and would certainly have a deterrent effect on the conduct of those bank officials whose directors allow them to have full control of the management of the bank.

The professional accountants of the country commend the subject to the careful attention of the banks, confident that a proper study of the situation will develop plans that will render less frequent the distressing occurrences that have recently shocked the financial world.

SECURITIES THAT ARE NOT SECURITIES

ADDRESS DELIVERED BY J. T. BRADLEY, CASHIER, FIRST NATIONAL BANK, SEDAN, KANSAS, BEFORE THE KANSAS BANKERS' ASSOCIATION, 1905.

THIS subject suggests two general classes of security: First, that which is security and, second, that which is not security. By security is meant any kind of property, thing, right, privilege, franchise, service, person, corporate body, or municipality, pledged to the payment of an obligation, or debt, or to a performance. Any pledge made which causes the fulfillment of a thing to be done at the time and in the manner specified in an agreement or contract is security that secures. If it fails to cause the fulfillment of the obligation, agreement, or contract in the manner or at the time specified, or within a reasonable time thereafter, or at all, it is security that does not secure.

To be specific: Any note, bond, warrant, order, draft, or other evidence of indebtedness, which is secured by a person, corporation, or municipality, or by a pledge of property of any kind or character, which insures prompt payment or fulfillment, is security that secures ; if it fails to secure payment or fulfillment promptly or within a reasonable time or at all, then it is not security.

It is not the principal note, bond, mortgage, order, warrant, or other evidence of indebtedness that is the thing of value, but that which stands behind-as the money to be paid, the service to be performed, the right or privilege to be granted, the property to be transferred, and it is to cause these performances that security is taken. It is a fact that security which secures at one time or under

certain conditions will not secure at other times and under different conditions. Growing crops are a good example of this. Stocks in corporations which under good management and under certain conditions would secure, under poor management or under unfavorable conditions would be no security at all. Security that is "gilt edge" when first taken may become worthless during the term for which pledged; and security which does not secure when taken may become good before the maturity of the obligation.

Security may be individual, or may consist of property pledged direct, or may consist of other securities. When security is individual, not only all the property of the signer, but honor as well is pledged; but the pledge is general and gives no preference to creditors. When there is a specific pledge of property as security, a legal agreement to that effect must be executed which holds the specific property pledged to the payment of the particular debt, obligation, or performance; in which case the property may be left in custody of pledger for the benefit of the pledgee; or other securities may be pledged, in which case possession, but not ownership, changes hands.

The selection of persons, property, and other securities that will secure and the rejection of such as will not secure the performance desired is the quality necessary to the money lender. It can be readily seen that an intimate knowledge of the present and future value of property and securities and a sound judgment of the character of men is essential. When one or more names are accepted to secure the payment of an obligation, it is necessary to know that the persons are honorable and have the disposition and ability to pay.

There is a moral as well as a physical element to be considered in the loaning of money, and generally the moral element is paraDifferent communities have to deal with different securities. In Kansas the usual kinds are land, city lots, and occasionally the appurtenances to real estate, apart from the real estate; growing crops, rough feed, grain, elevator and warehouse receipts, bills of lading, live stock, poultry, produce, stocks, bonds, notes, contracts, leases, orders, warrants, certificates of deposit, insurance, products of mines, implements, machinery, furniture, merchandise, libraries, jewelry, personal service, rents, and perhaps others. Much of the

property named is unfit for security, but all of it has been accepted. In deciding what security does not secure, certain well-known rules should be followed:

First-Security should be a definitely known quantity.

Second-It should be readily convertible into cash.
Third-It should be legally pledged.

Fourth-The pledger's title should be unquestionable.

Fifth-It should secure a specific debt.

Sixth-It should be so accurately described as not to be mistaken.

Seventh-It should have sufficient value to cover the indebtedness, probable expenses of collection, all contingent charges against it, and reasonable depreciation.

Eight-Security left in the possession of the pledger should be definitely located.

Ninth-The pledger's character for integrity, prudence, industry, and ability should be favorable.

Applying these rules to the various classes of property mentioned, we can eliminate that which is undesirable as security and which will probably not secure.

