Show BANKING A paper read by A. A S. S Rogers of ot tho the Delta State Bank Bank- before the Wednesday Evening Club Whatever may have been the objects objects ob and methods of ot banks In the past the one purpose of banks today as of ot all other institutions and Individuals Individuals Indi Indi- must necessarily be ba the winning winning win win- ning of at the war All borrowing and investments must be made with this thio one purpose In view To speculate o o. o make needless expenditures is un pat patt patriotic otic It would be Intensely Interesting g to consider the banking power of at this country Its ita marvelous growth and development the superior wealth of ot the tho U. U S. S In comparison with all the theother theother theother other nations of the world the plan and purpose of at the Federal Reserve System with without ut which we VIe should not be able to conduct the war on ita its present unprecedented unprecedented scale and the part that even each Individual bank takes In the great scheme But I have been asked by the tho committee to speak seak upon what apparently appears to be a more personal matter and at times perhaps more perplexing that thatis is to say how is it possible for one oneto oneto oneto to borrow money at a bank and to the solution of ot that problem I shall shan now address myself In all that may be said said let us have haven in n mind mercantile and manufacturIng Ing institutions as well as farmers and other individuals The The Tho discus discussion ion don will be divided under three heads for tor convenience viz Bank Credit Bank Collateral and Bank Considerations Bank Credit All borrowing is of two general classes term short and long term This is by no means purely purel a verbal difference for there are clearly marked distinctions between the tho principles that apply In these two classes classe Just where we should draw the line lino between the two is a a. difficult difficult cult question to answer it Is largely a matter of ot usage In Wall Street term short usually refers to obligations obligations obliga obliga- having not more than five years to run In Delta term short means from Crom three to six months Long term usually refers reters to obligations having say twenty years or more to torun torun torun run from Crom date of ot issue The question question question ques ques- tion is not of ot much importance ce as there are aro few tew obligations running between the five and twenty year per per- iod od Long term obligations consist of ot bond issues principally and are beyond the province of this discus discus- sion Banks Banks have to do principally with term short paper which consists consists consists con con- of notes acceptances and accounts accounts ac ac- ac counts payable Notes are divided d dInto into three well three well marked classes 1 Merchandise l notes j 2 notes discounted discounted discounted dis dis- counted at banks and 3 1 notes sold to the tho public The Tho abuso abuse of ot bank credit has long been a weak feature in modern business business busi busi- ness life lite and will not quickly b bo be I eliminated It may arise In two ways either cither by making a wrong application application application ap ap- ap- ap of ot the funds received from the bank or b by obtaining the funds on the strength of or Now there are three legitimate reasons reason why a merchant or farmer should borrow money at a a bank First to finance a temporary shortage shortage short short- age of funds of-funds funds second to increase the stock of ot salable goods on hand or to buy seed and labor which goes into the tho making of ot a crop or for feed which goes Into the fattening of live livestock livestock livestock stock and third to extend additional credit to customers or in the case atthe of at the farmer awaiting returns from crops sold Bold or the receipt of at money duo due him from other sources The first reason may be quite acceptable but only under exceptional circum circum- stances A firm for tor instance may have suffered a loss by fire and have havo insurance insurance insurance in in- in- in payments shortly due in anticipation anticipation an an- of ot which It may properly borrow from its bank A farmer who whoa Is a short of ot funds and borrows money to meet his hia living expenses or to pay old debts shows poor management and will sooner or later come to grief And let It be bo noted parenthetically parenthetically that tho the interests of ot the bank and Ita Its customer are mutual Not in the sense that if It the customer is successful the bank will overflow with money mane but in this sense that if It it is bad policy polley for the bank to mako make a loan lonn that It Is bad p policy llcy for the tae customer to borrow even If It the tho loan lonn loanis la is granted The second reason for borrowing mone money money- is the one that Is customary and aud that Is generally considered soundest It is of ot course necessary for both the the borrower and the tho bank to bo be reasonably certain that the goods goodE being purchased d are salable so that there may be no q question ue tion as aa to meeting the note out of ot the proceeds I of ot the sale The third reason so far as the merchant Is concerned Is also connecter connected ted ter with the sale of ot goods but this time