Henry Warren

“ The West-end banker, again, has his peculiarities, and it by no means follows that the rules and regulations of a bank’s head-office in the City are in complete harmony with those of one of its branches within a quarter of an hour’s walk of the seat of government. It is, therefore, impossible to define London banking, because London is vast, and the system eminently elastic and adaptable. ”

“ Though we live in an age of great machines, which, for reasons that will be explained later, can declare huge dividends, every now and again we hear of the inception of a new banking company. The new arrival, perhaps, waxes more than eloquent upon the [12] large dividends paid by the existing companies, and then dwells enthusiastically upon the immense profits it hopes to earn; but can a small company ever establish its credit in face of the network of branches which now cover the land? The person who applies for its shares must certainly be of a most sanguine disposition. ”

“ In Chapter II, on the choice of a banker, an attempt was made to show why a customer should select a strong institution whose working resources are plentiful, and whose reserve of liquid assets is large enough to enable it to meet a drain of deposits during a run or a panic. The shareholder who guarantees the customers of a bank against loss to a limited extent will naturally take care that he is a partner in a company which maintains an adequate reserve of cash and securities as an insurance fund against those accidents which are quite beyond the control of the most able board of directors. ”

“ The business man’s favourite investments are English railways, Corporation Stocks, Industrial Companies, and so on, whilst occasionally, endowed with imagination, and recognizing how erratically the earth dispenses her favours, the blessed uncertainty of mines appeals to his gambling instinct. As a rule, a banker’s loans and advances are not covered by Consols, because it would pay the borrower better to sell out and place the sum they realized to his credit. ”

“ We have seen how the large joint-stock banks, by developing their system of branches, literally smothered the private banker; and the smaller companies, which possess but few branches, are now being forced to amalgamate with the larger for the same reason. If, therefore, a man has a large advance from a small provincial banking company, it may occur that, just when he is anxious to discount more bills or to increase his overdraft, the bank will be unable to accommodate him ”

“ We are told that London banking is quite different to country banking, but it is a difference of degree rather than of kind, and in London, as in the provinces, the bank-manager has two rates—one for those who, taking him at his word, do not attempt to bate him down, and a second and lower rate for those persons who, knowing that he is of the City, and scenting instinctively a servant of the company, who is in possession of instructions, literally force his hand. ”

“ As the law now stands, a deceased customer’s balance is, to a certain extent, at the mercy of his banker; but whether these unclaimed balances would in the aggregate amount to the huge total at which some people are disposed to estimate them is rather doubtful. That the law urgently requires amending cannot, however, for a moment be questioned, for persons whose own interests conflict with those of the public can seldom be trusted to judge impartially; and it is quite evident that directors, who are imbued with the commercial instinct, are not exceptions to the rule. ”

“ There is no occasion to let the banker see the move.
In London and the great cities a large proportion of the deposits at interest, especially during periods of depression, would represent capital temporarily withdrawn from trade, and awaiting either more profitable investment or an increased demand and rising prices. It is this accumulation of idle capital that tempts the company-promoter from his lair, and sometimes results in a Stock Exchange boom, whilst it always produces an increased demand for the so-called gilt-edged variety of securities and a consequent rise in their price. ”

“ Sorely tried in temper, the poor agent sets about answering the questions put to him, and then, much against his will, he writes to certain clients whom he asks to give him a call.
Now, perhaps, the customers of the joint-stock banks will understand why they receive so many letters requesting them to keep their accounts at the agreed limit, or even to reduce or pay off the overdraft unless they can deposit either more desirable or additional security. At such a moment an irritable person is disposed to regret that “a company has neither a body to be kicked nor a soul to be damned.” ”

“ The manager, anxious to stand well with his directors, some of whom increase his salary if he add to the profits of his branch, does not, [44] of course, suggest to these ladies the advisability of receiving interest upon at least a portion of their balances, but, on the contrary, being wise in his generation, endeavours, by resorting to those social amenities that raise him higher and higher in their estimation, to hide the awkward word from their view, while laughing in his sleeve at their excessive credulity. ”

“ However, it seems improbable that a father, after having carefully considered the chances, will choose a banking career for a son who can pass examinations successfully.
Then, again, the average youngster has more chances in business; for while a few hundred pounds will establish him as a trader, as many thousands will not enable him to become a banker. The banks, so to speak, take their men right off the market, and give them a special training, which fits them for banking alone, but which, as a rule, totally unfits them for any other business ”

“ Knowing that certain bank-managers are running about the City in search of desirable accounts, just as are bill-brokers for first-class paper, he not unnaturally comes to the conclusion that he can find a cheaper market elsewhere, so, having exhausted the gentler modes of suasion, the client finally and reluctantly threatens to apply elsewhere, or reveals the fact that he has already done so, and with what result, when the manager, if he think him in earnest, quotes his very lowest rate, and asks him not to mention it outside. ”

“ The City banks are too busy to give much attention to the wants of the small man of business, and, broadly speaking, they require marketable securities before they will grant a loan or advance. The suburban manager, however, who is only on the edge of this struggling mass of humanity, views the smaller applicant with a kindlier eye, because the large borrower seldom approaches him, so in the suburbs one can borrow on mortgage just as one can in the country. Indeed, suburban banking approximates very closely to country banking, the one noticeable distinction being the deposit rate. ”

“ Now that the liability on bank shares is a certain sum that cannot be exceeded the investor is inclined to regard them favourably; and though a rich man, who can afford to take a certain amount of risk, may decide to hold a few bank shares among his other securities on account of their higher yield, this liability, be the risk of a bank coming to grief never so small, makes them a most undesirable investment for those persons the interest upon whose capital is just sufficient to supply their wants. Bank shares, in short, are rich men’s shares ”

