The Principles of Money and Banking (Volume 2); Book VI-The Co-Operation of the Factors of Exchang.. details from uread

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Purchase of this book includes free trial access to www.million-books.com where you can read more than a million books for free. This is an OCR edition with typos. Excerpt from book: Ill THE SECURITY FOR CIRCULATING NOTES Necessity that assets of a commercial bank should be readily convertible into money—Character of commercial paper— Proportion of negotiable securities permissible in the assets of a note-issuing bank—Disadvantages of such securities in times of panic—Failure of systems of note-issues secured specifically by bonds—The national banking system of the United States—Success of the guarantee fund system in Canada. THAT the fundamental requisite for the prudent conduct of a commercial bank, whether issuing notes or paying deposits on demand, is that its assets should be of a character quickly convertible into money, has been set forth in the preceding chapter. Tt remains to discuss more in detail the character of the securities which should be held .by a bank to insure this ready convertibility of its -assets, and especially the security which IsKould be held against circulating notes. There is only a slight distinction in character between the obligation tqpay a deposit on demand and the obligation to pay a circulating note. More stringent regulations have been estab- ttshed in most countries, however, regarding the guarantee for circulating notes, in order to add to the greater convenience of the" notes in ordinary transactions, that they may pass from hand to hand without inquiry as to the solvency or resources of the issuing bank. These regulations have been made so stringent in many cases that they have unnecessarily fettered the movement of credit and in some cases have required guarantees for the security of the circulation which have not been of a readily convertible character. The conditions which tend naturally to keep circulating . notes as well as other forms of credit upon a safe basis and within proper limits of volume are ...