The last paragraph introduces the subject of loans and discounts. The person or bank, here termed "White," soon observes that, although payments of checks are being continually made, cash is as continually being redeposited by the payee or others; that, although payments and receipts are not synchronous or equal in amount, there is a continuous balance left in his hands, which varies but little in amount. As there is slight probability that all depositors will at one time demand the full amount of their deposits, White is therefore safe in loaning to any would-be borrowers, on their promissory notes, a sum, say, of $45,000. White's balance sheet would then stand as follows:

(1) If cash is paid out to the borrowers:


Cash.................. $55,000

Loans (Promissory Notes Of Borrowers)........ 45,000

Liabilities Deposits............. $100,000 or (2) if the borrowers preferred to leave the funds on deposit with White, subject to later withdrawal:


Cash................. $100,000

Loans (Promissory Notes Of Borrowers)....... 45,000

Liabilities Deposits.............. $145,000

In this process deposits have been created; the borrower has come to possess rights to draw money from White, although the cash which he nominally borrowed and redeposited at no time left the possession and ownership of White. From the borrower, White has accepted an interest-bearing promissory note payable at a specified date, and in exchange for this note has given the borrower the right to draw on him to the amount of the note, with the implied agreement that he will pay such requisitions on demand. The ratio of his cash to his demand liabilities has been changed from 100: 100 to 55:100, or 100:145. White does not normally allow interest to Black for such credits, however long it may be until Black demands payment of them; rather than allow interest on deposits created by loans, the rate of interest on the loan would be lowered. Receiving interest-bearing promissory notes in exchange for the right of the depositor to draw later is, in effect, lending with interest and borrowing without interest, by means of which White is able to make a profit, which is the motive of his business.