Proportion per cent. of Capital, Deposits, Average Reserve, Reserve at and Circulation. Bank of England. Bank to Liability as of all Banks to the Public.
1872 £584,000,000 £12,100,000 2·06
Deposits, Current Accounts and Circulation of all Banks publishing accounts in the United Kingdom were:—
1894 £721,400,000 £25,800,000 3·58 1895 794,600,000 29,900,000 3·75 1896 797,700,000 34,600,000 4·33 1897 816,400,000 25,100,000 3·07 1898 838,300,000 22,900,000 2·73 1899 869,300,000 21,200,000 2·44 1900 889,600,000 21,400,000 2·41 1901 888,100,000 24,046,000 2·71 [5]1902 904,100,000 24,166,000 2·67
[Footnote 5: _Banker’s Magazine._]
“The Bank of England reserve, which constitutes the only real reserve of the country, is shown here in its true light from our present point of view. A further outside reserve of, say, £15,000,000 would only, it is true, serve to restore the proportion to that of the year 1896, but it would ensure the present maximum becoming, in effect, the future minimum, and here would be a great gain in an extra sense of security in troublous times. Should a gold panic at any time seize upon the public, it would matter little whether the ratio of Bank of England reserve to the aggregate liabilities were 2·50 or 5 per cent., suspension of cash payments would ensue. A credit panic, as distinguished from a gold panic, can usually be assuaged by a suspension of the Bank Act and an overissue of bank-notes. A further object of an increased gold reserve is that not only the periodic and well-recognised, but the unexpected and perhaps heavy withdrawals of gold may be met without recourse to violent measures such as those to which the market is too often subjected. If this were clearly seen to be not only the intention, but the practical working of the fund, an objection which, I admit, is of great weight would be fairly met, and minor objections would almost disappear.
“The objection to which I refer is this. Gold is meant to circulate, not to be hoarded, and any proposal permanently to withdraw such an amount as £15,000,000 from circulation and, as it were, entomb it again in the bowels of the earth, stands self-condemned. No such entombment is suggested, as far as I know, but the formation of a fund for use—a fund which, on occasions, would pass into circulation—international, if not national—and would have a steadying effect on the pulse of the Empire, the Bank of England rate. How can we set about securing it? Let us glance at the tabulated bank balance sheets of the country. From which of the items on the assets side could such a sum be withdrawn? Loans and discounts? No. Investments? No. Buildings? No. Money at call? No. Cash in hand and at Bank of England? This, _ex hypothesi_, is the item to be increased. The reasons I need not give, but it appears tolerably plain that no plan involving a permanent diminution of any item on the asset side would meet with a favourable reception from practical men. Is it possible, if these items cannot be conveniently decreased, to obtain the amount by a fresh creation of credit, an addition to loans and discounts, and an equivalent addition to the other side of the account? Please understand that I am considering the case quite apart from the Bank of England.
“Here I am directly and once again challenging critics, who do not agree in my view of the non-elasticity of the Money Market, to show how, in their view, the alleged elasticity of the market may be utilised to produce a fund of £15,000,000. My contention is that only by the increase of the note issue or by increase of capital can it be reached. Suppose the bankers were authorised to issue £15,000,000 of £1 bank-notes. How could these be kept in circulation unless they were legal tender? Of what use would they be if they took the place of gold in our tills? This plan, under which alone could credit be created, would be futile to attain our end. There remains only the creation of new capital, unless our friends, whom I am challenging, and to whom we are looking to give us a discussion which cannot fail to be interesting under the auspices of Mr. A. C. Cole, who has undertaken to read a paper on ‘Notes on the London Money Market,’ can show us some adequate alternative. If each bank of the kingdom increased its paid-up capital 20 per cent. by an issue of a Three per cent. Preference Gold Stock, the fund could be attained. The proceeds should be devoted in each individual case to the acquisition of a corresponding amount of gold, in addition to present holdings, and this gold should be deposited at the Bank of England, but not merged in the Bank figures, so as to stand week by week intact, and shown under a separate heading in one aggregate, though, of course, the absolute property of each bank in detail. Carefully thought out arrangements whereby, under a joint committee of the bankers and the Bank of England, whenever occasion arises, a percentage of each holding should be transferable to the credit of each bank in the books of the Bank of England should be made, the gold thus forming an addition to their reserve until again withdrawn and added to the Bankers’ Gold Fund.”
