Merchant bank

“ 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. ”

“ You cannot create the necessity of a bank, and then plead that necessity for its establishment. In the administration of the finances, the bank acts simply as a payer and receiver. The secretary of the treasury has money in New York, and wants it in Charleston; the bank will furnish him with a check, or bill, to make the remittance, which any merchant would do just as well. ”

“ If a man granted one on a fine estate for a consideration, that consideration was rarely paid in money. The unhappy borrower was obliged to take whatever he could get. Thus the stock-jobber made his prey receive consols at a price much above that of the market. The merchant gave him a bill of lading for some indifferent kind of merchandise. The banker handed him long-dated bills, and sometimes was a bankrupt before they were due. The large tradesmen—many of whom then, as now, surreptitiously carried on the trade of money lending—got rid of goods which were otherwise unsaleable. ”

“ The bank is forbidden to deal in merchandise—proviso, unless in the case of goods pledged for money lent, and not redeemed to the day; and, proviso, again, unless for goods which shall be the proceeds of its lands. With the help of these two provisos, it is clear that the limitation is undone; it is clear that the bank is at liberty to act the pawnbroker and merchant, to any extent that it pleases. ”

“ The most important function of the merchant bankers is not that of banking, but of accepting. Banking, in the strict sense of the term, they do not engage in—that is to say, they are not prepared to meet claims upon them by an immediate payment of cash or legal tender over the counter, but by payment of a cheque on one of the banks in the stricter sense of the term. The function of the London accepting houses, though of enormous importance, is still to a certain extent subordinate to the judgment of the English banks. ”

“ Who can answer that a scheme which oppresses the farmer, ruins the manufacturer, breaks the merchant, discourages industry, and reduces fraud to a system, which drains continually a portion of our national wealth away to foreigners, and draws most perniciously the rest of that immense property which was diffused among thousands into the pockets of the few,—who can answer that such a scheme will always endure? The whole art of stock-jobbing, the whole mystery of iniquity mentioned above, rises from this establishment, and is employed about the funds ”

“ 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. ”

“ It is the curse of English commerce, of English banking, and of English trading generally, that, while large fortunes are made by the principals, the clerks are often remunerated at a rate inferior to that which the merchant pays his favorite domestic. ”

“ The mere man of routine thinks it a sacred duty to laugh at those of whose services he is glad to avail himself; while the banker, the merchant, and the moneyed tradesman first treat him as an intruder, and then buy shares in the discovery they disdainfully rejected. ”

“ There, too, the sober manner of the citizen formed a strong contrast to the courtier, who came to refill his empty purse: and there also, as now, might be seen the broken-down merchant, pale, haggard, and threadbare, haunting the scene of his former glory, passing his now valueless time among those who scarcely acknowledged his presence, and, as he had probably dined with Duke Humphrey, supped with Sir Thomas Gresham. ”

“ 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. ”

“ Giving full effect to the usage proved, it only shows that a cashier may borrow money of the other banks, in the settlement of balances through the clearing-house, and that he may sign the checks given for the same, and that he may buy and sell New York funds, that is, he may buy for use in redeeming their bills, and he may sell the same when they have an excess beyond what is necessary for that purpose ”

“ One of the most useful functions which banks perform is to equalize the distribution of money, and make the supply in their respective localities satisfy, as far as possible, the demands of trade and commerce, by withdrawing money, as the occasion requires, from those financial centers where it has a tendency to accumulate. It is obvious that this function can be best performed by banks by selling or rediscounting a portion of their bills receivable in those places where money is most abundant and cheap ”

“ Every man who trades beyond his power to pay, every merchant who purchases goods on delivery, is, strictly speaking, a gambler; and it is well known to be a common practice of the first merchants to buy goods for arrival without the slightest intention of receiving them, and directly a profit can be gained, or too great a loss averted, they are resold without even the bill of lading being visible to the buyer. ”

“ 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. ”

“ 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. ”

“ For one cause or another, these private or trading banks have disappeared in England, and in the financial districts money is now a commodity, as it is in the United States, handled without imagination and with no sympathy or understanding of the needs of foreign business. An English or American bank of to-day is nothing more or less than a glorified pawnbroker, who will cheerfully lend ninety-five per cent. ”

