CLASSIFICATION AND FUNCTIONS OF BANKS Specialization of Bank Functions Banking institutions are specialized dealers in and guarantors of credits. The evolution of our system of credit has been charac terized by the same division of labor which dominates our social and economic structure. Not only have credit institutions sepa rated from the merchant and industrial institutions, but the credit institutions have themselves specialized on the basis of function. This differentiation of functions affords the most useful classifica tion of banks. Banks may be viewed, of course, from an economic or social point of view as well as from that of business. The economist and sociologist consider the services of the bank with reference to the furtherance of human welfare. The banker, how ever, thinks of his bank as a profit-making institution; he may philosophize on its economic and social influences, but unless moved by a high sense of public duty he is prone to think most of dividends. His customers, moreover, are likely to think of the bank from the purely business point of view—as an institution from which to secure loans, in which to deposit money, and by the aid of which securities may be floated and estates managed.
Classification by Functions The most common classification of American banks based on bank functions makes three divisions, namely: I. Commercial banks.
2. Investment institutions, including savings banks and bond houses or investment banks.
3. Trust companies.
But further division on the same basis is possible. The New York State banking law has special sections for the following classes: state and national (commercial) banks, federal reserve banks, credit unions, foreign banking corporations, investment bankers, investment companies, Land Bank of the State of New York, personal loan brokers, personal loan companies, private bankers, state deposit companies, savings and loan associations, savings banks, trust companies, discount companies, acceptance houses, note-brokers, and others. Indeed the subclasses that are possible are limited in number only by the number of functions and com binations of functions open to such institutions.
Classified as to source of authority to do business, banks are commonly grouped as federal or national, state, private, and foreign. Another classification is into parent or mother bank,
branch, agency, and correspondent. Still another is into joint stock, mutual, private, and individual. And in any system the banks may be specified as central, member, or non-member; as bank of issue or non-issue; as reserve city bank, central reserve city bank, or country bank; as land bank, agricultural bank, mercantile bank, industrial bank, and so forth.
Functions of Commercial Banks The major functions of commercial banks have been described in Chapter IV as the testing and guaranty of credit, and the ex tension of credit by means of notes, deposits, and acceptances. Commercial banks extend short-time loans, handle short-time mer cantile paper, receive deposits subject to check, issue bank notes, issue letters of credit, and accept bills drawn upon themselves. In carrying on these main activities many incidental services are performed for customers. In a circular published recently a metropolitan bank advertised "forty-three separate service divisions—all working for a single object, namely, to render a powerful and well-balanced banking service." In their competi tion for business, banks adapt their services to their actual and prospective customers' needs, adding feature after feature.
In this point of service, by the way, there is probably opportunity for both the large and small banks. The smaller banks can render their fewer customers services that are probably more intimate and personal than the great metropolitan banks, whereas the latter can offer facilities more powerful, varied, complete, and expert.
The accessory and minor functions of commercial banks will be discussed in detail in the body of this text. The nature of these functions appears in the statement that from his bank the busi ness man receives the ready accommodation of a loan or the prompt cash conversion of commercial papers; he finds it conven ient to keep his money and make his payments at the bank; he is advised in the purchase and sale of securities and their handling; the bank assembles vast credit files which are open to him; his funds are transmitted over distances, his foreign trade is facili tated, his business operations planned and guided for him.