CHAPTER XVII

THE ADMINISTRATION OF A BANK

182. Variations in organization. The services of a single bank may be few or many. The number of customers may be small or great. The kind of organization must vary according to the size and character of the bank. There are banks where one officer and an assistant do all the routine work and an unpaid committee passes on loans. At the other extreme of organization are the large city banks whose officers number from twenty to almost a hundred and whose employees are numbered by the hundreds and thousands. One New York bank has a chairman of the board, three vice-chairmen of the board, a president, and twenty-eight vice-presidents. The larger the bank and the wider its range of services the greater becomes the division of the organization into departments. A department may be in charge of an assistant cashier or a manager. If the duties and responsibilities of a department head are great he may have the rank of vice-president and be assisted by an assistant vice-president and one or more assistant cashiers. If a bank has a trust department it will have a trust officer and assistant trust officers. In large banks there are found personnel departments, whose business it is to make job analyses, select employees, and provide for their training, proper compensation, and wellbeing.

Bank salaries in the United States range from nothing, received by the president who gives a little of his time gratuitously, to $100,000 to $150,000 received by the presidents of some of the largest banks. Notwithstanding

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such wide differences, bank services and bank organizations are similar enough to enable one to understand them if he becomes familiar with a typical bank. In this chapter the organization of a southern bank with a capital and surplus of one million dollars and total resources of over ten million dollars will be described.1

It is not intended to give such an exposition of the operations of a bank as one who seeks to become a bank employee would want. It is desired to point out enough of the duties and methods of bank officials and employees to make the customer have an appreciation of the services which are being performed. A knowledge in general of how the bank does its work will contribute to the sympathetic relationship which must exist between the members of a banking organization and its clientele.

183. The character of the bank. Every bank strives to perform the banking services which are needed in a community. In that sense the customers determine the bank. If a bank succeeds in reaching customers in all sorts of activities with wide demands the services of the bank will cover a broad field. If a bank by choice or competition reaches patrons who are largely engaged in the same lines of business its services become highly specialized. If one studies the financial interests of a community he can outline the nature of the greater portion of the activities of its banks. The bank to be described in this chapter is located in a town in the center of an agricultural region devoted principally to the culture of cotton. Cotton then, rather than automobiles, grain, steel, or mining, receives special attention. Stock raising and jobbing are secondary interests.

1 The material in this chapter is to a large extent an adaptation from a thesis entitled "The National Bank, X-town, Texas," presented by Hubert B. Jones as a part of his work in the University of Texas.

This bank receives both commercial and savings deposits, rents safe-deposit boxes and storage space, accepts securities for safe keeping, and in its exchange department maintains special facilities for the purchase and sale of drafts on foreign banks.

Its loan service provides for advances of money and credit to finance the following activities: the purchase and sale of merchandise and securities; the making, harvesting, and marketing of crops; the purchase, feeding, raising, and marketing of cattle; the export of cotton; the manufacture of cotton products and other commodities; and the export of manufactured products to Latin America.

The credit, financial, and general information services of the bank provide: information as to the financial responsibility, business ability, and character of domestic and foreign corporations, firms, and individuals; information as to the general or particular status of stock, bond, or security markets; information as to the value of investments; and machinery for the collection and distribution of useful information for agricultural producers.

While this bank has authority to act as trustee, executor, and administrator, it has no fiduciary department. Many of the same stockholders are interested in a nearby trust company and the field is probably intentionally left to it.

184. Stockholders. What stockholders may do in administering the affairs of a bank depends upon the provisions of the banking law and the bank's own charter, or articles of association.

The stockholders of this bank meet not less than once a year. They pass on the statement of earnings and expenses for the preceding period. They have the right to vote for increases or decreases in the capital stock, and to authorize the consolidation, sale, or liquidation, of the bank. At the annual meeting in January of each year the stockholders elect the directors for the ensuing year.

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It is through the choice of directors that the stockholders control the policies which the bank is to follow (see 230).

185. The directors. The responsibility for the control of the bank rests upon the directors (see 230). In this bank the directors meet once a month in regular session and at other times when they are called together by the chairman of the board. It is customary for the board of large city banks to meet weekly.

The directors outline the general policy of the bank; elect the officers of the bank and fix their salaries; pass on the reports of the examining committee, the loan and discount committee, and the statement of condition of the bank as prepared by the cashier; pass on the purchase or sale of real estate by the administrative officials of the bank; receive and act upon the instructions which are received from the Comptroller of the Currency; authorize the purchase or sale of bonds, the issue or redemption of circulating notes; authorize the borrowing of money by the bank, determining the maximum amount which may be borrowed; and determine the maximum amount of loans for different lines of business. It is the directors who declare dividends. The directors adopt the by-laws of the bank and they have full authority to delegate their powers to the officers and employees of the bank. Any of these officers may be dismissed at the pleasure of the directors.

186. Chairman of the board of directors. The chairman of the board calls together the board and presides at its meetings. He is the official medium through whom the rulings of the board are transmitted to the officers of the bank. In many banks the chairman of the board has other duties prescribed and devotes his entire time to the business. Usually the chairman of the board has previously served as president. In most banks the president of the bank is also chairman of the board of directors.

187. The examining committee. The board of directors elects a committee to whom it delegates the task of thoroughly checking the operations of the bank. This would be an impossible task for each director personally to perform, and yet he is responsible for the way in which the business of the bank is conducted. This committee verifies the report of the management of the bank both as to business policy and the mechanism by which the services of the bank are performed; verifies the cash. account, all book accounts, and the statement of condition of the bank; and lists and verifies all securities held by the bank and all loans which have been made by the bank.

188. The loan and discount committee. A young bank clerk asked an experienced banker what was the biggest thing to know about banking. He answered: “To be reasonably certain, when you make a loan, that you will get your money back." While directors must delegate the loan-making power it is their duty to supervise it. The usual method is to require large loans to be approved before they are made, and to require all loans to be reported at frequent intervals to the board.

The committee of this bank is composed of the president, first vice-president, and second vice-president, all of whom are directors of the bank. The committee must pass on applications for all loans in excess of $1000. It is likely that the recommendation of the officer in charge of each class of loans will be adopted, but the approval of the other members of the committee is necessary. One member of the committee may have information that the others lack. Anyway the funds of the bank and its depositors are safer where loans are made upon the agreement of several men. The committee keeps a record of all applications and the action taken. It makes a complete report each month to the directors.