for indemnifying the state against possible loss is not made.

Some limitation on the total amount of issues is common even when other methods of protecting noteholders are also employed. National banks in this country and the banks of Canada are not allowed in any case to extend their issues beyond the amount of their paid-up capital stock. In France the law sets a definite limit beyond which the issues of the Bank of France are not permitted to go, but from time to time this limit has been raised. The Bank of England is permitted to issue £18,450,000 in notes on the deposit of securities to that amount with the issue department of the bank and any amount beyond this figure in exchange pound for pound for gold coin or bullion. Banks of issue in Germany are assigned a fixed quota which they must secure by means of first-class bills of exchange and cash in the proportion of not less than one-third of the latter. Beyond this quota they must secure their issues either by 100 per cent. of cash or pay a tax of five per cent. to the government.

The relative advantages and disadvantages of these methods of protecting noteholders must be judged from the standpoint of their influence on the elasticity of the issues, as well as from that of safety. From this point of view the plan of mortgaging special assets in the form used in this country is defective. The requirement that government or other bonds must be purchased and deposited with a public official before notes may be issued, and the surrender of the notes, or of an equivalent amount of cash, in exchange for the bonds before notes can be retired renders their volume entirely independent of the needs of commerce, since those needs bear no relation to the profitableness or unprofitableness of investments in bonds or to the desirability of holding or selling such bonds once in

the bank's possession. In order to render the quantity of the issues responsive to the varying needs of the community for hand-to-hand money, banks must be able to issue notes freely in the discounting of bills and the payment of depositors, and to retire them freely when the need for them has passed. The only protection to noteholders not inconsistent with such freedom must therefore be based upon such assets as normally come into the possession of commercial banks in the performance of their daily duties. All the other methods above described are free from this objection, and it is possible by combining two or more of them also to render the security to the noteholders perfect from the standpoint of safety.

7. Public inspection and supervision.-Publicity is an important safeguard against unsound banking, and it also assists banks in obtaining the confidence of the public. So important to a bank is it that the people generally should believe in its soundness and stability that it is probable that self-interest would lead them to publish their accounts or in some other way keep the community informed regarding the nature of their business. In most states, however, it has been found best to enforce publicity in one form or another, the most common method being to require the publication of banks' accounts. In the United States national banks are required annually to make to the Comptroller of the Currency at least five reports of their resources and liabilities. The dates for these are not specified in advance, the Comptroller being permitted to call for them whenever he sees fit. When submitted they must be published in a newspaper in the place where the banking association is established. In Germany banks of issue are required to make weekly reports which are published in the periodicals. The Bank of France is compelled by law to furnish to the government every six months

a full statement of its operations, and a balance-sheet of the bank is published in the official journal every Friday. The accounts of the Bank of England are also regularly published in the financial journals of the kingdom.

In addition to the requirement that bank accounts must from time to time be submitted to public inspection, some provision for supervision and examination by public officials is common. The Comptroller of the Currency in the United States is authorized, and indeed directed by law, to inspect the national banks at frequent intervals. He has full authority to call for all books and securities, and to make as full and complete an examination as he desires. In the great state banks of Europe provisions for special inspection are rendered unnecessary by the appointment of public officials to the immediate control of these institutions. The governor and two sub-governors of the Bank of France are appointed by the ministry. The Imperial Bank of Germany is under the direct control of a board of curators composed of the Chancellor of the Empire, who is president, and four other members, one named by the Emperor and the other three by the federal council. This body meets every three months and examines reports regarding the bank's condition and the operations which are being carried on. The immediate administration of the Imperial Bank is confided to a board of directors appointed directly by the Imperial Government from a list nominated by the federal council. The Bank of England in form is a purely private institution, its directors being appointed by the stockholders, but on account of its intimate connection with the English government it is practically under the direct supervision of government officials.

The efficiency of the practice of publishing accounts as a safeguard against unsound banking depends largely upon the ability of the public to interpret these statements when

they appear. It is desirable, therefore, that we should examine a typical bank account and note the manner in which the chief operations of banking are revealed in its items. The following has not been copied from any report, but contains the essential items, and may be regarded as typical:

The most important items in this account have already been explained. By capital is meant the funds originally contributed by the stockholders and it stands here under the head of liabilities because the officers of the bank are responsible to them for its use and must distribute the dividends on the basis of it. It should be noted, however, that capital stock is not payable on demand, and is thus a very different sort of liability from deposits and notes. By surplus, is meant the profits which have been earned, but which are not distributed in the form of dividends, but left with the bank in order to strengthen its resources. The accumulation of a surplus amounts to an increase of the bank's capital. The undivided profits are the profits not yet distributed but which will be available for distribution to the stockholders when the outstanding loans have matured. The deposits, as was explained in a previous chapter, are the sum total of the credit accounts on the books of the bank in favor of its customers, some of which have originated in loans and others in the deposit of actual cash. Turning now to resources, we note that the item

loans is represented in the bank's safes and portfolios by the notes of business men and corporations, falling due, some perhaps in thirty, some in sixty, and some in ninety days, and by the bills of exchange it has purchased. The term bonds and stocks and real estate are self-explanatory, the latter being represented chiefly by the building and grounds occupied by the bank. Under the head other assets are included the various items of miscellaneous property which in one way and another have come into the possession of the bank, possibly through the foreclosure of mortgages or other means not necessarily involved in the prosecution of the bank's peculiar business. The cash reserve is the cash on hand available for the payment of depositors and the meeting of other cash obligations.

As variations of this typical account it should be noted that banks of issue add to the items falling under the head Liabilities that of notes or issues; that instead of the term loans we often meet the term discounts; and that under the general head Deposits may be distinguished current accounts and time deposits, and sometimes deposits of other banks and private deposits. The Bank of England uses the term rest instead of surplus.

The relation between these various items may best be revealed by considering the effects upon this account of the most important daily operations of the bank. Suppose that new loans to the extent of $3000 are made, which are to mature on the average in sixty days and to bear interest at six per cent. Three items of the account must then be changed. The loans will be increased to $268,750 the deposits to $266,970 ($264,000+$2,970, which is $3000$30, the discount for sixty days), and the undivided profits to $2,780. It should be noted that the cash reserve now bears a smaller proportion to the demand liabilities than before.