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diff --git a/.gitattributes b/.gitattributes new file mode 100644 index 0000000..d7b82bc --- /dev/null +++ b/.gitattributes @@ -0,0 +1,4 @@ +*.txt text eol=lf +*.htm text eol=lf +*.html text eol=lf +*.md text eol=lf diff --git a/LICENSE.txt b/LICENSE.txt new file mode 100644 index 0000000..6312041 --- /dev/null +++ b/LICENSE.txt @@ -0,0 +1,11 @@ +This eBook, including all associated images, markup, improvements, +metadata, and any other content or labor, has been confirmed to be +in the PUBLIC DOMAIN IN THE UNITED STATES. + +Procedures for determining public domain status are described in +the "Copyright How-To" at https://www.gutenberg.org. + +No investigation has been made concerning possible copyrights in +jurisdictions other than the United States. Anyone seeking to utilize +this eBook outside of the United States should confirm copyright +status under the laws that apply to them. diff --git a/README.md b/README.md new file mode 100644 index 0000000..3255f52 --- /dev/null +++ b/README.md @@ -0,0 +1,2 @@ +Project Gutenberg (https://www.gutenberg.org) public repository for +eBook #60436 (https://www.gutenberg.org/ebooks/60436) diff --git a/old/60436-0.txt b/old/60436-0.txt deleted file mode 100644 index 7d32c1e..0000000 --- a/old/60436-0.txt +++ /dev/null @@ -1,3983 +0,0 @@ -The Project Gutenberg EBook of Banks and Their Customers, by Henry Warren - -This eBook is for the use of anyone anywhere in the United States and -most other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms -of the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll -have to check the laws of the country where you are located before using -this ebook. - - - -Title: Banks and Their Customers - A practical guide for all who keep banking accounts from - the customers' point of view - -Author: Henry Warren - -Release Date: October 6, 2019 [EBook #60436] - -Language: English - -Character set encoding: UTF-8 - -*** START OF THIS PROJECT GUTENBERG EBOOK BANKS AND THEIR CUSTOMERS *** - - - - -Produced by Nigel Blower and the Online Distributed -Proofreading Team at http://www.pgdp.net (This file was -produced from images generously made available by The -Internet Archive) - - - - - - - - - - BANKS AND THEIR - CUSTOMERS - - - - - BANKS - AND - THEIR CUSTOMERS - - A PRACTICAL GUIDE FOR ALL WHO KEEP - BANKING ACCOUNTS FROM THE CUSTOMERS’ - POINT OF VIEW - - BY - HENRY WARREN - - _AN ENTIRELY NEW AND ENLARGED EDITION - (THE EIGHTH)_ - - WITH INTRODUCTION BY A LONDON BANKER - - [Illustration] - - LONDON - ROBERT SUTTON - 43, THE EXCHANGE, SOUTHWARK STREET, S.E. - 1908 - - - - -Banks and their Customers - -(_SEVENTH EDITION_) - -By HENRY WARREN - - -=The Pall Mall Gazette= says:-- - - “Caustic and interesting.” - -=The Financial News= says:-- - - “Contains a vast amount of useful information intelligently - discussed. To educate the public on a technical subject calls for - more than ordinary knowledge. It needs what Mr. Warren undoubtedly - possesses, and that is a sound, practical understanding, and a - thorough common-sense way of setting forth his knowledge in simple - form. This our author succeeds admirably in doing.” - - -=The Scotsman= says:-- - - “Cannot be too strongly recommended.” - - -=The Draper’s Record= says:-- - - “Masterly.” - - -=The Birmingham Daily Gazette= says:-- - - “Invaluable.” - - -=Investor’s Review= says:-- - - “Much useful and accurate information about the habits of bankers - in dealing with their customers. Especially we commend the chapter - ‘How to Check Bankers’ Charges,’ which are often curiously - arbitrary and capricious.” - - -=The City Press= says:-- - - “A caustic and forcible pen.” - - -=The Bookman= says:-- - - “The worth of the expert is proved. Mr. Warren on banking subjects - enjoys our confidence and many editions.” - - -=And The Glasgow Herald= says:-- - - “Mr. Warren’s caustic criticisms of bankers and their peculiarities - have been widely appreciated.” - - - - -INTRODUCTION - -BY A LONDON BANKER - - -I confess that when a publisher asked me to write an introduction to -Mr. Warren’s little book I experienced some surprise; because, in -the past, he handled bankers rather roughly. Perhaps the audacity -of the request appealed to me. At any rate, I consented to read the -proof-sheets, and, finally, perhaps a trifle reluctantly, to stand -sponsor for the work in a qualified sense. I do not agree with all he -says, by any means. - -Here is the eighth edition of a well-written, interesting guide for the -customer, who has obviously found it useful. The book would not have -obtained a market unless it were wanted. This must be granted. And I -think that it was wanted even from the point of view of a banker. - -The author in a short chapter tells us how and why the joint-stock bank -came to dwell among us. Then he plunges into his subject--the Guide -for the Customer. The chapter on the cheque and its various crossings -is admirable. I only wish that the clients of my own bank would read -every word of it, and save the time of our cashiers. - -He who keeps his account in credit is told much that he ought to know; -the depositor is shown how to check his interest; the borrower how to -negotiate a loan or advance; and everybody is told the manner in which -he may easily check the charges debited in his pass-book. Speaking -for my own bank, I do not care who makes use of this clearly-put -information. Let our clients obtain the book by all means. We shall -then be spared the trouble of answering a host of stupid questions -during the busiest parts of the year. - -Touching upon “unclaimed balances,” I am of the opinion that the public -can be very well trusted to look after its own interests; and after -glancing through my own ledgers I think that these unclaimed sums would -not amount, in the aggregate, to a really large figure. Most of these -dormant balances are insignificant. - -As to the pay of bank-men, I do not feel justified in expressing an -opinion, beyond asserting that the wants of a bank-clerk are small. My -advice to the customer is--“read the book.” - - “CITY MANAGER.” - - - - -CONTENTS - - - CHAP. PAGE - PREFACE v - I BANKING EVOLUTION 1 - II ON THE CHOICE OF A BANKER 13 - III THE CHEQUE AND ITS VARIOUS CROSSINGS 19 - IV CREDIT-ACCOUNT CUSTOMERS 38 - V DEPOSIT-RECEIPT CUSTOMERS 45 - VI THE BANK RATE IN RELATION TO BANKERS’ CHARGES 61 - VII LOANS AND ADVANCES IN LONDON 68 - VIII OVERDRAFTS IN THE COUNTRY 75 - IX HOW TO CHECK BANKERS’ CHARGES 89 - X BILLS, COUPONS, FOREIGN DRAFTS, ETC. 102 - XI UNCLAIMED BALANCES 110 - XII BANK SHARES 117 - XIII THE PAY OF BANK-CLERKS 128 - - - - -BANKS AND THEIR CUSTOMERS - - - - -CHAPTER I - -BANKING EVOLUTION - - -We owe a great deal to the financial instinct of the Jew, who, having -no country of his own, has developed an acquisitive mania for the -goods of those people among whom he dwells, thanks to a progressive -civilization of which he was the pioneer, in comparative safety; and, -by an irony of fate, we are also indebted to him for a religion, which -his more subtle mind rejects; yet, stranger still, it is a civilization -based on commerce that keeps the whole world moderately sane, and tends -to at least hold in check the latent savagery of the blind enthusiast -who would still, but for her intervention, indulge in a bloody crusade -against all who hold opposite opinions. A true civilization spells -toleration; and though a creditor can scarcely hope to be popular with -his debtors, he is at least entitled to the protection of the law of -the land in which he lives. - -The Jews, who are supposed to have come over to England about the time -of the Conquest, gradually possessed themselves of the greater part -of the coin of the country; and the early English kings constantly -resorted to them for loans. As it was thought unchristian to charge -usury or interest, the business of a money-lender was consequently held -in abhorrence, with the result that the Jews monopolized the trade, and -acquired immense fortunes by their dealings. Their wealth naturally -excited the intense cupidity of their Christian neighbours, who, making -a pretext of their so-called abominations, raided from time to time -the Jewish quarters of the various towns, in the hopes of annexing the -fabulous treasure in Jewry. - -Under the ban of the Church, and detested by the people, the popular -feeling against the usurers became so embittered that Edward I, -under whose protection they lived, after having in vain attempted to -persuade the Jews to accept Christianity, was compelled to banish -them from England; and from 1290 to the time of the Commonwealth (a -period of about 360 years) the prohibition remained in force. But -the money-lender is a necessary evil; and after the departure of the -Jews certain Italian merchants, known as Lombards, who had previously -settled in England, immediately filled their place; and Lombard Street -became as notorious for usury as had been the Jewry. - -The Jew may be described as a money-lender, and the Lombard as a -merchant-banker, though neither was a banker as the word is now -understood. Both, however, lent money at high rates of interest. A -banker, in the English sense of the word, is a middleman who borrows -from one set of persons at a rate in order to lend to another set at a -greater rate, the difference between the two rates being his margin of -profit; and banking in this sense was not practised in England until -quite the end of the first Charles’s reign, when certain goldsmiths, -who were originally dealers in plate and in bullion, became private -bankers. The first run upon them was made in 1667, when a Dutch -fleet sailed up the Medway; and, later, in 1672 Charles II closed -the Exchequer, refusing to pay the bankers either their principal or -interest, with the result that failures were numerous. - -We are now approaching a new banking era; and in 1694 the Bank of -England, which was the first joint-stock bank established in the three -kingdoms, was incorporated. The private bankers, instantly recognizing -in her a formidable rival, were actively hostile; but all to no -purpose; and in a very little while they grouped themselves round the -Old Lady, who reduced their rates and kept them in order. Hoares and -Childs were in being before the Bank; but the goldsmiths, long before -the new movement was a brilliant success, had few direct descendants in -London; and the majority of those private bankers who opposed the Act -of 1833 belonged to another generation. At its inception the Bank did -not enjoy a monopoly; but upon the renewal of its charter in 1708 it -was granted the monopoly of joint-stock banking in England, while the -partners in a private bank could not exceed six in number. This number -was increased to ten in 1857. - -Country banking developed slowly in England; and it was not until -towards the close of the eighteenth century that private firms began -to multiply in the provinces; but the Bank of England’s iniquitous -monopoly kept them small and weak, and between 1792 and 1820 over -one thousand private bankers came to grief, while the crisis of 1825 -further thinned their ranks and almost emptied the vaults of the Bank -of England, when it dawned upon the Government that the state of the -money-market was distinctly rotten, and that it would remain so until -the Bank’s monopoly disappeared. The result was the usual committee and -the usual compromise. - -The Act of 1826 allowed joint-stock banks of unlimited liability to -be formed in England and to carry on business at a greater distance -than sixty-five miles from London; but such institutions could not -open an office in London. Neither could they issue notes at a place -within sixty-five miles thereof, nor draw any bills on London for a -less amount than £50. In 1833, however, they were allowed to make -their bills and notes for less than £50 payable on demand at their -London agents. The demand for these establishments was not at first -considerable; and very few were formed until after five or six years -of the passing of this Act; but in 1830 the railway movement began in -earnest, and from 1833 to 1836 joint-stock banks were established -throughout the country in considerable numbers. This sudden boom in -banking companies could only have one result; and failures became so -numerous that Sir Robert Peel, in 1844, passed his Joint-Stock Banking -Act, which, being found worse than the disease itself, was repealed in -1857. - -London, we have seen, contained only one banking corporation and -numerous private bankers, who, forming a monopoly, were practically -rich men’s banks; for they would only accept an account provided the -balance was not reduced below a certain sum, while from 1813 to 1833 -some twenty of them suspended payment; so stability was not one of -their distinguishing characteristics. It soon became apparent that the -Bank of England and the private bankers were quite unable to minister -to the growing trade of the capital; and in 1833 joint-stock banks were -allowed to be formed in London, but upon the distinct understanding -that they were to be banks of deposit and not banks of issue. In other -words, they could not issue their own notes, so were compelled to use -those of the Bank of England. The first London joint-stock bank was the -London and Westminster, whose prospectus was issued in 1833; but the -shares were subscribed slowly, and the bank did not open its doors to -the public until the March of the year following. Then came the London -Joint-Stock Bank in 1836, and the Union Bank in 1839. - -It is usual, in this little island, to hark back to the good old days, -and then, with a sigh, to regret that the old order of things no longer -exists; yet it must be confessed that the London private bankers were -of no service whatsoever to the small man of business, whom they simply -ignored. The joint-stock banks however, ministered to the wants of -the small trader; and, by diving into the heart of the masses, proved -that a large number of small balances are even more desirable than a -small number of large accounts, whilst in the end they practically -drove the private banker, handicapped as he was by the law of the land, -out of the market, or, at least, reduced him to impotency. But the -London joint-stock banks, in those early days, were not without their -grievances; and both the private bankers and the Bank of England seized -upon every pretext in order to harass them. Being merely common law -partnerships, they did not come under the 1826 Act; and until the Act -of 1844 they were not relieved from certain restrictions which need not -be discussed here. - -But the year of banking reform was, of course, 1844, when, fortunately -for the trade of the country, the Bank of England was stripped of all -its privileges except that relating to the issuing of notes. The Bank -Charter Act of 1844 gave the Bank of England the monopoly of issuing -notes in London and within sixty-five miles of it. No new bank of issue -was to be formed, while a provincial bank, upon opening in London, -forfeited its issue. The cheque, however, soon became more powerful -than the note; and the larger provincial banking companies gladly made -the sacrifice in order to establish themselves in the capital. The -next step forward was when the joint-stock banks broke up the cabal of -private bankers and were admitted to the Clearing House in 1854; though -it is a little remarkable that, having posed as martyrs and vigorously -denounced their oppressors, they should now take upon themselves to -exclude certain companies which have as good a right as they to enter -the sacred portals of the House; but the mote in one’s neighbour’s eye -is always so much more apparent than the beam in one’s own. - -By the Act of 1858 a joint-stock bank was allowed to limit the -liability of its shareholders; but the Act, was not made compulsory; -and though all the companies formed subsequently registered under this -Act the members of those in existence prior thereto were liable for the -debts of the company in which they held shares to their last shilling. -Then came the failures of the West of England Bank and the City of -Glasgow Bank in 1878; and shareholders in banks of unlimited liability, -with the fate of the members of these two institutions before their -eyes, began to weigh their responsibilities, with the result that many -sold out at panic prices in haste and regretted at leisure. The more -prudent, though they held their shares, began an agitation for reform, -which gave birth to the Act of 1879. We need not discuss this Act; -though it may just be said that every joint-stock bank in the three -kingdoms which is not limited by its charter is now a bank of limited -liability under the Companies Acts. - -At this juncture, perhaps, a few words may be said with reference -to the Bank of England, which, with a contempt for evidence that is -truly British, the public is convinced cannot suspend payment; yet the -Bank’s career has been decidedly checkered; and even after the passing -of the Act of 1844 the Old Lady was only saved by the intervention of -the Government in 1847, 1857 and 1866, while during the Baring crisis -of 1890 she was compelled to borrow from the Bank of France; so, -evidently, her system is not by any means a perfect one; but one does -not expect perfection in finance. The perfect financial machine and the -perfect man are alike impossibilities. As to the latter, did he exist, -he would seem positively inhuman. - -It need not be said that this sketch of the English banking movement is -necessarily imperfect, if only because of the small space into which -it is condensed; but the average reader certainly would not trouble -to digest two hundred pages on the subject of banking evolution; so -possibly it may prove acceptable in this form. - -We have seen that the London private banker was a rich man’s banker; -but it was otherwise with the country private banker, who was often of -great assistance to the small trader, at whom the joint-stock banks -will not now look unless he approaches them with his pockets stuffed -with securities when anxious to overdraw his account. The maxim of -the companies is: “Let the customers take all risks.” And if this rule -is broken, then the case is an exceptional one. We need not discuss -here whether or not this policy be essential to modern banking; but -it is quite evident that the small man of business has lost a good -friend in the old-fashioned country banker, whose place has not been -taken by that person of peculiar views and training--the bank-manager -or clerk-in-charge, whose urbanity must be more than painful to those -would-be borrowers without security who ask for bread and are politely -offered--a stone. - -What we have to discover is why the country banker has been practically -forced out of the market by the joint-stock system; and the reason is -not difficult to explain. In the first place we know that, since 1857, -the partners in a private bank have been limited to ten; consequently, -however anxious a banker may have been to extend his system of branches -and develop his business, the difficulty of insufficient capital -presented itself; whereas his rivals, who can appeal to thousands of -small investors, could, once having established their credit, easily -obtain as much capital as they required. The private banker, therefore, -ministered to the wants of a certain town, district, or county; but -the joint-stock banks spread their tentacles throughout the length and -breadth of England; and, like an octopus, eventually strangled him in -a manner which will be explained. - -In London and throughout the provinces there were numerous small firms -of private bankers--small, that is to say, when contrasted with their -joint-stock competitors. The banks in a manufacturing district or in a -busy city would, especially during periods of active trade and rising -prices, be called upon to advance large sums to their customers; but if -a banker collected his deposits from a few branches within the district -whence the demand arose, he would soon find himself unable to meet the -requirements of his customers. 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. With the private banker it soon became a question of -restricting advances; and his customers, finding that they could not -obtain all the accommodation they required, naturally applied to his -rivals, who, if tangible securities were forthcoming, met their demands -with ease. - -The London and provincial banking companies, which farm both the -agricultural and the manufacturing districts, by pouring their surplus -capital into the London money-market, speedily obtained all the best -business; and those private bankers who did not either amalgamate with, -or adopt the system of, their successful rivals found themselves -hopelessly out-distanced. Hence the triumph of joint-stock banking and -the advent of the director and his humble, most obedient servant, the -clerk-in-charge, who “manages” a country branch, but whose power, in -reality, is of the smallest, all the applications for advances above -a certain sum having to be submitted to the chief office, while he -himself is powerless to act until he receives his instructions from -headquarters. - -This form of competition would be felt less in an agricultural -county where the deposits a banker collects are greatly in excess of -the demand made upon him for advances; but even there the private -banker’s luck has deserted him; for the agricultural depression -thinned the ranks of his best customers, and, of course, left him a -legacy of bad debts. We should, therefore, expect to see the private -bankers disappear from the great towns first, and, finally, from the -agricultural centres. The law of the land has kept them small; and the -tentacles of the joint-stock companies have almost exterminated a class -of men who enjoyed the friendship and confidence of their clients to an -extent that a clerk-in-charge upon a salary of from £200 to £500 a year -can never even approach. - -Though we live in an age of great machines, which, for reasons that -will be explained later, can declare huge dividends, every now and -again we hear of the inception of a new banking company. The new -arrival, perhaps, waxes more than eloquent upon the large dividends -paid by the existing companies, and then dwells enthusiastically upon -the immense profits it hopes to earn; but can a small company ever -establish its credit in face of the network of branches which now cover -the land? The person who applies for its shares must certainly be of a -most sanguine disposition. - -It is the powers that be that always excite the keenest interest, -doubtless because of the possibility that a knowledge of their habits -and ways may prove of pecuniary benefit to the student; and this object -has been kept well in view throughout the following chapters. - - - - -CHAPTER II - -ON THE CHOICE OF A BANKER - - -There is an opinion which is very prevalent to the effect that, -provided one’s account be an overdrawn one, it does not matter where -it is kept; and, of course, if it were possible to find a nice, -philanthropic banker who would allow one a big overdraft without even -hinting at security, there would be much truth in the assertion; but in -view of the existing relations between banker and client, the idea is -both unfortunate and fallacious. We have seen how the large joint-stock -banks, by developing their system of branches, literally smothered -the private banker; and the smaller companies, which possess but few -branches, are now being forced to amalgamate with the larger for the -same reason. If, therefore, a man has a large advance from a small -provincial banking company, it may occur that, just when he is anxious -to discount more bills or to increase his overdraft, the bank will be -unable to accommodate him; and it therefore follows that a large bank, -whose resources are abundant, is as essential to the really great -borrower as it is safer for the depositor. - -A person whose account is in credit or who leaves money with a banker -at interest naturally attaches the greater importance to the safety -of his balance or principal; and, secondly, he endeavours to obtain -as high a rate as possible; but he would not be so foolish as to -sacrifice security to a high rate of interest; though, where the banks -are equally well managed, he would select the one that offered him the -higher rate or the cheaper facilities. Conversely, the person whose -account is overdrawn would, other things being equal, choose the bank -that offered to work his account the cheapest. - -Now, a banker’s liabilities to the public are due on demand, and at -short notice; and they would consist principally of “deposit and -current accounts, and notes and drafts in circulation.” These, of -course, will be found on the left-hand side of the balance-sheet. -As the banker’s deposits may be demanded from him at any unlucky -moment, it follows that he is compelled to hold a certain sum of cash -(legal tender) in reserve; and the larger that sum, the safer are the -customers’ balances. A person, therefore, who is looking for a safe -banker, should see that the firm or company which he selects possesses -at least from £12 to £18 in coin, bank-notes and cash with the Bank -of England against each £100 it owes to the public. He will find the -public liabilities on the left-hand side of the balance-sheet and the -cash in hand on the right; and a proportion sum will soon give him his -answer. - -But a really strong, well-managed bank only advances to, and discounts -bills of exchange for, its customers to such an extent as will enable -it to hold from £45 to £50 in cash, money at call and investments to -every £100 of its public indebtedness. Cash, of course, is its vital -asset; and after cash comes Consols and other British Government -securities in which, except at the very height of a panic, there is -always a market. These are a bank’s so-called liquid assets; and it -may just be added that when a bank mixes its cash and money at call -and notice together, and an accommodating auditor declares that such a -medley “exhibits a true and correct view of the state of the company’s -affairs,” the bank is probably so weak in actual cash as to deem it -wise not to publish the figures. - -Money at call and short notice would represent advances to the -bill-brokers and to the Stock Exchange; and though such loans could -doubtless be easily called in during normal times, they would be -difficult to collect when the money-market was in a turmoil. A greater -part of the advances made to the Stock Exchange, though classed as -liquid assets, are in reality loans in disguise; for if the banks were -to suddenly ask the stockbrokers to redeem their pledged stocks and -shares, those gentlemen would be hammered in clusters; and the shares, -when flung upon the market to be sold at what they would fetch, would -rapidly depreciate. It would certainly be interesting were the banks -to specify the amount of their so-called short loans to the Stock -Exchange; and, with a lively recollection of 1890, it is to be hoped -that they are kept within bounds, as, upon that occasion, this class of -advance hung like a mill-stone round their necks. Such liquid assets, -it is to be feared, are more likely to sink the good ship than to save -her in a storm. - -Having ascertained the ratio per cent. of a bank’s cash in hand to -its public liabilities, and glanced at the call-money, the list of -investments should be carefully criticized. When a banking company -describes its list thus: “Consols and other securities,” it may be -taken for granted that its holding of Consols is a small one. This -description, in fact, is taken from the balance-sheet of an English -provincial banking company, which holds about £19 in cash, call-money -and securities to each £100 it owes to its customers; and yet it -can find people who are foolish enough to do business with it. -Considered as a financial institution, it is practically bankrupt; -yet its deposits amount to over £4,000,000. Fortunately, however, -this institution is one of the few exceptions which are best avoided. -Another very weak joint-stock bank describes its investments as -consisting of “English Government and railway stocks.” Its cash and -call-money are consolidated into one total; but, more remarkable still, -an auditor actually has the impudence to declare that the balance-sheet -“exhibits a true and correct view of the company’s affairs,” when, of -course, it is not worth the paper upon which it is printed. - -A well-managed bank, as a rule, states its holding of Consols -distinctly, and, sometimes, the figures at which they have been taken. -If it do not, then the value of its British Government securities is -given separately. Next, it usually specifies its India Government -Stock, and so on; and, finally, “other securities,” which, assumably, -are of a non-liquid nature, are given last because they are of the -least value from a banker’s point of view. Naturally, if a bank possess -a gilt-edged list, it advertises the fact in its balance-sheet; and -those companies which indulge in ambiguity are, in nine cases out of -ten, the banks to avoid. For instance, you will not find any evasions -of this nature in the balance-sheets of such powerful companies as -the London and County Bank, the Union and Smiths, the London City and -Midland, and other really first-rate institutions, for the simple -reason that there is no occasion for them. As a rule, the clearer the -balance-sheet, the stronger is the bank; and the sinners, consequently, -are the smaller banks, which, situated in a manufacturing centre, -are unable to collect sufficient working resources to finance their -customers. Their ultimate fate, it need not be said, is amalgamation -with a more powerful rival. - -When choosing a banker, therefore, one should first ascertain that -he has an abundant reserve of cash in hand, and, secondly, that -his so-called liquid assets (his cash, call-money and securities) -amount to from £45 to £50 against each £100 to which he is indebted -to the public. And as to those private bankers who do not issue a -balance-sheet, they are, in the first place, guilty of the sin of -omission; and, in these days, when faith is not the predominant note, -there seems but little inducement to buy a pig in a poke when a large -banker’s balance-sheet may be had for the asking. - - - - -CHAPTER III - -THE CHEQUE AND ITS VARIOUS CROSSINGS - - -A cheque is often described as a bill of exchange, drawn by a customer -on his banker, for a sum certain in money, payable on demand. In these -days, when the mere babe produces his cheque-book on the slightest -provocation, it seems unnecessary to describe how a cheque should -be drawn; though it may just be added that it must bear a stamp of -one penny, and that the stamp may be either impressed or adhesive. -A customer, therefore, can draw a cheque on his banker upon a sheet -of notepaper; but he would be well advised, except under exceptional -circumstances, to use the forms supplied to him. - - -Order or Bearer. - -A cheque is payable either to “order” or to “bearer”; and, if the -latter word be used, then it does not require indorsing, while should -neither word be upon