The rest, or reserve, fund of a bank is now looked upon in the light of a greater margin of safety to the depositors, and the aim of every bank is evidently to make the reserve fund equal to the capital. The original purpose of the rest fund was to accumulate the surplus profits of good years for use in leaner years to maintain dividends and the like, if necessary. Today, however, any impairment of the rest fund would be considered almost as serious a step as the wiping out of part of the capital itself. The original intention of the rest fund is now fulfilled by the maintenance of a larger amount in undivided profits, which serves exactly the same purpose.
The rest account in a Canadian bank may therefore be considered as intended for the protection of the public, and the undivided profits for the protection of the shareholders.
In the present instance about 12 per cent of the net profits is used to increase the reserve, making the latter 80 per cent of the capital.