Needless to say, this suggestion, coming from such an authority, caused much comment in monetary circles, and was generally received as a valuable contribution to the various schemes having for an end the settlement of this important matter.
In certain quarters, however, the scheme was held to be an impracticable one; and at a subsequent meeting of the Institute of Bankers, Mr. Cole, a director of the Bank of England, spoke as follows:—
“As regards the proposal to increase the capital of the banks, my reply is that the floating of a loan in this market of £15,000,000, or of £100,000,000, will not add one single golden sovereign to the bankers’ cash reserves.
“We can only increase our stock of gold in this country by getting it from abroad. To do that we must offer to the holders of gold abroad something that they will take in exchange for their gold.
“A loan in this market to increase the capital of the banks, to be subscribed for by the public who have deposits with them, is merely transferring a liability now existing on the part of the bankers to the public, from their depositors to their shareholders. The only way the bankers can increase their cash in hand, or balances at the Bank of England, is by following the method now pursued, namely, calling in their short loans so that the market has to borrow at the Bank of England. To put their position permanently on a sounder basis they must agree that instead of calling in their loans temporarily, they must all keep permanently larger balances at the Bank of England. Then the gold reserves of the country will be increased, provided that the Bank of England maintains its usual ratio of cash to liabilities. Taking that as 45 per cent.—the average proportion for the last twenty years ending 31st December, 1903, has been 46·6 per cent.—a permanent increase of £15,000,000 to the bankers’ balances would increase the gold reserve of the country by £6,750,000, and bring the average holding of the Bank of England in the Banking and Issue departments combined up to about £40,000,000. The reason for desiring to have a rather larger stock of gold at the Bank is that the export then of a few millions is of relatively less importance. But we do not want more than is requisite for the easy and safe working of our system. To sit on a hoard of unused gold is to do away with the advantages of banking. What is requisite is for this country to retain the power of attracting gold when it is required. Neither the system of banking nor the bankers can give it that power, for it is dependent, not on them, but on the successful business energy and activity of the nation. Of course, in order to attract and retain here the amount of gold mentioned above, the Bank of England must adjust its rate to circumstances, but with the increasing supplies of gold, actual and prospective, a reasonable rate is likely to suffice.”
These remarks caused some discussion, during which it was pointed out that under Mr. Tritton’s proposal the banks would collectively form a gold fund of £15,000,000, at a cost to themselves of £450,000. Under Mr. Cole’s proposal, however, for the banks to increase their balances at the Bank of England by the sum of £15,000,000, the extra gold held in the country would only be increased by the sum of £6,750,000 (according to the proportion of the reserve held to public liabilities, which has been 45 per cent. on an average for the last twenty years), while the Bank would make a considerable profit from the remainder of the increased balances—a profit earned entirely at the expense of the banks.
It was also pointed out that the requisite gold could be acquired by offering a slightly higher price for it, thus retaining imports of the metal which would otherwise be bought up by exporters. Finally, it was stated by one speaker of eminence in the banking world, that in his opinion the matter was not one for the banks to deal with alone, the additional gold not being required for the sole benefit of the banks, but for the security of the community at large.
The matter here rests for the present, but when it has to be settled, as doubtless it must at some time, the ideas and suggestions contained in these discussions will probably become of importance.
