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Encyclopaedia Britannica, 11th Edition, Volume 3, Part 1, Slice 3 - "Banks" to "Bassoon"
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Transcriber's note: A few typographical errors have been corrected: they are listed at the end of the text. Volume and page numbers have been incorporated into the text of each page as: v.03 p.0001.

ā signifies "a with macron"; ĕ "e with breve"; ḥ "h with dot below"; and so forth.

Musical pitches are expressed in Acoustical Society of America notation: C4 is middle C, B3 the tone below.

THE ENCYCLOPAEDIA BRITANNICA

A DICTIONARY OF ARTS, SCIENCES, LITERATURE AND GENERAL INFORMATION

ELEVENTH EDITION

VOLUME III

AUSTRIA LOWER to BISECTRIX

[E-Text Edition of Volume III - Part 1 of 2, Slice 3 of 3 - BANKS to BASSOON]

* * * * *

[v.03 p.0333] BANKS, GEORGE LINNAEUS (1821-1881), British miscellaneous writer, was born at Birmingham on the 2nd of March 1821. After a brief experience in a variety of trades, he became at the age of seventeen a contributor to various newspapers, and subsequently a playwright, being the author of two plays, a couple of burlesques and several lyrics. Between 1848 and 1864 he edited in succession a variety of newspapers, including the Birmingham Mercury and the Dublin Daily Express, and published several volumes of miscellaneous prose and verse. He died in London on the 3rd of May 1881.

BANKS, SIR JOSEPH, BART. (1743-1820), English naturalist, was born in Argyle Street, London, on the 13th of February 1743. His father, William Banks, was the son of a successful Lincolnshire doctor, who became sheriff of his county, and represented Peterborough in parliament; and Joseph was brought up as the son of a rich man. In 1760 he went to Oxford, where he showed a decided taste for natural science and was the means of introducing botanical lectures into the university. In 1764 he came into possession of the ample fortune left by his father, and in 1766 he made his first scientific expedition to Newfoundland and Labrador, bringing back a rich collection of plants and insects. Shortly after his return, Captain Cook was sent by the government to observe the transit of Venus in the Pacific Ocean, and Banks, through the influence of his friend Lord Sandwich, obtained leave to join the expedition in the "Endeavour," which was fitted out at his own expense. He made the most careful preparations, in order to be able to profit by every opportunity, and induced Dr Daniel Solander, a distinguished pupil of Linnaeus, to accompany him. He even engaged draughtsmen and painters to delineate such objects of interest as did not admit of being transported or preserved. The voyage occupied three years and many hardships had to be undergone; but the rich harvest of discovery was more than adequate compensation. Banks was equally anxious to join Cook's second expedition and expended large sums in engaging assistants and furnishing the necessary equipment; but circumstances obliged him to relinquish his purpose. He, however, employed the assistants and materials he had collected in a voyage to Iceland in 1772, returning by the Hebrides and Staffa. In 1778 Banks succeeded Sir John Pringle as president of the Royal Society, of which he had been a fellow from 1766, and held the office until his death. In 1781 he was made a baronet; in 1795 he received the order of the Bath; and in 1797 he was admitted to the privy council. He died at Isleworth on the 19th of June 1820. As president of the Royal Society he did much to raise the state of science in Britain, and was at the same time most assiduous and successful in cultivating friendly relations with scientific men of all nations. It was, however, objected to him that from his own predilections he was inclined to overlook and depreciate the labours of the mathematical and physical sections of the Royal Society and that he exercised his authority somewhat despotically. He bequeathed his collections of books and botanical specimens to the British Museum. His fame rests rather on what his liberality enabled other workers to do than on his own achievements.

See J. H. Maiden, Sir Joseph Banks (1909).

BANKS, NATHANIEL PRENTISS (1816-1894), American politician and soldier, was born at Waltham, Massachusetts, on the 30th of January 1816. He received only a common school education and at an early age began work as a bobbin-boy in a cotton factory of which his father was superintendent. Subsequently he edited a weekly paper at Waltham, studied law and was admitted to the bar, his energy and his ability as a public speaker soon winning him distinction. He served as a Free Soiler in the Massachusetts house of representatives from 1849 to 1853, and was speaker in 1851 and 1852; he was president of the state Constitutional Convention of 1853, and in the same year was elected to the national House of Representatives as a coalition candidate of Democrats and Free Soilers. Although re-elected in 1854 as an American or "Know-Nothing," he soon left this party, and in 1855 presided over a Republican convention in Massachusetts. At the opening of the Thirty-Fourth Congress the anti-Nebraska men gradually united in supporting Banks for speaker, and after one of the bitterest and most protracted speakership contests in the history of congress, lasting from the 3rd of December 1855 to the 2nd of February 1856, he was chosen on the 133rd ballot. This has been called the first national victory of the Republican party. Re-elected in 1856 as a Republican, he resigned his seat in December 1857, and was governor of Massachusetts from 1858 to 1861, a period marked by notable administrative and educational reforms. He then succeeded George B. McClellan as president of the Illinois Central railway. Although while governor he had been a strong advocate of peace, he was one of the earliest to offer his services to President Lincoln, who appointed him in 1861 major-general of volunteers. Banks was one of the most prominent of the volunteer officers. When McClellan entered upon his Peninsular Campaign in 1862 the important duty of defending Washington from the army of "Stonewall" Jackson fell to the corps commanded by Banks. In the spring Banks was ordered to move against Jackson in the Shenandoah Valley, but the latter with superior forces defeated him at Winchester, Virginia, on the 25th of May, and forced him back to the Potomac river. On the 9th of August Banks again encountered Jackson at Cedar Mountain, and, though greatly outnumbered, succeeded in holding his ground after a very sanguinary battle. He was later placed in command of the garrison at Washington, and in November sailed from New York with a strong force to replace General B. F. Butler at New Orleans as commander of the Department of the Gulf. Being ordered to co-operate with Grant, who was then before Vicksburg, he invested the defences of Port Hudson, Louisiana, in May 1863, and after three attempts to carry the works by storm he began a regular siege. The garrison surrendered to Banks on the 9th of July, on receiving word that Vicksburg had fallen. In the autumn of 1863 Banks organized a number of expeditions to Texas, chiefly for the purpose of preventing the French in Mexico from aiding the Confederates, and secured possession of the region near the mouths of the Nueces and the Rio Grande. But his Red River expedition, March-May 1864, forced upon him by superior authority, was a complete failure. In August 1865 he was mustered out of the service, and from 1865 to 1873 he was again a representative in congress, serving as chairman of the committee on foreign affairs. A personal quarrel with President Grant led in 1872, however, to his joining the Liberal-Republican revolt in support of Horace Greeley, and as the Liberal-Republican and Democratic candidate he was defeated for re-election. In 1874 he was successful as a Democratic candidate, serving one term (1875-1877). Having rejoined the Republican party in 1876, he was United States marshal for Massachusetts from 1879 until 1888, when for the ninth time he was elected to Congress. He retired at the close of his term (1891) and died at Waltham on the 1st of September 1894.

BANKS, THOMAS (1735-1805), English sculptor, son of a surveyor who was land steward to the duke of Beaufort, was born in London on the 29th of December 1735. He was taught drawing by his father, and in 1750 was apprenticed to a wood-carver. In his spare time he worked at sculpture, and before 1772, when he obtained a travelling studentship and proceeded to Rome, he had already exhibited several fine works. Returning to England in 1779 he found that the taste for classic poetry, ever the source of his inspiration, no longer existed, and he spent two years in St Petersburg, being employed by the empress Catherine, who purchased his "Cupid tormenting a Butterfly." On his return he modelled his colossal "Achilles mourning the loss of Briseis," a work full of force and passion; and thereupon he was elected, in 1784, an associate of the Royal Academy and in the following year a full member. Among other works in St Paul's cathedral are the monuments to Captain Westcott and Captain Burges, and in Westminster Abbey to Sir Eyre Coote. His bust of Warren Hastings is in the National Portrait Gallery. Banks's best-known work is perhaps the colossal group of "Shakespeare attended by Painting and Poetry," now in the garden of New Place, Stratford-on-Avon. He died in London on the 2nd of February 1805.

[v.03 p.0334] BANKS AND BANKING. The word "bank," in the economic sense, covers various meanings which all express one object, a contribution of money for a common purpose. Thus Bacon, in his essay on Usury, while explaining "how the discommodities of it may be best avoided and the commodities retained," refers to a "bank or common stock" as an expression with which his readers would be familiar. Originally connected with the idea of a mound or bank of earth—hence with that of a monte, an Italian word describing a heap—the term has been gradually applied to several classes of institutions established for the general purpose of dealing with money.

[Sidenote: Banking as a business.]

