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private banks are very few in number, and their
influence is a diminishing one, though at one
time that influence throughout the country was

Digitized by



great, both socially and politically. The London
private bankers ceased to issue notes toward the
end of the 18th century, but the country private
bankers attached great importance to their note
issues up to the time when the Bank Charter
Act of 1844 made further extension in this
direction impossible. Many of these firms were
under-capitalized; the banker was often a
tradesman as well, and was too much at the
mercy of fluctuations in trade. Consequently in
time of monetary stress failures were frequent,
especially during the early half of the 19th cen-

trast to that existing in the United States of
America. The natural consequence is that the
magnitude and importance of the individual
bank has very greatly increased. Yet, large as
the liabilities of the leading banks to the public
are, their capital, both nominal and paid up, and
their reserve funds, are sufficiently ample to re-
move any feeling of distrust which might other-
wise be inspired by the volume of their obliga-
tions, as will be seen from the accompanying
figures taken from the balance sheets of a few
of the most important joint-stock banks.


(une 30th


Lloyds Bank Ltd

Union of London and Smiths Bank Ltd. . .
National Provincial Bank of England Ltd

London City and Midland Bank Ltd

Barclay & Company Ltd


a*. 071,500
ta,Q34, xco
1 5, 085, <5 80

Paid up


3, 554,7*5


V 10,850
x, 500,000

Current &


vwy. Except that their note issue is limited by
tne Act of 1844, the law imposes no restrictions
upon private bankers, and they are not even
compelled to issue balance sheets, though in
most cases this has been voluntarily done of
recent years. In spite of this absence of con-
trol, the existing private banks inspire a confi-
dence which seldom proves misplaced. Most of
them have been established for many years, for
it has proved increasingly difficult for a new
private bank to obtain a footing in the country.
All banks possessing more than 10 partners
must now register as a company under the
Companies Acts.

The Joint-Stock Banks. — Owing to a clause
in the Bank Charter Act of 1708, joint-stock
banking was not possible during the 18th cen-
tury, but in 1826 the Bank of England monopoly
was so far curtailed as to allow joint-stock
banks to be established, with the right of issu-
ing notes, provided they had no office in Lon-
don or within a radius of 65 miles. By an act
passed in 1833, joint-stock banks were permitted
within this radius, provided they did not issue
notes, and under this act several of the leading
joint-stock banks of to-day were founded. The
le^al disability to issue notes continues until the
present day, and has had a marked effect on
banking in England. The energies of the joint-
stock banks have naturally been centred upon
the development of deposit banking, with the
result that the habit of keeping a banking
account has spread more rapidly and more
generally than in most countries, and the
use of notes has correspondingly decreased.
Practically all the existing joint-stock banks
have registered under the Companies Acts with
limited liability, and in most cases with a re-
serve of uncalled capital which cannot be util-
ized except in case of liquidation. During the
last 20 years or so a decided tendency has
shown itself, on the one hand, for the amalga-
mation of the private banks and the smaller
joint-stock banks with the more powerful of the
latter class, and on the other hand for the
spread of branch banking. This has resulted
in an increased centralization of the banking
system in London, and to a lesser extent, in a
few of the leading provincial towns, and in the
evolution of a system which is in distinct con-

The Economist newspaper publishes a half-
yearly statement of the capital, reserve funds,
deposits, and other liabilities and assets of the
joint-stock banks and those private bankers who
publish accounts. The totals of these amounts
as published in the issue for 19 May 1906 were
as follows:

Joint-Stock Banks

(including the Bank of England).

No. of

Paid up


Deposit &



Eng. & Wales..



Isle of Man &
Channel Isls.










679. 567.015






Private Banks or England

ant> Walks.

Number of

Partners' Capital
and Reserve.

Deposit A Current




»7. 775,oi«

Foreign and colonial banks having London
offices are, it should be noted, not include^ in
the above tables.

