with the private accepting houses, so that the system, which appears to be full of uncomfortable possibilities on paper, works easily enough in practice.

Other functions of the merchant firms and accepting houses are their activity in general finance and in exchange business. Both these functions arise out of their old business as merchants, which gave them close connection both with the governments and the business communities of foreign countries. Their connection with the governments naturally led to their providing credit facilities for them, and to their handling loans and other operations which these governments might have to conduct in the London market. Many of them act as regular agents of foreign governments, making issues of bonds on their behalf, paying their coupons, and conducting amortization and other business in connection with their loans; and their connection with the general business community inevitably led to their doing a considerable exchange business with foreign countries, financing drafts on them for the purposes of travel and the innumerable other arrangements which necessitate the transfer of credit from one country to another. It should perhaps be added that the Bank of England's court of directors is largely recruited from the ranks of the accepting firms and finance houses, and the close connection of these firms with the finance, both government and private, of other countries, equips them especially well to regulate the policy of the Bank of England, one of whose most important functions, as we have already seen, consists in controlling the London money market with a view to foreign demands upon its store of cash.

(F) POSTAL AND TRUSTEE SAVINGS BANKS.

The distinctive duties of savings banks, whether postal or other, are such that they can hardly be considered as part of the banking system of England. A savings bank, as they are understood in this country, performs only one side of the banker's function, and that perhaps the least important. It is the business of a banker to make advances, to create credit, and in England to provide the community with currency. None of these functions are fulfilled by the savings banks. It is also the business of the banker to take care of money deposited with him by the community, and this part of his function the savings banks do carry out. They are guardians, trustees, safe deposits, but they are not banks in the true sense of the word, because they do not make loans and advances, they do not discount bills, they do not facilitate trade and finance by the creation or circulation of any credit instrument, and the sole use that they make of the funds deposited with them is to invest them in securities of a specially restricted class. At the same time, they have some indirect influence upon the conduct of banking business in Great Britain, since the allowance that they make to depositors has an effect, especially in the country districts where the banks compete keenly for deposits, upon the allowance made by the English banks. It is complained by the joint stock bankers that whatever bank rate may be, and whatever may be the rate for money in London, they can not allow their country depositors less than the 2 per cent which is the regular allowance to depositors in the post-office savings banks. It is natural

enough that the bankers should therefore complain bitterly of the intrusion of Government into a business which it does not understand and which it conducts according to principles which would land any ordinary banker very speedily in ruin. The post-office savings bank keeps no attempt at a cash reserve, perfectly reasonably contending that the fact that its deposits are secured upon the consolidated fund of the United Kingdom insures for it a confidence and security which ordinary bankers have to arrive at by means of a strong position with regard to cash and liquid assets. At the same time, the savings banks, whatever be the current price of money and whatever the difficulties they have in reinvesting funds deposited with them on terms which will enable them to show a profit, continue to pay 21 per cent to their depositors. They did so during the period of abnormally cheap money in 1896 and 1897, when Government securities could not be bought to yield the 2 per cent which the savings banks were paying, and when consequently the necessarily considerable expenses of the conduct of the business involved the savings bank in heavy loss. They have continued to do so steadily, in spite of the subsequent depreciation of Consols and the other securities that they hold, which reduced their finance to a position which would be considered one of insolvency if any private or joint stock company had to acknowledge such a state of affairs.

Their ostensible pretext, the encouragement of thrift among the working classes, is an extremely desirable object in England, where thrift among the working classes is very much to seek. At the same time, the

contention of the bankers that they are subjected to unfair competition is very strongly grounded. The regulations of the post-office savings banks have been expanded to an extent which permits the deposit of sums up to £50 in one year, aggregating £200 altogether, and it is clear that depositors who are in a position to make deposits on such a scale as this have arrived at a point at which assistance and stimulation by the State are unnecessary. The rate allowed to them, though low enough from the point of view of the depositor, is certainly high when the exceptionable nature of the security is considered and when allowance is made for the fact that these deposits can be withdrawn at any time—immediately up to £10 if the expense of a telegram is paid, and after one to two days' notice in the ordinary course of business. In fact, the post-office savings bank gives away one kind of banking facility, that is, the guardianship of the money of depositors, allowing them a rate for its use on terms with which the ordinary bankers are quite unable to compete, and it is very fairly contended that the amount that each depositor is allowed to place with the savings banks should be reduced, and that the rate allowed should also be brought more closely into touch with the modern conditions of the money market. Probably the really careful and thrifty members of the class for which the post-office savings bank is designed to provide facilities attach very little importance to the rate paid to them. Certainly other banks working under ordinary commercial conditions could not afford always to pay depositors 2 per cent on their money, with the right of immediate withdrawal, and their complaints

against unfair competition by the State thus have a considerable basis of foundation.

The trustee savings banks were originally philanthropic institutions founded by private persons for the encouragement of thrift, but in 1817 Parliament intervened with regulations for their management. The most important feature of these regulations was the obligation imposed on the trustees to invest the whole of the funds with the Government through the hands of the national debt commissioners. Since the establishment of the post-office savings banks in 1861 many of the trustee banks have been closed, and the increase in the deposits of the rest has not been nearly as rapid as that of the new rivals, which have the advantage of more direct Government control.

(G) THE DISCOUNT HOUSES.

The discount houses in London carry on a business which is chiefly ancillary to that of the banks. It has been shown that the bankers are large buyers of bills— that is to say, they make large investments by discounting bills of exchange, giving cash or credit for them some time before they are due and holding them until their maturity. Bills of exchange, which are necessarily and automatically turned into cash on the day of maturity, are obviously an ideal security for a banker's investment. They are liquid and readily negotiable, and at due date they are cashed, without any need for looking for a buyer and without any question of market conditions. The great volume and diversity of the bills of exchange which come into the London market to be thus melted and turned into present cash before their date of maturity has caused the existence

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