Hand-book for bank officers

Preface

>' TN preparing this (the third) edition of this work, some important ^ 1 additions have been made, the chief of which are the two new 5 chapters on the powers and duties of the President and Cashier, respectively.

Though treating specially of the law and practice governing National

^ banks, the volume, as it now stands, will be found valuable and useful

~ to the officers of any commercial bank, for the reason that the National

^ banking system embodies the very best features of commercial banking,

as is conclusively shown by the wonderful success, growth and strength

attained by it in a period of about twenty-five years.

Perhaps the best proof of the merit of the work is the fact that it has J reached a third edition in sixteen month's time, a result largely owing to the commendation kindly expressed by some of the most prominent and successful bankers in all sections of the country.

January, iSgi.

38642*?

CONXKNXS.

CHAPTER I. Page

Legal requirements i

Required on deposits only 3

Ivist of reserve cities 3

Classification of banks with regard to percentage of reserve

required 4

Various forms of lawful money available for reserve 5

Deposits, and sundry items which are allowed to offset deposits 7

Reciprocal accounts with reserve agents 8

Examples showing how reserve should be computed in ordinary cases 9

Exceptional cases 12

Rules for finding exact excess with reserve agents and for applying it to reduction of liability on deposits 12

Examples showing how reserve should be computed in exceptional cases 15*"

CHAPTER II. Explanation of rules applying in exceptional cases 17

Explanation of case of 25 per cent, reserve bank 17

Explanation of case of 15 per cent, reserve bank 19

Simple method of keeping the 5 per cent, redemption fund

account 20

How to compute average reserve 22

Form of application for Comptroller's approval of reserve agent 22

Part Two. Chapter I

ORGANIZATION OF NATIONAL BANKS.

Minimum capital stock required 24

Increase and reduction of capital stock 24

Minimum bond deposit requirements 25 vi CONTENTS.

CHAPTER II. P^ee-

QUALIFICATIONS, DUTIES, AND LIABILITIES OF DIREC- TORS.

General information as to duties 27

How directors should be chosen 30

Scope of powers conferred upon directors — Specific duties . . 31 Decisions as to liabilities — What would constitute violation of law " knowingly " committed or permitted 33

Chapter III. Books, Accounts, And Records

Form for daily statement of resources and liabilities 41

Chapter IV. General Banking Powers Conferred By Section 5136, Paragraph 7

Court decisions construing these 42

Power to borrow money — Power to issue time certificates of

deposit 45

Bills payable defined 48

Post-notes defined 49

Right to deal in stocks and bonds denied by the courts ... 50

* Purchasing commercial paper 54

Chapter V. Transactions In Real Estate

Restrictions imposed by law 57

Securities based on real estate values 59

Supreme Court decisions 61

Chapter VI

RESTRICTIONS AS TO LOANS IMPOSED BY SECTION 5200. Examples illustrating excessive loans and such as are not

excessive 64

Deposits with banks and bankers regarded as loans 68

Exceptions as to discounts, and examples illustrating these . 69 Overdrafts are loans 72

Chapter VII

RESTRICTIONS WITH REGARD TO A BANK'S ACQUIRING AND HOLDING ITS OWN STOCK.

Penalty for holding beyond time limit 73

CONTENTS. Vll

Chapter VIII

EARNINGS, SURPLUS AND DIVIDENDS. Page.

Legal requirements regarding net profits and surplus — Bad

debts defined 76

Legal requirements with regard to reports of dividends and

earnings — How to make these up 78

Capitalization of surplus 80

Chapter IX. Reports Of Condition Required By Section 521 1

Information with regard to same, filling out schedules ... 82

Verification and Attestation 86

How to proceed in absence of three directors or of both president and cashier 87

Penalty for delay in forwarding reports 87

Chapter XIV. General Remarks, In Conclusion, Regarding The National-bank System 105

Notes.

Additional Reserve Cities.