The manner in which a bank prospers is explained by David Ricardo, in his Proposals for an Economical and Secure Currency, in a passage where he tells us that a bank would never be established if it obtained no other profits but those derived from the employment of its own capital. The real advantage of a bank to the community it serves commences only when it employs the capital of others. The money which a bank controls in the form of the deposits which it receives and sometimes of the notes which it issues, is loaned out by it again to those who desire to borrow and can show that they may be trusted. A bank, in order to carry on business successfully, must possess a sufficient capital of its own to give it the standing which will enable it to collect capital belonging to others. But this it does not hoard. It only holds the funds with which it is entrusted till it can use them, and the use is found in the advances that it makes. Some of the deposits merely lie with the bank till the customer draws what he requires for his ordinary everyday wants. Some, the greater part by far, of the deposits enable the bank to make advances to men who employ the funds with which they are entrusted in reproductive industry, that is to say, in a manner which not only brings back a greater value than the amount originally lent to them, but assists the business development of the country by setting on foot and maintaining enterprises of a profitable description. It is possible that some part may be employed in loans required through extravagance on the part of the borrower, but these can only be a small proportion of the whole, as it is only through reproductive industry that the capital advanced by a banker can really be replaced. A loan sometimes, it is true, is repaid from the proceeds of the sale of a security, but this only means a transfer of capital from one hand to another; money that is not transferred in this way must be made by its owner. Granted that the security is complete, there is only one absolute rule as to loans if a bank desires to conduct its business on safe lines, that the advance should not be of fixed but of floating capital. Nothing seems simpler than such a business, but no business requires closer attention or more strong sense and prudence in its conduct. In other ways also, besides making loans, a well-conducted bank is of much service to the business prosperity of a country, as for example by providing facilities for the ready transmission of money from those who owe money to those to whom it is due. This is particularly obvious when the debtor lives in one town or district and the creditor in another at a considerable distance, but the convenience is very great under any circumstances. Where an easy method of transmission of cash does not exist, we become aware that a "rate of exchange" exists as truly between one place and another in the same country as between two places in different countries. The assistance that banking gives to the industries of a community, apart from these facilities, is constant and most valuable.

[Sidenote: Historical development.]

With these preliminary remarks on some main features of the business, we may pass on to a sketch of the history of modern banking. Banks in Europe from the 16th century onwards may be divided into two classes, the one described as "exchange banks," the other as "banks of deposits." These last are banks which, besides receiving deposits, make loans, and thus associate themselves with the trade and general industries of a country. The exchange banks included in former years institutions like the Bank of Hamburg and the Bank of Amsterdam. These were established to deal with foreign exchange and to facilitate trade with other countries. The others—founded at very different dates—were established as, or early became, banks of deposit, like the Bank of England, the Bank of Venice, the Bank of Sweden, the Bank of France, the Bank of Germany and others. Some reference to these will be made later. The exchange banks claim the first attention. Important as they were in their day, the period of their activity is now generally past, and the interest in their operations has become mainly historical.

In one respect, and that a very important one, the business carried on by the exchange banks differed from banking as generally understood at the present time. No exchange bank had a capital of its own nor did it require any for the performance of the business. The object for which exchange banks were established was to turn the values with which they were entrusted into "current money," "bank money" as it was called, that is to say, into a currency which was accepted immediately by merchants without the necessity of testing the value of the coin or the bullion brought to them. The "value" they provided was equal to the "value" they received, the only difference being the amount of the small charge they made to their customers, who gained by dealing with them more than equivalent advantages.

Short notices of the Bank of Amsterdam, which was one of the most important, and of the Bank of Hamburg, which survived the longest, its existence not terminating till 1873, will suffice to explain the working of these institutions.

The Amsterdamsche Wisselbank, or exchange bank, known later as the Bank of Amsterdam, was established by the ordinance of the city of Amsterdam of 31st January 1609. The increased commerce of Holland, which made Amsterdam a leading city in international dealings, led to the establishment of this bank, to which any person might bring money or bullion for deposit, and might withdraw at pleasure the money or the worth of the bullion. The ordinance which established the bank further required that all bills of 600 gulden (L50), or upwards—this limit was, in 1643, lowered to 300 gulden (L25)—should be paid through the bank, or in other words, by the transfer of deposits or credits at the bank. These transfers came afterwards to be known as "bank money." The charge for making the transfers was the sole source of income to the bank. The bank was established without any capital of its own, being understood to have actually in its vaults the whole amount of specie for which "bank money" was outstanding. This regulation was not, however, strictly observed. Loans were made at various dates to the Dutch East India Company. In 1795 a report was issued showing that the city of Amsterdam was largely indebted to the bank, which held as security the obligations of the states of Holland and West Friesland. The debt was paid, but it was too late to revive the bank, and in 1820 "the establishment which for generations had held the leading place in European commerce ceased to exist." (See Chapters on the Theory and History of Banking, by Charles F. Dunbar, p. 105.)

Similar banks had been established in Middelburg, (March 28th, 1616), in Hamburg (1619) and in Rotterdam (February 9th, 1635). Of these the Bank of Hamburg carried on much the largest business and survived the longest. It was not till the 15th of February 1873 that its existence was closed by the act of the German parliament which decreed that Germany should possess a gold standard, and thus removed those conditions of the local medium of exchange—silver coins of very different intrinsic values—whose circulation had provided an ample field for the operations of the bank. The business of the Bank of Hamburg had been conducted in absolute accordance with the regulations under which it was founded.

The exchange banks were established to remedy the inconvenience to which merchants were subject through the uncertain value of the currency of other countries in reference to that of the city where the exchange bank carried on its business. The following quotation from Notes on Banking, written in 1873, explains the method of operation in Hamburg. "In this city, the most vigorous offshoot of the once powerful Hansa, the latest representative of the free commercial cities of medieval Europe, [v.03 p.0335] there still remains a representative of those older banks which were once of the highest importance in commercial affairs. Similar institutions greatly aided the prosperity of Venice, Genoa, Amsterdam and Nuremberg. The Bank of Hamburg is now the last survivor of these banks, whose business lay in the assistance of commerce, not by loans, but by the local manufacture, so to speak, of an international coinage. In a city of the highest rank of commercial activity, but greatly circumscribed in territory, continually receiving payments for merchandise in the coin of other countries, a common standard of value was a matter of primary necessity. The invention of bank money, that is, of a money of account which could be transferred at pleasure from one holder to another, enabled the trade of the place to be carried on without any of those hindrances to business which must have followed on the delay and expense attendant on the verification of various coins differing from each other in weight, intrinsic value, standard of purity of metal, in every point in fact in which coins can differ from each other. By supplying a currency of universal acceptation the Bank of Hamburg greatly contributed to the prosperity of that city." The regulations being strictly carried out, the currency was purely metallic; the "Mark Banco" being merely the representative of an equal value of silver.

For the earliest example of a bank for the receipt of deposits carrying on a business on modern lines, we must turn, as in the case of the exchange banks, to a great commercial city of the middle ages. Private banking in Venice began as an adjunct of the business of the campsores or dealers in foreign moneys. "As early as 1270 it was deemed necessary to require them to give security to the government as the condition of carrying on their business, but it is not shown that they were then receiving deposits. In an act of the 24th of September 1318, however, entitled Bancherii scriptae dent plegiarias consulibus, the receipt of deposits by the campsores is recognized as an existing practice, and provision is made for better security for the depositors." From this act it becomes clear that between 1270 and 1318 the money-changers of Venice were becoming bankers, just as the same class of men became in Amsterdam a couple of centuries later, and as later still the goldsmiths in London.

[Sidenote: The first public bank in Europe.]

Of the early banks in Europe, the bank in Venice, the Banco di Rialto, was established by the acts of the Venetian senate of 1584 and 1587. This appears to have been the first public bank in that city and in Europe. The senate by the act of the 3rd of May 1619[1] established by the side of the Banco di Rialto a second public bank known as the Banco Giro, or Banco del Giro, which ultimately became the only public bank of the city and was for generations famous throughout Europe as the Bank of Venice. Earlier than this the campsores or dealers in foreign moneys had carried on the business. The Bank of Venice (Banco del Giro) appears to have been called into existence by the natural developments of trade, but some banks have been established by governments and have been of great service to the development of the countries in which they have carried on their business. Of these, the Bank of Sweden (the Riksbank), established in 1656, is the earliest. This bank still exists and has always been the state bank of Sweden. It was founded by a Swede named Palmstruck, who also invented the use of the bank note—perhaps adapted for use in Europe is the better expression to employ, as notes were current in China about A.D. 800. The first bank note was issued by the Riksbank in 1658. An enquete made by the French government in 1729 recognizes the priority of Sweden in this matter, and declares the bank note to be an admirable Swedish invention, designed to facilitate commerce.

