such a town afflicted by a great conflagration. 
 Imagine the inadequacy of such a water supply under such a catastrophe. Also picture that 
 same town grown into a big city. When the water became low in one well, from drought, or 
 excessive use, water would have to be borrowed from the neighboring well. It is probable that 
 the water in that well also was at a low level. Thus the safety of all was threatened because 
 no RESERVE water supply was at hand. Our country has grown rapidly in population and 
 even more rapidly in industrial activity. The banking facilities which were sufficient for earlier 
 days and simpler organization, have needed something to adjust them to the growing busi- 
 ness of the nation. Under the Federal Reserve System, we have a series of modern reservoirs, 
 located in various parts of the country, each serving the needs of the banks in its own district. 
 In each of these reservoirs credit is stored up to be supplied to the various banks, as the need 
 arises. Each reservoir is in turn connected with all the others so that when the supply in 
 one becomes low, the others may be temporarily drawn upon. By gathering the gold reserves 
 of the member banks into the twelve Federal Reserve banks, a result has been obtained like 
 that yielded by the construction of a great water supply, for a power plant, an irrigation 
 system, or a city. The Federal Reserve banks now hold over three billion dollars of gold, 
 the greatest reserve fund ever accumulated, and are strong enough to meet any conceivable 
 demands for gold, for foreign exports, for domestic withdrawals, or for loan expansion. 
 
 2. They loan to member banks. 
 
 The Federal Reserve banks make loans to the member banks. Each member bank for- 
 merly had to depend almost entirely upon its own resources in making loans to its customers. 
 When it had loaned all of its own money, it could do no more, even though the merchant, 
 manufacturer, or farmer customer had great need of more credit, and was seeking it for 
 highly important and necessary purposes. Hence arose what was called a "tight money" 
 situation. Now the member bank can, and frequently does take thp notes of its customers to 
 the Federal Reserve bank, and borrows there in much the same way as the customer borrows 
 from the member bank. The Federal Reserve banks have loaned to their member banks and to 
 the Government as high as $3,400,000,000, and they are now loaning about $1,000,000,000 
 
(August, 1922). The member banks borrow at the Federal Reserve bank when diey need 
 money to assist in moving crops, or for similar purposes, and in emergencies, and pay up 
 when the demand has passed. 
 
 3. They issue currency. 
 
 The Federal Reserve banks issue currency. A large part of the bills which are in peo- 
 ple's purses are Federal Reserve notes. They are secured by pledge to the Government of the 
 borrowers' notes on which the member banks have borrowed from the Reserve banks. The 
 bank notes go into the hands of the public when activities of business and agriculture create 
 a need for more money in circulation, and go back automatically when the need has passed. 
 The largest amount outstanding was about $3,400,000,000 in December, 1920, and the amount 
 out at the present time (August, 1922) is about $2,100,000,000. From these figures it is plain 
 that we now have a flexible system of currency issue. The privilege of note issue is regarded as 
 of great value. The Government, accordingly, collects from the Reserve banks all of their 
 earnings over a certain amount, as a franchise tax, that is, a tax designed to compensate the 
 Government for granting the note issue and other powers. The Reserve banks have to date 
 (1922) paid to the Government in this way $124,500,000. 
 
 4. They collect checks. 
 
 The Federal Reserve banks act as check collection agencies for their member banks. We 
 in the United States are the greatest users of bank checks in the world. To assist member 
 banks in the collection of checks, the Federal Reserve banks have established a country-wide 
 system of check collection, and collect checks on over 28,000 banks. This collection system 
 has reduced by at least one-half the average time required for collection of checks. You may 
 gain some idea of the importance of its operations when you know that the Federal Reserve 
 banks handle each month about fifty million checks amounting to about twelve billion dollars, 
 with tremendous saving in time and expense. 
 
 5. They act as agents for the Government. 
 
 During the war, the Government appointed the Federal Reserve banks its fiscal agents, 
 and, as you remember, they were the agencies which handled the sale and distribution of 
 twenty-one billion dollars of Liberty bonds, and thirty-six billion dollars of short term cer- 
 tificates of indebtedness. The Reserve banks still act for the Government in matters of this 
 kind, and have also taken over the duties of the former subtreasuries in supplying currency 
 and coin, cashing Government checks, and similar operations. Their usefulness to the Gov- 
 ernment along these lines has been and is very great ; for without such an agency, the handling 
 of the great financial transactions during and since the war would have been extremely difficult, 
 if not impossible. 
 