Note Issues.— The Bank Charter Act of
1844, which governs the note issues of English
banks, aimed at the eventual extinction of all
note issues except that of the Bank of England.
This aim is in a fair way to be realized, for at
the end of April 1906, only 31 banks possessed
the right of issuing notes, the maximum au-
thorized issues amounting to but £ 1,628,342, and
the actual circulation being £577,864. By this
act the Bank of England was authorized to
issue from the Issue Department £14,000,000 of
notes, covered by Government securities, £11,-
015,000 of which consisted of the Government
debt to the Bank. This fiduciary issue could be
increased by the addition of two-thirds of the
authorized issue of any other bank which for-
feited its right of issue or allowed it to lapse,
and it amounts at the present time to £18450,-
000. Any notes issued in excess of this total


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must be secured by the deposit of coin or bullion
to an equal amount. Silver may form not more
than one-fifth of this deposit, but the Bank has
but seldom availed itself of this privilege. As
the Issue Department is compelled to buy all
standard gold bullion offered to it at the rate of
£3 17s od an ounce, and always issues notes
against the stock in hand, it can be seen that the
amount of notes issued is controlled to a very
small extent by the bank directors, and that it
increases or decreases according to the amount
of gold imported or exported. The Bank of
England is, however, not prevented from offer-
ing a higher price than the above, should it find
it advisable to compete for gold in the market;
and in selling gold, if the demand is for foreign
coin or bars, the Bank can fix its price accord-
ing to the demand. Any notes not required in
active circulation are held in the Banking De-
partment and form the greater part of the Bank
of England reserve. The active circulation is in
normal times peculiarly steady, averaging from
25,000,000 to 30,000,000 out of a total issue of
from 50,000,000 to 55,000,000.

Bank notes have been in England largely
superseded by the general use of banking ac-
counts by the public, and the demand for an
elastic currency has never assumed such propor-
tions as in the United States. In times of stress,
however, the demand for notes has, in a few
instances, exceeded the Bank's power of issue,
and on three occasions, in 1847, 1857, and 1866,
the Government has been compelled to intervene
and suspend the clause forbidding the issue of
notes beyond the fiduciary limit except against
the deposit of gold. Bank of England notes,
which it' may be noted are legal tender in all
payments except by the Bank and its branches,
are not issued for any sums below £5, though
proposals have frequently been made, notably
by Viscount Goschen in 1891, to authorize the
issue of £1 notes.

The Clearing System. — The system of col-
lecting checks and settling balances owing be-
tween bankers, though to the uninitiated it may
appear merely an administrative detail, has, in
reality, exercised a very important influence on
banking development in England. The problem
of clearing checks is comparatively simple com-
pared with the problem as existing in the
United States or any other country occupying
a large geographical area, because practically
every English bank or branch bank is within a
day's post of London. Consequently although
local checks are cleared through local Clearing
Houses in some of the larger towns, the great
mass of checks is cleared through the London
Clearing House, and this fact has very much
accentuated the centralization of banking in
London, which is the predominant character-
istic of the English system. A seat in the
Gearing House is a privilege jealously guarded
and difficult to obtain, and it was not until 1854
that any of the joint-stock banks were admitted.
Those banks which do not possess this privilege
appoint a clearing agent, with whom an account
is kept, and who in many cases acts generally as
the London agent. By the rules of the Gearing
House every clearing bank must keep an ac-
count with the Bank of England, and the daily
differences are settled by means of transfers to

and from these various accounts and a central
account called the Clearing Bankers' Account.

The total amount of the checks and other
articles cleared through the London Bankers'
Clearing House in 1005 was £1,287,935,000, being
the highest total recorded in the history of the
House, and more than 16 per cent higher than
the previous year. The largest weekly total was
^345»370,ooo, and the largest daily amount
£102,780,000. The number of banks possessing
seats in the Clearing House is now eighteen.