On page 3 of this volume it is stated that there are nineteen reserve cities, and on page 4 a list of these cities is given. To this list should now be added the names of three more which have recentl}- become reserve cities — making a total of twenty-two (22) reserve cities at present (December, 1890).

The following is a list of the three cities referred

to and the dates upon which they were approved

by the Comptroller:

Minneapolis, Minn., approved July 5, 1890. St. Paul, " " July 8, 1890.

Brooklyn, N. Y. " July 14, 1890.

Lawful Money.

To the list of various forms of lawful monej^ on page 6 should now be added U. S. Treasury Notes issued under act July 14, 1890, which are also available for lawful money reserve.

I-Iand=Book

FOR

BANK OFFICBRS.

Chapter I. I.awful-money Reserve

Legal Requirements.

The "reserve" of a bank is that proportion of its "deposits" or liabilities payable on demand, which it is reqnired, by law, "at all times" to "have on hand in lawful mone}^ of the United States."

The law bearing on the subject is to be found in sections 5191, 5192, and 5195, United States Revised Statutes, chapter 4, National-bank Act ; in sections 2 and 3 of the act of June 20, 1874 ; and in sections i and 2 of the act of March 3, 1887. All of these will be found in the "National-bank

Act," edition of 1888, compiled under direction of the Comptroller of the Currency.

The cash resources which the law requires a bank to lay aside at all times in this way constitute the sheet-anchor of safety in stormy financial weather, and as a matter of policy alone, apart from other considerations, too great stress can not be laid upon the importance of a faithful and uniform compliance with the law in this particular, in spirit as well as in letter.

Striking proof that this view of the subject is held and practiced by bank managers as a body is found in the fact that although the law requires National banks located outside of reserve cities (over 2,800 in number) to maintain a reserve of 15 per cent, only, their reports show that these banks habitually carry a reserve equal to an average on the whole of over 28 per cent. (See page 195, Comptroller's Report for 1888.)

That the framers of the law evidently realized the importance of this feature also, is apparent from the fact that the law prescribes for habitual violations of the statute, in this particular, the summary and severe penalty applying in only a few other places, viz., the appointment of a receiver to wind up the bank's affairs. (See section 5 191.)

LAWFUI.-MONEY RESERVE. 3

Required on Deposits only.

Attention is here called to the fact that previous to the passage of the act of June 20, 1874, the law required National banks to maintain a reserve on their "circulation" outstanding as well as on their "deposits," but this requirement was repealed b}^ the act named, and since then a reserve has been required on "deposits" only. The act of 1874 also provided that each bank should keep on deposit with the Treasurer of the United States an amount of lawful money equal to 5 per cent, of its "circulation," for the redemption of which at the United States Treasury this act provides, but the bank was at the same time permitted to count this " 5 per cent, redemption fund" as a part of its reserve on "deposits."

List of Reserve Cities.

There are at present nineteen "reserve cities,"

as per list given below, sixteen of which were designated in section 5 191, while three others, viz.: Kansas Cit}^, Mo., St. Joseph, Mo., and Omaha, Nebr., have been recently added under the operation of the act of March 3, 1887.

Chicago and St. Louis, which had been "reserve cities" previously, became "central reserve cities" under the provisions of the act of March 3, 1887.

See note on page facing first page.

Central Reserve Cities:

New York City, N. Y.

Chicago, 111. St. Louis, Mo.

Reserve Cities :

Boston, Mass. Washington, D. C.

Classification of Banks with regard to Percentage of Reserve required.

It will be found, from the portions of the law quoted, that in the matter of reserve requirements the National banks are divided into three distinct classes, according to location, viz.:

1. Those located in the three "central reserve cities," which are required to maintain a reserve equal to 25 per cent, of their "deposits," and to keep the entire amount on hand in bank.

