Book-bot.com - read famous books online for free

Lombard Street : a description of the money market by Walter Bagehot
page 75 of 260 (28%)
artificial system, he is confined to a single bank, which can fix
its own charge.

If contrary to expectation a collapse occurred, the Government might
withdraw, as the American Government actually has withdrawn, its
balance from the bankers. It might give its aid, lend Exchequer
bills, or otherwise pledge its credit for the moment, but when the
exigency was passed it might let the offending banks suffer. There
would be a penalty for their misconduct. New and better banks, who
might take warning from that misconduct, would arise. As in all
natural trades, what is old and, rotten would perish, what is new
and good would replace it. And till the new banks had proved, by
good conduct, their fitness for State confidence, the State need not
give it. The Government could use its favour as a bounty on pmdence,
and the withdrawal of that favour as a punishment for culpable
folly.

Under a good system of banking, a great collapse, except from
rebellion or invasion, would probably not happen. A large number of
banks, each feeling that their credit was at stake in keeping a good
reserve, probably would keep one; if any one did not, it would be
criticised constantly, and would soon lose its standing, and in the
end disappear. And such banks would meet an incipient panic freely,
and generously; they would advance out of their reserve boldly and
largely, for each individual bank would fear suspicion, and know
that at such periods it must 'show strength,' if at such times it
wishes to be thought to have strength. Such a system reduces to a
minimum the risk that is caused by the deposit. If the national
money can safely be deposited in banks in any way, this is the way
to make it safe.
DigitalOcean Referral Badge