The peculiar function and the great importance of commercial banking render highly desirable if not absolutely essential its organization on a national scale. In its operation this form of banking constitutes a part of the national money system. Checks drawn on banks in Maine are used to pay bills in California. Bank notes circulate side by side with the standard money issued by the government. The unsettling of confidence in any given locality reacts upon the whole credit structure, and through credit on the entire system of production. The organization of a country's banking system as a whole is, therefore, a subject that transcends in importance that of the unrelated activities of individual banks.

Writers with imagination have referred at times to a world organization of credit. Where one's outlook is sufficiently cosmopolitan the possible benefits of a worldwide system are obvious. But the heterogeneity of the world's peoples, the differences in their economic activities, and the diversity in their points of view, render useless any consideration of a world banking system. The economic life of today and the system of exchange involved in it are based almost exclusively on ultra-nationalistic conceptions. A brief consideration of the opposing interests and ideals which underlie the Great War suffices to disclose the truth of this proposition.

While much may be said concerning the need of national organization of commercial or credit banking, the need of such organization in the fields of investment and savings bankincr is not equally Dressing:. Bank credit in its normal manifestations appears as a medium of national use, but the major portion of the locally collected investment funds in the hands of savings and of purely investment banks are locally utilized. That portion which is not locally applied tends to be mobilized in the great security markets.

National organization of banking desirable

World organization conceivable but improbable

National organization not so important in the field of savings and of investment banking

The existence of such markets assures a satisfactory apportionment of the available investment funds. Rates charged for purely local investment purposes, as, for example, for real estate mortgages, may vary considerably from section to section; and in special fields, like farm-loan mortgages, it may also be necessary to organize investment banking on a national scale in order to mobilize funds over an adequately wide area, and to provide the standardized securities essential to such mobilization. But in the wider markets the securities dealt in may represent properties scattered over the whole country, while the funds appearing for investment are sent in from every quarter. The only questions that are raised concern safety and earnings. Hence the competition of seekers after funds, on the one hand, and of buyers of good and profitable investments, on the other, leads, other things equal, to substantial uniformity in rates, and, in consequence, to an apportionment of the available funds which promises maximum social advantage.

The earlier chapters of this book aimed to set forth the underlying principles of commercial banking as a possible basis for intelligent conclusions concerning the organization of this branch of banking over the country as a whole. Assuming in general the validity of the analysis there made, attention may be directed to the conclusions to be drawn.

The general object of a good banking system will be to provide for all the advantages and to guard against all the dangers inherent in bank credit. Owing to the fundamental importance of reserves to such instruments, this implies the availability for reserve purposes of a maximum proportion of reserve funds. Individuals with money available for deposit should be encouraged to "bank" such money, and in like manner the general dependence on banking instruments in carrying on exchange should be systematically encouraged. Such dependence on the banking facilities of the country is desirable for the government as well as for private individuals. The fiscal operations of the government should be carried on through the ordinary channels of trade. In most countries the government is the largest single business man, and "hoarding" by the government is as indefensible as is hoarding by private individuals. It would hardly seem necessary to make this special reference to governments were it not that for more than seventy years the United States government has maintained an independent treasury in which its current funds have been kept. The rule was relaxed somewhat in later years, but as will be seen in the chapter dealing with the Federal Reserve System, the utilization of the banking system by the Treasury Department is still permissive rather than mandatory.

What conclusions may be drawn from previous discussion?

Maximum advantages of bank credit the objective in a good system

The widest possible dependence of the trade of the country on banking facilities implies corresponding diffusion of such facilities. Banks must be sufficiently numerous to enable the mass of people to have access to them, and the peculiar limitations of different classes of economic endeavor must be taken into account in arranging a basis on which the banking facilities will be extended. Under a system of branch-banking, for example, means are provided for the rapid provision of banking facilities as the need for them arises. But if for political reasons the system of branch-banking is condemned, then in providing the regulations for governing the local independent banks care must be taken to offer every inducement consistent with safety for the early establishment of banks in small communities. Similarly, where the nature of the economic occupation, as in agriculture, is such as to provide only inadequate forms of security for the extension of bank credit, the effort must be made through the formation of cooperative societies or other agencies to buttress this security or so to transform it that it can be employed in adequate amounts to meet the needs of those concerned.