Lessons For Today’s Bankers from 1863

Simple, sound advice often stands the tests of time.  Financial history is full of such examples.  The following has been sourced from Daring Opinion by Elie Elhadj.

In December 1863, Hugh McCulloch, then newly appointed U.S. Comptroller of the Currency and later the U.S. Secretary of the Treasury, wrote a letter to American banking institutions. Here are some excerpted highlights:

  • Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to encourage speculation. Give facilities only to legitimate and prudent transactions.
  • Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank.
  • If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you.
  • Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.
  • The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.
  • Pursue a straightforward, upright, legitimate banking business. ‘Splendid financing’ is not legitimate banking, and ‘splendid financiers’ in banking are generally either humbugs or rascals.

Well said.

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