2. Those located in the sixteen other "reserve cities," which must also maintain a reserve of 25 per cent, on " deposits," but are required to keep only one- half oi same on hand /;/ bank, while they may keep the remainder on deposit with any National bank, or banks, located in any of the '* central reserv^e cities."

3. Those located outside of the nineteen "reserve cities," which are required to maintain a reserve of only 15 per cent, on "deposits," and to keep on hand in bank only two-fifths

See note on page facing first page.

r

tAWFUIv-MONEY RESERVE. 5

of this, while the remainder may be kept on deposit with any National bank, or banks, located in an}^ of the nineteen "reserve cities."

Of course, if any bank of the second or third class does not avail itself of the privilege of keeping a portion of its reserve with "reserve agents," it must keep the entire required amount on hand in bajik.

It will be observed that while section 5192 included banks located in Richmond and Charleston among those privileged to act as "reserve agents" for the 15 per cent, banks, section 5 191 did not impose upon them the necessity for keeping a reserve eqtial to 25 per cent, of their "deposits," as was required of banks located in the other cities named in section 5192, and for this reason the privilege of acting as "reserve agents" has never been accorded by the Comptroller's of6.ce to National banks in those two cities.

Various forms of Lawful Money available for Reserve.

As the law prescribes that the reserve of a bank must be in "lawful mone}^ of the United States," the term "lawful money" is defined as follows:

Previous to the resumption of specie payments, on the ist of January, 1879, "lawful money" virtually meant United vStates "legal-tender" notes, gold and silver coin being, until then, at a premium, and not in general circulation, but since then the term has embraced various forms of currency, which it is important for every bank to know, in order that it may intelligently carry out the requirements of the law in the matter of reserve. The following list of the various forms of "lawful money" available for reserve purposes existing at present is, therefore, given:

1 . Gold coin of the United States.

2. "Standard" silver dollars of the United States.

3. Fractional silver coin of the United States.

4. Certificates for gold coin deposited with the Treas-

urer of the United States.

5. Certificates for silver dollars deposited with the

Treasurer of the United States.

6. United States "legal-tender" notes.

7. Certificates for "legal-tender" notes deposited with

the Treasurer of the United States.

8. Gold clearing-house certificates.

In order that reserve may readily be computed at any time, and that the information required for reports of condition (which are always called for past dates) may be fully and accurately stated, it is absolutely necessary that a daily and exact record of the amount of each kind of the various kinds of currency should be kept for this purpose. That this may be done, it will of course be necessary to

See note on page facing first page.

I^AWFUL-MONEY RESERVE. 7

assort the cash on hand at close of business each day, and in doing this, National-bank currency should be separated from other forms of paper currency, and in case a bank has any notes of its own issue on hand, these should in turn be separated from those issued by other banks.

Deposits, and Sundry Items which are allowed to Offset Deposits.

The term ''deposits," used in those portions of the law which bear on the subject of reserve, embraces not only all classes of what are known as '' individual deposits " held b\^ a bank, but deposits made by the United States Government and by its disbursing officers also.

Balances due to other National banks and to State and private banks and bankers, being, as a rule, payable on demand, have always been regarded as "deposits" also, and any bank holding these has been required to maintain a reserve upon such balances, balances due from other banks and bankers being allowed to "offset" the balances due to them; but when in au}^ case the amount due from banks and bankers exceeds the amount due lo them, such excess can not be applied in reduction of liability on other "deposits," and amounts due from and to banks and bankers are then excluded from both sides of the calculation necessary for determining "deposits" and reserve required thereon.

The other items of a bank's "resources" which, under the various rulings of the Comptroller's office, are admitted to offset or reduce its liability on "deposits" are as follows:

1. " Exchanges for clearing-house," viz.: checks on other banks in same place, which are members of a clearing-house.

2. " Checks on other banks in same place."

3. "Bills of other National banks" held by the bank. Bills of the bank's own issue are, of course, not admitted to offset its liabilities on ' ' deposits. ' '

Reciprocal Accounts with Reserve Agents.