The Money Market. — The London money
market is the name given to the miscellaneous
body of persons who borrow or lend money for
short periods, their operations being roughly
grouped around Lombard street, Threadneedle
street, and the adjoining parts of the City of
London. The money in which they are in-
terested is sometimes described as the Short
Loan Fund of the Money Market. On the one
hand is the borrowing portion of the market,
consisting largely of the bill brokers, the Stock
Exchange, and an undefined group of financiers ;
on the other, the Bank of England, which is
closely connected with the Money Market, and
which, owing to its position as the guardian of
the ultimate cash reserves, is also the ultimate
lender when money cannot be easily borrowed
elsewhere. In between these two extremes ar*
the clearing banks and other banks having Lon-
don offices, as well as various financial firms,
whose surplus unemployed assets form the prin-
cipal part of the Short Loan Fund. The
British Government also plays a very important
part as a borrower in the Money Market, and
the Government of India, through the India
Council, lends largely to the Market Beside
these, there is a group of foreign banks with
London offices which exercise a growing in-
fluence in the Market, both as borrowers and

The index to the general condition of the
Market is the Bank Rate, which is the official
minimum rate at which the Bank of England
discounts first-class bills offered to it. All bills
so offered for discount must mature within not
more than three months, and must be accepted
payable in the United Kingdom and bear one
other English signature. The Bank of Eng-
land is actuated in fixing the amount of the Bank
Rate by the state of the reserve and the pros-
pects of an inflow or outflow of gold, and
speaking generally, the Bank is interested in
keeping the rate as high as expediency will al-
low. The borrowing portion of the Market is
naturally anxious to keep the rate as low as pos-
sible. If, however, there is plenty of money
to be lent outside the Bank of England, the
Bank Rate cannot be effectively maintained at
a much higher figure than the market rate,
otherwise it would be merely nominal. There*
fore, the other London banks to a large extent
hold the balance between the Bank of England
and the borrowing portion of the Market.
They are actuated on the one hand bv the ne-
cessity of employing as large a proportion of
their surplus assets as prudence will allow, and
on the other by the responsibility of keeping re-
serves well above the margin of safety. The
relations of the Bank of England to the other
banks are of the utmost importance and inter-
est. It is possible that in seasons when money

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is plentiful, the enormous floating balances
available for employment in the Money Market
may expose the Bank of England to the danger
of a drain of gold. This risk is accentuated by
the fact that the funds controlled by the joint-
stock banks are far larger than those of the
Bank of England. The Bank must, therefore, be
able to control the market rate should necessity
arise, and it must do this by itself coming for-
ward as a borrower (mostly through a broker)
and by offering such a rate as to divert the
loanable funds of the other banks away from
the market. The latter, thus being denuded of
funds, is driven to the Bank of England.

The Gold Reserves. — London is recognized
as the only free market for gold in the world,
and yet her central stock of the metal is, not-
withstanding the enormous volume of her finan-
cial dealings, at times actually less than that of
her principal rivals. It is one of London's most
cherished traditions that she puts no obstacles
in the way of the export of gold, except by
making it more worth the while of its owners
to keep it there. When it is remembered that
the British banks owe some £000,000,000 sterling
to their depositors, and that chiefly owing to
the universal reputation of the London sterling
bill of exchange as an international currency,
London's obligations to the rest of the world
are at all times enormous, it will be realized that
her gold reserves have to be vigilantly watched
and jealously guarded.

That London can work on such a small
basis of gold is due in the first place to the fact
that the English system of a single centralized
reserve is a more economical one than the sys-
tem prevailing in countries where centralization
is less developed ; secondly, to the smooth work-
ing and thorough organization of her banking
system, and thirdly, to the excellent reputation
of English credit among other nations, which
enables her to attract gold from abroad with
the least possible delay. But there is a grow-
ing feeling that there should be more gold held
in reserve in the country; not that bankers are
thought to be working below the safety limit,
but because the necessity for incessant vigilance
results in unstable rates of interest with a con-
sequent derangement of the Money Market and
an undue accentuation of the speculative ele-
ment in business generally. This feeling has
been especially prominent since other countries
have adopted a gold standard, and many
schemes for an improvement of these condi-
tions have been brought forward. The settle-
ment of the question is rendered more difficult
by the dual nature of the Bank of England re-
serve, which is at the same time a currency
reserve and a banking reserve. It is felt that
the responsibility of keeping the former be-
longs partly to the State; that of the latter to
the banking community; and the adjustment of
the responsibility has not proved easy.