 NOTE: This Talk is to be delivered 
 on or before April 25, 1923, after which 
 it may be released for publication. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. What is the main purpose of the Federal Reserve System.? 
 
 2. Who owns the capital stock of Federal Reserve banks? 
 
 3. Explain how Federal Reserve banks act as a "reservoir" of credit. 
 
 4. When the local bank needs money for its customers, how does the 
 
 Federal Reserve bank supply it.'* 
 
 5. What is the effect of combining the bank reserves of the country 
 
 under the Federal Reserve System.? 
 
Outline for Talk No. 9 
 ANALYSIS OF SIMPLE BANK STATEMENT 
 
 I. The Bank Statement 
 
 A. Bank statement based on examination 
 
 1. By State Bank Examiner, if state bank 
 
 2. By National Bank Examiner, if national bank 
 
 3. By Federal Reserve Bank Examiner, if member of Federal Reserve System 
 
 4. By Clearing House Examiner, if a member of a clearing house association 
 6. By bank's auditor 
 
 B. Bank statement required under law to be published 
 
 1. In local newspapers 
 
 2. At stated times 
 
 3. To give general public knowledge of progress and standing 
 
 C. Simple bank statement analyzed 
 
 1. Resources or assets (what a bank OWNS) 
 
 a. Cash on hand and due from banks 
 
 (1) Cash in vault 
 
 (2) Cash on deposit with correspondent banks 
 
 (3) Cash on deposit with Federal Reserve bank 
 
 b. Loans and discounts 
 
 (1) Interest from loans the chief source of bank's earnings 
 
 c. U. S. bonds to secure circulation 
 
 (1) Bonds owned by bank but deposited with Treasurer of the United 
 States as long as any circulating notes are outstanding 
 
 (2) Profit from issue of circulating notes 
 
 d. Redemption fund 
 
 e. Bonds and other securities 
 
 (1) Interest from investments an important source of bank's earnings 
 
 f. Banking house 
 
 g. Stock in Federal Reserve bank 
 
 (1) Amount of stock owned in Federal Reserve bank must equal 6% 
 of capital and surplus of member bank 
 
 2. Liabilities (what a bank OWES) 
 
 a. Capital stock 
 
 (1) A guaranty fund for protection of depositors 
 
 b. Surplus fund 
 
 (1) A safeguard to capital of bank 
 
 (a) In case of loss, this fund used first 
 
 (2) An additional protection to depositors 
 
 c. Undivided profits 
 
 d. Demand and time deposits 
 
 e. Rediscounts and money borrowed 
 
 (1) First-class commercial paper rediscsunted 
 
 (2) Money borrowed from Federal Reserve bank 
 f. Reserves for taxes and interest 
 
 ( 1 ) Proportionate amounts to cover these items set aside monthly 
 
 g. Circulation 
 
 (1) Effects only national banks 
 
 II. Historical Comment 
 
 A. Private banking: before public control 
 
 B. State or national charters 
 
 C. The belief that the public has the right to the protection of its funds 
 
 Copyright, 1922, American Bankers Association 
 
Talk No. 9 
 Public School Series 
 
 ANALYSIS OF A SIMPLE BANK 
 
 STATEMENT 
 
 ISSUED BY 
 
 Committee on Public Education 
 American Bankers Association 
 
 The word "Bank," wherever used, refers alike to trust 
 companies, state banks and national banks — in short, to 
 all banking institutions having a commercial department. 
 
 THE banker, as we already have learned, requires statements of his customer's business in 
 order to know his standing. In the same way, the law, because of the semi-public 
 nature of the banking business, requires all banks and trust companies to publish 
 "Statements of Condition," as shown by their books. The Comptroller of the Currency calls 
 for the statements of national banks, and the State Commissioner of Banking for those of state 
 institutions. Banks are required to publish their statements, which are usually called for five 
 or six times a year, in the newspapers of the community in which they do business. In this 
 way, the general public, is kept informed as to the bank's affairs. A statement of condition, as 
 in the case of the customer's statement, shows both the resources and liabilities of the bank. 
 The resources, as you know, consist of the cash and all other property which the bank OWNS, 
 the liabilities, of the amounts it OWES to depositors and stockholders. Total resources must 
 ugree with total liabilities. 
 
