By Chester Arthur Phillips
Comptroller of the foreign money, and banking periodicals. details embodied mainly in chapters VII-XI and XVI, and imobtainable from the standard assets, was once secured through large correspondence and interviews with bankers and be aware agents, to whom my honest thank you are due. For valuable feedback i'm thankful best rofessors Ray B. Westerfield, Fred R. Fairchild and Irving Fisher, of Yale. Chester A. Phillips Hanover, N. H.
(Typographical mistakes above are because of OCR software program and do not take place within the book.)
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Additional info for Bank Credit: A Study of the Principles and Factors Underlying Advances Made by Banks To Borrowers
The liberal loan policy of an individual bank is opposed, then, in the process of its execution, by a double check: as loans are extended (a) cash tends to diminish; and (b) deposit liabilities arising from loans tend to swell,—the prelude to a further loss of cash. A bank whose reserve is large in relation to its deposits or demand liabilities, as is true of the institution that we have been building up, will continue to expand its loans until, through a slight increase of deposits arising from loans and the decrease of cash resulting from loans, the ratio of reserve to deposit liabilities becomes what the bank management regards as normal or desirable.
Perhaps not more than $100,000 out of all the checks drawn against the $10,000,000 borrowed would be deposited at the Hanover National Bank. The remainder of the manifold loans supposedly extended on the basis of the imported gold deposited, except a small proportion, probably not more than 20 per cent, not checked by borrowers, would represent cash that the bank would lose through unfavorable clearing house balances, an amount that would be scattered widely among the banks of the system. It is clear that an individual bank attempting to lend greatly in excess of the amount of an addition to its reserves would do so at its peril.
Expansion of Loans a Prelude to Loss of Cash Now as loans increase, in the case of an individual bank, cash tends to diminish. This is true partly because a few borrowers take all or part of the proceeds of their loans in cash. An attempt on the part of an individual bank to expand its loans is normally met by an immediate and positive reduction of its cash. The immediate contraction of cash is, however, almost negligibly small and is not the only restraining force affecting the execution of a liberal loan policy.
Bank Credit: A Study of the Principles and Factors Underlying Advances Made by Banks To Borrowers by Chester Arthur Phillips