In most towns in the United States there is little or no competition between banks in the business of buying and selling drafts and consequently no open market for exchange and no quotations of exchange rates. In such cases each bank acts more or less independently; shipments of cash to or from correspondents are the ordinary means of regulating balances; and the cost of such shipments are charged to the general expense account of the bank and taken out of customers either by a fixed and more or less invariable charge on drafts sold, or in other ways. Since the balances of the banks of a town with their out-of-town correspondents depend primarily upon the commercial and gift relations of their customers with the outside world, it is pertinent to inquire whether as a result of a long continued excess of purchases from outsiders over sales to them and of gifts to over gifts from them, the cash resources of a community might not be completely exhausted, and if not, how such an outcome is prevented. Bankers have no direct control over the purchases and sales of their customers, but through the rate of interest they charge on loans and discounts and their ability absolutely to discontinue such accommodations they exert a very potent indirect influence. The rates of interest and discount charged are an important element in the cost of doing business and, if loaning and discounting is discontinued, sales of property to meet maturing obligations are forced, with the result of price readjustments between the town in question and the outside world which speedily change the relations between purchases and sales. When the cash resources of the banks of a town approach the limit of safety and their balances with their correspondents fall to an ominously low point, the normal method of procedure is to raise the rates on loans and discounts, and if conditions grow worse, to raise them higher still and as a last resort to cease temporarily to make them at any price. By increasing the cost of doing business this rise in the rates will check purchases by diminishing or annihilating the profits resulting, and will stimulate sales by rendering it more profitable for some customers to secure funds by sales to outsiders at lower prices than were formerly asked rather than by borrowing from banks. Under ordinary circumstances this procedure will be sufficient to change an unfavorable into a favorable balance of indebtedness with the outside world, with the result that more checks on outside institutions will be deposited with the banks and a smaller amount of drafts purchased. Bankers' balances with their correspondents will, therefore, increase, and with them their ability to command cash in case of need. The demands made upon them for cash will also decrease, since the volume of loans and of business transacted will fall.