loans its own bills, payable in specie, to those who wish to borrow, and receives the notes of individuals, of equal amount, in return, and charges them interest, which is paid in advance. The payment of these notes is always guarantied by some other person or persons, called endorsers. The ordinary period of loan, is thirty or sixty days; at the close of which time, the notes are required to be paid, either in whole, or in part, at the discretion of the directors. Hence, if it were necessary, the whole affairs of the bank might be closed; that is, all its bills might be called in, and all the notes it has received might be given up, and the bank remain as it was when it commenced, with the addition of whatever interest it might have acquired, in thirty or sixty days.

Suppose, now, the capital of the bank were all paid in, in specie, and that it issued notes only to the precise amount of its capital. In this case, there would be a double and full guarantee for the payment of its bills. The first guarantee would be the specie in its vaults, equal to the amount of all its bills in circulation; that is, for every bill it issued, there could be shown an amount of silver or gold, equal to what it had promised to pay. The second guarantee would be, the notes of the individuals, of substantial responsibility, for an amount greater than all the bills which the bank has issued, by the interest which was deducted from the note when it was received. Thus, suppose the capital of the bank to be one hundred thousand dollars, and that this has all been paid in specie. The bank loans one hundred thousand dollars of its bills, and receives one hundred thousand dollars' worth of the notes of individuals of sound pecuniary ability. The bank is then liable to pay one hundred thousand dollars, and it has, wherewith to pay it, two hundred thousand dollars; that is, one hundred thousand dollars in specie, and one hundred thousand dollars of the notes of individuals. I think that every one would be inclined to say, that such a bank was not only

safe, but even superfluously safe. If all the debtors failed, and nothing was received for its issues, yet its notes would be safe; for it would still have, in its vaults, sufficient to meet every demand, as soon as presented, even if all its bills were presented for payment at the same instant.

Now, inasmuch as one perfect security is as safe as two, and, as this security is more than perfect, it might be diminished, and yet the bills of the bank be perfectly safe. Thus, it is morally certain, that all the bills of the bank can never be presented for payment at the same instant. If this can never be the case, as its debtors are continually paying back what they have borrowed, and, as it has, always, as much less to redeem, as it has already redeemed, it is manifest, that with something less than the amount of specie designated by its notes, it may always be prepared to meet every demand that may be made upon it. Again: If all its debtors failed, it would still have, in its specie, if equal to its bills in circulation, enough to redeem all its issues. But, with any tolerable management, its debtors would not all fail. It would be a very unusual occurrence, if one half of them failed. The bank would be then perfectly secure, if the proportion of its specie capital, in actual possession, were sufficient to pay all deficits which could arise, from the failure of its debtors. Hence, we see, that the security of a bank would always be perfect, if it always possessed enough, in specie capital, to redeem every bill as soon as it was presented, and also sufficient to guaranty the holder, against any injury which it might suffer, from the failure of its customers; that is, if there existed this ratio between the issues of the bank, and the capital in its vaults, such a bank would be of undoubted security.

If it went beyond this ratio, and just in proportion as it went beyond it, there would be danger that its notes would not be redeemed in specie; hence' that they would be of imperfect value, or even be

valueless, and thus, that the holders of them would lose, to the full amount of their depreciation. Thus, we see, in general, if the capital in specie were equal to the circulation, though all the debtors of the bank failed, the holders of its bills would lose nothing, but the stockholders would lose all their contributed capital. If all the specie were stolen, and the notes were all paid, the holders would lose nothing, but the stockholders would lose all. But if there had been fraud, at the commencement, and no capital had been contributed, if the debtors of the bank all failed, the holders of the notes would lose all, and the stockholders would lose nothing. And, in general, if the debtors of the bank failed, the holders of the bills could lose nothing, unless the deficit thus created, were more than sufficient to consume all the actual capital of the bank. The capital of the bank, is the guarantee for the payment of the bills which the bank has issued in exchange for the notes of individuals; and hence the holders of these bills cannot suffer until this capital and the proceeds of these notes be both exhausted.

OF THE SOURCES OF THE PROFITS OF BANKS.

1. From deposits. As banks are extensively used for this purpose, they must have on hand, at all times, a considerable amount from this source, lying idle. This may be considered a part of their capital, which they may use in their business. If a bank have, on an average, fifty thousand dollars of deposits, it may issue bills to the amount of fifty thousand dollars beyond the amount which would otherwise be in its power, because, it has this additional amount of means wherewith to meet the demands made upon it. The first source of profit, is, therefore, interest gained on deposits.

2 From exchanges. As these are to be made between different places, and as they must be made in drafts or in specie; if two banks, in different places, undertake to transact this business in concert, they may greatly facilitate the means of payment between two places. For this accommodation, they charge a per centage, varying with the rate of the market. This is another source of revenue.

3. From interest on notes discounted; that is, on its regular loans. This is its great source of revenue. The manner of this has been already explained.

4. As, from what has been said, it is evident that a bank may safely loan an amount of its notes, greater than that of its capital, the interest of this excess, is an additional source of revenue. Thus, if a bank have one hundred thousand dollars paid in, and issue notes to the amount of one hundred and twenty-five thousand dollars, it receives interest on twenty-five thousand dollars more than its stockholders have deposited. This is an addition to its revenue, by its amount, whatever it may be.

SECTION II.

OF THE UTILITY OF BANKS.

IN stating the nature of banks, in the preceding section, we have, to a considerable extent, unfolded the principles on which their utility depends. The subject is, however, susceptible of a more ample development. We shall, therefore, pursue it through the present section.

We have shown that the functions of banks were of three kinds: First, As institutions of deposit; Secondly, As institutions of discount or loan; and, Third, As institutions of circulation. We shall pro

ceed to consider their utility, in each of these three respects.

I. The utility of banks as institutions of DEPOSIT. The utility of banks, in this respect, is derived from the saving of labor. They save the labor of transportation, of counting, and of vigilance. Of

the manner in which this is done, I do not know that any thing further need be said. In so far as this is concerned, all that is necessary to be done, is, so to conduct their arrangements as to increase their utility in the greatest possible degree.

In so far as a bank is intended for a place of deposit for the circulating medium of any particular community, the arrangements which need be attended to, will at once suggest themselves. For instance, its location should be such, as to accommodate the greatest number of its customers. Its hours of business should be the same as those of the mercantile community. Its affairs should be conducted with the greatest possible regularity. Mistakes frequently produce the same effect as fraud, and they always present, either to the one party, or the other, a great temptation to it. The physical and moral security of the institution,'should be as great as possible. Hence, a banking-house should possess every practicable security against fire and robbery; and, if necessary, should be always under the protection of a guard. Such is the case with the Bank of England. The officers of the bank, whether chief or subordinate, should be persons of tried integrity, and should also be so arranged in respect to each other, that collusion should, if possible, be impracticable; and their whole affairs should be so under the inspection of those, whose interest it is to detect any fraud, that dishonesty might be as difficult as possible. The chief officers should be men of property, so that their own interests would suffer more than they could gain, by any violation of faith.

The necessity of all these provisions will be at once apparent. It is for the interests of the com