the document, the cheque is held to be an “order” -one. Either the person to whom it is payable or the drawer may change a -cheque from bearer to order; and this he would do by running his pen -through the former word; but the drawer alone can alter an order cheque -by writing the word “bearer” in full and initialling the alteration. If -the cheque be signed by more than one drawer, then all should add their -initials to any correction it may be desirable to make. - - -Date of a Cheque. - -Any person who receives an undated cheque is entitled to fill in what -he believes to be the correct date, and need not trouble to return -it to the drawer for that purpose. He cannot, of course, make any -_alteration_ in the date, but should, in the event of a mistake on the -drawer’s part, return it to him for correction, when he (the drawer) -would make the desired alteration and write his initials against it. -It is, perhaps, as well to remember that a certain class of debtors, -who may be described as either “hard up” or “shady,” have their little -peculiarities; and one of them is to post-date their cheques when they -know that there is not sufficient money at the bank to meet them. -Their object, of course, is to gain time; and should a payee, upon -receiving such a cheque, have cause to think that he is dealing with -one of these gentlemen, he might pay in the cheque to his own banker -for collection, and write pretty plainly to the drawer, requesting him -to call at his banker’s and put the cheque in order. Though a cheque be -either post-dated, that is to say, dated so that it falls due after the -day upon which it is drawn, or dated on a Sunday, the document is not -invalidated thereby. - - -A Stale or Out-of-Date Cheque. - -Most bankers would probably decline to pay a cheque which had been -outstanding more than six months. The drawer, however, does not cease -to be liable upon the instrument until six years after the date -thereupon; though he may claim damages against the payee if he can -prove that he has suffered loss through his delay. - - -Crossed Cheques. - -Though this practice originated in the United Kingdom, the French banks -have now adopted the idea, which is as simple as it is undoubtedly -useful and protective to the customer. A cheque may be crossed either -generally or specially--specially, that is to say, to some bank or to -the account of an individual who keeps an account with a banker. - -If a customer draw two parallel lines across the face of a cheque, -thus, / /, he has instructed his banker _not_ to give cash in exchange -for it to the payee across his counter. It follows that a cheque so -marked must be passed through a banking account. The words “& Co.” -are sometimes written between the lines; but this addition is almost -meaningless, the simple crossing being all that is required. - -A person who draws two parallel lines across his cheque, gives the -following instructions to his banker: “Do not pay cash over your -counter in exchange for this cheque, which must reach you through a -banker, and be paid to him alone.” - -When, therefore, you wish a person to whom your cheque is made payable -to go to your banker’s and draw the money, you will be careful not to -cross it. Practice, somehow, always seems at war with theory, and it -is not by any means an unusual occurrence for a lady, after having -deliberately told her banker not to pay cash for her cheque to the -presenter, to indignantly inquire why he did not disobey her behest -and do so. A prudent teller seldom descends to either argument or -explanation, but calmly accepts such reproof as one of the amenities of -his calling, and resigns himself philosophically to the inevitable. - - -Not Negotiable Cheques. - -This description is somewhat misleading, for a cheque crossed /not -negotiable/ is in reality negotiable, though not so fully as is the one -that has been discussed in the foregoing division. The distinction, -however, is not difficult to grasp. Take a cheque with two parallel -lines across the face simply. Now, if such a document be lost, and -find its way into dishonest hands, a third party, who gives value in -exchange for it, provided he have no guilty knowledge, has a good title -against all the world, and can compel the drawer to pay him the sum for -which it is made out. - -For instance, A draws a cheque for £20 payable to B, and crosses it /& -Co/. B, the payee, after having written his name on the back of the -cheque, loses it. C picks it up and passes it on to D, who gives him -cash or goods in exchange for it. As B has indorsed the cheque he will -have to bear the loss, even though he has got A, the drawer, to stop -payment of it at his banker’s. - -But had the words “not negotiable” been added, D could not have -enforced his claim, although he was a _bonâ-fide_ holder for value. A -“not negotiable” cheque warns any holder for value thus:-- - -“You must, if you part with either cash or goods in exchange for this -document, be prepared to take all risks upon your own shoulders. The -crossing hereon gives you due notice that you must act upon your own -responsibility, and the law, therefore, affords you no protection.” - -A business man cannot be too careful in dealing with a cheque thus -marked; and unless he be well acquainted with the holder, he should -decline to part with either cash or goods in exchange for it. One -should never, even if one know that the drawer is a man of means, and -that the signature upon the cheque is genuine, give value for it to a -stranger, as there is always the danger of one’s having to make good -the loss of any prior holder, who may have been defrauded, whilst if -the payee cannot enforce his claim against the drawer, then a holder -for value cannot. - -A “not negotiable” cheque, in short, is analogous to an over-due bill. -Any person who may deal with a a bill after its maturity does so upon -the understanding, or, better, supposition, that he is acquainted with -any flaw there may be in the title. He may not know of any; but the law -holds that he does. It is precisely the same with a “not negotiable” -cheque. - -Cheques, which are crossed in the manner already described, are said to -be crossed generally. - - -Cheques Crossed Specially. - -A cheque is said to be crossed specially when one writes across the -face of it, say:-- - - “A/C John Smith, - Provident Bank of London.” - -One may name, in the crossing, any particular bank, and the banker -upon whom the cheque is drawn will take care that it comes through the -channel indicated thereupon. In the above illustration, for instance, -your banker will see that the cheque has the name of the “Provident -Bank of London” stamped upon it; and should he not find it there, then -he would decline to pay the document. - -Either the payee or the holder of an uncrossed cheque may cross it -generally or specially; and if it be already crossed generally, then -either can cross it specially, or add the words “not negotiable.” - - -How to Cancel a Crossing. - -The drawer alone can do this by writing upon the cheque the words “pay -cash,” and signing his name beneath them in full. - - -How to Indorse or Back a Cheque. - -For all practical purposes one cannot do better than sign one’s name -upon the back of a cheque exactly as the drawer has written it upon -the face, with, of course, the omission of any courtesy title, such as -Miss, Mr. or Esquire, which are merely there as a mark of civilization -and progress. If one’s name be spelt incorrectly, then one should back -the cheque just as it is drawn, and write one’s correct name underneath -the misspelt signature. Further, do not bully the cashier if he make -this request of you, for to do so is the sign of a weak mind. - -A cheque payable to John Smith, Esq., or to Mr. John Smith, should be -indorsed:-- - -“John Smith.” - -Doctor John Smith may sign “J. Smith, M.D.”; and Colonel John Smith, -“J. Smith, Colonel.” These embellishments, however, are as unnecessary -as a flourish would be on the final _h_ of Smith, and, in a busy age, -the sarcastic person, like the law, regards them as superfluous. A Miss -Mary Smith, who has married a Mr. John Brown, would indorse a cheque -made payable to her in her maiden name:-- - -“Mary Brown, _née_ Smith.” - -If the cheque be made out to Mrs. John Brown, then she signs:-- - -“Mary Brown, wife of John Brown,” - -or - -“Mary Brown (Mrs. John Brown)” in brackets. - -Certain ladies of a masterful temperament appear to entertain a -strong objection to signing themselves “the wife of” such-and-such an -individual, as though the designation smacks of an inferiority of -which they are not conscious; and such susceptibilities may at least be -soothed by placing the opprobrious term within brackets. - -A cheque payable to Mrs. Brown or bearer would not, of course, require -her name upon the back. But if it were to order, then she would indorse -it either M. Brown or Mary Brown. When the drawer omits one’s initials, -one should write one’s usual signature upon the back of the cheque; -and though it is not necessary to sign christian names in full, even -when they are so written upon the document, the capital letters must, -of course, agree with those upon the face. A cheque drawn in favour of -Messrs. Robinson is obviously payable to two or more persons of that -name, so it may be indorsed: “A. & C. Robinson,” “Robinson & Son,” -“Robinson Brothers,” or “Robinsons.” “Robinson and Nephew” would not, -however, meet the case, for it by no means follows that the nephew -is a Robinson. It is equally as probable that he may be a Smith or a -Jones--or a somebody else. In practice, provided the cheque be for a -small amount, the paying banker is seldom squeamish, but when a large -sum is in question he naturally takes care that he is upon the safe -side, for the good man is very human. Where a cheque is payable to two -or more persons, who are not partners, then all should indorse. - -A payee who is unable to write must make his mark or cross (the -trade-mark of the illiterate) in the presence of a witness, who attests -it thus:-- - - his - George X Brown. - mark - - Witness: - Robert White, - 55, High Street, - Birmingham. - -When the payee (the person to whom a cheque is payable) writes his name -upon the back of an “order” cheque the document is said to be indorsed -in blank, and becomes in effect payable to bearer. He can, however, -make it payable to another person by writing above his signature: “Pay -Thomas Brown or order.” Thomas Brown must then indorse the cheque. -Further, any holder may write this request above the indorser’s -signature, thereby converting an indorsement in blank into a special -indorsement. - -A restrictive indorsement gives the indorsee no power to transfer his -rights. Hence a cheque indorsed to “John Smith only” prevents further -negotiation of the instrument. Where a cheque is payable to, say, John -Smith for R. Jones, the payee simply has to write his own name on the -back. - -Should the name of a fictitious or non-existing person be inserted as -payee in an order cheque, the document may be treated as payable to -bearer. Cheques drawn to “cash,” “house,” etc., are so treated. It is -usual, however, for the drawer to indorse them, just as he would a -cheque payable to “self or order.” - -Any executor or administrator can indorse a cheque made payable to -a deceased person, but all trustees must sign. In practice, a banker -usually guarantees or confirms these indorsements. - -Finally it may be added that it is not illegal to indorse a cheque in -pencil, though a banker would probably decline to honour it on the plea -that it becomes fainter as time progresses. Again, too, an indorsement -may be made on the face as well as upon the back of a cheque, but the -customer, unless he be of a peculiarly combative temperament, merely -wishes to know what is usual, and we are all aware of the accepted rule -in this instance. - - -Agents and “Per Pro” Indorsements. - -A signature by procuration indicates that the agent’s power to bind his -principal may be, and probably is, limited. For instance, the agent may -only have authority to indorse cheques and bills, and if he sign as -either drawer or acceptor, he cannot bind his principal. Moreover, as a -procuration signature operates as notice of his limitations, a holder -has no claim upon his principal, as he should have protected himself by -demanding to see the agent’s letter of authority. - -A customer, when he wishes another person to draw cheques on his -behalf, gives a letter of authority to his banker, and states therein -exactly what his nominee or agent may do. The authority may only allow -a certain person to sign cheques on his behalf up to, say, £100, and -the banker would, of course, refuse any cheque drawn in excess of -that sum. Most bankers keep printed forms of this description, and the -customer, if he obtain one, can, by crossing out what the agent may -_not_ do, limit his power to any extent he thinks necessary. These -letters need not be stamped, and, unless previously revoked, they -continue in force until the bankruptcy, insanity, or death of the -principal. - -We can now see that dealing with an agent is not unattended by certain -risks. The banker always protects himself by ascertaining that an agent -really has authority when he signs the name of a client in the capacity -of either drawer or indorser, but as he (the _paying_ banker) is not -liable upon either a forged or an unauthorized indorsement, _per pro_ -indorsements are universally accepted by the banks in the ordinary -course of business. They are not, however, legally obliged to pass -them, and a banker may demand to see an agent’s authority or insist -upon having a confirmation of the indorsement. - -An agent usually signs:-- - - “_per pro_ (or _p.p._) John Brown, - Robert Smith.” - -It has been held that “_p.p._ Mr. John Brown, Robert Smith,” is a -good discharge, but the foregoing method is the more general. There -have also been decisions in favour of the prefixes “pro” and “for,” -though most bankers refuse to pay cheques so indorsed. Procuration -indorsements are not accepted on dividend-warrants. - -A cheque payable to Brown’s Drapery Stores may be indorsed:-- - - “_p.p._ Brown’s Drapery Stores, - Thomas Brown, Proprietor.” - -Again, should Thomas Brown receive a cheque, which, he knows, is -intended for him, though made payable to Thomas Bright, he might sign -upon the back: “_p.p._ T. Bright, Thomas Brown.” He can explain the -reason for this to his own banker, but the paying banker will not -question the indorsement. Cheques which are drawn in favour of an -establishment one owns, or of a commodity one sells, can always be -backed “_per pro_.” - -A cheque to the order of a limited or unlimited company is generally -indorsed _per pro_ the company, and the signer should then state the -position he occupies, whether director, secretary, manager or cashier, -as in the following illustration:-- - - “_p.p._ The Hull Shipping Company, Limited, - Walter Wilson, - Manager.” - -It is always advisable to sign for or on behalf of a company, and to -state in what capacity one signs, so as to avoid a personal liability. - -An agent who signs under a power of attorney, usually indorses: “Thomas -Brown by his attorney William Smith.” It is as well to remember that a -power of attorney often confines the agent’s power, as in the case of a -letter of authority, within very narrow limits, and that the principal -is only bound by its provisions. - - -Banker’s Liability on Forged Indorsements. - -The paying banker is not liable upon a forged or unauthorized -indorsement, but the collecting banker is in the case of uncrossed -cheques, and, according to a recent decision by the House of Lords, -may be upon crossed ones. If a banker credit his customer’s account -with the amount of a crossed cheque _after_ it has been cleared, he is -protected by Section 82 of the Bills of Exchange Act; but should he -credit his client’s account with the said cheque before he himself has -collected it, then he ceases to be a mere agent, and becomes a holder -for value, and, consequently, liable upon a forged indorsement. As it -is usual, both in London and the provinces, to credit a customer’s -account with cheques on the day that he pays them in, it follows -that an employer, if his agent have indorsed crossed cheques without -authority and placed them to an account in his own name, can recover -their amount from his agent’s banker. - - -Banker’s Liability where Drawer’s Signature is Forged. - -The banker is liable to a customer upon any forged cheque he debits to -his account. - - -When a Cheque is Legally Paid. - -A banker, having passed the cash across his counter, cannot legally -demand it back again, and the presenter may please himself whether or -not, if asked, he will return the money. The banker has no power to -compel him. - - -Stopping Payment of a Cheque or Bill. - -This must be done by the drawer or acceptor, as the case may be, and by -him alone. He should write a note to his banker, giving an exact copy -of the cheque or bill he wishes returned, and the banker will then mark -his ledger and instruct the cashiers to refuse payment of the document, -if presented. Should he pay the instrument in spite of the customer’s -order to the contrary, he will have to make good any loss occasioned by -his negligence. - - -Lost Cheques. - -The payee or the holder who loses a cheque can, of course, give notice -of his loss to the banker upon whom it is drawn, and the banker would -doubtless question any presenter, but he, the payee or holder, must -obtain an order from the drawer instructing his banker to stop payment. -The drawer, though he cannot refuse such a request, may insist upon -receiving security before he issues a fresh cheque. Further, if the -drawer employ the customary means of communication, such as, for -instance, sending his cheque through the post, or should the payee -himself select a particular channel, then any loss falls upon the -latter. A holder for value, however, provided the cheque be not tainted -with forgery, and that it be not crossed “not negotiable,” can compel -payment from the drawer, who must then fall back upon his indemnity -should he have issued a duplicate cheque. - - -Sending Cheques through the Post. - -When remitting cheques to one’s banker for the credit of one’s account -it is advisable to write across the face of each: “A/C Payee, with ---- -Bank of London.” In the event of a cheque thus marked getting into -dishonest hands no banker would care to collect it. Where the sender is -the holder, and not the payee, he would, of course, cross the cheque -“A/C John Jones,” etc. - -As the paying banker is not liable on a forged indorsement, it is -always desirable to receive an acknowledgment from the payee of a -cheque posted to him. Should not this come to hand in proper time, -then payment of the cheque might be stopped at the bank, and the stop -removed when the receipt arrives. It is, perhaps, as well to remember, -when sending a crossed cheque through the post, that the addition of -the words “not negotiable” lessens the risk of both payee and drawer. - - -Paid Cheques. - -These are the legal property of the drawer; but a banker is entitled to -an acknowledgment from the customer before he surrenders them. - - -Providing for Cheques Specially. - -A customer, whether his account be overdrawn or not, may pay in a -certain sum to his credit, and request his banker to pay a particular -cheque against it. The person who adopts this procedure is invariably -somewhat “hard up”; and having issued cheques which, in the aggregate, -amount to more than the balance at his credit, or which would, if -presented, overdraw his account beyond the agreed sum, he is naturally -nervous lest his banker should return one or two of them. Assuming that -he has some half-dozen cheques in circulation, but is particularly -anxious to pay one to John Smith, who has threatened to sell him up, -for £30, and another for £40 to William James for rent, then he should -pay £70 to his credit, and write across his paying-in slip: “To provide -for my cheques of £30 to John Smith and £40 to W. James specially.” The -banker, if he accept the slip, is bound to hold the money against the -cheques in question. - - -Present your Cheques at Once. - -A business man, in order to give himself every chance, will pay all -cheques to the credit of his banking account upon the day he receives -them from his customers. He has, in the legal sense, until the close of -the first business-day following the day he gets the cheque, when, if -he like, he can post it to his agent, who has the same time-allowance -for presentment, provided the cheque be not drawn upon a bank in his -own town. If he delay longer any loss incurred by the drawer through -non-presentation will fall upon the payee’s shoulders. For instance, -should the bank fail, the payee might be saddled with a bad debt -through his delay. - -A customer who has a doubtful cheque in his possession, and who is -anxious to know whether the drawer has funds to meet it, can instruct -his banker to forward the cheque in question direct to the drawer’s -bankers, with the request that they telegraph back whether or not the -cheque is paid. Or he may ask them to wire only in case of non-payment, -and so save himself the expense of a telegram. Some companies, when -they think a customer will stand it, charge 1s. for doing this; but one -should decline to pay more than the price of the telegram, viz., 6d. - - -Returned and Dishonoured Cheques. - -It does not follow that, because a banker returns a cheque, the money -is not there to meet it, as, more often than not, a cheque is sent back -for some irregularity in the indorsement, which can be at once put -right. It is necessary, therefore, before jumping to conclusions, to -carefully examine the words written upon the document. The following -are the usual answers given by bankers, with their abbreviations: - -“R/D” (refer to drawer). Such an answer clearly implies that the cheque -has been dishonoured for lack of funds. - -“Effects not cleared.” Here the client, assumably, has enough money to -meet the cheque, but the banker has not yet cleared or realized the -documents he has paid in, and the drawer’s credit is so poor that he -will not honour his cheque until this has been done. A cheque thus -marked is usually re-presented, but, obviously, the drawer is weak. - -“N/S” (not sufficient). We gather from this that the drawer has some -money standing to his credit, though not enough to meet the cheque. - -“Words and figures differ” does not require an explanation, though, -perhaps, it may be remembered that weak drawers have a trick of making -mistakes in order to gain time. “Payment stopped,” “Post-dated,” -“Incomplete,” “Another signature required,” “Indorsement irregular,” -and other answers that might be given, are self-explanatory. Cheques -returned for these reasons naturally do not reflect any discredit upon -the drawers. Of course, a person with an open, charitable mind is free -to make his own deductions. - -Occasionally a banker returns a customer’s cheque when he is in funds. -Such a mistake generally occurs through a credit having been posted to -the wrong account, and as often as not the two customers are blessed -with the same surname, though not with an equal amount of this world’s -goods. Brown, for instance, is not an uncommon name, so we will assume -that a credit of poor Brown’s has been posted to rich Brown’s account -by mistake, and that the banker returns the former’s cheque for £50 -marked “refer to drawer.” Now poor Mr. Brown has a good case against -his banker, and should at once consult his solicitor, who will see -that he gets compensation for the damage done to his credit. Most -bank-directors, who are modest, retiring gentlemen, prefer to settle -such a case privately, as it is not thought desirable to advertise -the fact that a mistake of this nature, with their perfect system of -book-keeping, is possible. - - -Drawer too Ill to Sign. - -In the above instance the customer makes his mark, which is usually -witnessed by his doctor. Sometimes he authorizes a person to draw -cheques upon his account up to a certain sum, and cancels the authority -upon his recovery. - - -Backing a Cheque for a Friend. - -The man who backs a cheque in order to oblige a friend should remember -that he makes himself responsible for its payment, and that should his -friend have no money to meet it, he, the indorser, will be called upon -to make good the loss. He does not merely vouch for the respectability -of his friend, but he also guarantees that his cheque will be duly -honoured upon presentation, which is quite another matter. One -should, therefore, decline to back a cheque for a stranger upon any -consideration. - - - - -CHAPTER IV - -CREDIT-ACCOUNT CUSTOMERS - - -As by far the greater number of a bank’s customers keep their accounts -in credit, we will begin this chapter by considering what average -balance should entitle a person to have his account worked free of -charge. In London, a man who opens a small account with a bank, and -whose credit balance averages £100, will not be debited with any -commission at the end of the quarter or half-year when the companies -rule off their books, while in the suburbs an appreciably smaller -balance is accepted, and, occasionally, interest is allowed there upon -current-account balances, though one will have to press pretty hard -for it. Competition is now so keen between bank and bank that it is -sometimes possible to make very close terms. - -In the country it is considered that an average balance of £50 upon a -small account pays expenses. However, the bank-manager, who is as human -as the gentleman who sells one a dog, seldom neglects to make a small -charge upon these accounts when he considers that their owners will -stand 10s. a year or so. Broadly speaking, you can please yourself -whether you pay it or not. This class of business, of course, is -absolutely safe; so the customer, if he cannot come to terms with the -manager, is able to take his account to the cheapest market, always -remembering that it is never wise to bank with a second-rate firm, -whatever advantages may be offered. - -Though a man keep a balance of £10,000 to his credit, he will not -receive one penny in the shape of interest unless he ask for it, -and, even after having arranged a rate, it is advisable to check the -banker’s figures and ascertain that you are getting it, as, sometimes, -they are apt to err in his favour, through small debits that have been -deducted from the interest, and which, consequently, do not appear in -your pass-book. - -The following illustration, perhaps, will show how matters stand:-- - - A keeps an average balance of £150 - B ” ” ” ” £600 - C ” ” ” ” £5,000 - -The banker, if B and C are easy-going men, whose financial experience -is small, will conduct their accounts on the same terms as he does -A’s. He will, that is to say, work each account free of charge. But -such treatment is evidently unfair, for if A’s account is worked free, -then assuming that those of B and C give but little more trouble, each -is entitled to some allowance upon his average balance. They should -certainly endeavour to obtain it. - -If the manager be interviewed, he may endeavour to convince either -B or C, by a process of reasoning, which is more persuasive than -scientific, that money is so cheap that, really, a high rate is out of -the question. He will further explain that his directors, as a rule, -do not make an allowance upon creditor current accounts; but should -either just hint at removing his account, a rate will be instantly -allowed, for competition among the banks for a large credit account is -so active that the customer has only to be firm and fairly reasonable -in his demands. The manager, of course, will endeavour to pay as little -as possible. Of that we may be quite sure. The customer, on his side, -should try to obtain the maximum rate, which is 1½ per cent. below Bank -rate in London, and in the provinces the usual country rate. - -Original sin, not being yet eradicated from our race, a bank-manager, -who is endowed with his full share, sometimes endeavours to persuade -a customer to transfer sums from his current account to deposit -receipt, but it is always prudent to remember that his advice is not -disinterested, and that he is acting “upon instructions.” Experience -proves that, after a little while, a customer becomes tired of -continually transferring sums from his running account to deposit, and -then, when his account is getting low, paying the deposit-receipts to -his credit. Finding the process a weariness to the flesh, he often -ends by giving it up in disgust, when once again the wily banker is a -gainer at his expense. By obtaining a rate of interest upon his daily -current-account balances the customer is spared this trouble; and, if -he fail to induce his banker to grant it, then when his account is -in credit beyond a certain agreed sum, he should take care to get a -deposit-receipt. - -Bankers, like individuals, are the slaves of their environment, and -in the Midlands and elsewhere, where it is usual to allow a rate on -the daily balances, commission is also charged on the turn-over or -sums debited. Interest upon the daily creditor balances is allowed at, -say, 1½ per cent. below bank rate, and a commission of ⅛ per cent. is -charged on the cheques a customer draws. The lower the rate of interest -and the higher the commission rate, the more profitable, of course, is -the account to the banker. The customer, therefore, when checking his -banker’s charges and allowances, will take care that he is receiving -the maximum rate of interest, and paying the minimum or lowest -commission rate, which varies from ⅛ to ¹/₁₆ per cent., while it is -sometimes possible to arrange for a reduced and merely nominal charge. -A person, when he sees a “little interest” credited in his pass-book, -is disposed to increase his balance, on the assumption that he is being -allowed a rate; but before doing so he should certainly ascertain what -the rate will be, for, upon examination, this allowance is occasionally -found to appeal more strongly to one’s senses than to one’s critical -acumen. - -Having disposed of the paying average credit balances we can now -discuss those accounts that have a large turn-over. A trader, for -instance, who draws a considerable number of cheques during the course -of a half-year, and whose balance is small, cannot expect his banker -to work his account free of charge; but it is difficult to draw up a -table showing what he ought to pay, for the simple reason that some -bank-managers debit him with a rate which they think he will stand. A -¹/₁₆ per cent. commission, that is to say, 1s. 3d. upon each £100 he -draws out by cheque, seems a very full rate; and as there is a good -market for this class of account he should not disburse one penny more. -The owner, who always has a balance on the right side, can, if he find -his banker unreasonable, easily negotiate with his rivals, who are -delighted to see fresh faces. Indeed, it is quite possible that he may -succeed in getting his account worked free, or for a nominal fee of -half a guinea or so, if the turn-over is not very