We discard all stocks of corporations whose capital consists of the prospective value of undeveloped property, or which has no present value, and that in unprofitable enterprises; growing crops, machinery in abandoned mills and failed enterprises, and that which is worn out or out of date, insurance polices having no cash surrender value, real estate having defective title and, generally, second mortgages, especially on personal property; bonds and stocks that have no market value, stocks of merchandise, unless the owner is free from debt or provision is made for payment and immediate possession is taken, household furniture needed for family use, past due notes, unless it is known there are no offsets; notes running a much longer time than the principal debt, all impractical machinery, grain and feed for the sustenance of live stock, unless included with the stock; libraries, perishable products, part of a herd of live stock of the same description, unless specifically marked or separated from the herd; grain elevators, unless well located and at a low valuation; one animal, leases providing for a share of production as the rental; usually security which may be good, but which is remote and not known to the pledgee; persons in bad repute, known to be tricky and

dishonest in business; persons engaged in business they know nothing about, where all their means are invested in the business, and persons without means, wishing to borrow for investment. Contracts are doubtful quantities and should rarely be accepted as security, excepting in case of contracts for sale of property taken for debts, where the property remains in possession of the seller.

It is not intended to advise the rejection of all items on the foregoing list as security under all circumstances, but in making original loans it is strongly recommended. It sometimes becomes necessary in renewals to take the best that can be had, and in such cases it is prudent to take anything, present or prospective, that holds out a promise. Eternal vigilance should be practiced at all times to see that the mortgage or collateral contract does not lapse. Many a well secured loan has been lost by negligence of this kind, and when, too late, discovery has been made that the security did not secure. An endorser for value should not be accepted without a waiver of protest. If protest is not made on day of maturity, unless it is waived or other notice of non-payment is given, the endorser is released. In case of an endorser as surety, never make a renewal without his written consent, and to avoid all mistakes of this kind, take a new note. It is necessary to have all parties join in a new contract, else the ones who do not are released on the original.

A case like the following one was once tried in the district court of Chautauqua County, Kansas: A took a note from B, with C as surety. A bought D's cattle and offered the note in part payment. D agreed to accept it if A would get another signed by D; which was done. A then endorsed and delivered the note to D. Before maturity A bought it back and after maturity sued B and C in default of payment, but did not make the additional endorsement obtained at D's request a party. The court refused judgment on the note on the ground that it was not the same instrument he accepted from B, having been changed by the additional name without the knowledge or consent of B and C. This is a case where security did not secure.

The most fruitful source of bad paper is the practice of overloaning and permitting numerous renewals. Both have a tendency, in the process of evolution, toward an exhaustion of security before the debt is paid. The fact is that some men have the capacity for

large things, and some have not. If a person who has not, but thinks he has, can find a banker who does not know whether he has or not, but is willing to chance it, the foundation is laid for a goodsized loss. This is a good time to suggest the question: Are bankers justified in making excess loans or numerously repeated renewals? The latter is equivalent to making an investment in the borrower's business, instead of lending him money. Ultimately the practice is detrimental to both bank and customer.

REQUISITES OF A GOOD LOAN

ADDRESS DELIVERED BY E. T. COMAN, CASHIER OF THE FIRST NATIONAL BANK, COLFAX, WASHINGTON, BEFORE THE WASHINGTON BANKERS' ASSOCIATION AT WALLA WALLA, JUNE, 1904.

THE question, "What constitutes a good loan?" is one that comes to every banker many times each day. Upon its correct answer, made on the spur of the moment, lies the secret of success or failure of the bank entrusted to the care of the person to whom this question is put. This responsibility is one that cannot be shifted easily to another, as the knowledge of men and conditions essential to the correct answer is acquired by years of study of business and of individuals. To the man who can invariably give the correct answer to the application for accommodation, there is open a place behind the executive desk of the largest financial institutions of the world. It is as important to have said "yes" when the applicant was entitled to credit as it is to have said "no" when the granting of credit involved the probability of a loss. The banker exercises no arbitrary discretion when he extends or refuses accommodation to the borrower. Within certain, perhaps not too well defined lines, he is the servant of the public, rather than the autocrat, which is sometimes popularly supposed to represent the ideal of a banker. In no department of its utilities is the business of a bank to be increased so surely or so fast as in the judicious granting of credit to those justly entitled thereto. While it is popularly called "accommodation" when a banker extends credit to an applicant, yet the accommodation is mutual if the conditions are right. For