at the discounted paper shall mature
in a short period, the necessity of liquidation will be forced upon
customers who are responsible for the payment of the discounted paper;
that is, such customers will be obliged to sell at such prices as they
can command the property in which the investments were made, or some
other property. Such liquidation always results in forced
readjustments of prices and business depression, and sometimes in
commercial crises.

_4. The Issue of Notes_

As an alternative for or a supplement to the conduct of checking
accounts a commercial bank may issue its promissory notes payable to
bearer on demand. By the issue of notes is meant their transfer to
customers in exchange for cash, for checks left for collection or
drawn against a credit balance in a checking account, or for
discounted notes and bills.

By the use of these notes commercial banking can be carried on
without checking accounts. In that case the notes are issued in
exchange for cash and discounted bills, and notes are returned to the
bank in exchange for cash or when discounted bills or notes mature and
are paid. In the bookkeeping process which has been described bank
notes thus issued and returned perform precisely the same function as
checking accounts, and are related to the discount of commercial paper
and the credit system of the country in precisely the same manner as
such accounts.

Most banks of issue at the present time conduct checking accounts
also, using the one instrumentality or the other as their customers
desire. In this case notes are issued in exchange for checks drawn
against credit balances on checking accounts or deposited for
collection as well as in exchange for discounted notes and bills and
cash.

By the use of both notes and checking accounts, a bank can supply most
of the needs of its customers for a circulating medium, the notes
serving as hand-to-hand money, and the checking accounts, practically
all other purposes. Being the direct obligations of banks attested by
the signatures of their responsible officers, and being payable to
bearer on demand and capable of being issued in all necessary
denominations, such notes can be transferred without indorsement, can
be used for making change and payments of small and moderate size for
which checks are not convenient, and they do not need to be presented
at a bank for the test of their validity. If the bank or banks which
issue them are properly co