demands as reserve, they may be regarded as virtually a part of the reserve, which in the case before us may therefore be treated as made up of cash items, specie, and legal-tender notes. To illustrate what has been said in this chapter we will now suppose the bank to make the following operations: a. To add to its securities $20,000, by discount of three-months paper at 6 per cent., three-fourths being purchased by the creation of liabilities, and one-fourth by the expenditure of cash. The account would then stand as follows: _Liabilities_ Capital $100,000 Surplus 29,000 Undivided profits 10,300 Deposits 319,775 -------- $459,075 _Resources_ Loans $325,000 Bonds and stocks 23,000 Real estate 15,000 Other assets 20,000 Expenses 1,000 Reserve 75,075 -------- $459,075 b. To retrace its steps by diminishing its "discounts" or holding of securities to the extent of $50,000, of which four-fifths are paid to it by the surrender of demands for deposits to a like amount and one-fifth in cash; to pay $1,250 for current expenses; and further to increase its reserve by the sale of bonds and stocks to the amount of $10,000. The following would then be the state of the account: _Liabilities_ Capital $100,000 Surplus 29,000 Undivided profits 10,300 Deposits 279,775 -------- $419,075 _Resources_ Loans $275,000 Bonds and stocks 13,000 Real estate 15,000 Other assets 20,000 Expenses 2,250 Reserve 93,825 -------- $419,075 c. To sell $2,000 of its other assets for cash with a loss of $500; to make a semi-annual dividend of 4 per cent., of which one-half is credited to stockholders who happen to be depositors also, and one-half is paid in cash; to sell $4,000 of bonds at a profit of 15 per cent., and to carry $1,000 of its undivided profits to surplus. The account would then stand at the beginning of the new half year, as follows: _Liabilities_ Capital $100,000 Surplus 30,000 Undivided profits 3,150 Deposits 281,775 -------- $414,925 _Resources_ Loans $275,000 Bonds and stocks 9,000 Real estate 15,000 Other assets 18,000 Reserve 97,925 -------- $414,925 STATEMENT OF A REPRESENTATIVE NATIONAL BANK _Resources_