And now for the liabilities. From the point of view of customers, these may be described as the total amount of the customers' money employed in the business, and in the above balance-sheet will be comprised in the items : current-account balances, deposits, drafts, &c., in circulation, and acceptances. Of these the two first are the most important, and call for little or no ex planation. Practically all of us have a drawing or current banking account, and some time or other it is our happy lot to be in credit with the bank. When this occurs, then for the time being there is a current-account balance against the bank ; deposits occur where money is left specifically with the bank at interest ; drafts in circulation are drafts at a short date, or on demand, drawn by provincial banks on their London agents, or by branch banks on the head-office ; acceptances are liabilities the bank has incurred on behalf of its customers against a deposit of securities. Such are the liabilities of the bank, in respect of which repayment may be demanded. Deposits, which should always be separated from current-account balances in a bent fide balance-sheet, are subject to a varying period of notice before repayment; drafts and letters of credit may be cashed very quickly, or in-the latter case drawn on spasmodically ; acceptances mature day by day, and provision is always made for them. Fortunately the current-account customer, who more than any other may have a bank at his mercy, is on the average a solid and satisfied man, whose disposition would be to assist rather than to involve his bank at a time of panic. But business is business, and the other side of the balance-sheet must be carefully examined.
The first two items should always be kept distinct ; there is a vast difference between the first, where cash is actually in hand available for immediate use ; and the second, where, though at call or short notice, it is probably in the hands of the billbroker or stockbroker, who, in a time of financial stress, may be as hard pushed for cash as the bank that wants it back. The first item is the real and genuine cash reserve—the only one the nature of which can coftipare with the reserve always kept by the Bank of England. The reserve fund would probably be useless for its purpose at a time of stress, it being invested in the same manner as the rest of the bank's working resources; but some banks only invest the reserve fund in consols— there the case is different, though not so loved by the dividend-hunting shareholder.
The next item, investments, concludes the list of assets which are easily realised and available in time of need—the sum of which may be termed the bank's liquid assets. The first and best investment is consols, but unfortu nately, though naturally, the price is high, the interest low,•and a bank exists primarily to make as much profit as possible, the result being as small an investment as possible in English Government Stock. The next class,
which is also not a very profitable one, includes Indian Government Stocks, Colonialr Government Stocks, Corporation Stocks, and English Railway Debenture Stocks. After this come foreign government bonds and dock and water debentures and stocks; then ordinary mining and industrial debentures and shares, with land, houses, and rent charges. No balance sheet can in any way assume to afford a conclusive satisfaction that does not set out in detail its investments according to their class, with the respective amounts represented by each ; many banks do this, but a great many do not. Investment in mines and industrials are generally bad when considered from the point of view of their availability as liquid assets ; they are bad also because of their constant fluctuation in value. Real estate is also bad, for nothing, especially when represented by large parcels, sells so poorly at a forced sale ; it tends, moreover, to accumulate in the hands of a bank doing a local business, and the more it accumulates and its area is concentrated, the less is it available for realisation ; and yet again, a question of title often unexpectedly turns up, forcing the bank either to forego the security at an absolute sacrifice, or to hold its hand for years with a view to settlement by time. But there is one thing always absent in this part of the balance-sheet. The bank may give many reasons why it is not there, but a reason is impossible that can conclusively satisfy the inquirer. What is the basis for the valuation of the investments ? This is a very serious question when they total up to a sum amounting to millions. It may be that the valuation is based upon the price paid, or the money lent ; or it may be upon the actual market-value at the time of making up the balance-sheet ; or it may be a value struck between the two. Whatever the principle of the valuation may be, the auditors seem invariably to keep it quiet. The neces sity, even the justice of satisfaction upon this point must be obvious. If, in a long list of investments representing twenty millions, there has been an all round depreciation of value of 10 per cent., and the value has been placed at the money paid or lent, there is an undisclosed loss of about two millions. Where a bank has involved itself very largely in the finances of some great brewery whose shares have dep-eciated 50 per cent., what steps does it take to disclose the fact to those whose money it uses ? And the same question may arise where the bank has extensively financed building operations in a locality where building has been an utter failure, and property is unsaleable at any reasonable price ; so, too, in many other similar circumstances.