1. "Loans and discounts" consist chiefly of prom issory notes and bills of exchange against which the bank has made advances to borrowers. The figure includes bills discounted and time, call and demand loans. Some loans are secured by collateral of one kind or another; others are unsecured.
2. "Letters of credit" are explained fully in the Modern Business Text on "Domestic and Foreign Exchange." A brief discussion is given in the fol lowing two sections of this volume.
3. For a discussion of "acceptances" see Chapter IV, Section 13, and Sections 10 and 12 of Chapter XVI.
4. "Overdrafts" appear in nearly all bank state ments. According to strict business principles they should not be there at all, but it sometimes happens that a depositor overdraws his balance by mistake. In such a case the bank's officers pay the check if they consider the man's character and resources to be good. Until the overdraft is made good, it is properly reckoned as an unpaid debt among the bank's re sources.
In some localities loans are made by giving the de positor the right to overdraw his account up to a cer tain amount, the overdraft being secured by a deposit of collateral with the bank. Interest is charged on the amount overdrawn. This practice is followed very little in the United States. The borrower usu ally makes a loan and takes credit at once for the full amount needed.
5. "United States bonds to secure circulation," will be discussed in the chapter on the National Banking System. This item represents bonds owned or bor rowed by the bank, and deposited at Washington as security for circulating notes. It may be noted that this amount is nearly offset by the outstanding circu lation, item twenty-seven under liabilities.
In some statements, these bonds will be listed at par and an item, "premium on bonds," will appear to represent the difference between par and market value.
6. Banks do not always own all the bonds which they use as a deposit against circulating notes. Ap parently, this bank has loaned bonds for this purpose, That it has also borrowed is shown by item thirty-six.
7-9. The item, "bonds, securities, etc.," embraces bonds, stocks, chattel mortgages, judgments, claims and other similar securities. The securities which are
deposited by borrowers as collateral for loans do not appear in the statement, because they do not become the property of the bank unless a default is made on the note. Under the law, national banks are not per mitted to own corporation stocks unless it is necessary to take them in connection with a debt. An excep tion to this is the provision in the Federal Reserve Act which permits and requires national banks to. own stock in their respective Federal Reserve banks. These items, therefore, represent practically the bonds owned by the bank. The purchase of bonds has increased greatly within the last few years, because under normal conditions there is a ready market for bonds, and the banks regard them as a form of sec ondary reserve which can be converted into money almost immediately in case of emergency. Then, too, many banks are dealers in bonds and hold them pend ing their sale to customers.
10. "Banking house, furniture and fixtures" are proper assets of a bank. A bank must either own its house or pay rent. Often when building an office, extra floors are added and rented to tenants. This frequently gives a bank its quarters at very low cost. The investment May even show a profit after allow ing for all expenses. Some of these large office buildings have been erected by separate companies, composed of the stockholders, and the bank pays a rent to the separate company.
11-12. One of the principal duties which a depos itor expects a bank to perform is to collect checks de posited by him and payable at other banks. Some of these checks are payable in other cities or even abroad. A large bank makes arrangements with banks in vari ous parts of the world to collect these items. A small bank makes its arrangements thru some large bank or banks having foreign connections. In the case of the bank under consideration, these items consist prima rily of two kinds of claims ; first, checks on out-of-town banks which have been forwarded to correspondent banks for collection and charged against them; sec ond, a considerable amount in bills of exchange and balances due from foreign bankers.