It has already been said that the notes of a bank are a liability distinguishable in form, but not in substance, from its deposits. The creditor of a bank of issue has his choice between taking the evidence of his right in the form of a note and taking it in the form of an entry in a book. For his use one form may be preferable to the other; if he desires to make payments in small sums, as for wages, he may prefer to take notes; if he is to make large payments, or expects a little delay in the use of his funds, he is quite certain to prefer being credited with a deposit. But, whatever his choice, the liability of the bank to make payment in money on demand is the same, and it is under the same necessity of providing itself with a reserve, sufficient to meet any demand which experience shows to be probable. To illustrate this part of the subject we will take the account given on page 42, and suppose the depositors to have drawn one third of their deposits in notes of the bank, which have thus been thrown into circulation.

It is obvious from inspection that if any demand upon the bank weakens its reserve, it makes no difference whether the demand is from depositors or note holders; the funds available to meet subsequent demands for payment are reduced to the same degree in either case, and the same precautionary measures for replenishment will have to be taken. And so, if fresh loans are made, the relation of reserve to demand liabilities is altered, whether the loans are effected by an increase of deposits or of notes. The law does not always recognize this close similarity of the two kinds of liability. It has sometimes required a reserve for the protection of notes alone, under the apparent impression that this must secure the solvency of the bank, and it sometimes makes a provision for a reserve of different amount for the notes, as in the national-bank system of the United States, having in view the different degrees of the probable demand for payment of notes and of deposits respectively.1 Apart, however, from consideraof securities. The deposit, transferred by check, is more convenient for large transactions than the note, being more expeditious and safer. The safety of the deposit is due to the fact that the check, being usually payable "to order," especially when the amount is considerable, cannot be drawn or credited to its holder unless endorsed by the payee. If lost or stolen, therefore, it cannot be paid unless the bank is deceived by a forged endorsement, in which case the loss falls upon the bank itself. Bank-notes, however, being payable to bearer are nearly as difficult to trace as money.

1 The National Banks are now required, by the Act of 1874, to have a reserve of only five per cent. for the protection of their notes, which is held by the Treasury as the central redeeming tions like the last, the two forms of liability seem to stand upon the same footing. The bank itself finds the same advantage in the one as in the other. Its profit is made from the securities which it holds, and whatever profit it makes beyond the mere interest on the investment of its capital results from the holding of securities purchased by means of its credit and of the funds deposited with it; but the rate of this profit is in no way dependent upon the process by which that credit is transferred from one creditor to another.1

The bank, in short, is interested simply in providing that form of credit which is most convenient for the use of the community on which it depends, for it is by that means that it can do the greatest amount of business and hold the greatest amount agency. 18 Statutes at Large, 123. The bonds deposited to secure the circulation against insolvency, it is to be noticed, are in no sense a reserve, and are not so described by the law.

1 Of the writers on banking, McLeod, Theory and Practice of Banking, has made the most careful analysis of the exchange which underlies every banking operation. Notwithstanding eccentricities of method and style, his exposition of the real meaning of "loans" and the ambiguities incident to our use of that term, the origin and purport of bank liabilities, and the substantial identity of the liabilities for deposits and notes, is clear and important, and might be cited in confirmation at many points in these pages. Reference may also be made with advantage to McLeod's smaller work, Elements of Banking.

Among earlier discussions, attention is specially called to a striking letter by James Pennington, in Tooke's History of Prices, ii., p. 369, in which the strong analogy between the deposit accounts of the London private bankers and the notes of the country bankers is forcibly stated and explained.

It is in the cities that transactions occur on the largest scale, as well as in the largest number; and it is in the cities, therefore, that the strongest need is felt of the medium of exchange best adapted for the transfer of great sums. It is in the cities, moreover, that the condition of convenient access to banks, needed for the full development of the deposit and check system, is satisfied in the highest degree. I City banks, therefore, on the whole, use their right of circulating notes but sparingly as compared with country banks, and sometimes prefer to forego its use altogether, while their deposits attain an enormous expansion. Country banks, on the other hand, dealing on a smaller scale and in communities which have more need of a medium transferable without^recourse to the bank, find the expansion of their deposits somewhat restricted in comparison with the circulation of their notes. It is for the same reason that, as time goes on, the relative importance of the bank-note tends generally to diminish in comparison with that of deposits. The swift development of modern commerce and means of communication is expanding in high proportion the field for the most convenient and efficient medium, while the transactions in which notes find their use are growing in slower ratio. It becomes more and more the business of banks, therefore, to extend the use of their credit in the form of deposits, the increase in their issue of notes being, in the most progressive communities, no longer a matter of great concern.1