ENGLISH BANKING ORGANIZATIONS. Page. BY ERNEST SYKES- 262 THE LONDON BANKERS CLEARING HOUSE. BY ROBERT 267 TABLE I.-Bills, checks, etc., paid at the bankers clearing house in London, 1899–1908. 292 II.—The average daily clearings, 1868–1908 293 III. Statistics of the bankers clearing house from 1868-1908- 294 THE ENGLISH BANKING SYSTEM. By HARTLEY WITHERS. CHAPTER I. THE ENGLISH SYSTEM. (A) BANK OF ENGLAND. The distinctive functions of the Bank of England consist in its acting as— 1. Banker to the British Government. 2. Banker to the joint stock and private banks. 3. (a) Sole possessor of the right to issue notes which are legal tender in England; (b) sole possessor, among joint stock banks with an office in London, of the right to issue notes at all. 4. Provider of emergency currency. 5. Keeper of the gold reserve for British banking. 6. Keeper of the gold reserve which is most readily available for the purposes of international banking. These various functions fit into and supplement one another, and though their diversity is sometimes pointed to as throwing too much responsibility onto one institution, it in fact enables the Bank to carry out its duties with extraordinary ease, and with the least possible disturbance to the financial community. By the fact that it keeps the balances of the other banks, the Bank of England is enabled to conduct the payment of the interest on the British debt largely by transfers in its books. By the fact that it keeps the balances of the Government and has the monopoly of the legal-tender note issue, the Bank has a great prestige in the eyes of the general public, which it communicates to the other banks which bank with it. There is an impression that the Government is always behind the Bank, and that the Bank is always behind the other banks, and this feeling has certainly done much to foster the confidence of the British public in its banking system. A credit in the books of the Bank of England has come to be regarded as just as good as so much gold; and the other banks, with one exception, habitually state their "cash in hand and at the Bank of England” as one item in their balance sheets, as if there were no difference between an actual holding of gold or legal tender and a balance at the Bank of England. It thus follows at times when an increase of currency is desirable, it can be expanded by an increase in the balances of the other banks at the Bank of England, since they thus become possessed of more cash to be used as the basis of credit. For currency in England chiefly consists of checks, and customers who apply to the banks for accommodation, by way of discount or advance, use it by drawing a check which is passed on and so creates a deposit; and expansion of currency thus consists chiefly in expansion of banking deposits. This expansion is only limited by the proportion between deposits and cash which the banks think fit to keep, and as long as they can increase their cash by increasing their credit in the Bank of England's books the creation of currency can proceed without let or hindrance. Their balances can be increased by borrowing from the Bank of England, which is generally carried out not by the banks themselves but by their customers from whom they have called in loans, and the Bank of England is thus enabled to provide emergency currency with great ease, by means of loans and discounts which are used to swell the balances of the other banks, which thus show an increase of the cash at the Bank of England which they use as a basis for credit operations. The elasticity of the system is thus remarkable, and the merchants and bill brokers of London can by taking approved security to the Bank of England, increase the basis of English credit in a few minutes by borrowing. 1. Examining these functions of the Bank of England in closer detail we find that its first and most obvious one, which originally brought it into being, of financing the British Government and acting as its banker, is now perhaps its least difficult and important duty. Apart from the prestige which it thus acquires and its close touch with the Government and the officials of the Treasury, the Bank's position as government banker is of little direct material advantage. Its duties as such, besides the normal relation between a bank and a customer, consist chiefly in making advances to the treasury in the shape of "deficiency advances" when the government balances are too low to admit of the payment of the quarterly interest on the British debt without replenishment, or against "ways and means" advances at times when the revenue is coming in more slowly than government expenditure is proceeding. It also, when the Government has to borrow to a greater extent, manages its issues of treasury bills, or any loan operation that the Government may have to undertake, such as the creation of fresh debt in time of war, or the periodical borrowing recently necessitated by the requirements of the Irish land-purchase scheme. The variations in the amount of the Government's balance at the Bank of England are a question of great importance to the outside money market, because when this balance is big the result is that a large amount of money is in the control of the Bank of England, and the resources of the outer market are thus curtailed. It has already been shown that the balances of the other banks at the Bank of England are treated by them as cash and used as the basis of credit. Consequently when the payment of revenue on a large scale transfers large amounts from the other banks to the government account in the Bank of England's books, the outer market's basis of credit is thus reduced and money tends to become scarce and dear. This is especially noticeable in the last quarter of the financial year, January to March, when the payment of the direct taxes (income tax, and house duty) transfers many millions from the tax-paying public, through its bankers, to the national exchequer's credit at the Bank. Between December 28, 1907, and March 27, 1908, public deposits, or government balances, at the Bank of England rose, from £5,625,000 to £19,843,000 by the operation of this process. This transfer makes a gap in the basis of credit which has to be filled up by borrowing, and it is usual to find that, according to the phrase current in Lombard street, "the market is in the Bank"that is, the merchants and brokers are borrowing from the Bank of England throughout the greater part of this quarter of the year. When the market is borrowing from the Bank it does so either by discounting bills with it at Bank rate, which is the official minimum rate of discount, or by taking advances on securities, for which advances it usu |