How did banks work?

Factual Questions
1

Last night my girlfriend and I were discussing how lame today’s younguns are, what with all their high-fallutin’ interweb machines and MTV games. We lamented that today’s whippersnappers could not get along without their precious dial-up servers and touchtone phones.

Then the subject of banks came up.

We were both tellers back in the long past, so we should know what it was like. Back then we had these devices known as “computers.” For you teenyboppers who are unfamiliar with that term, it was a machine run on the power of the SDMB hamster’s granddad. It had a “screen” that could handle up to two(!) colors, and could process well in excess of 1000 thingies we called “bytes.”

We used this odd machine (which could easily fit within the confines of a room, provided one first moved the airplanes) to keep track of things like customer accounts, i.e. did Jane Q Pubic have enough to cover the $40 she wanted to withdraw.

Very handy device.

Then we began to wonder: Before the advent of this amazing technology (which occasionally did this really cool thing called “coming back online”, albeit rarely), what did bankers do? How did they know what any given customer’s balance was? Could a customer make a deposit in branch A, then withdraw it from branch B? If so, how?

Or did people just use clam shells back then?

2

Interesting question. I started working in international banking in 1969, a few years before banks started using computers in any real sense. As I did not work as a teller and therefore don’t have extensive knowledge about how “street bank” operations were handled, I do know that most direct banking transactions were carried on at the branch where your account was opened and that no branch had to handle a transaction for an account not established at that branch.

For one, they did not have your signature card on file so could not verify your signature on a check or withdrawal slip. If a branch decided it was comfortable enough with your identity to allow you to withdraw funds or cash a check, that branch would call your branch to verify availability of the funds AND place a hold on those funds to insure the funds would still be there when that check arrived for clearance. An identifier code number was written on the back of the check so that the branch could match the check against the hold.

3

Thanks for the response. However…

That still leaves the question of how the other branch verified funds. I wonder if there were ledgers that included account history for every customer. They must have been huge – and hard to search!

4

Back before they had computers, they kept files on a system they called “paper”. Essentially what they did was duplicate the symbols you find on your keyboard onto a dead tree. Sounds unlikely I know, but archaeological finds have confirmed it.

5

Little Nemo, I don’t understand. How did they connect the mouse to the dead tree?

6

Mice live in dead trees! We’ve taken them out of their natural habitat and domesticated (and officeticated) them.

7

OK, Mr. Snarky Pants. How were these so-called “trees” organized? Did each customer have a loose sheet? Were they in books? Did the books have removable pages? Were they organized by name? Account number? Did each teller have a copy, or was there just one master copy? Were new entries typed in, or written by hand?

8

Well, I’m not that, but my aunt worked in a bank, and here’s how it worked:
Back in the very bygone days before any real computers existed, they used big humongous ledgers. The covers were quite thisk (1/2 inch wood or something like that) and were screwed together with special screws taht you needed a turnkey for. In between the 2 ledgere covers were hundreds of pages, essentially looseleaf pages. Each client had his own set of pages where all his transactions were coverd: how much he deposited and when, how and when were withdrawn, how much were being “frozen” by other banks/branches (this money was actually withdrawn from a customer’s account and placed in a special holding account) All the entries were in the time-honoured double entry bookkeeping style: Account A debited by so much, which was credited to account B, etc. If a page filled up, the whole ledger was taken apart and a new sheet inserted in the appropriate place, or a new ledger was started.

Then came along the wonderful Burroughs tabulators: they could accept a whole ledger sheet and actually *type[/] the figures in the right columns, and also add up the columns balances and spit them out on the ledger sheet. This made it very tedious to undo the ledger every time a customer did something with his account, and a loose-leaf filing system was invented, later on perfected by messrs Kardex. The layout of the ledger sheet also changed over the years - while still being a double-entry bookkeeping system, multiple debits and credits could be entered on a single line etc.

Then came the first computers, which were at first used to balance the banks books and only later kept the actual account info.

The rest I think most of you have actually experienced…

9

Sorry, first line should have read:

**Well, I’m not that old[/]…

10

WTF??! I give up on typing anything right tonight…

11

S’OK. That was very informative.

Must have sucked ass for the tellers.

12

“Catch Me if You Can” tells a bit about the banking system in the days of very little computing.

