819 



BANK ; BANKER ; BANKING. 



BANK; BANKER; BANKING. 



850 



possession of 200,000?. thus lodged, which of course put a stoj 

 to that practice. This state of things preceded and most probabl; 

 led to the extension of the business of the goldsmiths, as jus 

 explained. 



This business soon became very considerable, and was found conve 

 nient to the government. In 1672 King Charles II., who then owec 

 1,328,526?. to the bankers, borrowed at 8 per cent., shut up the 

 Exchequer, and for a time refused to pay either principal or interest 

 thus causing great distress among all classes of people. Yielding fa 

 the clamour raised against this dishonesty, the king at length conseutec 

 to pay 6 per cent, interest, but the principal sum was not discharged 

 until forty years afterwards. 



Private Banl-iny. There are three private banking-houses still 

 carrying on business in London which were established before the 

 Bank of England. The London bankers continued for some time afte; 

 that event to issue notes, but have long since ceased to do so, acting 

 solely as depositaries of money, discounters of bills, and agents for 

 bankers established in the country. No restriction has ever existed 

 which prevents private banks in London, having not more than six 

 partners, from issuing their notes payable to bearer ; that they have 

 ceased to do so has arisen from the conviction that paper money, 

 issued on the security of only a small number of individuals, could not 

 circulate profitably in competition with that of a powerful joint-stock 

 association. Private bankers in London do not make any charge of 

 commission to their customers, and generally grant considerable 

 facilities to them, both by discounting bills and by temporary loans, 

 either with or without security. Even where this kind of accommo- 

 dation is not required, it is almost a matter of necessity for every 

 merchant or trader carrying on considerable business to have an 

 account with a banker, through whom he makes his payments, and 

 who will take from him the daily trouble of presenting bills and 

 cheques for payment. 



The profits of London bankers are principally derived from dis- 

 counting mercantile bills either for their customers, or, through the 

 intervention of bill brokers, for other parties. They have great 

 facilities as regards the security of this business, from the unreserved 

 confidence which they are accustomed to place in one another as to 

 the credit of their respective customers. 



The great amount of money transactions daily carried on in London 

 has led to the invention of a simple and ingenious method for econo- 

 mising the use of money. Almost all these payments are in the form 

 of cheques upon bankers, or of bills of exchange addressed to bankers 

 for payment, or accepted payable at their banking-houses. At three 

 o'clock every afternoon a clerk from each banking-house being a 

 member of the clearing-house, proceeds to a house in Lombard Street, 

 called the clearing-house, taking with him all the drafts on other 

 bankers which have been paid into his house that day, and deposits 

 them in drawers allotted to the different bankers. Another clerk is 

 afterwards sent who delivers to the first all the drafts paid into the 

 banking-house up to four o'clock, and these are distributed in the 

 manner already described. He then gives credit to each respectively 

 for the amount of drafts on his own bank which he finds in his own 

 drawer. Balances are then struck, and the claims thus found are 

 transferred from one account to another, and so wound up and can- 

 rdliil, that each clerk has to settle with probably only two or three 

 others, and transactions to the extent of millions are settled ultimately 

 by means of cheques upon the Bank of England, without the interven- 

 tion of any notes or coin whatever. Each banking-house that is a 

 member of the clearing-house has an account with the Bank of England, 

 and so the claims of any one of these banks upon another are satisfied 

 by transfers in their respective accounts at the Bank of England. 

 Other London bankers who are not members of the clearing-house 

 have similar accounts with the Bank of England, and pay the claims of 

 the City bankers by cheques on the Bank of England. The oldest 

 banks in Fleet Street, the Strand, at Charing Cross, and generally the 

 banks in Westminster, are not members of the clearing-house, but pay 

 the demands of the City bankers by notes handed over the counter. 

 It is to be observed that the use of cheques, which has of late increased 

 so much, the clearing-house system, and all the various forms of 

 transfers of credits by which country bankers settle their balances in 

 London with each other, and by which London bankers settle then- 

 balances with each other, are various modes of economising the use of 

 Bank-notes and of time ; and the prevalence of this course of business 

 accounts for the fact of the Bank of England notes with the public 

 remaining generally so near the same amount; for these banking 

 expedients have met the increased requirements of the increased trade 

 of the country for more circulating medium, which they supply the 

 place of, confidence being the base of the improved system. In 

 seasons of panic, however, it may possibly appear that in propor- 

 tion as in ordinary times monetary transactions are habitually thus 

 conducted, superseding the use of coin or Bank of England notes, so in 

 a condition of collapse of credit and confidence when every creditor is 

 anxious to be paid in coin or notes, the difficulties of the period will be 

 multiplied. 



The country biinkers have lately taken up the idea of having a 



clearing-house in London for the purpose of obviating many incon- 



iees which country bankers incur in realising cheques drawn upon 



other country banker*, whose banking-houses are not in the same town. 



AIITo AND SCI. DIV. VOL. I. 



