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6. Computation by a Reserve Bank. Some additional figuring is needful to determine the amount of reserve that must be held by a reserve bank which is not in a central reserve city, unless it keeps its entire reserve at home. Of course, any bank can do this; but generally the banks not located in the central reserve cities keep that portion of the reserve permitted by law with other banks, and when this is done then some other questions enter into the calculation.1

7. Reserves of State Banks and Trust Companies. - Until quite recently no duty to keep a reserve was imposed by

1 "This class of reserve banks, it will be remembered, must keep one half of its reserve, 12 per cent, at home; the other half may be kept in banks in

law, with few exceptions, on state banks and trust companies. In imposing this duty on the state banking institutions the law at first did not apply to trust companies as their mode of lending, so they contended, did not require them to adopt the same precaution in maintaining a reserve as banks of discount and deposit. Slowly however the states are applying the same requirements to both, a reserve of about fifteen per cent. In New York City the trust companies have been put into line with the state banks through the action of the clearing house.

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the central reserve cities. It often happens that a reserve bank has a reciprocal account with a central reserve bank instead of simply depositing a portion of its reserve with it, and there are balances due on both sides growing out of collections or other business done by each for the other. How shall these balances be treated? If the balance due from the central reserve bank on this account exceeds the balance due to it, the excess or final balance is available for the 12 per cent reserve that may be kept there. But if the final balance is due to the central reserve bank, then the amount of such balance is to be treated as a deposit due to other national banks,' against which a reserve must be held as previously explained. Though the balance due from a central reserve bank to any other bank may be treated as belonging to the reserve fund that may be kept with other banks, it can never be used to make up a deficiency in that portion of its reserve, 12 per cent, or one eighth of its deposits, which it must always keep at home. This rule is inflexible. But the excess may be used to reduce the liability on deposits having the effect to reduce the balance due to banks or bankers, even perhaps to exclude altogether that item from the calculation. To repeat, when the addition with the reserve banks added to the amount due from other banks and bankers equals or exceeds the amount due to them, the item is then dropped from the computation of the reserve; but when the addition of the excess to the amount due from other banks and bankers is less than the amount due to others, then the effect of the excess is to reduce the amount against which a reserve must be held, as previously explained. When the excess is used to reduce the amount against which a reserve must be held, the calculation becomes somewhat intricate if a bank is desirous of reducing its deposit to the smallest possible amount permitted by law." (Bolles, Practical Banking, 11th edition, page 207, which see for a full description of the way of making this calculation.)

XXI. THE CREATION AND UTILITY OF

SAVINGS BANKS

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1. How Savings Banks are created. The chief differences between banks of deposit and discount and savings banks have been already described. Many a savings bank is created by special legislative enactment on the application of the persons designated therein as trustees; and the life of such an institution is preserved by them through the election of others to fill the vacancies of those who retire. Having no shareholders, this is the only way for such an institution to come into being and preserve itself, for in the beginning there are no depositors; and after deposits have once been made, they may be speedily withdrawn, so that under no conditions can depositors serve as a permanent basis of power. The only meetings ever held by them are on depressing occasions, like their bank's failure, when they are sometimes called together to take action for their common good.

2. Object. -These institutions are intended as places for deposit by persons having small incomes, — the working classes. To this end some states have enacted laws preventing depositors from putting or keeping in a savings bank more than a prescribed amount, in many cases $5,000. Persons of considerable means are often attracted toward ⚫ these institutions by the security they afford, the regularity of their dividends, and the lower taxation to which they are often subjected. And they defeat the restriction above mentioned by depositing more than the maximum amount

in the names of other persons as trustees. Though this evasion has long been practiced, action against such depositors is rarely, if ever, taken.

3. Motives of Trustees and Directors. - The trustees and directors who serve are for the most part moved by philanthropic considerations. They receive no compensation, and in many cases devote much time to their selfimposed service. Nor do they organize the bank and act as managers with the view of obtaining loans, or of reaping in any other way a personal advantage. Of course, there are exceptions; what we have said correctly applies to most of them. Their service is disinterested.

4. Savings Banks Different from Banks of Discount and Deposit. There are two or three radical differences between a savings bank and bank of discount and deposit that ought to be repeated. One of these is in the lending of money. The work of a savings bank is primarily that of investment. Depositors put their money in them, not only for safe-keeping, but to earn interest, and this is gained, not by making brief loans to merchants, manufacturers, speculators, and the like, but to individuals who wish to use it in paying for land or for houses built thereon, and do not intend to repay perhaps for several years. So long as the security is ample and the interest is promptly paid, a savings bank suffers a loan to run, for it is the very object of the institution to make permanent investments.

5. Small Deposits on Hand. A marked consequence of thus investing its money on long-time loans is, it does not profess to have only a very small sum on hand to answer the demands of depositors. If it were actually kept on hand, it would not be loaned, and no interest could be earned; on the other hand, if it is loaned, the bank can

not have possession at the same time. A savings bank, therefore, deals with its depositors in a peculiar manner in the way of permitting them to withdraw their funds. Every bank has a graduated system of notices for the withdrawal of deposits above a small amount: the larger the amount required the longer must be the notice. It is true that a bank is not always governed thereby, ordinarily it will pay any amount desired by a depositor without exacting the notice of him; nevertheless, the system exists, and there are times, when depositors are frightened without cause and run to their bank and demand their deposits, that the wisdom of requiring notice of their withdrawal is manifest. Before the time has expired reason has regained control, and depositors never appear to demand their money.

6. Simplicity of Business. There is another difference between a savings bank and bank of deposit and discount worth mentioning. The business of the former is much simpler because it receives for the most part only money for deposit. Consequently a savings bank has no elaborate system of correspondents or accounts with other banks. It generally keeps a deposit in one or two, perhaps three or four other banks, on which interest usually is paid. One object of this is to have a larger immediate fund that may be used to pay depositors, for the money thus kept is supposed to be at the momentary call of the savings bank. Another object is, when depositors deposit checks they are redeposited by the savings bank with one of its depositories which undertakes their collection. The savings bank has no connection with the clearing house or with banks in general. Each one is a self-centered, self-acting institution without connections with other banks of any kind, except as just explained.

7. Investment of Deposits. Another difference relates

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