CHAMBERS'S INFORMATION FOR THE PEOPLE. 



difference is paid in the way that has just been 

 mentioned, by the bank to which the exchange is 

 unfavourable that is, by the bank which gets more 

 of its notes returned to it than it has notes of 

 other banks in its possession. 



Besides issuing its notes in loans, a bank may 

 issue them in repayment of deposits, or in pay- 

 ment of remittances that is, of money lodged 

 with it, or with its correspondent, in one town, 

 in order to be paid over to a person in another 

 town. In this case of an issue, there is the same 

 profit to the bank as in the other case. The 

 bank gets the profit which it makes on the money 

 which was originally deposited or lodged with it, 

 without having to pay interest to the persons who 

 made the deposit or lodgment ; the deposit, or 

 money lodged, having now been repaid in its 

 notes. But here, too, these notes are equally 

 liable to be returned to the issuer as when they 

 are issued on loans. They have been taken out 

 of the bank only to be paid away, and they imme- 

 diately find their way back to it, in the manner 

 described. 



Of all the notes issued, in whatever way, by 

 banks, a certain amount is not returned to them, 

 but is kept in circulation, being what is required 

 by the necessities of the public for use as money, 

 passing from hand to hand. It is, of course, on 

 this portion that the banks make their profit ; 

 and, in consequence of this profit, they are able 

 to afford banking facilities to the public more 

 cheaply than they could otherwise do. The profit 

 is just the interest on the notes in circulation 

 less the expense of manufacturing the notes, a 

 rateable proportion of the expenses of conducting 

 the banks, and the loss of interest or profit on an 

 unemployed reserve kept to meet a return of 

 notes, and on the gold required by law to be 

 held against extra issues, if any. The amount of 

 the bank-notes in circulation varies at different 

 periods of the year ; at term-times and quarter- 

 days, when more payments than usual are made, 

 there is a greater quantity of money required by 

 the public than at other times, and the notes in 

 circulation increase in amount. This addition to 

 the circulation is drawn from the banks by de- 

 positors or borrowers. After it has served its 

 purpose, this additional quantity gradually returns 

 to the banks as deposits or in repayment of loans. 

 If the credit of an issuing bank is at any time 

 suspected, the holders of notes will present them 

 for gold, just in the same way as its depositors 

 will call for a return of their deposits ; and a 

 bank requires to provide itself with a reserve on 

 which, of course, it makes no profit to meet a 

 run from its note-holders, as well as a run from 

 its depositors. It has been generally imagined 

 that when issuing banks suspend payments on a 

 run, the run is one on the part of their note- 

 holders ; but this is only a popular error. In a 

 well-established bank, the amount of its notes 

 in circulation is almost nothing compared to its 

 deposits ; and though the holders of small sums 

 in notes may be more apt than depositors to take 

 alarm, and rush in a panic to the bank for gold 

 for its notes, a small proportion of its depositors 

 suddenly demanding a return of their money in 

 gold, as effectually drains a bank of its reserve, 

 as if its whole" circulation were to be at once 

 presented to it for gold. 



The total deposits and acceptances in the 



493 



1 joint-stock banks of London (see Abbott's Tables, 

 , Banket / Magazine, 1872, p. 748), as shewn by the 

 ! balance sheets and reports for the half-year end- 

 ing 3oth June 1872, were ,101,528,646 ; their total 

 paid-up capital was .8,216,180; their reserved 

 fund was ,2,628,390 : thus shewing a total work- 

 ing capital of ;i 12,373,216. On I5th November 

 1882, the deposits in the Bank of England were 

 as follows : 



Public deposits, including Exchequer, Sav- 

 ings-bank, Commissioners of National 



Debt, and Dividend account- .2,545,824 



Other deposits 22 i593i59 



Seven-day and other bills 223,713 



Shewing a total of. 25,362,696 



We do not know what is the total working capital 

 ' of the banks of the United Kingdom ; but the 

 above figures, taken in conjunction with those 

 already given namely, ,42,267,774, as the total 

 note circulation of the United Kingdom in Sep- 

 ! tember 1882 are sufficient to shew that the 

 important part which banks play in this country 

 by means of their advances to borrowers, is not 

 as banks of issue, but as banks of deposit. But 

 so strong in some quarters was the impression 

 that it was chiefly by means of their issues that 

 banks possessed a powerful influence for good 

 or for evil in the commercial world, that it led 

 to legislative measures, still in operation, for the 

 purpose of controlling their proceedings in the 

 capacity of banks of issue. 



This country, like others, has suffered repeat- 

 edly from what is called a commercial crisis or 

 convulsion. One cause of such an event, and 

 one which has been too often supposed to be the 

 invariable one, is a course of speculation or over- 

 trading. In a speculative period, there is no 

 j limit to the purchases made by traders in certain 

 j great branches of commerce, or even by traders 

 I generally. In the hope of a further rise in the 

 markets, each man endeavours to buy, with the 

 view of reselling at the increased price. The 

 demand being thus increased, of itself raises 

 prices with us ; foreigners therefore diminish their 

 exports from us ; and to benefit by the high prices 

 prevalent here, importers increase the quantity 

 of goods brought to us from abroad. In this 

 way, the imports exceed the exports ; and a 

 drain of gold to pay for this excess sets in from 

 this country to abroad. This drain affects the 

 reserve of banks, and directly or ultimately the 

 reserve of the Bank of England which is the 

 great storehouse of gold in this country and 

 leads to a restriction by banks of the loans which 

 they give. Traders generally must now withdraw 

 their usual credit from their customers ; and this 

 obliges those that hold goods to sell them off at 

 what they will bring, in order to raise money 

 to meet their engagements. As so many are thus 

 rushing as sellers into the market, prices fall or 

 collapse, as they may do before the restriction 

 of credit, on the suspicion arising that they will 

 not be maintained. The holders of goods thus 

 suffer a heavy loss, and if unable themselves to 

 bear it, they become bankrupt Prices having 

 thus fallen, imports decrease, and exports increase, 

 so that gold is returned to this country, to pay 

 for the excess of the exports, and the former 

 equilibrium in prices is gradually restored. All 



