deposits of bonds or of lawful money might be required to maintain the security for the notes issued. The law provided for the conversion of several series of outstanding bonds into 2 per cent. gold bonds, payable thirty years after date. To effect this change it offered to the banks a special inducement in reducing the tax upon the circulation, so far as issued upon the new bonds, from one per cent, to one-half of one per cent. The act, moreover, favors the extension of the national banking system to small communities, inasmuch as it permits the erection of banks with a capital of $50,000 in places whose population docs not exceed 6000 inhabitants, and of banks with a capital of $25,000 in places where the population is less than 3000. The object of these changes was to extend the system and render the issue of notes more attractive. How far it has accomplished this end is sufficiently evident from the statistical exhibit already made.
National banks are the only banks of issue in the United States. But the States have chartered several forms of deposit banks in large number, while private bankers are also numerous. The business operations of State banks differ from those of national banking associations only in so far as they lack the feature of note issues. On the other hand, the loan and trust companies present some variations. In so far as they do a banking business, they differ from the State and national banks in paying interest on deposits. They are, moreover, generally restrained by law from discounting mercantile paper, and their loans are made upon collateral. The peculiar features of savings-banks call for no extended notice here. Both their deposits and their investments are, as a rule, of a more permanent character than those of other banks. The relative strength of the several forms of banks and other points which summarize banking operations in the United States are given in the accompanying statements from the last Report of the Comptroller of the Currency, for the fiscal year ending June 30, 1900.
Banking in England. In the banking system of England, the central figure is the great Bank of England. This bank, the most important in the world, was projected by William Paterson (q.v.), and was incorporated July 27, 1694. It was constituted as a joint-stock association, with a capital of £1,200,000. In return for the loan of its entire capital to the Government, it received the right to issue notes and a monopoly of corporate banking in England. It was not until early in the Nineteenth Century that this monopoly was broken down. At its very outset, the Bank of England was a servant of the Government; and in a lesser or greater degree, it has enjoyed this character through all the stages of its subsequent history. At first the charter of the Bank was for eleven years only; but in consequence of the great services of the institution to the Government, its charter has been at various times renewed. The last renewal was in 1844, and the charter of that year still subsists, its terms being subject to modification or revocation by the legislature at pleasure. By the act or charter of 1844, the bank was divided into two departments—the issue and the banking. What led to the division was this: it was supposed that, when a foreign drain of gold should set in, it would, if the currency or circulation in the country had been purely metallic, have produced a contraction of the circulation, and a consequent fall of prices, and, as an ultimate result, the cessation of the drain. It was further supposed that banks could issue their notes to any extent they pleased when their excessive issues increased the currency, and therefore increased prices, which in their turn led to foreign drains; and that, on the occasions of these drains, the continued issues prevented the natural and desirable contraction of the circulation, and aggravated the commercial convulsions occurring at such periods. The object of the act of 1844 was to prevent issues of notes beyond a certain amount, unless against an equal amount of gold held by the issuing bank, so that the mixed currency of notes and coin might thus expand and contract like a self-acting metallic currency. Experience, however, has shown that, when these foreign drains occur, the gold exported is taken chiefly from the reserves in the Bank of England, being withdrawals of deposits or loans by the Bank; and that the amount of notes in the hands of the public has not been affected by the legislation of 1844. In practice, whenever there are signs of a foreign drain, and the reserve of the Bank is diminishing, the Bank counteracts the tendency to a drain by raising the rate of discount and restricting its loans; the purchasing power of the public is thereby limited, and prices kept down; and, at the same time, gold is attracted to England for investment. The circulation is in reality not interfered with. It was also intended by the act of 1844 to add to the security of bank-notes by insuring a supply of gold to meet the payment of them at all times. But the solvency of the Bank of England is undoubted; its notes would at any time be taken as gold; and this effect of the act of 1844, and the supplementary act of 1845, has in the case of the notes of other banks been hitherto inappreciable.
In the issue department of the Bank of England, its sole business is to give out notes to the public. Before the separation of the departments, the Government was indebted to the Bank £11,015,100. This sum was declared to be now a debt due to the issue department, and for the issues of notes to that amount, no gold need be held by it. This was just the same thing as if the Bank had originally lent £11,015,100 of its notes to Government, and these notes had found their way into circulation. The Bank was also allowed to issue notes on securities without holding gold. The amount of notes which may thus be issued, without gold being in reserve against it, is £17,775,000. All notes issued above that amount can be issued only in exchange for gold. At the passing of the act in 1844, the limit of notes to be issued against the Government debt and securities was fixed at £14,000,000—past experience having shown that there was not the least risk of there being at any time less than that amount of Bank of England notes in the hands of the public. The subsequent addition of £3,775,000 arose from the fact that when other banks of issue then in existence ceased to issue, notes equal to two-thirds of their circulation were by the terms of the act to be issued by the Bank of England. The profit the Bank derives from its issue department is the interest received on the Government debt and securities, less the amount paid as taxation and the expenses of the department. The Bank also