large. - -It is now time, perhaps, to give a brief sketch of the manner in which -a manager charges his ledgers at the end of the quarter or half-year. -As a rule he and the accountant go through the books together; and -as there is no recognized scale by which the charges are regulated -it follows that they consider the man as well as the nature of his -account. The business of the manager is to make his branch pay; -therefore, if you do not criticize your commission rate, you may rest -assured that he will succeed brilliantly at your expense. Should he -think that the customer lacks experience, and is not acquainted with -the fact that competition between bank and bank for creditor accounts -is active, then he charges him ⅛ per cent. When, on the other hand, he -is aware that the client checks his expenses, caution is exercised; -and if the manager decide to claim commission the sum debited will be -extremely small. - -After all, in the ordinary affairs of life one does not accept without -question the price of the seller; and if a customer be so unwise as -to think that a bank-manager has a higher sense of honour than his -kind, then he must be prepared to take the natural consequences. For -instance, D and E keep an average balance of £100 in their bankers’ -hands, and the turn-over of each account is about £1,500 for the -half-year. The manager, knowing that D is not critical, charges him -¹/₁₆ per cent. commission, or 18s. 9d. E, he asserts, is a most -unpleasant man, who, when charged upon a previous occasion, threatened -to remove his account unless the sum were given back to him; E, -therefore, who is aware that competition is one of the factors that -determine price, has his business done free. - -A large trader or merchant, as a rule, does not allow his banker to -have the use of a considerable amount of money free of interest; -and those accounts that are from, say, £1,000 to £10,000 in credit, -usually belong to women, who are not accustomed to the management of -money. The manager, anxious to stand well with his directors, some -of whom increase his salary if he add to the profits of his branch, -does not, of course, suggest to these ladies the advisability of -receiving interest upon at least a portion of their balances, but, on -the contrary, being wise in his generation, endeavours, by resorting -to those social amenities that raise him higher and higher in their -estimation, to hide the awkward word from their view, while laughing in -his sleeve at their excessive credulity. - -The customer who keeps his account in credit should ask his banker: -“What average balance must I maintain in order that your people will -work my account free?” That sum ascertained, he can act upon the advice -contained in this chapter. - - - - -CHAPTER V - -DEPOSIT-RECEIPT CUSTOMERS - - -A deposit-receipt, which is not a negotiable instrument, cannot be -transferred by one person to another. Where the receipt is issued in -more than one name, instructions should be given to the banker as to -whether, in the event of withdrawal, the note is to be signed by all -or by any two or any one of the depositors. Should no instructions -be given, then all must sign when a withdrawal is made, or when the -interest is taken. These receipts, as a rule, are issued subject to -either seven or fourteen days’ notice of withdrawal; but the notice, in -practice, is not enforced, bankers merely writing it upon the note in -order to protect themselves in the event of a run. Most banks, however, -decline to pay interest unless the sum has remained in their possession -for at least one month. - -The large London banks, though they compete eagerly the one against the -other for well-secured advances and loans, have closed up their ranks -against the depositor, their practice being, both in London and the -suburbs, to allow 1½ per cent. below Bank rate upon money left with -them on deposit, every alteration in the rate being advertised in the -leading papers. All one has to do, therefore, in order to ascertain -the London rate for money on deposit-receipt is to deduct 1½ from the -Bank of England rate which may be seen in the city-article of every -newspaper. Whether or not certain banks offer special rates to favoured -individuals is a matter of opinion; or, again, they may bid higher -for large sums for fixed terms; but the small depositor may take it -for granted that, with their rates on loans and advances reduced by -competition among themselves, the banks are determined to keep down -the deposit rate. In fact, the large London bankers have united for -this very purpose, though it must be remembered that the agreement -is not binding at the country branches of the London and provincial -institutions. - -A banker is a middleman who borrows from depositors at a rate in order -that he may lend to others at a higher rate, the difference between -the two rates being his margin of gross profit. A certain portion of -his deposits, we know, he obtains in exchange for granting banking -facilities, and upon the rest he allows a rate of interest, while he -has to maintain a reserve of so-called cash and gilt-edged securities -against the danger of sudden withdrawals and panics. At the moment the -companies cannot control the advance rate, or fix from time to time -a minimum rate for secured advances; but in London we see that they -have succeeded in getting the depositor under their thumb, thereby, of -course, increasing their profit margin at his expense. Their next move -will probably be an attempt to corner the borrower against tangible -securities, as has been successfully accomplished by the banks in -Scotland. The number of English banks is rapidly decreasing through -absorptions and amalgamations, so, in the end, it is more than probable -that we shall see a monopoly, and that all the large banks will one -day unite for the purpose of fixing, at each change of the Bank rate, -their deposit rate, and, also, their lowest or minimum rate for secured -advances. - -In the provinces the banks, when loanable capital is cheap, are able -to lend and to discount at higher rates than in London, so the country -deposit rate never falls so low as that of London. Neither, however, -does it advance so high when loanable capital is dear, because the -provincial banks then find some difficulty in increasing their rates -upon bills and loans proportionately. The following table will enable -one to see the difference between the rate allowed in London and the -country:-- - - London Deposit Rate, - Bank Rate. 1½ below Bank Rate. Country Deposit Rate. - - 5 3½ 3 - 4½ 3 2½ to 3 - 4 2½ 2 to 2½ - 3½ 2 2 - 3 1½ 1½ to 2 - 2½ 1 1½ - 2 ½ 1½ - -In the country, we must remember, there is no combination or ring of -bankers who meet to decide the rate, which, therefore, is not “fixed” -from time to time on the basis of the Bank rate, though, of course, -the country deposit rate moves up and down in sympathy with the Bank -of England’s published rate of discount or official minimum, as it -is called. There is, moreover, some competition for deposits in the -country, but it is very slight; and, unless the banker think that a -man may be useful, he seldom bids appreciably higher than his rivals -for his money. 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. In -every probability one’s principal would be safe, but it would not be -_so_ safe as in the hands of the really large London and provincial -institutions, whose reserves afford the customer a much better -guarantee; consequently it is always wise to consider whether the -additional risk, be it never so small, is worth taking for the slight -increase in the rate. - -Of course the country depositor will take care to inquire what rates -the other large banks in his town are granting, so that he may judge -whether his own banker is allowing him a fair rate. Again, if the -amount of his deposit be, say, over £1,000, he can sometimes obtain a -special rate; and he may rest quite assured that, if he do not interest -himself in the matter, the bank-manager will allow him the lowest rate -possible, for as there is not a fixed minimum it follows that some, -more especially during certain conditions of the market, are obtaining -better rates than others. A little pressure will occasionally induce -the manager to quote, as he quaintly calls it, a “special” rate of -interest, if he consider the customer’s name be worth keeping on his -books. It may be added that some people, in order to minimize their -risk, keep their current accounts with one banker and deposit with -another. - -We can now refer to the table of rates on page 48. The country rate, of -course, is stated approximately, for we have seen that under certain -conditions the customer may possibly obtain more. Glancing at the -table, we find that when the bank rate is at 2, the London depositor -receives ½ per cent. and the country depositor 1½. If the London -customer deal with a London and provincial bank, it will obviously -pay him better to deposit at one of the country branches. He should, -therefore, if he consider that money is likely to be cheap for some -considerable time, give notice in London and transfer his deposit to -the country. If his banker object, he can deposit with any large, -well-managed provincial bank. With the Bank rate at 2½ the move would -pay him, but when it rises above these figures the rate is either -equal or in his favour. A person who keeps two banking accounts, one -in London and the other in the country, can make this move with the -greatest of ease; and by transferring his deposit from the one to the -other as the rate favours him, he may easily increase his interest. -Conversely, with a high bank rate it may pay the country depositor -to transfer his principal to London. There is no occasion to let the -banker see the move. - -In London and the great cities a large proportion of the deposits at -interest, especially during periods of depression, would represent -capital temporarily withdrawn from trade, and awaiting either more -profitable investment or an increased demand and rising prices. It is -this accumulation of idle capital that tempts the company-promoter -from his lair, and sometimes results in a Stock Exchange boom, whilst -it always produces an increased demand for the so-called gilt-edged -variety of securities and a consequent rise in their price. The -country depositor, however, even when he leaves fairly large sums at -interest, is generally waiting to invest his money in house property, -which will return him from 5 to 6 per cent., or to place it out on a -first mortgage at from 3½ to 4 per cent. In the first instance, he is -careful not to purchase old property that will swallow up much of his -rent in repairs. Cautious by nature, he shakes his head dubiously at -the glowing prospectus of the promoter, and refuses to believe in the -high-toned and cunningly tuned leaflets with which the bucket-shops -favour him, for he likes to see his investment, to feel it, to walk -upon it. Paper does not satisfy his soul; he is not even without his -suspicions of banker’s paper; but when he possesses house property, -then all he has to fear is the Almighty and a bad earthquake, and he -can sleep comfortably on those risks. - -Country depositors consist largely of working men, clerks, artisans, -small shopkeepers, dressmakers, women of slender means, and so on, -together with the banks’ current-account customers. The huge aggregate -of deposits is made up principally of small sums, so it is easy to keep -down the rate, because the great majority are ignorant of the condition -of the money-market, and hardly seem to be aware that the Post Office -gives 2½ per cent. upon small sums left with it. The companies trade -upon the ignorance of their depositors; and though a few of the -better-informed customers withdraw their savings when the rate is -extremely low, experience has taught the banks that the great bulk of -them simply grumble and take what is offered. - -Seeing that the deposits are spread over so great an area, and among -men and women who have not sufficient business knowledge to invest -their savings advantageously, the banks have been able to keep down -rates without reducing their own resources; and the few who do -withdraw their savings when the deposit rate is at 1½ per cent. are -practically of small account when contrasted with the alternative -policy the companies would have to adopt in order to retain them, for -it obviously pays better to lose a few receipts than to raise the rate -to 2 for the whole of the deposits. For instance, a bank would rather -lose £100,000 by withdrawals when the rate is at 1½ than pay 2 per -cent. on £5,000,000 for the purpose of preventing the drain, £25,000 -being too large a premium to sacrifice for the purpose of retaining its -connexion intact, when, perhaps, money is being employed in the London -shortloan market at 1½ per cent. and under. - -Again, very many of the country depositors look upon the -deposit-receipt as an investment, and the banks, quite naturally, do -not wish to inform them that even Consols are a more profitable one. -Not so very many years ago the country minimum deposit rate was 2, and -it was not without certain misgivings that it was reduced to 1½; but, -as we have seen, the experiment proved safe, though the banks, given -another long period of a 2 per cent. Bank rate, will hardly care to -risk 1 per cent. in the provinces, as it seems pretty certain that, -were the minimum further reduced, disgusted depositors would invest -their savings either in the Post Office or the gilt-edged class of -securities. Having once turned this stream of deposits into another -channel, it is improbable that a higher rate would tempt them back -again; and as the depositor is essential to the modern banking system, -the provincial banks will think many times before they risk a rate -below 1½, even when cheap capital is again reducing their dividends -right and left. - -A customer, before leaving his money with a banker, will be careful to -inquire what rate he is to receive, and if the rate be not written upon -the receipt, then he might pencil the answer he gets upon the back of -the document. If there be three good banks in his town, and he has, -say, £200 to deposit, there can be no harm in his going to all, and -asking the highest rate each is allowing. John Jones, we will assume, -holds a deposit-receipt for £200 dated 10th June and he takes it to the -bank on 9th December following in order to draw the interest at the -rate of 2 per cent. per annum. Between 10th June (excluding the first -day) to 9th December (inclusive) there are 182 days, so the banker owes -him 2 per cent. per annum on £200 for 182 days. Hence the following -sum:-- - -(200 × 2 × 182)/(100 × 365) = £1 19s. 10d. - -The cashier, therefore, pays John Jones £1 19s. 10d. in cash, and gives -him a new receipt, dated 9th December, for £200. A depositor, as a -rule, draws his interest twice a year. Some persons, however, leave -their receipts from three to five years without disturbing them; and -the bank-manager, always anxious to swell the profits of his branch, -is careful, when they are presented, to make his calculations at simple -interest instead of at compound. Deposit customers, therefore, even -when they do not require the interest due to them, should present their -receipts six months after date in order to have the interest added to -the principal, when both bear interest together. - -For instance, assuming that John Jones had not required his interest, -then he would have taken a new note for £201 19s. 10d.; but Mr. -Jones, who is acquainted with the internal economies of a bank, and -who is also aware of the intense frugality of the agent, knows that -the companies do not allow interest upon the odd shillings of a -deposit-receipt; so, giving the cashier an additional twopence, he -takes a fresh note for £202, and walks away very well satisfied with -himself. Were he to omit taking this precaution each half-year, and to -hold his receipt for, say, five years, then, when he took it in, he -would merely get certain rates upon £200 for five years. The larger -the principal the greater, of course, is the loss of interest to the -depositor. - -Should not the depositor reside in the neighbourhood he can, after -the expiration of six months, write his name on the back of the note -and send it through the post to his banker, with the request that a -new receipt be returned to him for the amount of the principal and -interest. In the event of his wishing to draw the interest, a banker -will send him either a draft or postal orders for the amount due to -him, as he may direct. Of course, if he at any time require part of -the principal, he will state what amount, and give directions whether -the interest is to be added to the new receipt for the balance or to -be included with the sum he is withdrawing, while he will take care to -write his name upon the back of the note before despatching it. When -sending a receipt by a messenger it is usual to write a note to the -banker, telling him just what one requires and requesting him to pay -the bearer of the letter. - -Where interest amounting to £2 and over is withdrawn, the -deposit-receipt must have on the back a penny postage stamp, which the -depositor should cancel by writing his name across it. This must be -done upon each note when the depositor has a plurality of receipts. -Where, however, the interest upon any one is less than £2, a stamp is -unnecessary. Nor is it required when the depositor adds principal and -interest together and takes a fresh note for the aggregate, but where -principal and interest or principal or interest amounting to £2 or over -is _withdrawn_, the receipt must bear a penny stamp. - -We now come to the question of the seven or fourteen days’ notice on -these receipts, and, as previously stated, the banker seldom or never -enforces his claim, though, when notice is not given, he occasionally -deducts fourteen days if the whole of the principal be withdrawn. When -this is contemplated it is better, perhaps, to give the necessary -notice, but the manager, should the customer protest against this -deduction, generally gives way. Again, if the note be for £100, and the -depositor withdraw £50, and take a new receipt for the balance, the -banker may deduct a certain number of days from the term on £50 (the -sum withdrawn without notice). The customer, by checking his interest, -will discover this loss, which the teller, if he remonstrated with him, -will obligingly make good. It is also as well to bear in mind that some -banks have two rates. - -The London depositor, we know, receives 1½ below Bank rate; so assuming -that Mr. Jones, of Whitechapel, held a note for £200, dated 5th -February, 1903, and took it to the bank to draw the interest on 5th -July of the same year, he would want to know how much was due to him -at the latter date. First, therefore, he must ascertain whether any -changes were made in the Bank rate during the period in question; and -upon inquiry he found that the “official minimum” was raised to 4 per -cent. on 2nd October, 1902, and lowered to 3½ on 21st May following, -and to 3 upon the 18th June next. - -Now, from 5th February (exclusive) to 5th July (inclusive) there are -150 days. His banker, therefore, owed him:-- - - Bank Rate was from - 105 days’ int. at 2½ p.c. p.a. on £200 Feb. 5 to May 21 4 p.c. - 28 ” ” 2 ” ” ” May 21 to June 18 3½ p.c. - 17 ” ” 1½ ” ” ” June 18 to July 5 3 p.c. - -------- - 150 days - -Here we get three rule-of-three sums, and, perhaps, it were as well to -give a statement of the first, viz.:-- - - (200 × 2½ × 105)/(100 × 365) = £1 8 9 - 28 days at 2 p.c. per annum on £200 = 0 6 1½ - 17 ” ” 1½ ” ” ” ” ” = 0 2 9½ - ------------- - Interest due £1 17 8 - -Mr. Jones, of Whitechapel, then, should have received £1 17s. 8d. -from his banker in cash and a fresh deposit-receipt, dated the 5th -July, 1903, for £200. At each change of the bank rate the London -depositor, when calculating his interest, must make a fresh sum, as in -the above illustration, and so, too, must the country depositor when -the fluctuation of the Bank of England rate is sufficiently wide to -influence the rate of interest allowed in the provinces, though the -latter must remember that he can only ascertain the rate by making -inquiries of the bankers themselves or among those of his friends who -deposit with them. - -Adverting to the dates in the foregoing illustration, a few words of -explanation are perhaps necessary, for it will be seen that under -the heading “Bank rate was,” 21st May and 18th June, the days upon -which the official minimum was changed, are placed opposite different -rates. The Bank of England directors examine their weekly return or -balance-sheet, which is made up to the close of business each Wednesday -on the Thursday following, and in the afternoon of the latter day any -change in the Bank’s rate of discount is announced. Of course, during -abnormal times the rates may be changed on any day as the exigencies -of the moment may direct; but, fortunately, though the money-market -is subject to fits, its surface, as a rule, is seldom so violently -perturbed as to call for drastic remedies, and we shall find that the -dates in question were Thursdays. It follows, therefore, that these -days opened with the bank rate at one figure and closed with it at -another. Hence the anomaly to which attention has been drawn. The -banker owed Mr. Jones, of Whitechapel, interest at 2½ per cent. from -5th February (exclusive) to 21st May (inclusive). On the 21st May, we -know, the Bank rate was reduced from 4 to 3½ per cent.; so he owed him -2 per cent. on his principal from 21st May (exclusive) to 18th June -(inclusive)--the date of the next change. Should not the reason of this -be quite clear to any reader, if he remember that from 21st to 22nd May -the Bank rate would have been one day at 3½ per cent. the difficulty -will probably disappear. - -From an investment point of view the deposit-receipt seems hardly worth -consideration, because even Consols, over a period of five years, will -return an appreciably higher yield; but when one is merely waiting for -a suitable investment to turn up, or for a revival of trade, then the -deposit-note exactly meets one’s requirements, for its only charm lies -in the fact that the depositor gets back his principal intact. When -the deposit rate is low trade is generally dull, and the prices of -gilt-edged securities consequently move up. The depositor, therefore, -when the rate is high should not be tempted to let his money remain -with his banker for that reason alone, because he can then, as a rule, -buy gilt-edged securities at cheaper figures, and, needless to say, the -average return on his purchase-money will greatly exceed the average -rate of interest on deposit. Conversely, if he buy the so-called -gilt-edged variety of securities when interest is low, he is much more -liable to a loss of capital should he want to realize them when trade -is good and the rate of interest high. It follows that the man of -business, who finds capital accumulating in his hands during periods of -temporary depression, when interest, of course, is low, prefers taking -a deposit-receipt for his idle capital, which he hopes to again use in -his business directly markets improve, to purchasing, say, Consols at a -time when demand has enhanced their price, and, consequently, added to -his risk of loss upon realization. - -Some banks, instead of issuing a deposit-receipt for money left at -interest, give the depositor a pass-book, in which the sum he leaves is -credited. Each time the depositor leaves new money he takes his book -with him, and the cashier enters the amount therein to his credit, -while he draws out his interest, or any part of the principal he -may require, by cheque. As the banker rules off his deposit-ledgers -half-yearly, and then adds the interest due to each customer to the -principal, it follows that principal and interest, when the balance -is brought forward, give a return to the customer, who by this method -receives compound interest on his capital or savings. The advantages -of this system are too obvious to call for explanation, but it may be -added that, when a deposit customer is given a cheque-book, he should -be careful not to operate too freely upon his account, as some bankers -then transfer the balance to their current-account ledgers, their -reason being that the account has ceased to be used for the purpose for -which it was opened, and that, therefore, the depositor is no longer -entitled to interest. - -The chapter on “Unclaimed Balances” should prove especially interesting -to depositors. - - - - -CHAPTER VI - -THE BANK RATE IN RELATION TO BANKERS’ CHARGES - - -Very many persons who are out of touch with money-market problems fail -to see why the Bank of England’s rate of discount should be in any way -connected with a banker’s charges; and though, to those who have not -studied the question, the swaying of the pendulum seems due to some -occult influence, the forces that move it are both visible to the naked -eye and capable of explanation. In the first place, the Bank of England -keeps the cash reserves of all the banks in the United Kingdom, and, -as a natural consequence, possesses the only large store of gold in -the land. The other banks, which are dependent upon this accumulation, -become nervous immediately the gold in the Bank’s vaults begins to -leave the country in appreciable quantities, because, should not the -Bank of England be able to meet their demands, they, too, will be -unable to supply the requirements of their own customers. - -We need not, in a small book of this description, enter into the -mysteries of the foreign exchanges, or discuss internal and external -drains of gold, but the Bank, in order to arrest a drain of gold -outwards, raises its rate, when the other banking companies, equally -anxious to stop the efflux, raise their rates too, with the result -that borrowers, whether upon bills or securities, have to pay more. -Conversely, when the Bank’s reserve is high and the political horizon -unclouded this nervous feeling no longer exists. The Bank, we will -assume, then lowers its rate, and the other banks follow suit, when the -borrower pays less. - -When speaking of the money-market, the London money-market is always -implied, and here we encounter the bill-brokers to whom the banks -advance their surplus funds. The banks, that is to say, finance -their rivals, who make bills a speciality, and whose knowledge of -bills of exchange is doubtless both extensive and peculiar. Seeing -that the banks themselves discount trade-bills for their customers, -the necessity of a middleman or bill-broker between the person who -discounts a bill and the banker who supplies the capital is not very -apparent, but the broker’s “turn,” when he re-discounts with the -banks, is extremely small; so it is quite possible that were the banks -to establish special departments to deal with this business, the -slight increase in their rates would not compensate them sufficiently -for the troubles of management. As, under this system, the brokers’ -rate of discount is below that of the banks, it follows that all the -bank-bills and most of the best trade-bills pass through the hands of -the bill-brokers, while bills are also sent to them from all the great -cities. The bankers, consequently, discount inferior paper at higher -rates for their own customers. - -But the Bank of England is a great bank of discount. Moreover, it -pays a dividend like any other bank, and, as the bill-brokers are its -rivals, it follows that it cannot afford to allow all the business to -drift into their hands. When, therefore, the brokers’ rate (the market -rate) is below its own, it either takes steps to make its own rate -of discount, as the saying is, “effective,” or else it reduces its -advertised rate of discount (the Bank rate). The Bank makes its rate -representative or effective by selling Consols, and thereby reducing -“bankers’ balances.” 