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considerable part of the money which they hold is on current account and not on deposit. Their system of including their current and deposit accounts together makes it impossible to decide on what proportion of the money for which they are responsible they are paying interest. Only one of the large joint-stock banks separates its current from its deposit accounts in its balance sheets. This is the Union of London and Smith's Bank, the latest balance sheet of which, dated December 31, 1908, showed that while its current accounts stood at 25 millions, the amount that it held on deposit only amounted to 10 millions.

If this proportion were general throughout the banking community it is evident that a large proportion of the moneys that they hold on behalf of the public is earning no interest from the banks, since it is not usual for interest to be paid upon current accounts, but since most of the bankers leave the proportion between their current and deposit accounts in obscurity, it is impossible to speak positively on this point. We can only be certain that the bankers occasionally do make loans to the discount houses at rates which are below the allowance that they make to their depositors, which in London are usually it per cent below Bank rate. This it may be remarked is the only direct connection between the official rate and the rates granted or charged by the other banks.

Some of the banks include under this heading “cash at call and short notice" advances which they make to the Stock Exchange for the fortnightly periods that elapse between its settlements. The funds that they so use obviously have an important effect upon the marketability

and price of securities in London. On the first day of every settlement it is usual to see rates quoted as those at which the banks are lending to their stock exchange clients for the financing of speculative commitments. In the arrangement of these rates a certain amount of combination and cooperation among the banks, or some of them, has grown up as a matter of custom, but since for this class of accommodation the bankers are subject to competition on the part of the agencies of the foreign banks and the big finance houses it is often found difficult to maintain even this amount of harmonious working among the bankers.

It has been shown that the rate at which the banks make advances to the discount houses has an important effect upon the market rate of discount in London, but the banks exercise a still more important and direct effect upon this discount rate by being themselves large buyers of bills. It is impossible to gauge exactly the extent to which they hold bills among their assets, since many of them in their balance sheets include their discounts along with their loans and advances. Among the many suggestions that reformers have put forward in the matter of English banking, one is that this item of the banks' holding of bills should be separately stated. But though this obscurity in the statements of the English banks makes it impossible to know the precise extent to which they hold bills, there is no doubt their purchases of them are on the whole the most important influence upon the market rate of discount in London. Nearly all the discount houses, whose functions will be described later, buy bills, largely with the intention of reselling them to

customers, of whom the joint-stock banks are the largest and most important and most regular buyers, and it is contended by the discount houses that the market rate of discount, for which they themselves are generally supposed to be responsible, is really and in fact regulated by the price at which the big joint-stock banks are prepared to buy. This being so, since the market rate of discount is perhaps the most important influence on the foreign exchanges and so on the inward and outward movements of gold, it will be seen that this function of the bankers is one of the greatest possible importance from the point of view of London's free market in gold.

Besides thus regulating the price at which bills of exchange can be discounted in London, the banks have in recent years taken an increasingly large and important part in the creation of bills of exchange by placing their acceptances at the disposal of their customers. A bill of exchange being an order signed by A, directing B to pay a certain sum of money to himself, A, or to a third party, C, it is obvious that the standing and position of B, who is called the acceptor of the bill, is of the greatest possible importance to its negotiability. The business of acceptance will perhaps be described more opportunely when we come to examine the functions of the merchant firms, of whose business it is now perhaps the most characteristic part. The increasing extent to which the bankers have in recent years intruded into this class of business is a grievance that is resented rather keenly by the merchant firms, or accepting houses, as they are often called. It is contended by the latter that the business of acceptance is a special function for which special training is required,

and that the joint-stock banks rarely have available the special abilities that make for its proper conduct. On the other hand, the high standing of the joint-stock banks and their big reserve resource in the shape of their uncalled capital makes their acceptances an exceptionally fine credit instrument, and it seems natural enough that they should, to a certain extent and within moderate limits, place these facilities at the service of their customers. By doing so, they give their hall mark to a great mass of paper which becomes readily negotiable and easily turned into cash by the operations of the discount market and of the other banks. But their intrusion into this business, which was formerly largely in the hands of the accepting houses, is complicated, though in appearance rather than in fact, by the bankers also exercising an important function in watching over and sometimes regulating the extent of the business done by the accepting houses. This, however, is also a matter which will be better dealt with later on.

Finally it may be added that the English joint-stock banks are now showing a disposition to engage to some extent in the business of dealing in foreign exchange which has hitherto been left to the finance houses and foreign firms established in London. The London and County and the London City and Midland banks have now established regular foreign exchange departments. This development is generally welcomed as a sign of a desire on the part of the banks to widen their horizon and to come into closer touch with the affairs of the financial world at large, but, as in the case of the banks' increasing interest in acceptance, there are some critics who consider

that it is better for the bankers to stick to their obvious and highly important function of providing the community with credit and currency, and taking care of the money of their customers.

(c) THE SCOTCH BANKS.

The functions performed by the Scotch banks are essentially similar to those already described as being carried out by their English brethren. The differences between the currency system of the two countries are in degree rather than in essence. In Scotland the note issue had made a harder fight for its existence than in England, owing no doubt to the fact that the Bank of England's monopoly did not extend to Scotland and that the great Scotch joint stock banks therefore extended the system of using notes as currency, while the development of joint stock banking in England was necessarily opposed to it, since, as has been shown above, joint stock banks in England with an office in London were unable to issue notes. Nevertheless, even in Scotland the advantages of the check have told in its favor, and, as will be seen below, liabilities of Scotch banks under note issue are now much smaller than those under deposit as current accounts.

The article in the Banker's Magazine, from which we have quoted above, showed that the Scotch note circulation had increased from £5,332,000 in 1872 to £7,173,000 in 1908. This increase, when compared with the fact that the note issues of the English country banks have during the same period diminished almost to vanishing point, shows that the bank note is much more tenacious of life north of the Tweed. This is partly owing to

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