helping herself and helping the bank to fulfill its purpose by locking in on frank hamilton will learn the meaning of credit and by following along with richard morton we'll see how bank credit service the world of business behind the scenes in the book keeping department will be concerned with the bank's records of variously profiteers accounts and with the bank's own balance sheet let's look at the balance sheets this way when the bank started its assets were only the cash contributed by the stockholders who organized the banks this was balanced on the ownership side by the capital stock issued to the stockholders some of the cash assets were converted into a bank building furnishings and special equipment the bank was then ready to receive deposit here nancy wallace is the positing five dollars in her savings account she probably thinks of this only as a means of helping herself building up a reserve fund to meet future needs and emergencies by putting her money in a safe place where each deposit is insured up to a maximum of ten thousand dollars even though she's helping her bank to serve her community for she and hundreds of other depositors help to build up the amount of cash which the bank has available to conduct its business a poppier on the other side of the balance as a liability because the bank must stand ready to return an equal amount of money on demand deposits and savings accounts are called timely pot that's because the repositories intend to leave the money in the bank for some time but most of the deposits  deposits upon which the deposit or can write checks when he makes payments to others touched in posits or made in commercial or personal accounts often called checking accounts frank hamilton is depositing some money and also check his paycheck on the deposit slip the amount of the money and the check are added together just as though it were all money and yet a check is not money it is an instrument for the transfer of credit which is a substitute for money what does that mean well i would you like to have to get up every morning in time to pay the milkman does this bother the dairy sells its products on credit and at the end of the month sends a bill for the price of the milk delivered during the month this is called personal credit or consumer credit but now mr hamilton still doesn't want to go to the dairy office to pay his bill so he will mail them a and his job mr hamilton himself is paid not in money but by check he parted his paychecks in the bank they received no money for his work but in the bookkeeping department of the bank the amount of the deposit is credited to mr hamilton's account in other words it is added to the amount of his credit in the bank meanwhile the amount of the check is deducted from the amount of credit available to mr hamilton's employer the check has served as an instrument for the transfer of credit from the central manufacturing company to mr hamilton in addition to personal checks there are several other types of certified check is a personal check that is guaranteed by the bank on which it is drawn a cashier's check is one drawn by a bank on its own funds in the back of a bank draft is a check drawn by a bank on funds it has on deposit in another bank by means of these various credit instruments a bank deals much more credit than it does in money now our bank not only assists in the transfer of credit but it also creates credit to see how this is done we will follow all richard martin into the law and department of the bank mr morton owns a hardware store in town he has his bank account here and he is well known to the officials of the bank as an honest conscientious capable businessman explains his business he has recently purchased about two thousand dollars worth of goods for his door from the central manufacturing company to encourage prompt payment the manufacturer offers him a desk and if he pays the bill within ten days mr martin would like to take advantage of this saving but right now he does not have enough spare cash or bank credit he wants to borrow that much from the bank for thirty days since master martin is non to the bank as a reliable man and since he has brought along records to show that the financial condition of his business is sound the banker can feel reasonably certain that mr martin will be able to repay the loan when it comes due so the banker is glad to make the law mr martin writes out a promissory note this is a promise to pay the money back to the bank at a certain time in this case in thirty days firm happens in a bank no money changes hands the amount mr martin has borrowed is simply credited to his account minus the interest which the bank charges for this service when interest or deducted in advance we call it discounting the note and the interest is called discount other notes provided that the buyer where receives the one amount and pays it back plus interest either way the answer is that it collects on loans is one of the bank's principal sources of income now or mr martin has obtained his loan he has increased his bank credit by nearly two thousand dollars but this credit was not transferred to him from some other account so why did it come from the bank always has on hand a reserve of money received from the start holders and deposited on the basis of these cash reserves a bank can create credit as a result of the loan to mr martin the asset long term death cans is added to balance this the deposit figure is increased by the amount of the loan which is left with the bank so besides providing a safe place for the positing money and making it easy for people to transfer of credit from one to another a bank serves a community by making additional credit available for many purposes for a family to build a new home for a merchant to enlarge and remodel his store for a farmer to purchase new equipment for a manufacturer to meet his payroll during slack telling periods when a family don't meet the cost of an expensive illness and for many other good reasons why people are always needing more money more credit than they have immediately available since most of these transactions involve the transfer of credit rather than cash they increase the banks the as it's much more than  decrease its cash consequently the bank needs to keep comparatively little cash on hand by proper timing new loans are made of the bought the same rates that all new ones are repaid for instance when mr martin's customers pay their bills a deposit of their checks in his bank account most of the credit mr martin virals from the bank a transferred to the central manufacturing company to pay his bill his subsequent deposits hold his credit up so that by the end of the thirty day period he can repay the bank the credit he borrowed in exchange for their check in receives back his promissory note marked paid in full still for all the work this credit has done it has had little effect on the bank's cash what then does the bank do with the rest of the cash that the positives of last with it some of it is put to work for the federal government and in exchange for as the bank holds bonds and other government obligations some of it is put to work for the community in which the bank is located in exchange for municipal bonds and securities much of it goes to build up the industrial might of the nation in exchange for corporate securities and finally some of the cash goes into the federal reserve bank start our federal reserve system serves as a banker's bank facilitating the transfer of credit among member banks throughout the nation in the same way that each bank helps its customers to transfer a credit soul when nancy was the president five dollars in the bank she was not only helping ourselves she was helping the bank to create credit used  carrying on the business of her community and our country and our world the credit that's created is fire greater in amount than all the money in the world and this credit is the cornerstone of our world structure of commerce and industry working for us in the mass production of goods in the transportation of goods throughout the world in the building of our cities and towns and homes in the giant works of our federal government in the conveniences of daily living and in the protection of our health and our lives all this is done with credit credit created by the banks out of the deposits made by