UNIVERSITY OF CALDFORNIA AT LOS ANGELES • ^/(^ ^j^f^vC^^V' ^\ ^^S^t^M^c*^ /I2!i«.k4^i<^'l^ ^y^ yVi^"|bi.>-*\, THE LONDON BANKING "^ A>D mkixi Clcaiiiig lotisi; <^g$tem. BY ERNEST SEYD, F.S.S., Ac. THIRD EDITION. CASS ELL, I'KTTEH AND GALPIN, LONDON, PARIS AND NEW YORK. (The Right of Translation is Reserved,) C C C f • « etc c c c c r c I LONDON : W. \V. MoBOAN, Printer, 67 Barbican, H.O. c/ ffl OMIm- IFlublications bu iht Sutbor. ^ - IS ^ s\ " California and its Resources." 8vo. 168 pp. 'J'riibner and Co., ^ Paternoster-row, London, 1858. " On the Establisliment of an Anglo-Californian Bank and a Refinery of the Precious Metals in San Francisco." 8vo. 93 pp. (Private Issue). London, 1861. ■' Bullion and Foreign Exchanges Theoretically and Practically Considered." 8vo. 700 pp. Effingham Wilson, Royal Exchange, London, 1868. ' " The Question of Seignorage and Charge for Coining."' 8vo. ;^ 59 pp. Effingham Wilson, Royal Exchange, London, 1868. " The Depreciation of Labour and Property Avhich would follow the Demonetisation of Silver." 8vo. 109 pp. Effingham Wilson, London, 1869. " Letters to the Twies.'" See the " Gold Coinage Controversy," ? republished for private circulation by the Bank of England. 1869. " Universal Coinage and Variations in Foreign Exchanges." Read before the Statistical Society. See Journal of the Society for March 1870. ^ " Enquete sur la Question Monetaire." Seance du 31 Mars 1870. ^ Evidence before the Imperial Commissinn. published by the \ French Government. ^ " On Currency Laws, and their Effects on Pau])erism.' Read before the Statistical Society. Sec Journal of the Society for March 1871. " Die Miinz-Wiihrungs und Bankfragen in DoutsrlilMiul." Svo. 204 pp. BJidekcr, Elberf.'Id (Prussia), 1871. " Suggestions in reference to tlie Metallic Currency of the United States of Am(!rica." Hvo. 253 pp. Triibnci- iind Co.. Paicr- ncster-row, Ijoiidon, 1871. • Improvernents in the Process of Coining." Read before tlu* Society of Arts. See Journal of tli(> Society for 2(')tli .Ian. 1K72. 389138 London: Pri.vtkd uy W. W. Moeoan, 67 Barbican, B.C. INTRODUCTION. — ♦- — rriHIS pamphlet had been written originally with the -*- view of explaining the subject of the London Banking and Clearing House System generally to Bankers and others in France and Germany. Some of the author's friends however, satisfied with the method adopted for this explanation, have urged the publication of its text in English, as suitable also for English readers. The latter are therefore requested to bear in mind that certain matters, with which they are already sufficiently familiar, required description here for the instruction of Foreigners. For many years past the French have been anxious to introduce the English Banking system into their country, and numerous attempts have been made in this direction, without any definite results. Several large successful Joint Stock Banks (the ComiJ- tiiir (VFjHcompte^ the Soctete Generale, ^c, j'c.) have boon ostabHshod, and a form of Cheque has been ado[)to(i. Still, prosperous as these Banks have been, witli their large capitals and careful administration, tlioy have not yet succeeded in acting for the public in the same way as oiii- Eiiglisli Banks and Bankers — namely, as cash-keepers, under the same mecliani- oally siiiij)lo and easy process of exchanging Money and Money's woi'tli. Tlio Checpie system has only partially made its way in France — hcnccthe Clearing System has 1 not had sufficient foundation for its action. Tn France almost all mercantile payments are made in specie or Bank-notes, of which the payer must keep a supply, and which the payee must carry about; and large sums in Cash or Notes are exchanged even between the Bankers, whose " gar^ons de caisse," in their quaint uniforms and hats, may be seen hurrying about the streets of Paris, carrying pouches with Bills and Money. French economists" and Bankers, recognising the great importance of the Clearing System, in saving the cuiTcncy, are anxious to introduce it into France ; and, at the present time, when the country is obliged to part with so very large a proportion of its Metallic Money, for the payment of the war indemnity to Ger- many, the introduction of this system, as a means of replacing, to some extent at least, the more mechanical function of Money, would be most beneficial. The reader, interested in the monetary question, and the prospects of France's ability to pay the 200 million Pounds sterling war indemnity, may wel- come the following statistics, showing how much Coined Money France has had, and how much will remain to her, when the whole sum has been paid : — Coinage of France.* From 1790 to 1868 in Pounds Sterling- Gold ... - £296,487,192 Silver . - - - 193,135,235 £489,622,427 * Belgium, from 1848 to 1868, coined - £17,151,743 Italy „ 1862 „ 1868, „ - 14,762,908 Switzerland „ 18r,l „ 1868, „ - 811,922 This vast sum includes the recoinaore of about 30 millions Sterling of Gold and Silver coins, struck between tlie first and second Empire, and from it must also be deducted about 100 millions (principally in Silver coin) exported to other countries. Allowing a further deduction of 20 millions Sterling, — the sum of 340 millions Sterling Avould remain. The coinage of France from 1848 to 1868 alone amounted to : — Gold .... £249,456,352 Silver . . - 34,606,922 Total £284,063,274 The Bank of France, at the commencement of the war, held about 50 million Pounds Sterlino: in Cash, of which, say 25 million Pounds, were uncoined Bullion; and taking this, as well as the coinage from 1868 to 1870 into account, it is fair to assume that the total amount of precious metals in use in France as money in June 1870, ranged between 330 and 350 million Pounds Sterling. This estimate corresponds nearly with a statement lately made by Monsieur Pouyer- (^uertier, who said, that after payment of the instal- ment of 60 million Pounds Sterling to Germany, there still remained upwards of 6 milliards of francs, or 240 million Pounds Sterling of solid Money in the country. Add thereto the stock of subsidiary coins, and there would 1)0, probably, 7 milliards of francs, or 280 million Pounds Sterling, at the end ofl(S71. Besides the 60 milhons Stei-ling already paid, 140 nn'llion Poiinds more, with interest (say 15 millions), remain to ])c [)aid, so that 125 milhon Pounds would be avail- ;il)lo ((j'tcr paipnent of the irholr indemvifi/. To this must be added a. considerable portion wliicli foreign investors may bold in the now French secnrities, or in properties of all kinds converted partly in lieu of Money; so that, on the whole, say, 150 million Pounds in Cash would remain in France. Now England has coined,* from 1816 1 to 1868 : — Gold - - - £194,018,496 Silver - - - 19,866,513 Total £213,885,009 which total includes a very large proportion of re- coinages and exports. It is estimated that there are now in Eno-land : — G-old coin - - - £80,000,000 Silver, Copper - - 13,000,000 Uncoined Bullion at the , Bank and elsewhere, say — 20,000,000 Total £113,000,000 So that we, in England, conduct our much more enormous business with less Metallic Money than would remain to France, after payment of the 200 million Pounds to Germany. After discharging this liability of the late war, France would still retain 150 million Pounds Sterling in Metallic means of exchange, against the 110 to 120 million Pounds in England. The circulation of Bank-notes, i.e. such Bank-notes as are fiduciary, inconvertible by Coin or l)ullion, as^the Bank-notes of Country Bankers, and the authorised * Australia Coined, from 1855 to 1869, Gold— £24,720,000. t The Sovereign Coinage dates from 1816. 5 issue of 15 millions by the Bank of England, may be taken, for argument's sake, at 25 millions for the United Kingdom. In France, the present un- covered issue is nearly 80 million Pounds sterling. Now, France may use the Bank-note, or rather its over-issue, as a means of replacing, temporarily, solid Money, but she cannot do so without a serious effect on prices ; most mischievous effects on the habits of the people, trade, and industry, on account of this arbi- trary valuation, and scarcely without avoiding a depre- ciation of the Paper Money, — struggling all the while under the prospect of the redemption of such an ex- cessive Note issue at the expense of the future.* But, if France had a Bankers' Clearing System, such as we have in England, under which we conduct our colossal business -with but a moderate stock of solid ]\Ioncy, — the overwhelming and baneful issue of too much paper Mouey might be modified or avoided, — a large propor- tion of both solid and paper Money might be spared. AVe, in England, are aware of the important use of Banking accounts for the promotion of commercial intercourse ; economists know the equally important principle involved in the Bankers' Clearing House. It may be truly said that our Banking sytem, with its action and its belongings, is one of the factors which uphold English social life, and one of tlie principal elements in its prosperity. Whatever drawbacks may be urged jiLfninst it in special directions, tliis nmcli is certniii, tluit as a piece of machinery, saving ]al)()ui" * Sec Note A, p. t'. 