We next come to a banking company’s profits, which are a source of great annoyance and wonderment to certain people, who cannot understand how dividends of from 10 to 20 per cent. can be earned in the worst of times when everybody else is feeling the depression in trade acutely. The mystery is not very profound, for a banker’s business, of course, is only profitable so long as he can trade with the money of his depositors, and, as his own capital is usually small when compared with his deposits, it follows that a very small percentage on his working resources will return a high rate of interest upon his capital. Upon a certain amount of his deposits he allows a rate which is regulated by the Bank rate; and he charges a rate upon his loans and advances, the said rate being also more or less influenced by the Bank rate, the difference between the two rates representing his margin of gross profit. He regulates this margin by changing his deposit rate at each alteration of the Bank rate, but he also obtains money upon which he does not pay interest, and as that sum earns considerably more when the Bank rate is at 4 than when it is at 2½, it follows that his “free” money is largely responsible for the fluctuations of his dividends. But a banker cannot trade with all his deposits. He has to keep a certain sum lying idle in his safes and tills, and with his London agents or the Bank of England. He further requires a good list of securities which can be either converted or pledged with the Bank of England should occasion arise, and such a list will not return him much more than 3 per cent. upon the sum devoted to that purpose. Then he employs a portion of his funds in the short-loan market, so he has only about 60 or 70 per cent. of his deposits to advance in the shape of loans, overdrafts and discounts to customers. In other words, a well-managed bank has to devote a large proportion of its resources to insuring its business.