ment and expressed in a clause of the bank charter act of 1833 which reads as follows: "Such banking company consisting of more than six persons may carry on their trade in London or within sixty-five miles thereof, provided they do not borrow, owe, or take up in England, any sums of money on their notes payable on demand or at any time less than six months from the borrowing thereof, during the continuance of the privileges granted by this act." The practicability of successfully conducting a banking business on the basis of checking accounts instead of note issues had already been demonstrated by the private bankers of London who had ceased to issue notes many years before and whose deposit and exchange business had become sufficiently important even in 1775 to warrant the establishment of a Clearing House. The London and Westminster Bank differed from its joint-stock provincial predecessors, established in accordance with the provisions of the act of 1826, not only in that it did not issue notes, but in that it had a relatively large paid-up and a still larger subscribed capital, and it differed from the private banks of London not only in the fact of incorporation, but in that it catered to the needs of a new and different constituency, the ordinary tradesman and people of moderate and small means. Other banks of the London and Westminster type early established in London were the London Joint-Stock Bank, opened in 1836, and the Union Bank of London, The London and County Bank and the Commercial Bank of London, opened in 1839. The Marlybone Bank started in 1836 and the Metropolitan Bank started in 1839 of this same type were badly managed and failed in 1841. 4. Discount brokerage as a special branch of banking.— Early in the nineteenth century discount brokerage became an independent branch of business in London and has continued as such to the present day. In 1807 a Mr. Overend entered into partnership with two other gentlemen for the establishment of a firm for the purpose of serving as intermediaries between merchants who drew bills of exchange and bankers who discounted them. Mr. Overend had previously become an expert in this business through his connection with a private banking firm in Norwich, and the new firm developed it to large proportions and made it an important part of the financial machinery of the great metropolis. Other private firms entered the field and in 1855 the National Discount Company was incorporated for this purpose. The discount firm or company buys or sells bills on commission or deals in them as a grocer does in tea, keeping such a portion of its own capital as it deems best invested in this form or combines both branches of the business. London merchants may and frequently do sell their bills to a discount firm instead of to a joint-stock or private bank, and banks which desire investments of this kind normally go to the discount firms for them instead of buying direct from the issuers. 5. The bank act of 1844.-In the years 1836 and 1839 England suffered from panics, each of which was preceded by rash speculation, accompanied by severe money stringency and followed by business depression. Much of previous legislation pertaining to banks had been inspired by the belief that these institutions were largely responsible for crises, and by the hope that proper legal regulation of the banking business would prevent these disastrous occurrences. In addition to the enactments of 1826 and 1833 authorizing the establishment of joint-stock banks of issue in the provinces, and banks of discount in London, there had been others prohibiting the circulation of bank notes of denominations below five pounds and making the notes of the Bank of England, so long as they were paid on demand in legal coin, legal tender, except as between the bank and the public. The Bank of England had also adopted the policy of keeping in its vaults a coin reserve equal to at least one-third of its demand obligations, and of regulating its note issues in accordance with the state of the foreign exchanges, increasing them when the exchanges were favorable and decreasing them under opposite conditions. The crises of 1836 and 1839 convinced Parliament of the inadequacy of these measures and of the desirability of a more efficient and direct regulation of note issues by the government, the majority apparently believing that the inability of the Bank of England under existing laws properly to regulate such issues was the chief cause of these crises. The act of 1844, also known as Peel's act, was the remedy devised by Parliament. It created in the Bank of England an issue department and a banking department, the former to have exclusive charge of the issue of notes and the latter of all other branches of the bank's business. It authorized the transfer to the issue department of government and other high class securities held by the bank to the amount of £14,000,000 to serve as backing for a like amount of notes and permitted the issue of notes in excess of that amount on condition only that an equal amount of coin be kept in the vaults for their redemption, or that the Cabinet authorize an increase against securities to take the place of notes of joint-stock or private banks authorized by the act, but afterward abandoned. Fourteen million pounds being the estimated amount of Bank of England notes normally required to supplement the notes of the private and joint-stock banks, and the coin normally in circulation in order that the needs of the country for handto-hand money might be satisfied, it was intended that the chief business of the issue department should be to exchange notes for coin and vice versa as one form of currency rather than the other should be desired by the public. At this time two hundred and seven private and seventytwo joint-stock banks were issuing notes subject to no limitation as to the amount they might put into circulation or the character of their assets. The Act of 1844 changed this situation by fixing as the maximum limit of the issues of such banks the amount of notes they had outstanding on April 12, 1844, and by forbidding the issue of notes by any private or joint-stock bank that should be organized in the future. It provided further that in case any of these banks should relinquish its right to issue notes, it could not again resume, but that, in that case, the Cabinet, by an order in Council, might authorize the Bank of England to increase its issues against securities by an amount twothirds as great as that thus relinquished. After 1844 the number of private and joint-stock banks of issue gradually decreased, partly doubtless because of the limitations imposed upon them by the Peel act, but chiefly because of the competition and better adaptation to the needs of the times of joint-stock banks of the London and Westminster type. No longer able to enlarge their business through expansion of note issues, and being forbidden access to London and the surrounding territory so long as they continued to issue the quota assigned by the act of 1844, the joint-stock banks of issue had much to gain and little to lose by relinquishing their issues and reorganizing under the other form. This was particularly true after 1858 when the privilege of limited liability and various other advantages were extended to banking corporations of the London and Westminster type. As we have already noted, a decline in the number of private banks had set in before the passage of the Peel act, the effect of which doubtlessly was to hasten the rapidity of this movement. The following table shows the number of each class of banks registered on the first of January of each of the years indicated: As the issues of private and joint-stock banks have been relinquished, the Cabinet, from time to time, in pursuance of the authority conferred by the act of 1844, has added to the amount of notes the Bank of England is permitted to issue against securities. The following table* indicates the dates of the Council orders and the amounts of the increase in each case: The Peel act, 1844, limited the issues against securities to, £14,000,000 Council Order Dec. 7, 1855, increased the limit by....... 475,000 Council Order Apr. 750,000 450,000 1, 1881, further increased the limit by Council Order Sept. 15, 1887, further increased the limit by Council Order Feb. 8, 1889, further increased the limit by Council Order Jan. 29, 1894, further increased the limit by Council Order March 3, 1900, further increased the limit by Council Order Aug. 11, 1902, further increased the limit by Council Order Aug. 10, 1903, further increased the limit by * Quoted from Bankers Mag., Jan. 1904, p. 29. 250,000 350,000 975,000 400,000 275,000 £18,450,000 |