The study of the half-yearly or yearly statements issued by the banks is of great interest, because we have, as it were, reflected in them the policy of bank directors with regard to the management of the vast resources committed to their charge. One fact is apparent, and that is the absence of any fixed rule as to the proportion of capital, cash or investments that should be held against the liabilities. We give the following as a good illustration of a balance sheet: Liabilities. Current accounts . Deposit accounts Other liabilities, circular notes, letters of credit, etc. . Acceptances . Capital paid up Reserve fund .... Rebate on bills not due . Profit and loss Balance brought forward Net profit for the half-year Assets.

Cash in hand and at Bank of England Money at call and short notice ....

Investments Consols ....

British Colonial Government Corporation Stocks Other securities .

Bills discounted (a) three months and under (b) exceeding three months Loans and advances . Liabilities of customers for acceptances Bank freehold and leasehold premises, furniture and fittings ....

Other assets Profit and Loss Account.

Interest accrued and paid Current expenses . Salaries, rent at head office and branches Rebate on bills not due .

Dividend.....

Bank premises account . Balance carried forward .

Balance brought from last account ....

Gross profits for the half-year after providing for bad and doubtful debts .

In our analysis we will first consider the liabilities, which consist of capital, reserve, deposits, acceptances, and sundry other items. The capital represents the amount which is thought sufficient to carry on the business of banking. The reserve is the accumulation of undivided profits, and the proportion of these two items in the case of London banks varies from 7 per cent. to 29 per cent. of the liabilities. Acceptances represent bills accepted for correspondents, and which must be paid by the banks when they mature. Lastly we have the current and deposit accounts; it would be desirable if the former accounts were separated from the latter, which represent a different form of liability. Deposits may be called in at any moment, and the depositor has not the same interest in the bank which the customer possesses. When there is a feeling of distrust in the financial world, the depositor is the first to withdraw his capital.

The assets should be carefully examined, because the stability of our banking institutions is largely dependent upon the investment of the great resources committed to their charge. The first item would be the cash reserve of the bank, which consists of cash in hand, at the Bank of England, and money at call.

We can scarcely consider money at call as a cash reserve, because during a crisis it would be almost impossible to call in money from the brokers.

It is worthy of notice that some banks do not group their cash with money at call, but include such amounts with their advances.

The proportion of cash would vary from 7 to 20 per cent.

The average of seventeen London banks is 14.5 per cent., and of money at call 12.7 per cent.

The next item in the balance sheet is the investments, which are of a varied character. At the head of the list would be Consols, which form the best security, because the payment of interest is secured on the revenues of the country and the stock can always be converted into cash at short notice.

Some banks invest the whole of their capital or reserve in Consols.

The next class of investments would be Indian Government Stocks, Colonial Government Stocks, Corporation Stocks and English Railway Debenture Stocks.

These items would vary from 9 per cent. to 36 per cent., the average of seventeen London banks being 25.5. It is satisfactory to note that the private banks which have published balance sheets show a very high proportion of English Government Stocks. Unfortunately for the banks, the yield of interest every year tends to get less.

For example, the yield from Consols is about £2 6s., and from Colonial Government Stocks about £3 5s. The various classes of investments should be separated in order to get a correct opinion as to the bank's position. The proportion of cash, money at call, and investments to current and deposit account varies from 39 to 63 per cent. in the case of the London banks.

The most important item in the balance sheet is loans and advances to customers, and also bills discounted. Some banks separate the bills discounted from the advances, which it is thought should be done in all cases. Of the two classes, viz., bills and advances, bills would stand first, because they form a better security. As a rule bills are met at maturity, but it sometimes happens that loans are not repaid when they fall due.

A banker must concentrate his attention upon this important item in the balance sheet, because public confidence in the management is largely dependent upon loans and advances being made with great discretion.

The acceptances are shown on each side of the balance sheet, and vary considerably from 1 per cent. to 38 per cent. against the total amount of deposits.