Suppose a person, Mr. White, from motives of hire, public interest, or business efficiency, undertakes to accept moneys from a certain number of persons, Messrs. Black, Brown, Green, and Blue, who have mutual business transactions, to act as trustee and common custodian of the funds, to keep a record of receipts and withdrawals, and to permit and care for the transfer of title to these funds on his books. The transfer of title to these funds would become the common method of payment in their business transactions. Such transfers would be accomplished most easily by Black ordering White to debit his account a certain number of dollars and to credit Brown's account the same number of dollars; other orders might be written by Green on White in favor of Black, and by Blue on White in favor of Brown, and so forth. If a number of such orders were presented to White, all the payments could be handled by the simple cancellation of debits and credits on his books. Trade would be much convenienced.
Instead of White acting in the capacity of trustee, the traders, Black, Brown, Green, and Blue, might be content to loan White the funds on his promise to repay the loaner, or the person presenting the loaner's written order, on demand; title to the funds would then pass to White, while the traders would become demand creditors of White with rights to draw on that credit at their pleasure. These rights to draw are deposits, and in this case they arise through the deposit of cash. White is essentially a bank of deposit. The orders for withdrawals are checks or drafts. White's balance sheet (supposing he had no other funds or wealth) would then stand as follows:
Assets Cash................. $100,000
Items for deposit may consist of cash or cash items, "cash items" being the term applied to items payable on demand. Immediate credit would be given by White (the receiving bank) for cash, and might also be given for cash items received for collection. The receiving bank (White in this case) has usually a definitepolicy to which it adheres in this matter; it usually gives credit only after collection or after the average time consumed in making such collections. If interest were being paid on the deposits or if the depositor expected to draw at once against his credit, the bank would be likely to delay credit until collection had been made. Collections on institutions in the city or the vicinity would thus receive credit sooner than items on more distant institutions; clearing house items would be given immediate credit.