6 and (Toiioiuisiiig- Money, it is the best system invented. The Clearing System is its crown; its mechanical perfection is due to the pure logical princi- ples upon whicli it has been constructed. The introduction of such a Banking System as ours into a foreign country must, in a great measure, be dependent on the social and commercial characteristics and habits of the nation — hence the French may have failed hitherto in adopting it. On the other hand, if men of energy and influence are determined to establish such a system, it may, in its turn, when so established, react upon the manners and customs of the people. It is evident, for instance, that the im- provements made in England from time to time, originated in the system itself, and conferred benefits on intercourse, which have induced us to conform with the general rules required by them. Hence such a description of the action of the London Banking, and the London Bankers' Clearing House Systems, as is contemplated by this pamphlet, may be useful. Note A. Nothing can be more pernicious to France than the poHcy of M. Thiers in reference to this excessive Bank-note issue, the Pro- tectionist tendencies displayed by him, and his desire to tax raw material. The French say that England speaks and moralises in favour of free trade, because it suits England's interests ; but apart from those interests, the folly of M. Thiers' policy can be plainly shown ; and if it is not speedily departed from, it will inflict miseiy and poverty upon the French, agamst which the consequences of the late war, including the indemnity to Germany, will appear as but a small per centage. The fact that France has to part with 200 millions Sterling of Gold or Silver cannot be avoided, and for this purpose ■ France must give up so much of her convertible wealth — the sum requii-ed to be produced by taxation, and the conversion of properties in a direct or indirect manner. The question then arises, how can France recover the sum in a peaceable manner, and in the shortest time? The loss of the 200 million Pounds is an international one, tantamount to a loss in international commerce, as great as if the balance of trade had been against France to that extent. It is evident then that France can only recover the amount, or a portion of it, by turning the balance of trade in her favour, so that in the course of years she may receive it back again. For this purpose how- ever one thing is essential, viz., the lowering of prices of properties, commodities, and the rates of labour in France. If that took place, it is evident that France could compete successfully with other nations, through the cheapness of her natural and industrial pro- ducts, thus encotu-aging a large expoi-t trade ; whilst on the other hand the imports of foreign goods would be checked and prevented on account of the low scale of prices. The balance of trade would thus turn quickly in favour of France, Now this bene- ficial lowering of prices in France would be brought about in a most natural way if the Government left them to regulate themselves according to the amount of the natural Metallic Currency. The rule that a large stock of money raises prices, that a diminished supply lowers them, is one of almost mathe- matical certainty. And if this lowering of prices were thus left to take its course, Avhat interests in France could suffer ? The intercourae between the French themselves would go on as before, 80 long as the price of all things fell in a like proportion. If house property, other commodities and wages all declined, say 20 or even 50 per cent., nobody would suffer any local disadvantage, tlu- only exceptions being those who have borrowed money by way of mort- gage on long terms on the security of properly fovmiily valued nt a higher rak-. IJut oven these interests li:id Iwtter siillVr at once llu> s « proscnt loss than thai wliicli will lu'Tall tliiMii wlion the country is impoverished ami its industry completely ruined. It may indeed lie said that the euormous issue of fiduciary Bank-notes is only under- taken in order to save that description of property from too sudden a fall. But this is being done at the expense of the industry and trade of the country, and to the damage of the morals of the people, for so long as prices arc high, extravagance will prevail, and foreign goods can be imported, the importers exporting Gold. Investments in foreign securities, of which French cajiitalists hold several hundred millions Sterling, are maintained at a high price, whereas if the prices of home property and produce were low, such foreign investments would be sold in other markets for Gold, and the pro- ceeds devoted to paying the Germans and to the development and recovery of price in national belongings. The excessive issue of fiduciary Notes as a false basis for prices, will, being of unfair origin, enrich some people greatly, and the subsequent necessity of repaying them will fall on tbe productive power of the country, which cannot possibly be benefited by the issue. All the evils thus engen- dered open a gulf before France sucb as no nation has ever had in prospect. (The United States are recovering from their ovex'- -wbelming Paper Issue with difficulty, but their case is quite different. They had no 200 millions Sterling to pay away to other countries as a special penalty ; they bave immense resources in Gold and Silver mines, and natural advantages of soil and nature ; more- over, the stream of immigration brings millions of Money, with vast working power, to their shores.) In one special direction, which Englishmen may be more able to appreciate, France will lose immensely through the enforced high scale of prices. It is estimated that on an average 150,000 strangers were continually present in Paris. Some of these spent £50, £10, £5 or £1 per day in living, or in purchases of French fancy goods (sold at immense profit). Average their expenditure at only £1 per day, and £54,000,000 per annum would be the result, i.e. so much Money and Bullion would these visitors distribute in Paris annually. In other French towns — Boulogne, Dieppe, Mar- seilles, Dijon, &c., frequented by English and other strangers as visitors or residents — there may have been an additional 100,000 or 9 more ; at auy i-ate, it may be taken for granted tliat the total cost of living of these visitors did not fall short of £80,000,000 Sterling per annum. Now the glory of the Empire and its atti'actions having departed, there has already been a large falling off" in the number of visitors ; that falling off will become much more serious if the cost of living is made high by the artificial means of an over-issue of Bank Notes, whereas if prices were low this " visitor branch of French commerce " might recover and even exceed its former level. Bearing in mind the large profits made by the French in their hotel charges, and on their fashionable goods, it may be asserted that the total profit on " visitors " to France by far exceeds the total profit made by England on her export trade. To close observers this is evident ; the French import and export trade, it is true, showed a balance in her favour, but not enough to account for the rapid increase in Coined Money and the importation of Bullion into France during the last 22 years. It has before been shown that during this period France coined 285 millions stei'ling, an amount never before coined by any other nation, even after making due allowance for exports and recoinage. All these mighty resources must be lost to France if prices are made artificially high. If, in addition to these evils, the Government of France leans towards protection in matters of international trade, it inflicts an additional blow on the intercourse between France and other nations ; and it finally crowns its folly and infatuation by taxing the raw material, out of which the industry of the country must woi-k the balance of trade in its favour ; it commits a crime which will speedily bring its fruits. It may be said • that " Money must be had" somehow to pay Germany ! A wise and courageous government, instead of en- deavouring to olttain tliis money l)y crippling every interest pro- ducing it, would boldly take this course : " There arc between 240 and liSO millions of solid money now iel't in France, the gnalcr portion of it being hoai-ded. Some portion of this must be forth- coming at once in ruder to pay off the balance due to Gennany, and we must levy a pro raid contribution on ea(;h conmnme or proprietor." The first Nni)olcon thus forced Germany to pay, imd 10 iiltliDUgh siK-li a policy, il' a])[iliiHl to I'l-auri', iiiig-lit crcaU; trouble, yet it is tho ouly sound oue for tin- just settlement of the matter. At all events, if it is not carried out in its entirety, it ouglit to be adopted as far as it is possible. Although we, in England, object to the income tax, we have found that on the whole it is a just and convenient tax for meeting extraordinary contingencies in national expenditure ; through it every income-tax-paying individual is held directly responsible for the deeds of the State. It cannot be denied .that, with few exceptions, all Frenchmen personally wished for tho late war with Germany, forcing the State to commence it; hence the penalty ought to fall at once upon the pockets of every individual. A scheme of income tax, and, in addition thereto, a 'pro rata con- tribution from property, would best suit the settlement of the matter — but M. Thiers is opposed to these means, and seems inclined to follow a tortuous and damaging policy, as if he imagined that by some legerdemain he could get over or mitigate an absolute fact. The direct course of obtaining the money is, at all events, more advisable than the indirect one, w^hich will weaken, cripple or destroy the very resources by which, in international relationship, it is originally procured, and if from 1 to \\ milliards were thus obtained by direct contribution, tbe remaining \\ milliards would accrue to France in a few years, through the operation of the natural laws of prices and the balances of commerce, under the system of free trade. M. Thiers' policy is all the more lamentable when it is borne in mind that, due allowance being made for the scum of profligacy, in actions, writings and speech, there is a solid stratum of society in France, whose thriftiness, abnegation, and general sense of economy, are proverbial. Nobody who has come in contact with the inner life of French society can deny that in these qualifi- cations the French take the highest rank. Englishmen may give way to these reflections without being liable to the charge of moralising on French politics, national habits, and customs. Nor is the Free Trade question less than one of general cosmopohtan interest. The conclusions drawn from the present position of these problems in France rest on dry matters of fact, on which the veriest tyro in economical entjuirics can form a judgment. 