in raising the needed money by indorsing his name on a note. The neighbor does not like to make himself liable in this way and tries to decline. The hardware man feels that the unwillingness to indorse his note is a criticism of his standing in the community, and ill feelings are the result, even before the note goes to the bank.

At last the hardware man persuades his neighbor to give the required indorsement and he goes to the bank with the coveted piece of paper. An accommodation indorser is liable on the note to all parties except the person accommodated. The fact that he has received no consideration does not make any difference. He has indorsed to lend his credit to the paper and he may be held even by those who know his indorsement to be an accommodation and without consideration. Altho the banker knows the maker's condition, and knows that there is a possibility that he may not be able to pay the note at maturity, he does not wish to offend the indorser. After due hesitation he makes the loan to the hardware man, but notifies the neighbor that he is held responsible for the note.

It may be stated as a general rule, that accommodation paper of any class is not a desirable bank asset. The bank depositor who values his credit-standing will remember the proverb quoted, as well as the fact that this practice does not raise him in the estimation of his banker.

18. Inquiries at the bank.-Bank credit is valuable for a business man, especially in a community of

moderate size, where every man is acquainted with his neighbor. Banks are frequently requested to give information regarding the credit-standing of their depositors. While they guard carefully against giving details about a man's business, they must, of course, give some answer to the inquiries made. The value of a person's account with the bank, the nature of his business, his business methods, and his general standing in the community, all have an influence on the banker when he makes his estimate. Even a small account, if properly handled, is well spoken of by the banker. When a depositor files a statement, the banker is always in a position to give information based on facts, if he has made a complete investigation of the borrower's credit-standing.

No man can prevent his creditors from asking questions about him, nor can he prevent his banker from telling what he knows. Suppose a business man should go to his banker and say: "Of course, you are called upon from time to time to answer inquiries regarding your depositors, and I know that you are careful not to divulge confidential information, but I wish that hereafter you would refuse to give any information or to express any opinion whatever regarding me." Then, suppose that a creditor of this business man follows him to the cashier's desk and makes a direct inquiry, to which the banker should reply, "Well, Mr. Credit Man, I would like to oblige you by giving you the information, but I have been instructed by Mr. -to say nothing about him or his

credit-standing. If you will ask me about any other of our depositors, I shall be pleased to help you all I can." The credit man would make every effort to find out what the banker knew about the credit-standing of this merchant, and if he failed, he would report to his house and instruct them not to ship any more goods to Mr. Merchant until he should have an opportunity to make further investigation.

One's credit-standing at the bank should be guarded with care. Misunderstanding, however insignificant, should not be allowed to open a breach between the banker and the depositor, for the changing of an account may hurt the depositor as much as it does the banker.

REVIEW

Make an analysis of the statements given on pages 72 and 73. In this analysis give particular attention to the following items: comparison of bills payable with accounts payable; comparison of finished goods, unfinished goods and raw materials; turnover of capital; relation of cash balance to amount borrowed; ratio of quick assets to current liabilities.

Make a similar analysis of the statement on pages 74 and 75. What specific reasons, besides the results of the comparisons indicated above, would lead you to grant or refuse credit to either of these concerns?

Give an instance of check-kiting involving three parties in the transaction. What are the dangers to each of the parties? A wishes to buy ten shares of stock in a good company, but has not cash enough to pay for them. What two possible methods may he adopt to obtain the money? How may the bank help him to use one of these methods?

Give the chief rules for analyzing a statement, with particular regard to ratios of volume of sales to capital, cash balance to notes discounted, merchandise to annual sales, accounts receivable to net sales, quick assets to current liabilities.

CHAPTER VI

BANK NOTES

1. Definition.—A bank note is the promise of a bank to pay money to the bearer on demand. At one time it was the custom of banks in the United States to issue notes payable at some fixed time in the future. Such notes were called "post notes" and, at the time, there was a reason for their issue. Payments to distant parts of the country had to be sent by way of the slow-moving mails of the day, and robberies were not infrequent. Notes payable only at a given time and at a given place were not a tempting spoil for the highwayman.

The Bank of England makes a small issue of post notes, "seven-day bills," for the purpose of making remittances thru the mails. In this country, however, we would consider the issue of post notes as an attempt of the bank to borrow on time, and would interpret it as evidence of unsoundness in the bank's condition. Undoubtedly the post note offers peculiar temptations for unsound banking, and its issue by national banks has therefore been prohibited.

Bank notes are a form of credit money in the community or country where they are generally acceptable. Like all other credit money they should not

bear interest. Otherwise, their value would vary from time to time as interest-due dates approached. The first notes of the Bank of England bore interest and were inconvenient, as their value had to be figured whenever they changed hands.

Bank notes should be issued in uniform style, for round sums, and in such denominations as are convenient in daily transactions. They should be transferable without formality, and without recourse on the part of the holder to any previous holder except the issuing bank. Bank notes do not come under the statute of limitations. A note issued a hundred years ago is a valid claim today if the issuing bank is still in existence.

2. Evolution of the bank note.—The modern bank note is a product of slow development. Few countries, even today, have a perfectly satisfactory system of bank note issue. MacLeod finds that certificates representing deposits of gold and silver were issued in China, under the Chang dynasty, as early as 807. Credit instruments bearing some of the characteristics of bank notes were issued by the goldsmiths of London in 1670. All these notes were fully "covered”—i.e., they were backed sovereign for sovereign with a reserve of standard money. As these notes were more convenient to handle than the coins, which were of varied issues of differing weight and fineness, the custom of issuing them grew until the issuers began to print blank forms to be filled in with the names of depositors and the amounts due to them. Finally,