£m. │ £m. │ Capital and Reserve Fund 1½ │ Loans, Advances, etc. 6 Deposits, etc. 10½ │ Bills of Exchange 2½ │ Cash, etc. 2 │ Securities 1 │ Miscellaneous assets ½ —————— │ —————— 12 │ 12 ══════ │ ══════ [Bills rediscounted and outstanding, £m5½.] Acceptances have been omitted in the above, the amount of bills payable is supposed to be deducted from cash, and various minor items are omitted. The “capital employed in India” seems to be (viii.) + (x.) + (xii.) = £m5. The “capital employed in London” is (vii.) + (ix.)–(vi.) + (xi.) = £m5½.[110] The securities and miscellaneous assets (xiii.) + (xiv.) = £m1½, may be regarded perhaps as equally available in either centre. If there is a run in India, assets must be available there in a liquid form equal to (v.). If there is a run in London, liquid assets must be available there equal to (iii.). The second condition, but not the first, is, in this hypothetical example, fulfilled. If the Bank had to remit funds back from India to London, this would be most simply effected by not entering into new business under (ix.). It would not then be necessary to buy Council Bills, and the trade bills already bought under (ix.), being rediscounted or allowed to mature in London, would swell the available funds there automatically. If it were possible to call in loans in India and reduce (viii.), then it would be possible to buy more trade bills under (ix.) in India (or Government sterling drafts if trade were depressed), without having to buy Council Bills in London, and these trade bills could then be rediscounted in London. If the Exchange Banks are remitting funds back to London, this shows itself, therefore, in a poor demand for Council Bills; and conversely when they are remitting funds to India, there is a strong demand for Council Bills. Thus the weakness of the demand for Council Bills in times of depression (and the strength of the demand for Government sterling drafts) partly depends on the action of the Exchange Banks. What their action would be in a situation of acute stringency bordering on financial panic, it is not easy to predict.