CO129-555-6 Banking crisis 24-9-1935 - 18-10-1935 — Page 40

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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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