One phase of the relation of the bank to the business man and the latter's financing which should be carefully thought of is the condition which exists in time of financial strain or panic. This is a matter on which a great difference of opinion has often been expressed. The bank which finds itself hard pressed by its customers is inclined to curtail its loans and cut down its commitments, and in so doing to make credit conditions more difficult for the customer. If, for example, a bank has been carrying a very large line of credit, but business depression or unemployment among depositors is leading to heavy drafts upon it so that it is losing ground, the natural instinct of the banker is that of self-preservation. In order to trim his sails, he cuts down the new credits which he extends, or raises them so high as to discourage them. At all times it is a primary duty of the banker to keep solvent and to be able to meet his existing obligations, but in so far as is consistent with this one primary necessity the first duty of the banker is to his business customers and consists of tiding them over emergencies. This does not mean that the banker is called upon to take undue risks or to make gifts to his customers, but merely that the function of banking is that of acting as a regulator or "governor." When business depression occurs and customers find it difficult to collect the debts due them, they are obliged to ask for extensions of credit. The wise banker endeavors to "carry' them for a sufficiently long period to enable them to work out of their difficulties and to "get on their feet." If a banker is not able to take this course, the effect of hasty liquidation is often that of forcing the closing of business houses or very undue curtailment of operations, with corresponding loss of markets, sacrifice of prestige and goodwill, and perhaps permanent damage to the enterprise. Every bank is, of course, obliged to reckon upon a fixed maturity for its paper, and when that becomes impossible through the failure of business men to pay or through requests for renewals, the bank finds that a part of its portfolio is "frozen." This frozen credit consists of the notes of the enterprises which have been unable to liquidate. The banker can get cash for such paper only by forcing the business man to settle, which frequently involves, as just seen, serious loss or perhaps destruction of his business. It is in such circumstances that a rediscount institution can exercise an exceptionally helpful function in the community. By furnishing bankers with funds sufficient to enable them to carry their customers, it relieves the strain of business depression from any particular section or group of business men and equalizes it throughout the community. It thus makes the "carrying" of sound and solvent, but temporarily slow, paper a matter for the entire banking community, as represented by an institution which combines the fluid resources of the community.

This is the same service that was performed in earlier days by the clearing houses of the United States when they arranged to issue clearing-house certificates which were practically a means of lending upon the assets of hard-pressed banks among their own number. Such work on the part of the clearing houses was often technically undertaken for the purpose of "saving" a given bank or banks, but this thought when analyzed further means that it was undertaken for the purpose of preventing such banks from the attempt to save themselves by forcing too hasty liquidation on the part of their customers. The service rendered, although technically to banks, was actually to the business community. This is merely another way of saying that, since business is a plant of slow growth, reduction or curtailment of it must also be slowly effected, and that banking is the means by which such control over expansion and contraction is exercised. The banker, therefore, has quite as serious and important a duty to perform in connection with the business which has reached the point where curtailment must take place as he has in his relations to the business which is gradually expanding and which merely needs to be fed with accommodation. It is quite true that if all banks were managed with the highest wisdom during periods of business growth, inflation and depression would probably be far less extreme than they were during 1920 and 1921. It will probably never be true, however, that we shall be able through regulation of credit, however scientific, to bring about so finely adjusted a balance as is thus indicated. So long as there are ups and downs in business, with some enterprises expanding too rapidly, the function of the banker in cushioning the blow of business depression and preventing the spread of failures by helping to take care of the interests of those concerns which are temporarily embarrassed, will always be an important one. It is this responsibility, perhaps more than any other, which warrants the banker in demanding to be constantly informed of changes in the condition of those who borrow heavily from him.