EUROPEAN COUNTRIES

[Sidenote: Foundation of the Bank of England.]

United Kingdom.—English banking may be traced back to the dealings in money carried on by the goldsmiths of London and thus certainly to the 16th century; but it has been so greatly influenced by the working of the Bank of England and by the acts of parliament connected with that institution, that a reference to this bank's foundation and development must precede any attempt at a detailed history of banking in the United Kingdom. The Bank of England was founded in 1694.[2] As in the case of some of the earlier continental banks, a loan to the government was the origin of its establishment. The loan, which was L1,200,000, was subscribed in little more than ten days, between Thursday, 21st June, and noon of Monday, 2nd July 1694. On Tuesday, 10th July, the subscribers appointed Sir John Houblon the governor, and Michael Godfrey (who was killed during the siege of Namur on the 17th of July 1695) deputy-governor. Michael Godfrey wrote a pamphlet explaining the purposes for which the bank was established and the use it would be to the country. The pamphlet supplies some curious illustrations of the dangers which some persons had imagined might arise from the establishment of the bank and its connexion with William III., deprecating the fear "lest it should hereafter joyn with the prince to make him absolute and so render parliaments useless."

The governor and the deputy-governor, having thus been appointed, the first twenty-four directors were elected on Wednesday, 11th July 1694. Two of them were brothers of the governor, Sir John Houblon. They were descended from James Houblon, a Flemish refugee who had escaped from the persecution of Alva. All the directors were men of high mercantile standing. The business of the bank was first carried on in the Mercers' chapel. It continued there till the 28th of September, when they moved to Grocers' Hall. They were tenants of the Grocers' Hall till 1732. The first stone of the building now occupied by the bank was laid on the 1st of August 1732. The bank has remained on the same site ever since. The structure occupied the space previously covered by the house and gardens of Sir John Houblon, the first governor, which had been bought for the purpose. Between 1764 and 1788 the wings were erected. In 1780 the directors, alarmed at the dangerous facilities which the adjacent church of St Christopher le Stocks might give to a mob, obtained parliamentary powers and acquired the fabric, on the site of which much of the present building stands. The structure was developed to its present form about the commencement of the 19th century.

The bank commenced business with fifty-four assistants, the salaries of whom amounted to L4350. The total number employed in 1847 was upwards of nine hundred and their salaries exceeded L210,000. Mr Thomson Hankey stated that in 1867 upwards of one thousand persons were employed, and the salaries and wages amounted to nearly L260,000, besides pensions to superannuated clerks of about L20,000 more. The number of persons of all classes employed in 1906 (head office and eleven branches) was about 1400.

Originally established to advance the government a loan of L1,200,000, the management of the British national debt has been confided to the Bank of England from the date of its foundation, and it has remained the banker of the government ever since. The interest on the stock in which the debt is inscribed has always been paid by the bank, originally half-yearly, now quarterly, and the registration of all transfers of the stock itself is carried on by the bank, which assumes the responsibility of the correctness of these transfers. The dignity which the position of banker to the government gives; the monopoly granted to it of being the only joint-stock bank allowed to exist in England and Wales till 1826, while the liability of its shareholders was limited to the amount of their holdings, an advantage which alone of English banks it possessed till 1862; the privilege of issuing notes which since 1833 have been legal tender in England and Wales everywhere except at the bank itself; the fact that it is the banker of the other banks of the country and for many years had the control of far larger deposits than any one of them individually—all these privileges gave it early a pre-eminence which it still maintains, though more than one competitor now holds larger [v.03 p.0336] deposits, and though, collectively, the deposits of the other banks of the country which have offices in London many times overpass its own. Some idea of the strength of its position may be gained from the fact that stocks are now inscribed in the bank books to an amount exceeding 1250 millions sterling.

[Sidenote: Bank Charter Act.]

In one sense, the power of the Bank of England is greater now than ever. By the act of 1844, regulating the note-issue of the country, the Bank of England became the sole source from which legal tender notes can be obtained; a power important at all times, but pre-eminently so in times of pressure. The authority to supply the notes required, when the notes needed by the public exceed in amount the limit fixed by the act of 1844, was granted by the government at the request of the bank on three occasions only between 1844 and 1906. Hence the Bank of England becomes the centre of interest in times of pressure when a "treasury letter" permitting an excess issue is required, and holds then a power the force of which can hardly be estimated.

One main feature of the act of 1844 was the manner in which the issue of notes was dealt with, as described by Sir Robert Peel in parliament on the 6th of May 1844:—"Two departments of the bank will be constituted: one for the issue of notes, the other for the transaction of the ordinary business of banking. The bullion now in the possession of the bank will be transferred to the issue department. The issue of notes will be restricted to an issue of L14,000,000 upon securities—the remainder being issued upon bullion and governed in amount by the fluctuations in the stock of bullion." The bank was required to issue weekly returns in a specified form (previously to the act of 1844 it was necessary only to publish every month a balance-sheet for the previous quarter), and the first of such returns was issued on the 7th of September 1844. The old form of return contained merely a statement of the liabilities and assets of the bank, but in the new form the balance-sheets of the Issue Department and the Banking Department are shown separately. A copy of the weekly return in both the old and new forms will be found in A History of the Bank of England, p. 290, by A. Andreades (Eng. trans., 1909); see also R. H. I. Palgrave, Bank Rate and the Money Market, p. 297.

One result of the division of the accounts of the bank into two departments is that, if through any circumstance the Bank of England be called on for a larger sum in notes or specie than the notes held in its banking department (technically spoken of as the "Reserve") amount to, permission has to be obtained from the government to "suspend the Bank Act" in order to allow the demand to be met, whatever the amount of specie in the "issue department" may be. Three times since the passing of the Bank Act—during the crises of 1847, 1857 and 1866—authority has been given for the suspension of that act. On one of these dates only, in 1857, the limits of the act were exceeded; on the other two occasions the fact that the permission had been given stayed the alarm. It should be remembered, whenever the act of 1844 is criticized, that since it came into force there has been no anxiety as to payment in specie of the note circulation; but the division of the specie held into two parts is an arrangement not without disadvantages. [Sidenote: Bank rate.] Certainly since the act of 1844 became law, the liability to constant fluctuations in the Bank's rate of discount—one main characteristic of the English money market—has greatly increased. To charge the responsibility of the increase in the number of those fluctuations on the Bank Act alone would not be justifiable, but the working of the act appears to have an influence in that direction, as the effect of the act is to cut the specie reserve held by the bank into two parts and to cause the smaller of these parts to receive the whole strain of any demands either for notes or for specie. Meanwhile the demands on the English money market are greater and more continuous than those on any other money market in the world. Of late years the changes in the bank rate have been frequent, and the fluctuations even in ordinary years very severe. From the day when the act came into operation in 1844, to the close of the year 1906, there had been more than 400 changes in the rate. The hopes which Sir Robert Peel expressed in 1844, that after the act came into force commercial crises would cease, have not been realized.

The number of changes in the bank rate from 1876[3] to 1906 in England, France, Germany, Holland and Belgium were as follows:—

England. France. Germany. Holland. Belgium. 183 27 110 55 77

There has been frequent discussion among bankers and occasionally with the government as to the advantage it might be to grant the Bank of England an automatic power to augment the note issue on securities when necessary, similar to that possessed by the Bank of Germany (Reichsbank). One of the hindrances to the success of such a plan has been that the government, acting on the advice of the treasury, required an extremely high rate of interest, of which it would reap the advantage, to be paid on the advances made under these conditions. Those who made these suggestions did not bear in mind that the mere fact of so high a rate of interest being demanded intensifies the panic, a high rate being associated as a rule with risks in business. The object of the arrangement made between the Reichsbank and the treasury of the empire of Germany is a different one—to provide the banking accommodation required and to prevent panic, hence a rate of only 5% has been generally charged, though in 1899 the rate was 7% for a short time. As is often the case in business, a moderate rate has been accompanied by higher profit. The duty on the extra issue between 1881, when the circulation of the Bank of Germany first exceeded the authorized limit, and the close of the year 1906 amounted to L839,052. Thus a considerable sum was provided for the relief of taxation, while business proceeded on its normal course. The proposal made by Mr Lowe (afterwards Lord Sherbrooke) in 1873 was to charge 12%, a rate which presupposes panic. Hence the negotiations came to nothing. The act of 1844 remains unaltered. The issue on securities allowed by it to the Bank of England was originally L14,000,000. This has since been increased under the provisions of the act to L18,450,000 (29th March 1901). Hence against the notes issued by the bank less gold by L4,450,000 is now held by the bank than would have been the case had the arrangements as to the securities remained as they were in 1844.

