Crédit Lyonnais

“ I beg leave, my Lords, to ask, what want is there of any additional circulation, when the circulation is at present greater than it ever was? Is it necessary to have a more extended circulation, to afford the means of procuring loans of money to those who have no capital and no credit? I contend that this is a state of things that ought not to exist in any country. Persons who really possess credit, can raise money at the present moment with every facility that is reasonable or proper. ”

“ It may happen that the great financial institutions expand too rapidly or unwisely this or that branch of credit. Mindful, above all, of their own interest, which is but natural, they have no especial regard for the public welfare, their only aim being to make their capital bear fruit and to pay large dividends to their shareholders.
The Bank of France aspires to a nobler ideal, and many of its policies are primarily for the public good. The development of credit is an extremely delicate matter ”

“ Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. ”

“ Seasoned bonds have been bought in great volume by our commercial banks, but few stocks. Even the underwriters and investment bankers have been primarily intermediaries, expecting to pass on to private buyers the securities they hold temporarily. My point here is, merely, that there is nothing in the distinction between static and dynamic credit, when by that is meant the distinction between credit for new enterprises and credit for old enterprises, to mark off a peculiar or essential province for bank-credit. ”

“ The change from the old to the new banks [Pg 139] may involve some loss at first, but, if the system may be arrested at the end of five years, just when profits might be realizing, the plan could scarcely succeed. When the Secretary first proposed this system in December, 1861, he probably would have succeeded with the five-twenties, in the condition at that date of the public credit. But the disastrous fall of our securities since that date, seems now to require bonds of a higher value.
I would then provide a twenty years loan, for all that may be made the basis of the new bank circulation. ”

“ Of course, only those banks can furnish such credits which possess a surplus of credit more than they can sell in the ordinary way, and these credits are safe and useful only in small communities, in which men are well known to each other. Some friends of the parties thus accommodated always guarantee the bank against loss; but the losses have proved to be insignificant, the gains to be marvellous; and this form of credit issued on the basis of no previous transaction in the way of deposits illustrates better than any other the radical principle, that Credit is Capital. ”

“ With a given amount of money a certain proportion of it can be used for bank reserves on which to build credit transactions. For a time the volume of business will increase more rapidly than the money supplies, so that the proportion of credit business to the whole will increase, the improvement of the credit machinery in the meantime facilitating the movement. But the perfection of the facilities for utilizing to the utmost a given reserve, or a slowly increasing one, will come to a stop after a time, and it will be necessary to increase the money supply for any further expansion of credit. ”

“ By their very nature the financial institutions are liable to weakness, and for the public good there must be some means of supporting them. For this reason the Bank of France, which presides over the distribution of credit, can permit the expansion of its auxiliaries only up to the point where its help would suffice to prevent the collapse of the market. Such a measure appears imperative in a country where the protecting wisdom of the Bank of France has always been relied upon. ”

“ It can hardly be said that there is any profit in loaning money itself; for the interest obtained is generally no more than a fair price or equivalent for the crops, rents, or other incomes, which the property that might be purchased with the money, would yield. But in the loan of credit, there is an actual profit of the whole amount that is received as interest, after paying the trouble and risk of banking. ”

“ When the country where the bank is established begins to owe a balance to other nations, the bank, as we have seen in the last chapter, is obliged to pay it in coin or in bills. We have there shewn, that in such cases it is inconsistent with their principles and interest, to withhold lending and giving credit, so far as is necessary for keeping up the fund of circulation to that standard which alienation and ready money demands require. ”

“ The expansion of credit facilities by the Federal Reserve System and the Reconstruction Finance Corporation has been of incalculable value. The loans of the latter for reproductive works, and to railways for the creation of employment; its support of the credit structure through loans to banks, insurance companies, railways, building and loan associations, and to agriculture has protected the savings and insurance policies of millions of our citizens and has relieved millions of borrowers from duress; they have enabled industry and business to function and expand. ”

“ The Council will be clothed with authority to approve and schedule projects, to allocate on a fair basis the funds or credit which the Central Bank may from time to time mobilize to the loan portfolios of government lending agencies, to keep them within the approved pattern of allocation of available capital and the limitations established by law. We will draw upon our full credit capacity, backed by the guaranty of the Na­tional Government, to secure funds for this program. ”

“ Can we have forgotten the disastrous period when payment of one hundred thousand one-pound notes put into circulation by two banks enjoying good credit was suddenly stopped? Have we forgotten the ruin of some, the distress of others, the embarrassment of all? Have we not quite recently seen a bank established by people considered immensely rich, advancing large sums for distilleries, steam boats and other projects, and coming to an end in less than two years with a composition with its creditors who thought themselves lucky to get a few shillings in the pound? ”

“ The neglect in funding the public debt, has introduced a practice of issuing Loan Office certificates, for the interest due on other Loan Office certificates. This I have absolutely forbidden, nor will I ever consent to it. Such accumulation of debt, while it distresses the public, and destroys its credit, by no means relieves the unfortunate individual, who is a public creditor; for if revenue is not provided, increasing the certificates would only lessen their value. ”