11 THE LONDON BANKINGl SYSTEM. IN order to make tlie reader duly imderstand the operation of the London Bankers' Clearing House System, he must first be made acquainted with the London Banking System generally, which forms its foundation. In France, Germany and elsewhere, all Capitalists or Bankers, Avho do business with their capital by way of lending it out to others, by keeping accounts with customers, or using money actively in other ways, dealings in Government Loans, Stocks and Shares, Discounts, Foreign Exchanges, Arbitrations of Ex- changes, correspondence with all parts of the world, &c., &c., are called Bankers. In London this is not so, for there are two classes of Bankers here, namely — 1. The local Bankers, whose original and principal occupation is that of acting as Cash-keepers, in current accounts with customers, or as recipients of deposits of moneys. Tlicse moneys they use for investment in, or advances on suital^le securities in the manner required by the nature of the business. It is generally under- stood that these firms, both in their accounts and investments, pay attention chiefly to P]nglish interests — favouring English securities and Bills with English acceptances. They are "the iiankers" in the English .sense of the word. 2. '^rho forcif/ii Bnnkcrs, \vlio deal in (lovornincnt 1:2 loans, foriMo-ii lijlls of Kxcliangv, Afhitralious, Gold and Silver in masses, and international tinancial matters o^eiierally, having extensive correspondence abroad, &c. They are called " Foreign Bankers," and Avlien, besides thus using their capital in mere Banking transactions of this kind, they also import or export (by credits or otherwise), merchandise, they are called " Foreigrn Bankers and Commission Merchants." In order to make the reader understand the distinction by the quotation of familiar names, I may mention that houses like the London and Westminster Bank, Glyn, Mills & Co., Barclay & Co., &c., &c., are " Bankers " in the English sense, whilst Messrs. N. M. de Rothschild and Sons, although the first house in the world (the houses in Paris and elsewhere being known as the first Bankers), are "Foreign Bankers." Firms hke Baring Brothers & Co., F. Huth & Co., who besides their international Banking business, grant facihties for the export and import of merchandise, are " Foreign Bankers and Commission Merchants." The Foreign Bankers do not keep current accounts with, a variety of customers at home, in the way of re- ceiving Money or Bills for collection and paying their Cheques, on the contrary, the Foreign Bankers are also the customers of the " English Bankers." Messrs. Rothschild, for instance, keep a principal cash account at one of the Enghsh "Bankers " proper, who, for them, performs the duty of collecting and paying Bills, Cheques, &c., Iceeping Messrs. BotliscUhVs account — rendering them, so to speak, the services of a Cash-keeper. l3 Banks like the Oriental Banking Corporation, and other Indian and Colonial Banks, as well as the German Bank of London and other Continental insti- tutions of that kind — also fall under the denomination of Foreign Bankers ; they do not profess to receive or pay Cash " over the counter," but keep a Banking account with one of the local or English Banks or Bankers. 'i-i' The " English Banker," therefore, and the system connected with his functions, are under consideration here, and the business principle which, ])ri'md facie, engenders the system, is this : — The English local Banker undei'takes to receive from his customer all Moneys, Bills of Exchange due, and Cheques for collection, crediting the account kept in the customer's name with the respective amounts. It will at once be seen how great a saving of labour can thus be effected. Instead of each merchant being obliged to send out his clerks or messengers in all directions over the vast town, carrying Bills, Cheques and Money about with them, he sends all these Notes and Bills to the Banker. The Baiikei', who has a large number of customers of this kind, then proceeds to assoi't these Bills and Cheques according to the different directions where they are payable, so that one messenger caii collect hundreds of Checjucs in oiie journey, which otherwise would take one hundred messengei's and one hiiiKli'fd jnin-iicys. The opcM'ation of this system, whicli is somewliat like that <>t" llic Bank of I'^rance in I'ai-is, will bf understood, and the Banker, who lias a great many customers (some have It 20,00(> or more), cnn perform these dutic^s at a com- paratively moderate expense. The sums so collected having been credited to the customers' account, the Banker undertakes, per contra, to pay Cheques drawn on, or Bills made payable at his house, b}^ the customer himself, and debits his account with the same. It is, of course, understood that these Cheques and Bills are not paid unless the account has previously been credited with the col- lections made, i.e.,\& in credit with the Banker; just as no money could be paid out of a cash-box unless there was the necessary amount in it. The Banker does not give credit : hence he must first have received Money before the customer can draw a Cheque upon him. For these ser^aces connectedwith the account current, both the collecting and the paying, the Banker makes no charge of commission whatever.* The organisation of his system is so extensive, and economical at the same time, that he requires but a small consideration for these services. This small consideration is derived from " a minimum halance of account to the credit of the cus- tomer, left in^ the hands of the Banker, for which the Banker pays no interest, but which he may use at interest, so as to compensate him for the trouble and labour required to conduct the account." Supposing, for instance, that the customer left a * English country Bankers and Continental Bankers make a cliarge of commission, which constitutes the principal source of their profits. 15 minimum balance in the Banker's hands of, say, £1,000, tlie interest of which, at 3 per cent., was worth £30 per annum, it may be assumed that the trouble and expense of collecting the customers' Bills and pa^^ing Cheques, &c. is covered by the above £30. On small accounts, requiring but occasional col- lections and payments, the balance required as a per- manent minimum may not exceed £100 or £200 ; on large accounts, involving many dail}?" collections and paATnents, up to several hundreds a day, the balances may range from £5,000 to £50,000. Nothing prevents the customer fi'om keeping larger balances than the supposed minimum to cover the Banker's trouble, and so a great many houses keep much larger sums at times, as their business may bring- about, and also in order to stand well with the Banker. The customer may also now and then draw out money below the supposed minimum, without the Banker taking notice of it unless this happens frequentl3^ The Banker is content if the " general averasfe " of the balance is satisfactory to him. Indeed, many accounts between Bankers and clients are commenced without any express stipulation as to minimum balance; the amount to be so kept is generally judged of by the customci-, but if the Hanker finds that the trouble and expense of conducting the account is not compen- sated for by the balance left, he will tell tli(> customer, "You do Tiot keep bidance enough with me," and then a minimum balance is generally spoken of, which the customer is supposed to lejivc untouched, as long as he chooses to keep his account wiMi tlic Banker. 1(. Rv wit hdi'nwiiiii' tlu> wlmlo of liis l);il;nu''> at once, wliidi ho may do w lienover \\c chooses, \]\c customor is supposed to liave closed the account. On very small balances, or insufficient balances (g'cnerally kept at Banlicrs of- second-rate standing-), the Banker will sometimes, at the end of a year, make a charge, of £5 or £10, as the case may be. Any respectable person can thus " open an account" with a Banker, on being introduced by somebody known to the House, and, of course, the best Bankers obtain the best accounts. The customer is introduced, he " pays in " as a commencement a cash sum of £100, £500, or £5,000 (or more), his signature is registered, and he receives a " cheque-book " con- taining fifty, hundred, or five hundred printed cheque- forms (each bearing a penny stamp), which he can use for his drawings on the Bank. He also receives a " pass-book," i.e., a small book, which passes between him and the Banker (whenever the customer likes to fetch it for examination), and contains a copy of the Banker's Ledger account. This pass-book the customer uses for the purpose of seeing (either daily or weekly, &c.) whether his own account agrees with that of the Banker. The cheques paid and cancelled by the Banker are enclosed in the pass-book for verification, by the customer, at home. When Money, Cheques, &c., are "paid in" to the Banker by the customer, a so-called "paying-in ticket" is written out, of which the following is a form — in a supposed account kept by Smith and Co. at the National Bank : 17 London, 17t% December 1871. %\t ^atbnal ^aixk Credit : Smit^Jv ^ 00. Bank Notes 110 23 s 10 d Gold Silver and Copper.. 