The Seven Commandments of Banking - Hugh McCulloch’s Advice to Bankers

Fashion home! Hugh McCulloch was an American Banker who helped launch the American National Banking System and was Secretary of the Treasury during the civil war and reconstruction. He advised the following:
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1. Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to foster and encourage speculation. Make your loans as short term as the business of your customers will permit and insist upon the payment of all paper at maturity, no matter whether you need the money or not. Give credit facilities only to legitimate and prudent transactions. Never renew a note merely because you may not know where to place the money with equal advantage if the note is paid.

2. Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual firm, although sometimes proper and necessary, are generally injurious and frequently unsafe. Large borrowers are apt to control the bank and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer. Every dollar that a bank loans above its capital and surplus it owes for, and its managers are therefore under the strongest obligation to its creditors as well as to its stockholders, to keep its loans under its control.

3. Treat your customers liberally, bearing in mind the fact that bank prospers as its customers prosper, but never permit them to dictate your policy.

4. 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. The risk in such cases is greater than the profits.

5. 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 expenditure can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime. A man cannot be a safe officer of a bank who spends more than he earns.

6. The capital of a bank should be a reality not fiction; and it should be owned by those who have money to lend and not by borrowers.

7. Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done under the National Currency Act. ‘Splendid financiering’ is not legitimate banking and ‘splendid financiers’ in banking are generally either humbugs or rascals.


Perhaps more than any other part of the Bible, the Ten Commandments have shaped Western cultureהדברה חולדות