BANKS AS BoRROwERs. Receiving as they*do deposits from their clients, banks may be spoken of as borrowers. lf, as they sometimes do. they pay interest upon deposits, this onsets in part the profits arising from loans. But in many cases they pay no interest upon deposits, the clients of the hank being contented with the greater security in the custody of their funds which the bank offers, and other advantages which arise from the possession of bank ac counts. At times these advantages have been so considerable that depositors have been willing to pay the bank for the safe-keeping of their funds. Thus, during the Seventeenth Century, the great Bank of Amsterdam simply received bullion and stored it, issuing receipts for it, which could be transferred from hand to band. and entitled the holder to get back the gold or silver originally deposited, on the payment of a small premium for withdrawal. Such a bank Was merely a warehouse for bullion. It performed a service similar to that of the United States Treasury in the issue of gold and silver certificates. The service was valuable be cause it substituted the notes of the bank for the extremely varied and uncertain metallic circulation of the period, consisting of the coins of many nations. often worn by use, and clipped by those who derived profit from mutilat ing the coinage. The hank received them at their bullion value, and thus fixing their real value once and for all, did away with the numberless vexations which arose from the use of such a currency. If we except the United States Treasury, which cannot strictly be called a bank, such banks of deposit only have ceased to exist. The reason for them has disappeared, and the lending of money is always associated in banking with the receiving of it.
Modern banks are banks of 'deposit and dis count,' for though all loans made by banks are not in the form of discounts, the word is used in this connection to embrace all its loans. The advantage to society from banking operations consists in centralizing credits. The banker col lects the money and wealth which would other wise lie idle, and brings it into use. Through his agency, wealth which would lie idle and unproductive becomes useful and pnaluctive. His particular service is to mass together the small amounts of capital which in themselves are perhaps too trifling to become the basis of a business enterprise. Ile is the intermediary be tween those mule possess capital and those who employ it. Thus he enlarges the field of business enterprises and intensities its operations. The hank is the chief organ of credit which plays so large a role in the organization of modern in dustrial society. See CREDIT.
For the depositor the bank nets as paymaste•. The depositor pays his debts by orders upon the bank in the form of checks. This not only
relieves the depositor of the necessity of keeping in his own possession sums of money larger than be has an immediate use for, and whose safe keeping is a matter of anxiety and concern, but also furnishes him, through the indorsement of the check by payee. a receipt for the money paid out. The banks also act as collectors for -their depositors. Only a small part of the -deposits in banks consists of actual cash; by far the larger proportion. about nine-tenths, being in cheeks and other credit instruments.
When a check is deposited to the credit of a person, the bank charges itself with the duty collecting it. If it is drawn upon a distant point. a small charge is made for this service. but in general the cost is borne by the bank and not the depositor. If drawn upon the same bank, the collection •insists merely of a transfer upon the books of the bank. if drawn upon another bank, collection may be made directly or through the clearing-house. (See CLEARINI, HousE.) In either case there is likely to be a set-off, and the collection effected without the transfer of cash. in addition to collecting checks, the bank collects other debts, such as coupons and negotiable paper.
In addition to these advantages which the depositor obtains from his bank account, he sometimes receives interest upon his deposits. Among the commercial banks of the United States, the practice of paying interest upon de posits is not widespread. Persons who desire interest upon deposits must, as a rule, he eon tent to surrender something of the absolute and immediate control over their funds, which is the characteristic of commercial banking. In such cases, they patronize the savings-banks or the loan and trust companies rather than the national banks. In these institutions, various plans are adopted to restrain the depositor from making sudden calls for any considerable amount of his deposit. Sometimes it is a requirement of previous notice of the intention to withdraw, or again it may be a provision that a certain part of the deposit is to remain untouched, and that interest be paid upon this only. It is ideal- that the various advantages of banks to the depositor, obvious as they are, cannot be a substitute for the investment of his capital or its employment in productive enterprise. It will therefore be, as a rule, a portion of what is desig nated as the circulating. rather than the fixed, capital of the nation which will be placed in banks. \Then banks, however, offer interest upon deposits, tinder conditions which afford security. they will probably retard the process by which unused capital seeks a definite and profitable employment, and thus secure for the banks a larger line of deposits.