But even an unusually large demand for gold or notes, a demand slightly greater than the season of the year and the existing financial conditions warrant, is sufficient to cause bankers considerable anxiety and inconvenience.

A banker is by force of circumstances divided between two conflicting aims. On the one hand, the desire to earn a good dividend prompts him to use as much of the money under his control as he safely can. All money lying idle means loss of profit, and all money kept as a reserve against an unusual demand must lie idle. Money employed so as to earn a profit cannot be truly said to be a reserve, because if such circumstances should arise that a banker wished to get immediate control of the money, it is extremely probable that the same circumstances would prevent his doing so. A banker most needs his reserve when there is a stringency in the market for money and when credit is temporarily straitened, and if he has lent his reserve this is just the period when his debtor would find it most inconvenient to repay the amount.

On the one hand then a banker wishes to maintain a high rate of profit, on the other hand he wishes to make his position as secure as possible against a sudden call to pay an unusual proportion of his obligations.

To maintain this happy medium and to forestall such demands, calls for the exercise of those qualities which make a successful banker.

We can now see why a banker is in a position to pay interest on deposit accounts repayable at a fixed notice, though he, as a rule, refuses to do so in the case of current accounts repayable on demand. In the former case the banker can use the money so deposited with him without endangering his position, and can therefore earn interest with it. The seven days' notice, or whatever is the agreed term, although it may not always be enforced, yet in an emergency will give him time to realise some of the debts owing to him. But in the case of the current account a certain proportion must be kept idle to meet possible demands for repayment, and this curtailment of their earning power prevents most bankers from allowing their customers interest on such accounts except in special circumstances.

Let us look now for a moment at the assets of a banker available to meet his customers' demands. As has been shown, all these assets should be, to a greater or less extent, "liquid," that is, they should be of such a character that they can be promptly turned into gold. Of course a banker's assets do not all possess this quality to the same extent. They can be divided into several lines of defence against the attack of the bankers' creditors.

First of all, there is the "Cash on hand." This is chiefly the gold and silver held in the tills of his head office and branches, with a small reserve at his head office for filling up gaps at the various branches. Classed with this cash on hand we have, in the case of the larger banks, "Cash at the Bank of England," represented on the balance sheets of the smaller bankers by "Cash with London agent." This "Cash at the Bank of England" represents the surplus unemployed funds of the banker, kept to meet demands from other bankers through the Clearing House. I have called it "unemployed," although we shall see in a later chapter that though not employed by the banker yet a proportion of it is employed by the Bank of England. However, this money is always reckoned as equivalent to cash on hand, and, except in such circumstances as would infallibly compel the suspension of all of our banks, bankers are justified in so regarding it.

Next to cash on hand and at the Bank of England there is "Money lent at call and short notice." This money is lent on the money market to bill brokers and others, and can be, and often is, called in at the shortest notice. The usual terms on which money is lent in this way are that it shall be repayable either on demand or at a fixed period up to seven days. It is the money which the banker finds it unnecessary to keep lying quite idle, but which must be almost immediately available if necessary.

Thirdly, there are "Stock Exchange investments"; these are usually either English, Colonial or foreign government stocks, corporation stocks, and railway and other first-class debentures. They can in normal circumstances be readily sold on the Stock Exchange, [and, if necessary, many of them will find a market on foreign "bourses." They have this disadvantage however from a banker's standpoint, that in such circumstances as would compel a general sale of investments by bankers it would be difficult and often impossible to find a purchaser. In acute financial crisis even English Consols can only be realised at a tremendous sacrifice. At such times the demand is for notes or gold. A bank may be perfectly solvent and its securities be of great value, but should a scramble for notes and gold ensue, this may not save the bank from suspension.

Next to Stock Exchange securities come bills of exchange. Bills form an excellent class of bankers' asset in one sense, because the date of their maturity is fixed, and if a banker chooses to limit or cease his discounts the amount of his liabilities in this respect will automatically decrease. But bills are of no use in an emergency. The date of their maturity cannot be hastened, and they cannot easily be sold. In some countries it is the custom for bankers to rediscount their bills with other bankers, but in England, at all events in London, this is contrary to tradition, and is a course but seldom pursued. If English bankers held foreign bills, that is, bills which are payable in another country, it might be possible in emergency to sell such bills abroad and import gold to pay for them, but such bills usually find their way into the hands of the bill brokers, and the ordinary English banker prefers to leave alone this branch of banking.

Last of all of a banker's assets as regards their convertibility into money, come his loans to his customers, whether secured or not.

Such assets are practically useless in a crisis. For one thing, reasonable notice of any intention to call in such loans must be given, and securities deposited to cover such advances can only be realized after considerable delay has ensued. Then again, the customer can only repay the amount, in the majority of cases, by means of a draft upon another banker, and the process of calling in loans will therefore often only result in a mutual exchange between bankers, which benefits no one, and is apt to recoil upon the head of the originator.

Thirdly, any attempt to enforce the repayment of loans in a crisis is a suicidal policy, because it only intensifies the feeling of nervousness and unrest which is the root of the evil.

It is easy to see, therefore, that the essential characteristic of a banker's assets, or at least of a certain proportion of them, is convertibility into money, not merely ultimate safety. A banker's obligations are to pay gold or notes on demand, and he must have access to a reserve which is available for use in any circumstances and without any delay.