It is the custom with some banks to keep reciprocal ^.o.down'i.^ with their "reserve agents," and in such cases the question arises as to how these items should be treated.

As the law provides that a portion of a bank's "reserve may consist of balances due to" it " from associations approved by the Comptroller of the Currency," such items should, as a rule, be treated as follows in computing reserve:

1. If the balance oi any such "reciprocal account" is an amount ^mq^ from the "reserve agent" bank, ?m<i\i balance may be treated as available for reserve.

2. But, if such balance represents an amount due to the "reserve agent," then it should be regarded as " due ^'t? other National banks, ' ' and so treated.

Examples showing how Reserve should be computed in Ordinary Cases.

To clearly illustrate how the reserve of a bank should be computed in any ordinary case, two examples are given here; the first (Form A) of a bank which should have 25 per cent, on hand; the second (Form B) of a bank which should have 15 per cent, on hand. Each of these examples is computed on a form identical in every respect with the printed blanks now used in the Comptroller's office for this purpose.

The great advantage of this form consists in the fact that down to the point of finding the amount of "deposits" upon which reserve is to be maintained, the process is the same iox all banks regardless of location. Beyond this point it is only necessary to apply the proper proportion required by each case (viz., 25 per cent, or 15 per cent.), and the proper distributioii of the reserve in bank and i7t hands of agents required in such case.

In exceptional cases, which are defined and illustrated on pages 12 to 20, all that is needed is to extend the ordinary computation a little further b}' a very short and simple calculation. Concise rules for this calculation are given on page 12.

With a copy of this general printed form, and the few rules referred to, the computation of reserve in the case of any bank, under any circumstances, becomes an easy and simple matter.

lO

HAND-BOOK FOR BANK OFFICERS.

Form A. ^Calculation of the Lawful-Money Reserve of National

Banks Located in Reserve Cities and Central Reserve Cities.

Items on Which Reserve is to be Computed.

LIABILITIES.

Due to National Banks* 1235,866

Due to State banks and bankers 25,559

1261,425

LESS

Due from other National banks 125,335

Due from State banks and bankers .... 100,000

*Should the aggregate "Due from " exceed the aggregate " Due to" banks, both items must be omitted from the calculation

225,335

Dividends unpaid

Individual deposits ....

United States deposits . . .

Deposits of U. S. dis. ofl&cers

136,090

3,867

2,857,628

705,000

Gross amount 13,602,585

DEDUCTIONS ALLOWED.

Exchanges for clearing-house

Checks on other banks in the same place . . National-bank notes

5107,950

17,340

Twenty-five per cent, of this total amount Jl®"

125,803

,476,782 is the entire reserve required, which is 869,195

Deduct 5 % redemption fund with Treasurer U. S. . 2,250

Net reserve to be held |866,945

Items Composing Net Reserve and Distribution of Same.

One-half of the net reserve

*If reciprocal accounts are kept with reserve agents, only the net amount due from such agents is available for reserve.

Balances with approved reserve agents amount to 440,067

Excess with reserve agents

6,595

One-half of net reserve is |433,473 Items in bank's possession to make up the same, viz. : Fractional silver 129,885 Silver dollars . .

Silver Treas. cert.

Gold coin ....

Gold Treas. cert.

Legal-ten'r notes U. 8. cert, of deposit for legaltenders . . .

Gold C. H. cert's

1,090

22,060

300,050

50,000

12,000

20,000

Excess in items held by the bank

435,085

$1,612

LAWFUL-MON:eY RESERVE.

II Form B. — Calculation of the Lawful- Money Reserve of National Banks

Not Located in Reserve Cities or Central Reserve Cities.

Items on Which Reserve is to be Computed.

WABIWTIES.

Due to National banks* 182,946

Due to State banks and bankers 16,735

I^ESS

Due from other National banks 1:25,043

Due from State banks and bankers .... 5,695

* should the aggregate "Due from " exceed the aggregate " Due to" banks, both items must be omitted from the calculatiou.

