Demand deposits represent amounts due to individuals and firms payable on demand. No interest is paid on these accounts except in special cases where a large dormant balance is kept which could otherwise be transferred to the savings bank department. The average current accounts are frequently run at a loss, and were it not for the collateral profits accruing from the connection in the shape of exchange, discount and the like, the burden of operating them would be serious. The average cost of carrying a small account has been variously estimated at from $15 to $25 per annum, to cover this expense a full balance of at least $300 is necessary.

In order to prevent the abuse of the checking privilege some of the banks make a nominal charge for carrying small checking accounts, but it is a question even then if the bank comes out ahead.

The ratio of total deposits to the capital and reserve of the average bank is so large that even a small increase in the interest rate or in the expense of operating the deposits will materially affect the earnings on capital, unless, as has already been pointed out, the question of maintaining adequate reserves is neglected. In a lecture on "Interdependence of Trade and Banking" George H. Pownall, an English banker, in referring to the question of banking profits, says:

Ranking would not be possible if its present lines were seriously changed. We have to bear in mind that the business of banking, like every other kind of business of long standing, has evolved itself by daily-accumulating experience. I believe that depositors cannot expect a greater return than they now obtain, unless there were some general change in the supply of, and the demand for, loanable capital. Bankers do not take in deposit money as an investment for the depositor. The money comes in at the will of its owner, without notice, and is withdrawn without notice. That consideration governs the employment by bankers of their deposit money. They have individually to judge from the circumstances of their particular business what percentage of cash to their total liabilities they need to keep in their tills, what percentage of cash they shall keep unemployed to insure the public confidence in the stability of their institution, and what percentage of their liabilities to the public shall be represented by first-class securities, and first-class securities so written down in price that nothing but an extraordinary public catastrophe shall reduce their selling price below the figures at which they appear on the balance-sheet, and so produce an apparent deficiency in the assets of the bank. To keep money unemployed is to lessen earning power; to hold first-class securities is to obtain less than the average rate of return on money employed in loans, and to write them down to a safe level is a form of insurance that expert opinion demands of a banker.

It is not only from within that these matters have to be looked at, it is also from without. There is a large class of the public perfectly able to reckon up the safety or insecurity indicated by the broad lines of a bank balance-sheet, and, in the long run, the strongest institutions get the deposits. Paradoxical as it may seem, a banker's balance-sheet must exhibit an ability to pay any proportion of the banker's liabilities likely to be called for by nervous people in times of stress, not merely because the call for repayment needs to be faced, but also because to exhibit strength is to disincline people to make the demand.