7 6 133 17 6 Cheques §lvn (k Go 372 3 2 J' London and WestniinsU ??*.... 50 109 18 Union ^anh Mondon and (county ^anh . 87 7 4 £ 753 6 These tickets are reta,jned by the Banker, as mere memoranda. 2 18 Of the Cheque forms (no doubt well-known in France) the following is an example : — Xonbon ant) (iTountn %\\\\\\, 21 LOMBARD STREET. c S 3 Pay ^li. '^lee/e^uc^ 71 i//Miim or Bearer ^ic-c x^oan(/lea ana ^^rtt/e 'Jcuitad tS/ u. M^^r^ -J.^ e/ SmUk ^ 00. The customer fills out this Cheque as here shown, and pays it away. He may also draw Cheques on ordinary paper, affixing a penny receipt stamp, when the Banker will pay them ; but, as a rule, it is understood that the Cheques are drawn upon the printed forms supplied. Besides drawing Cheques, the customer may make Bills payable at his Bankers. Supposing the following Bill is before us : — Jit Sfhree Jiontlis elate ^ please pay this 9^ill of $xcJva7vge to the order of ^//cmU- £S'to^c'n (^ ^o. the sunv of J so as to make it pleasing to the Banker, in return 4 for which he may receive Credit by way of discount^ ^ or be otherwise well spoken of as a party deserving |^ Credit. "^ The profits whicli the Banker derives from the great aggregate of cash balances in his hands will now become apparent. Many of his customers A — noblemen, clergymen and private persons, as well ^ as the highest class of merchants — rarely require advances or discounts ; they leave their balances merely as a foundation for the collecting and paying services, but a certain section of the mercantile community of course requires occasional assistance. The Banker grants these from the general fund in his hand, and as those who ask him for discount or advances also keep their accounts with him, he is consequently well able to judge of the character oP their business, and can give facilities according to the^ nature of the business as it appears before him. ' j On tlic wliolo, therefore, the English Banker, 1 A instead of l^eing a capitalist, lending away his own \ ^ money, and so l)ecoming the cr(>ditor of the peopl(5=J N) with whom he deals, is I'ather the de btor of his client s, | :il .hnnt Slocls^ h account of those customers tor lis, and wild have advances from i^X Nevertheless, Banking iirnis ofH'*^ oo Banks liavL- wry largo caiiitals, willi ivsponsiblo share- ' huli-lcrrij wlio receive luiiidsuiiie clivideuds, and their "stock" or "shares" stand high as favourite national investments. The great m ajority of . worki ng accounts car ry ^ balances free of Interest, as described, but when an -■ 1 1^- — -'-~- — ri-T — nii H iii w iiii -n nrr'rrrnnnmMn mnr ii iii i i account is not especially active, a fair balance being nevertheless kept, the Banker consents now and theii to allow Interest, at the rate of 1 or more per cent, below the Bank rate, upon the lowest amount to the credit of an account during the month, crediting such interest monthly. The London Bankers also take^ deposits of Money for fixed times, say 7 days, 14 days, j up to 6 and 12 months, or longer, and a great part of y their liabilities are such deposits, which of course / they msbj invest with less reserve than the balances of] accounts current. Besides this the London Bankers act as Cash keepers for the formation of public companies (if respectable), merely in order to receive and use the Cash temporarily. The great object of the London Banker is thus that of accumulating in his hands as much Money as he can, at the least possible charge to himself, and in return, to employ these vast sums at the best possible rate of interest for his own benefit. He thus takes deposits, allowing such interest on them as suits him, or consents to give a small rate of interest on certain dormant current accounts, but, as before stated, the great proportion of his profits is derived from the working accounts bearing no interest. The quid pro quo, in lieu of interest, which he offers, is the great 23 mechanical facility which the customer derives from this concentrated system of collection and payments ; it is Money's worth, as good as interest, and those ^i who fully understand and appreciate the economy so effected, and the general principles and actions resulting therefrom, must admit that it is even " better " and more valuable to the customer than a mere rate of interest. \V ^ ^ It can easily be imagined that the investment of ^_ %, the vast funds thus accumulating in the Bankers' hands is a subject well defined by practice, and cor- responding with all the individual interests concerned, as well as the higher considerations of local and international commercial policy. Experience gene- rally, that of the crisis especially, has created a system of pilotage in reference to investments, which >^ is rarely departed from. The first-class English ^ Banker is thus nompRlled, aboye all, to keep a.g^pd i reserve of unemployed .Money . He may make certain ^ investments in national or other stocks of equal ^ \^ standing, but he avoids advances on lands, or in - connection with enterprises wherein his investment is not reahsal)le at a moment's notice to its fullest value. Dealings in merchandise are altogether avoided, altliough warrants and interests in goods may occa- sionally come into his hands as collateral security, or in cases of Ikihiro. The more floating portion of the amounts- in his hands lie uses for the disco ui it iii-^- oC first-class mercantile Bills, accepted as payabli! in England, oi* of good local Bills drawn upon otliei'S by customers. Othei- Moneys he uses for advances on 24 stocks (with suitable iiiargius) as repayable in fourteen days, or on batches of Bills for temporary advances to good Discount brokers ; in short, as far as the safe employment of the resources are concerned, the first- class Banker pursues the policy he deems suitable in vievr of all the contingencies to which individual and national commerce are liable. Besides this principal part of their business, Lon- don Bankers render other services to their customers. They accept Bills against deposits of Money or secu- rities given, transfer Money from London to the Pro- vinces, and vice versa, or grant drafts ; they issue credits on places abroad, and so-called " circular notes," — but otherwise they abstain from foreign business. Arbi- trations of Exchanges, and, above all, from every kind of foreign speculation or speculative enterprise. Two great principles are thus realised by the English Banking system. First. The English Bankers are the custodians of funds belonging to the pubhc at large, and of a portion of the capitals of mercantile houses, with which they encourage trade, i.e. the Branches which require assistance. They are the judges of credit, and turn their management of these matters to good account, either for their own benefit, when the firm is a " private " one, i.e. consists of a few individual partners, or for the benefit of shareholders, when they are Joint Stock Banks — as the London and West- minster, the London and County, the London Joint Stock, the Union Bank, &c. (The Bank of England also keeps private accounts.) 25 There are certain drawbacks connected with the manasrement of the accounts, and the credits to be given, for some of the customers strive to keep unusual! V larg-e balances, in order to make the Banker think that they are financially stronger than is actually the case, but the Banker soon recognises these cases. It is alleged also that some of the Banks are too large, and that the; very high dividends paid by some are injurious to the active commerce from which such profits are drawn. On the whole, however, the system, with its competition between the Bankers, is freer from favoritism than that under which the Banker lends his own capital, and it engenders a fi^ee appreciation of marketable values and equitable action among the various interests involved. It is said further that the Bankers invest too closely, that their reserves are not large enough, but so long as the Bank of England issues 15 millions of fiduciary notes , they can avail themselves of this reserve. It is only when the exhaustion of this reserve is threatened that danger and panic are to be apprehended. Secondly. The second great principle which the London Banking system realises is the economy in the use of Money which the account current and Cheque system orings about. Some of the prominent establishments hold aggregates of " balances and deposits " ranging from 10 to 25 million Pounds,* and Llio daily average of the total business done in the City of London exceeds probably 20 million • See Note B, page 26. 