Banking in Scotland and Ireland. — Both in
Scotland and Ireland bankincr has developed on
slightly different lines from those of English
banks. In Scotland especially the absence of
any joint-stock monopoly like that of the Bank
of England resulted in the early evolution of a
type of powerful bank which crowded out the
private banker. Consequently to-day there are
only 10 banks in Scotland, all with a large num-

ber of branches, and the establishment of a new
bank is practically impossible. The Scotch
people were early in recognizing the advantages
of a good banking system, and the use of <( cash
credits* had an important effect upon the in-
dustrial development of the country. In Ire-
land, banking has had a stormier history, but
similar results have been reached, and there are
now only nine banks of any importance in the
country. Both Scotland and Ireland differ
from England in enjoying a circulation of £1
notes, which have survived all attempts at ex-

The note issues of the two countries are
governed by Bank Acts pas*sed in 1845, which
bear a close resemblance to each other. All the
banks in Scotland and six of the Irish banks are
banks of issue, and each is allowed to issue an
amount equal to the average circulation during
the year ending 1 May 1845, together with an
amount equal to the amount of gold and silver
coin held at the head office or principal places
of issue, the silver coin not to exceed one-fifth
of the whole. The necessity for keeping coin
against excess issues of notes brings the Scotch
and Irish banks into close relation with the
Bank of England. Neither the Scotch nor
Irish banks clear their checks through the Lon-
don Gearing House, but through the Clearing
Houses of Edinburgh, Glasgow, and Dublin,
hence the connection between these banks and
the Bank of England is not necessarily so di-
rect as in the case of English banks. But there
are certain recurrent seasons of the year when
an increase of the note issues always occurs in
Scotland and Ireland, and this necessitates an
increase in the stock of coin. As there is no
central reserve of gold in Scotland and Ire-
land, this coin can only be obtained from the
Bank of England, and therefore, at these sea-
sons of the year, notably during what is called
the Autumn Drain, the Bank of England reserve
is always subject to a demand for coin from
these countries, especially from Scotland.

Banking Methods. — British banking methods
are distinguished by prudence and caution. The
immense amount of their deposits repayable on
demand forbids English banks to embark upon
the general financial business which forms the
principal function of some Continental bankers.
English banks do not operate on the Stock Ex-
change except for purely investment purposes,
and then only in what are termed *gilt edged*
securities. Neither do banks directly interest
themselves in the control or management^ of
commercial or industrial undertakings. Fur-
thermore the management of the large banks is
singularly free from political interference of all
kinds. On the other hand, English bankers
have allowed to slip from their control many
branches of business which belong legitimately
to a banker. Much of the bill-discounting busi-
ness is in the hands of the bill broker, who is
an expert middleman between the banker and
his customer. Again, few of the large London
banks deal in foreign bills or interest themselves
in foreign exchanges, and this branch of bank-
ing has also fallen largely into the hands of
specialists, or of the branches of foreign banks
established in London.

The liabilities of English banks consist al-
most entirely, first, of the current account

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balances in their hands, repayable on demand,
on which it is not usual to allow any inter-
est, and secondly, of sums deposited repay-
able at a fixed notice, usually seven days, on
which London bankers allow interest at one
and a half per cent below the Bank of Eng-
land Discount Rate. Certain London bankers
also accept, on behalf of their customers, bills
drawn from abroad, proper security being de-
posited to cover the bankers' liability. It is,
however, not the practice among English
bankers to grant open credits in such cases.
Their assets consist of cash on hand and at the
Bank of England or their London Agent, money
lent at call or short notice to the Money Market
against security, bills being the acceptances of
other bankers or leading merchants bought in
the market investments in first-class Stock
Exchange securities, and advances to customers,
either in the form of loans, overdrafts upon
current account, or bills discounted. It is not
usual to make advances without some form of

