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or of allowing the volume to shrink by a natural process when it is redundant. When a large amount is gathered up at the financial centres for use in the outer districts, there is always a pressure and a disturbance seriously affecting the market, and this periodical excitement cannot in any way be relieved without changing the character of the

currency.

A banking system which should permit issues of notes on credit would exactly meet the difficulty. The currency would increase as commerce demanded and shrink when the need abated by the operation of a natural law that would work without friction or violence. The sub-treasury project of the farmers would not answer the purpose. The currency loaned by the government on real estate would be an investment; and the loans on produce would not, like bank issues against drafts for the purchase of the crops, be returned when the movement was effected. They would be issues on warehouse receipts with little of the elastic quality about them. Besides, it would not help the farmers to enable them to store up and hold their produce. No farmer, save in some exceptional cases, was ever benefited by clinging to his crops. A thorough examination of the conditions will show that the producer who sells the yield of his estate the moment it is ready for market will be richer in the long run than the one who is able to hoard his products in the hope of higher prices. A study of the question by the writer from actual observation for more than half a century has established this as a fact that cannot be disputed.

The man who wants more money will find no royal road to the wealth he covets, no patent method for its acquisition. He must give something for it to make it honestly his own, and the man who sets himself earnestly to do this will find that all financial systems will bend to his conquering will. The gambler, whether he plays his game in the exchange, at a faro table, in a policy shop, or with smaller stakes in private circles at baccarat and progressive euchre, will find the issue precarious and unrewarding. The way to get more money without any loss of peace or self-respect is to earn it by toil of brain or sinew, and the funds thus acquired have no gnawing teeth. All other wealth eats like a canker. DAVID M. STONE.

NATIONAL BANK EMBEZZLEMENTS-THE MANY-ROOFED BANK.

THE national bank frauds recently unearthed at Philadelphia afford a particularly depressing study, more especially when taken in conjunction with those which have preceded them within the past few years; because not only do they reveal the existence of boundless opportunities for theft, but they establish, in addition, the utter inefficiency of the only means which it is possible for the government to employ to check or to prevent fraud, when once the honesty of the bank official has surrendered.

During the nine years ending with 1886, there were 55 separate cases of defalcation in national banks, amounting in all to $9,959,741, and they were divided as follows among the responsible officers of the banks: 14 presidents, total embezzlement, $5,184,569, average for each individual, $370,326; 21 cashiers, total, $3,798,000, average, $180,857; 9 tellers, $462,000, average, $51,000; and 11 sundry officers, $515,172, average, $46,833. These represented direct frauds.

There are, unfortunately, no available data of the embezzlements reported subsequently, except in cases where they caused the wreck of the institutions in which they occurred; but I find, on investigation, that of the 27 national bank failures which took place during the four years following 1886, twelve were due to frauds by bank officials, while eleven were attributable to excessive loans to bank officers, two to bad management, and two to decay of trade. The figures of these thirteen years will be found to be sufficiently gloomy, but the current year bids fair to raise the dismal average.

In one of his reports the comptroller drew attention to the fact that only a fraction over three per cent. of the national banks organized since 1863 had been placed in the hands of receivers. With reference to this it may be said that the average losses from national banks are known to be very small. It is not, however, the average loss to the community that is disturbing the public mind, but the absolute ruin entailed on nearly all the banks victimized by fraudulent officials, the impunity with which such frauds are committed, the apparent impossibility of devising any means to prevent them, and the general uncertainty as to the safety of institutions, since some of those commonly esteemed to be the safest have proved to be the most corrupt in their management.

Through the courtesy of the comptroller, I have before me a copy of the printed blank upon which the national bank examiners make their reports. I have gone through it carefully; and, while it is admirably designed to afford a record of a bank's condition at the time of the inspection, it is certainly not, in itself, calculated to lead to the discovery of any well-planned fraud; or, in fact, to do much more than it was, to all appearance, originally designed to do, namely, to see that certain governmental regulations are complied with.

The late comptroller, Mr. Trenholm, as a matter of fact, repudiated the idea that his examiners should be able to discover the defalcations which presidents and directors themselves had failed to trace. His functions, he explained, were to see that the bank was properly organized and administered; that no law had been violated in respect to loans, reserves, investments, bad debts, or dividends; and that the assets were really worth the amounts representing them on the books of the bank. In fact, in his annual report for 1887, he accentuated his repudiation of any such liability by scornfully remarking: "No one of practical experience would rely upon an examiner who comes only once a year and who can afford to stay but a single day, to discover thefts

or false entries that have been successfully concealed from directors who are always present and whose money is being stolen. All efforts must be futile that are directed to supplying, by means of official examination, an effective substitute for the vigilance and personal accountability of directors."

The present comptroller, Mr. Lacey, is apparently disposed to assume a greater responsibility. In his report for 1889 he said: "The chief officers of a banking association transacting an extended business are, in a large degree, prevented from personally supervising all the multifarious details which are necessary to the conduct of the business of our larger institutions. The presence, therefore, of the examiner, aided by competent assistants, is very welcome to the officers responsible for the safety of the great interests committed to their care. The details of every branch are brought simultaneously under the scrutiny of experts." To a lack of clearness as to the meaning of Section 5,240 of the Revised Statutes of the United States must be ascribed these different views of these officers.

