White Pine news weekly mining review. [volume] (East Ely, Nev.) 1910-1920, 1913-02-02

cent being made with promises to
pay money. These are circulated
for making settlements by means of
checks.
These promises to pay money are
based upon actual money in bank
reserves In this country approx
mately equal in amount to that in
circulation. It is thus seen that mon
ey in bank reserves performs more
than ten times the service of al equal
amount in circulation. Large COM
merce is possible only through this
use of mony in bank reserves as basis
for promises to pay money. Stable
commerce is possible only when
the banking mechanism is such
that bank reserves are SO pro-
tected that they serve commerce by
uninterrupted performance of their
function as a basis for credit, prom
ises to pay money.
Chief Source of a Banks Profit.
A banks chief source of profit,
and that which makes its existence
possible, lies in lending a portion of
the funds deposited. 1t contracts to
repay depositors in money on de-
demand. The constant hazard is
that it's supply of money may be in
sufficient to make good this contract.
This influences against lending. The
desire for profit influences for lend
ing.
Offsetting deposit liabilities and
providing means to pay them, a
bank has, first money to such pro-
portion Of liabilities as it deems ad-
equate to meet depositors' demands.
This is its reserve. Second. short
time loans, which. as paid from day
to day, provide means for replenish-
ing reserve. Reduction of loans is a
banks only means of increasing its
reserve. For clear understanding, it
is important to see the vital relation
between reserves and loans. If a
banks reserve is excessive, it may
increase loans; If deficient, 1t must
reduce loans. A bank may not make
a loan, no matter how well secured.
If its reserve is deficient.
The Cause of Panics.
In a period of active business, the
demand for loans is naturally heavy.
so that the total of loans increases
and also the total of deposits which
result from crediting the proceeds
of loans subject to borrowers
checks. But since the volume of ac-
tual money remains fairly constant,
bank reserves do not quickly in
crease proportionately with an in
crease of loans and resulting deposit
liabilities. Therefore, as the total of
loans increase. the ratio of reserves
TO deposits declines. To Illustrate
this. from September. 1911. to Sep
TENDER, 1912. loans of National
banks increased s377,000,0 600 liabili-
ties to individual depositors inereas-
ed s401, 600, 900, while reserves in
creased less than $500, 900.
BGsiness usually expands upon the
promise of good crops. The mere
anticipation of good crops thus in
creases loans and deposit liabilities
resulting from them, lowering the
ratio of reserve to deposits. The
necessary payments in money in con-
nection with the actual harvesting
and marketing of the anticipated
crops auses an Increased flow of
money out of bank reserves into cir
Their the ratio of reserves to deposits.
In such a situation banks can see
no important relief from the steady
drain upon their reserves until the
crop movement may have proceeded
to the point where the requirements
for money to circulate diminish and
the return flow begins of money out
OF circulation into bank reserves.
This point may be some weeks or
months ahead and will be CORES
pondingly deferred by any delay in
the prompt marketing of the crops,
such as results from a freight con
gestion. If the drain upon reserves
becomes such that banks become APP
prehensive lest their deficient re-
serves may not tide them over, they
must shape a course to avoid failure.
that is, failure to fulfill the contract
with depositors to pay their demands
in money. The first step is refusal
of new loans to solvent borrowers.
ability to negotiate loans may cause