All merchants are under liabilities; they have bills to meet soon, and they can only pay those bills by discounting bills on other merchants.

In other words, all merchants are dependent on borrowing money, and large merchants are dependent on borrowing much money.

At the slightest symptom of panic many merchants want to borrow more than usual; they think they will supply themselves with the means of meeting their bills while those means are still forthcoming.

If the bankers gratify the merchants, they must lend largely just when they like it least; if they do not gratify them, there is a panic.
On the surface there seems a great inconsistency in all this.

First, you establish in some bank or banks a certain reserve; you make of it or them a kind of ultimate treasury, where the last shilling of the country is deposited and kept.