Banking house

“ I said that the business of banking proper consisted in loaning money, discounting bills, facilitating exchanges of productions by the agency of commercial paper, and in receiving and disbursing the deposits of individuals. The issue of bank bills was an exclusive privilege conferred only on a few corporations. It was a privilege that an individual could not enjoy. No person could issue his bills in the form of paper money without a corporate franchise granted him and his associates, either by a general banking law, or by an act of incorporation. ”

“ The commission house system, as we have it here, does not exist anywhere else, and its great growth in the United States has been largely due to certain peculiarities in our banking methods, which have prevented mills—even those with a reasonably sufficient supply of capital—from obtaining the amount of direct banking accommodation necessary for their needs. ”

“ Every district has its local bank, of a size to suit its wants, the stock of which is owned by the small capitalists of the neighbourhood, and managed by themselves; the consequence of which is, that in no part of the world is the system of banking so perfect—so little liable to vibration in the amount of loans—the necessary effect of which is, that in none is the value of property so little affected by changes in the amount or value of the currency resulting from the movements of their own banking institutions. ”

“ Now, this institution is not a 'bank,' by which term, in an unqualified presentation of it, is meant a bank of the ordinary kind. It is a Bank for Savings only. But if it still be a tank, that is to say, a common repository for people's money, having a bench or counter,-it is assuredly not a bank 'engaged in the business of banking.' The business of banking consists in buying, selling, and discounting commercial paper, with or without collaterals; in issuing notes; in making collections, and in receiving deposits of money and in paying them out on check, at call. ”

“ Among private people they are the principal depositors in the Bank; they are therefore particularly interested in its stability; they are especially interested in the maintenance of a good banking reserve, for their own credit and the safety of their large deposits depend on it. And they can bring to the court of directors an experience of banking itself, got outside the Bank of England, which none of the present directors possess, for they have learned all they know of banking at the Bank itself. ”

“ If you take a country town in France, even now, you will not find any such system of banking as ours. Cheque-books are unknown, and money kept on running account by bankers is rare. People store their money in a caisse at their houses. Steady savings, which are waiting for investment, and which are sure not to be soon wanted, may be lodged with bankers; but the common floating cash of the community is kept by the community themselves at home. ”

“ By its means their reserves can be replenished and their lending power made responsive to the needs of their communities. A bankers' bank makes it possible for the money of the individual banks to do many times the work it would do if left in the separate institutions, and to do it far more effectively. It is the only ultimate safeguard, the only scientific deposit guarantee, the only sound basis of flexibility in any banking system. ”

“ It is the branches alone which make this astonishing increase. Now, as a branch is merely a local agency of the parent bank, established at a distance for the sake of outlying business, the number of parties engaged in banking who are responsible to the public is not thereby increased, nor is the amount in circulation extended. In fact, the multiplication of the branch banks has been of extraordinary benefit to the public, by affording the inhabitants of even the remotest districts a ready, easy, and favourite method of deposit, and by extinguishing all risks of credit. ”

“ As some philosopher once said of God—if such an institution did not already exist, people would certainly have to invent one, and, as we have no such institution permanently and legally established in America to-day, the prime essential of any sufficient banking plan is the equipment of our system in some way or other with the facilities of a bankers' bank. ”

“ I consider it to be the undoubted duty of the Bank of England to hold its banking deposits (reserving generally about one-third in cash) in the most available securities; and in the event of a sudden pressure in the Money Market, by whatever circumstance it may be caused, to bear its full share of a drain on its resources. I am ready to admit, however, that a general opinion has long prevailed that the Bank of England ought to be prepared to do much more than this, though I confess my surprise at finding an advocate for such an opinion in the Economist. ”

“ 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. ”

“ Because of this necessary instability bankers watch most carefully the tendencies of the money market, and necessarily reduce their loans for safety when any anxious pressure begins. For the same reason legitimate banking is limited to short time loans—on demand, thirty, sixty, ninety days—the shorter being the safer. Laws sometimes prohibit a bank from dealing in any other business, where a stock of goods must tie up funds, or from speculation in real estate, which confines capital more certainly. ”

“ Only by having banks which employ in loans a part of depositors' capital lodged with them, can the best interests of the whole people be served, even if this entails something less than an absolute certainty of power to liquidate deposits on demand. That banking system must then be best which combines equally the largest measure of each of two elements: the use in commerce of funds deposited, and the certainty of paying depositors in money on demand. ”

“ You had to have that ranch, and since you couldn't buy it you decided to acquire it by foreclosure. To do that, however, you had to acquire the mortgage, and in order to acquire the mortgage you had to acquire a controlling interest in the capital stock of the First National Bank of El Toro. You didn't seem to fit into the small town banking business; a bank with a million dollars capital is small change to you. ”

“ The jealousy of the rural population in respect to banks led them to insist on inserting in bank charters a provision that a certain fraction of the capital should be loaned on mortgage of land. We shall presently see the antagonism, which here arose between parts of the same State, marking the relations of parts of the Union.
We observe that a bank was conceived of primarily as a means of creating wealth. Every one wanted a share in its beneficent operation. If the Legislature created it, all the people ought to participate in its blessings. ”

