Readings in Money and Banking Part 47

Q. As a matter of fact, a large part of the commercial banking in England is done by about a dozen inst.i.tutions, is it not?

A. In Liverpool and Manchester there are very important local banks.

However, it is no doubt the fact that four or five banks do about half the banking business.

Q. In the main you believe that the banking situation is stronger and better and the country is better served through the system of branches than through the independent banks?

A. I am quite convinced of that, if only for one reason, that I do believe the indiscriminate granting of credits to the individual is injurious to himself, the private bankers being too much in the habit of regarding old family a.s.sociations and not so careful as the joint-stock company would be, and he has accustomed people to trade on the credit that they get from the banker. I do not think that is banking business.

The bank ought never to supply the trader with working capital. I think it is bad for the trader.

Q. Is it not quite essential to the success of a financial inst.i.tution doing a commercial business to become a member of the Clearing House if it is to meet with a large degree of success?

A. No. After all, there are only seventeen banks, I believe, now in the Clearing House, but there are a great many other inst.i.tutions who are not members of the Clearing House and who do not suffer from that fact.

Scotch banks with branches here who do a large banking business are not members of the Clearing House. There are all the colonial banks with head offices or branches in London and other large inst.i.tutions; those are not members of the Clearing House. There are Barings and Rothschilds; they are not members of the Clearing House.

Q. Would you say the Bank of England is in any way a compet.i.tor of the other banks in England?

A. Yes. That is a source of very grave complaint by the other banks.

Q. The Bank of England do not pay interest on any accounts?

A. No; but in some cases they act as intermediaries for lending money.

It is a very subtle distinction.

Q. While the bank rate is fixed and is to-day, say 2-1/2 per cent., is it not a fact that the Bank of England does some business for its customers and also purchases bills for their account at a lower rate?

A. That is so, and that is one of the matters of complaint. By fixing the rate at 2-1/2 per cent., or 3 per cent., or 4 per cent., they can regulate the rate we fix for our own customers. We regulate our deposit rate in accordance with the bank rate. We also regulate the rate we charge for our loans in accordance with the bank rate, and we are bound by it to a certain extent, and they themselves feel at liberty to depart from it.

Q. What does the bank rate mean; what does it govern in fact?

A. It means the general charge to the trade of the country, because although we say that bills in the market are discounted at a lower rate than bank rate, yet there is a vast number of trade bills which are purely governed by the bank rate.

Q. We found both in Germany and in France the question of the amount of reserves, either in specie or in bank, was regarded as of little importance by the bankers. They depend on the Reichsbank and the Bank of France for rediscount in times of need.

A. Both in France and in Germany banks are much more dependent on the central inst.i.tution than we are here. They lean on their central inst.i.tution to a very great extent; for instance, the rediscounting of bills and borrowing from the central inst.i.tution is, I believe, quite a usual occurrence. Here it is an occurrence which would only take place in the last resort. As far as I am aware this bank has never as long as it has been in existence had one penny from the Bank of England, whether by way of advance or by way of a discounted bill. We do not rediscount our bills in the market either; so every transaction we enter into we have to see through to the very end.

INTERVIEW WITH MR. CHARLES GOW, GENERAL MANAGER OF THE LONDON JOINT STOCK BANK, LIMITED

[157]Q. Your capital stock is 100 authorised, 15 paid?

A. Yes.

Q. Does your board pa.s.s upon a new stockholder?

A. Yes.

Q. Who really conducts the business of the bank?

A. The managers, who are appointed by the directors; that is to say, myself and all those belonging to me.

Q. Are most of your acceptances secured?

A. Every one.

Q. How are they secured, generally speaking?

A. They are secured in the great majority of cases by bills of exchange, by first-cla.s.s securities with plenty of margin, even by cash in hand to a moderate extent, and to a very small extent by bills of lading for produce s.h.i.+pped. That is a very small item.

Q. Can you state the reason for accepting bills instead of furnis.h.i.+ng the cash?

A. We accept those bills because it happens to be the custom of the particular banks to draw a long bill. The customer himself who buys cotton in Bombay, or wherever it may be, acts according to the custom there to draw a bill to a certain usance. Now, for instance, with regard to an inland bill, we would not give credit of that sort to a man in London, but wherever there is a regular course of business abroad to draw at long usance we comply with it.

Q. What is the character of your bills discounted?

A. Those are all marketable bills, trade bills; you know what they are; they are between the manufacturer and the man to whom he sells.

Q. You always require two names?

A. Always.

Q. What does the form of obligation by the borrowers upon collateral take?

A. Just the same form as your promissory note.

Q. You have branches, have you not?

A. We have about forty-odd branches all in London and close to London.

Q. You do not then endeavor to acquire a country business through your branches?

A. For this reason, that we commenced as a purely London bank, and we have so far kept to that original determination of not launching out into country business, because, as I say, it differs from the ordinary London business. Country business is not quite so liquid, and can not be.

Q. If you had an account of a man running, say, a hat store, his account was satisfactory in character and had been carried with you for several years, and he wanted to stock up on hats, there would be no way in which he could go to you and borrow the money with which to buy those goods unless it was through a guarantor?

A. No. He would go then to the wholesaler from whom he would buy the goods, and give that wholesaler his bill, and that bill would be a discountable article, and that is how the money would be raised.

Q. Do you ever allow overdrafts, as they do in Scotland?

A. They are not unheard of, but not a principle of our business.

Overdraft is a principle of country banking.

Q. My observation leads me to believe that the banking situation in London is practically controlled by twelve or fourteen of what are known as the London joint-stock banks, through their offices and through their branches?

A. Yes; I think that is right. However, there are still independent banks in the country, and I doubt whether amalgamation will go very much farther than it has gone. You see, these amalgamated banks have already become so large that they begin to get a little unwieldy. Lloyds Bank is an enormous thing, with $350,000,000 of current and deposit accounts.

Q. Would you say that the public are better served through these branches than they were through the independent banks?

A. Some say that they are not so well served, that accommodations are curtailed now as compared with what they used to be, and that I can understand to some extent, because, working a very large concern from one centre, you see, fiats will go forth, "Cut that man's credit off,"

and not listen to taking a large view. They say, "I have enough of that kind of accommodation; I have 100 s.h.i.+pbuilders or s.h.i.+powners; I am not going to give out more than a proportion of my money into that particular trade; therefore, I will not have any more," whereas the independent banks would be perhaps a little more accommodating.