30,738

168,943

Dividends unpaid 621

Individual deposits 728,423

United States deposits . . . 55,ooo

Deposits of U. S. dis. officers . 36,098

Gross amount

DEDUCTIONS ALIvOWED.

Exchanges for clearing-house

Checks on other banks in the same place ... National-bank notes ,

1889,085

Fifteen per cent, of this amountg@°

5.544 3-541 is the entire reser\'e reqtiired, which is I'i32,53i

Deduct 5 %■ redemption fund with Treasurer U. S. . 1,125

Net reserve to be held 1131,406

Items Composing Net Reserve and Distribution of Same.

Three-fifths of the net reserve is* 178,844

*If reciprocal accounts are kept with reserve agents, only the Hi't amount due from such agents is available for reserve.

Balances with approved reserve agents amount to 50,796

Two-fifths of net reserve is ^2,562 Items in bank which may lawfully make up the same, viz. : Fractional silver ^2,094 Silver dollars . . 4,450 Silver Treas. cert. 8,575 Gold coin . . . 51,896 Gold Treas. Cert. 3,000 Legal-ten'r notes 15,025 U. S. cert, of deposit for legaltenders

Gold C. H. cert's . . .

Deficiency with reserve

RECAPITULATION

Excess in the entire reserve held

85,040

Excess in the two-fifths

reserve held $32,478

14,430

Exceptional Cases.

It sometimes happens that, while the "aggregate" reserve of a bank located outside of a "central reserve city" is more than sufficient, it has not a sufficient amount on hand in bank; in other words, it has more than is. necessary in the hands of " reserve agents." In such a case, while the law does not permit such excess with " agents " to offset a deficiency in the reserve needed in bank^ such "excess" may be regarded as "due from other banks," and, as such, applied in the same way to reduce liability on " deposits," with the result sometimes of so reducing the amount of reserve needed in bank as to show that the "lawful money" on hand is sufficient.

In order to find and apply the exact excess in the hands of "reserve agents" use the following:

Rules for finding Exact Excess with Reserve Agents and for applying it to Reduction of Liability on "Deposits."

From the amount actually in hands of " reserve

agents," deduct the amount which by the ordinary

method of computation it seems should be there;

the remainder will be the "apparent excess."

I. In the case of a " reserv^e city" bank, add one-seventh of the "apparent excess" to such "apparent excess" and their sum will be the ' ' exact excess ' ' which may be applied to reduction of liability on "deposits."

II. In the case of a 15 per cent, bank, add yiine-ninety-firsts of the ' ' apparent excess ' ' to such ' ' apparent excess, ' ' and their sum will be the ' ' exact excess. ' '

Having ascertained the "exact excess" in this way proceed to apply it to reduction of liability on "deposits" and to the consequent decrease of reserve apparently required to be in bank as follo\vs:

I. Where the "exact excess" equals or exceeds the balance due to other banks and bankers, as shown by ordinary method of computation, the amotmt by which the reserve apparently required in bank may be decreased wall be —

{a) In the case of a "reserve city" bank, one-eiglitli of the balance due to other banks and bankers.

{U) In the case of a 15 per cent, bank, 6 per cent, of the batance due to other banks and bankers.

Note. — The reason for this is, that in such a case the treatment of the "excess" with "agents" as an amount <hxii. frotn banks and bankers causes the amount A.\x^ from to offset the amount due to other, banks and bankers and so eliminates the balance due to them from the computation, and therefore renders it unnecessar}' to provide for a reserve on such balance.

II. Where the "exact excess" is less than the

balance due to other banks and bankers, the amount

by which the reserve apparently required /// bank

may be decreased will be —

(a) In the case of a "reserve city " bank, one-seventli (|) of the ' ' apparent excess. ' '

{b) In the case of a 15 per cent, bank, six-ninety-firsts (^) of the '' appa7'-ent excess.''

