Encyclopaedia Britannica > Volume 3, Athens-BOI

BANKING
328
the issuing banks for the amounts thus put into circulation,
which must not exceed the amount of their existing
authorized issues; and the interest on these securities
would be paid to the banks, less a fixed charge to defray
the cost of preparing and issuing the notes delivered to
them. The notes thus issued would be payable at the
central State office, and would circulate throughout the
kingdom ; but as often as they were brought back to the
central office they would be cleared again by the several
issuing banks for reissue, unless the latter desired to retired
from the arrangement, in which case the issuing bank
would redeem the notes it issued, which would be cancelled,
and the securities deposited, or a corresponding part of
them, would be handed back. It would not be improper
to force this plan on the acceptance of the privileged banks
of issue, although we believe it would be freely accepted,
inasmuch as their notes would at once acquire currency
throughout the kingdom without discrimination of locality
in exchange for the deposit of security, and the gain they
now realize from the issue of notes would be left un¬
diminished. We must, however, repeat the expression of
the conviction that neither this nor any other change of
the present system can be regarded as practicable until the
impulse of agitating circumstances has stirred up Parlia¬
ment to face the question.
Different Species of Banks—The Clearing-house—Autho¬
rization of Banks with Limited Liability.
We have elsewhere hinted at the subdivision of the
business of banking which has accompanied the develop¬
ment of commerce. A banker borrows and lends money,
but the conditions under which money is borrowed or lent
may be extremely various, and the different classes of
bankers are distinguished from one another by differences
in the rules which they observe in borrowing or lending.
Bankers may borrow money on call, at deposit, on deben¬
tures, at interest, or without interest, and they may lend
on open credits, by discounting bills, by advances on
mortgage repayable in instalments or otherwise, &c., &c.
Banks of Deposit.—These banks receive money on
deposit, that is to say, on conditions that a certain pre¬
scribed ^notice shall be given of the time of withdrawal.
They allow interest, and they usually lend a large pro¬
portion of their money on securities which are not at any
moment immediately capable of being realized.
Land Mortgage Banks may be classed with banks of
deposit, but they are also accustomed to borrow on deben¬
tures repayable at the end of one, two, three, or a larger
number of years, at rates of interest varying with the period
of the debenture. These institutions were first started
for the purpose of granting facilities to the mortgagers of
land. The money received on debentures was lent out
again to proprietors and purchasers of land, who repaid
their debts by annual instalments. It was in this way
that the legislation of Stein was facilitated in Germany ;
the peasant being able to obtain at once from the Land
Mortgage Bank the capital necessary to redeem the feudal
rights of his lord, a debt which he repaid by a series of
annual payments often corresponding to what he had pre¬
viously paid as rent, until he became an absolute unin¬
cumbered owner of the fields he cultivated.
Credit Companies, such as the Credit Fonder, the Credit
Mobilier, &c., &c., are strictly analogous to land mortgage
banks, except that they invest their funds in loans on
the security of general industrial undertakings, to which
business they have added the function of negotiators of
direct loans between companies formed for the conduct
of such undertakings and the capitalist public.
Discount Banks and Discount Agencies borrow money on
call or deposit, and lend it exclusively in the discount of
bills and negotiable securities, which they often rediscount
with capitalists desirous of investing their money in forms
capable of being speedily realized.
Trust Associations borrow money on debentures and in¬
vest it in the loans of foreign states or similar securities,—
the principle of such an association being that the original
investor can be secured against the default of any one
borrower by the receipt of a high average rate of interest
and the general solvency of the rest.
Savings-Banks are institutions established for the receipt
of the smaller savings of the poor. As at present existing
they are divided into two classes, the Trustees’ Savings-
banks and the Post Office Savings-banks ; but it seems
probable that some rearrangement of their machinery will
be made in the next session of Parliament. For further
particulars see Savings-banks.
Allusion has already been made (ante, p. 316) to the
Clearing-house. This institution was established, just a
century ago, as a place where the clerks of the bankers in
the City of London could assemble daily to exchange with
one another the cheques drawn upon and bills payable at
their respective houses. Before the Clearing-house existed,
each banker had to send a clerk to the places of business
of all the other bankers in London to collect the sums
payable by them in respect of cheques and bills; and it is
obvious that much time was consumed by this process,
which involved also the use of an unnecessary quantity
of money and corresponding risks of safe carriage. In
1775 the common centre of exchange was agreed upon.
Its use was confined to the bankers,—at that time and long
afterwards exclusively private bankers,—doing business
within the City, and the bankers in the west end of the
metropolis used some one or other of the City banks as their
agent in clearing, a practice which still continues. When
the joint-stock banks were first established the jealousy
of the existing banks was powerful enough to exclude them
altogether from the use of the Clearing-house; and some
years elapsed before this feeling was removed so as to allow
them to be admitted.
At first the Clearing-house was simply a place of .meeting,
but it came to be perceived that the sorting and distribu¬
tion of cheques, bills, &c., could be more expeditiously
conducted by the appointment of two or three common
clerks to whom each banker’s clerk could give all the
instruments of exchange he wished to collect, and from
whom he could receive all those payable at his own house.
The payment of the balance settled the transaction, and
an analysis of the statistics of the Clearing-house by the
late Mr Babbage {Jour. Statist. Soc., March 1856), shows
that the amount of cash that passed was often less than
4 per cent, of the total sums cleared. Latterly, however,
the arrangements of the Clearing-house have been further
perfected, so that neither notes nor coin are now required.
The Clearing-house, as well as each banker using it, has an
account at the Bank of England ; and the balances due at
the close of each day’s transactions are settled by transfers
from one account to another at the bank.
The use of the Clearing-house was still further extended
in 1858, so as to include the settlement of exchanges
between the country bankers of England. Before that
time each country banker receiving cheques on other
country bankers sent them to those other bankers by post
(supposing they were not carrying on business in the same
place), and requested that the amount should be paid by
the London agent of the banker on whom the cheques were
drawn to the London agent of the banker remitting them.
Cheques < were thus collected by correspondence, and each
remittance involved a separate payment in London. In
1858 it was proposed to set up a country clearing-house in