from the standpoint of ot the sel sel- ler It is necessary necessary hero for tor both the borrower and the bank to make sure that the credit which is s being extended to customers is well placed and sound Many concerns have hit the tho rocks on account of ot unduly extended extended extended ex ex- ex- ex tended credits Now if It the borrower Instead of ot using the funds he receives from the bank for tor one of the three purposes mentioned above utilizes it in extending extending ex ex- ex tending his plant or buying more moreland moreland moreland land or even machinery he may properly be said to be abusing the trust of ot his banker More Moro than that ho he is jeopardizing his own financial safety What difference does It make to the banker whether I use his money in one way or another is the answer of ot some farmers sooner or later he will get his money back with interest and amI that's all he needs to fret about Yes but the banker is not in the business of making long long- term loans or loans that may be sound enough but that cannot be paid back on the tho dot The only safe sate banking is term short-term banking and he Is absolutely right when he insists that his loans be used only in quick turns and not for permanent or unsafe unsafe un un- un safe Investments The following g clipping relative to state banks in Utah is of ot importance at this point State Bank Commissioner W W. E. E Evans has started a crusade to get the paper of State banks in Utah particularly the country banks in a amal amore amote mote more e liquid condition Country banks banks in Utah have a large number of ot loans which may run for tor years In some cases these loans are renewed every six months or a year eal but in many Instances so long longas as the interest is kept up the notes are allowed to become long past due There hee 1 are instances of notes in some of or th the tho smaller banks which are several several several sev sev- eral years past due Some banks look with special favor tavor on this class of paper paper pa pa- per considering that a past due duo note is equivalent to demand paper Bank Dank Commissioner Evans looks upon this altogether differently He feels that while the tte paper may possibly be bo sub- sub jf ct to call ull at any time the chances are that lie he borrower will be found u to LO pay when called upon sud sud- and consequently the note must necessarily be very slow in col col- l lection Furthermore in view of the heavy I demands which will be made on all banks for government finan financing ing Mr Evans believes that the State banks should put Jut their paper as much as possible into shape for rediscounting I should this step become desirable I He is therefore insisting that the banks s demand payment or renewal of ot all notes of long standing and that further steps be taken to insure that tho the notes of commercial banks are really liquid uld Mr Evanss Evans's step is also taken as ns a preliminary to State banks Joining tho the Federal Reserve system Bank Collateral We Ve now come to consider the subject subject sub sub- of collateral in obtaining credit at nt a n bank banle Collateral may be conveniently conveniently con con- i classified under three I heads Stocks and bonds Merchandise dise lIse and farm products and Bills and accounts receivable Bankers inthe InI in inthe I the tho United States favor the first class of securities because they are arc supposed supposed sup sup- I posed to be readily salable In this community there is a large largo amount of money loaned upon water stocks i because they have a known or fixed value and the water rights are un un- un- un q questioned Liberty bonds are also good collateral But most of the loans must be made upon live stock and crops and implements are sometimes sometimes some some some- times taken token as a last resort The reason Teason why it is necessary to take additional security in loaning to a I farmer on his crop is the uncertainty of ot the crop When the beet crop Inthis in inthis inthis this community is brought up to the stage of production that obtains in older communities It will be one of ot tho the best forms torms of crop security security avail avail avail- able A hay crop Is la good security because because because be be- cause there is little chance of ot complete completo completo com com- pleto failure and It is a crop that can always be sold or fed into nto live stock and marketed marketell In that way Horses are poor security because of the tho danger danger dan dan- ger of loss and blemishes which do donot donot donot not show on chattel mortgages Cattle Cattle Cattle Cat Cat- tle either stock or cows are aregood aregood good security be because uso there is Ii little danger donger of ot loss Iou and they thoy ar art are constantly growing rowin Into money Live Livestock Livestock stock being being put Into n o the feed yards 8 is IB still better security where the owner has hils sufficient feed to fatten them out not only because they are constantly becoming more valuable but also because they can be sold any day and will be sold at ut the end of the feeding period and tho the loan paid up close association of the beet Industry Industry Industry In In- and aud the livestock Industry Isa Isa is isa a subject worthy of at an evenings evening's