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27. The two main aspects which should interest the
depositor are whether a Bank keeps a sufficient percentage
of liquid assets and whether the assets which are not
liquid are sufficiently safe. In other words it is not
the cash position of his Bank that the depositor should
be mainly concerned with but its general liquidity
position.
28.
Obviously depositors cannot be paid with bills
they demand currency. Banks should at
and securities:
all times be in the position to meet normal demands made
upon them by their depositors. But it is impossible to
guarantee the meeting of demands up to the maximum that
can be foreshadowed in time of crisis unless one hundred
per cent. liquidity is maintained.
This or any
percentage at all near it would make banking business
unprofitable; and whatever ratio of liquidity is chosen
must depend on the experience of Banks over a number of
years, taking into consideration the general character of
the Bank's business and seasonal demands.
29. It must be remembered that the more cash held
in reserve and the more liquid the investment, the more
unprofitable is banking business and the less able is the
Bank to finance commerce and industry. If the proposal
to hold large reserves is based on the presumption that
these reserves will meet depositors' withdrawals at times
of crisis, in practice the required result can never be
attained since the greater the withdrawals the lower the
percentage of reserves to deposits remains. The reserves
held may easily fall below whatever statutory percentage
has been laid down and either further withdrawals are
allowed, in which case the Banks must break the
statutory ratio, or a moratorium must be declared.
Even
if
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