 A further examination of the bank is made by the Banking Department through its ex- 
 aminers. Bank examiners come to the bank unannounced. They may come at any time, any 
 day of the year. Banks must keep their records in such a way that the bank examiner who 
 has full authority to make complete examination of all records can easily verify them. His 
 official report is sent to the State Banking Department, if it is a state bank, or to the 
 National Banking Department, if it is a national bank. 
 
 Many banks also have their records audited monthly by their own auditors. Some states 
 require examination and report to the Banking Department of the bank's affairs by a com- 
 mittee of the board of directors. If the bank is a city bank and belongs to a clearing house 
 jissociation, it will be examined further by clearing house examiners. If a member of the Fed- 
 eral Reserve System, the bank will be examined annually by Federal Reserve bank examiners 
 j'Iso. These examinations are made to safeguard, in every possible way, the people's money. 
 Banks are required to conduct their business on the highest standards. If they fail to do so, 
 they will be criticized, and even closed by law. 
 
 Many people, who have only a scant knowledge of accounting, feel that they can not 
 understand a bank statement, and, therefore, pay no attention to it. This is a mistake. A 
 little explanation will help anybody to grasp the meaning of bank statements. Every person, 
 who has money on deposit, either in a savings or a checking account, should know the condition 
 of the bank in which the account is carried, and how its condition compares with that of other 
 banks. 
 
 I am going to give you a simple statement of a fair sized national bank (member of the 
 Federal Reserve System). The figures are taken from the books at the close of a day's busi- 
 ness. 
 
 Copyright. 1922, American Bankers Association 
 
/I 
 
 RESOURCES 
 (What the bank OWNS) 
 
 Cash on Hand and Due from Banks $212,462.69 
 
 Loans and Discounts 982,339.29 
 
 U. S. Bonds To Secure Circulation 25,000.00 
 
 Redemption Fund 1,250.00 
 
 Bonds and Other Securities 460,575.08 
 
 Banking House 35,000.00 
 
 Stock in Federal Reserve Bank 9,000.00 $1,725,627.06 
 
 LIABILITIES 
 
 (What the bank OWES) 
 
 Capital Stock $200,000.00 
 
 Surplus Fund 100,000.00 
 
 Undivided Profits 48,015.91 
 
 Demand and Time Deposits 1,200,654.80 
 
 Rediscounts and Money Borrowed 150,000.00 
 
 Reserves for Taxes and Interest: 1,956.35 
 
 Circulation 25,000.00 $1,725,627.06 
 
 Explanation of the Bank's Liabilities 
 
 To understand a bank statement, one must keep in mind that, for every dollar paid 
 to or deposited with the bank either by stockholders or customers, a record is made under 
 the heading of liabilities. Earnings of the bank are owed to the stockholders, and must 
 also be carried under liabilities. Though a deposit of money or other item is recorded as 
 a liability, because it is due to the depositor, the cash and checks making up that deposit 
 become an asset, or a resource, of the bank. Thus, when you deposit $500, the liabilities 
 of the bank are increased by that amount, and the money itself is counted among the bank's 
 resources. When the bank invests its money, the property bought likewise becomes a 
 resource. Let us first consider the bank's liabilities. 
 
 I. Capital Stock, $200,000. 
 
 If you recall our first Talk, you will remember that the capital stock is the amount 
 of money paid into the bank by its organizers who purchased its stock, and are, therefore, 
 the owners or stockholders. The item is carried as a liability, because the bank is indebted 
 to the stockholders for the money they have paid in. The capital stock cannot be with- 
 drawn by the stockholders as a deposit can, but stays in the business as a guaranty fund 
 for the depositors' protection. In the case of a bank's inability to pay its obligations, 
 this fund is used. In addition, the stockholders of the bank may be called upon for a like 
 amount, for stockholders in national banks, and, in many states, stockholders in state 
 banks, are held by law under a double liability. 
 
 II. Surplus Fund, $100,000. 
 
 A bank sets aside a certain proportion of its earnings in a fund called the surplus. 
 Should any losses occur, they are taken out of this fund first, so that the capital of the 
 bank will not be reduced. Then, too, the surplus is an additional safeguard and protection 
 for those who deposit their money in the bank. National banks are required to build up a 
 surplus to at least twenty per cent of the capital. Many banks accumulate a much larger 
 fund. The surplus belongs to the stockholders, but, like capital, it remains with the bank. 
 
