From the point of view of economics, bank credit obviates the use of metallic money and conserves the metals for use in the arts; it facilitates the production, movement, and exchange of goods more effectually even than money does; it stabilizes credit, resting it upon long-established, widely extended, conservatively managed institutions. The banker determines the personnel of the business world, by extending credit to persons of character and capacity and by choosing as debtors those who have either proved abilities or give reasonable promise. Capital is thus di verted into channels and hands where it is most productive and most useful to society. The bank assembles the stray and hoarded funds of the country into its vaults and puts them to productive use. Capital is thereby conserved. The benefits of thrift are taught and the importance and equity of keeping contracts to the letter are brought home to the commercial world.
Specialization of Commercial Banks Commercial banks specialize in loans, adapting their services to their locality or to a special clientele. Some carry specializa tion to such degree as to relinquish many of their banking func tions. For instance, to facilitate the production and marketing of cattle, "cattle loan companies" conduct a banking business in the primary livestock markets and production centers. Certain banks in close touch with speculative exchanges cater to brokers and commission men. Others in our great seaports cater to for eign trade and international finance. Devotion to a limited field of operations results in expertness and ability to perform a particular sort of loan or service better and at lower rates than is possible for competitors who are less specialized.
But side by side with this tendency of certain banks to limit themselves to narrower fields, there has been a movement in the opposite direction. Banking institutions find it advisable to be able to perform for their customers all the financial services for which they have need rather than to let them depend in part on outsiders. In view of the expense of organization and overhead which the bank must carry in any event, to undertake these additional services may be economically very desirable. State and national banking laws have hedged the banks with restric tions on their field of operations, but commercial banks are grad ually developing such side lines as long-term and agricultural loans, acceptances, trust business, insurance agency, loan broker age, safe deposit and storage, investment buying and selling, and so forth. The trust companies in the several states are pushing
their commercial banking departments, and national banks are being permitted by federal and state law to handle trusts. An identity of function will probably not be developed soon but the evolution is toward a close approximation.
Savings Banks i. Mutual or Trustee Savings Banks. The savings bank started as a mutual savings association and is commonly regarded as a benevolent institution. A mutual savings bank is a financial establishment which receives deposits up to a fixed maximum amount from individuals, provides safe-keeping for the funds and, having aggregated them, invests them in securities declared by the state legislature legitimate for trust funds; the interest from these investments, after the bank's expenses are deducted, accrues to the depositors in proportion to their deposits. The relation between depositor and bank is one of trust; the funds of the bank are held by its officers as trustees; the assets, profits, and losses are distributed ratably among depositors, and the officers get no profits, but receive trustee fees. The rate of inter est on the investments is generally very low, for the reason that safety rather than earning capacity guides the legislature in defin ing eligible investments. The deposits received are not subject to check, nor are they subject to withdrawal except by pass-book and due notice of 3o, 6o, or go days, varying with the bank and the amount to be withdrawn. The pass-book constitutes the con tract of deposit; the terms are described therein; entries and signa tures in it become very important from a legal point of view. The depositor is moved to make the deposits by the motive of thrift and the interest inducement offered by the bank; he does not expect to withdraw them soon inasmuch as they represent his savings. He does not have the privilege of paying by check which the commercial bank accords nor does he get short-term accom modation. The savings bank invests in long-term securities and not (though recently to a limited degree in some states) in short term commercial paper; its deposits turn slowly and it relies on its ability, within the period of notice of intended withdrawal of deposits, to sell its securities at other than sacrifice prices. Mort gages and bonds form the bulk of such a bank's investments.