The above description of handling call loans applies to all brokers' loans and brokers' special loans and also to all demand loans, whether to banks, firms, corporations, or individuals, on bills receivable or merchandise collateral. But in the case of a time loan, record of its due date is also made in the loan book, and entry is made in the "tickler," under the due date, as to the name of the borrower and the amount. This tickler is checked up and proved, say, weekly, so as to avoid any chance of a time loan not being paid on its due date. In case of a time loan made on bills receivable, the bills are entered in a tickler under due date of each bill, name of borrower, and the amount.
Substitutions are made by the substitutions clerk, and the proper entries are made on the loan card and in the loan book. In case of a substitution of bills receivable, the bills are stamped out of the tickler with the date of the return of the bills, and the bills received are entered on it.
When a broker's loan is paid, he sends a check together with the certificate that identifies the loan. Out-of-town customers either direct that the due loan be charged to their account or they forward a check in payment. These checks and charge tickets are collected by the clerk who cares for the "paid book"; they are assorted according to the kind of loan—that is, demand, brokers' special, special, merchandise, and time loans—and entries are made of the rate, name, amount, and interest. The loan is then stamped "Paid" in the loan book.
Some borrowers pay their interest voluntarily, but to most borrowers an interest statement is prepared and sent. Before such a statement leaves the department it is entered in the in terest book under name, amount of interest, and date when paid. This book is watched closely to see that the interest is received. The date to which the interest is paid is stamped on the loan card and loan book.
The loans journal embraces all loans made during the day. Its debits are distributed into demands, specials, time, and mer chandise loans; its credits are distributed into general ledger, Cashier's account, individual ledger, and bank ledger.
In making up the figures for the day the bookkeeper prepares a total of loans made and loans paid, dividing each into demand, brokers' special, special, time, and merchandise loans, according to the different rates. The excess of loans made over loans paid,
or vice versa, is respectively added to or subtracted from the total loans and must prove with the general bookkeeper.
Overdrafts—Disadvantages of Practice In the financial statements of banks, " overdrafts " are some times included among the Loans and Discounts. The Comp troller of the Currency now requires that national banks carry and report overdrafts as such and not as loans. In order to report them as call loans the bank must hold an obligation of the party to whom the advance is made; in such case there would be no overdraft, for the operation would be equivalent to the ordinary loan transaction. Some banks have been known to include among their bills receivable checks which would otherwise overdraw the accounts upon which they are drawn. Presumably the checks were in that case regarded as demand notes. Some banks have been known to carry such checks among their special collection items, such as past-due notes and protested paper.
To allow an overdraft is equivalent to loaning the bank's funds. Overdrafts are an irregular and bad form of loan, how ever. The overdraft is unexpected by the bank and therefore interferes with the bank's plans and its reserves. It has no definite date of maturity; it may run a day or a month or longer, but the banker does not know when the drawer will cover. It is an unauthorized loan, for it does not arise in the regular way through the loan department, but is usually passed upon quickly by the cashier or other official. It is usually an unsecured loan. It may, however, be secured by pledge of securities in advance of drawing, and it is not an uncommon practice of banks in certain areas to allow overdrafts freely for customers who arrange in ad vance for possible overdrafts and pledge securities to cover them. An overdrawn account puts the bank in a very undesirable posi tion; the officers hesitate to press the drawing customer to observe good banking methods, lest they offend him and he refuse to repay. The overdraft is not available in case of need; it cannot be called or rediscounted. In case of liquidation the proportion of losses is greater from overdrafts than from loans secured by notes. There is a bad propensity for overdrafts to be con verted later into loans, and such loans are of very poor quality indeed.