March 30, 1916 
LAND & WATER 
17 
Towards a Better Banking System 
By Arthur Kitson 
IN the course of these articles on Finance, I have 
endeavoured to point out the evils of our present 
Banking System and their causes. These evils 
may be briefly summarised as follows : 
(i) There is an insufficiency and an uncertainty of 
credit facilities, both as to time and amount, for the 
proper and continuous development of our industries. 
(2) Owing to its unnecessarj' exposure to foreign 
influences, our credit market is extremely sensitive and 
unrehable, which results in our being aiSicted with the 
most variable bank rate in the world. 
(3) Our bank credit is in constant danger of a collapse 
due to the export of gold — which has been made the legal 
basis of credit. And the collapse of credit involves the 
annihilation of trade. 
(4) British bank credit 'has become practically a 
monopoly of the London Joint Stock Banks due to their 
control of the Clearing House. This monopoly gives 
bank directors a power and influence over British in- 
dustries which they ought not to possess. With the 
constant amalgamation of our banks, this power is 
falling into the grasp of fewer and fewer hands. 
(5) The rate charged for loans is unnecessarily high. 
Antiqualed Banking Laws 
I have shewn that these evils arc the natural result 
of our antiquated c-urrency and banking laws which ha\c 
imposed unreasonable restrictions, compelling the banks 
to base all their transactions on gold. Where the bankers 
liave been to blame is, first, in resisting every proposal 
for altering and improving the present system, and 
secondly, in supporting foreign loans, often in disregard 
of the needs of Britisli traders, whose interests have been 
frequently sacrificed on behalf of the foreign trade 
competitor. No doubt they -have had good reasons for 
pursuing such a policy. Consequently when the foreigner 
offers 7 per cent, or 8 per cent, for money where the British 
trader can only offer 4 per cent or 5 per cent., they are 
apt to close with the foreigner. But think of the stupidity 
and shortsightedness of British statesmanship that enacts 
laws making the nation's trade and industries subject to 
ike cupidity or caprice of the professional credit dealers ! 
And when at the end of each year the directors of our 
banks arc able to pay their fortunate shareholders from 
12 per cent, to 22 per cent dividends, they are compelled 
to agree with Pippa that " God's in his Heaven, and all's 
right with the world.'" 
Now although we have still several obstructions to 
remove before the ground is cleared for a better system — 
one remaining obstruction being the " gold standai'd " 
which is the most difficult of all — it is possible to give the 
reader a sketch of one or more of sevei-al better financial 
systems than our present one. Any proposed substitutes 
for the present system must be free from the evils 
enumerated. 
An industrial banking system built on sound 
principles should (i) afford ample credit facilities for 
every member of the commercial and industrial classes 
for carrying on to the extent of liis capital : (2) grant 
loans for a sufficient time to enable each one properly to 
develop his business under normal conditions and 
repay the loan out of his annual revenue : (3) furnisli 
loans on all forms of productive capital without dis- 
crimination, but within a predetermined margin of 
safety : (4) fix the charge for the loan on the basis of 
cost of service plus insurance against bad debts. 
Just here let me point out that in spite of all our 
improvements in machinery, by which the supplies of 
commodities of every description have been enormously 
increased and cheapened, in spite of the vast increase in 
the production of the precious metals as well as the 
marvellous economies in tlieir use for legal tender pur- 
poses through the general introduction of the inexpensive 
cheque system, the price of the loan — the rate of interest 
— has not been permanently reduced a fraction of one 
per cent, since the enactment of the Bank Charter Act. 
Now we have already seen from Sir Edward Holden's 
illustration (see article March 2nd) whv it is impossible 
under our pi-esent laws for the banks to furnish loans^to 
all applicants owning capital. Bank loans are limited by 
the amount of the gold reserves — not by the amount of 
securities offered. And the constant variations in -the 
volume of these reserves due to the imports and exports 
of gold, create similar variations in the amount of legal 
tender with which credit is made redeemable. 
Needs of Trade 
The establishment of a banking system capable" of 
supplying the needs of trade fully and satisfactorily', as 
outlined, is therefore impossible tinder our present laivs. 
If our trade could be cut down to a fraction of what it 
now is, so that the amount of credit required was com- 
mensurable witli the gold and cash reserves held by the 
banks, we should then have a condition which no doubt 
would have been regarded as ideal — by Sir Robert Peel- 
where every pound of bank credit and every legal-tender 
note, was redeemable in gold on demand. Whilst this 
would provide no doubt for the quality of the credit, it 
makes no provision for the wece^tSAry quantity . In tliis 
respect money and credit are like food, clothing and 
necessities. It is sometimes necessary to sacrifice quality 
for quantity. A thing may be too good, too expensive 
for practical needs. We cannot all afford the luxury of 
brioche, nor can we supply silks and sealskins for our 
entire population, and yet we must all eat and wear 
clothing. 
On what basis then should bank credit be issued ? 
If gold is so expensive, so unreliable and so inadequate;, 
with what must it be replaced ? The answer is with that 
which has already replaced it in a large measure since 
the War started, and which invariably takes its place 
in all serious national crises, viz. : the Nation'al Credit. 
To-day we are using one pound and ten shilling currency 
notes, which are legal tender for any amount. These 
notes are not based on gold, but on the national credit. 
Since they were first issued they have performed all tlie 
functions of money with the same facility as the golden 
sovereigns and ten shilUng pieces which disappeared soon 
after the ■« ar. They are safer and more reliable than gold 
coins since they are not hkely to be exported. In every 
SORTES SHAKESPEARIAN^, 
By SIR SIDNEY LEE. 
THE ATTESTED HUSBAND'S PLAINT. 
Mosi accursd am I 
To be by oath enjoined to this. 
THE WINTER'S TALE, UL, iii.. 512. 
Mr. PEMBERTON-BILLING TO THE GERMAN 
AIR-COMMAND. 
And if mine arm be heaved in the air 
Thy gravi is digged already in the earth. 
,2 HENRY VI., IV., i., 54 5. 
AFTER-WAR POLICY. 
Heat not a furnace for your foe so hot 
That it do singe yourself 
HENRY VIH., I., i., 110-1. 