2G Poinuls Sterlino-. Most of this enormous business of oxc'l Kinging is effected without the use of actual Money, although the basis is a certain stock thereof. The stock of ready Cash would be larger, if the system did not exist, thus affording a greater reserve, or guarantee for mu' commerce, but it a])pears that this consideration is sup])osed to be counterbalanced by the general facili- ties afforded to intercourse by the superior mechanism. The mere mechanical jiart of the London Banking system is absolutely free from faults as regards matters of policy ; it is a clearly defined proceechng, like the stated solution of a mathematical problem. The Bankers' Clearing House system, which forms the staple of this enquiry, contributes greatly to its wonderful results, but before I enter upon its descrip- tion, I may do well first to remove certain objections which Frenchmen and others are in the habit of making to the Cheque system, and certain misconcep- tions under which they labour in regard to it. Note B. Tlie following are the Paid-up Capitals, Reserve Funds, Lia- bilities and Dividends of the Joint Stock Banks, who are members of the Clearing House, at the end of 1871 : — Bank of England (3rd January 1872). raid up Capital Public Deposits other Deposits Total ^^^n^n/wr'"'^ and (Exchequer "„,, Ri'iia Liabilitips Dmdeud Resen-c Fund Accounts, &c.) ^'^'^ ^'^^^ l^iabilities ^^^ .,^„^,^ £14,553,000 £7,367,901 £25,024,563 — — 3,188,176 — 459,419 £32,851,883 9 per cent. Of the '25 million Pounds of other deposits, a considerable portion consists of balances belonging to the Clearing and other Bankers, 27 wlio keep accounts tliere, the Bank of England being, so to speak, the Banker of the Bankers. The other Joint Stock Banks are here arranged in the order of the respective amounts of their habilities : — Banks Paid up Capital aud Reserve Fund Balances and Acceptances Last Half- Yearly Dividends Liabilities per ann. London and Westminster £ . . 2,000,000 £ 26,220,701 £ per cent. 1,000,000 1,015,903 27,236,664 18 Loudon and County .. 1,000,000 16,116,730 — — 5000,00 2,778,016 18,894,746 19 Union .. 1,200,000 13,800,827 — — 300,000 4,363,859 18,164,686 20 London Joint Stock .. 1,200,000 — — 448,167 not stated 17,788,814 25f National Provincial .. 1,125,358 15,735,999 — — (May 1871) 388,015 691,087 16,427,086 — National ... .. 1,500,000 6,796,753 — — 107,092 8,475 6,805,328 9 City .. 500,000 2,780,764 — — 110,000 2,327,134 5,107,898 9 Consolidated Limited .. 800,000 2,479,407 — - — 60,000 221,678 2,701,085 n Imperial Limited ... 450,000 2,255,005 — — 60,000 335,292 2,590,297 6 Alliance Limited ... 776,700 1,458,184 — — 90,000 321,293 1,779,478 5 Metropolitan Limited 200,000 677,867 — — 20,000 118,612 796,479 6 The " acceptances " here stated are issued against Cash deposits, guarantees, and securities. Only a small proportion of such accept- ances are against open credits; the bulk of them are Drafts, made by branches of Colonial Banks, and accepted by the local Banks for account of the head offices of these Colonial Banks in London, such acceptances being taken abroad in preference to branch Drafts upon their own head oflQccs. Among the private Bankers, tliero are a lew whose business is considered as large, in one instance larger, than that of the first Joint Stock Banks. An idea may lience lie formed of Ihc vast sums in their hands. 28 The followinjr Joint Stock Banks aic- iioi vol members of the Clearing House : — Hank I'aiil up (Japilal liuliiuuea . , and and Liabilities. ■-.■ '■ , , Ucsorvo Fund Aceoiitancos "'^ '^^'" "• £ J-' £ £ Lomloii and South Wcsteni 173,200 I;iinilod 5,000 Central of Loudou Liniitod 100,000 60,000 1)09,234 - — U;Adi) 653,633 5 — 554,953 6 London and Provincial Limited 101,250 Provincial Bank of Ireland 510,000 — — — (May 1871) 240,351 no statement published 20 Midland Bank Limited 100,800 — — — 15,000 — 1,064,597 8 National Bank of Scotland 1,000,000 8,905,274 — — 335,000 1,036,223 9,941,497 16 Bank of Scotland (Feb. 1,000,000 8,200,688 — — 1871) 300,000 1,187,354 9,448,042 12 Of these Banks, the Provincial Bank of Ireland has its principal business in Ireland, and the Midland Bank in the Midland Counties. Their London establishments do not transact London Banking, being the administrative centres only, not requiring clearing. The larffC Scottish Banks — the National Bank of Scotland and the Bank of Scotland — have their head offices and the bulk of their business in Scottish towns. Their London establishments are branches, which have been opened within the last few years. The private " Bankers" are : — Alexander, Cunliffes and Co. ♦Barclay, Bevan, Tritton, Twells & Co. *Bametts, Hoares, Hanbnrys, Lloyd and Co. Biggerstaff, William and John *Bosanquet, Salt and Co. Brooks and Co. •Brown, Janson and Co. Brown John and Co. Child and Co. Coutts and Co. Cox, Biddalph and Co. Cunliffe Roger, Sons and Co. *Dimsdale, Fowler and Barnard Drammond Messieurs *Fuller, Banbury, Nix and Mathieson *Glyn, Mills, Currie and Co. Goslings and Sharps Herries, Farquhar and Co. Hill C and Sons Hoare Messrs. Lacy and Son o 29 *Mftrtin Praeds and Co. *Prescott, Grote, Cave and Co. Eansom, Bouverie and Co. *Robarts, Lubbock and Co. Samuel, Montagu and Co. Scott Sir Samuel, Bart., and Co. *Smith, Payne and Smiths Stride John and \V S Twining Richard and Co. *Williams, Deacon and Co. *VVillis, Percival and Co. of which those marked * are members of the Clearing House. The following List gives the names of the Colonial and Foreign Banks, who, as before stated, do their Cash business through " local " Bankers. Colon Agra Bank Limited AuBtralian Joint Stock Bank Bank of Australasia Bank of British Columbia Bank of British North America Bank of Montreal Bank of New South Wales Bank of New Zealand Bank of Otago Limited Bank of South Australia Bank of Victoria Chartered Bank of India, Australia and China Chartered Mercantile Bank of India, London and China lAL. Colonial Bank Colonial Bank of Australasia Commercial Banking Co. of Sydney Delhi and London Bank Limited Hong Kong and Shanghai Banking Co. London Chartered Bank of Australia London and South African Bank Merchant Banking Co. of Loudon Limited National Bank of Australia National Bank of India Limited Oriental Bank Standard Bank of British South Africa Limited Union Bank of Australia Foreign. Agency of the International Bank of German Bank of London Hamburg Anglo-Austrian Bank Anglo-Egyptian Banking Co. Limited Anglo-Hungarian Bank Anglo-Italian Bank Limited Bank of Egypt Bank of Iloumania Comptoir d'Escompte de PariB English Bank of Ilio de Janeiro Ionian Bank London Bank of Mexico and South America Limited London and Brazilian Bank Limited London and River Plate Bank Limited London and San Francisco Bank Lim. Imperial Ottoman Bank Societe Gcneralc de Paris Besides a large hnmber of private firms engaged in similar business. 130 THE CTTEQIJE SYSTEM AND ITS CONTROL. T is frequently imagined in France that the Cheque is used as a circulating medium, or as Money,, created bv the signature of the drawer. Nothino- can be more erroneous. Tlie Cheque is not even a Bill of Exchange; it is a mere order, used as a means of transferring a claim between two parties, created by custom and operating under certain rules.* In order to show the true nature of a Cheque the follow- ing will serve : — Say, Brown keeps an account current with the Bankers, Robinson & Co., and having a balance there in his favour, he draws a Cheque, dated to-day, and hands it to Jones for payment, before four o'clock, so as to give Jones time to encash it before the Bankers close. Jones is then bound to encash the Cheque within 24 lioiir^, for if he chooses to wait till the next day or later, and if in the meantime the Bankers, Robinson & Co., should fail, it is Jones * A stamp duty of one penny per Cheque (by impressed or adhesive stamp) is levied upon Cheques by the Revenue. The amount of the Cheque or Draft payable " on demand " may be small or lai-ge, the uniform stamp of one penny is charged upon it. Bills of Exchange can-y an a/l rahirem stamp duty at the rate of one shilling for £101 ». _ t 81 who loses the money and not Brown. Of course, the Banker fails within the 24 hours the drawer i liable for its payment. It is customary, if a Chei is given before four o'clock to present it for paymen' at once. The Cheque has consequently no value of its own, and its existence is but one of minutes and hours. The English Cheques which appear in France (and which are sought as a favour able remittance) have probably given rise to the erroneous impression that they are used as circulating mediums. That, as far as England is concerned, is <-^ not iho case; the Cheques are at once paid and cancelled. Another false impression in France is that the Cheques in England must be taken in payment by the creditor, thus giving an opportunity to un- principled people to commit frauds. Nothing of the kind is the case ; the party to whom Money is due can, at his option, demand Gold or Bank-notes instead of a V Cheque, and he takes Cheques only from customers well known to him. It must be borne in mind that the vast majority of transactions in mercantile life arc matters of account only, in which the payee runs no ■ risk in accepting a Cheque in payment. Thus if a retail trader sends in his bill for goods supplied, the customer pays him with a Cheque; if the Cheque is not paid the account of course remains unpaid. Receipts are frcfjuently given, " Received payment by Cheque," but even if tht; words " l)y Chefpie " are left out in the receipt, the unpaid Che(|iie liocomes evidence that tlie account has not Ix-eii ac(|iiitl((l. Oi'dcrs for goods ai-e frequently acco)n|Kiiiie(l hv Che(|U(', and of course, if the Uw ^ Pu^frr^ -^^ "^ A^' *.^ >w V -^ k^'^'V^i •> 7> a ]Jj(ivJ4 /U^ ^t-'d.^p?