BANKING, LOANS, MONEY AND CREDITS
153. Banks Defined and Classified. A bank may be defined to be an institution authorized to receive money for deposit, to make loans, and to issue its promissory notes payable to bearer. A bank may have any one, or all of the above enumerated powers. Some banks have powers in addition to those above enumerated. In the absence of prohibiting statute, any person may operate a private bank. The states generally have statutes authorizing the creation and regulation of banks. At the present time, most banks are incorporated companies.
As to the source of their existence, banks may be said to be national and state. National banks are organized under United States statutes regulating their creation and existence. National banks are discussed more at length under a separate section. All banks other than national are created under state laws, and are called state banks.
As to their nature, banks are generally divided into three kinds, banks of deposit, banks of circulation and banks of discount. Banks authorized to receive money for safe keeping are banks of deposit. Banks authorized to purchase commercial paper by charging interest in advance are banks of discount. Banks authorized to issue their own promissory notes payable to bearer, and actually issuing such notes, are banks of circulation. A single bank may be a bank of discount, of circulation, and of deposit, or it may be a bank of discount, of circulation or of deposit. The ordinary savings bank is a common example of a bank of deposit. A national bank issuing its notes is a common example of a bank of circulation. A national bank usually purchases notes for less than their face value, or makes loans upon notes deducting its interest in advance, making it also a bank of discount.
154. Functions and Powers of Banks. At the present time most banks are incorporated companies. Their authority to exist is given them by the state. Their powers are limited by the provisions of their charter. This question is discussed at length in the section on corporations. A bank cannot engage in business outside the provisions of its charter. Incorporated banks are permitted to pass by-laws by which their functions may the more readily be carried out, and by which the duties of their agents are restricted or defined. Reasonable by-laws, if brought to the notice of third persons, also well recognized customs and usages, bind third persons in their dealing with banks. Ordinarily, banks have the power to borrow money, but do not have the power to deal in real estate. National banks have no power to loan money on real estate, but they are permitted to take real estate mortgages to prevent losses on loans already made. A bank may also purchase real estate sufficient for the construction of a banking building. Banks have the power to collect their own paper, and to act as agents for persons and banks in collecting their paper. The ordinary functions and powers of banks are discussed under separate sections.
155. Deposits. The primary function of a bank is to receive money from third persons and to loan money to third persons. Money received from third persons is money received on deposit. Banks cannot be compelled to receive money for deposit from anyone. They are permitted to exercise their discretion and reject such deposits as they choose. The ordinary method of making deposits is by delivery of currency consisting of gold, silver, copper, and nickel coin, bank notes and checks to an agent of the bank. The agent authorized to receive deposits is usually called the receiving teller. Deposits are usually entered by the receiving teller in the customer's pass book. In commercial banks, deposits are ordinarily withdrawn by check, without presenting the pass book. Savings banks ordinarily do not permit their customers to use checks, but require them to present their pass books when drawing money. The amount withdrawn is entered in the pass book, and the balance brought down. When money is deposited generally, the bank has the right to mingle it with its own funds. It then becomes the debtor of the depositor in the amount of the deposit. If a fund is deposited with a bank for a special purpose, and the bank is so notified, or if papers, such as securities, bonds and certificates of stock are deposited for safe keeping only, they are known as special deposits and are not mingled with the general funds. Subject to the reasonable rules of the bank, a general deposit is subject to withdrawal at the will of the depositor.
156. Checks. A check is a written order upon a bank for the payment of a specified sum of money payable upon demand. Commercial banks generally do a checking business. Some banks, such as savings banks, do not permit depositors to draw checks against their deposits. Savings banks not doing a checking business, usually require their depositors to present their pass books when drawing money. Even though written orders are given to third persons, the pass book must be presented by the third person to enable him to obtain the money on the order. In case of banks which do a checking business, the depositor is permitted to draw checks in any amount, payable to any person. The bank must honor these checks so long as the maker's deposit is sufficient to pay them, and the person presenting them is properly identified. Upon payment of a check, the bank keeps it and deducts the amount from the maker's deposit. These paid checks, or vouchers, are usually returned by the bank to the customer, every thirty days, with a statement of his account. The customer then examines these checks and compares them with his books, and the bank's balance with his balance, for the purpose of discovering errors.
A check is payable on demand and should be presented for payment within a reasonable time after receipt. If the receiver lives in the same place as the maker, the check should be presented during the business hours of that day. If the receiver resides in a distant place, the check should be presented as soon as possible under the circumstances. As long as the bank has funds of the maker, it must honor his checks. If the bank has some funds of the maker, but not sufficient to pay the check presented, it should refuse to pay anything thereon. If the bank refuses to honor a check when the maker has sufficient funds to meet it, the bank is liable at the suit of the depositor, for any damages suffered.