857 



BANK; BANKER; BANKING. 



BANK; BANKER; BANKING. 



868 



with the vouchers. On the whole, there appear to be insuperable 

 objections in the way of obtaining a really effective audit of the affairs 

 of joint-stock banks. 



Very material changes have taken place in this country, both with 

 respect to the increased practice of opening accounts with bankers 

 as current accounts on which to draw and pay in, and also in the 

 new practice of deposit accounts on which money is paid into the 

 joint-stock banks, to be retained by them for a short period, after which 

 interest is paid upon it ; and on the other hand it can be withdrawn 

 at a short notice, or in some cases at pleasure. The effect of this 

 system of paying interest on deposits has been to attract to these 

 banks an immense aggregate of small sums, often of sums as small as 

 10?. each, which formerly were most probably hoarded. This seems to 

 be a fair and just inference, because from the nature of the case the 

 small sums which are said to form the majority of the deposit accounts 

 of joint-stock banks, could not have formed the subject of accounts 

 in the old banks, and therefore could not have been taken from the 

 private banks in order to be transferred to the joint-stock banks, and 

 the published accounts of the savings' banks show no diminution of 

 the deposits there; so the result seems to be that the joint-stock 

 banks, by the advantages which they hold out, have succeeded in 

 drawing together vast numbers of small sums which previously were 

 hoarded, and which are now placed in the hands of these companies as 

 a kind of investment, where a moderate interest can be enjoyed with- 

 out the trouble and expense, and sometimes the loss, with which the 

 conversion of other securities is attended. The advantage to the com- 

 munity of this system is stated to be, its tendency to foster habits of 

 prudence and self-denial in the classes of small tradesmen, artisans, 

 mechanics, servants, Ac., by furnishing them with the means of ob- 

 taining interest for whatever they may save. The disadvantage arises 

 from the result to which the system has been successful ; this it is 

 said consists in the peril arising from such enormous masses of money 

 being held at call, or nearly so, and bearing interest, a posture of affairs 

 which compels the joint-stock banks, in order to make a profit, to find 

 instant employment of the money, which necessarily must be effected 

 by discounting bills, of an inferior character to those which they would 

 have dealt with, had the pressure on them to turn their deposits to 

 advantage been less stringent and overpowering. The system is 

 accordingly looked upon with disfavour and apprehension by very high 

 authorities in banking. The following is a statement of the amount 

 of deposits in the London joint-stock banks on the 31st of December, 

 1857, except in the cases of the Union and the Commercial banks, 

 the accounts in which are made up to the 30th of June. 



1857. 



London and Westminster 

 London Joint-Stock 

 Union 



Commercial ... 

 London and County . 

 City .... 

 Bank of London . 

 Unity .... 



13,889,021 

 . 10,737,589 

 . 10,874,640 

 936,724 

 . 3,533,425 

 . 1,388,933 



1,114,846 

 117,380 



There is no attempt, however, to deny that it was in fact by means 

 of the large deposits made by the joint-stock banks, in the Bank of 

 England, during the crisis of 1857, that the Bank of England was, in 

 part, enabled to make the advances which it did make for the accom- 

 modation of the commercial body. The joint-stock banks, in order to 

 be ready to meet the claim.-! which their depositors might make upon 

 them, instead of employing those deposits by discounting with them, 

 for others than their customers, preferred, for the tune, to deposit their 

 reserves, beyond what they kept in their own tills, with the Bank, 

 whence any sums they might want might be withdrawn at pleasure, 

 and so were amply prepared for the crisis. The Bank of England, on 

 the other hand, employed a large portion of these deposits in discount- 

 ing the bills and advancing upon the securities that were brought to 

 it, by houses requiring accommodation. The joint-stock banks may 

 thus be said to have increased the power of the Bank of England to 

 grant accommodation to trade in times of stagnation and collapse of 

 confidence ; first, by drawing within the sphere of banking operations 

 large aggregates of moneys, which formerly never found their way into 

 banks at all, and then by opening accounts with the Bank of England 

 and placing there then- reserves, at seasons when they might be turned 

 to the above purpose. 



The interest allowed to their depositors by the London joint-stock 

 banks was till lately governed by the Bank rate of the day, being 

 mostly one per cent lower than that rate ; now however, they do not 

 observe that rule, but pay more nearly'according to the rate of interest 

 which rules in the general money market. 



As to the profits of joint-stock banks, it is necessary to distinguish 

 carefully between profits and dividends. The profits are made on the 

 wkole funds that the bank employs hi making loans, investing in 

 securities, &c. ; the dividends are the rateable division at so much per 

 cent, upon the paid-up capital of the shares. Therefore, where the 

 funds employed as above are large, a small per centage of profit on 

 them may supply a large dividend per cent, on the paid-up capital. 

 This distinction, obvious though it be, has frequently been overlooked, 

 and it ix asked, when joint-stock banks announce dividends of 18 or 



20 per cent., how it is possible to account for such profits? An 

 example will show this clearly. A joint-stock bank paying 20 per cent. 

 dividend had paid-up capital of 600,000?., and on 1st January, 1858, its 

 deposits were 10,700,0002. Then, supposing its capital to be invested 

 in government securities paying 3 per cent, per annum interest, and 

 an interest of only 1 per cent, per annum to be derived from its 

 deposits, the two sums thus produced make a total which accounts for 

 the dividend. 



