sable condition to the exercise of this function by a bank is
public confidence in its ability to fulfil its promise to pay whenever
it is due. This confidence is built upon the bank's paid-up capital;
its surplus and undivided profits: the further liability of the
stockholders to make good any losses up to an amount equal to the
capital stock each holds ("stockholder's double liability");
the financial prestige of the bank's officers, directors, and
stockholders; the bank's established reputation and "good will" in the
community after a period of successful operation; the character of
its loans and of the securities which it owns; and, finally, by the
reliance placed in the control and inspection by official examiners.
The bank may then sell its credit in any one or in all of the
following five ways: (1) by receiving time deposits; (2) by receiving
demand deposits; (3) by the method of discount and deposit; (4) by
selling exchange of funds to distant points; (5) by issuing bank
notes.

Sec. 4. #Time deposits.# Time deposits are funds to the credit of
customers which, by agreement, are to be left for some specified
minimum time or on condition that the bank may require notice in
advance of the depositor's intention to withdraw them. The notice that
may be required is usually thirty to ninety days; but only in times
of general financial crises or of runs on particular banks is this
requirement enforced. A sufficient deterrent to irregular withdrawal
of funds is usually found in the loss of interest if deposits are
withdrawn at other than stated times. The bank's right to require
notice makes prudent the investment of a much larger proportion of its
deposits and for a longer time; it reduces the proportion of deposits
needed for reserves, and yet reduces the danger of a "run" upon the
bank in time of financial distress. These are reasons why banks can
and usually do pay interest on time deposits (at from 2 to 4 per
cent), as until more recently they rarely did on demand deposits[4].
From the standpoint of the depositor a time deposit is, by its very
nature, an investment and not a demand credit available for current
monetary uses. Only that portion of a person's capital that for some
more or less considerable period is not likely to be needed for other
purposes ought to be put into time deposits. A bank, however, is
generally a much safer place in which to keep a fund of purchasing
power for the future than is the strong