 III. Undivided Profits, $48,015.91 
 
 Undivided profits also represent earnings of the bank which have not been distributed 
 in the form of dividends or added to the surplus fund, but which, like the capital and surplus, 
 are due to stockholders. The best managed banks do not pay out all of their earnings in 
 dividends. Their aim is to keep the undivided profits account growing, so that substantial 
 

 amounts, when earned, may be transferred to the surplus fund. The latter is changed only 
 at stated intervals, while the amount of undivided profits is changing daily as the earnings of 
 the bank change. 
 
 IV. Demand and Time Deposits, $1,200,654.80. 
 
 Demand and time deposits make up the amount which the bank owes to the persons, 
 firms, and corporations that are its depositors. The bulk of deposits of a commercial bank 
 are demand deposits, which may be checked out any time, but often a considerable amount 
 represents savings deposits, which, when left with the bank for stated periods, draw interest. 
 Accurate records are kept of all deposits and of all withdrawals. 
 
 V. Rediscounts and Money Borrowed, $150,000. 
 
 When the demands of borrowing customers exceed the amount of loanable funds a bank 
 has on hand, the bank may, if a member of the Federal Reserve System, borrow money 
 from the Federal Reserve bank of its district, . by pledging its securities, such as Liberty 
 bonds, or by rediscounting first class commercial paper, already discounted for its cus- 
 tomers. Such borrowings, of course, are the debts of the bank, and are, therefore, shown 
 as liabilities. 
 
 VI. Reserve for Taxes and Interest, $1,956.35. 
 
 As a bank's earnings accumulate, there are certain rather large items, such as taxes 
 and interest, payable by the bank each year, which it would be a mistake to carry under 
 the heading of undivided profits. Many banks set aside monthly the proportionate amounts 
 required to pay such items. In this way, the bank shows care and conservatism with regard 
 to its published figures. As taxes and interest are paid, deductions are made from the 
 amount held in reserve for the purpose. 
 
 VII. Circulation, $25,000. 
 
 State banks do not issue bank notes, but national banks have always had the privilege 
 of issuing their own bank notes under conditions prescribed by law. These notes circulate 
 as money, and are known as national bank notes. The national bank first buys United 
 States bonds of a face value equal to the amount of the Circulation it desires to issue, but 
 this amount may not exceed its capital. The bonds are placed in the keeping of the 
 Treasurer of the United States in order to insure redemption, that is, re-payment of the 
 circulating notes. These notes are the bank's promises to pay the sum of money indicated 
 on each note. On this account, the amount outstanding must be shown as a liability. 
 
 Explanation of the Bank's Resources 
 
 As I have stated, the items under the heading, Resources, include the various kinds 
 of property OWNED by the bank, and all debts due to it. 
 
 I. Cash on Hand and Due from Banks, $212,462.69. 
 
 Cash on hand and due from banks represents the actual cash held in the vaults of the 
 bank, together witli the money which the bank has on deposit with the Federal Reserve 
 bank and with conespondent banks. It may also include checks deposited for collection 
 which are drawn on other banks. This amount includes the required legal reserve explained 
 in a previous Talk. In the case of the banks which are members of the Federal Reserve 
 System the legal reserve is kept in the Federal Reserve bank of its district. Money is 
 deposited with correspondent banks usually for the purpose of paying drafts drawn on them. 
 
 II. Loans and Discounts, $982,339.29. 
 
 Loans made to responsible persons, firms, and corporations, against promissory notes, 
 either secured or unsecured, are entered under the heading, Loans and Discoiints. All loans 
 and discounts are passed upon by officers of the bank, whose chief concern in making a 
 loan is to see that it is well secured, either by the personal credit of the borrower, or by 
 adequate collateral. Interest from loans is the principal source of the bank's earnings. 
 
III. U. S. Bonds To Secure Circulation, $25,000. 
 
 As has been explained, these bonds are held by national banks to secure circulating 
 notes. A national bank is no longer required to buy and hold United States bonds unless 
 it wishes to issue circulating notes. As there is a small profit arising from it, most national 
 banks take out some circulation. The bonds are, of course, owned by the bank, but, under 
 the law, must be deposited with the Treasurer of the United States, as long as any circu- 
 lating notes are outstanding, 
 
 IV. Redemption Fund, $1,250. 
 
 When national bank notes become dirty and unfit for circulation, they are sent to the 
 United States Treasury for redemption, and the amount of the notes is charged to the 
 redemption fund. The bank pays the Treasury, and receives in return new crisp money 
 for the amount redeemed. The law requires each national bank to keep in the United States 
 Treasury a redemption fund of at least five per cent of its outstanding circulation. 
 
