in lending them in order to earn the interest that must be paid to the depositor. It is further urged that if banks have to pay interest they will not do as much to accommodate depositors in lending them money. As noted elsewhere banks perform many business and financial services for their customers. Not the least of these is accommodating them with loans, so far as their average deposit, financial credit and the securities or collateral offered may warrant. When money is scarce and interest rates advance, banks often continue to lend to large depositors, who are also large borrowers, at the old rates because they keep large balances. If depositors demand interest on their balances, the bank would seem justified in charging the highest rate of interest when they apply for loans or renewals. The practice among business houses of selling their notes through bill brokers, thus lessening somewhat their dependence upon the banks for loan accommodations, may have strengthened the tendency to require the payment of interest on deposits.

Quite generally banks pay interest on public deposits, that is deposits of public funds made by the financial departments of states, cities, counties and school boards. Not infrequently such deposits, or a portion of them, are left undisturbed for considerable periods or are drawn upon only at regular intervals. A bank can, therefore, lend them to good advantage and so can afford to pay interest. Furthermore, banks are not called upon to make loans and extend other favors to municipalities and governments as in the case of the ordinary depositor.

A form of special deposit upon which banks generally pay interest is represented by the certificate of deposit. This instrument certifies that a specified sum of money has been deposited and will be paid to the order of the depositor. It is in effect a check by a bank on itself, and being made payable to the depositor's order may be indorsed by him and so pass from hand to hand like an ordinary check. A certificate may be payable on demand or at the end of a specified period. Demand certificates

are sometimes used to transmit money in the same way as bank drafts and certified checks. The depositor is sometimes requested to write his name on the margin of the

certificate so that when it is presented for payment, the indorsement, if it has been transferred, can be compared with his signature.

100. Securing deposits.-For reasons that have been stated elsewhere, every bank constantly strives to increase its deposits and thereby to enlarge its loaning capacity. Various methods are employed to obtain and increase deposit accounts. Mention has been made of the growing practice of paying interest on deposits. Not the least valuable service rendered to the depositor is the collection of his checks, drafts and other items of credit. Again, banks are naturally disposed to lend to depositors on more advantageous terms than to casual customers; the latter will be required to furnish satisfactory collateral security while the former may, possibly, borrow on his personal credit. This preference in favor of the regular depositor is of the greatest importance when in times of "tight" money or panic all banks are refusing loans except to their own depositors.

In former times it would have been thought undignified for a first-class bank to solicit accounts or even to advertise in the papers and journals. Under the stress of keen

competition, however, even the most powerful and conservative banking institutions now use every honorable means of building up their business, and many of them employ representatives to solicit deposit accounts. By means of letters, booklets and advertisements calling attention to particular advantages and services of the bank, appeals are made for patronage. One bank may have developed a strong bond department, whose officers are always ready to advise with patrons as to the purchase or sale of stocks and bonds; another bank may emphasize its foreign business, the purchase and sale of foreign bills of exchange and the issue of letters of credit; still another inay emphasize its superior facilities for handling promptly commercial drafts and documented bills.

Though banks generally are eager to secure new customers and to increase their total deposits they are giving increasing attention to the cost or profitableness of their accounts. Cost accounting holds just as essential a plaçe in the banking business to-day as in a manufacturing plant. Some of the services which the modern bank under the stress of competition extends to its customers have already been noted and others will be stated more fully in connection with collections and loans. In general it may be said that a profitable account is one which yields in the form of interest on loanable funds more than the cost of carrying the account. Many banks now maintain an "analysis department" for the purpose of determining the profitableness of their accounts.1

A bank may have a customer who deposits a very large number of small checks, the recording, handling and collecting of which involves more time, labor and expense than large deposits. In such case the customer may be required to keep a large balance in the bank to compensate for the heavy expense involved in carrying the account. Some banks have a rule requiring depositors to keep an

1 See Circular (July, 1916) of Federal Reserve Bank of New York, Short Method of Analysis of Depositors' Accounts; also Kniffen: The Practical Work of a Bank, Ch. XVI.

average deposit of at least $500 or $1,000 or even a larger amount. It may happen that a particular account is of itself unprofitable to the bank, yet it may be good business to carry it because of the influence that particular patron may have upon other depositors whose accounts are profitable. Accurate knowledge of the cost of active accounts is valuable to the bank as it furnishes an important guide in extending loan accommodations. Thus a customer whose balance is always large and who draws or deposits comparatively few checks may properly expect to borrow funds from the bank on more favorable terms than the firm which keeps a small or fluctuating balance and deposits a multitude of checks, drafts and other items for collection.

101. Guaranty of bank deposits.-Within the past few years laws providing for the guaranty or insurance of bank deposits have been enacted in several of the Western states. Oklahoma adopted a guaranty law in 1907 levying an assessment of 1 per cent of its average deposits on each bank in the system to provide a fund for the payment of deposits of all banks that might fail. Provision was made for a special assessment in case the guaranty fund became exhausted by the payment of claims against failed banks. The law was intended to include all banks in the state, but the Comptroller of the Currency ruled that national banks could not participate in the scheme. As a result state banks increased greatly both in numbers and in deposits while national banks practically stood still.

The original act provided for the absolute guarantee of all bank deposits, but in 1909 it was amended to make the system one of insurance rather than guaranty. The new law provided for an annual assessment upon all state banks of one-fourth of 1 per cent of their deposits until a fund equal to 5 per cent of the total deposits was accumulated. Emergency assessments could not exceed 2 per cent of a bank's deposits in any one year. The amended law also limited the amount of a bank's deposits to ten times the capital and surplus, exclusive of deposits of other banks. Seventy-five per cent of the fund was to be invested in

state warrants or other securities which are legal investments for state funds. Depositors of a failed bank were to be paid in full immediately after the closing of the bank. If the guaranty fund were not sufficient to meet all such demands, depositors were to receive 6 per cent certificates of indebtedness for the balance of their claims which were to be paid later from the proceeds of liquidation or from subsequent assessments on the other banks.

The guaranty system was subjected to a very severe test in September, 1909, when the Columbia Bank and Trust Company, a state bank having the largest deposits in Oklahoma, including the guaranty fund itself, failed, bringing embarrassment to many other banks. There was no panic, however, and no run on the bank. The guaranty fund was not nearly sufficient to meet the bank's liabilities, and after the emergency assessment was levied a large shortage still remained. The policy of paying small depositors first was adopted, and within two months all individual depositors had been satisfied either with cash or certificates of deposit secured by gilt-edge paper.

The guaranty law has been changed in several particulars by amendments made in 1913 and later years. In 1911 trust companies were excluded from the benefits of the act and provision was made for the deposit of the guaranty fund with the banks paying it, a special certificate bearing interest at 4 per cent being issued therefor to the Bank Commissioner. The amendments of 1913 provided that the regular assessment of of 1 per cent of deposits should not be exceeded except for the years 1914-1916 when the assessments might reach of 1 per cent, but the assessments were not to be collected until needed. The permanent guaranty fund to be accumulated was reduced from 5 per cent to 2 per cent.

After the adoption of the guaranty law a great many national banks surrendered their charters and took out state charters. Later when all banks were heavily assessed to build up the guaranty fund a considerable proportion of