Sec. 13. #Income of banks.# The income of banks is drawn from different sources, according to the size of the community and the nature of the banks.  While in the villages and smaller cities the commercial banks perform a number of functions, in the larger cities they usually specialize in a far greater degree.  The trust companies, however, with their greater versatility, are increasing in number.  The income of banks is derived from discounts, interest on their own capital, charges for exchange and collection, dividends, interest and rents on investments, and profit from their bank notes.  The capital with which a bank starts in business[14] could be loaned with less trouble and more cheaply without starting a bank, but used as a banking capital it can be loaned in part while still serving to attract deposits, which are the main source of the income of banks to-day.  Charging smaller customers for exchange is a source of income to some banks, but in many cases this service is freely performed for regular customers and becomes a considerable expense.  Banks make few investments in real estate or other physical property; it is, in fact, their duty to keep out of ordinary enterprises, but they are forced sometimes to take for unpaid debts things that have been held as security.  Profits on bank notes have at times been the main, almost the sole, motive for starting banks; but that is not the case to-day when the right of issue is so strictly limited.

[Footnote 1:  These are classified as follows: 

                              Number —­Per Cent—­
  National charter:  28.56
    National banks 7,404 28.56
  State charter:  67.52
    State banks 14,011 54.05
    Loan and trust companies 1,515 5.84
    Savings banks 1,978 7.63
  Private:  3.92
    Private banks 1,016 3.92
                              ------ ------ ------
                              25,924 100.00 100.00
]

[Footnote 2:  Opinion favors prohibiting the use of the word bank to any except regularly incorporated organizations, or at least subjecting private banks to the same supervision as the chartered banks.]

[Footnote 3:  Not to be confused with a trust in the sense of a monopolistic enterprise, with which it has no connection except by mere verbal accident, through the word trust.]

[Footnote 4:  See next sec.]

[Footnote 5:  The Federal Reserve Act of 1913 has given encouragement to this practice by reducing to 5 per cent the reserve required to be kept against time deposits.  See ch. 9, sec. 7.]

[Footnote 6:  Usually with deduction of interest in advance; a process called discount.  See Vol. 1, pp. 275, 302.]

[Footnote 7:  The legal requirements as to minimum reserves vary greatly from no specific per cent to 40 or more in different countries, for different classes of banks, and for different purposes.  Some examples of legal reserve requirements in the United States occur in the two following chapters.]