This simple analysis or outline of the country bank's portfolio is intended merely as a cross section of the bank's operations and throws no light upon the difficulties that have been encountered in developing it. As a matter of fact, the banker will always have serious problems to confront in connection with the distribution of his funds between the various uses to which they are to be put. He will almost always find that there is a larger demand for loans in the community than he thinks it on the whole wise to comply with. Were he to "tie up" his entire funds on advances on farm lands he would soon find that he was short of means with which to meet the regular demand of depositors. On the other hand, should he confine himself entirely to local loans he might find at periods of exceptional stringency that he could not collect, and in that case he would have no assets commanding a wide market. Only experience and day-to-day observation can put the banker into position to make a satisfactory distribution of his funds as between the different elements of his portfolio. The problem becomes more and more complex as the business of the bank grows more complex, and in the case of the city banker assumes a seriousness and importance which cannot be overestimated. The proper arrangement of the portfolio in the great banks of the cities is really a primary problem in the management of the bank. It is often found that a given institution has perfectly sound and unquestionable assets, yet is embarrassed because of the fact that these assets are not adapted to produce the cash that is needed to enable it to meet its liabilities. This forces the bank to dispose of its assets sometimes at serious sacrifice in order to meet sudden demands upon it. A badly adjusted portfolio, moreover, as we have already seen, implies a bad adjustment of credit in the community as between the different elements of industry and trade.

Without attempting to emphasize more fully the importance of the portfolio from the standpoint of good banking, something should also be said of the problem of the portfolio from the larger standpoint of credit and business in general. There was a time in banking when each institution, particularly in the case of American banks, was conducted largely upon the theory that it was an entity complete in itself and independent of all others. That period has long since passed, and it is conceded to-day that no bank can establish a very sound or satisfactory portfolio for itself without the full co-operation of others who join with it in adopting a general policy of management. It is because of the difficulty of doing this through voluntary action on the part of banks that central banking is so necessary and that the Federal Reserve system of the United States has been established. In the Federal Reserve system there is provided a means of developing a joint banking policy which, before its organization, could be supplied only by the composite action of the banks associated together in clearing houses or in bankers associations. Such purely informal and unofficial union among the banks was always sporadic, but it was found necessary at times to enforce given lines of action in the interest of the entire community by insisting upon the adoption of certain policies on the part of the banks themselves. This attempt was never fully successful, and even when most successful was enforced only with great difficulty.