prominent banker, "you have a combination which will more than likely win out, one which will magnetically draw either capital or collateral, or both. We think there is hardly a line of trade in which, if character and tried capacity can be brought together, credit cannot be obtained for a start or capital attracted to the venture. . . . If the credit man be certain of both character and capacity in an established business, he will need to give but a passing notice to the statement, for with character behind the schedule it will have been made up honestly, and with capacity behind it the man did not deceive himself or you. It means that the statement speaks conservatism, and that he has both technical ability and ability to finance. The sales made in this country in the course of a year upon character and capacity, with capital a minor factor, would run into the hundreds of millions of dollars, and the percentage of loss entailed under good credit management has been very low." READING REFERENCES Barrett: Modern Banking Methods, Chs. IV, V. Harris: Practical Banking, Ch. VII. Kniffen: The Practical Work of a Bank, Chs. IX, XIII. Moulton: Principles of Money and Banking, Pt. II, Ch. IV. Pratt: Work of Wall Street (Rev. ed.), Chs. XVIII-XX. Prendergast: Credit and Its Uses, Ch. III. Willis The Federal Reserve, Ch. IX. CHAPTER XVII BANK SUPERVISION 140. Reports and examinations.-Every national bank is required to make to the Comptroller of the Currency at least five reports a year showing in detail its resources and liabilities. No regular dates are set for these reports; they are subject to the call of the Comptroller at his discretion. He may also call for additional special reports at any time if he deems it advisable. Blank forms are furnished to the banks by the Comptroller and these must be filled out properly and returned to his office within five days after notice, subject to a penalty of $100 for every day's delay. This report of condition must be sworn to by the president or cashier and attested by three directors. A condensed form of the report must be published in a local newspaper, and a copy of this, cut from the paper and pasted upon the particular form furnished for the purpose, accompanied by the affidavit of the publisher, must be sent to the Comptroller. By means of these reports both the Comptroller's office and the public are kept informed of the condition of the national banks. The making of any false statement or report is a criminal offence. National banks are also required to make a semi-annual report on dividends and earnings. This report must be made within ten days after the declaration of a dividend, and must state the amount of the dividend and the net earnings above this dividend. The banks also make a semi-annual report of the amount of circulating notes outstanding on January 1 and July 1. These reports made to the Treasurer of the United States provide the basis for levying the tax upon the note issues of the banks. The tax on bank notes issued against 2 per cent government bonds is of 1 per cent each half-year, and on notes issued against other bonds of 1 per cent. Most of the states now have a banking department and the banks, trust companies and savings banks organized under state law are required to make periodic reports of condition to the state superintendent of banking or other official. In a large number of states, reports are required four times a year, and statements must be published in the papers in much the same way as with national banks. In some of the large cities the banks are required to make weekly statements of condition to the local clearing house association. In New York City the Clearing House requires all banks clearing through it, non-members as well as member banks, to send to the Clearing House before eleven o'clock on Saturday a statement of the bank's condition for the six preceding business days, giving the daily average of specie, legal tenders, deposits, circulation, and loans and discounts. From these statements the officials of the Clearing House make up the weekly bank statement. As stated elsewhere, this report is always looked for with interest as it indicates the scarcity or abundance of loanable funds. If the reserves are close to the legal limit or below it, it indicates a scarcity of loanable funds and a probable rise in money rates; if, on the other hand, there is a good surplus of reserve the rates for money are likely to be easy. 141. Bank examinations. In addition to the reports and statements which banks are required to make they are subject to a variety of examinations as a precaution against negligence and fraud. National banks are examined periodically (at present twice a year) by examiners acting under the authority of the Comptroller of the Currency, and similar examinations of state banks are made by agents of the superintendent of banking or other officers responsible for the supervision of banks under state laws. The visit of the bank examiner comes at irregular intervals and without previous notice to the bank. The regular examinations cover the whole business of the bank, but special examinations may be made to check up the figures given in the report, to appraise the assets, or to scrutinize the work of a particular department. In making the examination the examiner will count the cash, examine the discounts and loans, scrutinize the securities and investments, examine the expense account, and make himself acquainted with the more important features of the bank's business, so as to determine whether the bank is being properly managed and is in a sound condition. The examiner sends in a report to the Comptroller of the Currency or to the head of the state banking department, as the case may be. In 1916 the Comptroller of the Currency inaugurated the practice of furnishing each bank examined with a copy of the examiner's report. For purposes of examination the country is divided into twelve districts, one for each Federal reserve district, with a chief examiner in each. The examiners report to the chief examiner of the district, who in turn reports to the Comptroller. In order that an examiner shall not, by too long service, relax his vigilance, the plan has been adopted in the national bank system of rotating the examiners from one district to another. The efficiency of national bank examinations has been greatly improved in recent years. The national examiners meet several times a year for a confidential comparison of ideas and methods. In some states the national and state bank examiners coöperate by making examinations of national and state banks in the same city on the same day. In a few states the banking laws provide for calls on the same days as those of the Comptroller of the Currency. State bank examiners generally receive a fixed salary, but until recently the national bank examiners received their remuneration in fees, varying from $20 in the case of banks with capital of less than $100,000 up to $75 where the capital exceeds $600,000. These amounts were assessed by the Comptroller and paid by the respective banks. The fee system is open to the objection that the examiner, being dependent for the amount of his remuneration on the number of banks he examines, is tempted to do his work hastily. The Federal Reserve Act abolished the fee system and made other important changes in the matter of bank examinations. The old law provided for the examination of national banks "as often as shall be deemed necessary and proper"; now every member bank in the Federal reserve system must be examined at least twice a year, and oftener if necessary. The Federal Reserve Board is empowered to authorize examinations by the state authorities of state banks and trust companies, but it may at any time direct the holding of a special examination of such state institutions if they are members of the Federal reserve system. The expense of examination is assessed by the Comptroller of the Currency upon the banks examined in proportion to assets or resources held by them at the time of their examination. In addition to the examinations made by the Comptroller, every Federal reserve bank may, with the approval of the Federal reserve agent or of the Federal Reserve Board, provide for the special examination of member banks within its district. Provision is made, also, for the examination by the Federal Reserve Board at least once a year of each Federal reserve bank, and upon joint application of ten member banks the Federal Reserve Board is required to order a special examination of any Federal reserve bank. Congress, or any duly authorized committee of either House, is also authorized to examine the affairs of any such bank. The antiquated fee system of compensating examiners is abolished and the Federal Reserve Board is given the power, upon the recommendation of the Comptroller, to fix the salaries of all examiners. To remove all temptation to partiality the Act provides that no member bank, or any of its officers, directors, or employees shall make any |