As ^ of any amount is a little less than one-fifteenth (-(fo) of such amount, it will involve less labor to find y\ of the ' ' apparent excess ' ' and this portion will be nearly enough correct, unless the ' ' excess " is a large amount.

Note. — The reason for this is that in such a case the treatment of the " excess" with "agents" as an amount due /"row other banks has the effect of reducing the liability on the balance due to other banks, and therefore renders it unnecessary to provide for a "reserve " on the amount of such "excess."

To illustrate tlie application of these rules for "exceptional" cases, two examples are given: the first (Form A) illustrating the case of a 25 per cent, bank ; the second (Form B) illustrating the case of a 15 per cent, bank, each of which has an amount with " agents" in excess of legal requirements.

Note. — In all computations for ascertaining reserve it should be distinctly understood that any excess in the hands of agents can not be counted as reserve for the reason that the law (Sees. 5192 and 5195) fixes a limit to the amount in the hands of agents which may so be counted, and au}'^ amount over and above the designated limit or proportion has not the legal status of reserve and can not so be regarded.

LAWFUL-MONEY RESERVE.

Form A. — Calculation of the Lawful-Money Reserve of National

Banks Located in Reserve Cities and Central Reserve Cities.

Items on Which Reserve is to be Computed.

LIABIUTIES.

Due to National Banks* |i59,387

Due to State banks and bankers 6,041

1165,428

LESS Due from other National banks ..... 89,072 Due from State banks and bankers .... 20,861

* Should the aggregate "Due from " exceed the aggregate " Due to" banks, both items must be omitted from the calculation

109,933

Dividends unpaid

Individual deposits ....

United States deposits . . .

Deposits of U. S. dis. officers

155,495

5,488

618,978

110,000

Gross amount 1789,961

DEDUCTIONS ALLOWED.

Exchanges for clearing-house

Checks on other banks in the same place . . National-bank notes

80,696 1,020 8,326

Twenty-five per cent, of this total amount fi®" . .

is the entire reserve required, which is

Deduct 5 % redemption fund with Treasurer U. S. .

90,042 1699,919

174,979 4,500

Net reserve to be held 1170,479

Items Composing the Net Reserve and Distribution of Same.

One-half of the net reserve

*If reciprocal accounts are kept with reserve agents, only the lief amount due from such agents is available for reserve.

Balances with approved reserve agents amount to 144,936

One-half of net reserve is ^85,240 Items in bank's possession to makeup the same, viz.: Fractional silver f4,209 Silver dollars . . 2,006 vSilver Treas. cert. 4,500 Gold coin .... 41,695 Gold Treas. cert. 12,050 Legal-ten 'r notes 14,280

78,740

"Apparent excess" with reserve agents .... $59,697

To find "exact excess" add

one-seventh of this = 8,528

Apparent deficiencj' of reserve in bank $6,500

As "exact excess" exceeds balance due banks ($55,495), take one-eighth of such balance 6,937

"Exact excess" with reserve agents is ... . $68,225

RECAl'ITULATION.

JSxcess in the entire reserve held

Showing actual excess of reserve in bank of . .

• 1437- i6

HAND-BOOK FOR BANK OFFICERS.

Form B. — Calculation of the Lawful- Money Reserve of National Banks

Not Located in Reserve Cities or Central Reserve Cities.

Items on Which Reserve is to be Computed.

WABIIvITIES.

Due to National banks* 139,873

Due to State banks and bankers 4,261

LESS Due from other National banks . .

Due from State banks and bankers

^7,382 2,543

* Should the aggregate "Due from ' ' exceed the aggregate ' ' Due to" banks, both itenas must be omitted from the calculation. ■

144,134

9.925

134,209

Dividends unpaid 410

Individual deposits 241,444

United States deposits . . . 110,000 Deposits of U. S. dis. officers . ...

