how banks developed out of goldsmith establishments (2)

we assume the company has long since dropped its activities as a smith and is principally occupied with storing people is money for safekeeping . Over past time, $ 1million has been deposited in its vaults , and this whole sum it holds as acash asset. To balance this asset , there is a current deposit liability of the same amount . Actually , such a business need have no other assets ( except the negligible value of its office space and vaults ). but its owner could have-on the side ,so to speak - subscribed $50,000 of capital to be lent out at interest or to buy securities like stocks or bond .On the asset side , this is shown under the heading Loans and investment ; it is balanced on the right-hand side by a like sum in the Capital and Retained Earnings account .
At this primitive stage , the bank would be of no particular interest to the economist . These investment and capital items have nothing to do with the bank is deposits;if all the bank is loans and investment should go sour and become worthless , the loss would fall completely on the stockholders , who have agreed to take that risk in the hope of making a profit . Every depositor could still be paid off in full out of the 100 per cent cash reserves held by the bank.