*- seller thinks it oxpoiliont, he first t wofto i n'c the Cheque before he sends aw.iv his.ofoods. So, ill larger iiiercaiitilo transactions, where credit has already ])layed part in all sorts of contracts, Cheques are taken with safety, because their non- payment would leave the transaction incomplete. The only case where a retail trader might suffer is, when he surrenders goods to the hands of some one he does not know well, and takes his Cheque in return. But he only takes Cheques when he knows the party well ; othermse he insists upon Cash. So natural is this rule, and so well understood, that all customers so purchasing provide themselves with Cash, or do not object to the previous encashment of Cheques. Any- body presenting a Cheque in payment for goods which he wishes to take away with hiin at once, and feeling offended at the suggestion of its being first encashed, would be looked upon with suspicion. Anybody giving a false Cheque or drawing a Cheque without having the right to do so, falls under the punishment of the law, as having acted on false pretences. In large mer- cantile transactions, involving the surrender of valuable securities against Cheque, the parties must be well known to each other before Cheques are taken, but they nevertheless frequently insist upon Bank-notes or Gold (especially, of course, in cases where there is a shadow of doubt as to the position of the debtor) ; and in certain large transactions, and certain branches of trade, it is the invariable practice to insist upon Bank of England Notes. These cases of the hand-to-hand surrender of :^3 property or valuables, in the average of iiiercautile ^ 1v^ transactions, form but a small per ceuiiage, aud tliey xi^'A I are treated, or can be treated, exceptionally, as shown, ^s, ^^^ but by f;ir the overwhelming majority of transactions i j^ are mere settlements of already existing accounts, which ^ X ^^ are only liquidated when the Cheque is actually paid. Xt - ^ The objection therefore that the Cheque system is hable to eno-ender fraud is o'roundless. Swindlers 1 { 'A now and then attempt to pass false or unauthorised Cheques, duping tlie unwary, just as drawers of fictitious Bills of Exchano^e are often successful in France, but these cases do not affect in the least the great economy and usefulness of the system. It is, indeed, easier to commit fraud and forgery bv means of Bills of Exchange, which have some time^ to run before they are due, than with Cheques, which have but a very short existence and are presented at once, therefore instantly detected. This must be ^ obvious to all who reflect upon their nature. The of the Cheque-book {Jivre a souche) which the customer ) ri^^. has, and take extra precaution if the Cheque i s :r^ot ( written on one of their forms ; in the second place, when any total stranger, or strange person, calls for the payment of a Cheque for a large amount, not accompanied by the drawer or some well known person, and it" lli origin of the Clearing Tloiise system is thus described : — Before its establishment, many years ago, Bankers were in the habit of ])resenting to each other for ])aynient, during the day, numbers of Cheques, Thus, whilst say Messrs. Glyn & Co.'s collector called at Messrs. Smith, Payne & Co. with Cheques drawn upon the latter, Messrs. Smith, Payne & Co.'s clerk was on his way to Glyn & Co. with a similar collection, and this process, of course, required the carrying about of much Money. It appears then, according to report, that the collecting messengers met each other frequently at a tavern during luncheon time, and that sorting out a list of each other's Cheques, they exchanged the Cheques, when, after verification of them, they made out the fin;d account, the one who had the most receiving the balance in notes. Imagine, for in- stance, that Glyn's collector has 100 Cheques, amount- ing to £86,500, upon Smith, Payne and Co, the latter having say 85 Cheques, amounting to £90,000. In the ordinary course Glyn's clerk would have been obliged to present the 100 Cheques at the counter of Messrs. Smith and Co. and there wait until they had all been verified and paid, when he would have carried £86,500 back to his emplo3'ers. Smith and Co.'s clerk would also have taken his 85 Cheques to Glyn's, there to wait and to take away with him £90,000. Now, 41 instead of doing tliis, the two met on the way, Gl^ai's clerk saying- to Smith's : " Here, I have got £86,500 on your Bank, and you have £90,000 on mine, let us note down the amounts, then give me the Cheques you hold and take mine ; we will go back to our offices to verify the Cheques, and after finding them in order, we will meet here again in half-an-hour, when I will pay 3'ou £3,500, which is the difference between your claims on my house and mine on yours. Any Cheques not in order or which cannot be paid, we will bring back with us, and deduct them from the final balance." In some such way, no doubt, did the system com- mence, and finding how greatly it saved time, labour, and the responsibility of carrying heavy sums of monev about with them, the clerks of other Banks joined in the proceeding. The number of Banks being limited, there were, at first, perhaps only five or six who made such an arrangement with each other. Thus the clerks were able to settle five or six batches of Cheques at a time. This simplified their labour greatly, and after a while the employers, taking notice of the great usefulness of the system, established a special place where their clerks could thus meet. Hence the origin of the Bankers' Clearing House,, whicli led to subsequent improvements and to the present perfection of the system. The Bankers' Clearing House is not an official establishment connected with Government. It is not ;i profit-bringing enterpi'ise, like a Joint Stock Com- |o paiiy, with sliaivlioKlcrs and c'a])ital for tlic ])ur|)osp of realisinfy divideiuls ; it yields no pecuiiiary proHt at all. It is simply like a private club, the expenses of which are defrayed by the members, wliere they meet for the purpose of carrying ont objects of their own. This must be distinctly understood, although the establish- ment indirectly, i.e. through its members, is of such immense importance to the public. It was established some 80 years ago, by several of the leading Banking firms, who, collectively, are the owners of such property as may be attached to it. It is a plain, large-sized ground-floor room, fitted with a series of plain desks, open only to those who act as the representatives of the members. The Joint Stock Banks, and other houses established since the forma- tion of the institution, have been admitted as members, by favour of the others, and for the sake of conveni- ence, and as a matter of course they pay their share of the expenses of its maintenance. Of the 35 Bankers in the City of London, the following 26 are its present members : — The Alliance Bank Limited. The Bank of England. Messrs. Barclay, Bevan and Co. „ Barnett, Hoare and Co. „ Bosanquet & Co. ,, Brown, Jan son and Co. The City Bank. The Consolidated Bank Tiimited. Messrs. Dimsdale & Co. ,, Fuller, Banbury & Co. 43 Messrs. Glyn & Co. The Imperial Bank Limited. The London and Connty Bank. The London Joint Stock Bank. The London and Westminster Bank, and its South wark Branch. Messrs. Martin. The Metropohtan Bank Limited. „ National Bank. ,, National Pro^dncial Bank. Messrs. Prescott, Grote & Co. ,, Robarts, Lubbock & Co. ,, Smith, Payne & Co. The Union Bank. Messrs. "Williams & Co. „ Willis, Percival & Co. All these are " City Bankers," i.e. they carry on business in that part of London where the great financial and shipping commerce is concentrated. The large Bankers in the West of London, such as Messrs. Coutts and Co., Ransom and Co., and others, whose business is more connected with aristocratic, profes- sional, and retail traders' accounts in that district, are not members of the Clearing House, being too far away from it. There are also several smaller or recently established Banks in tlie City of London, not as yet admitted members, because their l)iisi- ness is not yet of sufficient importance — and as a matter of course, tlic Clearing House is rather exclu- sive. For nhhoucrh Iho nuiount of trnsj involved in 44 tho case of niiv iiu'iiilxM- is i-(m1u('(.'(1 to :i iniiiiiiium of only a f^'^v iniiuiti\s' (liii'al ion, and altlionyli none of (he fow previous nienil)i>rs wlio slopped payinent failed to covei- the " final balances" duo by tliem on the day of the stoppage, yet it is natural that admission to membership should not be too easy. Hence the Bankers belonofing^ to the Clearino- TTouse arc dis- tinguished from others. The Bankers, not members of the House, are compelled to make and to receive payments for Cheques and Bills in the usual way, i.e. across the counter. The Bank of England is also now a member of the Clearing House, under a special arrangement. The Clearing House is situated between Lombard Street and King William Street. With the exception of two gentlemen of great experience in Banking and Clearing matters, and accountancy generally, Avho manage the business as " inspectors," i.e. assist and set right the " final balances," and a few mes- sengers, there is no special Clearing House staff of Clerks ; the business itself is done by the respective Clerks of the Banks themselves, who, known as "Clearing Clerks," meet at the "House." The large Banks employ several clearing clerks, who specially attend to the department. Each Bank has a desk in the establishment, with its name attached to it. Here the representatives of the 26 constituents meet for the purpose of " charging " against each other the total amount of the large number of 45 Cheques which are paid in by the customers of each during the day. Each sorts the