This section is from the "The Science Of Wealth" book, by Amasa Walker.
1. Capital Stock. — This is the sum total of all the amount paid into the bank, to constitute its means of doing business.
2. Circulation. — This consists of notes of the bank, of different denominations, payable on demand, signed by its officers, and issued to circulate as money.
3. Deposits.—These include all sums, from whatever source, that stand on the books of the banks to the credit of individuals. They are properly called inscribed credits: they are nothing more or less. They are all legally payable on demand, in specie, to those persons in whose names they stand.
A more full description of their nature and effects will be given hereafter.
Bank Balances. — " Due to other banks " and " due from other banks " are terms used in the official returns made to the Treasury Department of the United States.
They explain themselves. Banks, like individuals, have open accounts with each other. These, in the aggregate, must balance each other; but there is often a considerable apparent difference, arising from the fact that large sums are constantly in transitu.
As affecting the character of a mixed currency, these balances are an important item, because they form the most explosive and dangerous element. They are " deposits " in their nature, certain to be drawn in any sudden emergency. This was strikingly illustrated in the autumn of 1857. At that time, the banks in the city of New York owed some sixty millions of dollars which had been left with them by distant banks in order to meet their own liabilities. When the pressure came on, in September and October of the year mentioned, these banks began, of necessity, to call in their balances.
This placed the New-York banks in a position of great difficulty. To answer these calls would require a large part of all their means; while, at the same moment, the merchants and business men of the city needed all the resources they could command. But the banks must meet the drafts made for their balances, or suspend at once; and, accordingly, were compelled to cut off all discounts, or loans, to their regular customers. This state of things could not be long endured; and the merchants of the city, being soon driven to desperation, began to draw upon their own deposits for specie; and thus a general suspension took place, not only in the commercial metropolis, but through the country.
These balances, as they exist extensively in all great cities, form the train that ignites the magazine, and causes an instant and general explosion.
The Bank of England was compelled, in 1847, to obtain a suspension of the act of 1844, by the threat of the banking houses to withdraw their balances, and again in 1857.
Other Liabilities. — These consist of various obligations, which banks incur in the course of their transactions with the public and each other. They are not large in the aggregate, as compared with their aggregate liabilities, but must be taken into the account. They may be immediate or remote liabilities, but are mostly immediate.