CHAMBERS'S INFORMATION FOR THE PEOPLE. 



BANKS. 



Origin of Banks, The term bank, in reference 

 to commerce, signifies a place of deposit of 

 money, and is derived from the Italian word 

 banco, a seat or bench, the first custodiers and 

 dealers in money in Italy having been Jews, who 

 sat on benches in the market-places of the prin- 

 cipal towns. It is worthy of remark, that in the 

 infancy of almost all modern civilised nations, the 

 earliest money-dealers were Jews, and in the 

 present day, persons of that nation are the chief 

 commercial negotiators in barbarous countries. 

 Their acute intelligence, patient industry, dis- 

 regard of local attachments, and kindred qualities, 

 have in all ages fitted the Jewish people for this 

 course of life. 



About the reign of Charles I., Jews and gold- 

 smiths, to whom valuable property had been 

 assigned for safe custody, began to exercise the 

 profession of bankers and money-dealers in Eng- 

 land ; but till a much later period there were 

 several eminent bankers in London who still kept 

 goldsmiths' shops. 



On the continent of Europe, regular banking 

 commenced much earlier than in this country. 

 The Bank of Venice was established as early 

 as 1171, the Bank of Amsterdam was begun 

 in 1609, and that of Hamburg in 1619. Regular 

 banking establishments were formed in England 

 and Scotland shortly after the Revolution. The 

 Bank of England began in 1694, and the Bank of 

 Scotland in 1695, since which period, banks of 

 various characters have been instituted in all 

 the principal towns in the United Kingdom. 



Business of Banking. A bank is a commercial 

 institution, established and conducted by private 

 individuals, for their own behoof, or by joint com- 

 panies. Banks are usually reckoned to be of two 

 kinds banks of deposit, and banks of issue. By 

 deposit, it is meant that the bank takes charge of 

 deposits of cash, which it is ready to restore on 

 demand, or on a certain short notice. Some 

 banks of this nature allow interest on the sums 

 received, and others do not ; all, however, of neces- 

 sity, make use of a portion, generally the greater 

 portion, of the money so deposited, by lending it 

 out at a certain rate of interest, and thus compen- 

 sate themselves for the interest, if any, allowed by 

 them to their depositors, and for their trouble. 

 The loans are most commonly in the form of 

 discounts of bills, and occasionally advances on 

 heritable or real property, or other securities. 

 Banks of issue transact all the ordinary business 

 of banks of deposit, and, in addition, issue notes 

 of their own instead of actual cash or the notes of 

 others. Within 65 miles of London, no banks, 

 except the Bank of England, are allowed to issue 

 their own notes ; but beyond that circle, almost 

 all banks in this country are banks both of 

 deposit and issue The only banks permitted to 

 issue below $ are those in Scotland. All the 

 present banks of issue were in existence before the 

 6th of May 1844. From and after that date, new 

 banks of issue were prohibited by act of parlia- 

 ment ; and a limit was fixed in 1844 and 1845 to 

 the amount of notes that the existing banks could 

 in future issue. By the Companies Amendment 

 Act (1879), barfks of issue registered as limited 

 liability companies are not limited as to liability 

 in respect of their notes. The fixed issue of the 



490 



Scotch banks is ^2,676,360; of the Irish, 

 ^6,354,494 total, ,9> O 3S54. 



As it is a principle at the very root of banking, 

 that money deposited shall be returned, either 

 on demand, or punctually at the expiry of a stipu- 

 lated notice, it follows that banks must always 

 have in their coffers as much of the money 

 deposited with them as there is the least like- 

 lihood of being called for by depositors. When 

 business is in its ordinary condition, a bank can,, 

 after some experience, approximate pretty nearly 

 to the amount of the greatest demand for a return, 

 of deposits throughout the year, and provide ac- 

 cordingly. But sometimes the credit of a bank 

 becomes doubted, either from causes peculiar to 

 itself, or on occasions of a panic or general dis- 

 trust, when all who own money wish to have it in 

 their own possession. In these cases, there is a 

 run on the bank for repayment of its deposits^ 

 and the amount called for may be far beyond the 

 maximum demanded in ordinary times. If the 

 bank has not retained as much of the deposits in, 

 its coffers as will meet the demand, it is said to sus- 

 pend payment, and, as a general rule, it must wind 

 up its business ; the confidence of the public that 

 it will in future restore its deposits on demand,, 

 being now destroyed. It is impossible for a bank 

 to conduct its business without some risk. But 

 a well-conducted bank will never make an unse- 

 cured advance to any one who has not commer- 

 cially a good reputation. It will make an excessive 

 advance to none. It must have the courage to 

 own a loss, and the wisdom not to 'throw good 

 money after bad.' Observation of these rules is 

 the best preventive of a run. 



The reserve of the banking department of the 

 Bank of England is always in coin, or, what is the 

 same thing, in notes against which there is coin 

 lying in what is called the issue department of the 

 bank. In the case of all other banks in this 

 country, the reserve is only partly in coin ; some- 

 times the proportion of coin is very small. A 

 great portion of the reserve is generally in Bank 

 of England notes, equivalent, of course, to coin. 

 These other banks also hold a portion of what is 

 truly their reserve in the shape of government 

 stock, in which they have invested it. In this 

 way the banks obtain a return on this last portion 

 of their reserve, in the dividends or interest paid 

 by government on the stock this return being 

 less, indeed, in the usual case, than if the bank 

 had lent out the money in the ordinary course of 

 business, but better than no return at all, as must 

 be when the coin or notes are lying idle. The 

 reason why government stock is a safe reserve is, 

 that it is sure to command a purchaser at all 

 times. If there be a run on a bank, it imme- 

 diately finds a purchaser for the stock, and with, 

 the price, whether paid in gold, or in Bank of Eng- 

 land notes, the only other legal tender, it meets the 

 demands of its depositors. Sometimes, a bank 

 has its reserve in the form of a deposit at the 

 Bank of England ; or, if a provincial bank, with 

 some London bank, which has its own reserve 

 there. From the Bank of England being the 

 channel through which, directly or indirectly, pay- 

 ments are made, and moneys received, by other 

 banks, it is more convenient for them to have 

 their reserve lying as a deposit in it, than lying as 

 gold within their own walls. In the case of a 

 demand on their reserve, the banks will draw out 



