When the junior has passed his examinations successfully and has been enrolled on the staff his moral standing remains to be investigated. Something of this can be learned at the time of application and examination, but a really satisfactory knowledge can be had only through daily observation of his conduct and bearing for some months, or even years.

From the time of his acceptance by the bank a certain amount of trust must be imposed in him. The bank officials know, in a general way, that the boy is of respectable origin, and that his character has been good. But good boys sometimes go wrong; scions of the most respectable families occasionally become defaulters. In order to gain a more satisfactory knowledge of the beginner's all-round work and character, a term of probation is provided - usually three months - before the junior is definitely accepted.

The Fidelity Bonds Required

Immediately he enters upon his duties, sometimes before he does so, the newly-accepted bank clerk is required to furnish a guarantee bond to cover the bank against the hazard of his involving it in loss through dishonesty or criminal negligence - in other words, to guarantee his fidelity. In earlier years these bonds were chiefly furnished by private sureties. A couple of relatives or acquaintances, possessing substantial means, and consenting to act as his bondsmen, undertook to indemnify the bank for any loss it suffered by reason of his unfaithfulness. The bank could satisfy itself as to the substantiality of the bondsmen, if it was not already known to them, by enquiry and investigation.

Subsequently, this class of fidelity bond was superseded by one furnished by the guarantee companies. The companies' bonds proved so much more satisfactory than the private bonds that some of the banks abolished the latter altogether. When an application for fidelity insurance is made to a guarantee company, the company investigates the habits and character of the applicant before accepting the risk. He is required to furnish the names of reliable persons in his locality who will vouch for him. The reliability of these references being established, a series of pertinent questions is addressed to them, and, on favorable replies being received, the bond is issued. When a defalcation by a bank officer thus insured takes place the company promptly pays to the bank the amount of the loss, on proof of liability being furnished, and provided the loss does not exceed the amount of the bond. Then the company proceeds to apprehend and punish the defaulter. To carry one of these bonds the bank officer pays probably 1/2 per cent. per annum on the amount guaranteed.

Mutual Guarantees Inaugurated

Latterly another step forward has been taken by the banks. A number of institutions have announced the formation of officers' mutual guarantee funds. By means of these the employees of some banks have their fidelity insurance carried at the actual cost instead of at a fiat rate. The amount of insurance against each officer is the same as under the other system. The liability is carried by all the employees combined, from the general manager down to the newest junior. Generally, the board of directors contribute, out of the bank's profits, the nucleus of the fund. Then a fixed percentage, considerably less than that required to carry a guarantee company's bond, is deducted from the salaries each month and credited to the fund. Upon a defalcation taking place, the bank can reimburse itself from the fund up to the amount of the defaulter's bond.

In some banks an account is kept for each individual contributor to the fund, in which his monthly payments and the interest on his balance are recorded. The balance at the officer's credit represents his property right in the whole fund. If no defalcations were charged up, the payments would constitute merely deposits at interest, withdrawable in full at superannuation, or on leaving the service, if a reasonable number of years had been served. The carrying out of the mutual feature necessitates the distribution, among all the officers, of each loss from defalcation covered by the guarantee. This can be done through dividing the amount charged to the fund among all the officers' accounts pro rata to the respective bonds carried by each. In some of the systems it is contemplated that officers are to contribute only for a fixed number of years, or until the fund balance reaches a certain sum.

Thus, when an officer of a bank that operates a mutual guarantee fund steals, he is striking, not the bank or a guarantee company, but his comrades and fellow-clerks. It is supposed that the greater ignominy thus ensued upon an offender has some effect in preventing defalcations.