ker is also influenced by the customer's
reputation for both integrity and business ability.

This method of procedure has the advantage of rendering access of
people to the banks easy and of promoting their extensive use, but it
has the grave disadvantage of opening the doors wide to inflation of
credit. The majority of our bankers do not know whether more or less
than their savings deposits and their capital and surplus, the only
funds which can safely be invested in fixed forms, is so invested. The
promissory notes of their customers, which constitute the major part
of their assets, give no information on this point, and they have not
made the investigations necessary to determine with certainty the
destination of the funds they have loaned. They are satisfied with the
knowledge or the conviction that their loans can be collected, not at
maturity--they know very well that many, probably most, of them can
not--but ultimately. The result is that unconsciously and gradually
the banks create their demand obligations in the form of balances on
checking accounts against fixed investments in machinery, buildings,
lands, mines, etc., and, when the payment of these obligations is
demanded, the reserves fall below the danger point and they are forced
to require payment at maturity of paper which the maker had counted
upon having renewed indefinitely, and the payment of which is only
possible by the forced sale of the property in which the borrowed
funds were invested, or of some other property in his possession. If
only a single bank or a comparatively few banks find themselves in
this condition, relief may be found in the rediscount of paper with
other banks, in direct loans, or in the sale of securities on the
exchanges; but, if the condition is general, relief by these means is
impossible, and widespread forced liquidation becomes necessary. An
aggravated situation of this kind causes panic and results in a
commercial crisis.

(_c_) _Treasury Operations._--The operation of our independent
treasury system produces arbitrary fluctuations in the reserves of the
banks and prevents that degree of prevision which is essential to the
most economical and the safest practices. The funds needed for current
purposes are withdrawn from the banks and kept under lock and key in
the treasury vaults, thus diminishing reserves to the extent of their
amount. Surplus funds likewise accumulate in the vaults with the same
result, until the Se