Bank of France

“ But does the gentleman not know that the traditions and habits of France are as unlike those of England and the United States as those of any two nations of the world can be in regard to the use of money? I say to the gentleman that in France, banking, as an instrument of trade, is almost unknown. There are no banks in France except the Bank of France itself. ”

“ If, then, the credit of the Bank of France should be loaned at three-fourths of one per cent., ordinary bankers, notaries, capitalists, and even the stockholders of the bank itself would be immediately compelled by competition to reduce their interest, discount, and dividends to at least one per cent., including incidental expenses and brokerage. What harm, think you, would this reduction do to borrowers on personal credit, or to commerce and industry, who are forced to pay, by reason of this fact alone, an annual tax of at least two thousand millions? ”

“ Whenever the financial institutions have found themselves in need of effective pecuniary assistance, the Bank of France has regarded it a duty to help them, and in normal times, by assisting them with its resources, it facilitates liberal credits. ”

“ The paper currency of France is issued wholly by the Bank of France, a private corporation, privately owned, but whose chief officers are appointed by the Government, which thereby obtains a general control of policy and administration; the maximum amount of note-issue is fixed by law, arbitrarily, and by occasional increase is kept well ahead of the country's necessities; no fixed legal reserve is required, but the total note-issue must be covered by gold, silver, securities, and commercial paper ”

“ Actions de la Banque de France, though subject, in common with all stocks, to the influence of the government, are, however, far more independent of it than any other, and are the more secure, as the National Bank is not only composed of all the first bankers, but also supported by the principal merchants in the country. ”

“ Sometime we may become wise enough to have a great central bank, with branches all over the country, like the Bank of France, whose strength was so great that even the commune of Paris, in the ascendant in 1871, dared not touch it. ”

“ In France a system which has already passed the hundred-year mark and has been particularly fortunate as to results, intrusts the Bank of France with the duty of building up and preserving the metal holdings, and this great organisation shows itself fully worthy of the confidence which the Government has always reposed in it. ”

“ Law had long been elaborating a scheme which is for ever associated with his name, and beside which the Bank of France sank into insignificance. In 1717, the year before the bank had been adopted by the regent, the billets d'état of 500 livres each were worth about 160 livres in the market. Law, with the assent of the regent, proposed to establish a company which should engross all the trade of the kingdom, and all the revenues of the crown, should carry on the business of merchants in every part of the world, and monopolize the farming of the taxes and the coining of money ”

“ When demand for money increases for any reason, more commercial bills are presented for discount to the banks, which, after indorsement, exchange them at the Bank of France for the notes with which they supply their customers' needs. The note issues of the Bank thus expand in direct and immediate response to the needs of the country for more currency. ”

“ Your Federal reserve banks which are intended to be the equivalent of the Central banks of other countries, such as the Bank of England, Bank of France, and the Reichsbank, should be prepared to rediscount approved bills at all times and to any extent.
The advantages to you of such a market would be the same [Pg 710] advantages that we possess, namely, liquid employment for short money; power to meet demands for money without disorganizing stock exchange prices; power to check overtrading at home, and finally, power to check a foreign drain of gold. ”

“ In 1800, under the inspiration of Napoleon Bonaparte, undoubtedly as great an economist as soldier, the Bank of France was organized, and is the most striking single example in all history of the bank credit currency prin [Pg 72] ciple. It has to all intents and purposes always had the right of unlimited note issue, as the limit is always fixed far beyond the requirements of trade. The amount of the notes outstanding are usually ten times as large as the deposits. ”

“ The large specie reserve of the bank has given stability to the trade of France, and has enabled the bank to manage its business without the numerous fluctuations in the rate of discount which are constantly occurring in England. It is true that the holding this very large amount of specie imposes a very heavy burden on the shoulders of the shareholders of the bank, but they do not complain. The advantage to business from the low rate of interest which has to be paid for the use of borrowed capital in France is a great advantage to the trade and industry of that country. ”

“ One-fourth of the capital must be invested in French rentes or other treasury bonds; one-fourth in office buildings of the society, or by loans to French colonies, or in securities deposited with the Bank of France as a guaranty for advances. Shares cannot be issued at a price below par. They are nonassessable. The surplus may be loaned on mortgages or to municipalities or may be used in other mortgage business allowed by the statutes ”

“ That crises still degenerate on occasion into panics in America, but not in England, France, or Germany, arises primarily from differences in banking organization and practice. In each of the three European countries, the banking system as a whole is so organized by the prevalence of branch banking and the existence of a central bank that reserves which bear a small proportion to the aggregate demand liabilities of all the offices can be applied when and where they are most needed. ”

“ In Europe and particularly in France, the government of the banks is more or less in the hands and under the control of the king and the ministers. In America, conformably with the principles of self-government, the Bank, like all the other industrial and financial institutions, has, up to this time, governed itself. The Federal government, owning one fifth of the shares, names one fifth of the directors ”

“ They will bargain and figure down to the “sou,” the popular coin, worth two American cents. Every French family figures on spending less than it makes, and does it. There are practically no savings banks and no one much has a bank account, but as soon as a little money is saved it is invested in government bonds or municipal or railroad bonds, which bear four per cent interest. Every family has government bonds, and this habit of investing in securities is the reason which makes France so great and strong financially. ”