The course of business in such cases has been, for the banker receiving 

 the cheque to transmit it by post to the banker on whom it is drawn, 

 with a request that the amount may be ordered to be paid in London, 

 to the credit of the remitting bank with their London correspondents 

 or agents. An arrangement has lately been brought nearly to com- 

 pletion by which this business will in future be effected through -the 

 present clearing-house in Lombard Street. The bills or cheques which 

 bankers do not choose to cash are returned, after the clearing, to the 

 houses by whom they were presented, and by whom the amount is then 

 refunded. Drafts which are not paid in until after four o'clock are 

 sent to the banking-houses upon which they are drawn to be marked 

 for payment on the following day ; and this proceeding, which has been 

 adopted for the convenience of the bankers in making up their accounts 

 daily at a certain hour, is of the same effect as regards the drawers and 

 the persons by whom the drafts are paid in, as if the payment had 

 actually been made. 



There were very few country bankers established previous to the 

 American war, but after the conclusion of that contest their numbers 

 increased greatly. In 1793 they were subjected to heavy losses, con- 

 sequent upon the breaking out of the war, and twenty -two of them 

 became bankrupt. The passing of the Bank Restriction Act was the 

 signal for the formation of many establishments for banking in the 

 country. In 1809, the first year when bankers were required to take 

 out a licence, the number issued was 702, which gradually rose to 940 

 in 1814. In that and the two following years 89 of these bankers 

 failed, and their numbers fell off greatly. In each of the years 1825 

 and 1826 there were about 800 annual licences issued, but their num- 

 bers were again reduced by eighty bankruptcies, and in 1832 only 636 

 licences were demanded. 



Country banks in England are all of them banks of deposit and of 

 discount ; they act as agents for the remittance of money to and from 

 London, and for effecting payments between different parts of the 

 kingdom. Some of them are also banks of issue, and their notes are in 

 many cases made payable at some banking-house in London, as well as 

 at the place where they are issued. 



The Bank Charter Act of 1844 (7 & 8 Viet. c. 32), besides the pro- 

 visions regulating the Bank of England, the effect of which has been 

 already stated, contained various enactments in regard to private 

 banks by which they are at present regulated. As regards the issue of 

 notes, with the intention of finally extinguishing all issues of paper 

 currency except the notes of the Bank of England, no banker, it was 

 enacted, except he were issuing on the 6th of May 1844, was in future 

 to issue notes in any part of the United Kingdom ; it was not to be 

 lawful for any banker to draw, accept, make, or issue in England or 

 Wales any bill of exchange, or promissory note, or engagement for the 

 payment of money payable to bearer on demand, or to borrtno, owe, or 

 lake np in England or Wales any sum on the bills or notes of such 

 banker payable to bearer on demand ; but any banker on the above 

 date issuing under the authority of a licence in England or Wales his 

 own bank notes, was to continue to issue (under conditions to be 

 mentioned presently). Also, the right of any company or partner- 

 ship to continue to issue was not to be prejudiced or affected by the 

 personal composition of the company or partnership, either by the 

 transfer of shares or by the admission of any new member or partner, 

 or by retirement of any present member or partner, provided that no 

 company or partnership consisting, on the 19th of July 1844, of only 

 six or fewer persons, was to issue at any time after the number of 

 partners should exceed six. Any banker who should, after that date, 

 being entitled to issue, become banknipt, or cease to carry on the 

 business of a banker, or discontinue to issue, was disabled to issue in 

 future. Then the extent to which each bank was to be entitled to 

 issue was limited in this way : the average amount of notes which the 

 bank had in circulation during a period of twelve weeks preceding 

 April 27, 1844, was to be ascertained from the returns made by the 

 :jank under a previous statute (4 & 5 Viet. c. 50), and this amount it 

 was bound not to exceed, that is to say, the average of the circulation 

 ior a period of four weeks was not to exceed that amount. In case 

 lowever of two or three banks, each consisting of not more than six 

 persons, uniting, the aggregate of the issues which they were previously 

 authorised to have is to be the limit, which the average of their four 

 weeks' circulation is not to exceed ; but no such united bank is to 

 retain the privilege of issuing after the number of its partners exceeds 

 six. The penalty upon exceeding the limit so appointed for the 

 monthly average is fixed at the value of the notes in excess ; and every 

 sstiing banker is to transmit weekly to the Stamp Office an account of 

 lis notes in circulation on every day during the week ending on the 

 next preceding Saturday to the day on which he transmits the account; 

 and, also, he is to send therewith an account of the average amount of 

 lis notes in circulation during the same week, and on completing the 

 irst period of four weeks, and so on, completing each successive period 

 of four weeks, he is to annex to such account the average amount of 

 lis notes in circulation during the four weeks, and also the amount of 

 notes he is authorised to issue ; and refusal or neglect to make the 

 return, or making a false return, is punishable by a penalty of 100/,. 

 Che average is obtained by dividing the aggregate amount of notes in 

 each period of four weeks (which is always to end on a Saturday) by 

 .he number of days of business in the four weeks. There were some 

 ithur minor provisions for the purpose of inducing issuing bankers to 



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