During the middle of the 18th century, Eng-
land was subjected to a series of acute banking
crises, notably in 1847, 1857, and 1866, but if we
except the grave situation created in 1890 by the
liquidation of Barings, who, it must be noted,
were not bankers, the country has been free
from such disturbances since 1878. It is rea-
sonable to assume that bankers have profited
from the experience gained in such times of
stress, and it must be admitted that English
bankers as a whole inspire in their creditors
the confidence due to sober and prudent

Bibliography — History of Banking.— Gil-
hart's ( History, Principles and Practice of
Banking, > (first written in the early half of
the 19th century and must, therefore, be read
with caution for recent history) ; Macleod's
( Theory and Practice of Banking,' (good but
disfigured by an overemphatic style) ; Dunbar,
< Theory and History of Banking' (a short
American work).

Practice of Banking. — Hutchison, * Practice
of Banking' (4 vols.) ; Moxon, < English Prac-
tical Banking' (very short and concise, but

Law of Banking. — Sir John Paget's ( Law of
Banking' ; Dr. Heber Hart's ( Law of Banking.'

General. — journal of the Institute of
Bankers' ; ( The Bankers' Magazine' ; ( Various
Parliamentary Reports' : Conant, Principles of
Money and Banking' (American).

The Bank of England. — Andreades, <His-
toire de la Banque d'Angleterre' ; Schuster,
<The Bank of England and the State' ; <Reports
of the Select Committees of the House of Com-
mons on the Operation of the Bank Acts, 1857
and 1858' ; Stephens, <A Contribution to the
Bibliography of the Bank of England.'

The Private Bankers. — Macleod, <Theory
and Practice of Banking' ; Gilbart, < History,
Principles and Practice of Banking.'

The Joint-Stock Banks. — Macleod, ( Theory
and Practice of Banking' ; Gilbart, history.
Principles and Practice of Banking' ; <The
Bankers' Magazine' ; ( The Journal of the In-
stitute of Bankers.'

Note Issues. — < Reports of the Select Com-
mittees of the House of Commons on the Bank
Vol. 10 — 6

Acts, 1857 and 1858' ; Report of Select Com-
mittee on Banks of Issue, 1875' '* Macleod,
i Theory and Practice of Banking' ; Palgrave,
<Bank Rate and the Money Market' ; Conant,
( History of Modern Banks of Issue.'

The Clearing System. — Jevons, < Money' ;
Howarth, ( Our Clearing System.'

The Money Market.— Palgrave, <The Bank
Rate and the Money Market'; Clare, < Money
Market Primer' ; Straker, ( The Money Market' ;
Bagehot, ( Lombard Street ' ; Steele, *On Changes
in the Bank Rate' ; Schuster, ( Foreign Trade
and the Money Market'

The Gold Reserves. — Palgrave, K The Bank
Rate and the Money Market' ; Goschen, Assays
and Addresses on Economic Questions';
various papers in the journal of the Institute
of Bankers' ; Schuster, K The Bank of England
and the State,' and foreign Trade and the
Money Market'

Banking in Scotland and Ireland. — Kerr,
< History of Banking in Scotland' ; Gilbart,
history, Principles and Practice of Banking' ;
Dillon, i Banking in Ireland.'

Felix Schuster,
Governor of the Union of London and Smiths'
Bank, Limited, Chairman of the Council of
the London Chamber of Commerce, Deputy
Chairman, London Clearing Banks, Vice-
President and Chairman of the Council of
the Institute of Bankers, Deputy-Chairman
of the Central Association of Bankers; and
Ernest Sykes,
Secretary of the Institute of Bankers, and of the
Central Association of Bankers, and Ex-
aminer in Banking to the London Cham-
ber of Commerce.

19 (a). Great Britain — Commerce — Eigh-
teenth Century. English commerce of the 18th
century is remarkable for the revolution in the
methods by which it was carried on, for its
growth under the great Whig system of pro-
tection and for its culmination in a tremendous
expansion with the coming of machinery. Eng-
lish foreign trade had been largely opened out
by merchant companies. The foundation idea
was that English goods should be sold at a high

Online LibraryWilfrid RichmondThe Americana: a universal reference library, comprising the arts ..., Volume 10 → online text (page 21 of 185)