160. Savings Bank and Trust Companies. All banks other than national are organized under state laws, and are known as state banks. The most common kinds of state banks are savings banks and trust companies. Savings banks ordinarily receive money for safe keeping, acknowledging receipt by entering deposits in a pass book which the depositor presents upon making deposits, and upon withdrawal of funds. Upon drawing funds, the amount is deducted from the balance shown in the pass book and the balance brought down. Savings banks ordinarily do not permit depositors to draw checks against their accounts. They are required to present their pass books in person, or to give them to an agent or payee designated in a written order to be presented in withdrawing deposits. If pass books are lost, savings banks are not obliged to pay deposits unless indemnified against loss by the depositor. Savings banks are permitted to make loans on real estate.
Trust companies usually have all the power of savings banks with the added power to act in trust capacities as trustees of estates and for bond holders, as executors, etc. They usually do a checking business for the accommodation of their depositors.
161. Clearing Houses. A clearing house is an association of banks of a certain locality, usually of a city, organized for the convenience of its members in making settlements with each other. As a matter of practice, holders of checks do not personally present them for payment at the banks on which they are drawn, but deposit them with the bank with which they do business. These banks collect them from the banks on which they are drawn. Each day, a city bank has deposited with it a large number of checks drawn on other banks of the same city. It would involve much labor to present these checks for payment on the banks on which they are drawn, and secure currency or checks therefor. For convenience, banks organize clearing houses for the purpose of making daily exchanges, with each other, of checks. If Bank A has deposited with it $1,000.00 of checks on Bank B, and Bank B has deposited with it $1,100.00 of checks on Bank A, the agents of the two banks meet at the clearing house, and exchange checks and Bank A pays Bank B the difference between the total amount of checks exchanged, or $100.00. If the membership of the association consists of twenty-five banks, the principle is the same, the members exchange checks and pay each other the difference in amount. Clearing houses have rules by which members are required to return checks not properly drawn, over-drafts, forged paper, etc. within a certain time to the paying bank, or be precluded from raising objections to the clearing house balance.
162. Money. Ordinarily the term, money, is used to designate any medium accepted by a seller from a purchaser in the sale of property. It is the thing that passes current among business men in their dealings with each other. Bank notes, checks, gold and silver, nickel and copper coin, as well as United States certificates, are money. Money is sometimes used to designate legal tender. Legal tender is the medium of exchange which creditors are obliged by law to accept in payment of debts. United States notes, except for duties and interest on public debts, and gold certificates are legal tender. Gold coin and silver dollars are legal tender. Subsidiary silver coin, or half dollars, quarters and dimes, in amount not exceeding ten dollars are legal tender. Nickels and pennies are legal tender in amount not exceeding twenty-five cents. Silver certificates and national bank notes are not legal tender.
163. Discount. Discount is money paid in advance for the use of money. It is interest paid in advance. One of the primary functions of banks is to discount negotiable paper. The states generally have laws fixing the legal and maximum rates of interest. If banks or individuals charge interest in excess of these rules, they subject themselves to the fixed penalties. In connection with usury laws, some confusion has arisen as to what constitutes a purchase and what constitutes a discount. A person is permitted to make contracts and make as large a profit as possible, if no fraud is used. If the contract involves the purchase of a negotiable instrument, as distinguished from a loan of money, he may make as large a profit as he is able. If X desires to borrow $100.00 of Y and Y gives him the money and takes X's promissory note, Y can deduct only the lawful rate of interest. If, however, X holds Z's promissory note indorsed in blank, or payable to bearer, Y may purchase the note from X for any price he is able, and if he makes half the face value of it by the transaction, it is regarded as a sale, and not as a loan. This transaction does not come within the usury laws. A bank, however, by the weight of authority is not permitted to make purchases of notes in this sense. The purchase above described, if made by a bank, would be regarded as usurious. Banks may purchase notes if so authorized by their charter, but may not charge more than the lawful rate of interest as profit.
164. Exchange. Exchange is the term applied to methods of cancelling debts and credits between persons of different places. If X, in Cleveland, owes Y, in New York, $100.00, and Z, in New York, owes X, in Cleveland, $100.00, it is cheaper and safer for X to send Y an order on Z for $100.00 than to send legal tender from Cleveland to New York. This transaction is called exchange. If made between persons of the same country, it is called domestic exchange; if between persons of different countries, it is called foreign exchange. Banks of one city keep deposits in other cities for the purpose of selling drafts thereon to customers.
165. Interest. Interest is the money paid for the use of money. Most states have statutes fixing the rate of interest in transactions where no rate is specified, and fixing the highest rate that may be agreed upon. The following are the rates of interest in the different states:
166. Usury. Usury is the term applied to interest charged in excess of the rate allowed by law. The states differ in the rate fixed by statute as the legal rate. The most common penalty fixed by statute of the different states, is forfeiture of all interest.