“ But apart from this obvious difficulty, can we contemplate with equanimity the prospect of the State monopoly of the ordinary banking facilities as they present themselves to the man in the street, namely, the provision of bank branches, the use of the cheque book, the custody of securities and any other articles that the customer wishes to leave with his bank? ”

“ November 24th, banks were given the right to recover damages if they could not collect balances from other banks. The free banking act was amended, December 7th, to authorize the Comptroller, if banks did not redeem, to foreclose mortgages in the banking fund and sell land and slaves by the same process by which personal property might be sold. The president and directors of the bank were to indicate which mortgages should be sold. December 8th, the Central Bank was authorized to issue ones and twos to the amount of $300,000, to be issued only in exchange for larger notes. ”

“ I am sure that the days of small banks will before many years come to an end, and that the difficulties of large private banks are very important. In the meantime it is very important that large private banks should be well managed. And the present state of banking makes this peculiarly difficult. The detail of the business is augmenting with an overwhelming rapidity. More cheques are drawn year by year; not only more absolutely, but more by each person, and more in proportion to his income. ”

“ One great cause of the concentration of banking and financial power into a few hands has been the consolidation of banking resources into a few great units and the friendly affiliations of these units. But these units have not grown big merely because their managers or owners willed it so. The banking and currency laws of the country have forced money into a few centres. The banks of New York City employ—mainly in financial or stock market loans—about $600,000,000 which belongs to banks in other parts of the country. ”

“ Moreover, in fostering the growth of wealth and population in its locality a bank is laying a solid foundation for the future expansion of its own business. [Pg 713] Finally, the ability to lend on real estate will often enable a bank to secure valuable customers who would otherwise go elsewhere. It has been the unpleasant experience of many a national banker to be obliged to refuse a loan to a would-be borrower who has nothing but real estate to offer as security and to see him enter a neighboring state bank or trust company where there was no legal obstacle to the transaction. ”

“ Each bank is seeking, through its branches, to satisfy all the legitimate needs of the people for a circulating medium. When the note of a bank is in circulation it is earning money for the bank, but when it is in the vault or on the counter of the bank it is an idle and useless piece of paper. Hence every bank always pays out its own notes through its branches and sends the notes of other banks in for redemption, thus increasing its own circulation and strengthening its own reserve. ”

“ There is a network of relationship between banks through which each local community and market is connected with all other communities and markets.... No locality is so remote as to be outside of the circle and no community's sales and purchases are so scattered but that they can be brought together in the settlements. Each bank is the center of a circle of which it is the clearing agent; all payments between its own customers may be made by a transfer of credit upon its books. ”

“ The chief Directory is to get an injunction against any disobedient branch; the bank is to have offices at Cleveland, Cincinnati, and New York, and is to act at New York as the transfer agent of the State. At least half of the capital of each branch is to be in specie or its equivalent. Any existing bank or branch of the Bank of the State may come into this one, and the old corporation is dissolved. Thirty per cent. of the circulation is to be kept in specie funds, of which at least half must be real specie; the balance in New York or other eastern cities may be counted as cash. ”

“ Until 1799 there was but one, the Bank of New York. In 1840 thirty banks existed in the city, of which six were banking institutions formed under the general banking law; and the grand total of capital employed was not far from twenty-nine and one-half millions. Within the next forty years, notwithstanding all the vicissitudes of banking enterprise, the number reached upward of one hundred, independent of loan and trust and safe deposit companies. ”

“ It was only after the debt was paid and the surplus revenue began to accumulate that the attraction of this bonanza overcame prudence and good sense. The popular sentiment now swung over again to a mania for banks. Each district wanted a deposit bank so as to get a share in the stream of wealth which was expected to flow from the public treasury. If a deposit could not be obtained, then a bank was formed in order to participate in the carnival of credit and speculation; for a non-deposit bank had the advantage of being bound by no rule. ”

“ This bank was a mere paper money machine. If by a "bank" we understand an institution having some permanency, and intended to continue an action and reaction through some prolonged period, for the satisfaction of constant or recurring financial necessities, this institution would not properly be called a bank, nor yet even a loan office. The idea and intention were to inflate the currency and raise prices until the indebted persons could discharge their debts. Then the issues were to be recalled and burned, and the purpose would be accomplished. ”

“ One good thing, however, has come out of so much evil, and that is improvement in our banking condition, by the exposure and eradication of this unsound banking that prevailed in New York, and to some extent elsewhere. ”

“ Turning now to the vast system of banks throughout the country, if the separate reserves of all the banks were gathered into one mass, available to meet the demands of depositors for payment in money, whether made in Maine or Texas, New York or California, the banks of the whole system would be able to operate with the highest degree of safety by having a total sum of money equal to only a small percentage of the aggregate amount owing to depositors, and consequently would be able to lend for use in the commerce of the country the greater proportion of the funds deposited. ”