In the practice of private banking, the amount of the reserve is wholly in the discretion of the banker. Chartered banks are frequently subject to legal provisions which determine not only a minimum reserve, but preseribe how it shall be held. Thus, in the national-banking system of the United States, the law' requires a minimum reserve of 25 per cent. of the amount of the deposits in large cities named in the law', and 15 per cent. of the deposits in other places. In three of the principal cities, namely, New York, Chicago, and Saint Louis, which are designated as central reserve cities, the whole amount of the reserve must be held in lawful money of the United States. In the remaining cities, one-half of the reserve may consist of deposits in the three central reserve cities named; hut at least one half must he held in lawful money in the bank. In other places, two-fifths of the legal reserve only need be held in the bank in lawful money, and the rema hider may be deposited in any of the reserve cities. In practice, the reserve held by the national banks is considerably in excess of the legal requirement.
In England, the practice of banks is some what similar. The reserve of the banking de partment of the Bank of England is always in coin or in notes. against which there is coin lying in what is called time issue department of the bank. Other banks generally hold a portion of
their reserve either in Government bonds, which can be readily sold in case of necessity, or as a deposit in the Bank of England. As the Bank of England is the channel through which, directly or indirectly, payments are made and moneys re ceived, by other banks, it is more convenient for them to have their reserve lying as a deposit in it than lying as gold within their own vaults. In the case of a demand on their reserve, the banks will draw out their deposits, in notes, or, if gold be in demand, in gold, from the Bank of England. Whether, therefore, the reserve of a bank is invested in Government securities or i-s deposited in the Bank of England, or is in Bank of England notes, it is from the coin in that bank that the gold comes in the ease of a run. It is apparent from this that it is essential to the stability of all banks in that country, so long as they themselves do not keep a sufficient reserve of coin in their coffers, that the Bank of England shall always be possessed I if coin, and ever be able, on demand, to pay its depositors in gold, or to give gold in exchange for all its notes that may be presented to it.