 V. Bonds and Other Securities, $460,575.08. 
 
 Most banks invest part of their funds in high grade bonds of various classes, for the 
 reason that such bonds always have a market value, and can, therefore, be sold promptly to 
 meet unexpected demands made upon the bank by its customers. Interest from these invest- 
 ment securities is another important source of the bank's earnings. 
 
 VI. Banking House, $35,000. 
 
 This item represents the cost of the ground, building, furniture, and so forth used by 
 the bank in conducting its business. Generally speaking, banks find it advisable to own their 
 bank buildings which are carried on the books at cost, or at a low valuation. 
 
 VII. Stock in Federal Reserve Bank, $9,000. 
 
 All banks that join the Federal Reserve System must own stock in the Federal Reserve 
 bank located in their district to the amount of six per cent of their capital and surplus. 
 Only one-half, or three per cent, of member banks' subscriptions, has been called up to this 
 time. It will be remembered that the capital stock of the Federal Reserve banks is owned 
 entirely by these member banks. 
 
 The Effect of Published Statements 
 
 Bankers have learned to conduct their business upon safe and conservative lines. Since 
 the adoption of the Federal Reserve System, the American banking system has gained greatly 
 in strength, and has won the admiration of the world. The periodical publication of state- 
 ments of condition, required of both national and state banking institutions, supplies infor- 
 mation which, if followed methodically, will give depositors and the general public a correct 
 idea of the progress and standing of their own bank and of its competitors. Every depositor 
 should learn to read with understanding these bank statements which appear in the daily 
 newspapers five or six times a year. A depositor's bank is, in a measure, his own institu- 
 tion. His friendly comment regarding increases in its business, or improvements in its ser- 
 vice, will encourage officers and employes. 
 
 NOTE: This Talk is to be delivered 
 on or before May 25, 1923, after which 
 it may be released for publication. 
 
 QUESTIONS TO BE LEFT WITH THE TEACHER 
 
 1. What are the Resources of a bank? 
 
 2. What make up its Liabilities? 
 
 3. Who asks banks to compile and publish statementg? 
 
 4. Why does the law require examinations of banks? 
 
 5. What are the Capital Stock, Surplus, and Undivided Profits 
 
 accounts in a bank statement? 
 
REFERENCES 
 
 Elementary Banking, American Institute of Banking; New York, 1922. 
 Standard Economics, American Institute of Banking; New York, 1922 
 Standard Banking, American Institute of Banking; New York, 1921. 
 
 A B C of the Federal Reserve System, The, Kemmerer, Edwin Walter; Princeton University 
 Press, Princeton, 1918. 
 
 American Banking Practice, Kniffin, W. H. ; McGraw-Hill Book Company, New York, 1921. 
 
 Banking and Business, Willis, H. Parker, and Edwards, George W. ; Harper & Brothers, 
 New York, 1922. 
 
 Banking and Business Ethics, Borden-Hooper ; Rand, McNally & Company, Chicago, 1921. 
 
 Elementary Principles of Economics, Fisher, Irving; The Macmillan Company, New Yark, 
 1919. 
 
 Encyclopedia. 
 
 Financial History of the United States, Dewey, D. R. ; Longmans Green, & Co., New York, 
 1918. 
 
 Money and Banking, Holdsworth, J. T. ; D. Appleton & Company, New York, 1919. 
 
 Money and Banking, Scott, W. A. ; Henry Holt and Company, New York, 1920. 
 
 Money and Banking, 5th Ed., White, Horace; Ginn and Company, New York, 1914. 
 
 National Monetary Commission, Laws of the United States Concerning Money, Banking, 
 and Loans, 1778-1909; Government Printing Office, Washington, 1910. 
 
 Outlines of Economics, Ely, R. T. ; The Macmillan Company, New York, 1920. 
 
 Practical Bank Operation, Langston, L. H., 2 vols. ; The Ronald Press Company, New York, 
 1921. 
 
 Practical Work of a Bank, The, Kniffin, W. H. ; The Bankers Publishing Company, New York, 
 1919. 
 
 Principles of Economics, Taussig, F. W., 2 vols.; The Macmillan Company, New York, 1921. 
 Principles of Money, The, Laughlin, J. Laurence ; Charles Scribner's Sons, New York, 1903. 
 Value of Money, The, Anderson, B. M., Jr.; The Macmillan Company, New York, 1917. 
 
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 THE UNIVERSITY OF CAUFORNIA UBRARY