The Bank of England has, from the date of its establishment, possessed a practical, though perhaps not an absolutely legal, monopoly of issuing notes in London. It became gradually surrounded by a circle of private banks, some of considerable power.

[Sidenote: Early English banking.]

The state papers included in F. G. Hilton Price's Handbook of London Bankers (1876) contain some of the earliest records about the establishment of banking in England. The first of these is a petition, printed in the original Italian, to Queen Elizabeth, of Christopher Hagenbuck and his partners in November 1581, representing "that he had found out a method and form in which it will be possible to institute an office into which shall enter every year a very large sum of money without expense to your Majesty," so "that not only your Majesty will be able to be always provided with whatever notable sum of money your Majesty may wish, but by this means your State and people also; and it shall keep the country in abundance and remove the extreme usuries that devour your Majesty and your people." Hagenbuck proposed to explain his plan on condition that he should receive "6% every year of the whole mass of money" received by the office for twenty years. The queen agreed "to grant to the said Christopher and partners 4% for a term of twenty years, and to confirm the said grant under the great seal." The document is signed by Francis Walsingham, but nothing further appears to have come of it. When we compare the date of this document with that of the establishment of the Banco della Piazza di Rialto at Venice, it is not unlikely that the idea of the establishment of a bank was floating in the minds of people connected with business and had become familiar to Hagenbuck from commerce with Venice. Other state papers in 1621 and 1622 and again in 1662 and 1666 contain somewhat similar proposals which however were never carried into practice.

The little London Directory, 1677, contains a list of goldsmiths mentioned as keeping "running cashes." Of these firms described in 1677, five houses were carrying on business in 1876. Three of these, or firms immediately descended from them, Child & Co. of Temple Bar, Martin & Co. of Lombard Street (as Martin's Bank, Ltd.), and Hoare & Co. of Fleet Street, are still carrying on business. Barnetts, Hoare & Co. and Willis, Percival & Co. have been absorbed since 1876, the first by Lloyds Bank (1884), the second by the Capital and Counties (1878). Many of the goldsmiths carried on a considerable business. Thus the books of Edward Blackwell, who was an eminent goldsmith and banker in the reign of Charles II., show that the king himself, the queen mother, Henrietta Maria, James, duke of York, the prince of Orange, Samuel Pepys, the East India Company, the Goldsmiths' Company and other city companies did business with him. Sir John Houblon, the first governor of the Bank of England, kept an account with Blackwell, who was, however, ruined by the closing of the exchequer in 1672. But his son married into the family of Sir Francis Child, and his grandsons became partners in Child's Bank.

[v.03 p.0337] Besides the banks in London already mentioned, one in the provinces claims to have been established before the Bank of England. Smiths' of Nottingham, since amalgamated with the Union of London Bank, is stated to have been founded in 1688. Others also claim considerable antiquity. The old Bank of Bristol (Bailey, Cave & Co.) was founded in 1750; the business amalgamated with Prescott & Co., Ltd., of London. The Hull Old Bank (Pease & Co.) dated from 1754; this business also still continues (amalgamated, 1894, with the York Union Banking Co., Ltd., and since with Barclay & Co., Ltd.). The banks of Gurney & Co., established at the end of the 18th century in the eastern counties, have with numerous other banks of similar standing amalgamated with the firm of Barclay & Co., Ltd., of Lombard Street.

The business of banking had been carried on by the goldsmiths of the city, who took deposits from the time of James I. onwards, and thus established "deposit-banking" as early as that reign. This is described in a pamphlet published in 1676, entitled The Mystery of the New-Fashioned Goldsmiths or Bankers Discovered, quoted by Adam Anderson in his History of the Great Commercial Interests of the British Empire, vol. ii. p. 402. During the Civil War "the goldsmiths or new-fashioned bankers began to receive the rents of gentlemen's estates remitted to town, and to allow them and others who put cash into their hands some interest for it, if it remained but for a single month in their hands, or even a lesser time. This was a great allurement for people to put their money into their hands, which would bear interest till the day they wanted it. And they could also draw it out by L100 or L50, &c., at a time, as they wanted it, with infinitely less trouble than if they had lent it out on either real or personal security. The consequence was that it quickly brought a great quantity of cash into their hands; so that the chief or greatest of them were now enabled to supply Cromwell with money in advance on the revenues as his occasion required, upon great advantage to themselves."

The Bank of England, as stated before, was incorporated by the act of 1694. The position of the other banks at that time was defined by that act and the act of 1697, which declared that no bank, that is, no joint-stock bank, was "to be established within England during the continuance of the Bank of England," and also by the act of 1708, which provided that "during the continuance of the Bank of England, no company or partnership exceeding six persons in England" should "borrow, owe or take up any sum or sums of money on their bills or notes payable on demand or at any less time than six months from the borrowing thereof." This was confirmed by the act of 1800. No change of importance was made till the act of 1826, which prohibited "bank notes under L5," and the second Banking Act of that year which allowed the establishment of co-partnerships of more than six persons, which necessarily were joint-stock companies, beyond 65 m. from London. The act of 1833 allowed the establishment of joint-stock banks within the 65 m. limit, and took away various restrictions of the amounts of notes for less than L50. But the power of issuing notes was not allowed to joint-stock banks within the 65 m. radius.

In the early days in England, issuing notes formed, as Bagehot says in his Lombard Street, the introduction to the system of deposit-banking—so much so, that a bank which had not the power of issuing notes could scarcely exist out of London.

[Sidenote: Bank notes.]

Bank notes in England originated in goldsmiths' notes. Goldsmiths received deposits of moneys and gave notes or receipts for such moneys payable on demand. The London bankers continued to give their customers notes or deposit-receipts for the sums left by them until about 1781, when in lieu of such notes they gave them books of cheques. Before the invention of cheque-books, the practice of issuing notes was considered so essentially the main feature of banking, that a prohibition of issue was considered an effectual bar against banking. Accordingly the prohibitory clause in the act of 6 Anne, c. 50, 1707 (in Record edition), which was repeated in the Bank of England Act 1708, 7 Anne, c. 30, s. 66 (in Record edition), prohibiting more than six persons from issuing promissory notes, was intended to prevent any bank being formed with more than six partners, and was so understood at the time; and it did have the effect of preventing any joint-stock bank being formed.

The prohibition, as already related, was modified in the year 1826 and removed in 1833. Even then the privilege of limitation of liability was not permitted to any other bank but the Bank of England. The result was that when joint-stock banks were first formed many persons of good means were kept back from becoming shareholders, that is to say partners, in banks. For up to the date of the act of 1862 permitting "limited liability," every shareholder in a joint-stock bank was liable to the extent of the whole of his means (see the article COMPANY). Even as late as 1858 when the Western Bank of Scotland and 1878 when the City of Glasgow Bank failed, very great hardship was inflicted on many persons who had trusted with over confidence to the management of those banks. The failure of the City of Glasgow Bank was the cause of the Companies Act of 1879, passed to enable unlimited companies to adopt limited liability. In limited companies the shareholder who has paid up the nominal amount of his holding is not liable for any further amount, unless the company issues bank notes, in which case the shareholders are liable in the same way as if the company were registered as an unlimited company. The facilities allowed by this act were used by almost every joint-stock bank in the United Kingdom except those banks which were at that date limited by charter or by special act.

[Sidenote: Private banks.]

To return to the early history of banking—thus, as no bank could be formed with more than six partners during the whole of the period from 1694 to 1826 and 1833, the majority of the banks formed throughout England and Wales for more than a century were necessarily small and usually isolated firms. Further, when a partner died, his capital not infrequently went out of the business; then a fresh partner with sufficient means had to be found, constant change was the result, and confidence, "a plant of slow growth," could not thrive, except in those instances when a son or a relation filled the vacancy.

The banks in the country districts had frequently branches in the small market-towns close to them; those in London had never more than one office. These banks were sometimes powerful and generally well managed, a considerable number being established by members of the Society of Friends.

The restriction of partners in private banks to the number of six continued till 1862. By the act of that year they were allowed to be ten. This power, however, did not extend to issuing private banks, which were restricted to six partners as before. The power of increasing bank partnerships to ten has been made but little use of. The difficulties of carrying on business on a large scale by private firms were augmented by certain legal technicalities which practically rendered large private banks impossible in ordinary circumstances. Hence banking business did not begin to assume its present form till almost half-way through the 19th century. The gradual change followed the passing of the acts of 1826-1833, of 1844-1845, of 1862 and of 1879. Incidentally the act of 1844 had an unexpected influence on the constitution of the banking system. After favouring the existence of small banks for many years, it gradually led, as the time arrived when the establishment of large and powerful banks in England and Wales became necessary, to their formation. No new bank of issue whatever was allowed to be established—restrictions were placed on the English issuing banks—private issuing banks with not more than six partners were allowed to remain, to amalgamate with other private issuing banks and to retain their joint issues. The joint-stock banks which possessed issues were also allowed to continue these, but when two joint-stock banks amalgamated, the continuing bank only retained its issue. Also when a private issuing bank was formed into or joined a joint-stock bank, the issue lapsed.

