Joint-stock bank

“ Of thirty-one banks in Scotland which issue notes, five only are chartered—that is, the responsibility of the proprietors in those established is confined to the amount of their subscribed capital. The remaining twenty-six are, with one or two exceptions, joint-stock banks, and the proprietors are liable to the public for the whole of the bank responsibilities to the last shilling of their private fortunes. The number of persons connected with these banks as shareholders is very great, almost every man of opulence in the country being a holder of stock to a greater or a less amount. ”

“ With the Bank of England thus acting as a centre to the system, there has grown up around it a circle of the great joint stock banks, which provide credit and currency for commerce and finance by lending money and taking it on deposit, or on current account. These banks work under practically no legal restrictions of any kind with regard to the amount of cash that they hold, or the use that they make of the money that is entrusted to their keeping. ”

“ The result was that when joint-stock banks were first formed many persons of good means were kept back from becoming shareholders, that is to say partners, in banks. For up to the date of the act of 1862 permitting "limited liability," every shareholder in a joint-stock bank was liable to the extent of the whole of his means (see the article Company) . Even as late as 1858 when the Western Bank of Scotland and 1878 when the City of Glasgow Bank failed, very great hardship was inflicted on many persons who had trusted with over confidence to the management of those banks. ”

“ Prom Jemmy Wood's shop to the noble hall of the Midland, or the Joint Stock, is indeed a long step in advance.
It has often occurred to me that it would be a wise plan for bankers to divide their counters into distinct compartments, so that one customer could see nothing of his next neighbour, and hear nothing of his business. The transactions at a bank are often of as delicate a nature as the matters discussed in a solicitor's office; yet the one is secret and safe, and the other is open to the gaze and the ear of any one who happens to be at the bank at the same time. ”

“ The precise shape of the organisation is immaterial; each bank may have its own shape, but the man must be there. The true business of the private partners in such a bank is much that of the directors in a joint stock bank. They should form a permanent committee to consult with their general manager, to watch him, and to attend to large loans and points of principle. They should not themselves be responsible for detail ”

“ The stocks and shares of some of the South American railways command a high premium, but of the whole number quoted in the official list the large majority show a heavy decline on the original value, many indeed being valueless. These stocks are highly speculative and subject to be affected by political convulsions and other contingencies, which make them undesirable as an investment.
BANKS. A joint-stock bank is composed of a number of proprietors who hold the shares which make up the capital of the bank, and to the nominal amount of these shares their liability is limited. ”

“ A special stress was laid upon the provision that every bank must be one of discount and deposit, and not simply of circulation. This law, however, was so modified in 1855 as to be in effect repealed, by converting all the free banks into joint-stock banks under a general law. The notes were to be surrendered and the securities taken up. Circulation was limited under the new law to one hundred and fifty per cent. of the capital. In case of failure, the note-holders "shall have a lien on all the estate of said corporation of every description." ”

“ We have seen it for years past in banking, which, from the nature of the business, would be the most easily reformed upon the joint stock principle. It has also been working and making inroads upon commercial houses with a force which in the end will be irresistible, and which from year to year makes it more difficult for small firms with small capitals, to hold their own against the larger organisations, just as it is out of the question for any private person now to start a bank. ”

“ But the constitution of joint-stock companies renders them in general, more tenacious of established rules than any private copartnery. Such companies, therefore, seem extremely well fitted for this trade. The principal banking companies in Europe, accordingly, are joint-stock companies, many of which manage their trade very successfully without any exclusive privilege. The bank of England has no other exclusive privilege, except that no other banking company in England shall consist of more than six persons. ”

“ Persons are easily scared when asked to become partners in a bank, in the sense of taking much responsibility and sharing but to a small extent in what are understood to be the honors of such a position. The finessing which was at first necessary to accustom the public to joint-stock undertakings was gradually followed by a thirst for shares, because all such concerns for a considerable time were associated with a premium. ”

“ If it be objected here that it is impossible for one joint-stock to go through the whole business of the kingdom, I answer, I believe it is not either impossible or impracticable, particularly on this one account: that almost all the country business would be managed by running bills, and those the longest abroad of any, their distance keeping them out, to the increasing the credit, and consequently the stock of the bank. ”

“ 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. ”

“ A. I am quite convinced of that, if only for one reason, that I do believe the indiscriminate granting of credits to the individual is injurious to himself, the private bankers being too much in the habit of regarding old family associations and not so careful as the joint-stock company would be, and he has accustomed people to trade on the credit that they get from the banker. I do not think that is banking business. The bank ought never to supply the trader with working capital. ”

“ But the joint-stock banks, which have branches in many counties, can pour their deposits into those centres where demand is active; and it is obvious that a small private banker cannot hope to compete successfully against the superior organization of the companies. ”

