THE private banks now doing business in London are few in number. The
tendency of late years has been to transform these banks into "Limited
Liability" Companies, or to amalgamate with companies of this character. It looks as
though, in course of time, private banks will altogether cease to exist, the joint-stock
banks being better adapted to modern requirements. The private banks do not invite
deposit, and interest on accounts is not allowed. They look to the average balance on each
account to compensate for the trouble and expense of keeping it, with a considerable
margin for profit. They require that not less than a certain fixed sum shall be the
minimum balance of a customer's account, but, of course, the larger the balance the better
for the banker.
The balance in some cases may be very large where the bank has a wealthy
connection, it being a boast with some rich persons that they have never less than
£10,000, or even £20,000 at their bankers. The money so left in the banker's hands is
lent out, or invested in various ways, and all that he receives in the shape of interest,
after paying the expenses of his establishment, is clear profit. In short, the £500 a
year which the customer might obtain if he invested the £20,000 he leaves at the bank,
goes to the banker.
At the head of the joint-stock banks of London is the Bank of England,
which, like the private banks, do not take deposits upon which interest is allowed, but
rely upon the cash at their disposal in their customers' accounts for their profits. In
all other respects their mode of transacting business is much the same as that of other
joint-stock banks. Accounts may be opened by merchants and traders, and by private
individuals of known respectability, and no particular sum is required to be lodged upon
opening the account. Formerly cheques were not allowed to be drawn for a less sum than
£10, but now there is no restriction as to the amount. The profits of the bank are
chiefly made by discounting bills of exchange, which is done to an enormous extent. A bill
of exchange is an instrument by which a party who is owed money by another party, and
accords to him the benefit of delay in payment, for a fixed period, draws on him in a form
of order to that effect.
For instance, the firm of Bullion & Co. have sold to John Robinson
certain goods, which need not be specified, as the principle applies in all cases, whether
it be bankers, merchants, or traders, and for all transactions where one party is indebted
to another. The form drawn by Bullion & Co. on John Robinson, which requires to be
stamped according to the amount, would be as follows:-
---------------------------------------------------------
| Due 1st Nov. |
| ------------ |
| £500 London, 29th Aug., 1987. |
| |
| THREE months after date pay to our order the sum of |
| Five Hundred Pounds for value received. |
| |
| To Mr. John Robinson, Bullion & Co. |
| Merchant, |
| Liverpool. |
| |
---------------------------------------------------------
(Written across:
Accepted
payable
at
the Bank of
London.
J.Robinson.
)
The acceptance of the obligation by John Robinson is written across the
face of the document, and he makes it payable, as most bills are for convenience, at a
London bank, presumably the London agent of his own bankers at Liverpool. Payment becomes
due three months after date, with three days of grace added according to custom. Probably
Bullion & Co. would find this £500, if in cash, useful in their business, and
supposing the parties to be of good repute, they can readily convert it by discounting
this bill at their bankers or at a bill broker, who, deducting a small amount in the shape
of discount, will hand over the balance to the firm, or carry it to the credit of his
account. It is this discount that constitutes the profit to the banker, and the rate
varies according to the value of money, whether it is plentiful or scarce.
The rate of discount is supposed to be regulated by the Bank of England,
and the "bank rate," which is arbitrarily fixed by the directors, is moved up
and down (sometimes for other reasons than the value of money), and is supposed to be the
rate of discount for bills of the best description. It is found in practice, however, that
when there is an abundance of money seeking employment, bills are discounted at lower
rates.
The Bank of England make purchases and sales of British or Foreign
securities, and dividends on stocks will be received and placed to account. Exchequer
bills, bonds, railway debentures, or any other securities may be deposited, and the
interest, when payable, will be received and placed to a customer's account free of
charge. Cash boxes (contents unknown), plate chests, and deed and security boxes are also
received for customers for safety, free of charge, and all other banking facilities
conceded, as are given by the Blankshire Bank.
The other joint-stock banks of London transact their business in all
respects in the same manner as the Bank of England. In addition they invite money on
deposit, allowing interest on the same. Sums of money lodged on deposit, and they may be
by persons who are not otherwise customers, are not carried to a customer's account, but,
as in the case of the Blankshire Bank, are placed on a special form of receipt which is
changed for a new one when the interest or any part of the principal is withdrawn. The
rate of interest allowed by the Blankshire Bank, and by the country banks generally, is a
fixed one, but that of the London banks is regulated by the value of money, and fluctuates
from time to time, notice being given by advertisement in the London newspapers of any
change in the rate. Deposits are received by the London bankers "at call," that
is, payment may be required on demand; or at an arranged term of notice of repayment. The
rate of interest on money at call is less than where notice is required, and the longer
the period of notice the higher the rate of interest.
In Scotland there are no private banks, and in Ireland only two. The
joint-stock banks are numerous, and their mode of business is practically the same as in
England, indeed the English system is founded on that practised by the Scotch many years
before the joint-stock bank was general in England.