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. - -We can see, therefore, that though the Bank rate is sometimes either -above or below the market rate, it is necessarily never out of touch -with it for any very considerable length of time; so now, perhaps, it -will be understood why the banks allow 1½ below Bank rate on deposit; -and their reason for basing their rate for loans and advances upon the -Bank of England’s advertised rate of discount will also be apparent. - -Of course, the demand for, and the supply of, loanable capital decides -the rate of interest, and as demand and supply are never equal, -the rate is always fluctuating, but we might just remember that our -artificial banking system “influences” the rate from time to time. -During periods of dull trade, when loanable capital accumulates in the -hands of the banking companies, we should expect to see a low Bank -rate, because, prices of commodities having fallen, people are less -anxious to borrow, while fewer bills are on offer, and, the demand -for those bills having increased proportionately, it follows that -the holders can discount them at a cheap rate. But when business is -brisk and the prices of commodities are rising, more bills are drawn, -and as the fund with which they are discounted is not limitless, it -follows that the increasing demand upon that fund sends up the rate. -Bankers, consequently, who have also to meet the requirements of their -current-account customers, are sometimes obliged to administer a -salutary check to speculation by making the rate almost prohibitive in -order to protect their reserves of cash, as if they then lent to all -and sundry even Lombard Street would collapse. - -Now the Bank of England, we have seen, holds the national reserve, as -it were, and is, in consequence, the pillar upon which the money-market -rests. Threadneedle Street (the Bank) is, therefore, the centre of the -money-market (hence the description “central institution”) into which -Lombard Street (the rest of the banks in the United Kingdom) pours its -reserve and surplus cash. We might describe the Bank as the heart of -the money-market, through which a stream of cash and credit-documents -is continually flowing. The brokers (the outside market), who -practically keep no reserves of cash, are largely financed by Lombard -Street, which, however, calls in its advances to them during certain -conditions of the market; and the bill-brokers are then compelled to -fall back upon the Bank of England which holds the bankers’ reserves. -In assisting the brokers the Bank is also supporting the credit of -Lombard Street; so, clearly, the interests of each division are -identical; and the closer and more friendly the relations between them -the smoother will be the surface of the money-market. - -But we have to consider the Bank rate in relation to bankers’ charges; -and here another factor must be introduced, to wit, the nature of the -securities deposited by the customer. The business man’s favourite -investments are English railways, Corporation Stocks, Industrial -Companies, and so on, whilst occasionally, endowed with imagination, -and recognizing how erratically the earth dispenses her favours, the -blessed uncertainty of mines appeals to his gambling instinct. As -a rule, a banker’s loans and advances are not covered by Consols, -because it would pay the borrower better to sell out and place the sum -they realized to his credit. Advances against Consols would be made -principally to stockbrokers and to speculators who had bought them -largely in the hope of a rise in price. - -Competition for an advance, which is covered by tangible securities, -is keen both in London and the provinces, and competition, we must -remember, tends to reduce the rate. Then, again, assuming that the -Bank rate be 3 per cent., and that a banker suggests 4 per cent. on an -advance covered by railway debentures, the customer may not see the -force of maintaining a margin of 10 per cent. between the market-price -of his stock for the protection of his banker, and paying him, say, ¾ -per cent. more than his securities return on his purchase-money. As -the customer’s loan or advance is well secured, and as the banker will -only advance to the extent of 90 per cent. of the market-price on the -condition aforesaid, he is only willing to pay Bank rate upon the sum -he borrows. - -We next have to consider the amount of pressure the customer can bring -to bear on his banker, of whom his securities make him practically -independent. He may, in the first place, threaten to remove his account -unless his banker grant him a loan at 3½. Secondly, he may decide that -it will pay him better to sell his debentures at the market-price. -Again he may only require the loan for a few months or even weeks; and -as, in his opinion, the debentures will probably appreciate in value, -he may decide to pay 4 per cent. for a short period to either selling -out or troubling to find a cheaper market. Obviously, the higher the -Bank rate advances the less disposed is this class of customer to -pay ½ per cent. above it; so, when the official minimum is at 5 and -6, he can often arrange for an advance at Bank rate or even at a ½ -below it. On the other hand, the banker, when Bank rate is at 2 or 2½, -generally refuses to lend at less than 3 per cent. per annum. The rate, -therefore, upon a secured advance is influenced by the nature of the -cover deposited as well as by the state of the money-market. - -This description of the market is, of course, the veriest sketch, but, -perhaps, it may possibly prove somewhat enlightening to those who -have hitherto regarded this very simple subject as an exceptionally -difficult one. - - - - -CHAPTER VII - -LOANS AND ADVANCES IN LONDON - - -We are told that London banking is quite different to country banking, -but it is a difference of degree rather than of kind, and in London, -as in the provinces, the bank-manager has two rates--one for those -who, taking him at his word, do not attempt to bate him down, and a -second and lower rate for those persons who, knowing that he is of the -City, and scenting instinctively a servant of the company, who is in -possession of instructions, literally force his hand. A seller in a -free market where competition is vigorous generally has at least two -prices, though, of course, he only advertises one of them, and the -banks, which are not one whit in advance of the commercial ethics of -the times, base their rate upon expediency as well as upon the Bank of -England’s rate of discount. In stating so human and obvious a fact one -can only apologize for its intense triteness, and urge, in extenuation, -the blind, unreasoning faith of some people in the modern bank-manager. -Such faith may be beautiful, but, believe me, it is costly. - -Mention has been made of the distinctions between country and -London banking, and one of these appears to be the adoption of the -“loan-account” system by the City banks, but “loan accounts” are not -by any means unknown in the provinces, though the opening of them is -exceptional. Moreover, though this system is greatly in evidence at the -head-offices of the joint-stock banks, the farther one moves away from -Lombard Street the less firmly is it established, and one finds in the -books of the London branch banks a medley of the two systems. That is -to say, some customers adopt the “loan-account,” and others pay a rate -upon their daily debtor balances, together with a commission on the -turn-over of their accounts. - -When a “loan account” is opened by a customer, the banks do not charge -a commission upon his current account, but, as we shall see, neither -do they neglect to make amends for this omission. A customer, we will -suppose, when the Bank rate is at 3 per cent. obtains a loan of £20,000 -from his banker at Bank rate. He draws a cheque for this sum, which the -banker debits to a “loan account” in his name, then places £20,000 to -the credit of his current or running account. Now the interest at the -rate of, say, 3 per cent. is calculated on the loan account, so if the -customer’s average credit balance for the half-year amounts to about -£4,000, then he has paid 3 per cent. per annum upon £4,000 which he has -never used. In other words, he has given his banker something like £60 -for working his account during the half-year. Further, some London -banks charge a commission of ⅛ per cent. on the amount of the loan. -This they add each half-year to his interest, which, in the present -instance, would be debited in his current account pass-book thus: To -Interest, £325. By carefully checking his banker’s charges he will make -this discovery, and, of course, promptly demand that £25 be returned to -him. - -It can now be seen that the London bank-manager is as eager to snatch -a commission as his country _confrère_, and, moreover, that he is not -without his opportunities, which, when the client is considered safe, -he seldom neglects. In other words, he does his duty like other honest -folk whose misfortune it is to be employees; and he does not specify -the ⅛ per cent. on £20,000 in the pass-book for the simple reason that -he knows it is safer disguised as interest. - -The customer naturally does not see why he should pay a rate upon -£4,000 which he has not wanted, and which, in reality, the banker has -not lent, though he has created credit in his own books to that extent -by two simple entries on the debit and credit side of his ledgers. -Assuming that no commission was charged on the loan, £60 a half-year -seems a large sum to pay him for working an account, especially as -most of his rivals will bid against him for a well-secured loan. The -customer, therefore, should insist upon receiving the same rate upon -his daily creditor current-account balances as he is paying upon his -loan, and if he consider that his banker is entitled to a commission -for working his account, then he can arrange for a fair nominal -charge, but he may succeed in getting it worked free. Again, when his -current account is largely in credit, he can transfer a certain sum -therefrom to his loan account, and, by moving balances from the one to -the other, as occasion may arise, save himself an appreciable sum in -the shape of interest; but he may be too busy to adopt this course, -and it is evident that the first suggestion, which is better adapted -to his wants, will save him both time and money. Naturally the banker -will object, but the client will make it his business to endeavour -to overcome such opposition, which will be either strong or weak in -proportion to the nature of his cover and the desirability of retaining -his account. - -We next come to the rate a borrower should pay upon a well-secured loan -or advance, and here, again, we may touch upon a distinction between -London and country banking. A banker, like any other dealer, adapts -his business to his surroundings, but in a great city like London he -is practically compelled to specialize more or less, and but little -money is lent in the City upon mortgage, whereas overdrafts are granted -freely in the country against the deeds of house property. Of course -there are exceptions; and certain well-known firms, whose credit is -beyond question, may not even be asked for any security when they -borrow at certain times of the year, but they soon would be if the -loan began to assume a permanent character; for though a banker may be -willing to advance to an influential and reputable firm without cover -just at those seasons when demand upon it is heaviest, he assumes that -such assistance will only be required temporarily, and would instantly -become nervous should it appear from his books that the firm was slower -than usual in reducing the loan, whilst immediately he perceived that a -certain amount of it threatened to take the form of a permanent advance -he would ask for security. - -The City banks are too busy to give much attention to the wants of the -small man of business, and, broadly speaking, they require marketable -securities before they will grant a loan or advance. The suburban -manager, however, who is only on the edge of this struggling mass of -humanity, views the smaller applicant with a kindlier eye, because the -large borrower seldom approaches him, so in the suburbs one can borrow -on mortgage just as one can in the country. Indeed, suburban banking -approximates very closely to country banking, the one noticeable -distinction being the deposit rate. The West-end banker, again, has -his peculiarities, and it by no means follows that the rules and -regulations of a bank’s head-office in the City are in complete harmony -with those of one of its branches within a quarter of an hour’s walk of -the seat of government. It is, therefore, impossible to define London -banking, because London is vast, and the system eminently elastic and -adaptable. - -The following table will give one a fair idea of what rate should be -paid upon a loan or advance, fully covered by securities which can be -sold on the Stock Exchange practically at any moment:-- - - With Bank rate at 2 % Customer pays 2½ to 3 % - ” ” 2½ ” ” 2½ ” 3 ” - ” ” 3 ” ” 3 ” 3½ ” - ” ” 3½ ” ” 3½ ” 4 ” - ” ” 4 ” ” 4 ” 4½ ” - ” ” 4½ ” ” 4½ ” 5 ” - ” ” 5 ” ” 4½ ” 5½ ” - ” ” 5½ ” ” 5 ” 6 ” - ” ” 6 ” ” 5½ ” 6 ” - -It must be distinctly understood that this table will only serve the -purpose of a guide to what the rate ought to be, and that the customer -can, if his credit be good, by bringing pressure to bear upon his -banker, very probably make a closer bargain with him. For instance, -with the Bank rate at 4½, a person whose securities and credit are -beyond question might obtain a loan at ½ below Bank rate. He may -further arrange that his rate shall be ½ per cent. below Bank rate, -with a minimum to the banker of 3 or 3½. That is to say, his rate will -never be less than 3 or 3½, and when the Bank rate is above 3½, then he -pays ½ below it. - -On the other hand, the customer who accepts the rate mentioned by the -manager without question fares badly, for no dealer quotes his minimum -rate first. He reserves that, as is usual in the highest financial -circles, until last, and he finds it difficult to look pleased when it -is forced from him, because his directors, if he quoted it too often, -may come to the conclusion that his hand is losing its cunning. The -client will have to do more than ask in order that he receive: he must -use argument that is convincing. Knowing that certain bank-managers -are running about the City in search of desirable accounts, just as -are bill-brokers for first-class paper, he not unnaturally comes -to the conclusion that he can find a cheaper market elsewhere, so, -having exhausted the gentler modes of suasion, the client finally and -reluctantly threatens to apply elsewhere, or reveals the fact that he -has already done so, and with what result, when the manager, if he -think him in earnest, quotes his very lowest rate, and asks him not -to mention it outside. Where the loan is a small one, however, the -directors will not trouble themselves greatly as to whether it either -goes or remains. - -The much-vaunted 1 per cent. above Bank rate is, of course, only paid -by the small man, whose securities are not of the better class, and -by the customer who has not studied the market. Some London banks, we -know, charge a rate on the daily balances and a commission, but this is -the ordinary country practice, so, in order to avoid reiteration, it -has been thought desirable to discuss the method in the next chapter. - - - - -CHAPTER VIII - -OVERDRAFTS IN THE COUNTRY - - -In the preceding chapter we discussed the “loan account” and its -mysteries, and now we are brought face to face with the country -practice of granting the customer a “limit.” The banker, we will -assume, agrees that, upon his depositing certain securities, he _may_ -overdraw his current account to the extent of £1,500. This sum, then, -is the client’s “limit” which he is not supposed to exceed, and if he -draw a cheque that would, when presented for payment, overdraw his -account beyond the agreed figures were the banker to honour it, the -latter is entitled to return the document without notice. As a rule a -bank reserves to itself the right of calling in a loan or advance at -any moment, but in practice reasonable notice is always given. - -Though the customer has arranged for a “limit” of, say, £1,500, it is -quite possible that he will not overdraw his account to that extent; -but at those seasons of the year when his outgoings are always in -excess of his receipts the balance against him at the bank will draw -closer to his limit. If, however, his business be in a healthy -condition the corner will soon be turned; and as his payments in begin -to exceed the cheques he draws, his indebtedness to the bank speedily -sinks below the average. Each payment to his credit reduces his debit -balance, and every cheque debited, of course, increases it, but as the -banker charges him a rate upon the sum owing at the end of each day, -it follows that the customer only pays interest upon the actual money -he has borrowed--not upon the amount of the “limit” as does the London -client upon the amount of his “loan.” This arrangement is much the -fairer to the borrower, who, however, must take care that the banker do -not charge him a high rate of commission upon his turn-over under it. - -We can now consider the rate of interest a customer should pay on an -advance which is more than covered by marketable securities that can -be sold on the Stock Exchange at a moment’s notice. Most provincial -towns, we know, are over-banked; and as each banker is the rival of the -rest it follows that a person whose cover is tangible can, by playing -off the one against the other, obtain very fine rates. But he may not -care to adopt these tactics; still, as the method may appeal to some, -it would be a pity not to dwell upon its possibilities, for it is often -undoubtedly effective where argument fails. The would-be borrower -of this class may be referred to the table of rates in Chapter VII, -and to the remarks made concerning well-secured advances in London, -as, competition for a secured overdraft being even more keen in the -country, where tangible securities are less in evidence, he should -experience little difficulty in coming to a similar arrangement with -reference to the rate of interest. - -For instance, suppose a man who possesses a good list of marketable -stocks and shares wishes to borrow £5,000 from his banker, and calls -upon the branch-manager, who at once expresses the opinion that his -directors will have no hesitation in granting his request. They next -discuss terms. The manager, who is a humble servant of the company, -and who, moreover is anxious to pass the rest of his days in that -honourable capacity, looks at his customer, thinking hard the while, -and then, trusting his man lacks business experience, suggests 5 per -cent. per annum on the overdraft and ⅛ per cent. on the turn-over. The -turn-over of an account consists of the cheques, bills, etc., debited -during the quarter or half-year, and the customer, therefore, is asked -to pay a commission of 2s. 6d. upon each £100 debited in his pass-book. -There is nothing very remarkable in this request on the part of a -dealer in cash and credit who is selling his wares, and to express -surprise is to display a lack of knowledge of business procedure, but -to agree to his proposals would betoken a lamentable ignorance of the -market. - -Should the Bank rate be at 4 per cent. the customer would endeavour not -to pay more, for his securities do not give him that return, and he has -the option of selling them. And as to paying a rate on his turn-over, -he knows that if he make application elsewhere he can probably find a -banker who will forego that charge, so he either refuses to entertain -it or else agrees to pay a merely nominal sum. With a higher Bank rate -than 4, he will try to obtain his advance at ½ below the official -minimum; and if the Bank rate be low, and loanable capital therefore -cheap at the moment, he can suggest “½ per cent. below Bank rate with -a minimum of 3½.” Here, again, reference may be made to the previous -chapter. Of course, if there are only two banks in his town, and -consequently but little competition, he will not find the manager so -ready to listen to him, but he certainly should not pay more than Bank -rate when it is above 3½, while he will remember that the manager’s -advice, if he be so rash as to express an opinion, is not disinterested. - -We next come to the customer whose “limit” is covered by marketable -securities and deeds of house property or land. The banker will have -the property valued by his own man, and then perhaps advance up to -about two-thirds of the value placed upon it after the deeds have been -examined by the bank’s solicitor and formally deposited, the customer, -of course, paying all expenses. The securities, if they are a fairly -good list, he will advance against to the extent of about 75 per -cent. of their market value, thus leaving a margin of 25 per cent. in -his favour to cover the risk of depreciation, for they take care of -themselves--these bankers. The majority of advances in the provinces -would be made against securities and deeds in varying proportions, and -it is as well to remember that the larger the proportion of tangible -securities the smaller should be the rate. - -A banker, it need not be said, does not want to be bothered with a man, -however good his securities, if he think that there is the probability -of his having to call in the advance or to claim against his estate in -the Bankruptcy Court; and though a customer cannot deposit marketable -stocks and shares to the full extent of his advance, but is compelled -to offer deeds and securities, as in our illustration, his credit is -often so good that many other bankers in his town would readily listen -to his proposals, and be only too glad to get his name on their books, -perhaps even at a small sacrifice. Such a person can make a very close -bargain with his banker, and would not, for instance, think of paying -5 per cent. when the Bank rate is at 3 or under. He would, in fact, -especially if he were conducting a large business, probably be in a -position to make as good terms as the man whose securities are wholly -tangible. - -The manager, of course, let the Bank rate be what it may, will -endeavour to obtain from 4½ to 5 per cent. upon the overdraft of an -account thus secured, and to charge a rate of from ¹/₁₆ to ⅛ per cent. -upon the turn-over; but if the customer show fight, and losing the -account may not be thought desirable, because of the local influence -he possesses, then, rather than risk his applying elsewhere, the -agent usually lowers his rates, for he naturally does not enjoy the -thought that esteemed clients are perhaps paying little calls upon his -rivals, and thereby advertising his own unpopularity. When the rate -of commission is the bone of contention the customer’s first aim will -be to pay no commission whatsoever, and to at least arrange for his -advance at Bank rate with a minimum of 4 per cent. Probably he may do -better with reference to his interest rate; and, if he finds that the -manager holds out for commission, then he can agree to a nominal charge -of from one to five guineas or so each half-year according to the -volume of his business. - -We now have to discuss the position of those persons who can only -offer their banker the deeds of house property, land, and those other -securities for which the market is a purely local, and, therefore, -uncertain one. A banker, whose deposits are mostly payable at call and -short notice, naturally prefers to advance against those securities -that are quoted on a Stock Exchange, and does not care to lock up a -large proportion of his resources in house property, etc., of which he -cannot readily dispose in an emergency. But tangible securities are not -always to be had for the asking; and, as he must employ his capital in -order to pay a dividend, he is compelled to advance to a certain extent -against, from his point of view, the less desirable securities such as -houses and shares in some local company, though he always prefers to -deal with the man who can deposit the more easily negotiable variety. -Further, a prudent banker will only devote a certain amount (and that -a relatively small amount) of his resources to advancing against the -deeds of houses, land, and so on; and as the demand for overdrafts -against this class of cover is always greatly in excess of the supply, -it follows that those persons who borrow upon it have to pay high rates. - -We have seen that the client who possesses tangible securities can, -broadly speaking, make his own terms but it is otherwise with the man -who wants an overdraft for business purposes against the deeds of a -house he owns; and he it is who is compelled to pay 5 or 5½ per cent. -per annum interest, be the Bank rate what it may, and ⅛ per cent. -on the turn-over of his current account; for he will not find the -competing banks anxious to secure his business by lowering their rates. -Should his credit be good, and his business be considerable, he might -succeed in reducing his commission rate to ¹/₁₆ or even ¹/₃₂ per cent., -and, of course, he will make the attempt, but it would be unwise to -more than wish him success in his endeavour. A really large tradesman, -however, whose securities consist of this variety, will sometimes find -a bank-manager anxious to secure his account, because he thinks he may -influence others in his favour, and such a man will not pay high rates -before he has at least sounded two or three managers of well-known -banks and discovered that their terms are not more liberal. He may even -find that he can get his account worked free of commission, or have -the one he is paying appreciably reduced. - -Again, a man can mortgage his property, but, as a rule, he prefers -to obtain a “limit” on it from his banker, more especially if he -intend gradually paying off the advance, as, should he borrow £500 -on mortgage, he will have to pay a rate on that sum, but when he -obtains a “limit” of £500, and his account is only £250 on the wrong -side, he pays on the smaller amount only. As a rule, a solicitor acts -as middleman between a mortgager and mortgagee; and the borrower -might remember that solicitors, when advancing their clients’ money, -or, indeed, when they act in any capacity, are quite as human as -bank-managers, and that it is always advisable to higgle with them over -the rate, which, of course, should be based on the value of loanable -capital at the time. The deed usually stipulates for six months’ notice -on either side. - -A customer who is desirous of obtaining an advance upon property which -already has a first mortgage upon it, will not find the banks either -sympathetic or eager to assist him; though if his banker be “in” with -him he will, of course, accept any additional security which is likely -to lessen his risk or minimize his loss. In the usual course of his -business second mortgages and equities of redemption are not thought -desirable, and then, again, the law does not give a second mortgagee -all the protection it might. - -The current-account customer, who calls upon the bank-manager with the -object of obtaining an overdraft against property, will generally be -asked if his life is assured, and if he reply in the negative, he may -be requested to assure to the extent of the “limit” the bank is ready -to grant him, and to deposit the policy as collateral security with -the deeds. Many men of small means assure their lives, and a banker, -provided the office be a good one, will generally advance up to the -surrender-value of the policy. This he ascertains by applying to the -assurance company, which tells him at what figure they will commute it. -The rates charged upon this class of security are high. - -Where the customer’s overdraft is only partially secured, he must -make the best terms he can for himself; and, as there is practically -no competition for such an account, he will probably have to pay from -5 to 6 per cent. per annum interest and from ⅛ to ¼ per cent. on his -turn-over. These are the maximum rates, which, no doubt, he will -attempt to reduce, though with what success must remain problematical. -The person who obtains an overdraft without security must, as a rule, -give thanks, and pay up with a light heart, for should he apply -elsewhere he would be received with open-mouthed astonishment. A -good name in the banking world implies that its owner is worth some -few thousands of pounds; and though, in the moral sense, its value -is considered beyond price, directors, while appreciating it in the -abstract, regret their inability to safely ensconce it within their -safes, and therefore, as practical men, their powerlessness to advance -against it unless backed by collateral securities. - -Lastly, a few words may be said anent personal security. If you have a -wealthy friend who is willing to sign a promissory note with you, or to -guarantee your banker against loss up to a certain sum, an overdraft -can soon be arranged; but such a request puts friendship to the -severest test, and it may be extremely difficult to find your friend at -home should he as much as suspect the reason of your visit. - -We can see that competition is centred around the safe business, and -that though those persons who possess tangible securities can make very -close bargains, the less desirable is the cover from a banker’s point -of view, other considerations being equal, the higher are the rates -the customer will probably be asked to pay. The man who possesses the -right class of securities should, therefore, take them to the cheapest -market, and the owners of the less marketable varieties might remember -that from 4½ to 5 per cent. per annum on the overdraft and ⅛ per cent. -commission on the turn-over are very full rates, which may often be -considerably reduced when the customer, whose credit is good, does a -large and profitable business. - -The only remaining subject for discussion is the relation that exists -between the bank-manager and his directors, who confine his power to -very narrow limits. The city-manager, for instance, at the head-office -of a London joint-stock bank, might be empowered to grant loans to the -extent of from £2,000 to £3,000 without first obtaining the consent of -the board. Any application in excess of his “discretionary power,” as -it is called, would have to be submitted to the directors, two or three -of whom, during certain hours, are always in attendance each day, in -order to deal with those requests for large loans where an immediate -decision is essential, while a full board would probably sit twice a -week. The board, of course, would be asked to confirm the decisions of -the “daily” committee, and from time to time the loans granted by the -city-manager would be subjected to criticism by that body. - -At the metropolitan, suburban and country branches the “discretionary -power” of the agent or manager would be based upon the amount of -business transacted at the branch. In a small town of from 20,000 to -30,000 inhabitants a manager might have power to grant, when necessary, -loans to the extent of £350 and under, without first obtaining the -sanction of the board. All applications for advances in excess of -his power would have to be immediately submitted to the head-office, -accompanied by a letter, describing the nature of the security offered, -and stating the desirability of obtaining or keeping, as the case may -be, the account. This report, in every probability, would be addressed -to the “advance department,” where it would be criticized by the -officials before going into the board-room. Many questions would be -asked with reference to the working of the applicant’s account, his -annual turn-over, and so on. If he came to them from a rival bank then -they would want to see his pass-book, and, were he already a customer, -the manager would send a list of his daily balances and comment upon -his means, habits, etc. Having satisfied themselves upon these points, -the chief of the advance department reports to the general manager, who -submits the application to the board. The process, it will be seen, is -cumbersome and necessarily slow, for it often takes the machine as many -days to give a decision as it does a private banker minutes. - -The manager, evidently, has very little real power under this system, -and, practically, the branches are managed from the head-office, the -agent being a kind of clerk-in-charge, who reports to, and announces -the decision of, his directors. Indeed, the rules and regulations are -framed for this very purpose, and the banks make it part of their -policy to effectually hold their managers in check, and to so arrange -the work of an office that but little is left to their decision, while -it is the duty of the accountant to instantly report any irregularity -to the general managers. The average bank-manager, it must be -remembered, has had neither a business nor a financial training, and -it would therefore be extremely risky to give him a large field in -which to make experiments. Of the two evils the boards of the banking -companies choose by far the lesser, and, by allowing him a small -“power,” they tether him like a donkey to a stake, thereby limiting -his grass to the length of his rope. - -In a large manufacturing city a manager’s discretionary power would -not exceed £1,000 to £1,500, and in the smaller cities it would range -from £500 to £1,000, while in the provincial towns it would be from -£300 to £500, according to population. Each month the manager, as a -rule, has to send to the head-office a report upon all accounts that -are _over_ his power, together with a separate one relating to bills -discounted, and at least twice a year he must submit a long return of -every overdrawn account on the books of the branch certified by the -accountant and himself. The head-office, in short, watches him as a -cat does a mouse, and criticizes those advances he himself is allowed -to make severely should they not meet with the approval of those in -authority. - -Then, again, as though determined that his steps shall not stray from -the beaten track, inspectors visit his branch four or five times during -the course of a year, and, needless to say, the board thinks it neither -necessary nor desirable to advise him of the day one will arrive. When -the