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Home -> William Cotton -> Everybody's Guide to Money Matters -> Chapter 3

Everybody's Guide to Money Matters - Chapter 3

1. Chapter 1

2. Chapter 2

3. Chapter 3

4. Chapter 4

5. Chapter 5

6. Chapter 6

7. Chapter 7

8. Chapter 8

9. Chapter 9

10. Chapter 10

11. Chapter 11

12. Appendix


THE private banks now doing business in
London are few in number. The tendency of
late years has been to transform these banks
into "Limited Liability" Companies, or to amal-
gamate with companies of this character. 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 balance in some cases may be very large
where the bank has a wealthy connection, it
being a boast with some rich persons that they
have never less than ?10,000, or even ?20,000
at their bankers. The money so left in the
banker's hands is lent out, or invested in various
ways, and all that he receives in the shape of
interest, after paying the expenses of his estab-
lishment, is clear profit. In short, the ?500 a
year which the customer might obtain if he in-
vested the ?20,000 he leaves at the bank, goes
to the banker.

At the head of the joint-stock banks of London
is the Bank of England, which, like the private
banks, do not take deposits upon which interest
is allowed, but rely upon the cash at their dis-
posal in their customers' accounts for their
profits. In all other respects their mode of
transacting business is much the same as that
of other joint-stock banks. Accounts may be
opened by merchants and traders, and by private
individuals of known respectability, and no par-
ticular sum is required to be lodged upon open-
ing the account. Formerly cheques were not
allowed to be drawn for a less sum than ?10,
but now there is no restriction as to the amount.
The profits of the bank are chiefly made by dis-
counting bills of exchange, which is done to an
enormous extent. A bill of exchange is an in-
strument by which a party who is owed money
by another party, and accords to him the benefit
of delay in payment, for a fixed period, draws
on him in a form of order to that effect.

For instance, the firm of Bullion & Co. have
sold to John Robinson certain goods, which
need not be specified, as the principle applies
in all cases, whether it be bankers, merchants,
or traders, and for all transactions where one
party is indebted to another. The form drawn
by Bullion & Co. on John Robinson, which
requires to be stamped according to the amount,
would be as follows:-

| Due 1st Nov. |
| ------------ |
| ?500 London, 29th Aug., 1987. |
| |
| THREE months after date pay to our order the sum of |
| Five Hundred Pounds for value received. |
| |
| To Mr. John Robinson, Bullion & Co. |
| Merchant, |
| Liverpool. |
| |
(Written across:
Accepted payable
at the Bank of
J. Robinson. )

The acceptance of the obligation by John
Robinson is written across the face of the docu-
ment, and he makes it payable, as most bills
are for convenience, at a London bank, pre-
sumably the London agent of his own bankers
at Liverpool. Payment becomes due three
months after date, with three days of grace
added according to custom. Probably Bullion
& Co. would find this ?500, if in cash, useful
in their business, and supposing the parties to
be of good repute, they can readily convert it
by discounting this bill at their bankers or at
a bill broker, who, deducting a small amount
in the shape of discount, will hand over the
balance to the firm, or carry it to the credit of
his account. It is this discount that constitutes
the profit to the banker, and the rate varies
according to the value of money, whether it is
plentiful or scarce.

The rate of discount is supposed to be regu-
lated by the Bank of England, and the "bank
rate," which is arbitrarily fixed by the directors,
is moved up and down (sometimes for other
reasons than the value of money), and is sup-
posed to be the rate of discount for bills of the best
description. It is found in practice, however,
that when there is an abundance of money seek-
ing employment, bills are discounted at lower

The Bank of England make purchases and
sales of British or Foreign securities, and divi-
dends on stocks will be received and placed to
account. Exchequer bills, bonds, railway deben-
tures, or any other securities may be deposited,
and the interest, when payable, will be received
and placed to a customer's account free of
charge. Cash boxes (contents unknown), plate
chests, and deed and security boxes are also
received for customers for safety, free of charge,
and all other banking facilities conceded, as are
given by the Blankshire Bank.

The other joint-stock banks of London trans-
act their business in all respects in the same
manner as the Bank of England. In addition
they invite money on deposit, allowing interest
on the same. Sums of money lodged on deposit,
and they may be by persons who are not other-
wise customers, are not carried to a customer's
account, but, as in the case of the Blankshire
Bank, are placed on a special form of receipt
which is changed for a new one when the in-
terest or any part of the principal is withdrawn.
The rate of interest allowed by the Blankshire
Bank, and by the country banks generally, is a
fixed one, but that of the London banks is
regulated by the value of money, and fluctuates
from time to time, notice being given by adver-
tisement in the London newspapers of any
change in the rate. Deposits are received by
the London bankers "at call," that is, payment
may be required on demand; or at an arranged
term of notice of repayment. The rate of in-
terest on money at call is less than where
notice is required, and the longer the period of
notice the higher the rate of interest.

In Scotland there are no private banks, and in
Ireland only two. The joint-stock banks are
numerous, and their mode of business is practi-
cally the same as in England, indeed the
English system is founded on that practised by
the Scotch many years before the joint-stock
bank was general in England.

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