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Balance-Sheet

bank, capital, banks, liabilities, reserve and test

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BALANCE-SHEET of a bank.—The study of the statement issued every year or half-year by a bank is of great practical interest, showing as it does the strength and stability of the bank, and the policy of the directors with regard to the management of the resources committed to their charge. And these resources are in many cases absolutely vast, amounting to any figure up to and about fifty millions; all of which represents a large part of the substance of the bank's customers, and at the same time impresses the public with an appearance of magnificent strength which induces an ever increasing respect and confidence. Yet the amount of money entrusted to the safe custody of a bank is by no means a sure test of that bank's stability; it is in fact, considered alone, no test at all. The true test, from the customer's point of view, is ultimately the relation between that amount and the Nam it preserves available as a source for the immediate repayment thereof ; such available sum being termed the bank's reserves. These periodical statements are the balance-sheets, and a perusal of all those issued would disclose, in addition to the fact that such large sums belonging to the public are left in the hands of the banks, the still more startling fact that there is a universal absence of any fixed rule as to the proportion of capital, cash, or investments, that should be held against liabilities to the public. The following is an illustration of the balance-sheet of a bank :— Liabilities. A: sets.

Capital paid up . . . . £ Cash in hand and at Bank of Current-account balances . . England . . . . . £ Deposits . . . . . Money at call and short notice .

Other liabilities, drafts, letters Investments— of credit, tcze. . . . . Consols . . . .

Acceptances . . . British Colonial stock . .

Reserve fund . . . . Foreign stock . . .

Rebate on bills not due . . Railways . . .

Profit and loss . . . . Docks, &c. &c. . . .

Balance brought forward . . Other securities . . . .

Net profits for the half-year . Bills discounted— Three months and under • Exceeding three months .

Loans and advances . . . Liabilities of customers on accept ances . . . . . Bank freehold and leasehold pre mises, furniture, and fittings . Other assets . . . .

Profit and Loss Account.

Interest accrued and paid . . £ Balance brought from last ac Current expenses . . . count . . . . . £ Salaries and rent . . . Gross profits for half-year, pro Rebate on bills not due . . vision having been made for Dividend . . . . . bad and doubtful debts . .

Bank premises account . .

Balance carried forward . .

Having already indicated that the crucial test of the bank's stability is to be found in the relation of its reserve to the liabilities, we will proceed to show how it may be applied—first, however, referring once for all to the profit and loss account merely to point out that this simply shows how the profits are to be applied, it not materially affecting our consideration of the main question. To return to the capital account, attention should be paid to the item Reserve Fund, this being the amount laid by out of the profits as some set-off against liabilities. But this, though a part of the general reserve, is nbt the real reserve of which we are speaking; in fact, when used as capital in the business, as its position in the balance-sheet would indicate, it becomes, for working purposes, really a further liability of the bank—a deposit by the shareholders as a contribution towards both capital and a resource in time of need. The policy of building up a reserve fund is a sound one, and should be encouraged as much as possible by both shareholder and customer. Though proportionately to its accretion it for the time being reduces dividends, it ultimately becomes a dividend-earning capital increasing the paid up working capital—a very desirable end in these days of banks working upon a minimum of capital, and shareholders generally fearful of a call ; it also increases the whole working resources of the bank.

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