[Volume XXVII
THE CHICAGO BANKER
22
		
	75 Per Cent Of the Banks and Trust Companies in New York City and Chicago use National Safety Paper for their Checks and Drafts.	
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tank’s management. It must be the constant and unremitting aim of its officers to reduce class three to its smallest possible proportion and to eliminate entirely the fourth and fifth classes.
Co-operation among all supervisory powers is most desirable. National and state government examiners should consult and co-operate with each other and, where the opportunities exist, with the clearing house examiners. The comptroller and the state banking commissioners might, with propriety and with much benefit to both systems, establish confidential relations with each other and with the different clearing house committees, and all should keep in close touch with the bank directors and take them into their confidence regarding everything open to criticism in their banks. They are all engaged in the work or raising banking standards and improving banking conditions and they should avail themselves of every opportunity for co-operating towards these highly desirable ends.
External supervision alone, under whatever authority it may be exercised, it is needless to repeat, cannot establish safe and sound banking. Honorable and intelligent initiative management must be relied on for the ultimate success of individual banks. As now administered, however, governmental and clearing house supervision are doing a great deal (in my opinion as much as can reasonably be expected of them) along the line of purging and purifying our system, raising our standards of banking and giving to the business a character which conduces to that healthful tone so essential ,to the commercial, industrial and social life of the nation.
John J. Abbott
A foolish rumor having gotten about that bankers’ wives were contesting for places upon the list of patronesses for the big bankers’ ball, John Jay Abbott in charge, published this early announcement, which put a stop to the nonsense: “The idea appears to have arisen that the bankers and bankers’ wives might become involved in a social squabble over precedence at the ball. It is obvious that this is to be no exclusive social function. Thousands of out-of-town bankers and their wives are invited to the ball, and all alike will make their bow to President Taft when toward the close of the evening he honors us with his presence for a brief time. Everything has been thoroughly understood from the beginning and there never has been a word of des-sension.”
It may be done by a committee of directors or by a competent auditor, at whose disposal must be placed the statements of customers and all the information available in the credit department.
The assets can be divided into five classes and the result will I think disclose to the directors the necessity for a contingent fund, such as I have advocated. The percentage of each class to the aggregate total should be shown and the periodical classifications compare with each other. This will disclose the progressive condition of the assets, whether they are growing better or worse, and from the result the management may be judged. I suggest the following classification :
1	Good desirable business,
2	Fair business risks,
3	Business not desirable as a new proposition,
but which policy makes it necessary to carry along for the purpose of gradual liquidation,
4	Loans which should be liquidated and on
which more or less loss is probable,
5	Loans so bad that they should be charged off
now.
The respective percentage of these five categories forms a very good criterion of the character of a
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more than in any other way, directors are prone to neglect their duty. It is not an agreeable one and collectively they are disposed to evade it even when individually they realize the necessity for it. It is without doubt the primary responsibility placed upon them, and its evasion must be held responsible for much of the disaster resulting from bank failures due either to incompetent or to dishonest management.
The same ordinary prudence which men exercise in their own affairs is required of bank directors. The application of it differs with the varying circumstances of the banks. Just as men of small moderate affairs can undertake the personal management in detail of their own businesses, while those of large affairs must of necessity employ others to manage for them and must relieve themselves of details, so bank directors under similar circumstances may assume the details of management or appoint others to do so. Their delegating authority to others does not, however, relieve them of responsibility for the direction and supervision of the management or of keeping in touch with what is done.
In banks of moderate size this can be accomplished by committees. In the largest banks, however, it becomes necessary for the directors to delegate even the details of their supervisory duties to experts and to rely on their investigations and reports for an intelligent knowledge of what is being done and of their bank’s condition.
Systematic organization is necessary, whether a bank is small or large, and directors must see to it that one of its results is that they are kept fully posted as to the bank’s operations and conditions. This can be accomplished quite as effectively in large as in small banks through the employment of competent auditors either permanently or when they are wanted. Such auditors in their investigations should represent the directors and should report direct to them, uninfluenced by any of the executive officers. But, however it may be accomplished, it is up to the directors to get them selves posted as to their bank’s operations to the extent of enabling them to form a correct opinion of actual condition in them and to judge of the integrity and ability of the management, as it is conducted by the officers, 'to whom they have delegated managerial powers. Only thus can they intelligently exercise their control of the management, a responsibility from which there can be no escape.
The progressive success or lack of success in bank management can be fairly well discovered by the periodical classification of a bank’s loans and investments.