drawn thereon for examination. As this settlement is in truth a payment of its checks, the work of examining them belongs nominally to the paying teller. In the larger banks, however, he has but little if any time that he can give to this work. There are several things to be done in a comparatively short time, because the final settlement must be made during the day. So others take the work in hand; the checks are carefully examined, the signatures, indorsements, the balances of depositors, if there is any doubt about a sufficiency to pay them, and they are charged to the drawers. Assuming that they are all right, the messenger then goes back for his final work. When his bank is a debtor, he must take the means to pay the indebtedness; when it is a creditor bank, he goes to receive the amount due.

12. Payment of Balances. The banks have strict rules concerning the payment of these balances. They must be paid before a specified time and in specified funds. In some places banks have a deposit of gold with the clearing house against which it issues certificates, generally in amounts of $5,000. In New York the balances must be paid by the debtor banks to the clearing house between 12.30 and 1.30 o'clock either in actual coin, United States legal tender notes, or in gold certificates issued by the United States or the clearing house. At the latter hour, or on the subsequent completion of the accounts, the creditor banks receive the balances from the clearing house manager, assuming, of course, that the debtor banks have all paid their balances. Should any bank make default in the payment of its balance at the proper hour, the amount of that balance must be immediately, on requisition from the manager, furnished to the clearing house by the several banks exchanging with the default

ing bank in proportion to their respective balances against that bank resulting from the exchanges of the day. The amounts so furnished constitute claims against the delinquent bank only, for the clearing house is in no way responsible. The defaulting bank is immediately suspended from the clearing house. At several American clearing houses the regulations provide that until the settlement is completed and balances are paid the exchange shall be in trust only, that the vouchers delivered at the clearing house shall, until that time, remain the property of the bank presenting them, and that in case of default by any member in paying its balances, such vouchers shall be returned unmutilated to the banks from which they were received.

To hasten the payment of balances three different kinds of certificates are used: gold clearing house certificates, issued against gold deposited with the clearing house by the respective banks to which the certificates are given; United States gold certificates, issued by the government to the depositors of gold; United States legal tender certificates, issued by the government to the depositors of legal tender notes.

The gold clearing house certificates are numbered, registered, and countersigned by the proper officer, and indorsed when paid into the clearing house by the paying bank, and when paid out are charged to the receiving bank, so that they can always be traced by the records. Their use, however, is restricted to settlements between banks, and they never enter into general circulation.

The United States gold certificates are issued against the deposit of gold coin in denominations of $20 and upward. Large deposits of gold have been made from time to time for which these certificates have been given,

chiefly for the purpose of having the gold stored. It is a convenient and inexpensive way for the banks to obtain storage of the metal. By this method the government

becomes a free depository.

On several occasions the clearing houses have issued another kind of certificate that requires explanation. These have been issued to their members at times of great stringency in the money market on the deposit of discounted notes of unquestioned value. The committee of the clearing house is vested with this authority and has always acted with great prudence, never issuing certificates for more than fifty or sixty per cent of the value of the securities deposited. The certificates are signed by the clearing house committee, and are used simply by the bank receiving them to pay balances due to other clearing house banks. They have never been used continuously for more than a few months; then they have been retired by the banks for whose benefit they were issued. On their retirement their own securities have been returned. first issued in 1853, the last time in 1893.

They were

XXIX. LOAN AND TRUST COMPANIES

1. Original Design. — The original design of loan and trust companies was to insure lives and grant annuities; the business of holding trusts was a secondary consideration. As they had money to lend, they assumed to some extent banking functions. Gradually their original purpose diminished in importance, until the newer companies do not undertake the business of insuring lives and granting annuities, while the older companies are retiring from it, leaving the field entirely to life insurance corporations. 2. Business of a Modern Trust Company. The business of a modern trust company therefore combines that of a bank with the execution of a great variety of trusts. Many of the recent trust companies are nothing more than banks, possessing a capital, receiving deposits, and lending both. Why, then, do the projectors organize as a trust company? Because they have a greater latitude of authority. That possessed by the national banks is comparatively narrow, and is carefully guarded. Indeed, it was at one time questioned whether a national bank could buy paper, and a large number of decisions have been necessary to define their powers. It can not, for example, act as a broker in negotiating the sale of securities, and especially in guaranteeing them. A trust company is endowed with larger powers. It can transact more kinds of business and earn larger profits.

3. Interests on Deposits. As a bank, the methods of a trust company are somewhat different from those of a

purely banking institution. In dealing with depositors the greatest difference is in paying interest to them on their deposits. This has proved a powerful magnet, for though only a few trust companies have been existing many years, they possess in the aggregate a large amount of deposits. Indeed, their popularity is growing so rapidly that discount banks doubtless will be compelled ultimately to pay as high rate of interest in order to retain their customers. If a trust company is as solvent and as well managed, in short, is as worthy of confidence, why should it not be patronized? More and more are depositors led by these considerations to intrust their money to

them.

4. Lend on Collaterals. In lending their funds trust companies profess to be governed by somewhat different principles from other banks. They lend only on collaterals. The purchase of paper, or the discounting of notes on the faith of their makers and indorsers, is beyond their province. One reason for thus restricting their loans is to conform to their charters, which, in many cases, forbid them from going farther. The newer trust companies, organized under general laws, in most states, possess larger liberty, and lend their money on essentially the same conditions as other banks.

5. Reserve not required. Trust companies, except in a few states, are not required to keep a fixed reserve. This is an obvious advantage to a banker who believes in lending as much as possible and in running his chances. with depositors who may call for their money. Many of the state banks have a similar advantage. The national banks have long complained over this untoward condition between themselves and the state banks and trust companies. At times, when business is poor and competition