Now, can anyone of you men here tell me what difference there is in the transactions of A and B, except this, that the notes of B amounting to $100,000 payable to bearer on demand are outstanding, while the deposits at A's bank amounting to $100,000 and payable to order are outstanding. Those notes of B's amounting to $100,000 are a bank Credit Currency. They are issued against, or upon B's credit. They pass from person to person, from hand to hand and are currently redeemed every day. While the deposits at A's bank amounting to $100,000 are against A's credit, and the checks against them are redeemed every day. It is perfectly evident that if the capital of A and B combined is ample to meet the business requirements of that town, the form of credit offered by them will also adapt itself to the peculiar needs of each citizen. In other words, on a limited scale, you have a perfect banking system in that country town; bank credit being given to each person in precisely the form he wants it.
Now, let us go a step further. Let A and B unite and incorporate the A-B Bank with a paid-up capital of $100,000, each man paying in $50,000 and the bank, so organized, taking over the liabilities.
The one bank could then furnish the people of that community their deposit, or order credit, and their current credit, or currency at exactly the same cost to the bank; for the amount of the reserve will determine the cost of the note credit as well as the book credit. The bank being a country bank will carry a 15 per cent reserve, or $15,000 cash, to protect the deposit of $100,000 subject to check, and also a 15 per cent reserve, or $15,000 cash, to protect the $100,000 of demand notes outstanding. The actual cost to the bank in each case is 6 per cent on the reserve of $15,000 or $900 per annum.
If this bank should be located in the cotton-growing section of the country, and from August until January, the people needed more currency than at any other time of the year to pay for picking and handling the crop, and the customers of the bank came in and drew their checks for $50,000 and asked the bank for currency for that amount, and the bank should, as it ought to be able to do, under such circumstances change its deposit debt of $50,000 to a note debt of $50,000, so that instead of owing $100,000 in deposits, it owed only $50,000 in deposits, and instead of owing only $100,000 in notes, it owed $150,000, would it make any difference whatever to the bank except the trouble of making a few book entries?