So in banking the lending is more of credit than of money, and whoever borrows this money or credit gives the bank some written evidence of his indebtedness, either a promissory note, a draft, a bond, a mortgage, or some other promise or obligation which will be more fully described elsewhere. While some of this credit is granted on the simple written "promise to pay" of the borrower, a large part of these credits or loans is "secured" by different kinds of property, like stock certificates, bonds, chattel mortgages, or other forms of what is known as "personal property" of a movable nature, or by "real estate security," the value of which latter rests entirely or largely on land, or "real estate." Security of any kind given for money borrowed is usually called "collateral," or "collateral security."

Another function of banking is the making of "collec-tions" for its customers, who lodge with the bank checks, notes, drafts and other obligations payable at cities and other places away from the bank. These are sent to other banks, which get payment for them and return the funds collected or "remit the proceeds" to the bank which sends them. Usually a small percentage, varying from l-20th to l-4th of 1 per centis charged for this service, the bank sending them and the bank collecting them usually dividing the percentage or discount paid by the owner of the "collection items."

The collection charge is usually based (1) upon the cost of "transferring" funds, by express or otherwise, between two points, and (2) a charge for interest for the use of money advanced on the "collection item" while it is "in transit" between the two banks handling it.

Intimately connected with the "collection" business is that of buying and selling "exchange," and in this the banks generally perform a very valuable public service, for they furnish the facilities for safely sending or "remitting" funds from one part of the country to another.

This business of making "collections" and "buying and selling exchange" all grows out of business transactions between people in different parts of the country or of the world who, by buying or selling to each other, make "exchanges" of their products. One party in Texas, California or Illinois will buy goods from another in New York or Boston, or a party in New York or Boston will buy cotton in Texas, or wheat in Illinois, or fruit in California, and all the checks or drafts or notes by which the buyer settles for his purchases with the seller are called in general terms "bills of exchange" or "exchange," and are usually handled or collected by the banks.

The details showing how this exchange business is done will be given in an appropriate chapter.

One other function of banking is the borrowing of money or funds by the bank should this ever become necessary. This power is exercised to procure funds in addition to its capital, deposits and circulating notes, with which to grant additional loans or credit to its customers, and again, when a bank has a sudden and unusual demand for funds from its depositors. In the latter case it is a matter of self-preservation, for if the bank were not to meet such legitimate demands it would be insolvent and would have to cease business. So it does the best and only thing it can to save its business. It borrows funds, usually from some other bank, either with or without the collateral security of its assets, uses the funds to meet the demands made, stops lending money or credit, and collects enough from its loans or other investments to pay off the borrowed money.

This power to borrow money should always be reserved for emergencies and not habitually used to procure banking funds in the normal and ordinary course of business.

Banks are usually required by law to publish, from time to time, statements or reports of their condition, for the information of the public who make deposits or deal with them in any way, and of their shareholders, who have their money invested in the capital stock.

These statements on one side show the "liabilities" of the bank, or the amounts for which it is liable or indebted to various parties.

On the other side they show the "assets" or "resources" of the bank, or the various forms in which its funds are invested. The "liabilities" usually consist of:

1. Capital stock, surplus fund and undivided profits, for which the bank is liable to the shareholders or stockholders to whom they belong.

2. Deposits of all kinds, for which the bank is liable to the depositors who placed them with the bank.

3. Circulating notes outstanding, for which the bank is liable to whoever holds or owns the notes issued by the bank.

4. Borrowed money of any kind, for which the bank is liable to the party or parties from whom it has borrowed any funds.

All the parties, except the shareholders, to whom a bank is liable or indebted, are called "creditors" of the bank.

The "resources" or "assets" usually consist of:

1. Loans and discounts, represented by notes, drafts, or any such instrument upon which funds have been loaned out by the bank.

2. Bonds, stocks, real estate mortgages,or any "securities" of this kind which are owned by the bank as investments.

3. Real estate which the bank owns, such, for instance, as the building in which it does business, or such as it has been compelled to take in payment of loans made on security of real estate.

4. Amounts due from other banks and bankers, consisting of deposits made with them, or amounts due for "collections" sent them.

5. Cash, consisting of money of any kind on hand in bank, and "cash items," consisting of checks on other banks in the same place, or any other items which can readily be turned, or "converted," into cash or its equivalent.

Sometimes a bank sustains losses in its resources or assets through ill-judged investment of its funds by its managers, or the dishonesty of its officers or employes, to such an extent that it is unable to pay its liabilities to creditors. In such a case the law creating the bank usually provides for the appointment of an officer, called a "receiver," who takes charge of all its affairs, collects all debts due to the bank, and pays off the creditors pro rata, either in full of their claims or as far as the funds realized or collected from the assets will go. If anything is left after the creditors are paid, the remainder is divided among the shareholders, but if the assets do not yield enough to pay the creditors in full, the law usually provides for collecting a pro rata amount from each shareholder sufficient to make up the deficiency, up to an amount not exceeding the par value of the shares held by the stockholder.

This is called making or "levying an assessment" on the stockholder.

The payments made to the creditors are called "dividends," and the bank is said to have "failed," or to be "insolvent," because its assets can not be "liquidated," or quickly turned into ready money with which to pay off its creditors.

Frequently the shareholders of good, or "solvent," banks wish to stop doing business and withdraw the funds invested in the stock. In such a case the stockholders take a vote on the question, and, usually, if two-thirds of the total number of shares vote for it, the bank goes into "voluntary liquidation," which means that it pays off its creditors in full and divides what is left after this among the shareholders.

The banking system is greatly developed in the United States. Estimates made by the Comptroller of the Currency in his report for 1899 show that there were then nearly 13,000 banking institutions of all kinds in the United States, with an aggregate of resources, or "banking power," of over $12,000,000,000. This "power" is greater than that of the whole of Europe, including Great Britain.

Of this total about $7,500,000,000 consisted of "deposits" made by about 13,000,000 individuals, firms and corporations, known as "individual deposits." About $2,400,000,-000 of these deposits were made in "savings banks" by some 6,100,000 depositors.

These facts and figures illustrate what great and valuable service is rendered to the public by banking institutions in safe-keeping its funds,either such as are saved from earnings by economy and thrift, or are temporarily idle; and, at the same time, in loaning a portion of them out, or otherwise employing them, so that all great as well as small undertakings may be carried on for the benefit of society.

Besides the safe-keeping of deposits and the making of loans and other investments, the commercial banks render a very great public service in furnishing the means and machinery for making "exchanges," by which small and large sums of money can be safely and quickly sent to any part of the United States or of the world.