Cheques he holds into 25 batches, each batch containing those drawn upon one of the other 25. Lists are made out of each batch, and the total amount of these lists is noted down. Each Banker also receives 25 batches of Cheques from the 25 others, all drawn upon him, vdi\i the statement of the total, and after the due verification of the Cheques, he accounts with each of the other 25 Bankers for the amount of Cheques to be paid by him as debit to himself, and for the amount of Cheques tov-be paid by each of the others to his credit. The balances between each of the 25 cases of debit and credit is the amount which finally one Banker owes to another, and so 25 settlements have to be made by each Banker for such balances. The principle of this process will be easily understood. Each balance between the Bankers is but a per centage on the cash totals of debit and credit, larger or smaller as the case may be. In such a mutual exchange of several hundred thousands or more than a million of pounds between two Bankers, the balance may at one time exceed a hundred or two hundred thousand pounds, at another time it may be under one hundred pounds. The largest l^ankers of course have the greatest numljcr of Cheques to ])ay and receive. An idea of tlie colossal business done in tliis way may be formed from tlie daily returns of the Clearing House, which range from £8,000,000 to £1-0,000,000 per day, the heaviest days being the bi-monthly " Stock Exchange settling days." In the year 187<>-7! a total 46 of more tluui £4,000,000,000* thus passed tlirougli the clearmg. (See letter of Sir John Lubbock, page 05.) The number of Cheques passed in a day rauges between (30,000 and 80,000.* Some time ago, the total length of the lists of Cheques of one of the Bankers, Avritten u[) very closely, for the purpose of addition, measured no less than 300 feet. It can be easily imagined that where such colossal totals are involved, there must be a perfectly regu- lated system, complete in all its details. A more ample description of the process may therefore be appro- priate. The Clearing House business may be divided under five principal heads — Firstly. . The " Received " Clearing. Secondly. The " Paid " Clearing. Thirdly . The " Balancing." Fourthly. The " Returns." Fifthly . The " Final" Balancing. And these five items, combined, indicate the course of the proceeding. * This does not represent the total of the business done, because many Cheques paid in to each Banker by the customers are on the firm itself. Besides this, there are a large number of open Cheques and payments across the counter, and the whole of the Cheque transactions connected with the large West-end Bankers and others. None of this business, of course, passes through the Clearing. 47 " Received " Gleaeing. Each Bauker (by which of course the respective staff of Clearing Clerks of each Banker is nie^nt) brings to the Clearing House the Cheques which have been paid in during the' day. These are assorted into 25 batches, the amount of each Cheque is written on a list, for the purpose of memorandum and addition of each batch. These lists are made in a book simply ruled with money columns (occupying the whole page, for the amounts only require noting down under the names of the Bankers printed in them, and thousands of items are thus entered), called the " Out Clearing," or the " To Receive " book, of which each Banker keeps one, and in which the 25 lists are entered under the heading of each of the other 25 Bankers, as "charged" against them. The clerk, having thus assorted and entered into his " out clearing " the respective amounts, places the 25 batches together with the statement of the totals of each, upon the desks of the 25 other Bankers, one to each, so that they may be entered, added up, examined and placed to his credit by the other parties. This process of bringing Cheques into the Clearing House goes on several times during the day, for although the final balancing does not take place until at the end of the day, yet in order to prepare for it and to save time, it commences as early as possible. Some Che(iucs are left over from the previous day, or have been received early by post, jind many customers pay in Chofpios early in flic niMniing. Instead of waiting wit li these until all ijie Clieques are gathered togetlier, between two and four o'clock, when the IS '' pjiviiiu; in'" 1)V c-ustonirrs bccoiiics particularly lu'avv, such earlier CluMpu's as can he put iD^'cthcr arc sent into the house in the morniiit;- aiid the first hour of the afternoon, so that they may he examined and provisioiuilly cleared before tlie greater pressure^ of biisiness sets in between three and four o'clock. Several sets of batches of 2G are thus exchanged, and lists made of them between the IJankers during the day, the largest late in the tlay. The totals of the various lists (written down, as before stated, in the out clearing memorandum book of each Banker), are added up afterwards at the close of tlie day. " Paid " Clearing. Now, as the one Banker has handed 25 batches of Cheques to the other 25, so he receives in return from each of them one batch, together 25 batches of Cheques, all drawn upon his Bank. The respective holders of these have previously entered the amounts of them into their own " out " or " received " clearing lists, and he in his turn must enter them to his debit, into his " in " or " paid " clearing book, which, like the out clearing book, is ruled with money colunnis, where he 2)uts dowii the amounts under the name of each Banker who has handed him a batch. As in the "receive" clearing, several sets of batches are thus handed over during the day to divide and expe- dite the work. All Cheques {i.e. only the amounts of each) are thus twice entered, first by the receiver, secondly by the payer, so that the correctness of the 49 work of one is controlled by the other. Havino- so entered the Cheques to be paid by his employer, the batches of Cheques are at once sent to the office of his Bank, where they are examined and entered to the debit of the customers who have drawn them ; those which are irregular or cannot he paid, for want of assets on the customers' account, becoming returns. (See Returns, page 50.) " Balaxcixg." At the end of the day then, all the lists which have been made out during the day by each Banker for each of the other 25, are added up, and each Banker thus has 25 totals to receive and 25 totals to pay. Supposing for instance that Messrs. Robarts, Lub- bock and Co.'s lists of Cheques against the London and Westminster Bank amounted together to £652,716 6s 6d, whilst the London and West- minster has £513,414 5s 6d, the balance between the two would be £139,302 Is in favour of Robarts and Co., and the settlement of this sum (after accounting for returns, see page 50), would suffice to discharge a total of payments between the two of £1,166,130 12s. (Under the head of " Final Balancing" the method of this settlement will be explained.) The balancing so far between each two Bankers is conducted entirely by the staff of clearing cU^rks attached to each Bank ; it is they who, iiuikiiig out the lists, must agree with each other as to their correctness, and state the balance between tlicni. 4 50 " Returns " Of course occur, of Ciieques or Bills brought back as not payable. The majority of these returns com- prises Bills, for some irreo^ularity in the endorsement, or want of funds, or want of advice (in the case of Country Bills made payable in London). The returns of Cheques are less numerous, and they are mostly connected with technical irregularities, such as want of endorsement on Cheques to order, &c. (It often occurs that Cheques are returned for want of the drawer's signature, which has been overlooketl.) So- called " bad " Cheques, i.e., drawn by customers without their having any assets at the Bank, are almost unknown. The drawing of " bad " Cheques is a foolish and almost useless proceeding ; frauds, by means of them, are but rarely accomplished. It is estimated that the number of sucli bad Cheques does not amount to one in 5,000. (Smaller Banks are more liable to have such Cheques drawn upon them than the large ones.) The " returns " connected with the early clearing are brought back and accounted for before four o'clock, i.e., they are charged to the Bankers who have presented them as " unpaids." The "paying" in of customers between three and four o'clock causes the busiest time at the Clearing House, and the returns are more frequent ; yet, so expeditious and prompt is the system adopted, that even these later returns are settled between four and five o'clock, so that Bankers can return irregular or bad Bills and Cheques to their customers by five o'clock. Many merchants, however, close their offices 51 before five o'clock, and they receive the returns the next morning early. The "returns" between the Bankers are, as above stated, deducted at once from the balances. Thus, on page 49, the pro formd balance between Robarts, Lubbock and Co. and the London and AVestminster Bank, before " returns," was £139,;302 Is. Assuming then that the latter had a list of returns amounting to £2,068 2s against the former, and Robarts and Co. a list of £872 4s against the London and Westminster, the balance in favour of Robarts and Co. would become £138,106 3s. (Occasional very late items of returns may have to be carried on to the next day.) The Bankers' own clearing clerks having thus arranged between them- selves the balances due to each other, — TfiE Final Balancing takes place, under the direction of