LI 
382 REMARKS ON SPECIE RESERVES AND BANK DEPOSITS. 
this fund might be made, at the common risk, to any extent whatever ; for any loan out 
of the fund would immediately occasion a corresponding payment info it of the same 
amount. The fund would thus be inexhaustible; for if managed with common pru- 
dence, — that is, if no loans were made except on fair security, or with reasonable pros- 
pect of repayment, — the profit or interest on the loans would suffice to pay all ex- 
penses, and still leave a reserve, or guaranty fund, which would offset the few bad debts 
that might be contracted. 
Such an association might be called a Great Bank ; but it would be one of a peculiar 
kind. It would be a bank performing the same function for the now existing banks, 
that these banks now perform for individuals; — that is, it would be, to use a mathe- 
matical expression, a bank raised to the second power, — Bank”. The Bank of England, 
to some extent, is such an institution, as it stands in precisely this relation to all the 
private banks and the joint-stock banks in the city of London, all of which have deposits 
in the Bank of England, which is thus enabled to make further loans on the strength of 
these deposits, without depriving the depositing banks of the full use of their funds.* 
Our proposed Bank, or Association of depositors, however, would be peculiar in another 
respect, in that it would require neither charter nor capital, would issue no bills, and 
would perform no function but that of making loans and circulating deposits. It would 
not withdraw any funds or deposits from the present banks, but would circulate and 
equalize these deposits, keeping the share of each bank as strictly proportioned as it 
now is to its amount of business. Its functions would be very similar to those of the 
Clearing-House, and might perhaps be profitably added to the present operations of the. 
Clearing-House, being conducted under the oversight of the same committee, or of one 
chosen by the associated depositors. 
* See the evidence of Alderman Salomons, a Director of the London and Westminster Bank, which, at the 
close of 1857, held over £ 13,000,000 (about $ 63,000,000) of deposits. 
Among these deposits, he said, were the deposits of country (provincial) banks ; and the London and West- 
minster Bank made deposits with the Bank of England. He stated that the effect of the pressure (crisis) in 
November, 1857, was to induce them to increase the reserve in their own hands, and also to increase their 
deposits in the Bank of England. They did this by allowing the bills which they had discounted for the 
bill-brokers to mature. “About £ 5,000,000 of bills matured between November 11 and December 9L" 
* Our deposits with the Bank of England were increased." 
* You say that your discounts, either at your own counter or through the bill-brokers, are ordinarily very 
large, but that, at the time of severest pressure, you contracted them so far as you thought was just to your 
own immediate customers ? — Yes; but the capital was still there, because it was at the Bank of England, and 
it was capable of being used for short periods; if we did not want it, others might have used it. 
^ In fact, it was used by the Bank of England ? — Undoubtedly ; I should suppose so; there is no question 
about it." 