“ These firms avoid troublesome current business, maintain only a few connections, and concentrate their whole energies on isolated but important ventures and undertakings in which, owing to the large amount of means immediately required, no competition worth mentioning existed before the growth of capable joint-stock banks. Up to the middle of last century these firms actually possessed a monopoly so far as the loan issues of most European States were concerned, and they earned enormous profits according to present-day ideas. ”

“ The joint stock banks now keep a main part of their reserve on deposit with the bill brokers, or in good and convertible interest-bearing securities. From these they obtain a large income, and that income swells their profits. If they had to keep a much larger part than now of that reserve in barren cash, their dividends would be reduced, and their present success would become less conspicuous.
The second misgiving, which many calm observers more and more feel as to our largest joint stock banks, fastens itself on their government. ”

“ The Bank of England had only just been called into existence, and, in fact, there were no bankers, no brokers, and no Stock Exchange in the modern sense of the word. A man who wished to invest, without personally employing his capital, had practically no choice but to buy property and let it out at a rent, or lend his money on mortgage. Bank of England Stock or National Debt had just begun to be a political speculation for the moneyed Whigs in London. Merchant venturers might risk a large sum in a joint-stock voyage. ”

“ I think that joint stock banks are deficient in everything requisite for the conduct of the banking business except extended responsibility; the banking business requires peculiarly persons attentive to all its details, constantly, daily, and hourly watchful of every transaction, much more than mercantile or trading business. ”

“ There seems to be no good reason, however, why the joint-stock mortgage bank should not flourish here as well as in Europe. It is a purely private business enterprise of the kind with which we are perfectly familiar. ”

“ Whereas divers brokers and stock-jobbers have lately set up and carried on most unjust practices, in selling and discounting tallies, bank-stock, bank-bills, shares and interest on joint stock, and other matters, and have and do unlawfully combine to raise or fall the value of such securities, for their own private advantage ”

“ One essential feature of an incorporated joint-stock company is the right of each stockholder, without restraint, to sell or transfer his shares at pleasure. Thomp. Liab. Stockh. § 210, and cases there cited. So well established is this right that a by-law of a bank putting restrictions upon the transferability of stock in the hands of its members has been held void as being in restraint of trade. ”

“ The deposits in these now amount to a thousand million dollars, and the number of depositors in the Northern and Middle States is about three millions. Objection has been raised in some quarters to the joint-stock type of savings bank, on the ground that its deposits must be loaned profitably for the payment of dividends, and that consequently greater risks are incurred. This risk is still greater where savings banks are permitted to do a commercial business, as the paper which they discount may prove inconvertible in a time of commercial depression or in a panic. ”

“ The most obvious function of the joint-stock banks of England is the business of taking care of money for customers and meeting cheques drawn against their balances. Customers place money with them either on current or deposit account. ”

“ His business is the collection and distribution of that general representative of merchandise, money, much in the same way as an ordinary shopkeeper collects and distributes the special articles of his individual trade. Joint-stock banks, then, are but co-operative distributing associations formed for the purpose of fighting against some real or fancied oppression, and of competing, to the supposed advantage of the public, with private enterprise. ”

“ It looks as though, in course of time, private banks will altogether cease to exist, the joint-stock banks being better adapted to modern require- ments. The private banks do not invite deposit, and interest on accounts is not allowed. They look to the average balance on each account to compensate for the trouble and expense of keeping it, with a considerable margin for profit. They require that not less than a certain fixed sum shall be the minimum balance of a customer's account, but, of course, the larger the balance the better for the banker. ”

“ The total capital of these six concerns amounts to 1,100 million francs. [3]
None of these houses is hampered by those rules, traditions or scruples which limit the activity of British joint stock banks. They are free to launch into speculations which, to the sober judgment of our own financiers, must seem wild and precarious, but to which success has affixed the hall-mark of approval. Each of the six banks is a centre of German home industries and also of the foreign transformations of these. To mention an industry is almost always to connote some one of the six. ”

“ Joint stock banks being of course obliged to act through agents, and not by a principal, and therefore under the restraint of general rules, cannot be guided by so nice a reference to degrees of difference in the character of responsibility of parties ”

“ No matter how a merchant's stock may change in character, it all belongs to his bank in case he fails to take up his paper or meet his engagements. In the same way a manufacturer's stock of goods, the raw material and the finished products, no matter how they change from day to day and month to month, will become the property of his bank if he fails to pay his note. The law practically makes every bank a silent partner in many wholesale and manufacturing businesses and gives it many rights which no ordinary silent partner can acquire. ”

“ To concede that a national bank has ordinarily the right to take stock in another corporation as collateral for a present loan or as a security for a pre-existing debt does not imply that, because a national bank has lent money to a corporation, it may become an organizer and take stock in a new and speculative venture ”

“ By repeated decisions of this court, dealing with the restriction here imposed, it has become established that while the words 'moneyed capital in the hands of individual citizens' do not include shares of stock in corporations that do not enter into competition with the national banks, they do include something besides shares in banking corporations and others that enter into direct competition with those banks. ”

“ 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. ”