Effect of Federal Reserve System on Credit Department The commercial paper market has developed coincidently with the credit department, their growths having been to a large degree the result of their reciprocal action on each other. Both also have been fostered by the development of nationally known commercial houses, great industrial corporations, a better articu lated business system, and foreign commerce. To be able to take advantage of offers of commercial paper by note-brokers the banks found it profitable to maintain a well-organized credit de partment, that bank which could decide first and most accurately upon the advisability of buying paper at such and such rates thereby acquiring an important advantage over other banks less informed. The federal reserve system will especially promote the credit department. The Federal Reserve Board and banks have laid emphasis on financial statements and credit files. The Federal Reserve Act and the regulations of the board require the member bank to provide financial statements from most names on paper offered for rediscount, and have furnished standard forms for such statements. Under the old system national banks re commended themselves to their out-of-town correspondent banks by their collection facilities; but the par collections system tends to reduce these facilities to a common level. Hereafter one of the chief services of reserve city correspondents will be the credit service; and the credit department will not only pay its way by keeping losses at a minimum but will become a holder and builder of business. The credit department's usefulness will also develop as the attitude of the borrowing public becomes one of co-operation, so that it will be provided with exact, full, and honest data from which correct judgments can be drawn and maximum credit can be extended on the basis of the showing.
Summary of Departmental Work The work of the department may be summarized as follows: . The collection of information of every kind regarding banks, individuals, manufacturers, and mercantile houses, particularly those who may become customers of the bank, those who sell their commercial paper to the bank through note-brokers, and those with whom the bank does foreign exchange business.
2. The analysis, classification, and filing of this information for the various uses to which it will be put.
3. The conduct of all correspondence by letter or telegram pertaining to the payment or non-payment of dis counted notes or the substitution of receivables.
4. The monthly examination of the average balances of all accounts with the bank and, if there are material changes noted, the requisition of reports on those balances from the analysis department; and the prep aration of statements of average balances of all ac counts for the bank officers.
5. Furnishing credit information to other local banks, to correspondent banks, to customers, and to other de partments of the bank, upon request.
6. The selection and purchase of commercial paper for cus tomers, at their request.
The credit man must have a high order of ability. He must
have a wide knowledge of men and of business, and his fund of information on the methods of business in the various lines must be large and varied. He must be an accountant, with rare power to analyze accounts and financial statements. He must be versed in commercial law in general and the statutory commercial law of the various states in particular. He must be a born observer and judge of men and business conditions. As he meets per sonally many prospective customers he has the best oppor tunity to draw direct conclusions regarding their personal and business characteristics and abilities; these judgments must ever be conservative. He must be systematic, keeping his credit files full and up to date lest they be used as the basis of wrong conclusions. While the final determination of whether or not the loan is to be granted devolves upon the higher officers of the bank, the credit man's findings, interpretation of the facts, analyses of financial statements, and estimates of character and of ability weigh heavily with the officer who makes the ultimate decision.
Internal Organization of the Credit Department The division of labor and the plan of administration in the credit department are, of course, arranged with the object of efficiency and vary with the individual bank. They must co ordinate with the general scheme of administration of the bank and at the same time be so framed as to facilitate the collection of data. Taking, by way of illustration, a national bank doing both a foreign and a domestic business, the following organiza tion may be suggested. The department is divided into three sections: the bank section, the domestic section, and the foreign section. The bank section takes care of investigations of banks; the domestic section investigates the individual and commercial accounts and names in the United States and Canada; and the foreign section investigates the foreign exchange accounts, ac counts in the bank's branches, if it has branches, and names in all parts of the world.
The domestic section may be divided into a number of sub sections according to federal reserve districts. For instance, these districts may be grouped as follows: districts i and 2, districts 3 and 4, districts 5 and 6, districts 7 and 9, districts 8 and II, dis tricts io and 12. This grouping serves to equalize the work as between subsections and to put together areas on the basis of characteristic industries, and at the same time conforms to the general banking system scheme. These subsections will handle all the business from their areas, except, say, commercial paper names and miscellaneous inquiries, for the handling of which two special subsections may be found expedient. Each subsection will be under the immediate supervision of a head, with one or more assistant heads, and the subordinate clerical force of each subsection consists of junior clerks, stenographers, typewriters, etc. Several officers of the bank may be delegated to each sub section, and they determine and pass upon all credit matters per taining to their areas.