inspection is a short one the unwelcome visitor counts the cash, -checks the bills and securities, just glances casually through the -ledgers and then takes his departure, when the atmosphere seems lighter -by his very absence, for exalted officials are a weariness to the -flesh. But during a long inspection, which occurs about twice a year, -the manager has to make a short report upon every overdrawn account in -the books. This done, he gives his report to the inspector, who reads -through his remarks and proceeds to criticize them. Having added a few -words of his own, the visitor posts the bulky report to the advance -department at the head-office, and, finally, it is laid upon the -board-room table. Then the fun begins. The manager, after a few weeks -of anxious suspense, receives a long list of caustic inquiries relating -to certain overdrawn accounts which have failed to satisfy the board, -together, perhaps, with imperative instructions to get such-and-such -overdrafts reduced to certain figures at a given date. Sorely tried in -temper, the poor agent sets about answering the questions put to him, -and then, much against his will, he writes to certain clients whom he -asks to give him a call. - -Now, perhaps, the customers of the joint-stock banks will understand -why they receive so many letters requesting them to keep their accounts -at the agreed limit, or even to reduce or pay off the overdraft unless -they can deposit either more desirable or additional security. At such -a moment an irritable person is disposed to regret that “a company has -neither a body to be kicked nor a soul to be damned.” - - - - -CHAPTER IX - -HOW TO CHECK BANKERS’ CHARGES - - -Bankers make up their pass-books in two ways. When the customer is in -account with the banker the cash he pays in appears on the right-hand -side of his book, and the cheques he draws out on the left. The more -general method, however, is to make the bank in account with the -customer, when the debits and credits in the pass-book are an exact -copy of the client’s own cash-book, whereas the entries in the bank’s -ledger are reversed. The latter and more usual practice will be adopted -in this chapter. - -Customers often complain that they are unable to check their -half-yearly charges, that they do not quite understand at what rates -they have been charged; and as some bankers are most careful to add -the interest and commission together, and then to enter the aggregate -in the pass-book as “charges” simply, it is a little difficult to -understand how they expect their clients to check their interest and -commission. For instance, suppose a man is charged £5 2s. 6d., and that -the banker writes in his pass-book: - - By charges, £5 2s. 6d. - -Here we have a puzzle that is more than Chinese in its intricacy and -suggestiveness, for it is evident that unless the customer remembers -that he has arranged to pay, say, 4 per cent. per annum interest and -⅛ per cent. commission, he will experience considerable difficulty -in verifying the figures. As a matter of fact, the companies are not -particularly anxious to enlighten him, for see how easily the client -could have checked his charges were they specified thus:-- - - By interest at 4 per cent. £4 2 0 - ” ⅛ per cent. commission on turn-over 0 15 6 - ” postages 0 5 0 - ------- - £5 2 6 - -Such a statement is almost beautiful in its simplicity, and the entry -“postages” may, perhaps, give us some clue to the mystery, as it is -evident that a manager, by debiting charges in one sum, is thereby -enabled to hide certain debits such as “postages,” “telegrams,” “legal -expenses,” “stamps,” and so on, at which, were they entered separately -in the bank-book, the customer would probably strongly protest. And -then, again, by adopting this method of darkness, those persons who -leave everything to the agent never know their rates, and they are -sometimes too timid to call and inquire, as though fearing that such a -request would reflect upon the agent’s honour. - -Certain banks have an account open in their ledgers called Law Charges -or Sundry Charges, to which doubtful debits are posted in the names of -various customers. At the end of each half-year these sums are credited -to the account in question and included in the clients’ charges. When, -for instance, a manager does not wish a person to know that he is -paying a fee of £3 3s. to the bank’s solicitors for the examination -by them of certain deeds which he has deposited as security, he will -probably resort to this subterfuge. - -We can now criticize the account of John Jones, who on the 31st -December, 1902, owed his banker £500 2s. 6d., and examine the entries -in his pass-book from that date to the 30th June, 1903, when his -bankers rule off their books and calculate their charges. Assuming that -Mr. Jones keeps proper books, he will have an account in his ledger, -which, after making allowance for cheques drawn but not presented -for payment, will agree with his pass-book in every particular. The -following is a copy of his bank-book:-- - - -THE LONDON AND CHEATEM BANK, LTD., with MR. JOHN JONES. - - --------------------------------+-------------------------------- - Dr. | Cr. - --------------------------------+-------------------------------- - 1903. | 1902. - Jan. 20. To Cash £300 1 6 | Dec. 31. By Balance £500 2 6 - | 1903. - Apl. 22. ” Cash 90 1 3 | Feb. 15. ” Smith 10 0 0 - May 15. ” Cash 200 5 0 | Mar. 31. ” Jones 70 3 4 - ” 18. ” Cash 50 0 0 | Apl. 22. ” Robinson 8 0 6 - ” 31. ” Cash 9 0 0 | May 26. ” Self 5 10 0 - June 10. ” Cash 100 0 0 | June 5. ” Williams 16 11 2 - ” 28. ” Cash 7 0 0 | ” 25. ” Brown 7 2 3 - ” 30. ” Interest 0 3 2 | ” 30. ” Charges 5 2 6 - | ” Balance 133 18 8 - ---------- | ---------- - £756 10 11 | £756 10 11 - ========== | ========== - | - June 30. ” Balance £133 18 8 | - -Mr. Jones’ ledger, then, assuming that none of his cheques are -outstanding, will show the same balance at the debit of “bank,” though, -of course, the dates will not agree, as Mr. Jones credits the bank on -the day that he draws a cheque, whereas the bank debits him on the day -that it pays it. We can see that his banker paid a cheque to Smith on -the 15th February. If John Jones drew the said cheque on the 12th, then -he debited Smith’s account and credited the bank on the same day. But -these entries, as we shall see in our next illustration, appear upon -the opposite sides of the banker’s ledger. - -Mr. Jones, whose securities are tangible, has arranged with the manager -that he is to pay 4 per cent. per annum on the overdraft and ⅛ per -cent. on his turn-over, and to receive 1½ per cent. on his daily -credit balances. Having received his pass-book, he wishes to check -his charges, and after making two or three attempts, he is convinced -of the futility of his efforts, so renounces his task in despair. He -has worked the figures out in his own way, which, though a little -primitive, he generally finds answers pretty well, and, as his figures -come to something like those entered in the pass-book, he supposes -that it is all right. Perhaps the following copy of his account as it -stands in the bank’s ledger may therefore prove both illuminating and -instructive:-- - - - JONES, JOHN, General Dealer, 5, High Street, Exeter. - - | | | |Dr.| | | | - Date. |Particulars.| Dr. | Cr. |or |Balance. |Days.| Total. | Total. - | | | |Cr.| | | | - --------+------------+---------+---------+---+---------+-----+---------+--------- - 1902. | | £ | £ | | £ | | £ | £ - Dec. 31.| To Balance |500 2 6| |Dr.|500 2 6| 20 |10,000 | - 1903. | | | | | | | | - Jan. 20.| By Cash | |300 1 6| ” |200 1 0| 26 | 5,200 | - Feb. 15.| To Smith | 10 0 0| | ” |210 1 0| 44 | 9,240 | - Mar. 31.| ” Jones | 70 3 4| | ” |280 4 4| 22 | 6,160 | - Apl. 22.| By Cash | | 90 1 3| | | | | - | To Robinson| 8 0 6| | ” |198 3 7| 23 | 4,554 | - May 15.| By Cash | |200 5 0|Cr.| 2 1 5| 3 | | 6 - ” 18.| ” ” | | 50 0 0| ” | 52 1 5| 8 | | 416 - ” 26.| To Self | 5 10 0| | ” | 46 11 5| 5 | | 235 - ” 31.| By Cash | | 9 0 0| ” | 55 11 5| 5 | | 280 - June 5.| To Williams| 16 11 2| | ” | 39 0 3| 5 | | 195 - ” 10.| By Cash | |100 0 0| ” |139 0 3| 15 | | 2,085 - ” 25.| To Brown | 7 2 3| | ” |131 18 0| 3 | | 396 - ” 28.| By Cash | | 7 0 0| ” |138 18 0| 2 | 2,268[A]| 278 - ” 30.| ” Interest| | 0 3 2| ” |139 1 2+-----+---------+--------- - | | | | | | 181 |37,422 | 3,891 - | | | | | | - | To Charges | 5 2 6| | |133 18 8| 4 per cent. per ann. - | ” Balance |133 18 8| | | | on £37,422 for - | +---------+---------+ | | 1 day £4 2 0 - | |756 10 11|756 10 11| | | ⅛ per cent. on - | | | | | | turn-over £617 0 15 6 - June 30 |By Balance | |133 18 8|Cr.|133 18 8| Postages 0 5 0 - | | | | | | -------- - | | | | | | £5 2 6 - | | | | | | ======== - | | | | | | _Allowed_-- - | | | | | | 1½ per cent. - | | | | | | per ann. on - | | | | | | £3,891 for - | | | | | | 1 day £0 3 2 - --------+------------+---------+---------+---+---------+------------------------- - - [A] Three days’ interest upon “cheques” paid to credit. 756 × 3. - -Now everything should be as clear as the flowing brook to Mr. Jones. He -should, in the first instance rule a sheet of paper in exactly the same -manner as the specimen page of the banker’s ledger. He next carries -the entries from his pass-book to the ruled sheet, taking care that -each amount, whether debit or credit, is placed under its right date, -and at the end of each day, or when the next date appears, he extends -the balance, as in our illustration, for it is upon this balance -that the bank either allows or charges him interest for one, two, or -twenty days, as the case may be, at an agreed rate. He then multiplies -this balance by the number of days, and carries the product into a -“total” column, which he adds up at the end of the half-year. This -done, the rest is a very simple business for anybody who can manage a -rule-of-three sum. - -The banker, we can see, brings forward the amount of Mr. Jones’ -indebtedness on the 31st December when his books were ruled off. This -opening entry, which amounts to £500 2s. 6d., is placed in the debit -column of his ledger, and extended as a debit balance. Upon the morning -of the 1st January, therefore, one day’s interest was owing on £500, -but the next operation upon the account did not take place until 20th -January; and as from 31st December (excluding the 31st and counting 1st -January as one day) to 20th January (inclusive) there are twenty days, -the customer owes twenty days’ interest upon £500. If we multiply 500 -by 20, as in our form, and carry the product into “total” column, he -then owes one day’s interest upon £10,000. The result, of course, is -precisely the same; so a banker, in order to save a multiplicity of -calculation, adopts this rule throughout, with the result that, at the -end of the half-year, his client owes one day’s interest upon £37,422. - -Bankers, when referring to the figures in the “total” columns, speak -of them mysteriously as “decimals,” and the customer, upon hearing so -ominous a word, jumps to the conclusion that bankers’ calculations are -most difficult and involved, when, in reality, they are of the simplest -nature imaginable. Evidently the product in question is the result of a -simple multiplication sum; so why bankers should speak of extending the -“decimals,” when there is none to be extended, must ever remain one of -the enigmas of their trade. - -As a rule, should the shillings in the balance column be ten or over, -the banker, in making his calculations, calls them one pound, and when -less than ten shillings he ignores them. On the 20th January, for -instance, the shillings are excluded, but upon the 26th May £47 is the -sum we have to multiply by five. Further, in arriving at the number of -days between two dates, exclude the first date and include the second, -or vice versa, but do not include both dates. - -The second “total” column of our form is for creditor results, or, -as bankers incorrectly call them, creditor decimals, the left-hand -column being, of course, the debtor, and the right the creditor, just -as though they were left-and right-hand pages of a cash-book. Having -ascertained the number of days from date to date, we add them up, and -next proceed to balance them. From 31st December, 1902, exclusive, to -30th June following, inclusive, there are 181 days, and, as those are -the figures in our days’ column, we know that they are correct. Next we -add up the “total” columns, and here great care is necessary, because -it is impossible to balance the figures. - -Dealing with the debit total first, we find that John Jones owes his -banker one day’s interest at 4 per cent. per annum upon £37,422. -Hence:-- - - (37,422 × 4 × 1)/(100 × 365) = £4 2s. - -But Mr. Jones will make these figures £35,154, and the answer £3 17s. -1d., and upon asking for an explanation he will be told that he has -been charged three days’ interest upon the cheques he paid to his -credit during the half-year. The banker argues that his client receives -credit for the cheques he pays in immediately, whereas he himself has -to collect them through the “clearing,” and does not receive the money -for two or three days. The argument is somewhat fallacious as to the -length of time, but we need not discuss that minutely. Mr. Jones points -out that he pays in cash and local cheques as well as cheques upon -London and country bankers, and that, therefore, he cannot understand -why the manager charges him three days’ interest upon the total sum -paid to his credit during the half-year. He will, of course, decline to -submit to this charge, and request the manager to refund him 4s. 11d. -(three days’ interest upon £756 at 4 per cent. per annum). - -With reference to the rate, the average Bank rate from 31st December -to 30th June works out at £3 17s. 1d. While his account was overdrawn, -however, the official minimum was at 4 the whole time, so the rate is a -fair one, but this question has already been discussed in the previous -chapter. - -His banker owes him 1½ per cent. per annum upon his creditor balances, -which are multiplied by the days and extended in our second “total” -column. He has, therefore, to receive 1½ per cent. per annum upon -£3,891 for one day. Hence:-- - - (3,891 × 1½ × 1)/(100 × 365) = 3s. 2d. - -As this is the sum debited in the pass-book, Mr. Jones’ mind is at rest -_à propos_ of the correctness of the figures; but it will probably -occur to him that the rate might be improved, for the fact that one -is borrowing at 4 and lending at 1½ is not conducive to harmonious -thinking. - -Next, he checks the commission on his turn-over, which he makes £117. -He pays ⅛ per cent., of course, upon the amount of the cheques credited -in his pass-book during the half-year, and these come to the sum -aforesaid. Hence:-- - - (117 × 1)/(100 × 8) = 2s. 11d. - -But his banker has charged him ⅛ per cent. on £617. His glance falls -upon the balance forward of £500 2s. 6d., and it at once occurs to him -that the manager has charged him thereupon, that, in short, a mere -banker’s opening entry has been included in his turn-over. Excited by -this discovery, Mr. Jones calls upon his banker, and points out to him, -with a touch of Celtic intensity, that he sees no earthly reason why -he should pay 12s. 7d. simply because the bank has made an entry of -its own in his pass-book. Moreover, with a keen eye for mathematics, -he clearly demonstrates that he has already paid commission upon -the various transactions which resulted in the said balance; so the -manager, adjusting his spectacles, and praying Mr. Jones to moderate -his language, allows that, in the hurry of business, a little mistake -has occurred. A customer, when checking his charges, should see that he -does not pay commission upon opening entries of this description, as, -needless to say, they are merely there in order to enable the banker -to balance his books, and bear no relation whatever to a client’s -turn-over, though they are sometimes added to it. - -Just referring to the rate of commission, ⅛ per cent. we know, seems -too much, so Mr. Jones may be recommended to read Chapter VIII of this -book. - -Lastly, we come to the entry “Postages, 5s.” The manager, during the -half-year, writes numerous letters to his customers, sends their -pass-books to them through the post, and so on; therefore, in order to -reduce his incidental expenses, he debits a few shillings to certain -easy-going clients before the books are ruled off, and so as to -prevent awkward questions being asked, he includes these small sums -with “charges.” Mr. Jones, who has probably not received half a dozen -letters from the bank during the half-year, will naturally refuse to -pay this imposition. - -Should a customer not have made arrangements with the manager as to -the rates he is to pay, he would ask at what rates his account has -been charged, and then proceed to check the banker’s figures in the -manner indicated in these pages. Such an entry as “charges” has nothing -better than its extreme vagueness to recommend it, and the client, -when he finds this word in his pass-book, should, if he experience -any difficulty in checking the figures, return it to the manager with -the request that he will give him full particulars as to the rates of -interest and commission, and also tell him the amount of any additional -charge or charges, if there be any. - -We can now make out a table of the amount Mr. Jones has to reclaim from -his banker:-- - - _Customer’s Calculations._ _Banker’s Calculations._ - - 4 per cent. per annum 4 per cent. per annum - on £35,154 £3 17 1 on £37,422 4 2 0 - ⅛ per cent. on £117 0 2 11 ⅛ per cent. on £617 0 15 6 - Postages, _nil_ 0 0 0 Postages 0 5 0 - Balance to be refunded 1 2 6 - -------- -------- - £5 2 6 £5 2 6 - ======== ======== - -The commission on £617 is 15s. 5¹/₁₀d., but a banker would charge 15s. -6d. Mr. Jones, we can see, has been overcharged to the extent of £1 2s. -6d., and we may rest quite assured that he will not be easy in his mind -until he has recovered this sum from his banker. - -Sometimes a customer, when ruling off his own books, draws a cheque -for, say, £600, and pays it to his credit at the bank. This would be -a cross entry. But does he understand that this sum will be included -in his turn-over, and that if he be charged ⅛ per cent. thereupon, he -pays 15s. to his banker for making a couple of entries in his ledger? -Again, if the manager charge him three days’ interest at 5 per cent. -per annum upon the sums paid to his credit, he will pay another 5s. -(about), and at this rate a cross entry of £600 would cost him 20s. The -luxury, it must occur to him, is expensive; and as this illustration is -not a figment of my imagination it is evident that everybody who keeps -a banking account should understand how to check a banker’s charges. - -It seems an act of supererogation to point out that the average account -would contain very many more entries than the one under review, but -if the reader will carefully follow these instructions he should find -little difficulty in checking the charges in any bank-book. Where the -account has been overdrawn during the entire quarter or half-year the -first “total” column must be used. Our example is that of a mixed -account, and both columns are required; but should the account be -a creditor one, then the extensions are made in the second “total” -column, and the banker, of course, will allow the customer a rate. - -When checking the interest of a loan account it is advisable to obtain -a separate pass-book from the banker, and not to take out the entries -from the current-account pass-book wherein the interest is debited. -Should it be found that the commission has been charged upon the amount -of the loan, the customer would ask for an explanation, and in checking -his interest he would proceed in exactly the same way as shown in our -example. - -Again, we have seen that some customers arrange that their rate shall -be either Bank rate or ½ above it, as the case may be. Suppose that -the Bank rate on the 22nd April were raised from 3 to 3½ per cent., -and that it had stood at 3 from 31st December. The customer, who has -agreed to pay his banker ½ above Bank rate, will then owe 3½ per cent. -per annum on the sum or sums he has borrowed from 31st December to -22nd April. Applying this hypothesis to the account under review, we -rule a line beneath the figures 6,160 in “total” column, and add up -the column, which comes to 30,600. From 31st December (exclusive) to -22nd April (inclusive) there are 112 days (see page 59), and, as the -figures in the days’ column give the same result, we know that they are -correct. The customer, then, owes his banker one day’s interest at 3½ -per cent. per annum upon £30,600. At each change of the Bank rate this -process must be repeated; so instead of having one rule-of-three sum to -work out, as in our illustration, there may perhaps be four or five of -them. - -Should the fortunate possessor of a large creditor account have -arranged with his banker that he is to receive 1½ per cent. _below_ -Bank rate on his daily credit balances, then assuming that the balances -on our form were creditor, the banker would owe 1½ per cent. per annum -on £30,600 for one day. The customer, when calculating the amount -due to him, would proceed in the same manner as indicated above, and -he might remember that, in arriving at the number of days from one -change of the Bank rate to another, he excludes the day from which he -calculates and includes the date to which he calculates. The rest is -easy. - - - - -CHAPTER X - -BILLS, COUPONS, FOREIGN DRAFTS, ETC. - - -Discounted Bills. - -The city-article of every morning paper contains a list of market -discounts from which one can see at what rates the bill-brokers and -discount-houses are taking the various classes of bills. Bank-bills -would be paper either accepted or indorsed by the banks; and fine -trade-bills or best trade-bills would be the acceptances of those firms -whose credit is so good that the question of their paper not being -paid at maturity is practically never considered. As the credit of the -banks ranks highest it follows that bank-bills can be discounted at the -finest rates. Again, less risk is run on a three months’ bill than upon -one for four or six months. In other words, the position of an acceptor -is less liable to change in three months than in six, therefore short -bills are in greater favour; consequently, the rate upon a six months’ -bill, other considerations being equal, will be higher than that upon -one which has three months to run, though the difference, of course, -will only be a fractional one. - -The bill-brokers, we know, obtain most of the bank and the fine bills, -but they are also dependent upon Lombard Street for the greater part -of their resources; and as a bank, which owes huge sums on demand, -likes to keep its assets as liquid as possible, it follows that bankers -take short bills from the brokers in preference to those which are -drawn for long terms, for the simple reason that should they think the -outlook uncertain and deem it prudent to strengthen their reserves, the -shorter bills will run off the more quickly, thereby providing them -with additional cash. A three months’ bill, therefore, from a banker’s -standpoint, is considered more desirable than one at six months’ date. - -When trade is active and loanable capital dear market rates of discount -will naturally be high, and the Bank rate, speaking broadly, is -generally in touch with the market rate for three months’ bank-bills. -Conversely, when trade is dull and the prices of commodities are -falling, fewer bills will be on offer; but the fund with which they are -discounted will be proportionately greater, consequently the market -rates of discount will be low, as, also, will be the Bank rate. It -must be remembered, however, that the Bank of England discounts bills -for its own customers below its published rate--when its minimum is -temporarily above the market rate; for were it not to adopt this course -its customers would naturally discount their bills with the brokers. - -As the bill-brokers are middlemen between Lombard Street and those -merchants who have bills to sell it follows that the market rate of -discount is always below the bankers’ rates, and that, therefore, -holders of the better-class paper take it to the brokers, but this -peculiarity has been mentioned in Chapter VI. It may, however, be -added that the remittance of the best country bills to the London -bill-brokers is a comparatively new movement, which the banks do not -regard with favour. Competition between the brokers being keen, it is -questionable whether the finest rates are quoted in the papers, for -the merchants who have bills for sale will, of course, not neglect to -higgle with the brokers, who, like the bankers themselves, certainly -would not advertise their lowest rates. - -The large discount-houses and brokers possess considerable capital, -though it would look extremely small when contrasted with the -short-loan fund, and they deposit certain approved securities with -the banks against the money at call advanced to them; but the small -bill-brokers are little better than runners for the banks with whom -they re-discount their bills almost as soon as they are in their -cases, and their capital would consist principally of a silk-hat and -a bill-case. Certain brokers on the Stock Exchange, it may be added, -stand in much the same relation to Lombard Street. Besides borrowing -from the banks the bill-brokers also accept deposits from the public, -basing their rate upon the Bank rate, and allowing a slightly higher -rate than the London bankers. - -The market for bills is a special market, into which the banks pour -their surplus funds, so customers will be careful not to confuse the -price of a bill with the price of a loan, though, of course, there is -a close connexion between the two; for when loanable capital is dear -discount rates too are high, and when the former is cheap the latter -are low. The London customer, who discounts fine bills with his banker, -will naturally take care that he does not pay a higher rate than the -bill-brokers would charge him, and when he discounts second-rate -trade-bills he will remember that competition is very keen, and that if -his credit be good he can generally induce the manager to quote a fine -rate. - -Coming to provincial banking, we have seen that the large merchants -and manufacturers remit some of their best trade-bills to London; but -in the great cities, where the banks are numerous, the competition -for good paper is considerable; and as the customer usually keeps his -current account at the bank with which he discounts his bills, he can -generally, if his account be worth retaining and his credit good, get -his paper discounted at Bank rate, or even slightly under when the -market rate is below it. - -In the small country towns, however, the banks’ rates are higher, but -then, of course, the paper they discount there is not of the same -class; and a capitalist, be he a money-lender or a banker, raises his -rate in proportion to the risk he runs, the one thinking a bill so -doubtful that 100 per cent. will just tempt him to risk his principal, -and the other drawing the line at about 7 per cent. - -A, for instance, has an acceptance of C’s for £100, dated the 1st -January and drawn for one month, so the bill, allowing the usual three -days’ grace, will be due upon the 4th February. A takes this bill on -the 5th January, to his banker, by whom it is discounted. From the 5th -January exclusive, to the 4th February, inclusive, there are thirty -days; and assuming that the discount rate be 5 per cent. per annum, and -the rate of commission upon the amount of the bill ⅛ per cent., we get -the following:-- - - 100 × 5 × 30 - ------------ = 8s. 2d. - 100 × 365 - - ⅛ per cent. upon £100 = 2s. 6d. - -------- - 10s. 8d. - -A, therefore, has paid about 6½ per cent. per annum for the -accommodation. The country banks, when they charge 5 per cent. per -annum interest and ¼ per cent. commission upon short bills, obtain -something like 8 per cent. per annum upon their capital; but, needless -to say, the persons who pay these rates are either out of touch with -the market or else their credit is so bad that they are glad to -discount their bills with a banker upon almost any terms. And then, -again, there is not much paper of this description under discount with -the provincial banks. - -Country customers, whose credit is above suspicion, make very -close bargains when they take good trade-bills to the banks to be -discounted, and seldom pay any commission upon the amount of the -bill, though, of course, the manager will attempt to exact it if he -think that his man will pay without protest. As previously stated the -customer almost invariably discounts his bills with the banker with -whom he keeps his current account, and he generally pays the same rate -on his paper as he does upon his overdraft. Competition for desirable -accounts being keen, it follows that a client who discounts largely can -always bring pressure to bear upon the manager, should he consider that -his rates are excessive and altogether out of touch with the market -rates. - - -Coupons. - -Many people leave their coupons with bankers for collection, and here, -again, we get an example of making those pay who will. The usual rates -are ⅛ per cent. commission on English and ¼ per cent. upon foreign and -colonial coupons, but, as a matter of fact, certain managers keep a -list of those persons who refuse to pay these charges, while they who -do not protest, no matter how large a sum they may keep to their credit -upon current account, are made to pay the ordinary rates. It is only -fair that a person whose average credit balance does not exceed £50 -should pay a rate; but when a man keeps from £250 to £500 and above on -the right side, the banker can quite well afford to forego his charge. - -Suppose a banker receives £40 from his London agent or through the -coupon department of his head-office on account of coupons remitted -for a customer. He deducts his charge of 2s., and, without informing -the person for whom they have been collected, credits £39 18s. in his -pass-book. The client, in five cases out of six, remains under the -impression that he has received the market value for his coupons, -whereas, had the manager credited the account with £40, and debited it -with 2s. commission, the customer in every probability would have asked -for an explanation. - -The customer, by examining his pass-book, will soon discover whether -a rate has been deducted, and if he consider that the balance he -keeps at his credit amply repays the bank, then he can request that -the commission be returned to him, and that his name be placed on the -free list with those of other “conscientious objectors.” Where the -face-value of the coupons is given in a foreign currency, he will, of -course, have to discover the rate of exchange at which they were sold. -Allowance, too, must be made for income-tax. - -When purchasing stocks or shares through his banker the latter divides -the commission with the broker, and it is perhaps advisable to see the -broker’s note, as a zealous manager, anxious to augment the profits of -his branch, and believing devoutly in the old-fashioned maxim “every -little helps,” occasionally adds a small charge of his own. Should he -do this, then he sends the customer a _copy_ of the broker’s note -instead of the note itself, and in the copy he has, it need not be -said, added a small commission of his own to the broker’s. As a banker -guarantees the customer against loss through the failure of either -the broker or the jobber, purchasing shares through a bank has its -advantages for the bona-fide investor; but the speculator, who may want -to “carry over” from account to account, must deal with a member of the -Stock Exchange. - -Again, when buying foreign drafts through one’s banker inquiry should -be made as to the rate of exchange, so that one can check his figures. -In a small book of this description much must necessarily be omitted, -but it may just be added that in these days the facilities bankers -grant their customers range from taking charge of their plate and -valuables to allowing them to have their letters addressed to the bank, -while they will even pay their subscriptions for them. The difficulty -is to say what they will not do, and some day, perhaps, we shall have -their young men calling in the morning for orders with the baker. - - - - -CHAPTER XI - -UNCLAIMED BALANCES - - -I would describe this banking custom as legal stealing.