When some bank managers tell borrowers they must repay their loans, then they rush round to other bank managers, caring not a fig about reserves so long as they can get the accommodation they want, for their needs are above all other considerations. And when they find that no bank manager will serve them, and when all bank managers tell them they are sold out, then they have to go to the Bank of England. They do not like to go to the Bank of England, because they have to pay more for the services that Bank renders. That is to say, they have to share with the Bank of England a larger portion of the profits they make than the portion they would divide with the joint stock banks. By this analysis we see that the deposits of a bank, the so-called loanable fund, consists of pure deposits, which we may call cash deposits, and loan-deposits, which those who believe in credit creation call credit deposits. These latter deposits represent the wealth placed with the bank, and so long as this wealth is in liquid form in these deposits it cannot be employed in its fixed form. These deposits are loans owing by the bank and owing to the bank. Others call them credit deposits created by the banks themselves. These loans are made in relation to the proportion each bank is in the habit of maintaining between its cash, or legal tender reserves, and the deposits as a whole. The loan deposits increase or decrease according as this proportion rises or falls. It is left to the discretion of each bank to decide what the proportion shall be. There is no legal compulsion. Therefore it is their practice to retain the minimum ratio which they consider sufficient for their safety. When this safety limit is passed, then they stop lending and proceed to call in their loans. The totality of the deposits automatically diminishes, and though not a sovereign has been added to the reserve, the proportion rises. This, then, is the important point. Not so much the amount of the reserve, as the proportion. One bank may have fifty millions in its reserve, and another bank only fifteen. But the smaller bank may have a higher proportion to its liabilities and the larger bank a smaller proportion. The test, therefore, if there must be a test, is the proportion of the reserve to the total liabilities, and with this I shall deal more fully later on. CHAPTER IX THE CENTRAL FUND What I call the Central loanable fund is the fund in what financial journalists call the Central Institution. This is not to be regarded as an institution standing in the centre of a great circle of banks, with directing chords, as it were, radiating from this governing centre. Why it is called the Central Institution I do not know, except it be a birth of the mother of invention, or a need arising out of the limitations of the English language.