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The Bond Department

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THE BOND DEPARTMENT General Functions and Organization of the Bond Department A single department, or in the case of a large metropolitan bank a group of departments, is responsible for the purchase, sale, and custody of and the accounting for such securities as bonds and short-term notes. The securities may be bought or sold for the bank's own account or for its customers, domestic and foreign. When bought for its own account, the purpose may be to hold the securities till maturity or to resell them as soon as a favorable market can be found. They may be sold on the stock exchange or "over the counter" to customers calling at the window of the bond cage or to customers reached by "street brokers" who peddle the securities from financial house to financial house, or to correspondents or the general public reached by mail or bond salesmen. The securities may be bought on the stock exchange, "over the counter" from customers or street brokers, from correspondents, or directly from the issuer, as when underwriting or participating in the issue of a syndicate.

The above operations naturally divide themselves into three groups: first, the buying and selling of securities on the exchange and over the counter, for the bank and its customers; secondly, the custody of and accounting for securities bought for the bank's account; and thirdly, the underwriting operations and partici pations, and the retail distribution of original issues by mail and bond salesmen. The trading is done by a section of the depart ment consisting of a manager, traders, who through brokers trade on the exchange or who deal over the counter and by mail, and clerks who prepare the "trading tickets." The custody of and accounting for the securities are in charge of a section composed of a manager, bookkeepers, who receive and deliver securities and prepare statements, and junior clerks, who prepare tickets for debits and credits, care for the journals, cut coupons, etc. As rule the syndicate operations and bond distribution are handled by a section consisting of a few responsible men, usually officers. and their assistants, although many of the largest banks conduct this part of the work through an affiliated bond house.

Bank Investments in Securities Under our banking system bonds have formed no small part of a bank's earning assets. National banks have been and still are owners of large amounts of the United States bonds, which they were formerly required to buy as security for national bank notes. To the issues of the Liberty Loan and of Treasury certifi

cates of indebtedness banks have subscribed freely, and a considerable fraction of their earning assets has consisted of cor porate, state, and municipal bonds. In such ways the commercial capital of the country has become intimately interrelated with the financial capital and investment market. In the absence of a discount market, banks have relied for their secondary reserves upon call loans and bond investments, with their continuous market on the stock exchange, whereas in European banking systems acceptances have proved a more elastic, liquid, and safe secondary reserve.

The local banker has become the financial adviser of his customers, and the metropolitan banker the financial adviser of his correspondents. With the passing of the era of construction when financial methods were looser than they are today and when bond sales were often facilitated by bonuses of common stock, the investor came to realize that the issue of securities needs expert supervision which he personally is incapable of giving to them; he turned accordingly to his local banker for advice, and thus the bank as an institution has gradually entered the security business. A modern bank advises its customers as to the virtues and faults of the various securities and it may buy and sell them; it also buys and carries securities which it regards as good investments and which it is willing to recommend and sell to its inquiring customers. The commercial banks have thus become important distributers of securities. Their specialized bond departments have been organized to handle the subscriptions, purchases, participations, syndicating, and distributing of securities— activities that resemble those of regular bond houses. This de velopment is a natural outgrowth of the confidence that custom ers repose in the banker who counsels them about their savings and loans. The banker, accustomed as he is to analyze securities for his own institution, is the natural counsellor and analyzer for his customers; and since banks are under federal or state supervision, the securities they buy must conform to the approved standards of the Comptroller of the Currency or the state banking department.

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