The greater number of the provincial banks in England and Wales had been banks of issue up to 1844. The act of 1844 [v.03 p.0338] restricted their power of issuing notes, which at that date and even subsequently continued to be of importance to them, in such a manner that, as Sir R. H. Inglis Palgrave stated in giving evidence before the committee of the House of Commons at the banking inquiry of 1875, these banks possessed in their issues a property they could use, but were not able to sell. The statistics forming part of Appendix 14 to the report of the select committee of the House of Commons on banks of issue (1875) give interesting information as to the proportion of notes in circulation to the deposits of banks in various districts of the country and at various dates. The statements were supplied by twenty-one banks, some in agricultural districts, some in places where manufactures flourished, some in mixed districts, commercial and agricultural, or industrial and manufacturing. In all of these, the inquiry being carried as far back as 1844, the proportion of the circulation to the banking deposits had greatly diminished in recent years. In several cases the deposits had increased three-fold in the time. In one case it was five times as large, in another nearly seven times, in another nearly twelve and a half times. The proportion of the circulation to the deposits had very largely diminished in that time. In one instance, from being about one-third of the deposits, at which proportion it had remained for five years consecutively, it fell to 9% at the end of the term. In another from being 22% it had diminished to 1-1/2% of the total. In all cases where the detail was given it had diminished greatly.

The Bank Act of 1844 was arranged with the intention of concentrating the note issues on the Bank of England in order to secure the monopoly of that bank as the one issuer in England and Wales. The result was that nearly all the provincial banks in England had by 1906 lost the right of issue. Doubtless all were destined to do so before long, a result by which banking in England and the industries of the country must lose the advantage which the local issues have been to Scotland and Ireland. Had the English country banks been allowed, as the Scottish banks were, to associate together and to retain their issues, powerful banks would many years since have been established throughout England and Wales, and the amalgamations of recent years would have been carried through at a much earlier date, and on terms much more favourable to the public.

[Sidenote: Security of note issue.]

No security was ever required to be given for the local issues in the United Kingdom. The provisions of the acts of 1844-1845 which compel the Irish and Scottish banks to hold specie against the notes issued beyond the legal limit, do not make the coin held a security for them. The legislation of 1879 which made the note issues a first charge, with unlimited liability, on the total assets of the joint-stock banks which accepted the principle of limited liability for the rest of their business, has been the only recognition by the state of the duty to the note-holders of rendering them secure. It has been a real disadvantage to England that this duty has never been sufficiently recognized, and that the provincial note issue, which is a very convenient power for a bank to possess, and incidentally a considerable advantage to its customers, has been swept away without any attempt being made to remedy its deficiencies. There may be objections raised to a note circulation secured by the bonds of the government, but the security of the note issues of the national banks of the United States made against such bonds, has scarcely ever been questioned.

A different policy was followed by Sir Robert Peel in Scotland and in Ireland from that which he established in England. By the acts of 1844-1845 the Scottish and Irish banks were allowed to exceed their authorized issues on holding specie to the amount of the excess, and no restrictions were placed on amalgamations among banks in these countries. In Scotland and in Ireland notes for less than L5 continued to be allowed. The result has been that the ten large banks in Scotland, and six of the nine banks in Ireland, possess the power of issuing notes. The large proportion of local branches in these countries has been greatly assisted by this power.

[Sidenote: Amounts in circulation.]

Originally, besides the Bank of England, nearly all the provincial banks in England and Wales possessed the privilege of issue. These banks continued their operations as previously during the time while the Bank Act was discussed in parliament. When the arrangements which that act created were made public, nine banks, of which eight were private and one was a joint-stock bank, ceased to issue their notes prior to the 12th of October 1844, when the act came into operation. Of these, the Western District Joint-Stock Banking Co. was dissolved, one of the private banks was closed, the remaining seven issued Bank of England notes and were allowed certain privileges for doing this. By the act of 1844 the maximum circulation of the English issuing banks was fixed at the average circulation of the twelve weeks before the 27th of April 1844.

The number of the banks to which the privilege of circulation was then allowed and the amount of notes permitted were, in England:—

207 private banks with an authorized issue of L5,153,417 72 joint-stock banks with an authorized issue of 3,478,230 —————— L8,631,647

The actual circulation of the country in October 1844 was as follows:—

Notes in Circulation.—The monthly return of the circulation ending the 12th of October 1844 (stamps and taxes, 25th October);

England. Bank of England L20,228,800 Private banks 4,674,162 Joint-stock banks 3,331,516

Scotland. Chartered, private and joint-stock banks 2,987,665

Ireland. Bank of Ireland 3,597,850 Private and joint-stock banks 2,456,261 —————- Total L37,276,254

In May 1907 the number and amounts were reduced to:—

Authorized Issue. Actual Issue. 12 private banks L482,744 L122,536 17 joint-stock banks 1,084,836 437,693

The reason why the actual circulation of these banks is so far below the authorized issue is that under existing circumstances their circulation can only extend over a very limited area. The notes of country banks are now almost unknown except in the immediate neighbourhood of the places where they are issued; though they may all be payable in London, yet there is often considerable difficulty in getting them cashed.

The average circulation in 1906 was as follows:—

Bank of England L28,890,000 Private banks 124,000 Joint-stock banks 429,000 —————- Total in England L29,443,000 Scotland 7,477,000 Ireland 6,452,000 —————- Total in United Kingdom L43,372,000

This shows an apparent increase of more than L6,000,000 since 1844. The decrease of the country circulation in England and the increase of the Scottish and Irish circulations may be set off against each other. The increase is mainly in the notes of the Bank of England. In 1844 the number of banking offices in England and Wales was 976, while in 1906 there were more than 5880. Each of these offices must hold some till-money, and of this Bank of England notes almost always form a part. Hence it is probable that a large part of the increase in the circulation of the Bank of England since 1844 is held in the tills of the banks in England and Wales, and that the active note circulation of the United Kingdom is but little larger than it was.

It may be added that the government received from the note circulation for a typical year (ending 5th of April 1904), out of the profits of issue (Bank of England) L184,930, 2s. 2d., and also composition for the duties on the bills and notes of the banks of England and Ireland and of country bankers, L120,768, 18s. 6d.

In 1906 the banking business of England was carried on practically by about ten private and sixty joint-stock banks of which more than one was properly a private firm under a joint-stock form of organization. Though the number of individual banks had diminished, the offices had greatly increased.

The records of the numbers of banks in the United Kingdom have up to quite recent years been very imperfect. Such as exist were made by individual observers. The banks of England and Wales are believed to have been 350 in number in 1792. Those registered from 1826 to 1842 were:—

[v.03 p.0339] /* Private. Joint-stock. 1826 554 ... 1827 465 6 1833 416 35 1842 311 118 */

The number of banking offices in England and Wales was estimated by Mr. William Leatham in 1840 as being 697. The Banking Almanac for 1845 gives the number in 1844 for England and Wales as 336 private bank offices and 640 joint-stock offices, Scotland 368 offices, Ireland 180 offices.

The number of inhabitants to each office was as follows in 1844 and 1906:—

- - Number of Number of Banking Inhabitants to Offices. Each Office. - - 1844. 1906. 1844. 1906. England and Wales 976 5527 16,305 5885 Isle of Man ... 23 ... 2417 Scotland 368 1180 7,120 3790 Ireland 180 777 45,417 5738 - - In United Kingdom 1524 7507 17,526 5530 - -

In the latter years of the 18th century and the early years of the 19th, the note circulation was a very important part of the business, but about that date the deposits began to be, as they have continued since, far more important. It is unfortunately impossible to give any trustworthy statistics of the position of banking in the United Kingdom extending back for more than forty or fifty years. Even the Scottish banks, who have been less reticent as to their position than the English banks, did not publish their accounts generally till 1865. The figures of the total deposits and cash balances in the Irish joint-stock banks were published collectively from the year 1840 by the care of Dr Neilson Hancock, but it is only of quite recent years that any statement of the general position other than an estimate has been possible owing to the long-continued reluctance of many banks to allow any publication of their balance-sheets. A paper by W. Newmarch, printed in the Journal of the Statistical Society for 1851, supplies the earliest basis for a trustworthy estimate. According to this the total amount of deposits, including the Bank of England, in England and Wales, Scotland and Ireland, may have been at that date from L250,000,000 to L360,000,000. The estimate in Palgrave's Notes on Banking (1872), excluding deposits in discount houses and the capitals of banks, was from L430,000,000 to L450,000,000. The corresponding amounts at the close of 1906 were, in round figures, including acceptances &c., L997,000,000. The total resources, including capitals and reserves and note circulation (in round figures L177,500,000), were for 1906:—

England and Wales— Bank of England and other banks L922,297,000 Scotland 135,042,000 Ireland 73,707,000 Isle of Man 898,000 ——————- L1,131,944,000

The progressive growth in bank deposits since it has been possible to keep a record of their amounts, affords some means of checking roughly the correctness of the estimates of 1851 and 1872. Broadly speaking, it may be said that the bank deposits of the United Kingdom have about doubled since 1872.

