The Service of the Modern Bank

IN the ‘easy eighties' and the‘golden nineties' it was not until the unlucky purchaser had secured his gold brick and carried it home that the acid test, could be applied and he could learn what he had bought. But the time to test a gold brick is before purchase, not after. Realization of that fact is leading thousands of investors to take advantage of the acid test offered by the modern banks. It has resulted in the building up of a widespread and efficient information and investment service by the banking institutions to meet the demand. The organization so set up and the information made available are constantly being expanded.

The modern bank is prepared to give, to customers information on securities which is not available to theordinary individual. It can place at his disposal the services of competent statisticians, accountants, and experts in various lines of industry and management. If desired, it will suggest a complete policy of investment for the client, enabling him to segregate his holdings, balance his income, and include perhaps life insurance, bonds, preferred and common stocks, and mortgages. Every step of such a programme will be carried through as well as suggested by the bank if the patron wishes.

A customer ran buy stocks or bonds through his bank, which will take delivery for him, transfer the certificates to his name if advisable, collect dividends and deposit to his account, clip coupons, watch for the calling of bonds, protect conversion privileges on both stocks and bonds, safeguard rights which holding stocks or bonds gives the owner, keep them in a safe place, advise him when to sell, and execute the sale. Moreover, the customer can even borrow the money from the bank to buy the securities. The bank will help him make out his income tax and adjust his financial procedure so as best to meet that necessary charge while he is alive, and can act as his executor, trustee, or both, in the settlement of his estate when he is dead.

These are only a few of the activities of the modern banker. Such service has not been of pure altruistic and disinterested growth. No up-to-dale financial institution wishes to see a client follow an ill-advised financial path, for if he loses his money the bank loses an account. Bankers therefore are pointing the way to investment in sound, interest-bearing securities rather than toward the dangerous road to speculative profits.

Information such as cannot be available to any private individual comes daily into the files of the banks. They must, because of the duties imposed by their myriad t rust agreements, keep in closest touch, not only with the prices of stocks and bonds, but with the condition, earnings, and prospects f the corporations which issue them, and with developments in other industries all over the world which might affect them. Bankers, therefore, are to be regarded and employed exactly as one consults an attorney, a physician, a dentist, or a technical engineer. They are experts. The ordinary individual is not.

One thing the bank cannot tell its customers. That is, whether stockmarket prices are going up or down in the immediate future. Nor can anyone else, Consequently the banker does not try, but leads his client toward securities where he knows earning power will assure safety and profit, Just here enters the acid test applied by the banker. He asks himself this question: ‘Would the bank want that security listed among its collateral?*

If there is any brass in the gold brick, it fizzes right up under that query.

It is recognized that much of the danger in buying and selling stocks lies in trading on margin. The up-to-date bank makes it possible to avoid this and still make a comparatively small amount of money do a lot of work. Let us say, for example, that a depositor has $5000 in his account, which he does not need at the lime. To leave it idle would be bad business, He therefore goes to the bank and says, I want to buy one hundred shares of U. S. Steel preferred. It is quoted around 140.’

‘ All right,’ answers the banker. 'We will lend you $9000 to make up the $14,000 the stock costs, buy it for you, charge you the commission the broker charges us, and 6 per cent interest on the $9000. You give us a note stipulating that you will make payments at stated times gradually to amortize the amount due, and an assignment the certificate so that we can sell it if the price falls to such a point as to threaten loss to us. In the meantime you get the 7 per cent dividends the stock pays, amounting to $700 a year.’

In this manner margin trading is eliminated, the trader does not have to pay 12 per cent for call money, as sometimes happens under that procedure, and eventually, if he desires to hold on and complete the payment of the note, he becomes full owner of stock worth at least three times more than the sum started with.

These aec only a few of the services which the 1929 banker is able place at the disposal of clients who come for advice. The bank will show a man without an estate how to leave one for his family. This is done through an insurance trust. A head of a family with only a few thousands at his disposal buys a number of safe bonds which will yield $200 or more a year. The bank will take this income and put it into insurance for him, nursing along the account, reinvesting the insurance premiums, making the necessary payments, and attending to all details. The customer can forget it, sure of leaving his family a sum many times the amount he put in.

One may become the financial ward of t he bank; and how much some need a financial guardian only the surrogates know. Under such a trust agreement the bank will assume entire charge of the financial affairs of the individual. This is of special benefit to those of high earning ability and low business acumen. Among them might be numbered hundreds of physicians, artists, authors, musicians, actors, and professional athletes. Many earn huge sums, but few save anything from their earnings.

Services which banks can render under trust agreements are almost limbless. In reality they can establish a sort of financial paternalism which will care for every financial need of a client from the cradle to the grave — and beyond.