In opposition to what might be at first sight supposed, the best way for the bank or banks who have the custody of the bank reserve to deal with a drain arising from internal discredit, is to lend freely.  The first instinct of everyone is the contrary.  There being a large demand on a fund which you want to preserve, the most obvious way to preserve it is to hoard it—­to get in as much as you can, and to let nothing go out which you can help.  But every banker knows that this is not the way to diminish discredit.  This discredit means, ‘an opinion that you have not got any money,’ and to dissipate that opinion, you must, if possible, show that you have money:  you must employ it for the public benefit in order that the public may know that you have it.  The time for economy and for accumulation is before.  A good banker will have accumulated in ordinary times the reserve he is to make use of in extraordinary times.

Ordinarily discredit does not at first settle on any particular bank, still less does it at first concentrate itself on the bank or banks holding the principal cash reserve.  These banks are almost sure to be those in best credit, or they would not be in that position, and, having the reserve, they are likely to look stronger and seem stronger than any others.  At first, incipient panic amounts to a kind of vague conversation:  Is A. B. as good as he used to be?  Has not C. D. lost money? and a thousand such questions.  A hundred people are talked about, and a thousand think,—­’Am I talked about, or am I not?’ ’Is my credit as good as it used to be, or is it less?’ And every day, as a panic grows, this floating suspicion becomes both more intense and more diffused; it attacks more persons; and attacks them all more virulently than at first.  All men of experience, therefore, try to strengthen themselves,’ as it is called, in the early stage of a panic; they borrow money while they can; they come to their banker and offer bills for discount, which commonly they would not have offered for days or weeks to come.  And if the merchant be a regular customer, a banker does not like to refuse, because if he does he will be said, or may be said, to be in want of money, and so may attract the panic to himself.  Not only merchants but all persons under pecuniary liabilities—­present or imminent—­feel this wish to ‘strengthen themselves,’ and in proportion to those liabilities.  Especially is this the case with what may be called the auxiliary dealers in credit.  Under any system of banking there will always group themselves about the main bank or banks (in which is kept the reserve) a crowd of smaller money dealers, who watch the minutae of bills, look into special securities which busy bankers have not time for, and so gain a livelihood.  As business grows, the number of such subsidiary persons augments.  The various modes in which money may be lent have each their peculiarities, and persons who devote themselves to one only lend in that way