[Sidenote: Clearing.]

The purely city banks had associated themselves in a "Clearing House" certainly by 1776. An entry in the books of the Grasshopper,[4] namely—"1773 to quarterly charge for use of the Clearing-room of 19/6d.," points to an earlier and perhaps less definitely organized system of settlement. A house was taken for the purpose in 1810, in which year the number of banking houses who settled their accounts with each other at the "Clearing House" was forty-six (Gilbart's History and Principles of Banking, p. 78). The Bank of England has never been a member of the Clearing House, though it "clears on one side," i.e. its claim on the clearing bankers is made through the Clearing House, but the claims of the clearing bankers on the bank are forwarded direct to Threadneedle Street twice or thrice daily. Nor did the banks in Fleet Street or at Charing Cross belong to it. In 1858 the clearing of country cheques was added through arrangements made by Lord Avebury, then Sir John Lubbock. The "country clearing" is a great assistance to business, as it enables a cheque drawn on the most distant village in England to be dealt with as conveniently as a cheque on London. Of the forty-nine banks in London in 1844, twenty-six were connected with the Clearing House. At that time only private banks were allowed to be members. In 1854 the joint-stock banks made their way into that body, and in 1906 the numbers were one private bank and eighteen joint-stock banks who joined in the clearing—nineteen banks in all.

Practically at the present time every large transaction in the United Kingdom is settled by cheque, that is, by a series of ledger transfers, notes and specie being but the small change by which the fractional amounts are paid. A large proportion of these transactions are arranged through the operation of the London Clearing House. This is facilitated by the fact that every bank in the United Kingdom has an agent in London.

The annual circulation shown by the London Clearing House is more than L12,000,000,000. No one asks what stock of gold is held by the bank on which the cheques are drawn, or what the bank itself keeps in reserve. The whole is taken in faith on a well-founded trust. It is the most easily worked paper circulation and circulating medium in existence. Like the marvellous tent of the fairy Paribanou, it expands itself to meet every want and contracts again the moment the strain is passed. (See the article by R. H. Inglis Palgrave on "Gold and the Banks," Quarterly Review, January 1906.)

If we add to the returns of the London Clearing House those of the clearing houses in the large towns of England, Ireland and Scotland, and the numerous exchanges which occur daily, and the large number which the different offices of banks with a great many branches settle among themselves, and the number drawn by one customer of a bank and paid to another, we may form some notion of the vast amount of the yearly turnover in cheques. This may be roughly estimated to be at least twice as great as that registered by the London Clearing House. The earliest authentic statement as to the clearing is found in the Appendix to the Second Report, Committee of House of Commons, Banks of Issue (1841).

In 1839 the figures of the London clearings were L954,401,600, 29 banks. In 1840 " " " " " 978,496,800, 29 " In 1899 " " " " " 9,150,269,000, 19 " In 1900 " " " " " 8,960,170,000, 19 " In 1906 " " " " " 12,711,334,000, 18 "

[Sidenote: Scottish banks.]

In 1695, shortly after the establishment of the Bank of England, the Scottish parliament passed an act for the establishment of a public bank. Amongst the first names is that of Thomas Coutts, a name still commemorated in one of the most substantial banks in London. The terms of the establishment were more favourable than those connected with the establishment of the Bank of England, for they obtained the exclusive privilege of banking for twenty-one years without giving any consideration whatever. It may have been the natural caution of the country, or the fact that William III. was then king, which led to the Bank of Scotland being prohibited under a heavy penalty from lending money under any circumstances to the king. It is the only Scottish bank established by act of parliament. The directors began at a very early period to receive deposits and to allow interest thereon, also to grant cash credit accounts, a minute of the directors respecting the mode of keeping the latter being dated so far back as 1729.

Though the system of branches forms now so marked a feature of banking in Scotland, a good many years had to pass before they obtained any hold. It was not till about the year 1700 that the directors of the Bank of Scotland established branches at Glasgow, Aberdeen, Dundee and Montrose, but so little encouragement was given to these branches, the expenses far exceeding the profits arising from them, that the directors resolved to close them. In 1731 another attempt was made, and agencies were established at Glasgow, Aberdeen and Dundee. But after a trial of two years they were discontinued. It was not till 1774 that branches were again established by the bank.

Soon after the establishment of the Bank of Scotland the directors began to issue notes, or, as they were then called, bills or tickets, for L100, L50, L20, L10, and L5. In 1704 L1 notes were issued for the first time. In 1727 the Royal Bank of Scotland was established by a charter of incorporation,—which granted them "perpetual succession and a common seal." There was a great rivalry between the two companies. The British Linen Company was incorporated in 1746 for the [v.03 p.0340] purpose of undertaking the manufacture of linen, but by 1763 they found it best to confine their operations to banking transactions. This bank also was incorporated by charter.

The note circulation was always an important item in the Scottish banks. Thus in the case of the Bank of Dundee, the receiving money from the public did not commence till 1792. Up to that time the whole business of the bank from 1764 onwards, twenty-eight years in all, had consisted in its issue of notes, which had varied from about L23,000 to L56,000. The Bank of Dundee was amalgamated with the Royal Bank of Scotland in 1864, when its deposits amounted in round figures to L700,000 and its note circulation to L41,000. After 1792, the money deposited with the banks in Scotland rapidly increased, but the habit of hoarding savings in a chest up to amounts of L10 or L20 continued to a much later period (History of the Dundee Banking Co.).

Private banking never appears to have had any considerable hold in Scotland. In 1819 eight private banks were in existence. These had all disappeared by 1844. In 1906 there were only ten banks of issue in Scotland, which practically carried on the whole business of the country. There were two other small banks established comparatively recently. These ten banks had, in 1906, 1180 branches.

The history of the growth and expansion of Scottish banking since 1826 is, as far as can be traced, as follows:—

- Date. Deposits. Number of Offices. - 1826 L21,000,000 167 = 1 to every 13,170 inhabitants. 1841 27,000,000 380 = 1 to every 6,600 inhabitants. 1856 63,000,000 585 = 1 to every 5,230 inhabitants. and capital 1872 92,000,000 790 = 1 to every 4,250 inhabitants. including all liabilities and capital 1906 135,042,000 1,180 = 1 to every 3,790 inhabitants. including all liabilities and capital -

Against every note issued in excess of the limit allowed by the acts of 1844-1845, gold has to be held at the offices of the issuing banks in Scotland and Ireland. The amount of the specie to be thus held was, as explained by Sir Robert Peel in his speech of the 25th of April 1845, to be ascertained by the average amount of the note-issue for four weeks preceding. The object of the holding of this amount of specie by the bank which issued the notes was designed by Sir Robert Peel to cause the circulating medium of the country, being partly of notes and partly of specie, to fluctuate in the same manner as if it had been a metallic circulation only. The specie held in Scotland and Ireland against the note-issue is not a special security for the note circulation, but is placed in the banks there for this purpose. The influence ascribed to the working of the note circulation in the earlier part of the 19th century accounts for this legislation, which, as Sir Robert Peel stated in his speech of the 6th of May 1844, was intended to "ensure the uniform equivalency of bank notes to coin." It is not applicable to the present position of the circulating medium of the United Kingdom, which now consists mainly of a circulation of cheques. This differs absolutely from what was contemplated by Sir Robert Peel; no attempt is or can be made to cause such a paper circulation to fluctuate as if it were one of specie only. One result of the limitation of the power of note-issue to the banks in Scotland which possessed that power in 1845 has been that no important bank has been established in that country since. Notes are so largely employed in ordinary business in Scotland that a bank which does not possess the power, practically cannot carry on business and supply the needs of its customers. This limitation in the number of the banks has, however, not been accompanied by any deficiency in the supply of banking accommodation to the people. There is a larger number of banking offices in proportion to the population in Scotland than in England and Wales or Ireland.

