tions and experiences of
other banks, other business institutions, governments, etc.

_3. Rates_

Besides rates of exchange considered in the preceding chapter,
commercial banks are concerned with loan and discount rates.

Rates on deposits, though sometimes employed, have no place in
commercial banking, since commercial deposits are only the credit
balances resulting from loans and discounts or from funds intrusted to
the bank for temporary safekeeping or disbursement in the interest of
the depositor. In every case they represent a service rendered the
depositor for which the bank must be paid, and, when interest is
allowed, the depositor must repay it in some form with an increment
sufficient to remunerate said service.

Commercial banks may and usually do conduct savings accounts also, for
which an interest payment is not only defensible but in every sense
desirable, but in so doing they are going beyond the sphere of
commercial banking, which alone is under consideration at this point.

Rates charged on loans and discounts are the chief means through which
commercial banks are remunerated for the services they perform. In the
long run these rates are determined by competition, and represent the
current market value of the services performed by bankers. Custom
often affects them temporarily and sometimes for long periods prevents
their response to influences tending to produce change, but in the
long run they yield to economic force and conform to the laws of
value.

Variations in the rate of discount are the most efficient means
employed by commercial banks for the regulation of the volume of their
loans and discounts and for changing the percentage their reserves
bear to deposits and note issues. An increase of these rates tends to
check loans and discounts, to decrease deposits and note issues, to
increase reserves, and consequently to raise the percentage of
reserves to deposits and issues.

It checks loans and discounts by increasing the expense of conducting
business operations on a credit basis, thus diminishing profits and
sometimes causing losses, checking enterprise and decreasing the
volume of commercial transactions. A decrease of loans and discounts
correspondingly diminishes deposits or note issues, or both, since
these are simply the counterpart or representative of such loans and
discounts in the form of credit balances in the checking accounts
conducted by the banks or the equivalent of su