“ As a member of the committee whose report you have just heard, I consider myself entitled to address you, both for the purpose of submitting to you some ideas of my own on the subject of the caisse d’escompte, and more especially with the view of bringing to bear upon this subject some important questions, inseparable from it, and essentially connected with the great interests which now so urgently engage your attention.
“The idea of the establishment of a national bank in France, is one which has excited great attention, and which has gained great favour in public opinion. ”

“ For if the reprisal trade should adjourn from Exchange Alley to Birchin Lane, it may seem to be like the banishing usury from the city of Rome, which transferred it to a Jew at Genoa, a monk at Naples, and a banker at Venice, who, it was said, had no less than seven-and-twenty principalities in Italy mortgaged to them at a time, besides two kingdoms, seven duchies, and the jewels of the crown of France.
Having thus given the blazing characters of three capital sharpers of Great Britain, knaves of lesser magnitude can have no room to shine; the Alley throngs with Jews, jobbers, and brokers ”

“ The unique powers of commercial banks to accept demand deposits, provide checking account services, and lend against fractional reserves permit the banking system as a whole to create a supply of 'money,' a function which is indispensable to the maintenance of the structure of our national economy. ”

“ We are afraid to put men to live and trade each on his own private stock of reason; because we suspect that the stock in each man is small, and that the individuals would do better to avail themselves of the general bank and capital of nations and of ages. ”

“ The banks in consequence have less to lend to the brokers, who are then bound to apply to the Bank of England, which compels them to discount their bills at its own terms, and the rate in the outside market, of course, advances. ”

“ Except for automatic membership in the Federal Reserve System, different examining boards, and more or less different standards of examination, appraisal, and the like, the main point of differentiation between the national banking system and any (state) * * * banking system * * * was formerly the privilege of currency issue.' J. Paris, Monetary Policies of the United States, 1932-1938, at 96 (1938) .
Today the national banks perform no significant fiscal services to the Federal Government not performed by their state competitors. ”

“ An institution might have been established with large capital, and a monopoly of the right of note issue, authorized to act as government fiscal agent, and to deal with the general public. Such an institution would presumably in the course of time have become a central bank, the main reliance of other banks in emergencies. In order to avoid competition with existing banks, the act provides that the receipt of deposits by the Federal Reserve Banks, and their normal lending operations shall be confined to those banks which subscribe to the capital and maintain balances with them. ”

“ A National Bank is forbidden to lend more than ten per cent. of its combined capital and surplus to any one firm or individual. "But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed." Also no National Bank can lend on its own stock as security. ”

“ The banks put up their capital as an insurance fund, to protect their customers, and should handle their resources, and should keep such an amount of reserves on hand or at their command as to guarantee the payment of all depositors upon demand, or in accordance with their contracts. Since the banks, commerce and the people are all bound up together, the contracts of the banks with the people should take one common form, and each bank, from one end of the country to the other, should be compelled to assume its proper share of the burden, both as to paid-up capital and as to reserves. ”

“ And it is furthermore evident, that the Bank, which is met at every turn as an agent in all transactions, which governs credit, regulates the currency, animates or checks at will the activity of commerce by narrowing or widening the channels of circulation, the Bank, which by its numerous branches is, like the fabled polypus, everywhere present, the Bank with its funds, its centralisation, its trusty creatures, is certainly an anomaly, which may become big with danger. ”

“ A royal bank was to manage the trade and currency of the kingdom, to collect the taxes, and to free the country from debt. The council of finance, then under the duc de Noailles, opposed the plan, but the regent allowed Law to take some tentative steps. By an edict of 2nd May 1716, a private institution called La Banque générale, and managed by Law, was founded. The capital was 6 million livres, divided into 1200 shares of 5000 livres, payable in four instalments, one-fourth in cash, three-fourths in billets d’état. ”

“ Deposit banking operations affect not only the volume of money and credit, but also the value of the dollar and the stability of the currency system. In this field, considerations other than simply the preservation of competition are relevant. ”

“ Assuming that we are all agreed as to the result of our talk last Wednesday night upon reserves, that they must be national to be equal and adequate, our conclusions now are inevitable, (1) we must give to the National banks the power to do a Savings bank business, as well as a Commercial business; (2) we must give our National banks the power to do a Trust Company business; (3) we must give our National banks the power to issue a pure credit Bank Note precisely like that issued by the Scotch Banks and the Canadian Banks, and was issued by the five hundred banks in New England before the war. ”

“ The surplus of the National banks is 92 per cent of their capital, and strange and fortunate to say, excluding the Mutual Savings bank, the surplus of all other state banks is exactly 92 per cent of their capital. ”

“ Much of the capital of the present bank was obtained from Europe. We are told in the report of the committee, that foreigners own stock to the amount of seven millions. Is it probable that these capitalists will be as ready to venture their money in the state banks, as in one chartered by the general government? Would they even venture it again in a national bank, after we had shown so vacillating a policy? We establish a bank of that description in 1791—we put it down in 1811, as unconstitutional—we charter another, five years afterwards, 1816, and discontinue that in 1836. ”