INDEX
Active circulation, 59 Advances to customers, 92, 100 Amalgamations, 80, 164 Arbitrage, 131
Bank Act of 1844: Main provisions of, 29; suspensions of, 35, 36, 38 — of France, 127, 149 — paper, 139 — post bills, 69 — rate, 74, 139, 143 — return: the first issued, 32 Bankers’ balances, 65, 90 Banking department, 62 Berlin: specie points, 128 Bill-brokers, 51, 90 — — guarantees, 108 Bills under discount, 92, 100 Board of Trade Returns, 154 Branch banks, 80, 164 Buying gold, 149
Call and short money, 50, 94, 147 Cash payments: suspension of, 12 ’Change, 134 Circulation: active, 59 Clearing House, 79, 115 — — Returns, 119, 154 Closing prices, 160 Competition, 163 Continental investment in London bills, 140 Country clearing, 117 Course of exchange, 135
Deficiency bills, 70
Exchange: favourable or unfavourable, 128 — long, 136 — short, 136, 139 Exchequer bills, 51, 92 — — closure of by Charles II., 5 Export specie points, 126
Favourable exchange, 128 Fixed price of issue, 159 Floaters, 111 Fluctuations of exchange rates, 129 Foreign bankers, 46, 54, 110, 139
Gold movements, 123, 142 — reserves, 162, 169 Goldsmiths, 4, 19
Import specie points, 127 Indian Government, 52 — price of silver, 152 Investments, 91, 97, 99 Issue department, 57 — at fixed price, 159 — by tender, 158
Joint-stock banks, 19, 21, 49, 77
Limited liability, 79, 145 Liquid assets, 93 Lombards, 3 Long exchange, 136
Mexican dollars, 152 Money market, 47 Monopoly of joint-stock banking, 10, 15, 23, 76
New York specie points, 128
One-reserve system, 67, 162
Par of exchange, 125 Paris: specie points, 127 Post days, 134 Premises, 93-100
Rediscounting, 110 Reichsbank, 34, 128, 149 Reserve, 73, 143 — capital, 83 — funds, 83, 104 Royal Exchange, 132
Short exchange, 136, 139 — loan fund, 49, 113 Silver, 150 Specie points, 126 Stock Exchange, 52, 96, 156 Suspension of cash payments, 12 — Bank Charter Act, 35, 36, 38
Tender system, 158 Till money, 60, 90 Tower of London: seizure of moneys, 4 Trade bills, 106, 139 Traffic returns, 153 Treasury bills, 51, 148, 158
Unfavourable exchange, 128
Visible gold reserves, 169
Ways and means, 70 Window dressing, 95
W. BRENDON AND SON, LIMITED, PLYMOUTH
BOOKS ON BUSINESS
_Crown 8vo._
A series dealing with all the most important aspects of commercial activity.
“Short, pithy, simple, and well informed, and written by men of acknowledged authority, these books are equally interesting, whether the reader knows something or nothing of the subject.” _Manchester Guardian._
=PORTS AND DOCKS.= By DOUGLAS OWEN, Barrister-at-Law, Secretary to the Alliance Marine and General Assurance Company.
=RAILWAYS.= By E. R. MCDERMOTT, Joint Editor of the _Railway News_, City Editor of the _Daily News_.
=THE STOCK EXCHANGE.= By CHAS. DUGUID, City Editor of the _Daily Mail_, Author of the “Story of the Stock Exchange,” etc., etc.
=MONOPOLIES, TRUSTS, AND KARTELLS.= By F. W. HIRST.
=TRADE UNIONS.= By G. DRAGE.
=THE BUSINESS OF INSURANCE.= By A. J. WILSON, Editor of the _Investors’ Review_, City Editor of the _Daily Chronicle_.
=THE ELECTRICAL INDUSTRY.= By A. G. WHYTE, B.SC., Editor of _Electrical Investments_.
=LAW IN BUSINESS.= By H. A. WILSON.
=THE MONEY MARKET.= By F. STRAKER, Fellow of and Lecturer to the Institute of Bankers and Lecturer to the Educational Department of the London Chamber of Commerce.
=THE SHIPBUILDING INDUSTRY.= By DAVID POLLOCK, M.I.N.A., Author of “Modern Shipbuilding and the Men Engaged in It,” etc., etc.
=THE BUSINESS SIDE OF AGRICULTURE.= By A. G. L. ROGERS, M.A., Editor of the last Volume of the “History of Agriculture and Prices in England.”
=THE BUSINESS OF ADVERTISING.= By C. G. MORAN.
=THE COTTON INDUSTRY AND TRADE.= By S. J. CHAPMAN.
=CIVIL ENGINEERING.= By T. C. FIDLER.
=THE IRON TRADE OF GREAT BRITAIN.= By J. S. JEANS.
=THE BREWING INDUSTRY.= By JULIAN L. BAKER, F.I.C., F.C.S.
=THE AUTOMOBILE INDUSTRY.= By GEOFFREY DE HOLDEN-STONE.
=MINING AND MINING INVESTMENTS.= By A. MOIL.