THE FUNCTIONS OF BANKS CHAPTER 7 § 1. Nature and classes of banks. § 2. Functions of banks. § 3. The essential banking function. § 4. Demand deposits. § 5. Discount and deposit. § 6. Nature of banking reserves. § 7. Time deposits.
8. Bills of exchange, domestic. § 9. Issue of notes. § 10. Diver gent views of typical bank-notes. § 11. Banking credit as a medium of trade. § 12. Productive services of banks. § 13. Earnings of banks.
In the United States there were on June 30, 1920, more than 30,000 banks reported. These may be classified first according to the source from which they derive their charters or authority to do a banking business as: national, state, and private. The last are unchartered and act under the general state laws governing private contracts; in general they are Banks may be classified also, according to the two main types of business they perform, as banks for 1 Opinion favors prohibiting the use of the word bank to any except regularly incorporated organizations, or at least subjecting private banks to the same supervision as the chartered banks.
91 savings and commercial banks. Most banks do mainly a gen eral commercial business ; some are distinctly banks for sav ings; but in truth this dividing line can be less and less sharply drawn between banks as units; rather the distinction must be made between the savings function and the commercial discount function, which are more and more being performed by one and the same bank. The statistical data collected in
the United States distinguish only imperfectly between these two. The trust company usually unites these two functions in large degree. This matter will be better understood in connection with the analysis of the functions that banks per form, now to be § 2. Functions of banks, incidental. Almost every bank performs various functions useful to its customers, but some of which are not essentially bound up with banking, and may be performed by institutions that are not truly banks. Among these are: (a) Maintaining a safe-deposit vault, where space may be rented by an individual to keep his valuable papers, jewels, etc. The customer does not usually deliver to the bank pos session of the valuables, but himself retains the key to the box, which the bank has no right to open. In larger cities this work is often done by separate institutions.
(b) Acting as money-changer to buy and sell moneys of different nations. This function is of less importance in America than elsewhere because of the great size of our country and of the small portion of our boundaries touching those of other nations using different monetary units. More over, the function is in large part performed for Americans by ticket agencies at the ports of embarkation and by the steamship companies en route.
(c) Selling bonds and other investments to customers. In smaller communities the customers of a bank turn to it as the best source of information for safe investments of personal or trust funds. This opens to it a new possibility of service. Large investments, however, are usually made through the agency of more specialized investment brokers.
(d) Acting as trustee and business manager for passive investors, and especially as executor and administrator of estates or as guardian of a minor heir. This function was taken up rapidly after about 1890 by trust companies' or ganized under state laws, and after 1918 (as a result of an act of Congress) by many national banks.