THE BANK STATEMENT 1. Purpose of a bank statement.—It is a peculiar ity of the banking business that it may have a com plete report of its condition at the end of each day. As stated in the preceding chapter, the purpose of a is to show the condition of a bank at a given time. The preparation and publication of such a statement may be voluntary or compulsory. Na tional banks are required to report to the Comptroller of the Currency at least five times a year, and they never know exactly when they are going to be called upon. State banks must make reports to their re spective state banking departments. In the old state banking systems, reports were required on certain days fixed in advance. Just before the date for re porting, banks were acustomed to arrange their busi ness so as to make a favorable showing. This prac tice, which is called "window dressing," was common thruout the country in the early days of banking.
The Comptroller of the Currency combines the statements of national banks into a composite state ment, which shows the condition of the national bank ing system as a whole. Combined statements for dif ferent classes of national banks and for banks in dif ferent sections of the country are also published.
These statements are significant and are watched closely by bankers and business men all over the country.
2. Sample statement.—The following is a state ment which represents the condition of the National City Bank in York City in the late months of 1916. It will serve to illustrate the elements which enter into a bank statement, tho it contains some items which are not met, or which are met infrequently, in the statements of other banks.
3. Changes in bank balance sheet.—The fact that the figures for the resources and liabilities of a bank are equal has no bearing whatever on its solvency. The last statement given out before a bank fails, in variably shows that the resources are equal to the lia bilities. In the event of a failure, the discrepancy must be looked for in some of the items. Either the resources have been entered at a valuation above their real worth, or some item of liability has been omitted or reduced. Nearly always it is discovered that loans
and discounts contain items which are worth far less than the figures indicate.
Under resources are entered all the items of prop erty owned by the bank and all funds to be paid to it in the future. Under liabilities are placed all the debts payable by the bank and all items representing the equity of the stockholders in the property.
The items on the resources side may increase or diminish without any transaction taking place and without any changes having been made in the liability side, and vice versa. Some of the loans may prove to be bad and uncollectible, or some of the real estate or bonds may increase in market value. Profits may be made, or losses incurred. It is impossible to adjust constantly all values given in a statement to corre spond with actual market conditions. In some banks the adjustment is made periodically; in others, only when it is discovered that the alteration in value is permanent. In some it is never made.
4. Concealed happens frequently that where the items of property have enhanced in value the figures on the statement are allowed to remain ab surdly low, creating what are called "concealed as sets." A great many bankers consider it conserva tive to list at a low figure property worth much more than its book value. No objection to this practice can be raised so long as everyone understands the real condition and knows that the statement is fictitious. A possible bad result is that some of the stockholders may not realize the full value of their stock and may be induced to part with it at a price which they would not even consider if they knew the actual equity it represented.
5. Items in resources.—We shall now take up each item separately with such explanations as are neces sary to indicate the transactions by which it was cre ated. The items are identified by the number which is shown opposite.