The large number of branches must, however, be a cause of great expense, and in several other respects it is obvious that a business carried on in such thinly peopled districts as are found in many parts of Scotland, must be conducted at a disadvantage in comparison with those banks which deal with more active centres of commerce. Although the profit derived from their large issue of notes may be thought to be considerable, yet, when we consider the many expenses incurred in conducting a large note circulation, the cost of printing, stamp duty, and the charges on importing gold from London when the circulation exceeds the limit fixed by the act of 1845. no small deductions must be made from the apparent profit to be derived from this head, if there is any direct profit at all.

On the other hand, the great number of branches possessed by the Scottish banks tends beyond doubt to their stability and prosperity. The network of banks on the surface of Scotland is as important to the development of the prosperity of the country as the network of the railways. It has caused a great economy of capital, as the universal practice of people, even of the most moderate means, is to lodge their money with the banks.

[Sidenote: Irish banks.]

The early history of banking in Ireland was marked by legislation even less favourable to the formation of a steady and dependable system than in England, and in 1695 several of the principal merchants in Dublin met together for the purpose of forming a public bank for Ireland on the model of the Bank of England. For many years this proposal met with no favour. It was not till 1783 that the Bank of Ireland was established and commenced its business. The first governor was David La Touche, junior, and two other members of his family were amongst the first board of directors. The bank met with very great success, but the jealousy against rival establishments was extreme. By the act forming the Bank of Ireland it was enacted that no company or society exceeding six in number, except the Bank of Ireland, should borrow or take up money on their bills or notes payable on demand. In the year 1821 the act was so far modified as to permit the establishment of banking companies exceeding six in number at a distance of 50 m. from Dublin. In 1824, in consequence of the ambiguity of that act, an act had to be passed to explain it. It was not till 1845 that the restriction as to the 50-m. limit was withdrawn.

The establishment of any other bank but the Bank of Ireland was for a long time hindered by the legislation on the subject. Some of the restrictions were so extraordinary that it will be interesting to refer to three of the more important acts.

1741, 15 Geo. II.—Partnerships authorized for the purpose of trade and manufacture; but such partnerships were not to exceed nine in number, nor was the capital stock of such co-partnership to exceed, at any time, the sum of L10,000.

1780-1781, 21 and 22 Geo. III.—"Anonymous Partnership Act,"—limited liability not to exceed L50,000, but "business of banking or discounters of money" expressly excluded.

1759, 33 Geo. II.—By this act a person while he continued a banker could not make a marriage settlement on a son or daughter, a grandson or granddaughter, so as to be good against his creditors, though for a valuable consideration, and though such creditors were not creditors at the time the grant was made. This act gave power to creditors over all conveyances by bankers affecting real estates; and all dispositions after the 10th of May 1760 by bankers of real or leasehold interest therein to or for children were made void as against creditors, though for valuable consideration and though not creditors at the time. No banker to issue notes or receipts bearing interest after the 10th of May 1760. Some of these enactments appear to be in force at the present day; suggestions have been made, though apparently unsuccessfully, for their repeal.

So extraordinary were the views of the common people that a banker in Dublin of the name of Beresford having made himself very unpopular, a "large assemblage of ignorant country people having previously collected a quantity of Beresford's notes, publicly burnt them, crying out with enthusiasm while the promises to pay on demand were consuming, 'What will he do now; his bank will surely break.'"

The number of banks which failed in Ireland in earlier times was extraordinary; thus Sir Robert Peel in his speech of the 9th of June 1845 on the Bank Act of that year, made a quotation "from the report of the committee of Irish exchanges, which sat in 1804. At that period there were fifty registered banks, but they all failed, and their failures, I know personally, led to the most fearful distress." Since the legislation of 1845, however, the business has been carried on with equally extraordinary steadiness and success, and at the present time is on a footing fully equal to that of any other part of the United Kingdom.

The earlier history of banking in Ireland pursued very closely the same process of development as in England. Circulation preceded and fed deposits. The credit which the banks obtained [v.03 p.0341] by the ready acceptance of their notes brought customers to their counters, and thus the existing system, fortunate in excellent managers, was built up gradually and surely.

Alone in the three kingdoms, Ireland maintains the same limit of authorized circulation as that established by Peel's Act of 1845. Not one of the six banks which had the privilege of issue at that period has lost it since.

The names of the banks carrying on business in Ireland, the years when they were established and their position in 1906, are as follows:—

CAPITAL OF IRISH JOINT-STOCK BANKS IN 1906 - Rate of Name of Bank and Year Capital Dividend when established. paid-up. per annum. - Bank of Ireland 1783 L2,769,230 11 Hibernian Bank* 1824 500,000 10 Provincial Bank 1825 540,000 20 Northern Banking Co. 1825 500,000 18-1/2 Belfast Banking Co. 1827 500,000 36 National Bank 1835 1,500,000 8 Ulster Banking Co. 1836 500,000 18 Royal Bank* 1836 300,000 12 Munster Bank, Ltd.* 1864 200,000 8 - * Thus marked are not banks of issue.

[Sidenote: Banking crises]

Banking, like every other business, has to pass through periods of difficulty. The severity of these in the case of banking is intensified by the vast number of interests affected. These, on the one hand, are world-wide in their scope, on the other they touch every home in the country. The stringency of such a time in England has since the passing of the act of 1844 been greatly enhanced by a doubt being sometimes felt as to whether a relaxation of the act of 1844 would be allowed. In any case, some little time must elapse before the assent of the ministers of the crown to the request of the Bank of England can be known. Since 1844 there have been five periods of pressure,—during 1847, 1857, 1866, 1870 and 1890. Of these in three, 1847, 1857 and 1866, the difficulties reached panic.

The crisis of 1847 was brought on by the speculation in railway enterprise which had gone on since 1845. So little had the anxieties of the autumn been anticipated that the bank rate of discount was 3% on the 1st of January. It was raised to 3-1/2% on the 14th and to 4% on the 21st. It became 5% on 8th April, 5-1/2% on 5th August, 6% on 30th September and 8% on 25th October. This was the highest. It was lowered to 7% on 22nd November, on 2nd December to 6% and on 23rd December to 5%. An announcement was made on the 1st of October that no advances would be made on public securities. This was followed by general anxiety and alarm.

The reserve of the bank was rapidly reduced to a very low ebb.

Bank of England Reserve of Specie. 1847, 16th October .... L3,070,000 " 23rd October .... 1,990,000 " 30th October .... 1,600,000

Meanwhile the anxiety and alarm prevailing were causing a general hoarding of coin and bank notes, and it really appeared not unlikely that the banking department of the Bank of England might be compelled to stop payment while there was more than L6,000,000 of specie in the issue department. The chancellor of the exchequer (Sir C. Wood, afterwards Lord Halifax) was urged by many deputations and remonstrances to relax the Bank Act, but he declined. At last, on the 22nd or 23rd of October, some of the leading city bankers had an interview with the prime minister (Lord John, afterwards Earl, Russell), and on their explaining the necessities of the position, the desired relaxation was given. The official letter (25th October) recommended "the directors of the Bank of England, in the present emergency, to enlarge the amount of their discounts and advances upon approved security." A high rate, 8%, was to be charged to keep these operations within reasonable limits; a bill of indemnity was promised if the arrangement led to a breach of the law. The extra profit derived was to be for the benefit of the public. The effect of the government letter in allaying the panic was complete.

The crisis of 1857 was the last occasion of an official inquiry. This is contained in the Report and Evidence of the Select Committee of the House of Commons on the Bank Acts (1857, 1858). The evidence given by Mr Sheffield Neave, the governor, and Mr Bonamy Dobree, deputy-governor of the bank in 1858, gives a vivid picture not only of what occurred, but of what might be expected to recur on such occasions. The wildest alarm prevailed, exchequer bills were scarcely saleable, and the bank itself sold L3,000,000 government securities at a considerable loss.

The extreme pressure was relaxed by the letter issued by the government on the 12th of November 1857, signed by Lord Palmerston, then premier, and Sir G. C. Lewis, which allowed a temporary relaxation of the Bank Act of 1844. The public alarm, however, was so great that it was not until the 21st of November that the severity of the pressure was in any way diminished. On the 20th of November the notes issued to the public on securities beyond the statutory limit (then L14,475,000) reached the sum of L928,000. By the next week the issue was almost down to the limit, and in the week following it was within the limit. On the 1st of January 1858 the bank rate was lowered to 8% and the anxiety gradually passed away. Had the treasury letter been issued earlier, the pressure might not have been so severe, and the governor of the bank expressed a strong opinion that, if it had been later, it would not have been sufficient. November 1857 was the only occasion when the limits of the Bank Act as to issue were actually passed.

