Obviously the largest and most significant item among the resources of a commercial bank is loans and discounts. The difference between a loan and a discount is not important for our purpose in this connection. In one case the borrower receives the full amount of his promissory note, paying interest on his loan at its maturity; in the other, he has his note discounted, which means that he pays interest in advance, having it deducted from the amount shown on the face of his note. He may even offer for discount the notes of his debtors. This last transaction is known as re-discounting. A bank for one reason or another is likely, at any time, to possess stocks and bonds, though the smaller commercial banks prefer to confine their investments to loans and discounts. Real estate may include, not only the banking house and its site, but also other real estate items, such as a farm or a city lot. The meaning of cash on hand is obvious. Every commercial bank, in order to meet the daily demands of its depositors, must keep on hand a supply of money the amount of which is regulated by sound business practice as well as by law.

Promissory Note.

The last item among resources, which for all practical purposes, is a cash item, includes all money owed by other banks. Usually it may be had on demand.

More difficult to understand are the items on the liability side of the statement. At first thought capital is likely to appear as a resource instead of a liability. It will be an aid to clearness if we remember that our statement represents the affairs of a bank and not the affairs of a banker. Since the bank owes its owners the amount of its capital stock, clearly, then, capital is a liability. Surplus and undivided profits are liabilities for exactly the same reason. The one is earnings set aside by the directors to strengthen the capital; the other, earnings which may eventually be either paid to stockholders in the form of dividends or placed in the surplus fund. Deposits possess two important aspects. First, a deposit may represent an actual deposit of money in a bank, which the depositor may withdraw on demand. Most people believe that a deposit may be made in no other way. In holding the belief, however, they are mistaken. Bank customers deposit not only money, but also the proceeds of their own promissory notes. A clothier, for example, fearing that he will not have enough money to meet the payments of his spring bills, may arrange with his bank to credit his account with the amount necessary to meet them as they come due, securing the bank with a promissory note. Thus, obviously, a deposit may be made without the use of money. Among bankers such a deposit is known as a created deposit; and the checks drawn against it, as well as all other checks, are known as deposit currency. The last liability, due to other banks, shows the amount our bank owes to other banks.