Gross amount 1386,063

DEDUCTIONS AI<I,OWED.

Exchanges for clearing-bouse

Checks on other banks in the same place . . . . $2,263

National-bank notes 5,33o

7,593

Fifteen per cent, of this amountg^^ 1378,470 is the entire reserve required, which is $56,770

Deduct 5 % redemption fund, with Treasurer U. S. . 2,250

Net reserve to be held

154,520 Items Composing the Net Reserve and Distribution of Same.

Three-fifths of the net reserve is* 132,712

*If reciprocal accounts are kept with reserve agents, only the }iel amount due from such agents is available for reserve.

Balances with approved reserve agents amount to 61,832

' ' Apparent excess ' ' with

reserve agents .... $29,120 To find "exact excess"

add Ti'j of this = , . . 2,880

Two-fifths of net reserve is

Items in bank which may

up the

Showing actual

Exact excess with reserve

agents is $32,000

RECAPITUIvATION

Excess in entire reserve held . .

lawfully make same, viz.: Fractional silver $2,012 Silver dollars . . 540

Silver Treas. cert. 3, 165 Gold coin . . . 3,946 Gold Treas. Cert. 2,780 Legal-ten'r notes 8,000

Apparent deficiency of reserve in bank ....

As "exact excess " is less than balance due banks ($34,209), take vfi of " apparent excess " . .

20,443 $1,365

1,920

LAWFUIv-MONEY RESKRVE. 1 7

CHAPTER II. LAWFUIv-xAIONEY RESERVE

Explanation of Rules applying in Exceptional Cases.

As some readers will naturally wish to know the reasons for applying the rules for " exceptional " cases given in the preceding chapter, the following explanation in each of the two cases therein illustrated is given here.

Explanation of Case of 25 Per Cent. Reserve Bank.

It is evident, at a glance, that when the '' apparent excess" of $59,697 is considered as "due from other banks," and is applied to reduction of liability on "deposits," it will have the effect of making a proportionate reduction in the amount of reserve required. The reserve allowed with "agents" being one-half of one-fourth, or one-eigJitJi of the amount of "net deposits," the reduction here will be in the proportion of one dollar of reserve to every eiglit dollars applied in reduction of "deposits."

This being the established ratio, we know that the "additional excess" with "agents" must be onc-cigJitJi of the "exact excess" to be applied in reduction. We also know that this " exact excess"

will consist of the "apparent excess" ($59,697), increased by the "additional excess," and knowing so much, we can readily ascertain the amount of "additional excess."

To simplify the illustration, let us assume that X represents the unknown "additional excess," and, from what has just been stated, we obtain the following equation :

Eight times X is equal to $59,697 increased by X; or, taking the amount X from each side of the equation, seven times X is equal to $59,697, and dividing each side by seven we find that X, or the "additional" amount, is equal to $8,528; and that $68,225 (eight times X) is the exact amount that can be applied to reduction of liability on " deposits."

As this "exact excess" ($68,225) exceeds the balance due to banks and bankers ($55,495) it will have the effect of eliminating the latter item from the computation, and of converting the " apparent deficiency of reserve in bank " ($6,500) into an actual excess of $437 instead. (See Rule I, clause (^), page 13.)

As the " apparent excess " in this example was of itself greater than the balance due to banks,

LAWFUL-MONEY RESERVE. I9

it was not necessary to carry out the computation to find " exact excess," but this has been done simply to show how it should be done when circumstances require.

Explanation of Case of 15 Per Cent. Reserve Bank.

In the case of this 15 per cent, reserve bank, the excess with reserve agents can be applied in the same way to reduction of liability on "deposits," the prop07'tion^ of course, being changed.

With such a bank the law allows a portion of its reserve equal to 9 per cent, of net deposits to be kept with "agents;" therefore, the proportion that "reserve with agents" should bear to "deposits" is as 9 to 100.