A bank trades in money subscribed by its own shareholders and money deposited with it by the public. A bank in the course of time finds itself in the possession of what it describes as its deposit and current accounts. These accounts, it is popularly supposed--included in the populace are political economists and City financiers--are the aggregate of the money placed with a bank by the public and the money with which it mainly trades. These are called a bank’s liabilities, its immediate liabilities the redemption of which can legally be demanded at a moment’s notice. It is because they can be so demanded that banks are ever faced with a grave potential peril. It is necessary to clear the way by destroying a delusion. This money on deposit is not entirely money placed in the keeping of a bank in the same fashion as one would keep money in a safe. This fact, in my view, is of great importance. Only a portion of these deposits is what we may call in an indefinite way pure deposits. By pure deposits I mean money placed with a bank that is not a direct loan. If I place £100 of my savings in a bank, instead of investing it, I call that a pure deposit, and this money I can withdraw without the subtraction of a farthing at a moment’s notice. But we have already seen, from our analysis of a bank’s balance sheet in Chapter III, that these deposits are not all pure deposits. A considerable portion of them consists of loans to all kinds of people, loans made on the security of various kinds of wealth. That is to say, the bank owes money to these so-called depositors and the depositors owe that money to the bank. The depositors have the power, of course, to withdraw the entire sum of money lent to them temporarily by the bank; but the bank, in due course, has the power to claim the redemption of the loans. Not only has it this power to call in these loans, but it actually possesses the equivalent of the loans in a portion of the country’s wealth. It is possible--but the wisdom or unwisdom of it need not be discussed here--for the legislature to enact that only pure deposits should be withdrawable at a moment’s notice, and that borrowers should be compelled in times of panic or vital urgency to give long notice. I merely say that this is within the power of the legislature to enact, but I do not say here that it is practicable, necessary, or wise. I merely throw out the hint here in order to emphasize the importance of the distinction between pure deposits and loan deposits. The latter, I have already urged, may be regarded as the product of the machinery for converting wealth into currency, or liquid capital. From a sound banking standpoint the vital question to be considered and answered is as to the kind of wealth that is so converted. Sound banking is to be tested by the nature of the wealth so converted, or, in the language of the financial community, the wealth on which loans are made.