Encyclopaedia Britannica > Volume 3, Athens-BOI

BANKING
London; but it was suggested by Sir John Lubbock that
the existing establishment could accomplish what was
desired, and this was eventually done. A. country banker
now sends cheques on other country banks to his London
correspondent, who exchanges them at the Clearing-house
with the correspondents of the bankers on whom they are
drawn. (Sir John Lubbock, Jour. Statist. Soc., Sept.
1865.) It will be easily understood that an extraordinary
economy in the use of coin has resulted from these
arrangements; and in the paper by Sir John Lubbock to
which we have referred, he gives statistics showing that
out of the sum of a million paid into the bank in which
he is a partner, only £21,500 consists of bank notes and
£6210 of coin. An ordinary weekly clearing varies from
100 to 130 millions; in 1868 the weekly average was,
however, no more than £65,397,075, from which it rose
continuously to an average of £116,254,717 in 1873.
There was a little falling off in 1874, which is now being
recovered.
Up to the year 1858 banking companies could not be
constituted with limited liability of partners except by way
of privilege under special Acts of Parliament, Eoyal
Charters, or Letters Patent; and although the Bank of
England, and the three oldest established banks in Scotland,
were thus favoured without any consequent deterioration in
the character of their management, abundant arguments
were adduced in deprecation of a general law on the subject.
In 1858, however, an Act was passed authorizing the
formation and registration of banking companies with limited
liability, and also enabling existing unlimited companies to
register as associations with a limited liability of partners,
subject to a proviso that, if the bank was a bank of issue,
the liability of its partners should remain unlimited in
respect of such issue. Several banks have been established
and registered under this law, and no evil results have been
observed to follow.
Present Management of the Bank of England.
When the charter was renewed in 1833, the notes of the
Bank of England were made legal tender everywhere in
England except at the bank. Of the wisdom of this
regulation no doubt can be entertained. Bank-notes are
necessarily always equivalent to bullion ; and by making
them substitutes for coin at country banks, the demand for
the latter during periods of alarm or runs is materially
diminished, and the stability of the bank and of the
pecuniary system of the country proportionally increased.
Since 1826 the bank has established branches in some
of the great commercial towns. The mode and terms of
conducting business at these have been described as fol¬
lows :—
“The branch hank at Swansea [and the same is true of those
established in other places] is to be a secure place of deposit for per¬
sons having occasion to make use of a bank for that purpose ; such
persons are said to have drawing accounts: to facilitate to the mer¬
cantile and trading classes the obtaining discounts of good and
unexceptionable bills, founded upon real transactions, two approved
names being required upon every bill or note discounted; these are
called discount accounts. The applications of parties who desire to
open discount accounts at the branch are forwarded to the parent
establishment for approval, and an answer is generally received in
about ten days. When approved, good bills may be discounted at
the branch without reference to London. Bills payable at Swansea,
London, or any other place where a branch is established, are dis¬
counted under this regulation. The dividends on any of the public
funds, which are payable at the Bank of England, may be received
at the branch by persons who have opened ‘drawing accounts,’
after signing powers of attorney for that purpose, which the branch
will procure from London. No charge is made in this case, except
the expense of the power of attorney and the postages incurred in
transmitting it. Purchases and sales of every description of Govern¬
ment securities are effected by the branch at a charge corresponding
to that made by the local bankers where the branch is situated. A
commission, including brokerage in London, and all expenses of
postage, is charged on paying at the Bank of England bills accepted
329
by persons having drawing accounts at Swansea, such bills to be
advised by the branch ; also for granting letters of credit on London,
or on the other branches. The branch grants bills on London, pay¬
able at seven days’ date, without acceptance, for sums of £10 and
upwards. Persons having drawing accounts at Swansea may order
money to be paid at the bank in London to their credit at Swansea,
and vice versa, at a charge of 6d. in lieu of postage. The branch
may be called upon to change any notes issued and dated at Swan¬
sea ; but they do not change the notes of the bank in London, nor
receive them in payment, unless as a matter of courtesy where the
parties are known. Bank post bills, which are accepted and due,
are received at the branch from parties having drawing accounts,
and taken to account without any charge for postage; but unac¬
cepted bank post bills, which must be sent to London, are subject
to the charge of postage, and taken to account when due. No
interest is allowed on deposits. No advance is made by the branch
upon any description of landed or other property, nor is any account
allowed to be overdrawn. The notes are the same as those issued
by the parent establishment, except being dated Swansea, and made
payable there and in London. No note issued exceeds the sum of
£500, and none are for a less amount than £5.”
The Bank of England transacts the whole business of
Government. “ She acts not only,’’ says Adam Smith,
“as an ordinary bank, but as a great engine of state. She
receives and pays the greater part of the annuities which
are due to the creditors of the public; she circulates
Exchequer bills ; and she advances to the Government the
annual amount of the land and malt taxes, which are
frequently not paid till some years thereafter.”
The Bank of England rarely discounts bills that have
more than two, or at most three months to run, and it were
well were this rule generally observed by other establish¬
ments. The discounting of bills at long dates is a powerful
stimulus to unsafe speculation. When individuals obtain
loans which they are not to be called upon to pay for six,
twelve, or, perhaps, eighteen months, they are tempted to
adventure in speculations which are not expected to be
wound up till some proportionally distant period; anil as
these not unfrequently fail, the consequence is that, when
the bills become due, there is commonly little or no provi¬
sion made for their payment. In such cases the discounters,
to avert an imminent loss, sometimes consent to renew
the bills. But, while a proceeding of this sort is rarely
productive of ultimate advantage to either party, the fact
of its having taken place makes other adventurers reckon
that, in the event of their speculations proving to be less
successful than they anticipated, their bills will be treated in
the same manner, and thus aggravates and extends the evil.
In other respects, too, the discount of bills at long dates,
or their renewal, or the making of permanent loans, is
altogether inconsistent with sound banking principles, for
it prevents the bankers from having that command over
their resources which is advantageous at all times, and
indispensable in periods of difficulty or distress.
In the discounting of bills, a great deal of stress is
usually laid, or pretended to be laid, on the distinction
between those that arise out of real transactions and those
that are fictitious or that are intended for accommodation
purposes. The former are said to be legitimate, while the
latter are stigmatized as illegitimate. But Mr Thornton1
has shown that the difference is neither so well marked
nor so wide as many suppose. A notion seems to be
generally entertained that all real bills are drawn against
produce of one sort or other, which (or its value) is supposed
to form a fund for their payment. Such, however, is not
always, nor even most commonly, the case. A, for example,
sells to B certain produce, for which he draws a bill at
sixty days’ date. But prices are rising, trade is brisk, or a
spirit of speculation is afloat, and, in a week or two (some¬
times much less), B sells the produce at an advance to C,
who thereafter sells it to D, and so on. Hence it may, and,
in fact, frequently does happen, that bills amounting to
1 On the Paper Credit of Great Britain, cap. 2.
III. — 42