cate of deposit, and that draft or certificate is lost, he loses nothing but the value of the paper on which it is written, nor does anybody. This is not true of ordinary bank-notes or bills payable to bearer; but it is true of other forms of representatives of value, which one can always take, and with which we can make our exchanges without risk or loss.

219. Less specie needed.

There is still another very important influence of banking considered as a process of making exchanges. It enables the banker to make a large amount of exchanges with a small amount of specie.

We have seen that the banker can lend a certain portion of his deposits, so that that portion will be doing the work of making exchanges in that form also: and then it is actually doing double work;

(1) As (by supposition) in the vault, serving as the basis of the exchanges that are made; by drafts emitted to the drawer and charged to the drawer; and,

(2) As actually in circulation, for so it becomes by the very act of lending it, that is, provided the loan is drawn out of the bank.

To get at the whole matter at a glance, let us

suppose a man or a company begin banking with a capital, say of $100,000. And for the sake of simplifying our statement, let us leave out of sight all cost of banking house, fixtures, etc., etc.

(1) He will need to keep a certain portion of his money on hand, as specie with which to redeem his bills when they are presented for redemption at his

counter.

An examination of the history of banks shows that the amount of specie needed in a country village will not be much, if any, over ten per cent. of the capital, or $10,000. In large cities, however, the proportion of specie must be larger, and in commercial towns it is often equal to the entire amount of the circulation, and is sometimes even greater.

(2) The remaining $90,000 he can invest in stocks, bonds, and mortages, etc., bearing interest at the lawful rate, which is seven per cent. in this State, New York.

(3) On this $90,000, however, he can issue his bills, which will circulate as money, or currency rather. These bills he loans, accepting for them notes, etc., on time, and receives also, either interest or discount on the notes, which he thus receives in exchange for his bills.

The amount in bills that may be issued is often regulated by law. Thus under the old New York

system, as it was called, the bank was required to deposit its stocks, bonds, and mortgages, with the State authorities, and receive for them bills-not yet executed by the signatures of the bank officersequal in amount to the capital thus deposited, which in the case supposed would be $90,000.

Something of the kind exists now under our United States banking laws; that is, some limitation on the amount of bills a bank may issue, an amount proportioned to the capital or the deposits made to secure the redemption of the bills. But in cases

where no such restrictions exist, the amount of circulation is limited only by the prudential considerations of expediency. Some years ago the amount limited by law, in one of the New England States, was double the amount of capital. And in some cases banks have been known to keep afloat three times the amount of their capital for some time.

221. The banker's resources.

He

Let us now consider the banker's resources. has as means of redeeming his $90,000 of issue, (1) The $10,000 in specie reserved in his vault. (2) The $90,000 in stocks which can, of course, be converted into money.

(3) The notes, etc., which he has discounted and in exchange for which he paid out his bills.

And thus with honesty and good capacity on the part of the banker, his bills to the amount of nine or ten times the specie on hand are entirely safe, and one dollar in money is made to be, or at least to do the work of ten dollars in making the exchanges that are required in the business world. Of course all these estimates and proportions will change with localities, seasons of the year, and the kinds of business done in the community where the bank is located. But our object has been to state and illustrate the principle rather than to give exact practical working figures, that one might depend upon in going into the banking business. These must be ascertained in each case separately, and on its own merits and peculiarities.

222. Loan of the deposits.

I have taken no note, in this discussion, of the fact that a large proportion of the deposits-the deposits ordinarily in our American banks—equal or exceed the amount of the capital as loaned by the bank. A careful computation made a few years ago with the aid of a friend who was an experienced banker, showed that the amount of deposits that were actually loaned in this State, was over seventy per cent., varying all the way from sixty-three or four up to something above eighty per cent. of the deposits.

The data before us did not enable us to determine the average amount of time for which it was loaned. But probably it would have been quite short, not, I presume, exceeding twenty days.

But if we look at this as affecting the bank's solvency or ability to meet all its liabilities, we see at once that the notes discounted, on which these loans were made, must have exceeded in amount the money lent by the discount or interest on them, and they must have left over and above what they amounted to, a portion of the deposits not loaned out at all.

But anyhow, a bank is not strengthened-it is rather weakened-by this loan of a portion of its deposits; the total ratio of resources to liabilities, is reduced by it, and may, of course, be so far reduced as to render the bank unsafe. It is, however, a means of increased profit and income to the banker. Without it, as we have seen, he is able to realize interest on a good deal more than the amount of specie in his vaults; with it, the amount on which he receives interest in excess of his specie is very much increased.

And we must remember that the specie in his vaults, is about the only part of the banker's capital that is really at work, and earning the income of the banker. All else rests on this, or draws interest and does its work only because this is there as a basis,