Saint Mary's beacon. [volume] (Leonard Town, Md.) 1867-1983, 1916-08-24
METHOD0FFINANCE
HOW sANKs eMAkEv MONEY FoR
THEIR CUSTOMERS.
Little Story Explains the Operation Of
National Observation-Disclosures Proc
ess Resolves itself Into q Mat
ter Of Credit.

II woild seeia that after the bank
takes your money, protects II, pays II
back on demand or as you order, lends
you money. discounts your neighbOr's
note for you, It would have nothing
else to offer in your behalf But Il
hasn't makes money Tor you, and
incidentally makes money for itself.
according 70 q writer IN The Brooklyn
Eagle.
When you zee the president or the
cashier Of bank signing bis name 70
row OF four crisp new bills (thsy al
ways come in sheets OF four) you won
der what he Is doing. and what Ii be-
hind It ell. We will show you by
simple illustration. Let as suppose
you want TO borrow 81 900 and offer
your note TO your banker. He knows
you, knows that you win pay, and
vents TO accommodate you. He looks
at hts books and says: Il can't spare
the money. The law says must have
fifteen cents out Of every dollar owe
my deDositors In cash, or where can
get It on demand; and I have Just
what the law requires. III give you
credit for the note and let you check
against 1t. I increase my debts and
make my condition worse. for II do
not pay you in cash must stand ready
to do So"
But being 4 resourceful banker and
knowing how, he asks you to wait q
minute while he goes to his strong
box. He finds government bond
which he bought year ago when he
had plenty Of spare motley, for cash,
and comes back smiling and says:
Very well, In three days you can have
your money. / viii turn this bond into
bank notes for you" So he sends
the bond 70 Washington. and In re-
turn the government sends him 900
crisp new IS bills. to be signed by
two officers Of the bank, cut and hand
cd out TO you.
The government keeps the bond a.
security that he will redeem the notes
IN lawful money on demand that IL,
pay greenbacks or gold for them II de-
manded tbut this Is seldom donel,
pays HIM interest on the bond and you
pay him interest on your note for the
use OF HIS notes. and both are satis-
fed.
You see, by this proposition he has
turned your notes into bank notes.
with himself behind 1t aud the gov.
erument behind him. Your promise
Ee lgy ! are moneys ..snaaqf tt3kssss
aa such. oiEc.IIas.
Now what has tho -ssss iiasf done BY
this process7 He han furnished the
community as well as you with circu.
lating medium, handy to carry. cheap
and satisfactory to all. He has taken
your credit and turned Il into bank
credit. He makes money and you
take the money he haa made and make
some money for yourself. II iB very
simple proposition, understood by few.
but practIced by many. II you don't
fully understand II, ask your banker
to tell you more about 1t. This fea-
ture OF banking, however. ia performed
In this country only by banks under
control OF the federal government,
namely. tho national banks and fed
eral reserve banks, but 10 q common
banking practice the world over, dif4
fering In form but not in substance.
It being a universal function OF the
bank to turn credit which Is unknown
into that which is known and viii
therefore DO freely taken, and bank
note credit Ia the most common and
useful form.