137. Telegraph And Cable Instructions

Present day business could not be transacted without the use of the telegraph and the cable. However, it would be a fool-ish procedure, to say the least, for a bank to act on an open telegram from a customer instructing to pay out money, to buy or sell bonds, or to ship valuable papers even to the correspondent. Some verification of the genuineness of the message should be made when the instructions are at all important. The usual method employed, when code books have not been exchanged, is to telegraph at once to the correspondent bank that a message purporting to come from them has been received containing important instructions, and requesting them to wire back the amount of a certain remittance letter which the bank has received, or to state amount of second or third item in a letter or to say what was the balance of last statement rendered, or to name the payee and amount of a check, which the bank has paid, or anything that can be known only by some responsible man in the corresponding bank.

This method is crude and costs a lot of money. Three long telegrams are sent, when one short one would do if the depository bank has enough bank correspondents to warrant the printing of a special code book. There are many code books in use by the bankers doing a foreign exchange business. Ideas may be gathered from these in preparing one. Only such words should be used in the code as are not likely to be used in the banking business. The words should be arranged alphabetically and the book divided into suitable headings, such as payments, securities, calendar, shipments of currency, letters and remittances, notes and drafts, collections, statements, etc., etc. In addition to these, a very carefully prepared table of numbers and dollars should be prepared. If some general scheme is followed on the numbers, such as using the adjective for numbers and the adverb for the same number of dollars, a word could be saved in each telegram. A table of fractions used in quoting values of stocks and bonds should be codified. The calendar should be arranged so that one word will represent the date, when dates must be referred to.

Code books should be kept under lock and key and access had to them by the officers only. The bank sending them out should require that this care be exercised.

In addition to using the code, some banks will not execute orders where the payment of money is concerned, unless a message is "keyed." To key a message is to use some word obtained by a secret process known only to the officers in the two banks. The method of ascertaining the key words is sometimes very simple and sometimes complicated.

When keyed messages are desired it will be found worth while to number each book sent out and keep a record of the numbers. Then by adding to the message the code word representing the number obtained by the following or any other arbitrary formula, the genuineness of the message is practically assured:

Take the number of the code held by the sender of the message, add the day of the month, the month, an agreed upon figure as per code for amounts over and under certain amounts, and the number of words in the message, then make some deduction which will make it possible to use a single word in the code for the resulting number, and add this word to the message.

Telegrams should be given very prompt attention. The actual time the message is received should be noted on the message and the translation initialed by the translator. It is conceivable that some code words may be learned by clerks other than the ones entrusted with the codes if the translation is made on the telegram itself, but if messages are keyed even very simply, and the key never translated, it will be impossible for any clerk to make use of the information he could obtain from translated messages. There would be a danger of error in writing the instructions on separate sheets and filing untranslated telegrams separately.

For cable work, the international codes are better than private codes, owing to the fact that some word in the English language used as a code word may be mistaken for a foreign word used in its national sense, and much complication would result.

138. Participations In Loans

The habit of dividing loans among several banks or trusts is quite a common feature of present day banking.

Banks in large cities are often more or less interested in the banks in smaller cities, through ownership of stock on the part of some officer or director. The time often comes when the smaller bank has no satisfactory borrowing market for its funds and so makes application to the large bank to suggest some profitable means of loaning its surplus funds. If the bank were strictly independent it would buy bonds or purchase some well known paper, but the suggestion is made that the large bank has a good loan, bearing a high rate of interest that it would like to divide and so the deal is made. As far as the small bank is concerned, it will be satisfied with a certificate from the large bank that it has charged its account and holds the agreed upon proportion of a definite loan, secured by certain collaterals. The small bank thereupon credits the large bank and charges loan account. It will hardly be necessary for the large bank to have any specially prepared forms for participations, unless they are numerous.