Fourth, the use of checks greatly reduces the risks of monetary transactions. Unless indorsed in blank, checks are good only in the hands of the person to whose order they are drawn; and accordingly the risks from possible loss or theft are virtually negligible.

Fifth, the check system greatly facilitates the keeping of accounts by individuals. Indeed, the banker may virtually take over the individual's bookkeeping; for if a person deposits with his bank all the money he receives in a year and makes all his payments by check, he always has an accurate record of his financial status. The statement rendered at the end of each month presents a record of all funds received and all funds paid out, and shows the balance on hand. The canceled checks, moreover, serve as valid receipts for the payment of obligations.

Sixth, the commercial banks perform important services for individuals in transmitting money from one part of the country to another. Upon receipt of the necessary funds, the bank draws a draft upon a correspondent bank in the city where the payment is to be made, asking it to pay the designated party a specified amount of money. Settlements between the two banks may be made only periodically; and by virtue of the machinery of domestic exchange already discussed (see pp. 115-16 above), cash seldom moves in the transmission of such funds. The risk of loss or theft is of course reduced to a minimum, and the use of specie is economized by lessening the amount that needs to be in transit. Banks perform a similar service for individuals in cashing checks which are drawn on banks in other localities. The work of banks in effecting international exchanges should be recalled in this connection.

Seventh, bankers act as collection agents for their customers, for promissory notes, drafts, coupons, etc. At or before maturity, the individual turns his credit instrument or claim over to the bank for collection. Upon receiving the funds, through its messenger service or by way of correspondent banks, the bank credits the individual's account with the amount received. If the obligations are not paid, the individual is notified and

the bank officials are in a position to serve as witnesses in proof that the claim has been duly presented.

Eighth, bankers undoubtedly exert a very great influence in the promotion of financial integrity and business ability. In the protection of their own interests banks always pay close attention to the moral character and the ability of the parties with whom they deal. They inquire whether they be honest or tricky, industrious or idle, able or inefficient, prudent or speculative, thrifty or prodigal. Since the banker is used as a continual reference to one's "respectability" and to one's honesty and punctuality in meeting pecuniary engagements, it is necessary for individuals always to have regard for such considerations and to qualify as well as may be for the good opinion of the banking fraternity.

These various services are only the simpler ones performed by the commercial banks. Their functions in connection with the issue of bank notes and the creation of bank credit or deposit currency remain for later consideration. It need merely be stated here that it is these functions, particularly the latter, in modern times, which constitute the distinguishing characteristics of commercial banking; they are what give it its paramount importance in the general economic organization of the modern world.

III. ANALYSIS OF COMMERCIAL BANKING

OPERATIONS

The nature of commercial, like that of savings bank operations, may best be revealed through an analysis of a balance sheet or financial statement of condition. Indeed, only by employing the technical terms used in commercial banking and by working through in concrete fashion on a balance sheet the effects of practical banking operations, can one obtain a clear understanding of the nature of commercial banking. The two financial statements below-the one of a very large national bank, and the other of a relatively small state institution-will be found to furnish most of the data necessary to the analysis which follows:

CONTINENTAL AND COMMERCIAL NATIONAL BANK

OF CHICAGO'

Loans and discounts2

Overdrafts, unsecured

RESOURCES

Customers' liability on account of drafts paid under letters of credit for which this bank has not

been reimbursed .

Customers' liability on account of "acceptances".
United States Government securities:

a) Deposited in United States
Treasury to secure note
circulation

b) Pledged to secure United

50,000.00

355,000.00

$216,489,390.61

32,959.47

3,623.38

6,057,234.50

22,542,500.00

Lawful reserves with Federal Reserve banks
Cash in vaults and due from national banks

Due from state and private banks

Redemption fund with United States Treasury ($2,500) and due from United States Treasury ($9,00c)-total

II,500.00 318,184.13

$402,330,186.90

This includes $25,361,992.36 of loans which have been rediscounted with the Federal Reserve bank, therefore a corresponding liability to the Federal Reserve bank.

3,733,152.27

31,598,419.05

42,309,635.51

35,487,907.63

Certificates of deposit due in less than thirty days

Time certificates of deposit (payable after thirty

days).

United States deposits

Dividends unpaid.

Bills payable with Federal Reserve banks.

Letters of credit and travelers' checks sold for cash

5,885,634.47

772,156.80

4,284,439.15

9,763.00

22,450,000.00

209,458.71

6,057,234.50

3,354,764.07

$402,330,186.90

'Report of condition at the close of business November 17, 1919.

Following the method used in the chapter on savings institutions, let us organize a commercial bank and carry through a series of practical operations. We may start by issuing 10,000 shares of stock which sell at $110 per share. After spending $100,000 for a bank building and the necessary furniture and fixtures, the preliminary statement of the bank would stand as follows:

Commercial bank deposits are mainly a result of loaning operations. The essential difference between commercial and savings banking operations may best be made clear if we consider at the outset the loan item on the assets side of the balance sheet, together with the deposit item on the liabilities side. When the savings bank was ready for business, we saw that individuals brought funds to the bank for deposit, thus giving rise to deposit accounts on the liabilities side of the statement. Commercial banks also receive deposits of cash; but the striking characteristic of commercial banking will be seen most clearly if we first assume that when this bank which we have