Ifthebookvaluesofcertain assetsarefound too high,because they were originally overvalued or have meanwhile depreciated or have proved uncollectible, and it is necessary to scale down
the valuations, the asset, Investments,or Loans and Discounts,
'OrRealEstate, Buildings, Fixtures, orwhateverassetitmaybe,is
reduced, and Undivided Profits is reduced alike amount.
Thelocal bank may be pressed for funds, and be forced to borrow fromitscorrespondentonthebasis ofitspromissory note secured by discount paper from its note pouch. Its Cash and Due from Banks will be increased and Bills Payable will then appearamong its liabilities.
The bank may issue letters of credit by which it agrees to accept certain drafts or bills of exchange drawn uponit. Later when these are presented for acceptance, the bank will incur specific liability forAcceptances. These Habilities are equalized
by the introduction of the corresponding assets. Customers' Liability Under Letters of Credit, and Customers' Liability for Acceptances Executed. The nature of these operations will be detailed in a laterchapter (see Volume V, Chapter LXI.
Tjrpical Bank Statement
The combined effect of these and other transactions is to render the statement into that of a typical commercial bank.
There is, however, no uniformity of style or titles in the published statements, whether of the same or different classes ofbanks. Uniform accounting is somewhat promoted by gov- ernment supervision of banks and the requirement of periodic reports. Nevertheless in the pubHcation of their financial statementswidevariationoccursbecausebankers have different conceptions of what constitutes a good report, because the statements are adapted to different cUenteles, and because the bankers have different motives to serve. These purposes are attained by combining items under varying heads. The fol-
lowingis a typical statementofa small bank.
lOO MONEY, CREDIT, AND BANKING
Assets LiabilUies
LoansandDiscounts $ 458,426 Capital $ 100.000
Cash 44.975 Surplus
75,000
Investments 95,000 UndividedProfits 16,312
RealEstateandBankBuilding 21,000 Dividends Declared but Un-
FumitureandFixtures 5,000 paid 4000
Expense 1,252 Bonds Borrowed 20,000
Bonds Loaned 10,000 Deposits 487.345
CollectionItems 35.000 Cashier's Checks 45,000
ClearingHouseItems 78,000 BankNotes Outstanding 40,000
RedemptionFund 2,300 Certificates of Deposit 55.000
Overdrafts 4,621 Acceptances 80,000
DuefromBanks 165,000 DuetoBanks 48.000
Customers' Liability Under LettersofCredit 95.000
LettersofCredit 95.000 BillsPayable 20,000
Customers' Liabihty for Ac- ReservedforTaxes. Insurance 6.000
ceptancesExecuted 80,000 OtherLiabilities 11,323
OtherAssets 7,396
$1,102,970
$1,102,970
Clearings and Collections
In the process of executing the functions of loan, discount, deposit,andnoteissue,andofthe incidental businessofthebank, there come into its possession numerous forms of credit items which must be presentedto the respectivedebtors for payment.
Preliminary, however, to a discussion of the various operations performed byabankwith thisend inview, involving asitwould an explanation of clearing house procedure and out-of-to-wn collection methods, consideration should be given to the factors that determine when a credit instrument will be presented for
payment.
There are various factors which determine when a credit instrument will be presented for payment. These include the questionwhether the item hasafixed maturity, whetheritbears interest, whether it can be used as a medium of exchange or as
bankreserve, and whetherthe lawrequirespresentment within a certain time.
Ofthe fourcommonformsof bank liabilities to creditors,the first two — Bank Notes and Deposits—are generally payable on
demand and donot bearinterest, whereas theothertwo forms
BANK OPERATIONS AND FUNCTIONS lOI
BillsPayableandAcceptances—arepayableata timefixedbythe date of acceptanceand the terms of the papersand mayor may
not bearinterest. Asa checkcannotbereadilyusedbythepayee
in making payments or for reserves and does not bear interest, the holderhas funds whichare useless, andat thesame timehe incursacertainriskthat thecheckwillnot be honored. Inaddi- tionthestatutory orcommon law mayrequirehimtopresentthe item for payment within a certain time. Bank notes, on the other hand, attain to general acceptability because the holder
may make paymentswiththem and one bank mayuse thenotes ofotherbanksasreserves. Ifthe law wereto prohibit suchuses,
banknoteswould becollected atonceuponreceipt, justaschecks are; otherwise the holderwould losethe use of the funds repre- sented and the debtor would have them meanwhile without having to payinterest. Acceptances andbills payable having a definitematurity must be presented for payment at the time of maturity. If interest ceases at maturity it is financially profit- able to present the item at that time and the law may also
require such presentation so as to protect the indorsers of the instrument.
Methodsof Presentment
The method of presentmentof an item for paymentisdeter-
mined by itscost and by legal requirements. The costs include the clericalwork,messengerservice, lossofinterestonidlefunds, risks ofcarrying theitemsormoneysinthestreetorin themails,
and so forth. Items on institutions in the holder's city are col- lected either by messenger or through the clearing house. A
clearing house is now established in every city of considerable sizeandtheitemscollectedbymessengerincludemerelythoseon
institutions not members of the clearing house, documentary items, special adviceitems, and large sight items. At thebank the city collection clerk dispatches messengers over prescribed routes with these collection items.