During the crisis of May 1866 L4,000,000 left the bank on one day in notes and coin, and the reserve of the bank was reduced in the return of the 1st of June of that year to L415,000. The bank rate was raised to 10% and permission was given by the government to suspend the act. This, however, was not done. Tradition says that the bank asked the bankers, during the period of heaviest pressure of that terrible crisis—pressure more severe than anything that had taken place before or that has occurred since, to pay in every night the notes they had drawn out in the morning which were still in their tills at the close of the day, and that hence the legal limit was never exceeded. But it was not till the 6th of August that the rate was reduced to 8%.

The effect of the crisis of October 1890 was far less severe. This was due to the judgment and skill displayed by the governor (Mr Lidderdale) and the directors of the bank, who imported L3,000,000 in gold from Paris. The reserve in that year never dropped below L10,000,000, and before the end of November the anxiety had greatly passed away. "Caution prevailed, but not panic, and the distinction is a very clear one." (See arts. on "Crises," Dictionary of Political Economy, vol. i.)

The most important requirement of banking in the United Kingdom is still the establishment of an efficient specie reserve. The reserve in the banking department of the Bank of England averaged:—

L8,500,000 in 1845. L11,600,000 in 1875. 8,400,000 in 1855. 15,100,000 in 1885. 8,000,000 in 1865. 29,900,000 in 1895. L23,500,000 in 1906.

[Sidenote: The "Reserve" question.]

This provides but a narrow basis for the whole business requirements of the country. Though much larger than in several previous years, it cannot be regarded as adequate. The figures fluctuate more severely than these decennial averages show, and the progress has not been one of uniform increase. Thus the L15,100,000 in 1885 was followed by L12,700,000 in 1888. The L29,900,000 of 1895 was followed by L34,600,000 in 1896 and L21,200,000 in 1899.

Beyond, or side by side with, the reserve of the Bank of England there are the reserves held by the other banks. Part of these are held in the form of balances at the Bank of England, part in specie and bank notes in their own tills. The latter, hence, are not unlikely to be estimated twice over. The published figures on this point are meagre.

The expectations expressed by Sir Robert Peel in his speech [v.03 p.0342] on the bank charter and the currency of the 6th of May 1844 have not yet been fulfilled. "I rejoice," he said, "on public grounds, in the hope that the wisdom of parliament will at length devise measures which shall inspire just confidence in the medium of exchange, shall put a check on improvident speculations, and shall ensure the just reward of industry and the legitimate profit of commercial enterprise conducted with integrity and controlled by provident calculation."

The extreme measures which have been required since the act af 1844 point out for themselves the necessity for reform. Three times since the date of the Bank Act of 1844 it has been needful to give permission for the suspension of that act which forms the very foundation of the monetary system of Great Britain. This, whenever it has occurred, has exercised a very injurious effect on credit abroad, as well as on prosperity at home.

The British money-market, the clearing-house of the world, is, in consequence of the smallness of its reserve, exposed to greater fluctuations than that of any other country. These fluctuations may arise from the need of meeting the requirements of other countries for specie or those arising from domestic trade. The recorded excess of imports over exports, L147,000,000 in 1906, though the difference is eventually balanced by the "invisible" exports, gives foreign nations at times a power over the British money-market greater than has ever previously been the case. The current must always have a tendency to flow outwards; this is enhanced by the great increase in the number of foreign banks which have branches in England. The need of providing sufficient reserves to meet requirements thus occasioned is obvious.

[Sidenote: British banking abroad.]

As regards the banks in which British interests are concerned in British colonies and other countries we can only speak briefly. It must not be overlooked that in the Dominion of Canada there are 29 banks, many of them large, managed much on the Scottish principle with capitals of nearly L19,000,000 and deposits of about L140,000,000. These banks have more than 1200 offices. In Australia and New Zealand there are 24 banks with capitals of nearly L18,000,000 and deposits of about L130,000,000. The number of offices is nearly 1700. There are, including the three Presidency banks, about 15 banks doing business mainly in India—in some cases connecting neighbouring countries and places like Bangkok, Hong-Kong and Zanzibar. These banks have capitals of more than L5,000,000 and deposits of fully L36,000,000 and over 210 offices. There are at least 8 banks in South and West Africa with capitals of nearly L5,000,000, deposits of nearly L50,000,000 and nearly 370 offices. There are 5 banks, including the Colonial Bank, in other British territories with capitals of about L1,000,000 and deposits of L3,300,000, and about 25 offices. There are thus, besides many private firms doing very considerable business, more than 80 joint-stock British banks working in the colonies with capitals amounting to L48,000,000, deposits L360,000,000 and offices 3505. Outside British territories there are 6 banks, principally in South America, with nearly L4,000,000 capital, L36,000,000 deposits and about 60 offices. There are 6 large banks doing business principally in the East with more than L6,700,000 capitals, L77,000,000 deposits and 106 offices: and 7 other banks, including Barings, with about L4,500,000 capitals and L22,000,000 deposits There are thus about 20 British banks doing business in foreign countries with capitals amounting to L15,200,000, deposits L135,000,000 and offices 173.

In this statement we have included only the more important banks, which collectively wield about L63,000,000 capital and more than L495,000,000 deposits—in all about L560,000,000 of resources operating at about 3700 offices situated in places as different from each other and as widely separated as California and Hong-Kong, Constantinople and New Zealand.

France.—In France the first bank of issue, originally called the Banque Generale, was established in 1716 by John Law, the author of the Mississippi Scheme and the Systeme. Law's bank, which had been converted into the Banque Royale in 1718, and its notes guaranteed by the king (Louis XV.), came to an end in 1721; an attempt at reconstruction was made in 1767, but the bank thus established was suppressed in 1793. Other banks, some issuing notes, then carried on operations with limited success, but these never attained any real power. There were many negotiations on the subject of the establishment of a bank in 1796. The financial difficulties of the times prevented any immediate result, but the advice of those engaged in this plan was of great assistance to Napoleon I., who, aided by his minister Mollien, founded in 1800 the Bank of France, which has remained from that time to the present by far the most powerful financial institution in the country. The objects for which it was established were to support the trade and industry of France and to supply the use of loanable capital at a moderate charge. These functions it has exercised ever since with great vigour and great judgment, extending itself through its branches and towns attached to branches over the whole country. At its establishment and for some time subsequently the operations of the bank did not extend over the whole of France. Departmental banks with the privilege of issue had been formed under a law adopted in 1803. At the close of 1847 there were nine of these banks existing in as many of the larger towns. In 1848, however, they were absorbed into the Bank of France, which has since possessed an exclusive privilege of issue, and in 1863 took over the Bank of Savoy after that province was united to France.

The Bank of France has successfully surmounted many political as well as financial troubles both during and since the times of Napoleon I. The overthrow of the government of Louis Philippe in 1848, the war with Germany in 1870, the many difficulties that followed when the Commune reigned in Paris in 1871, the payment of the war indemnity—not completed till 1873—were all happily overcome. Great pains, too, have been taken, especially of recent years, to render services to large and small businesses and to agricultural industry. In 1877 the offices of the Bank of France were 78 in number; in 1906 they were 447, including the towns "connected with the branches"—an arrangement which, without putting the bank to the expense of opening a branch, gives the place connected many of the advantages which a branch confers. The quantity of commercial paper discounted is very large. More than 20,000,000 bills were discounted in 1906, the total amount being L559,234,996. The advances on securities were in the same year L106,280,124. The rate of discount in Paris is as a rule lower and the number of alterations fewer than in London. From May 1900 to January 1906 there was no change, the rate remaining uniformly at 3%. Bills as low as 4s. 2d. are admitted to discount, including those below 8s.; about 232,000 of this class were discounted in 1906. Since the 27th of March 1890 loans of as small an amount as L10 are granted. In most cases three "names" must be furnished for each bill, or suitable guarantees or security given, but these necessary safeguards have not to be furnished in such a manner as to hamper applicants for loans unduly. In this manner the Bank of France is of great service to the industry of the country. It has never succeeded, however, in attracting deposits on anything like the scale of the Bank of England or the banks of the English-speaking peoples, but it held, as stated in the balance-sheet for the 23rd of December 1906, about L35,000,000 in deposits, of which L14,000,000 was on account of the treasury and L21,000,000 for individuals, and the amount held in this manner gradually increases. The report for 1904 says "each year the movement in these increases, and this economical and safe mode of effecting receipts and payments is more and more appreciated by the public." In one respect the Bank of France stands at a great advantage in connexion with this branch of its business. The average amount held in this manner for individuals during 1906 was about L23,000,000. As the accounts numbered 77,159 the average for each account was comparatively small. Accounts so subdivided give a great probability of permanence. The figures of the accounts for 1904 were as follows:—

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