There is a defect in the national banking system which insists on the maintenance of thousands of small isolated banks, instead of permitting the establishment of large banks with branches radiating in all directions from a central office-within a limit of, say, one day's journey, or 500 miles, in which the examination could be continuous and efficient, being, so far as the branches are concerned, conducted by the parent bank itself. The experience of other countries has demonstrated that, for all purposes of safety and convenience, this kind of many-roofed establishment is the best. Its system of examination is entirely automatic, and is conducted by an efficient corps of examiners at the head office of its establishment. These examiners do not depend upon yearly visits for keeping the branches in order. From daily official letters between each branch and the central office, from weekly returns of the most exhaustive description, and from previous visits and reports, the inspectors become familiarized with the business of each branch, and the. training of a life-time gives them an incredible power of memory and marvellous instincts for the discovery of any irregularities. It is the perfection of inspection. It goes on without intermission, yet unharassingly, since it is the acknowledged custom.

Prior to its adoption, English banks suffered cruelly from defalcations, much as this country does now; since its perfection thirty years ago, the great joint-stock banks with chief offices in London and with aggregate deposits of $1,000,000,000, have not suffered an appreciable loss through the dishonesty of their employees. Could anything be said more in favor of the system? Yet some of these banks are of the most colossal magnitude. The London and County Bank, for instance, has 172 branches, while the National Provincial Bank has 164 branches, and their combined assets are in the neighborhood of $400,000,000. It is probably safe to say that the officers of these banks are not more honest than the same class in this country, for the average

American banking official yields to none in point of sterling integrity; but what they lack is opportunity and temptation to defraud, and what they possess is the most rigid discipline.

The branch system prevails not only in England but in Scotland (where there are seven banks possessing upward of a hundred branches or agencies apiece) as well as in Australia, Canada, and other British possessions. Under it, the banks flourish, the present average market value of banking capital in England being 210 per cent. premium, that of Scotland 157 per cent., and that of Ireland 161 per cent.; while there are in Australia banks which pay 25 per cent. on $3,000,000 capital, 174 per cent. on $6,250,000, and on $6,000,000, while others pay dividends of 14, 15, 171, and 22 per cent., respectively, on large paid-up capitals. These banks do well not only for themselves but for the country of their location, whose credit and commerce they improve and develop enormously.

When the branch system was first introduced in England 60 years ago, the country was covered by private banks, which met the requirements of the public fully as well as the national banks meet our own necessities to-day. The public had abundant confidence in these banks in which their fathers and grandfathers had believed in as in a creed. They seemed imperishable, but they stood as the national banks stand to-day-mere local units, without cohesion or combination-and they experienced the fate of all such when fighting against powerful federated action. They have been swallowed up almost absolutely by the large branched establishments, and the result is undoubtedly the survival of the fittest.

What I would venture to suggest for this country is the legalization of some system of amalgamation, whereby national banks, within certain areas, should weld themselves together, so that, instead of having 3,500 solitary institutions, as we have now, all more or less exposed, we should have, say, 50 large banks, with from 50 to 100 branches each, radiating from our chief cities throughout the country.

The central offices of these amalgamated banks might be relied upon to see that the branches were properly examined (there has never been any trouble in other countries about this), while the government examiners, the clearing house committees of the cities where the chief establishments were located and, as in Great Britain, some firms of reputable auditors, could make a crucial investigation of the affairs of the head offices semi-annually. Such a change would involve no dislocation or displacement of staff, and need wound no amour propre; for the president of a small bank would not find his dignity curtailed by translation from his presidency to the management of a great and powerful institution.

The advantages of banks with branches are too numerous to be detailed at length here. Prominent among them, however, may be mentioned the fact that the smallest branch has all the strength of the parent institution, and that no local convulsion has the power to injure

the branch. Apropos of this, it may be said that there are banks today in Great Britain which could lose the entire assets of a dozen of their branches, not only without closing a branch door, but without passing a dividend.

The methods of inspection employed in such banks prevent defalcation and bad banking, while in times of panic a bank with a number of branches all situated within a day's journey of the head office and therefore within timely reach of help, finds it essential to keep only a fraction of the cash on hand which the same number of isolated establishments would consider necessary to their existence.

Such banks do not become monopolies; on the contrary, they are foils to monopoly, for in practice it is found that wherever the branch of one institution is established, a rival office is prompt to put in an appearance. This maintains a healthy competition, while the system itself acts as a check upon the formation of small banks whose size and irresponsibility are a danger to the community, and whose desperate struggle for the means of existence degrades the profession of banking. Such banks, too, tend to the creation of an excellent class of employees. These come into the bank as youths, and as they are thus familiarized with the handling of money from their earliest age, there is little temptation to take what does not belong to them.

Much more might be written in favor of the branch or many-roofed bank, but probably enough has been said to show how vastly the potentiality of the existing national banks might be increased by their being brought into such a system. No one wishes to see our national banks supplanted, or a single officer of them displaced, but the requirements of the country imperatively demand a change in the direction indicated, and it would be greatly to the profit of every bank stockholder were such instituted.

J. SELWIN TAIT.

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