[B] Bankers, -as well as other estimable persons, obtain their gleanings and their -perquisites, which are credited to certain sundry accounts, such as -“unclaimed dividends,” “unclaimed balances,” and so on. Those banks, -too, that issue notes must profit to a certain extent by the paper -that is lost and destroyed by the public; and though it is impossible -to estimate the gain to the banks from these sources, their absolute -silence on the subject seems to indicate perhaps more eloquently than -statistics, that the fund thus derived must be considerable, even if it -be not vast. - -[B] The Government is not prepared to promote legislation for the -purpose of requiring the banks of the United Kingdom to make a return -showing the sums of money in their hands in respect of dormant and -obsolete accounts.--Vide Press, Feb. 1908. - -Coming to the definition of an unclaimed balance, it must be confessed -that it is somewhat difficult to explain exactly what an “unclaimed” -balance is, for the simple reason that the banks, when an account -becomes dormant, seldom make an effort to discover whether the owner -be either dead or alive, or to whom the balance belongs. On the other -hand, if they do not court inquiry, it cannot be said that they -obstruct it. Neither, however, do they encourage it, nor assist the -owner or claimant in any way, but content themselves with passively -carrying forward the figures from half-year to half-year. The public -may well be dissatisfied with this treatment, for it is quite apparent -that were the banks to make it their business to discover the owners -or claimants they would be successful in five cases out of six, and, -further, the longer they nurse these so-called “unclaimed” balances, -the greater is the probability that they will for ever retain them. - -We will first discuss the position of the current-account customer in -relation to this practice. As a rule, it is well known to the members -of a deceased man or woman’s family where the banking account was -kept; so inquiries are usually made, and the balance standing to the -credit of the deceased ascertained. There are, however, exceptional -cases. A man may have accounts with two different bankers and though -one is known, the second may not be. If the pass-book relating to the -second account be at the bank, the manager very probably will keep it -there. Again, a person on a visit to a place may open a small temporary -account at a bank there, and should he die suddenly the manager will -not make any attempt to trace his representatives. When the pass-books -which relate to these “unclaimed” balances are at the bank, some -managers are most careful that they shall not go out again; and, in -order to prevent their being sent through the post to the addresses -on the ledgers, the books are generally placed in some out-of-the-way -corner of the strong-room, there to await the coming of their owners. -This is certainly a novel way of protecting the interests of one’s -clients, though it doubtless has not the smallest claim to originality, -and may not be completely unknown in other trades than that of banking. - -Secondly, we come to the deposit-receipt or deposit-note; and it will -readily be allowed that a small piece of paper of this description may -easily be either lost or accidentally destroyed. It must be borne in -mind, too, that the companies, in the event of a depositor’s death, -do not take any steps to inform either his next-of-kin or his legal -representatives that certain sums of money are standing to his credit -in their deposit-ledgers, even when they are aware of his decease. -Then, again, after a depositor’s death these documents are sometimes -overlooked or inadvertently cast aside with other papers. Such sums, -after a lapse of years, might go to swell a company’s unclaimed -balances. - -But it is a misnomer to speak of these sums as “unclaimed,” when it -is obvious that they are simply “unpublished,” and that the banks, -were they so inclined, could find the true owners of a large number of -these balances in a very short space of time. In many instances they -have good reason to think that the customers are dead, even when they -possess no positive information to that effect; and as they have their -addresses in the deposit-ledgers, all they have to do is to write a few -letters of inquiry. However, the banks have the law on their side; and -though they are obliged to answer any questions which may be made by a -deceased’s representatives, they are not compelled to give information -gratuitously, so they choose to remain silent, and insist upon the -initiative being taken by interested persons. - -Furthermore, a deceased depositor may have held three deposit-receipts. -Should two of these be presented for payment by his executors, the -manager need not inform them that there is a third sum standing to the -credit of the deceased in the books of the bank; and he possibly will -not. An interested person, therefore, should always inquire whether -there be any other sums standing to the credit of the deceased, either -on current account or deposit. - -It need not be remarked that should the balance be a debit one the bank -will speedily send in its claim, together with a note of sympathy to -the widow, begging her to consider the company quite at her service. -So hardened is a bank-manager that he will actually attend the funeral -of an old and esteemed client whom he has been charging 5½ per cent. -interest and ¼ per cent. commission for years. It is a bad sign -when a limited liability company is represented at a funeral by an -official; and should two bank-agents put in an appearance, one can -only quote: “Where the carcass is, there will the vultures be gathered -together.” Seeing that they are so eager to exhibit their respect for -the rich dead, it may be considered somewhat surprising that they are -not more sympathetic towards the poor living, and, also, that they -do not publish their so-called unclaimed balances for the benefit -of their customers’ descendants; but life is full of these little -contradictions, and, after all, the acids and the sweets, judiciously -blended, give a zest to existence. - -Finally, some banks, we know, issue pass-books to their depositors -instead of receipts. It sometimes happens that, at a depositor’s death, -the book is with the banker. Unless, therefore, his own people chance -to know that he had a deposit account, all traces of its existence are -obliterated, for the banker, who has the book in his possession, is not -compelled to give any notice. After the publication of one of my books -my publisher received a letter from a lady complaining bitterly that a -certain bank had treated a kinswoman of hers in this manner. Should the -relations of a deceased man or woman have reason to suspect that money -has been saved and placed somewhere, they should go to every bank in -the town where the deceased resided and inquire whether any sums are -standing to his credit in the books of the banks. Their application -cannot be refused, and the result may possibly be somewhat surprising, -while they will at least have the satisfaction of knowing that their -kinsman’s savings are not being devoted by the banks to their own use. - -As the law now stands, a deceased customer’s balance is, to a certain -extent, at the mercy of his banker; but whether these unclaimed -balances would in the aggregate amount to the huge total at which some -people are disposed to estimate them is rather doubtful. That the law -urgently requires amending cannot, however, for a moment be questioned, -for persons whose own interests conflict with those of the public -can seldom be trusted to judge impartially; and it is quite evident -that directors, who are imbued with the commercial instinct, are not -exceptions to the rule. The aggregate, no doubt, would be represented -by a large sum, but the public, where money is concerned, generally -looks pretty smartly after it, so one would imagine that this total -would consist principally of numerous small balances, and that large -windfalls must be few and far between. - -These so-called “unclaimed” balances are, we have seen, in reality -_unpublished_ balances, and steps certainly ought to be taken to compel -the joint-stock banks to advertise in certain London and local papers -the names and last known addresses of those individuals in whose names -sums of moneys, in excess of say £5, have been standing intact in -their books for any period in excess of five years. The banks might -also be made to hang a list of these names in a conspicuous part of -their offices, so that those who are entitled to these sums should -at least have an opportunity of claiming them. Were the companies -compelled to adopt this course, we should hear very little more of -unclaimed balances, for the thought of publicity would be distasteful -to them, and they would immediately take steps to put themselves in -communication with either the customers or their kinsfolk. One would -think, too, that the Government had a better claim to these balances -than the banks. Mr. Asquith, for instance, might find them useful as a -basis for his old-age pension scheme! - -Depositors, seeing how matters stand, should keep their receipts in -some place where they cannot be overlooked; and in the event of a -pass-book being received, a note should be made in a diary, or even in -the “Family Bible,” to the effect that such a book is in existence; as, -should it be at the bank at the time of a customer’s decease, we know -that the manager may retain it, with the result that all trace of the -money will be lost. - - - - -CHAPTER XII - -BANK SHARES - - -There is not space in this chapter to deal exhaustively with the risks -of shareholders, but it may be mentioned that, with the exception of -the old chartered banks, the members or partners of every joint-stock -bank in the United Kingdom were, prior to 1858, liable jointly and -severally for the debts of the company. This Act, Statute 1858, c. -91, was not, however, compulsory; and although no bank of unlimited -liability has since been formed, it was not until the passing in -1879, after the failure of the City of Glasgow Bank, of the Act 42 & -43 Victoria, c. 76, that all the unlimited banks eventually limited -the liabilities of their members. Naturally, a person of considerable -wealth would hesitate to risk his fortune by buying shares in an -unlimited bank which perhaps returned him only 5 per cent. on his -purchase-money; but this objection is not now applicable, though it -must not be forgotten that the shareholder is liable for a certain -known sum, part of which may be callable and the remainder reserved -liability, or all of which may be reserved liability and callable only -in the event of the company being wound up. Where notes are issued the -members may also be liable for the circulation. - -Now that the liability on bank shares is a certain sum that cannot -be exceeded the investor is inclined to regard them favourably; and -though a rich man, who can afford to take a certain amount of risk, may -decide to hold a few bank shares among his other securities on account -of their higher yield, this liability, be the risk of a bank coming -to grief never so small, makes them a most undesirable investment -for those persons the interest upon whose capital is just sufficient -to supply their wants. Bank shares, in short, are rich men’s shares; -but this fact was brought home to the public so forcibly during the -Australian banking crisis of 1893 that it seems unnecessary to dwell -upon a point which must be apparent to everybody. Besides, we all know -that a man of small means cannot afford to incur a liability on bank -shares any more than he can sign an accommodation bill, and it would -be as foolish of him to accept the one responsibility as the other. -Nor is he the class of shareholder to whom the depositor can look with -confidence. - -While allowing that the great majority of our banks are prudently -managed, it must be granted that banking history is a remarkably -stormy one, though it is equally true that the surface of the waters -has been but little ruffled during recent years; still, the Baring -crisis of 1890 is not yet ancient history; and seeing that the banks -are intimately connected with the Stock Exchange, the bill-brokers and -the commercial community, a person who predicts that a British bank -will never again be in difficulties must be blessed by the Almighty -with a most sanguine temperament, for such a prediction is altogether -opposed to the weight of evidence adduced by the past, and though -its fulfilment is eminently desirable, so peaceful a solution of the -banking question seems highly improbable. - -In Chapter II, on the choice of a banker, an attempt was made to -show why a customer should select a strong institution whose working -resources are plentiful, and whose reserve of liquid assets is large -enough to enable it to meet a drain of deposits during a run or a -panic. The shareholder who guarantees the customers of a bank against -loss to a limited extent will naturally take care that he is a partner -in a company which maintains an adequate reserve of cash and securities -as an insurance fund against those accidents which are quite beyond -the control of the most able board of directors. A shareholder, say, -holds twenty-five shares in a bank. These shares are for £80 each, and -the amount paid up upon each is £20. He, then, receives a dividend -upon £500, and incurs a liability of £1,500. But he bought these £20 -paid shares at such a price that they only yield him 4½ per cent., and -he certainly cannot afford to run any great risk for such a return; -so he therefore, before purchasing, took care that the bank held a -large accumulation of cash and gilt-edged securities as a reserve fund -against those banking risks for which he pledged £1,500 of his fortune. -Every prudent man should take the same precaution. - -The following illustrations, which are taken from the balance-sheets of -two English joint-stock companies that need not be named, will clearly -demonstrate that there are banks--and banks. - - -An English Provincial Bank. - -Liabilities to the public upon current, deposit and other accounts are -given in the balance-sheet as £4,200,000. The bank’s liquid assets are -thus described:-- - - Ratio per cent. - of liquid assets - to public liabilities - of £4,200,000. - - £ £ - Cash in hand, at call and at - short notice 582,750 13·8 - - Consols and other securities 172,170 4·1 - -------- ----- - £754,920 £17·9 - ======== ===== - -This bank’s position might be described in one very short word. In -the first place, it has neglected to state the amount of its cash in -hand and with bankers at call separately, but has mixed it up with -its loans at short notice. The only deduction to be made is that the -bank possesses so little legal tender that it deems it prudent not to -give the figures in its balance-sheet, but to inform the public that -it holds £13·8 of cash in hand, at call and at short notice to each -£100 of its public indebtedness. The second entry is equally vague. We -are quaintly informed that this unique institution, which owes some -millions on demand, is in possession of a certain amount of Consols, -but the exact sum, and the price at which they are taken, have been -left to our imagination, so the bank may be the proud possessor of -either £100 or £1,000 of Consols; and goodness only knows what is meant -by “other securities.” The second column of our form, however, shows us -that this company held £4·1 of “Consols and other securities” to each -£100 it owed to its customers. Then, with a touch of true comedy, the -auditors tell us that the balance-sheet, in their opinion, exhibits a -true and correct view of the state of the bank’s affairs. One’s very -soul goes out to those auditors, and a longing seizes hold of one to -pat them on the back and shout bravo! No doubt the statement is true -and correct, but how strangely incomplete. - -Of course there is a serious side to this question. The bank, we can -see from the total in our ratio column, held only £17·9 of cash and -certain securities in reserve against each £100 it owed to the public. -Obviously it is trading on the reputation of its better-prepared -rivals, who, should a determined run be made upon it, might feel -disposed to save it; but during a crisis, when each company has to take -care of itself, such a bank, were its depositors to become nervous, -would be compelled to close its doors in a very few hours. Now, would -any sane person buy the shares of this bank at a price which returns -him about 4½ per cent. on his capital, and incur a liability in excess -of the amount of his holding? One would say emphatically not; but it is -a remarkable fact that people are to be found who will take this risk -with a light heart. Surely they cannot understand the nature of the -security they are buying. - -A bank which is caught short of cash during a crisis must apply for -assistance to the Bank of England, and the Bank, which at so critical -a time is the only market for securities in existence, would, before -making it an advance, demand to see its securities. This bank, we know, -possesses a list of “Consols and other securities” which it values at -£172,170; but if the Bank advanced £100,000 against them, which is -highly improbable, how could it pay off even £500,000 of its deposits? -It seems to me that it must go under. The usual fate of these weak -provincial banks is amalgamation with the better managed and more -powerful companies, but the danger is that a storm may sweep them out -of existence before they drift into one or another of these havens of -rest. Fortunately, the state of the bank in question is exceptional -rather than representative, but it is unwise to jump to the conclusion -that the shares of every English bank are a desirable investment. - -Our second illustration deals with the balance-sheet of one of the -large joint-stock banks whose liabilities on current, deposit and -other accounts amounts to £26,652,300. The liquid assets held in -reserve against this sum are:-- - - Ratio per cent. - of liquid assets - to public liabilities - of £26,652,300. - £ £ - Cash in hand and at Bank of - England 4,009,622 15·0 - Money at call and short notice 6,876,195 25·8 - £4,000,000 2½ Consols at 90; - £500,000 Local Loans - Stock at £100 4,100,000 15·4 - ----------- ----- - £14,985,817 £56·2 - =========== ===== - -Ambiguity is not the dominant note in this balance-sheet. We can see at -a glance that the bank is well prepared to pay off a large proportion -of its indebtedness on demand, for it holds £15 in cash against every -£100 it owes. Money at call and notice (short loans to the bill-brokers -and stockbrokers), which is much less liquid than cash, is stated -separately, and its list of investments consists entirely of British -Government securities. Moreover, we are told at what price they have -been taken. The balance-sheet, though not perfect, is clear and -informing; but a company that holds £4,000,000 of Consols at 90 would -not be so foolish as to hide its financial light under a bushel; so -when a bank modestly refers to “Consols and other securities” we may -be quite sure that its holding of Consols is either remarkably small or -else that its directors are exceedingly stupid. It is more probable, -however, that they are astute gentlemen who reason that the luminosity -of a farthing dip might call forth smiles of wonder and amazement were -it allowed to shed its radiance and waste its fragrance outside the -bushel. - -The bank we are discussing, then, held £56·2 of cash, call money and -gilt-edged securities in reserve against each £100 of its liabilities -to the public; and such a bank, it need not be said, is splendidly -prepared to protect the balances of its depositors and the interests -of its members. As a matter of fact, the real interests of both are -identical; for if a bank neglects to keep an adequate reserve of -cash and securities it exposes its customers to the risk of loss and -inconvenience through its stoppage during a run or a panic; as, should -the bank suspend payment, the customers must either suspend too, or -find another banker, while its shareholders might lose all their -capital and also be called upon to make good any deficit. Obviously, -then, the bank which holds £56 in liquid assets to each £100 it owes is -the one with which to do business. The shares of this bank return about -4½ per cent. at the present market price; and seeing that the company -has minimized the risks of its members its shares will be chosen in -preference to those of the institution which has accumulated a somewhat -doubtful reserve of liquid assets which works out at a ratio per cent. -to its liabilities of only £17·9. - -We next come to a banking company’s profits, which are a source of -great annoyance and wonderment to certain people, who cannot understand -how dividends of from 10 to 20 per cent. can be earned in the worst of -times when everybody else is feeling the depression in trade acutely. -The mystery is not very profound, for a banker’s business, of course, -is only profitable so long as he can trade with the money of his -depositors, and, as his own capital is usually small when compared with -his deposits, it follows that a very small percentage on his working -resources will return a high rate of interest upon his capital. Upon -a certain amount of his deposits he allows a rate which is regulated -by the Bank rate; and he charges a rate upon his loans and advances, -the said rate being also more or less influenced by the Bank rate, -the difference between the two rates representing his margin of gross -profit. He regulates this margin by changing his deposit rate at each -alteration of the Bank rate, but he also obtains money upon which he -does not pay interest, and as that sum earns considerably more when the -Bank rate is at 4 than when it is at 2½, it follows that his “free” -money is largely responsible for the fluctuations of his dividends. - -But a banker cannot trade with all his deposits. He has to keep a -certain sum lying idle in his safes and tills, and with his London -agents or the Bank of England. He further requires a good list of -securities which can be either converted or pledged with the Bank of -England should occasion arise, and such a list will not return him -much more than 3 per cent. upon the sum devoted to that purpose. Then -he employs a portion of his funds in the short-loan market, so he has -only about 60 or 70 per cent. of his deposits to advance in the shape -of loans, overdrafts and discounts to customers. In other words, a -well-managed bank has to devote a large proportion of its resources to -insuring its business. - -Take the bank in our second illustration. Its paid-up capital amounts -to £2,800,000, and its reserve fund to £1,600,000, so the shareholders’ -funds come to £4,400,000. Deposits and other accounts are £26,652,300, -making its total working resources £31,052,300. Now the net profit -earned during the half-year was £207,869, so the bank cleared ·669 of -a pound upon each £100 with which it was trading; and seeing that the -trader expects to make 10 per cent. on his turn-over, it is pretty -evident that bankers’ profits shrink into insignificance when compared -with his. But the bank’s paid-up capital is only £2,800,000; and as -£14,000 will pay 1 per cent. per annum for the half-year on that, this -profit of £207,869 enables the bank to declare a dividend at the rate -of 14 per cent. per annum, and to carry a large amount forward to -the profit-and-loss account of the next half-year; yet it can hardly -be said that its earnings on £31,000,000 are enormous; still, they -look it when metamorphosed into a rate of 14 per cent. But this is -only another illustration of how easily the crowd can be deceived by -statistics. - -It would be absurd to attempt in a short chapter to discuss the price -of bank shares; but as the banking companies, unless they enjoy an -exceptionally sheltered position, earn less during those periods of -depression which from time to time overtake the trade of the country, -it follows that their dividends, like their deposit rates, rise and -fall with the Bank of England rate. Bank shares, therefore, can be -bought cheaply when trade is bad and loanable capital cheap. As the -so-called gilt-edged securities, during normal times, should then be -dear, it often pays to sell out of the latter, invest in bank shares, -and wait for the turning of the tide. - - - - -CHAPTER XIII - -THE PAY OF BANK-CLERKS - - -It cannot be said that bank-directors, when considering the question -of remuneration, err on the side of generosity; but nobody would -dream of accusing them of that crime, and if the bank-clerk is not -paid lavishly, his salary, as a rule, is appreciably above the wages -paid for clerical labour in the open market. Nor can it be affirmed -that the country private banker was one whit more generous than a -board of directors. Indeed, the evidence points in quite an opposite -direction, for the clerks of those firms which have been absorbed by -the companies generally profited by the change; so it must be allowed -that the joint-stock system has raised the standard of comfort of the -bank-clerk. Certain of the London private bankers were more liberal, -and others, again, had the commercial instinct strongly developed, -but we shall see the salary scales of the joint-stock banks are not -calculated to excite envy in the mind of the multitude, unless we -except the unemployed and the hungry. - -The following scale is that of a large London and provincial banking -company:-- - - General managers £1,500 to £2,000 - - Managers in a city 500 ” 1,500 - - Managers in towns of from - 40,000 to 60,000 inhabitants 350 ” 500 - - Managers in small country - towns 250 ” 350 - - Inspectors (with one guinea - a day for travelling expenses) 300 ” 500 - - Accountants or chief-clerks 160 ” 210 - - Cashiers 160 ” 210 - - Clerks 80 ” 160 - - Apprentices 30 ” 50 - -At the head-office in London, where there is a special scale, the -city-manager would receive from £1,000 to £1,500 a year, and the -chiefs of departments from £300 to £1,000, according to the importance -of the department, while the salaries of the ledger-clerks would be -raised £10 each year until the maximum, £300, had been reached. The -maximum for clerks is £180. At the metropolitan and suburban branches -however, the salaries are the same as those set out in the foregoing -list, and the managers would receive from £300 to £800 or so a year -in proportion to the business done at the branch. Very few of the -joint-stock banks would pay a higher scale of wages than this, and the -great majority of them, especially the purely provincial companies, -would pay considerably less, while the Scotch banks are niggardly in -the extreme--a little national characteristic. It is on record that a -clerk in a certain Scottish banking company, whose head-office is at -Aberdeen, was receiving £30 a year at the end of five years’ service. -In a fit of unaccountable generosity his salary was then raised to £50 -per annum, but the recipient remarks that he showed his gratitude by -promptly moving to London. - -Adverting to our list, we can see that a youngster entering this bank -at the age of, say, seventeen, gets £30 a year, out of which he has to -pay certain subscriptions. At the age of twenty his salary would be -increased to £80, and £10 at the end of each year’s service would be -added until the maximum for clerks, £160, were reached. He would then -be twenty-eight, and there he would have to wait for the bank to make -him either a cashier or an accountant before he could proceed to the -next step. A few men remain clerks all their lives, but the percentage -would be a very small one, and in every probability the clerk might -count upon being promoted at the age of thirty-three or thirty-four. -With good luck, or should he chance to have a friend at “court,” he -might gain this step at thirty. - -Assuming that he were made a cashier at thirty-one, he would start with -a salary of £170, and, rising £10 a year, would reach the maximum of -this class, £210, when he was thirty-five years of age. The percentage -of men who remain in this class all their lives is appreciable, and -the average man probably would not get a small branch before he was -forty-five or forty-eight. Of course, if he successfully accomplished -some such feat as marrying the plain daughter of a general manager, or -should he be distantly related to a director or a Lord Mayor, he might -get a branch at forty. But the prizes are for the very few, and those -men who do really well, after having managed a small branch to the -satisfaction of the board, are sent to a larger office upon a salary -of £400 a year rising to about £600. At this rate a clerk would be -from forty-eight to fifty-two or three before his salary was £400 a -year, and it must be remembered that these are the fortunate ones; so -it is evident that the majority of clerks in a bank simply eke out an -existence. - -On the other hand, they are better paid than the average merchant and -solicitor’s clerk, while their employment is constant, and, as a rule, -they are entitled to a pension, should they survive the monotony of -their surroundings, after having attained the age of sixty. Seeing -that these young men are drawn from the same class as the merchant’s -clerk, and that the demand for their berths is greatly in excess of the -supply, it appears at first sight that £160 a year is a fair wage for -a person whose principal accomplishments are a bold round hand and the -ability to add up long columns of figures with accuracy and despatch. -However, it seems improbable that a father, after having carefully -considered the chances, will choose a banking career for a son who can -pass examinations successfully. - -Then, again, the average youngster has