“ 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. ”

“ They roved the seas as if they were its masters; they took the vessels, disposed of the cargo in the nearest market, and sold the navigators like cattle. The only way of mitigating this terrible calamity was by some mode of insurance, to procure their rescue if taken; and we find that to attain so desirable a result they paid a certain premium to their merchant freighters, who, in return, bound themselves to pay a sufficient sum to secure the navigators’ freedom within fifteen days after the certificate of their captivity, the ordinary days of grace being lessened on such policies. ”

“ When a purchaser pays cash, obviously a mercantile time bill of exchange cannot come into existence. In European countries, many purchasers who pay at once often draw a bill of exchange on their own bank and, after it has been accepted, discount it in the open market. In this country banks are to be allowed under the act to accept only bills drawn in connection with merchandise exports and imports. Material will, therefore, be lacking for a broad discount market, if its development is dependent upon open market operations by the Reserve Banks. ”

“ But banks do need a substantial margin of liquidity, to protect the rest. They get it from stock exchange collateral loans, and from ownership of listed and easily marketable bonds, primarily. They get part of it from true commercial paper. Thus, the director of a country bank in Iowa told the writer that banks in his section—where banks owned in large measure by farmers, and dealing largely with farmers, are very numerous and important—make a regular practice of buying, through brokers, a considerable amount of notes of outside merchants. They do this to protect themselves. ”

“ It need not be repeated, that the poverty-stricken gentleman of the suburbs, the gambling captain of Queen Square, and the merchant of Liverpool, were identical. That so successful a series of frauds was practised appears wonderful at the present day; but that the woman either possessed that power of simulating death, of which we read occasional cases in the remarkable records of various times, or that the physicians were deceived or bribed, is certain. ”

“ He immediately took the omnium to other brokers, represented to them an urgent necessity for money, sold it, and having been paid checks for the amount, immediately presented them to the bankers on whom they were drawn, and received the amount in cash. He then went to all whom he knew, or would trust him, borrowed money on the security of his own checks,—a common practice on the Stock Exchange,—with remarkable boldness, remained in London until near the hour when he knew his own draught would be presented and refused, and then left, laden alike with gold and a guilty conscience. ”

“ 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. ”

“ An officer of a bank there asserts that banking in the north coast countries is not to any great extent a matter of handling currency or money funds. The intermediary system of brokers, merchants, and other middlemen between the producer and his market, to which we are accustomed, is lacking, and the banker must take the place of all of them. ”

“ If, on the other hand, his business is unexpectedly large, giving opportunity to make bigger profits and creating the need for more capital, he will find the bank ready to increase his line of credit, provided the manager is satisfied that business conditions and prospects warrant expansion. Under no circumstances, however, must the customer of a bank seek to raise funds elsewhere unless he first gets the consent of his bank. If he sells his notes in the open market, he must do it with the [Pg 429] full knowledge of his bank or run the risk of being placed upon the "black list." ”

“ The short step from this to the common form of modern banking was made when merchants deposited their surplus cash with the money-changer, and he had thus a considerable stock, which he could lend so long as he kept sufficient reserve to meet the demands of depositors. It soon became unnecessary for money to pass at all in large transactions; a man could get a loan from a bank simply by having a deposit ascribed to him on the books, and could assign this loan to others as he chose to pay it out. ”

“ 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. ”

“ Supposing any foreign Government or person to have any sort of securities which he can pledge in the market, that operation gives it, or him, a credit on some banker, and enables it, or him, to take money from the banking reserve at the Bank of England, and from the bankers' balances; and to replace the bankers' balances at their inevitable minimum, the Bank of England must lend. Every sudden demand on the country causes, in proportion to its magnitude, this peculiar effect. ”

“ Goods are sold in one locality and paid for in the goods of another locality by means of drafts, bills of exchange, etc., meeting and canceling one another, so that very little money is transferred from point to point.
The function of discount and loan, as has been intimated, is in modern banking usually combined with that of deposit, as also that of circulation or issue. When the capital of a bank is paid in by the stockholders, and the officers elected, it is then ready for business under regulations imposed by its charter. There are two ways in which the public is accommodated. ”