In only a small portion of the transactions thus accomplished by credit will actual cash be demanded, and against this the banker must keep a certain percentage of his deposits in cash reserves. If the credit be granted to a worthless customer who cannot retire it when due, then the bank loses the amount, because its resources are reduced by $100,000 while its liabilities remain the same. Right there in the difference between redeemable and irredeemable credit lies all the difference between good banking and bad banking, good currency and bad currency, good investment securities and bad investment securities.

Thus the increase of bank deposits was due more to the extension of credit than to an increase of actual money in the banks, or of funds looking for investment. In like manner, when deposits decrease it is a contraction of credit which takes place rather than a withdrawal of money.

In October, 1893, for example, there was more money in the national banks by $28,000,000 than there was in 1892, yet the deposits were $500,000,000 less on account of the contraction of credit due to the panic - the loans and other credit assets being correspondingly reduced.