more chances in business; for -while a few hundred pounds will establish him as a trader, as many -thousands will not enable him to become a banker. The banks, so to -speak, take their men right off the market, and give them a special -training, which fits them for banking alone, but which, as a rule, -totally unfits them for any other business; consequently, when a -bank-clerk suddenly find himself flung back on the market, he at first -usually feels as helpless as a bird which suddenly turned out of the -cage in which it was bred, is compelled to sustain life after the -manner of its kind. As the bank-clerk generally enters a bank for life, -he has a right to expect that the shareholders and directors will at -least recognize this fact, and, therefore, pay him a salary based, -not only upon the market price of clerical labour, but also upon the -assumption that he will pass his days in the service of a company in -which he will always be a servant. In other words, as the directors -practically hire these men for life, it is their duty to make their -circumstances fairly easy, but this is an obligation which the majority -of them quite fail to recognize. - -The smaller banks have a much lower scale than that given in these -pages; and certain of those companies which are pushing out small -suburban tentacles in every direction pay the managers of these offices -from £80 to £120 a year, and the clerks in proportion. Moreover, some -boards have passed resolutions to the effect that no clerk in their -service shall marry until his salary be such-and-such a sum; and it -seems intolerable that a body of men, who are merely traders, be -the resolution good or bad, should be allowed to interfere with the -liberty of the subject in this arbitrary fashion. Mr. Punch’s advice -is doubtless excellent; but who are these men, in their astounding -consequence, to override the law of the land? The whole nation should -indignantly protest against their impudence, for a mere trading -company, whose only object is gain, is unfit to govern the sons of men. -Possibly, if these banks were to publish their salary scales their sham -philanthropy would be instantly apparent. - -Perhaps a few illustrations of the relations between the banks and -their clerks may prove interesting. I have in my mind the case of a man -who sat by my side at a large branch bank in the North. From being a -chief-clerk or accountant in the service, he had been reduced to £160 -a year, and sent to the branch in question. The cost of living being -expensive in a large city, he was compelled to send his children to the -Board schools. In fact, he was so hard up that he wrote to the general -managers telling them that he could not live on the salary, and asking -them to increase it. He was told that, if he were not satisfied, he -could take a year’s salary (I think it was) and go. The bank, however, -ultimately succeeded in getting rid of him more cheaply. The man, who -was a tailor’s tout and an insurance agent in his spare moments, did -all in his power to add to his income; but at last he fell so low -that he actually descended to taking money from the men’s coats. Then -followed detection and dismissal. - -Now, who was the more to blame, the clerk or the bank? The clerk had -informed the directors that he could not live upon his salary, and the -directors made him an impossible offer, for the man, who must have -been getting on for fifty, had been in the service from a boy, and was -therefore not worth thirty shillings a week outside. Knowing this, the -offer of the directors was frankly brutal, and losing hope the clerk -became a petty thief. My ethics may be somewhat shaky, but were I on my -trial for a harp and a halo I would rather stand in the thief’s place -than in that of those directors. - -Another man in the same office, although single, could not acquire -the art of living upon £160 a year, and after some few years of -unsuccessful striving and vain endeavour, he was dismissed for drink -and debt. He then became a traveller in the wine trade, and terminated -his not uninteresting career by getting drunk on his samples. A third -man, who was a married cashier, took two sovereigns from his till, -intending to return them upon the following day, but his till-money -was counted the very next morning by the accountant, who was probably -suspicious, and the man had to go. Out of a staff of twenty-eight men, -five, I think, were cashiered within five years; it seems to me that -were a kinder spirit manifested by those in authority much of this -misery and suffering might be spared. - -For instance, in one service it is usual to send old men and others -who, for some reason or another, have been reduced, to a large branch, -where, after a few months have elapsed, they are given a small sum of -money and quietly pushed into the street. This procedure is adopted -because a man at a small branch is acquainted with the accounts of -all the customers thereat, and might, should he be dismissed while -there, hold forth in every public-house in the town; but the expedient -is unspeakably mean, and surely a bank which counts its deposits by -millions can afford to temper justice with mercy. The directors know -the fate that awaits these men, more especially when they are past -forty, and it is simply cruel to weed them out in this brutal fashion. -To my mind it is little short of murder. - -The system, of course, is bad. The banks place one man in authority -and to that man they pay a good salary. He, in his turn, has to hold -down the rest, with the result that we have already seen. At the branch -in question the manager, who was an old man, received £1,500 a year, -and the accountant, who was a man of about forty-two, got £300. The -disparity between these two sums is most marked, for the accountant -was quite as able a man as his chief, and if he were only worth £300 -a year, then the manager was not worth more than £500 at the outside. -Were a bank to pay each man a fair salary, and to reduce the manager’s -rate of pay, it would increase its expenses considerably, but at the -same time it would add to the efficiency of its staff, for most of the -men are dissatisfied, and the work, as a rule, is not done willingly, -while the directors are looked upon as task-masters. Nor is this at -all surprising, for of sympathy they display but little, and their -humanity is unquestionably not superior to that of the Zulu. I have -weighed my words carefully, and am writing without the slightest heat, -my only aim being to state my facts plainly, and I think that, if the -facts are unchallenged, the deductions are as indisputable as they -are discreditable to the directors and shareholders of certain of the -joint-stock banks. - - -Butler & Tanner, The Selwood Printing Works, Frome, and London. - - - - -Transcriber's Note - -=Bold= and _italic_ words in the original text have been marked in this -version with equals signs and underscores respectively. - -A few minor typographical errors have been silently corrected. - - - - - -End of Project Gutenberg's Banks and Their Customers, by Henry Warren - -*** END OF THIS PROJECT GUTENBERG EBOOK BANKS AND THEIR CUSTOMERS *** - -***** This file should be named 60436-0.txt or 60436-0.zip ***** -This and all associated files of various formats will be found in: - http://www.gutenberg.org/6/0/4/3/60436/ - -Produced by Nigel Blower and the Online Distributed -Proofreading Team at http://www.pgdp.net (This file was -produced from images generously made available by The -Internet Archive) - - -Updated editions will replace the previous one--the old editions will -be renamed. - -Creating the works from print editions not protected by U.S. copyright -law means that no one owns a United States copyright in these works, -so the Foundation (and you!) can copy and distribute it in the United -States without permission and without paying copyright -royalties. 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margin: .83em auto; } -.ph4 { font-size: medium; margin: 1.12em auto; } -.mw20 { max-width:20em; } -.bd { font-weight: bold; } - -/* Footnotes */ -.footnote {margin-left: 10%; margin-right: 10%; font-size: 0.9em;} - -.footnote .label {position: absolute; right: 84%; text-align: right;} - -.fnanchor { - vertical-align: super; - font-size: .8em; - text-decoration: none; -} - -/* Transcriber's notes */ -.transnote {background-color: #E6E6FA; - color: black; - font-size:smaller; - padding:0.5em; - margin-bottom:5em; - font-family:sans-serif, serif; } - </style> - </head> -<body> - - -<pre> - -The Project Gutenberg EBook of Banks and Their Customers, by Henry Warren - -This eBook is for the use of anyone anywhere in the United States and -most other parts of the world at no cost and with almost no restrictions -whatsoever. You may copy it, give it away or re-use it under the terms -of the Project Gutenberg License included with this eBook or online at -www.gutenberg.org. If you are not located in the United States, you'll -have to check the laws of the country where you are located before using -this ebook. - - - -Title: Banks and Their Customers - A practical guide for all who keep banking accounts from - the customers' point of view - -Author: Henry Warren - -Release Date: October 6, 2019 [EBook #60436] - -Language: English - -Character set encoding: UTF-8 - -*** START OF THIS PROJECT GUTENBERG EBOOK BANKS AND THEIR CUSTOMERS *** - - - - -Produced by Nigel Blower and the Online Distributed -Proofreading Team at http://www.pgdp.net (This file was -produced from images generously made available by The -Internet Archive) - - - - - - -</pre> - - - -<h1><a name="Page_i" id="Page_i"></a>BANKS AND THEIR<br /> -CUSTOMERS</h1> - -<hr class="pb" /> - -<p class="ph1 bd"> -<a name="Page_ii" id="Page_ii"></a> -<a name="Page_iii" id="Page_iii"></a> -BANKS<br /> -<small><small><small>AND</small></small></small><br /> -THEIR CUSTOMERS</p> - -<p class="ph3 mw20">A PRACTICAL GUIDE FOR ALL WHO KEEP -BANKING ACCOUNTS FROM THE CUSTOMERS’ -POINT OF VIEW</p> - -<p class="ph3"><small><small>BY</small></small><br /> -HENRY WARREN</p> - -<p class="ph4"><i>AN ENTIRELY NEW AND ENLARGED EDITION<br /> -(THE EIGHTH)</i></p> - -<p class="ph3 smcap">With Introduction by a London Banker</p> - -<div class="figcenter"> -<img src="images/rs.jpg" alt="Robert Sutton logo" /> -</div> - -<p class="ph4">LONDON</p> -<p class="ph3">ROBERT SUTTON</p> -<p class="ph4">43, THE EXCHANGE, SOUTHWARK STREET, S.E.</p> -<p class="ph4">1908</p> -<hr class="pb" /> - -<p class="ph2 bd"> -<a name="Page_iv" id="Page_iv"></a> -<a name="Banks_and_their_Customers" id="Banks_and_their_Customers"></a> -Banks and their Customers</p> - -<p class="ph4">(<i>SEVENTH EDITION</i>)</p> - -<p class="ph3 bd">By HENRY WARREN</p> - - -<p><b>The Pall Mall Gazette</b> says:—</p> - -<div class="blockquot"> -<p>“Caustic and interesting.”</p></div> - -<p><b>The Financial News</b> says:—</p> - -<div class="blockquot"> -<p>“Contains a vast amount of useful information intelligently -discussed. To educate the public on a technical -subject calls for more than ordinary knowledge. It needs -what Mr. Warren undoubtedly possesses, and that is a -sound, practical understanding, and a thorough common-sense -way of setting forth his knowledge in simple form. -This our author succeeds admirably in doing.”</p></div> - -<p><b>The Scotsman</b> says:—</p> - -<div class="blockquot"> -<p>“Cannot be too strongly recommended.”</p></div> - -<p><b>The Draper’s Record</b> says:—</p> - -<div class="blockquot"> -<p>“Masterly.”</p></div> - -<p><b>The Birmingham Daily Gazette</b> says:—</p> - -<div class="blockquot"> -<p>“Invaluable.”</p></div> - -<p><b>Investor’s Review</b> says:—</p> - -<div class="blockquot"> -<p>“Much useful and accurate information about the habits -of bankers in dealing with their customers. Especially -we commend the chapter ‘How to Check Bankers’ Charges,’ -which are often curiously arbitrary and capricious.”</p></div> - -<p><b>The City Press</b> says:—</p> - -<div class="blockquot"> -<p>“A caustic and forcible pen.”</p></div> - -<p><b>The Bookman</b> says:—</p> - -<div class="blockquot"> -<p>“The worth of the expert is proved. Mr. Warren on -banking subjects enjoys our confidence and many editions.”</p></div> - -<p><b>And The Glasgow Herald</b> says:—</p> - -<div class="blockquot"> -<p>“Mr. Warren’s caustic criticisms of bankers and their -peculiarities have been widely appreciated.”</p> -</div> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_v" id="Page_v">[v]</a></span> -<h2 class="nobreak"><a name="INTRODUCTION" id="INTRODUCTION"></a>INTRODUCTION</h2> -</div> - -<p class="ph4">BY A LONDON BANKER</p> - - -<p>I confess that when a publisher asked me to write -an introduction to Mr. Warren’s little book I -experienced some surprise; because, in the past, he -handled bankers rather roughly. Perhaps the -audacity of the request appealed to me. At any -rate, I consented to read the proof-sheets, and, -finally, perhaps a trifle reluctantly, to stand sponsor -for the work in a qualified sense. I do not agree -with all he says, by any means.</p> - -<p>Here is the eighth edition of a well-written, interesting -guide for the customer, who has obviously -found it useful. The book would not have obtained -a market unless it were wanted. This must be -granted. And I think that it was wanted even from -the point of view of a banker.</p> - -<p>The author in a short chapter tells us how and -why the joint-stock bank came to dwell among us. -Then he plunges into his subject—the Guide for the -Customer. The chapter on the cheque and its -various crossings is admirable. I only wish that the<span class="pagenum"><a name="Page_vi" id="Page_vi">[vi]</a></span> -clients of my own bank would read every word of -it, and save the time of our cashiers.</p> - -<p>He who keeps his account in credit is told much -that he ought to know; the depositor is shown how -to check his interest; the borrower how to negotiate -a loan or advance; and everybody is told the manner -in which he may easily check the charges debited -in his pass-book. Speaking for my own bank, I do -not care who makes use of this clearly-put information. -Let our clients obtain the book by all means. -We shall then be spared the trouble of answering a -host of stupid questions during the busiest parts of -the year.</p> - -<p>Touching upon “unclaimed balances,” I am of -the opinion that the public can be very well trusted -to look after its own interests; and after glancing -through my own ledgers I think that these unclaimed -sums would not amount, in the aggregate, to a really -large figure. Most of these dormant balances are -insignificant.</p> - -<p>As to the pay of bank-men, I do not feel justified -in expressing an opinion, beyond asserting that the -wants of a bank-clerk are small. My advice to the -customer is—“read the book.”</p> - -<p class="right">“CITY MANAGER.”</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_vii" id="Page_vii">[vii]</a></span> -<h2 class="nobreak"><a name="CONTENTS" id="CONTENTS">CONTENTS</a></h2> -</div> - -<table summary=""> -<tr> -<th class="conchh">CHAP.</th> -<th class="conchh"> </th> -<th class="conpgh">PAGE</th> -</tr><tr> -<td class="conchp"> </td> -<td class="smcap">Preface</td> -<td class="conpag"><a href="#Page_v">v</a></td> -</tr><tr> -<td class="conchp">I</td> -<td class="smcap">Banking Evolution</td> -<td class="conpag"><a href="#Page_1">1</a></td> -</tr><tr> -<td class="conchp">II</td> -<td class="smcap">On the Choice of a Banker</td> -<td class="conpag"><a href="#Page_13">13</a></td> -</tr><tr> -<td class="conchp">III</td> -<td class="smcap">The Cheque and its Various Crossings</td> -<td class="conpag"><a href="#Page_19">19</a></td> -</tr><tr> -<td class="conchp">IV</td> -<td class="smcap">Credit-Account Customers</td> -<td class="conpag"><a href="#Page_38">38</a></td> -</tr><tr> -<td class="conchp">V</td> -<td class="smcap">Deposit-Receipt Customers</td> -<td class="conpag"><a href="#Page_45">45</a></td> -</tr><tr> -<td class="conchp">VI</td> -<td class="smcap">The Bank Rate in Relation to Bankers’ Charges</td> -<td class="conpag"><a href="#Page_61">61</a></td> -</tr><tr> -<td class="conchp">VII</td> -<td class="smcap">Loans and Advances in London</td> -<td class="conpag"><a href="#Page_68">68</a></td> -</tr><tr> -<td class="conchp">VIII</td> -<td class="smcap">Overdrafts in the Country</td> -<td class="conpag"><a href="#Page_75">75</a></td> -</tr><tr> -<td class="conchp">IX</td> -<td class="smcap">How to Check Bankers’ Charges</td> -<td class="conpag"><a href="#Page_89">89</a></td> -</tr><tr> -<td class="conchp">X</td> -<td class="smcap">Bills, Coupons, Foreign Drafts, etc.</td> -<td class="conpag"><a href="#Page_102">102</a></td> -</tr><tr> -<td class="conchp">XI</td> -<td class="smcap">Unclaimed Balances</td> -<td class="conpag"><a href="#Page_110">110</a></td> -</tr><tr> -<td class="conchp">XII</td> -<td class="smcap">Bank Shares</td> -<td class="conpag"><a href="#Page_117">117</a></td> -</tr><tr> -<td class="conchp">XIII</td> -<td class="smcap">The Pay of Bank-Clerks</td> -<td class="conpag"><a href="#Page_128">128</a></td> -</tr> -</table> - - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_viii" id="Page_viii"></a><a name="Page_1" id="Page_1">[1]</a></span> -<p class="ph1">BANKS AND THEIR CUSTOMERS</p> - -<h2 class="nobreak"><a name="CHAPTER_I" id="CHAPTER_I"></a>CHAPTER I <br/> -<small><small>BANKING EVOLUTION</small></small></h2> -</div> - - -<p>We owe a great deal to the financial instinct of the -Jew, who, having no country of his own, has developed -an acquisitive mania for the goods of those -people among whom he dwells, thanks to a progressive -civilization of which he was the pioneer, in comparative -safety; and, by an irony of fate, we are also -indebted to him for a religion, which his more subtle -mind rejects; yet, stranger still, it is a civilization -based on commerce that keeps the whole world -moderately sane, and tends to at least hold in check -the latent savagery of the blind enthusiast who -would still, but for her intervention, indulge in a -bloody crusade against all who hold opposite -opinions. A true civilization spells toleration; and -though a creditor can scarcely hope to be popular -with his debtors, he is at least entitled to the protection -of the law of the land in which he lives.</p> - -<p>The Jews, who are supposed to have come over to -England about the time of the Conquest, gradually<span class="pagenum"><a name="Page_2" id="Page_2">[2]</a></span> -possessed themselves of the greater part of the coin -of the country; and the early English kings constantly -resorted to them for loans. As it was thought -unchristian to charge usury or interest, the business -of a money-lender was consequently held in abhorrence, -with the result that the Jews monopolized the -trade, and acquired immense fortunes by their dealings. -Their wealth naturally excited the intense -cupidity of their Christian neighbours, who, making -a pretext of their so-called abominations, raided from -time to time the Jewish quarters of the various -towns, in the hopes of annexing the fabulous treasure -in Jewry.</p> - -<p>Under the ban of the Church, and detested by the -people, the popular feeling against the usurers became -so embittered that Edward I, under whose protection -they lived, after having in vain attempted to -persuade the Jews to accept Christianity, was compelled -to banish them from England; and from 1290 -to the time of the Commonwealth (a period of about -360 years) the prohibition remained in force. But -the money-lender is a necessary evil; and after the -departure of the Jews certain Italian merchants, -known as Lombards, who had previously settled in -England, immediately filled their place; and Lombard -Street became as notorious for usury as had -been the Jewry.</p> - -<p>The Jew may be described as a money-lender, and -the Lombard as a merchant-banker, though neither -was a banker as the word is now understood. Both,<span class="pagenum"><a name="Page_3" id="Page_3">[3]</a></span> -however, lent money at high rates of interest. A -banker, in the English sense of the word, is a middleman -who borrows from one set of persons at a rate in -order to lend to another set at a greater rate, the -difference between the two rates being his margin of -profit; and banking in this sense was not practised in -England until quite the end of the first Charles’s -reign, when certain goldsmiths, who were originally -dealers in plate and in bullion, became private -bankers. The first run upon them was made in 1667, -when a Dutch fleet sailed up the Medway; and, -later, in 1672 Charles II closed the Exchequer, -refusing to pay the bankers either their principal or -interest, with the result that failures were numerous.</p> - -<p>We are now approaching a new banking era; and -in 1694 the Bank of England, which was the first -joint-stock bank established in the three kingdoms, -was incorporated. The private bankers, instantly -recognizing in her a formidable rival, were actively -hostile; but all to no purpose; and in a very little -while they grouped themselves round the Old Lady, -who reduced their rates and kept them in order. -Hoares and Childs were in being before the Bank; -but the goldsmiths, long before the new movement -was a brilliant success, had few direct descendants in -London; and the majority of those private bankers -who opposed the Act of 1833 belonged to another -generation. At its inception the Bank did not enjoy -a monopoly; but upon the renewal of its charter in -1708 it was granted the monopoly of joint-stock bank<span class="pagenum"><a name="Page_4" id="Page_4">[4]</a></span>ing -in England, while the partners in a private bank -could not exceed six in number. This number was -increased to ten in 1857.</p> - -<p>Country banking developed slowly in England; -and it was not until towards the close of the eighteenth -century that private firms began to multiply -in the provinces; but the Bank of England’s iniquitous -monopoly kept them small and weak, and between -1792 and 1820 over one thousand private -bankers came to grief, while the crisis of 1825 further -thinned their ranks and almost emptied the vaults -of the Bank of England, when it dawned upon the -Government that the state of the money-market -was distinctly rotten, and that it would remain so -until the Bank’s monopoly disappeared. The result -was the usual committee and the usual compromise.</p> - -<p>The Act of 1826 allowed joint-stock banks of unlimited -liability to be formed in England and to carry -on business at a greater distance than sixty-five miles -from London; but such institutions could not open -an office in London. Neither could they issue notes -at a place within sixty-five miles thereof, nor draw -any bills on London for a less amount than £50. In -1833, however, they were allowed to make their bills -and notes for less than £50 payable on demand at -their London agents. The demand for these establishments -was not at first considerable; and very few -were formed until after five or six years of the passing -of this Act; but in 1830 the railway movement began -in earnest, and from 1833 to 1836 joint-stock banks<span class="pagenum"><a name="Page_5" id="Page_5">[5]</a></span> -were established throughout the country in considerable -numbers. This sudden boom in banking companies -could only have one result; and failures -became so numerous that Sir Robert Peel, in 1844, -passed his Joint-Stock Banking Act, which, being -found worse than the disease itself, was repealed in -1857.</p> - -<p>London, we have seen, contained only one banking -corporation and numerous private bankers, who, -forming a monopoly, were practically rich men’s -banks; for they would only accept an account provided -the balance was not reduced below a certain sum, -while from 1813 to 1833 some twenty of them suspended -payment; so stability was not one of their -distinguishing characteristics. It soon became apparent -that the Bank of England and the private -bankers were quite unable to minister to the growing -trade of the capital; and in 1833 joint-stock banks -were allowed to be formed in London, but upon the -distinct understanding that they were to be banks of -deposit and not banks of issue. In other words, they -could not issue their own notes, so were compelled to -use those of the Bank of England. The first London -joint-stock bank was the London and Westminster, -whose prospectus was issued in 1833; but the shares -were subscribed slowly, and the bank did not open its -doors to the public until the March of the year -following. Then came the London Joint-Stock Bank -in 1836, and the Union Bank in 1839.</p> - -<p>It is usual, in this little island, to hark back to the<span class="pagenum"><a name="Page_6" id="Page_6">[6]</a></span> -good old days, and then, with a sigh, to regret that -the old order of things no longer exists; yet it must be -confessed that the London private bankers were of -no service whatsoever to the small man of business, -whom they simply ignored. The joint-stock banks -however, ministered to the wants of the small trader; -and, by diving into the heart of the masses, proved -that a large number of small balances are even more -desirable than a small number of large accounts, -whilst in the end they practically drove the private -banker, handicapped as he was by the law of the -land, out of the market, or, at least, reduced him to -impotency. But the London joint-stock banks, in -those early days, were not without their grievances; -and both the private bankers and the Bank of England -seized upon every pretext in order to harass -them. Being merely common law partnerships, they -did not come under the 1826 Act; and until the Act -of 1844 they were not relieved from certain restrictions -which need not be discussed here.</p> - -<p>But the year of banking reform was, of course, 1844, -when, fortunately for the trade of the country, the -Bank of England was stripped of all its privileges -except that relating to the issuing of notes. The -Bank Charter Act of 1844 gave the Bank of England -the monopoly of issuing notes in London and within -sixty-five miles of it. No new bank of issue was to -be formed, while a provincial bank, upon opening in -London, forfeited its issue. The cheque, however, -soon became more powerful than the note; and the<span class="pagenum"><a name="Page_7" id="Page_7">[7]</a></span> -larger provincial banking companies gladly made the -sacrifice in order to establish themselves in the -capital. The next step forward was when the joint-stock -banks broke up the cabal of private bankers -and were admitted to the Clearing House in 1854; -though it is a little remarkable that, having posed as -martyrs and vigorously denounced their oppressors, -they should now take upon themselves to exclude -certain companies which have as good a right as they -to enter the sacred portals of the House; but the -mote in one’s neighbour’s eye is always so much more -apparent than the beam in one’s own.</p> - -<p>By the Act of 1858 a joint-stock bank was allowed -to limit the liability of its shareholders; but the Act, -was not made compulsory; and though all the companies -formed subsequently registered under this Act -the members of those in existence prior thereto were -liable for the debts of the company in which they held -shares to their last shilling. Then came the failures -of the West of England Bank and the City of Glasgow -Bank in 1878; and shareholders in banks of unlimited -liability, with the fate of the members of these -two institutions before their eyes, began to weigh -their responsibilities, with the result that many sold -out at panic prices in haste and regretted at leisure. -The more prudent, though they held their shares, -began an agitation for reform, which gave birth to -the Act of 1879. We need not discuss this Act; -though it may just be said that every joint-stock -bank in the three kingdoms which is not limited by<span class="pagenum"><a name="Page_8" id="Page_8">[8]</a></span> -its charter is now a bank of limited liability under the -Companies Acts.</p> - -<p>At this juncture, perhaps, a few words may be said -with reference to the Bank of England, which, with a -contempt for evidence that is truly British, the public -is convinced cannot suspend payment; yet the -Bank’s career has been decidedly checkered; and -even after the passing of the Act of 1844 the Old -Lady was only saved by the intervention of the -Government in 1847, 1857 and 1866, while during -the Baring crisis of 1890 she was compelled to borrow -from the Bank of France; so, evidently, her system -is not by any means a perfect one; but one does not -expect perfection in finance. The perfect financial -machine and the perfect man are alike impossibilities. -As to the latter, did he exist, he would seem positively -inhuman.</p> - -<p>It need not be said that this sketch of the English -banking movement is necessarily imperfect, if only -because of the small space into which it is condensed; -but the average reader certainly would not trouble to -digest two hundred pages on the subject of banking -evolution; so possibly it may prove acceptable in -this form.</p> - -<p>We have seen that the London private banker was -a rich man’s banker; but it was otherwise with the -country private banker, who was often of great assistance -to the small trader, at whom the joint-stock -banks will not now look unless he approaches them -with his pockets stuffed with securities when anxious<span class="pagenum"><a name="Page_9" id="Page_9">[9]</a></span> -to overdraw his account. The maxim of the companies -is: “Let the customers take all risks.” And -if this rule is broken, then the case is an exceptional -one. We need not discuss here whether or not this -policy be essential to modern banking; but it is -quite evident that the small man of business has lost -a good friend in the old-fashioned country banker, -whose place has not been taken by that person of -peculiar views and training—the bank-manager or -clerk-in-charge, whose urbanity must be more than -painful to those would-be borrowers without security -who ask for bread and are politely offered—a -stone.</p> - -<p>What we have to discover is why the country -banker has been practically forced out of the market -by the joint-stock system; and the reason is not difficult -to explain. In the first place we know that, -since 1857, the partners in a private bank have been -limited to ten; consequently, however anxious a -banker may have been to extend his system of -branches and develop his business, the difficulty of -insufficient capital presented itself; whereas his -rivals, who can appeal to thousands of small investors, -could, once having established their credit, -easily obtain as much capital as they required. The -private banker, therefore, ministered to the wants -of a certain town, district, or county; but the joint-stock -banks spread their tentacles throughout the -length and breadth of England; and, like an octopus,<span class="pagenum"><a name="Page_10" id="Page_10">[10]</a></span> -eventually strangled him in a manner which will be -explained.