The practice of rediscoxmting has been inveighed against with severity, 

 but perhaps without sufficient grounds for that severity of censure with 

 which it is often spoken of. It is in fact one means of transferring 

 the surplus capital of one district to another where it is wanted ; thus 

 a bank in Norwich sends up the money for which it can find no profit- 

 able employment in its own district, to an agent or a bill-broker in 

 London, with whom it places the money at call and receives interest. 

 Another bank, in a district where there is a demand for money, say 

 Manchester, sends up the bills of exchange that it has discounted, to 

 the same bill-broker in London, who rediscounts the bill with the 

 money he has received from the bank at Norwich, and thus the money 

 is transferred from Norwich to Manchester. In fact, as experience 

 shows, any firm, however prudently conducted, may find it convenient 

 under extraordinary circumstances of pressure, to change, in this way, 

 some of its first-class bills. But, however this may be, the London 

 joint-stock bankers, it seems, never rediscount. (Evidence before 

 Committee on the Bank Act, &c., 1858, Q. 1164, 2245; and see 

 3 Hansard's ' Debates,' vol. 95, col. 392.) It is true the system may 

 be abused, and instances have occurred where provincial joint-stock 

 banks have discounted paper which they sent up for rediscount in 

 London, and which was so rediscounted solely on the credit of the 

 Bank's endorsement, the other names on it being those of persons of 

 no credit at all. This system of rediscounting is quite distinguishable 

 from lending money upon the security of bills deposited with the 

 lender ; a practice to which there seems to be no objection entertained 

 by any one, and which a bank may follow with perfect security. 

 When a banker lends money on the security of bills which the 

 borrower deposits with him, returning to the latter the bills when he 

 recalls the loan, that is no more a rediscount than lending money on 

 the deposit of Consols is. 



Joint-Stock Banking Companies (limited). Banking companies on the 

 joint-stock principle, but with liability of the shareholders for the 

 debts incurred by the companies limited to -the extent of those shares, are 

 now permitted to be established under the statute 21 & 22 Viet. c. 91. 



Banking in Ireland. In 1783, a national bank, called the Bank of 

 Ireland, was established by charter in Ireland, with similar privileges 

 to those enjoyed by the Bank of England under the Act of 1708. The 

 management is vested in a governor, deputy-governor, and fifteen 

 directors, of whom five go out annually ; the election is by a " house 

 list," which is usually adopted by the proprietors. 



In 1845 was passed the Act (8 & 9 Viet. c. 37) which now regulates 

 the issue of bank notes of the Bank of Ireland, and the issue of private 

 bankers' notes, &c., by regulations closely analogous to those contained 

 in the statute 7 & 8 Viet. c. 32, relative to the same subjects in 

 England, the great difference being, that the Bank of Ireland note is 

 not made a legal tender in Ireland. 



The capital of the Bank of Ireland is 3,000,000?. Irish, being about 

 2,800,000?. English, of which 2,630,769?. English is lent to the govern- 

 ment. The dividend paid in 1857 was 12J per cent. The " rest," 

 which is formed from accumulated profits, is 1,040,000?. Thus, 

 about 1,200,000?. represents the actual trading capital of the corpo- 

 ration. As regards the issue of notes, that privilege was granted to the 

 Bank in consideration of the loan advanced to government, and the 

 issue is 3,738,000?., of which 1,300,000?. consists of notes under 5?. each. 

 The Bank has invested in government securities to the extent of 

 2,900,000?. ; they are expressly prohibited from investing in mortgages. 

 The accounts of the Bank are published in the ' Gazette," as those of 

 the Bank of England are. The other issuing banks in Ireland are : 

 the Provincial Bank of Ireland (founded in 1825), the National Bank 

 of Ireland, the Belfast Banking Company, the Ulster Banking Com- 

 pany, and the Northern Banking Company. The Bank of Ireland 

 discounts bills of exchange for any person in trade who is known at the 

 office of the secretary of the bank ; and they discount at rates varying 

 with those of the Bank of England, so as to avoid making it profit- 

 able for persons to send bills to Ireland to be discounted in consequence 

 of the rate being materially lower than that at the Bank of England ; 

 and generally, since the removal of the prohibition in the charter from 

 taking more than 5 per cent, interest, and the abolition of the Usury 

 Laws, the rate of interest has been higher than before. The other 

 banks are governed a great deal by the Bank of Ireland in this respect; 

 and when the rate in Ireland is higher than at the Bank of England, 

 bills are sent to England for discount. Prom one-fourth to one-fifth 

 of the deposits is what the Bank of Ireland usually considers, in ordi- 

 nary times, to be the proportion to keep in its coffers as a reserve. 



The system of clearing in Dublin is the following. An amount of 

 370,000?. of Exchequer bonds is held, in certain proportions, by the 

 different banks; clerks from those banks meet every evening, and 

 where the balance of notes of one bank is above that of the other, 

 Exchequer bonds are given in lieu. If the quantity of Exchequer 

 jouds be thus reduced below two-thirds of the amount which ought to 