“ Mutual credit societies or credit unions are organized to furnish capital for production; that is, it is commercial capital, or credit for commercial purposes, not for investment purposes at all. Not a single dollar of a credit union should ever be loaned upon real estate. Not a single dollar! Not a single cent!! Such a practice would literally destroy the principle upon which they are founded; mutual aid to assist in production, not investment. ”

“ Intoxicated by this pecuniary nectar, the fortunate, those privy to the secret, try to raise more capital by hunting for financial instruments they can convert to cash in Western banks. A bank guarantee, a promissory note, a confirmed letter of credit, a note or a bond guaranteed by the Central Bank - all will do as deposited collateral against which a credit line is established and cash is drawn. ”

“ In fact, every banking association is assumed to be a corporation of money lenders. Under ordinary circumstances this corporation is able to loan to individuals whose credit is good all of its capital not otherwise employed in the machinery of the bank, a considerable portion of deposits from its customers, and to a certain extent its own credit in the commercial world. In the case of a national bank a portion of capital is loaned to the government in the purchase of bonds, which are the basis of its circulating notes. ”

“ Every one who, at a time of commercial pressure, gets a loan from a bank, has to give high interest. Hence, as fast as prosperity returns, and his profits accumulate, he gladly escapes this heavy tax by repaying the loan; in doing which he, directly or indirectly, takes back to the bank as large a number of its credit documents as he originally received, and so diminishes the {333} credit-circulation as much as his original transaction had increased it. ”

“ But as the stock of the bank is of a determinate value, and as the notes they issue may very far exceed it, the credit of a bank will be precarious, unless the value of the securities upon which they lend, be equal to all the notes in circulation. It will also be precarious in proportion as the securities themselves are so. Hence the interest the public has to take care that banks give credit upon nothing but the best security. ”

“ As a result of interchangeability of book and note credits, a bank could always protect its coin reserve, for if the customer was just as well satisfied to take the bank's notes, instead of coin, or its reserves, it must be apparent to all of you that the cost to the bank would only be from one-sixth to one-fourth as great, and that the bank would have several times as much credit to loan, and at the same time be in a much stronger position. ”

“ It is at bottom a mutual buying and selling of debts. There is of course a daily balance on one side or the other between every two of these banks, which must be settled in money, because it would never happen in practice that each should owe the other precisely the same sum on any one day; but substantially and almost exclusively the exchange at the Clearing-House is a simple trade in credit-claims. Each bank pays its debts by credits. A merchant is a dealer in commodities, a laborer is a dealer in services, and a banker is a dealer in credits. ”

“ The reason for the competitive disadvantage of most lending institutions vis-a-vis banks is that only banks obtain the bulk of their working capital without having to pay interest or comparable charges thereon, by virtue of their unique power to accept demand deposits. The critical area of short-term commercial credit, see pp. ”

“ When industry becomes more extended, and when trade becomes more secure, from the solidity of mercantile funds, banks may then begin to discount bills of exchange, and as this branch of credit enlarges, the bank will by degrees participate of the nature of those secured upon mercantile credit. ”

“ With reference to the special tax established in order to carry out certain public works, the Moorish Government must have the same deposited in the Bank, as well as the revenues it may later pledge for its loans, the Bank being especially charged with the payments thereon, except, however, in the case of the loan of 1904, which is governed by special contract.
Art. 34. The Bank shall be the financial agent of the Government both within and without the Empire, without prejudice to the Government's right to apply to other banking houses or establishments of credit for its public loans. ”

“ Again, the terms offered by the bankrupts to their correspondents seem to us to promise the appropriation of a specified fund to the draft as little as they promise to apply the money received by them to that end. They are to provide the drawee banks with sufficient funds for the payment of the drafts by transfer of credit from our balance 'or otherwise.' They are to provide, that is, as convenient to themselves, for payment by the drawee banks, not to give them an earmarked corpus to be handed over. ”

“ 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? ”

“ That such a currency can best be furnished by banks of issue, if not so generally admitted, would seem to be demonstrated by universal custom among civilized nations. The issuance of circulating notes is a legitimate, if not necessary, function of the business of banking. It is one of the forms of the complicated system of credit which has made commercial growth possible, nor is there any reason why this particular form of banking obligation, constituting, as it does, but a minor part of the total, should, when created, have other or better safeguards than the remainder. ”

“ They also greatly economize in the use of money by saving cost of counting and of transfer, and by securing against losses. If the system offered no more advantages than this safe and ready use of good money, the banks would be practically indispensable. But they have a still greater use in a safe extension of credit. The perfection of system in banking makes it possible for one who habitually fulfils his promises to purchase anywhere in the world on the shortest notice with the simple guaranty of credit in the bank where he does business. ”