Page:Bankers and Credit (1924).pdf/38

 prises in which they are engaged. These advances are clearly less liquid than the rest of the assets held by the bank. Nominally, they are usually repayable at an early date. But a bank which had made an advance to a customer would naturally hesitate much more about pressing him to repay it, if doing so would hamper him in the course of his business, than it would about calling in loans from bill-brokers and stockbrokers, or other professional dealers in credit, or by selling its own investments in the Stock Exchange.

But the most important thing to be noted about the banks' balance sheets is that by making these advances and making these investments the banks create new credit, which becomes expressed in deposits, either in their own books or in those of other banks. Whenever a bank makes a loan, it gives the borrower the right to draw upon it to the extent of the amount of the loan. The borrower, who gets this right, exercises it by drawing a cheque, which he pays out in the course of the transactions for which he had arranged the credit. Whether it is a case of a bill-broker, who borrows to finance a purchase of bills of exchange; or a stockbroker, who borrows to carry securities for his clients who hope to sell