Frank Abagnale used the loose record-keeping to his advantage a few times, like when a bank would call over to his bank to see if he had funds for the check he was cashing, and the teller would see that he had money in his account, but not notice that the money was on paper only, not having actually cleared into the bank. He had made a deposit to open an account, then was cashing a check on that account despite the fact that the deposit hadn’t arrived from the fake check he’d written for the intitial deposit.

13

For a long time I have considered James M. Cain an under-rated writer. Consider this: he once wrote a short novel about accounting. And it was interesting.

The book is called The Embezzler, and, though it concerns a Savings and Loan branch in the 1940s, various hints and references he makes about S&L procedures of the time would compare, I expect, to banking practices of the time. Depositors in those days kept their passbooks at the branch where they usually did business. The cashiers there would look up a depostor’s book and hand-enter transactions and update balances and calculate interest when and as necessary. Evidently each branch of a financial institute kept a file on each of its regular customers, and clerks at various branches could phone one another to look up information about a depositor when the need arose.

14

I think we have to take into account (pun anyone?) that back then, things didn’t move at the break-neck pace they do today.

15

Assuming the OP has a serious question somewhere in there, perhaps I can shed some light on it, as I used to work in a bank clearings dept. I left when they threatened to bring in “computers” – I had other plans, like going to school.

For checking accounts, we had bookkeepers who used a ledger-based kachunk-kachunk accounting machine. A bookkeeper took a check that was being cleared on that bank, looked up the ledger card for that particular customer, entered the customer’s balance in the machine, then inserted the ledger card. Entering the check’s amount, the machine subtracted it from the customer’s balance and printed out a new line. The grand totals were kept in the machine’s internals, and the ledger card was extracted and put back in the pile of customer cards on a little cart.

Next, another check was taken from the pile and the process repeated. At the end of a batch, the accounting machine was balanced with totals run previously on the batch of checks. A continuous, broad paper with a carbon copy, showing all transactions to all accounts was generated by the machine, and the bookkeeper could use that to find the errors.

Errors had to be posted to each affected account just like a check or a deposit.

Deposit slips were handled similarly.

In my bank, we had 6 bookkeepers. Each handled accounts for 1/6 of the customer name alphabet; A-C, D-G, etc.

Very time-consuming and labor intensive, as you might imagine.

Sorry for the non-frivolous reply. :slight_smile:

16

I didn’t used to be so easy to cash out-of-town checks. A long time ago, banks had correspondent banks in other cities. A good customer of Bank A could get a letter of credit to Bank B in which bank A guaranteed that it would honor checks written by the costomer.

17

Others have already posted the details of how banks operated in a pre-computerized era. So I have nothing to add except that I’m considering changing my username to Mr. Snarky Pants.

18

I didn’t work in a bank, but I did work in a credit department right as the switchover from paper to computers was taking place. Here’s how it worked in the old school.

The customer would present his charge card at one of our stores. If the purchase was under X dollars, the store could automatically approve it. If it was larger, or the clerk had any questions, they would call (yes, actually pick up a telephone and call!) us.

When we got a call, we would run to a bank of file cabinets where customers’ accounts were filed alphabetically. We would then dig up the customer’s file, where we would look on actual cards which had the customer’s purchase and payment history on them. The daytime clerks had entered those figures by hand (or typewriter.) We would then either approve the purchase (and update the history) or call a supervisor.

Needless to say, this was very labor intensive. The chain of hardware stores I worked at had 16 stores at the time. On a typical evening, we would have 4-6 clerks and one supervisor. During the daytime, there were dozens of clerks and a proportionate number of supervisors.

When a customer reported a lost or stolen charge card we had to note it in their history, call all the stores and alert them, and get the paperwork started for a replacement card. Sometimes we even had to call the local police. One stolen card could tie up a clerk for an hour.

As the computers took over, the human clerks were still needed. The first generation of computers only automated the information we had taken down by hand, and printed out huge ledger books full of tractor-feed green and white sheets with the histories for each account. The clerks still had to review the histories to approve a purchase, still had to write up lost card reports, etc.

One good thing we lost with computers, though. If a customer was making an unusually large purchase, purchasing at several stores in a short period of time, or was running up an unusually high balance, a supervisor would talk to the customer right then and there to find out what was going on. It was usually just someone finishing their basement, but I can remember we recovered more than one stolen card that way.

19

Of course, that was before the big merger which gave us Bank B of A.

[sub]sorry![/sub]