“ We need not discuss here whether or not this policy be essential to modern banking; but it is quite evident that the small man of business has lost a good friend in the old-fashioned country banker, whose place has not been taken by that person of peculiar views and training—the bank-manager or clerk-in-charge, whose urbanity must be more than painful to those would-be borrowers without security who ask for bread and are politely offered—a stone. ”

“ The person who obtains an overdraft without security must, as a rule, give thanks, and pay up with a light heart, for should he apply elsewhere he would be received with open-mouthed astonishment. A good name in the banking world implies that its owner is worth some few thousands of pounds; and though, in the moral sense, its value is considered beyond price, directors, while appreciating it in the abstract, regret their inability to safely ensconce it [84] within their safes, and therefore, as practical men, their powerlessness to advance against it unless backed by collateral securities. ”

“ We next come to the rate a borrower should pay upon a well-secured loan or advance, and here, again, we may touch upon a distinction between London and country banking. A banker, like any other dealer, adapts his business to his surroundings, but in a great city like London he is practically compelled to specialize more or less, and but little money is lent in the City upon mortgage, whereas overdrafts are granted freely in the country against the deeds of house property. ”

“ A business man, in order to give himself every chance, will pay all cheques to the credit of his banking account upon the day he receives them from his customers. He has, in the legal sense, until the close of the first business-day following the day he gets the cheque, when, if he like, he can post it to his agent, who has the same time-allowance for presentment, provided the cheque be not drawn upon a bank in his own town. If he delay longer any loss incurred by the drawer through non-presentation will fall upon the payee’s shoulders. ”

“ In London, a man who opens a small account with a bank, and whose credit balance averages £100, will not be debited with any commission at the end of the quarter or half-year when the companies rule off their books, while in the suburbs an appreciably smaller balance is accepted, and, occasionally, interest is allowed there upon current-account balances, though one will have to press pretty hard for it. Competition is now so keen between bank and bank that it is sometimes possible to make very close terms. ”

“ Many men of small means assure their lives, and a banker, provided the office be a good one, will generally advance up to the surrender-value of the policy. This he ascertains by applying to the assurance company, which tells him at what figure they will commute it. The rates charged upon this class of security are high.
Where the customer’s overdraft is only partially secured, he must make the best terms he can for himself; and, as there is practically no competition for such an account, he will probably have to pay from 5 to 6 per cent. per annum interest and from 1⁄8 to 1⁄4 per cent. ”

“ A cheque is often described as a bill of exchange, drawn by a customer on his banker, for a sum certain in money, payable on demand. In these days, when the mere babe produces his cheque-book on the slightest provocation, it seems unnecessary to describe how a cheque should be drawn ”

“ A business man cannot be too careful in dealing with a cheque thus marked; and unless he be well acquainted with the holder, he should decline to part with either cash or goods in exchange for it. One should never, even if one know that the drawer is a man of means, and that the signature upon the cheque is genuine, give value for it to a stranger, as there is always the danger of one’s having to make good the loss of any prior holder, who may have been defrauded, whilst if the payee cannot enforce his claim against the drawer, then a holder for value cannot. ”

“ A banker is a middleman who borrows from depositors at a rate in order that he may lend to others at a higher rate, the difference between the two rates being his margin of gross profit. A certain portion of his deposits, we know, he obtains in exchange for granting banking facilities, and upon the rest he allows a rate of interest, while he has to maintain a reserve of so-called cash and gilt-edged securities against the danger of sudden withdrawals and panics. At the moment the companies cannot control the advance rate, or fix from time to time a minimum rate for secured advances ”

“ We now have to discuss the position of those persons who can only offer their banker the deeds of house property, land, and those other securities for which the market is a purely local, and, therefore, uncertain one. A banker, whose deposits are mostly payable at call and short notice, naturally prefers to advance against those securities that are quoted on a Stock Exchange, and does not care to lock up a large proportion of his resources in house property, etc., of which he cannot readily dispose in an emergency. ”

“ All one has to do, therefore, in order to ascertain the London rate for money on deposit-receipt is to deduct 11⁄2 from the Bank of England rate which may be seen in the city-article of every newspaper. Whether or not certain banks offer special rates to favoured individuals is a matter of opinion; or, again, they may bid higher for large sums for fixed terms; but the small depositor may take it for granted that, with their rates on loans and advances reduced by competition among themselves, the banks are determined to keep down the deposit rate. ”

“ Though a man keep a balance of £10,000 to his credit, he will not receive one penny in the shape of interest unless he ask for it, and, even after having arranged a rate, it is advisable to check the banker’s figures and ascertain that you are getting it, as, sometimes, they are apt to err in his favour, through small debits that have been deducted from the interest, and which, consequently, do not appear in your pass-book. ”

“ The customer naturally does not see why he should pay a rate upon £4,000 which he has not wanted, and which, in reality, the banker has not lent, though he has created credit in his own books to that extent by two simple entries on the debit and credit side of his ledgers. Assuming that no commission was charged on the loan, £60 a half-year seems a large sum to pay him for working an account, especially as most of his rivals will bid against him for a well-secured loan. ”

“ The small private banker, it is true, may offer more interest, but a depositor should take care to examine his balance-sheet before he entrusts him with either his spare capital or his savings.
A few of the purely provincial joint-stock banks, whose branches are situated in a manufacturing centre, and which, in consequence, are never overburdened with working resources, offer higher rates than the great companies, but they are the weaker of their kind, and it is therefore questionable whether one should lend to them. ”