consideration con con- and amI need not be discussed here It Is my purpose simply to show Dhow how a merchant or farmer may success successfully tully and profitably obtain credit at nt a bank Bank Considerations Wo We come now to consider t tho ho third division of ot this paper bank considerations considerations consid consid- i or factors considered b by banks in making loans The underlying underlying under under- lying principles followed by the banker in extending credit have havo been touched upon in the two preceding sections It is important to bear in mind particularly first that tho the commercial banker must confine himself himself him him- self to making term short-term loans second second second sec sec- ond that he should satisfy himself that the money he loans is to be Invested invested invested in In- vested in such a way that It can readily be converted into cash third that credit granted on the general standing of ot a business enterprise entitles 01 en titles the banker to full and knowledge of the Inside working ethe o e othe the enterprise fourth that collat collate a. J to be bo acceptable should either of ot se securities and merchandise which are readily salable or of ot drafts and accounts receivable which are I quickly convertible into cash In other words worde that the loan should be self For Instance money loaned on fattening cattle which are arc soon to be resold j money loaned to buy feed for cows where the farmer expects to rec receive lve a cream check with which to repay the loan money loaned on a growing crop that thatis is to be sold at harvest time money loaned on a shipment of ot wheat with draft and bill blU of ot lading attached where draft dratt will be paid upon arrival of ot car It is not the province of ot a bank to capitalize any business or farming operation For instance a bank is capitalizing a farmer when it loans him m money ney with which to buy a farm or machinery It Is capitalizing capitalizing ca ca- ca a merchant when it loans money which goes into buildings fixtures or into the permanent stock investment Loans of this nature are constantly being sought But Dut supplementing these four basic principles there are some observations observations observations to be made at this point as to factors which are taken into consideration consideration consideration consid consid- by banks in making loans First of ot all attention should be bo directed directed directed ted to the he growing custom of requiring requiring ing detailed financial statements of customers to be filed from time to time There was a time in this country not many years ago when a abanks abanks abanks banks bank's request for such a statement was looked upon by the the customer a as asIn asin In the nature of an affront or an Im im- pertinence However this feeling is is rapidly giving way to the saner idea that a bank is certainly entitled to I reasonably accurate and full information information tion as to any concern or individual to which it is loaning money and that it is to the Interest of interest of conservative borrowers to comply with wish the banks bank's request for tor statements and thus put itself in a different class from non- non conservative borrowers who arc are inclined in- in ed clil to be secretive Again banks banIs In making lo loans lotins ns will observe tho the legal requirements in force torce such as the requirements of the tho Federal Reserve banks In order that a n banks bank's paper may be readily rediscounted at nt these reserve banks if necessary Another unwritten rl rule mile le that has been customary among banks in making loans is that at least 20 per percent percent cent of at the loan shall remain on de do- deposit deposit posit in the bank bani leaving only 80 per percent percent percent cent available for tor meeting obligations obliga This is a long standing custom custom custom cus cus- tom but Is not universal I have never tried to on enforce force any such arbitrary arbitrary arbi I rule but have insisted that the borrower become a a real customer of the bank bani and that he terminate all connections with other banks in the community It is quite apparent t that when my bank loans money to a aman aman aman man who carries arries a deposit with another another an an- other bank that I am directly deposIting depositing depositing depos depos- my banks bank's money with my com com- Again it is not good banking banking banking bank bank- ing practice to loan lonn money to a man who has at another bank either with or without security I Just discovered tho the other day that I held a second mortgage on some horses on which a neighboring bank held first filst mortgage If It I am not able to tal take tako e caro care caro of all nIl of ot a mans man's needs I do not want wont to tako take care of ot any of them I want to know Just what he heIs heIs heis Is doing and It is almost Impossible to know his true condition when he heis heis heis is dividing his business It Is even worse for a n man to to borrow money at two banks than It is to raise sugar beets for tor two different companies Another rule Is that all bank loans should be cleaned up once a year so that the bank may make sure trO D that the money it lends is not going into permanent investments This Is especially necessary in |