changes and fifteen other years ten or more changes each. The frequency of the changes in 1873 was due to the large operations in bills arising out of the payment of the French war indemnity to Germany.' The result of these repeated variations was to afford a low rate for money during most of the period covered. A rate not exceeding two and a half per cent. was charged during 6434 days, from 1844 to 1900, or more than one-quarter of the time; a rate not exceeding three per cent. was charged during 11,341 days, or more than half the time (including the lower rate); and a rate not exceeding four per cent. was charged during 15,778 days, or more than three-quarters of the time.'

3

Changes in the discount rate at London were numerous during the early years of the twentieth century, the average falling only once prior to 1908 as low as three per cent. The average rate in 1901 was 3.72; in 1902, 3.33; in 1903, 3.75; in 1904, 3.30; in 1905, 3.00; in 1906, 4.27; and in 1907, 4.93 per cent. The maximum rate of 1905 was four per cent., and this or three and a half per cent. prevailed until October, 1906, but then began the pressure on international money markets which forced an advance to six per cent. within the month and its continuance into January, 1907. Seven changes in the rate marked that troubled year-on January 17th, to five per cent.; on April 11th, four and a half per cent.; on April 25th, four per cent.; on August 15th, four and a half per cent.; on October 31st, five and a half per cent.; on November 4th, six per cent.; on November 7th, seven per cent.

The higher rates, however, after 1878 were enforced only upon the outside public. Private bankers and brokers adjusted their rates so promptly to changes in market conditions, and made such discriminations between first-class bills and ordinary trade bills, that the Bank of England felt

1 Easton, Banks and Banking, 132.

2 Palgrave, 102.

3 Bulletin de Statistique, January, 1908, LXIII., 136.

called upon to protect itself by similar measures.' The step taken in February, 1878, was to announce that the bank would, when occasion required, discount for customers who transacted business exclusively with the bank, at a rate lower than the advertised official rate. At its provincial branches discounts are granted at the ordinary local rate. Another departure was the arrangement entered into in 1890 with the Hampshire County Council, by which the funds of the Council on deposit with the bank were to be loaned through its agency and the profits, less a commission, given to the Council."

The Bank of England is governed by a court of twentyfour directors, and a governor and a deputy governor who serve for a term of one year. The senior director who has not already served is usually made governor and the next in seniority deputy governor. Eight of the directors retire every year, but these are usually the younger ones, so that the older always remain. It is customary to choose young men for vacancies in the board, so that they will be still in the possession of physical vigor when their turn comes to be governor. Bankers in the strictly English sense, lenders of money for short terms on commercial paper, are not allowed to serve on the board of directors, but this rule does not exclude the leaders of finance who are engaged in other branches of the banking business. It is usually about twenty years from the time of a man's entry upon the board of directors until he is reached in his turn as governor,

1

4

Sykes declares that there are at least five rates in London; but one of these is the deposit rate, representing the allowance to depositors by the joint stock and private banks. This is usually fixed one and a half per cent. below the Bank of England rate.—Banking and Currency, 162–163.

'Palgrave, 55.

3 It was stated at this time that the question of paying interest on deposits, which had not before been the practice, "might be raised for consideration."-Turner, Chronicles of the Bank of England,

and it is rarely that a director is made governor out of his turn or serves more than two years. The board meets with the governor and the deputy every Thursday in what has become historic as "the bank parlor," to pass upon the report for the week.

The Bank of England has been comparatively free from government interference since the time of Pitt. It receives the public deposits and performs many financial operations for the government, but it differs from many Continental banks in the sense that "it is purely the banker of the state, and not its cashier, and as such maintains with it the same relations as with the individuals and companies which constitute its clientage."' One of the largest operations performed in this capacity was the conversion of the consolidated and other classes of three per cents. in 1888. These securities were reduced to two and three-quarters per cent., with the provision that after April 5, 1903, the rate of return should fall to two and a half per cent. Out of a total sum of £590,824,407 dealt with by the Conversion Act, the Bank of England, with some aid from the Bank of Ireland, had by November 5, 1888, converted £549,094,010. '

2

There is no division of the profits of the bank with the state, as among the leading Continental banks, and only moderate taxes are paid. The necessity of acting as guardian of the gold reserve of the country has kept the profits of the Bank of England, however, in recent years below those of the more successful joint stock banks. The highest dividends paid since 1866 were eleven per cent. in 1891 and ten and a half per cent. in 1879, 1882, and 1890. Ten per cent. was paid from 1897 to 1903, inclusive, but the rate in more recent years has been nine per cent.3

1 Noel, I., 232.

* Gilbart, I., 93. The remainder was disposed of under various provisions of law.

The figures for each year from 1695 down are given by Gilbart, I., 97.

The measure of the changes in the bullion in the bank in recent years, as well as the state of the other leading items of the bank's accounts, for the average of the last quarter in each year, is given in the following table:

CHAPTER VI.

THE SCOTCH BANKING SYSTEM.

Its General Scope and Results-The Bank of Scotland and the Royal Bank-The Failures of the Ayr Bank, the Western Bank and the City of Glasgow Bank-Advantages of Scotch Banking and its Effect upon the Habits of the People and the Prosperity of the Country-Branch Banks in London and Limited Liability.

THE

HE Scotch system of banks of issue comes nearer to the ideal of successful free banking than that of any other country. Absolute freedom in note issues reigned for over one hundred years in Scotland, and during eighty years of that period general distrust of the banking system never occurred, small notes became the favorite medium of exchange among the people, and the deposits in the banks absorbed almost the entire savings of rich and poor and brought within the circle of active producing capital the entire accumulations of the country. Such defects as were disclosed in the early years of Scotch banking were corrected with experience, and the few departures which have taken place from sound principles have been such as to suggest no change in the established practice of the majority of Scotch banks, but, at the most, some official regulation which should hold all to the rules voluntarily adopted by the oldest banks and the soundest bankers. The mania for restricting note issues which swept over the British Parliament in 1844 shut the circulation of the Scotch banks within fixed legal limits, and limited the banks of issue to those already in existence, but left untouched their power to issue small notes and their means of accommodating the people of Scotland by receiving deposits.