392 TH? ECONOMIC JOURN-?L banking houses, discount houses, and a good deal in the case of mercantile houses also, that 'they hate each other.' At all events they used to, and to a great extent do so still; but the spirit of rivalry is in a sense less bitter. There is more disposition to let live, and why ? because profits are cut much finer, and business conducted on that system teaches people to show a kindlier spirit even to rivals. There are too many doing the same thing offering the same facilities . to make a bank feel sure of keeping its customers unless they are treated well. The smaller profits involve a much greater number ? transactions a large increase in the risks which may all the same sound trading ris.ks. The more a single individual's engagements in any branch of bus?ness are spread out, the more anxious is he to prevent another man in the same line from coming down for fear of the loss of confidence generally it may cause. Each and all depend more than they did upon mutual support. So it is with institutions whose risks have to be run in all quarters of the world. Fear of the possible results to the general body induces them even to support a rival, if the position is not too bad, rather than face the unforeseeable effects of the collapse of one of their number whose position had for years been believed to be perfectly sound. Previous to the Baring crisis the system of 'underwriting' new issues of capital was not known upon the scale practised of late years. This, although directly conducive to the financial trouble through which we have been passing by reason of the rapid appearance of new companies before the capital of the old ones had been absorbed by the public, at the same time introduced a certain element of safety into the business. Underwriters are not of much use to the promoters of new companies unless they a. re peo.p. le.of substance. Hence a great deal of the money expended m prehmmary expenses connected with the formation of new undertakings has not been lost as it would have been in the absence of the underwriting system. On this system the neces- sary capital to float the new undertaking is assured, while in its absence frequent failure through the subscriptions from the public being too small is prevented. Besides, the larger houses being engaged as under- writers gives them an interest in upholding credit generally, and in d. oing their utmost to foster and encourage a feeling of confidence in t?mes of disturbance, instead of darkly hinting at all so?s of possible troubles looming in the distance, which we know only too well is the line that has been taken earlier in our financial histoo', when more was to be got by destroying a rival in trade than is the case in the present day. But this underwriting system has its drawbacks, as is seen when those engaged in it are caught full of commitments when a crisis occurs. The tardy response of the public to the invitation to pur- chase offered by the lower prices is due very much to the large operators who go in the van of such movements being so fully engaged that they are unable themselves to buy. The great and important new departure which has been introduced by the Baring crisis is what I have referred to as the system of com- mercial salvage. I think there will be no difference of opinion that as a question of strict principle no great public bank, or financial institu- tion whose managers are responsible to stock or shareholders in that institution, is justified in going to the rescue of another large bank, financial institution, or trading firm which cannot n?eet its engage- ments, unless it can do so without incurring more risk than it would do in the transaction of its ordinary business.
