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. 18G5.) 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 0210 of coin. An ordinary weekly clearing varies from 100 to 130 millions; in 18G8 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, Royal 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 bank 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 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, 1 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 ualt 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 ; and 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 Thornton[1] 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- ↑ On the Paper Credit of Great Britain, cap. 2.