the inspectors of the Clearing House. Formerly, when the respective Bankers had arrived at the balances, they were in the habit of actually paying over to each other the amounts due, again involving, though in a much reduced way, the carrying about of Money in a crowded district. Thus, taking the case between Robarts and Co. and the London and Westminster Bank, as stated above, the latter would have to bring £138,106 3s in Cash, which the former would carry away. This is now avoided by an ai-rangement which may be called the key-stone of tlie whole splendid edifice. I^^ach Banker has, as a matter of fonrse (at the end of the day) before liini 25 balances, part of wliich lie has to receive, part of wliicli he lias to pay. These can be [)iit together into t)ne statement, co.ntaining creditors on one side and debtors on the other, tlie nU'vmate balance between these beinp; tlie fnial mnount^ whicli the respective Banker hax to jniij, or ha.s to receive, on the whole clearing of the day. Sucli concentrated lists are accordingly made out, and annexed is a pro forma example of them ; presumably one of the London and Westminster Bank (the amounts of course are fictitious). Now on [)age 41) in the supposed clearing totals between the London and Westminster Bank and Robarts and Co., there arose a balance of £138,106 3s. It will accordingly be found that " Robarts " are among the ci'editors in the annexed 2^'^'o forma list for that amount. Besides the names of the 25 Bankers on the next page, there appear at the bottom of it two other items as " Country Clearing " and " C. H." The former refers to a balance from the process of clearing country Cheques, a separate clearing operation, to which allusion will be made after Avards ; the second, " C. H.," means Clearing House, and carries the result of corrections of certain errors of addition or otherwise, which may have arisen in the hurry, and which are foimd out and arranged by the Clearing House Managers afterwards, for it is evident that the whole gigantic business must be made to agree every day exactly to a penny. In thii ^iro forma list given, neither of these two last items have any amounts placed against them, but their intention will be understood. 53 LONDON AND WESTMINSTER BANK. CLEARING ACCOUNT. (DATE.) debtors. Crtb iters. 1 ' Alliance 1 £36,512 1 7 £121,715 3 5 Barclay 15,310 6 6 Barnett Bosanquet 417 12 9 ■ ■■ Brown 2,943 11 2 87,566 2 1 City Consolidated 57,473 14 County 70,938 2 9 9,571 19 7 Dimsdale Fuller 7,302 6 Glyn 159,217 18 6 26,377 5 Imperial 88,296 7 8 Joint Bank of England 510,775 15 2 37,215 15 U Martin Metropolitan 2,740 4 4 62,127 12 National — — , National Provincial 27,311 1 9 91,746 6 ■ Prescott Robarts 138,106 3 i — 1 Southwark 160,391 15 9 Smith 133,216" 6 6 ! 1 Union — Williams 1,740 7 6 9,276 1 Willis Country Clearing — C. H. £842 «11 1 10 . 1,015,478 13 842,811 1 10 Balance... £162,667 11 2 ^lM*4i^ai^M«MM 54 How tlien is tliis further balance, iviliiced from the previously reduced 25 balances^ to be paid, amounting, as in the pro forma final list of the London and AVest- minster Bank, to £102,007 lis 2d? This is done through an account kept at the liaid^ of England, called " the Clearing Bankers' " Account. The Bank of England is, as already stated, the Banker of the Bankers, and all of these, independently of the Clearing House account, keep individual accounts and large balances of their own at the Bank of England. Now when the final balances of each Bank have been agreed upon, the inspectors issue 26 transfer notes upon the Clearing House account, advising credit or debit, as the case may be. These transfers are taken to the Bank of England, and from them the individual accounts which the Bankers keep there are credited or debited, and the Clearing House account debited and credited. Thus, by the 2)ro forma list given, the London and Westminster Bank has to pay £162,667 lis 2d. The London and AVestminster Bank's individual account is debited with that sum, and the Clearing House account credited. Other Bankers' accounts may have to be credited against the Clearing House account debit. The Clearing House account is thus simply a matter of convenience in accountancy ; it stands to reason that at the end of each day it must balance to a penny exact. The Bank of England itself is also a member of the Clearing House, but only for " one side of the account," i.e., it only collects or " receives " for such Cheques as its customers pay in, drawn upon the other 55 25 Bankers ; it does not pay the drafts made upon itself. Hence in the above pro forma account the Bank of England is credited with the rather large sum of £510,775 15s 2d. It is not necessary that the Bank of England should "pay" the Cheques drawn upon itself through the Clearing, for, as already mentioned, each of the other Bankers keep a separate account at the Bank, and all the Cheques and claims which come into their hands during the day on the Bank of England are paid direct into the credit of their accounts there. The Bank of England thus gains a start in its favour, a guarantee to it for being a member of the Clearing House. Another great advantage of this special arrangement is, that every one of the Clearing Bankers is thus obliged to keep a direct and suflScient balance to his credit at the Bank of England, from which he is able to pay any large final debit of the Clearing against him into the Clearing Bankers' account. The arrangement with the Bank of England consequently serves also as a guarantee of the good faith of each individual member towards all the other members of the Clearing House. The whole of this gigantic Clearing business is thus done absolutely without the use of actual Money, The reader will understand its successive construction and method of reduction. Firstly. The Cheque system by the customers. Secondly. Its first concentration from the cus- tomers into tlio hands of the Bankers, 56 Tliirdly. The ivdiictioii in tlu> Cloariii'ij House to balances between each of I In- I bankers. Fourthl)'. The further reduction of these balances into one final balance for each Banker. Fifthly. The absorption of the 26 final balances throuo-h the Olearinr to hav(s for each one of tliem, two or three smaller ohi\s, may bear upon tlio question. If the prices of property and commodities depends not so much on the amount of Money present as on the amount of service which it can be made to render through an intelligent arrangement, l)y wliich- the number of transactions is increased, it is evident that such prices can be maintained, although the solid currency itself may undergo a reduction in amount. The point whether there is a precise cor- respondence between a per centage of such " Clearing transactions," i.e. whether the one is a full compensa- tion for the other, may be reserved ; for the exchange of commodities by means of solid Money is conducted by an agent whose intrinsic power is a guarantee in itself. The " Clearing System," as a mere mechanical operation, is not accompanied by this guaranteeing and reserving power ; hence it cannot be a complete substitute for solid Money. the Bank, though ruinous to commerce), the whole amount of interest gained by the privilege of the Note issue as implied in the creation of the 15 millions of fiduciary Notes, falls short of the expenditure incurred by the Bank on its behalf by £70,000 or £80,000 per annum. The Bank reserve, thus placed at the disposal of the Bankers and others, at the expense, and contrary to the will of the Bank of England, is thus almost always an excessive one, and, therefore, mischievous. However high the Bank of England may be able to raise the rate of interest, so as to check the demand upon it, and so as to recoup itself for the previous long times of idleness of the reserve, the loss upon the whole transaction can be made manifest by a simple appeal to arithmetic. 61 None of these special views or considerations how- ever can in the least invalidate the simple, though admirable principles, and their mechanism, as prac- tically carried out in the Clearing House System. It is a patent fact tliat England conducts her ovenvhelming trade with an amount of MetalHc Money much below the proportion held by other nations, and this is due to the great extension of the London Clearing House System; for London is the centre where a great portion of the inland trade, and the greater portion of the international trade, meet with their settlements. France, called upon to part with so -large an amount of solid Money on account of the war indemnity, might thus, very naturally, endeavour to replace the loss of solid mediums of exchange by the formation of a Clearing System, T^^thout carrying it to an extreme which neglects the solid Bullion basis. In England this basis is Gold alone ; in France, however, both Gold and Silver are maintained as valuator;^, hence France has a double support, and her system of valuation is more cosmopolitan. The main- tenance of the Doul)le Valuation in France, therefore, affords greater scope for solid means of guarantee, and the addition thereto of an elVective Clearing System would be of the greatest advanta<^e to tlie country. But, and this must be borne in mind, Ihc Clearing System rannof he. infroilurrd i))l(i France, unless the Banking System is first placffl (U) the same footing as 62 //( /( l\ii(jlaiitJ, until I lie Cli('^ 64 Aimexod are a sot of the rules and regulations! (o be observed at the C^learino; ITouse, and also a letter ]niblislied bv Sir John Lubbock. Rules and Rkuulations to iuo ohskrvkh ai thi: ("miarinc. Housk.