</p> - -<p>In London and throughout the provinces there -were numerous small firms of private bankers—small, -that is to say, when contrasted with their joint-stock -competitors. The banks in a manufacturing district -or in a busy city would, especially during periods of -active trade and rising prices, be called upon to -advance large sums to their customers; but if a -banker collected his deposits from a few branches -within the district whence the demand arose, he -would soon find himself unable to meet the requirements -of his customers. 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. With the -private banker it soon became a question of restricting -advances; and his customers, finding that they -could not obtain all the accommodation they required, -naturally applied to his rivals, who, if tangible -securities were forthcoming, met their demands with -ease.</p> - -<p>The London and provincial banking companies, -which farm both the agricultural and the manufacturing -districts, by pouring their surplus capital into -the London money-market, speedily obtained all the -best business; and those private bankers who did -not either amalgamate with, or adopt the system of,<span class="pagenum"><a name="Page_11" id="Page_11">[11]</a></span> -their successful rivals found themselves hopelessly -out-distanced. Hence the triumph of joint-stock -banking and the advent of the director and his -humble, most obedient servant, the clerk-in-charge, -who “manages” a country branch, but whose power, -in reality, is of the smallest, all the applications for -advances above a certain sum having to be submitted -to the chief office, while he himself is powerless to act -until he receives his instructions from headquarters.</p> - -<p>This form of competition would be felt less in -an agricultural county where the deposits a banker -collects are greatly in excess of the demand made -upon him for advances; but even there the private -banker’s luck has deserted him; for the agricultural -depression thinned the ranks of his best customers, -and, of course, left him a legacy of bad debts. We -should, therefore, expect to see the private bankers -disappear from the great towns first, and, finally, -from the agricultural centres. The law of the land -has kept them small; and the tentacles of the joint-stock -companies have almost exterminated a class of -men who enjoyed the friendship and confidence of -their clients to an extent that a clerk-in-charge upon -a salary of from £200 to £500 a year can never even -approach.</p> - -<p>Though we live in an age of great machines, which, -for reasons that will be explained later, can declare -huge dividends, every now and again we hear of -the inception of a new banking company. The new -arrival, perhaps, waxes more than eloquent upon the<span class="pagenum"><a name="Page_12" id="Page_12">[12]</a></span> -large dividends paid by the existing companies, and -then dwells enthusiastically upon the immense profits -it hopes to earn; but can a small company ever -establish its credit in face of the network of branches -which now cover the land? The person who applies -for its shares must certainly be of a most sanguine -disposition.</p> - -<p>It is the powers that be that always excite the -keenest interest, doubtless because of the possibility -that a knowledge of their habits and ways may prove -of pecuniary benefit to the student; and this object -has been kept well in view throughout the following -chapters.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_13" id="Page_13">[13]</a></span> -<h2 class="nobreak"><a name="CHAPTER_II" id="CHAPTER_II"></a>CHAPTER II <br/> -<small><small>ON THE CHOICE OF A BANKER</small></small></h2> -</div> - -<p>There is an opinion which is very prevalent to the -effect that, provided one’s account be an overdrawn -one, it does not matter where it is kept; and, of -course, if it were possible to find a nice, philanthropic -banker who would allow one a big overdraft without -even hinting at security, there would be much truth -in the assertion; but in view of the existing relations -between banker and client, the idea is both unfortunate -and fallacious. We have seen how the large -joint-stock banks, by developing their system of -branches, literally smothered the private banker; -and the smaller companies, which possess but few -branches, are now being forced to amalgamate with -the larger for the same reason. If, therefore, a man -has a large advance from a small provincial banking -company, it may occur that, just when he is anxious -to discount more bills or to increase his overdraft, the -bank will be unable to accommodate him; and it -therefore follows that a large bank, whose resources -are abundant, is as essential to the really great -borrower as it is safer for the depositor.</p> - -<p><span class="pagenum"><a name="Page_14" id="Page_14">[14]</a></span></p> - -<p>A person whose account is in credit or who leaves -money with a banker at interest naturally attaches -the greater importance to the safety of his balance or -principal; and, secondly, he endeavours to obtain as -high a rate as possible; but he would not be so -foolish as to sacrifice security to a high rate of interest; -though, where the banks are equally well managed, -he would select the one that offered him the -higher rate or the cheaper facilities. Conversely, the -person whose account is overdrawn would, other -things being equal, choose the bank that offered to -work his account the cheapest.</p> - -<p>Now, a banker’s liabilities to the public are due on -demand, and at short notice; and they would consist -principally of “deposit and current accounts, and -notes and drafts in circulation.” These, of course, -will be found on the left-hand side of the balance-sheet. -As the banker’s deposits may be demanded -from him at any unlucky moment, it follows that he is -compelled to hold a certain sum of cash (legal tender) -in reserve; and the larger that sum, the safer are the -customers’ balances. A person, therefore, who is -looking for a safe banker, should see that the firm or -company which he selects possesses at least from £12 -to £18 in coin, bank-notes and cash with the Bank of -England against each £100 it owes to the public. He -will find the public liabilities on the left-hand side of -the balance-sheet and the cash in hand on the right; -and a proportion sum will soon give him his answer.</p> - -<p>But a really strong, well-managed bank only ad<span class="pagenum"><a name="Page_15" id="Page_15">[15]</a></span>vances -to, and discounts bills of exchange for, its -customers to such an extent as will enable it to hold -from £45 to £50 in cash, money at call and investments -to every £100 of its public indebtedness. Cash, -of course, is its vital asset; and after cash comes -Consols and other British Government securities in -which, except at the very height of a panic, there is -always a market. These are a bank’s so-called -liquid assets; and it may just be added that when -a bank mixes its cash and money at call and notice -together, and an accommodating auditor declares -that such a medley “exhibits a true and correct -view of the state of the company’s affairs,” the bank -is probably so weak in actual cash as to deem it -wise not to publish the figures.</p> - -<p>Money at call and short notice would represent -advances to the bill-brokers and to the Stock Exchange; -and though such loans could doubtless be -easily called in during normal times, they would be -difficult to collect when the money-market was in a -turmoil. A greater part of the advances made to the -Stock Exchange, though classed as liquid assets, are -in reality loans in disguise; for if the banks were to -suddenly ask the stockbrokers to redeem their pledged -stocks and shares, those gentlemen would be hammered -in clusters; and the shares, when flung upon -the market to be sold at what they would fetch, -would rapidly depreciate. It would certainly be -interesting were the banks to specify the amount of -their so-called short loans to the Stock Exchange;<span class="pagenum"><a name="Page_16" id="Page_16">[16]</a></span> -and, with a lively recollection of 1890, it is to be -hoped that they are kept within bounds, as, upon -that occasion, this class of advance hung like a mill-stone -round their necks. Such liquid assets, it is to -be feared, are more likely to sink the good ship than -to save her in a storm.</p> - -<p>Having ascertained the ratio per cent. of a bank’s -cash in hand to its public liabilities, and glanced at -the call-money, the list of investments should be -carefully criticized. When a banking company describes -its list thus: “Consols and other securities,” -it may be taken for granted that its holding of Consols -is a small one. This description, in fact, is taken from -the balance-sheet of an English provincial banking -company, which holds about £19 in cash, call-money -and securities to each £100 it owes to its customers; -and yet it can find people who are foolish enough to -do business with it. Considered as a financial institution, -it is practically bankrupt; yet its deposits -amount to over £4,000,000. Fortunately, however, -this institution is one of the few exceptions which are -best avoided. Another very weak joint-stock bank -describes its investments as consisting of “English -Government and railway stocks.” Its cash and call-money -are consolidated into one total; but, more remarkable -still, an auditor actually has the impudence -to declare that the balance-sheet “exhibits a true -and correct view of the company’s affairs,” when, of -course, it is not worth the paper upon which it is -printed.</p> - -<p><span class="pagenum"><a name="Page_17" id="Page_17">[17]</a></span></p> - -<p>A well-managed bank, as a rule, states its holding -of Consols distinctly, and, sometimes, the figures at -which they have been taken. If it do not, then the -value of its British Government securities is given -separately. Next, it usually specifies its India Government -Stock, and so on; and, finally, “other -securities,” which, assumably, are of a non-liquid -nature, are given last because they are of the least -value from a banker’s point of view. Naturally, if a -bank possess a gilt-edged list, it advertises the fact in -its balance-sheet; and those companies which indulge -in ambiguity are, in nine cases out of ten, the banks -to avoid. For instance, you will not find any evasions -of this nature in the balance-sheets of such -powerful companies as the London and County -Bank, the Union and Smiths, the London City and -Midland, and other really first-rate institutions, for -the simple reason that there is no occasion for them. -As a rule, the clearer the balance-sheet, the stronger -is the bank; and the sinners, consequently, are the -smaller banks, which, situated in a manufacturing -centre, are unable to collect sufficient working -resources to finance their customers. Their ultimate -fate, it need not be said, is amalgamation with a -more powerful rival.</p> - -<p>When choosing a banker, therefore, one should first -ascertain that he has an abundant reserve of cash in -hand, and, secondly, that his so-called liquid assets -(his cash, call-money and securities) amount to from -£45 to £50 against each £100 to which he is in<span class="pagenum"><a name="Page_18" id="Page_18">[18]</a></span>debted -to the public. And as to those private -bankers who do not issue a balance-sheet, they are, -in the first place, guilty of the sin of omission; and, -in these days, when faith is not the predominant note, -there seems but little inducement to buy a pig in a -poke when a large banker’s balance-sheet may be had -for the asking.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_19" id="Page_19">[19]</a></span> -<h2 class="nobreak"><a name="CHAPTER_III" id="CHAPTER_III"></a>CHAPTER III <br/> -<small><small>THE CHEQUE AND ITS VARIOUS CROSSINGS</small></small></h2> -</div> - -<p>A cheque is often described as a bill of exchange, -drawn by a customer on his banker, for a sum certain -in money, payable on demand. In these days, when -the mere babe produces his cheque-book on the -slightest provocation, it seems unnecessary to describe -how a cheque should be drawn; though it may -just be added that it must bear a stamp of one penny, -and that the stamp may be either impressed or -adhesive. A customer, therefore, can draw a cheque -on his banker upon a sheet of notepaper; but he -would be well advised, except under exceptional -circumstances, to use the forms supplied to him.</p> - - -<h3>Order or Bearer.</h3> - -<p>A cheque is payable either to “order” or to -“bearer”; and, if the latter word be used, then it -does not require indorsing, while should neither word -be upon the document, the cheque is held to be an -“order” one. Either the person to whom it is payable -or the drawer may change a cheque from bearer -to order; and this he would do by running his pen<span class="pagenum"><a name="Page_20" id="Page_20">[20]</a></span> -through the former word; but the drawer alone can -alter an order cheque by writing the word “bearer” -in full and initialling the alteration. If the cheque be -signed by more than one drawer, then all should add -their initials to any correction it may be desirable to -make.</p> - - -<h3>Date of a Cheque.</h3> - -<p>Any person who receives an undated cheque is -entitled to fill in what he believes to be the correct -date, and need not trouble to return it to the drawer -for that purpose. He cannot, of course, make any -<i>alteration</i> in the date, but should, in the event of a -mistake on the drawer’s part, return it to him for -correction, when he (the drawer) would make the -desired alteration and write his initials against it. It -is, perhaps, as well to remember that a certain class -of debtors, who may be described as either “hard -up” or “shady,” have their little peculiarities; and -one of them is to post-date their cheques when they -know that there is not sufficient money at the bank -to meet them. Their object, of course, is to gain -time; and should a payee, upon receiving such a -cheque, have cause to think that he is dealing with -one of these gentlemen, he might pay in the cheque -to his own banker for collection, and write pretty -plainly to the drawer, requesting him to call at his -banker’s and put the cheque in order. Though a -cheque be either post-dated, that is to say, dated so -that it falls due after the day upon which it is drawn,<span class="pagenum"><a name="Page_21" id="Page_21">[21]</a></span> -or dated on a Sunday, the document is not invalidated -thereby.</p> - - -<h3>A Stale or Out-of-Date Cheque.</h3> - -<p>Most bankers would probably decline to pay a -cheque which had been outstanding more than six -months. The drawer, however, does not cease to be -liable upon the instrument until six years after the -date thereupon; though he may claim damages -against the payee if he can prove that he has suffered -loss through his delay.</p> - - -<h3>Crossed Cheques.</h3> - -<p>Though this practice originated in the United -Kingdom, the French banks have now adopted the -idea, which is as simple as it is undoubtedly useful -and protective to the customer. A cheque may be -crossed either generally or specially—specially, that -is to say, to some bank or to the account of an individual -who keeps an account with a banker.</p> - -<p>If a customer draw two parallel lines across the -face of a cheque, thus, / /, he has instructed his banker -<i>not</i> to give cash in exchange for it to the payee across -his counter. It follows that a cheque so marked must -be passed through a banking account. The words -“& Co.” are sometimes written between the lines; -but this addition is almost meaningless, the simple -crossing being all that is required.</p> - -<p>A person who draws two parallel lines across his -cheque, gives the following instructions to his banker: -“Do not pay cash over your counter in exchange<span class="pagenum"><a name="Page_22" id="Page_22">[22]</a></span> -for this cheque, which must reach you through a -banker, and be paid to him alone.”</p> - -<p>When, therefore, you wish a person to whom your -cheque is made payable to go to your banker’s and -draw the money, you will be careful not to cross it. -Practice, somehow, always seems at war with theory, -and it is not by any means an unusual occurrence for -a lady, after having deliberately told her banker not -to pay cash for her cheque to the presenter, to indignantly -inquire why he did not disobey her behest -and do so. A prudent teller seldom descends to -either argument or explanation, but calmly accepts -such reproof as one of the amenities of his calling, and -resigns himself philosophically to the inevitable.</p> - - -<h3>Not Negotiable Cheques.</h3> - -<p>This description is somewhat misleading, for a -cheque crossed /<small>not negotiable</small>/ is in reality negotiable, -though not so fully as is the one that has been discussed -in the foregoing division. The distinction, -however, is not difficult to grasp. Take a cheque with -two parallel lines across the face simply. Now, if such -a document be lost, and find its way into dishonest -hands, a third party, who gives value in exchange for -it, provided he have no guilty knowledge, has a good -title against all the world, and can compel the drawer -to pay him the sum for which it is made out.</p> - -<p>For instance, A draws a cheque for £20 payable to -B, and crosses it /<small>& Co</small>/. B, the payee, after having -written his name on the back of the cheque, loses it.<span class="pagenum"><a name="Page_23" id="Page_23">[23]</a></span> -C picks it up and passes it on to D, who gives him cash -or goods in exchange for it. As B has indorsed the -cheque he will have to bear the loss, even though he -has got A, the drawer, to stop payment of it at his -banker’s.</p> - -<p>But had the words “not negotiable” been added, -D could not have enforced his claim, although he was -a <i>bonâ-fide</i> holder for value. A “not negotiable” -cheque warns any holder for value thus:—</p> - -<p>“You must, if you part with either cash or goods -in exchange for this document, be prepared to take -all risks upon your own shoulders. The crossing -hereon gives you due notice that you must act upon -your own responsibility, and the law, therefore, -affords you no protection.”</p> - -<p>A business man cannot be too careful in dealing -with a cheque thus marked; and unless he be well -acquainted with the holder, he should decline to part -with either cash or goods in exchange for it. One -should never, even if one know that the drawer is a -man of means, and that the signature upon the cheque -is genuine, give value for it to a stranger, as there is -always the danger of one’s having to make good the -loss of any prior holder, who may have been defrauded, -whilst if the payee cannot enforce his claim -against the drawer, then a holder for value cannot.</p> - -<p>A “not negotiable” cheque, in short, is analogous -to an over-due bill. Any person who may deal with a -a bill after its maturity does so upon the understanding, -or, better, supposition, that he is acquainted with<span class="pagenum"><a name="Page_24" id="Page_24">[24]</a></span> -any flaw there may be in the title. He may not -know of any; but the law holds that he does. It is -precisely the same with a “not negotiable” cheque.</p> - -<p>Cheques, which are crossed in the manner already -described, are said to be crossed generally.</p> - - -<h3>Cheques Crossed Specially.</h3> - -<p>A cheque is said to be crossed specially when one -writes across the face of it, say:—</p> - -<p> -<span class="pad4">“A/C John Smith,</span><br /> -<span class="pad8">Provident Bank of London.”</span> -</p> - -<p>One may name, in the crossing, any particular bank, -and the banker upon whom the cheque is drawn will -take care that it comes through the channel indicated -thereupon. In the above illustration, for instance, -your banker will see that the cheque has the name of -the “Provident Bank of London” stamped upon it; -and should he not find it there, then he would decline -to pay the document.</p> - -<p>Either the payee or the holder of an uncrossed -cheque may cross it generally or specially; and if it -be already crossed generally, then either can cross it -specially, or add the words “not negotiable.”</p> - - -<h3>How to Cancel a Crossing.</h3> - -<p>The drawer alone can do this by writing upon the -cheque the words “pay cash,” and signing his name -beneath them in full.</p> - - -<h3>How to Indorse or Back a Cheque.</h3> - -<p>For all practical purposes one cannot do better than -sign one’s name upon the back of a cheque exactly as<span class="pagenum"><a name="Page_25" id="Page_25">[25]</a></span> -the drawer has written it upon the face, with, of -course, the omission of any courtesy title, such as -Miss, Mr. or Esquire, which are merely there as a -mark of civilization and progress. If one’s name be -spelt incorrectly, then one should back the cheque just -as it is drawn, and write one’s correct name underneath -the misspelt signature. Further, do not bully -the cashier if he make this request of you, for to do -so is the sign of a weak mind.</p> - -<p>A cheque payable to John Smith, Esq., or to Mr. -John Smith, should be indorsed:—</p> - -<p class="center">“John Smith.”</p> - -<p>Doctor John Smith may sign “J. Smith, M.D.”; -and Colonel John Smith, “J. Smith, Colonel.” -These embellishments, however, are as unnecessary -as a flourish would be on the final <i>h</i> of Smith, and, in -a busy age, the sarcastic person, like the law, regards -them as superfluous. A Miss Mary Smith, who has -married a Mr. John Brown, would indorse a cheque -made payable to her in her maiden name:—</p> - -<p class="center">“Mary Brown, <i>née</i> Smith.”</p> - -<p>If the cheque be made out to Mrs. John Brown, then -she signs:—</p> - -<p class="center">“Mary Brown, wife of John Brown,”</p> - -<p>or</p> - -<p class="center">“Mary Brown (Mrs. John Brown)” in brackets.</p> - -<p>Certain ladies of a masterful temperament appear to -entertain a strong objection to signing themselves -“the wife of” such-and-such an individual, as -though the designation smacks of an inferiority of<span class="pagenum"><a name="Page_26" id="Page_26">[26]</a></span> -which they are not conscious; and such susceptibilities -may at least be soothed by placing the opprobrious -term within brackets.</p> - -<p>A cheque payable to Mrs. Brown or bearer would -not, of course, require her name upon the back. But -if it were to order, then she would indorse it either M. -Brown or Mary Brown. When the drawer omits -one’s initials, one should write one’s usual signature -upon the back of the cheque; and though it is not -necessary to sign christian names in full, even when -they are so written upon the document, the capital -letters must, of course, agree with those upon the face. -A cheque drawn in favour of Messrs. Robinson is -obviously payable to two or more persons of that -name, so it may be indorsed: “A. & C. Robinson,” -“Robinson & Son,” “Robinson Brothers,” or -“Robinsons.” “Robinson and Nephew” would -not, however, meet the case, for it by no means -follows that the nephew is a Robinson. It is equally -as probable that he may be a Smith or a Jones—or a -somebody else. In practice, provided the cheque be -for a small amount, the paying banker is seldom -squeamish, but when a large sum is in question he -naturally takes care that he is upon the safe side, for -the good man is very human. Where a cheque is -payable to two or more persons, who are not partners, -then all should indorse.</p> - -<p>A payee who is unable to write must make his -mark or cross (the trade-mark of the illiterate) in -the presence of a witness, who attests it thus:—</p> - -<p><span class="pagenum"><a name="Page_27" id="Page_27">[27]</a></span></p> - -<div class="mw20"> -<p class="center"> -<small><small>his</small></small><br /> -George X Brown.<br /> -<small><small>mark</small></small></p> - -<p class="right">Witness:<br /> -Robert White,<br /> -55, High Street,<br /> -Birmingham.</p> -</div> - -<p>When the payee (the person to whom a cheque is payable) -writes his name upon the back of an “order” -cheque the document is said to be indorsed in blank, -and becomes in effect payable to bearer. He can, -however, make it payable to another person by writing -above his signature: “Pay Thomas Brown or -order.” Thomas Brown must then indorse the -cheque. Further, any holder may write this request -above the indorser’s signature, thereby converting an -indorsement in blank into a special indorsement.</p> - -<p>A restrictive indorsement gives the indorsee no -power to transfer his rights. Hence a cheque indorsed -to “John Smith only” prevents further -negotiation of the instrument. Where a cheque is -payable to, say, John Smith for R. Jones, the payee -simply has to write his own name on the back.</p> - -<p>Should the name of a fictitious or non-existing -person be inserted as payee in an order cheque, the -document may be treated as payable to bearer. -Cheques drawn to “cash,” “house,” etc., are so -treated. It is usual, however, for the drawer to indorse -them, just as he would a cheque payable to -“self or order.”</p> - -<p>Any executor or administrator can indorse a<span class="pagenum"><a name="Page_28" id="Page_28">[28]</a></span> -cheque made payable to a deceased person, but all -trustees must sign. In practice, a banker usually -guarantees or confirms these indorsements.</p> - -<p>Finally it may be added that it is not illegal to -indorse a cheque in pencil, though a banker would -probably decline to honour it on the plea that it -becomes fainter as time progresses. Again, too, an -indorsement may be made on the face as well as upon -the back of a cheque, but the customer, unless he be -of a peculiarly combative temperament, merely -wishes to know what is usual, and we are all aware of -the accepted rule in this instance.</p> - - -<h3>Agents and “Per Pro” Indorsements.</h3> - -<p>A signature by procuration indicates that the -agent’s power to bind his principal may be, and -probably is, limited. For instance, the agent may -only have authority to indorse cheques and bills, and -if he sign as either drawer or acceptor, he cannot bind -his principal. Moreover, as a procuration signature -operates as notice of his limitations, a holder has no -claim upon his principal, as he should have protected -himself by demanding to see the agent’s letter of -authority.</p> - -<p>A customer, when he wishes another person to -draw cheques on his behalf, gives a letter of authority -to his banker, and states therein exactly what his -nominee or agent may do. The authority may only -allow a certain person to sign cheques on his behalf -up to, say, £100, and the banker would, of course,<span class="pagenum"><a name="Page_29" id="Page_29">[29]</a></span> -refuse any cheque drawn in excess of that sum. -Most bankers keep printed forms of this description, -and the customer, if he obtain one, can, by crossing -out what the agent may <i>not</i> do, limit his power to -any extent he thinks necessary. These letters need -not be stamped, and, unless previously revoked, -they continue in force until the bankruptcy, insanity, -or death of the principal.</p> - -<p>We can now see that dealing with an agent is not -unattended by certain risks. The banker always -protects himself by ascertaining that an agent really -has authority when he signs the name of a client in -the capacity of either drawer or indorser, but as he -(the <i>paying</i> banker) is not liable upon either a forged -or an unauthorized indorsement, <i>per pro</i> indorsements -are universally accepted by the banks in the -ordinary course of business. They are not, however, -legally obliged to pass them, and a banker may -demand to see an agent’s authority or insist upon -having a confirmation of the indorsement.</p> - -<p>An agent usually signs:—</p> - -<p class="center"> -“<i>per pro</i> (or <i>p.p.</i>) John Brown,<br /> -Robert Smith.”<br /> -</p> - -<p>It has been held that “<i>p.p.</i> Mr. John Brown, Robert -Smith,” is a good discharge, but the foregoing method -is the more general. There have also been decisions -in favour of the prefixes “pro” and “for,” though -most bankers refuse to pay cheques so indorsed. -Procuration indorsements are not accepted on -dividend-warrants.</p> - -<p><span class="pagenum"><a name="Page_30" id="Page_30">[30]</a></span></p> - -<p>A cheque payable to Brown’s Drapery Stores may -be indorsed:—</p> - -<div class="mw20"> -<p class="right"> -<span class="padr6">“<i>p.p.</i> Brown’s Drapery Stores,</span><br /> -<span class="pad8">Thomas Brown, Proprietor.”</span><br /> -</p> -</div> - -<p>Again, should Thomas Brown receive a cheque, -which, he knows, is intended for him, though made -payable to Thomas Bright, he might sign upon the -back: “<i>p.p.</i> T. Bright, Thomas Brown.” He can -explain the reason for this to his own banker, but the -paying banker will not question the indorsement. -Cheques which are drawn in favour of an establishment -one owns, or of a commodity one sells, can -always be backed “<i>per pro</i>.”</p> - -<p>A cheque to the order of a limited or unlimited -company is generally indorsed <i>per pro</i> the company, -and the signer should then state the position he occupies, -whether director, secretary, manager or cashier, -as in the following illustration:—</p> - -<div class="mw20"> -<p class="right"> -“<i>p.p.</i> The Hull Shipping Company, Limited,<br /> -<span class="padr6">Walter Wilson,</span><br /> -Manager.”<br /> -</p> -</div> - -<p>It is always advisable to sign for or on behalf of a -company, and to state in what capacity one signs, so -as to avoid a personal liability.</p> - -<p>An agent who signs under a power of attorney, -usually indorses: “Thomas Brown by his attorney -William Smith.” It is as well to remember that a -power of attorney often confines the agent’s power, -as in the case of a letter of authority, within very<span class="pagenum"><a name="Page_31" id="Page_31">[31]</a></span> -narrow limits, and that the principal is only bound -by its provisions.</p> - - -<h3>Banker’s Liability on Forged Indorsements.</h3> - -<p>The paying banker is not liable upon a forged or -unauthorized indorsement, but the collecting banker -is in the case of uncrossed cheques, and, according to -a recent decision by the House of Lords, may be upon -crossed ones. If a banker credit his customer’s account -with the amount of a crossed cheque <i>after</i> it has -been cleared, he is protected by Section 82 of the -Bills of Exchange Act; but should he credit his -client’s account with the said cheque before he himself -has collected it, then he ceases to be a mere agent, -and becomes a holder for value, and, consequently, -liable upon a forged indorsement. As it is usual, -both in London and the provinces, to credit a customer’s -account with cheques on the day that he -pays them in, it follows that an employer, if his -agent have indorsed crossed cheques without authority -and placed them to an account in his own name, -can recover their amount from his agent’s banker.</p> - - -<h3>Banker’s Liability where Drawer’s Signature is -Forged.</h3> - -<p>The banker is liable to a customer upon any forged -cheque he debits to his account.</p> - - -<h3>When a Cheque is Legally Paid.</h3> - -<p>A banker, having passed the cash across his counter, -cannot legally demand it back again, and the pre<span class="pagenum"><a name="Page_32" id="Page_32">[32]</a></span>senter -may please himself whether or not, if asked, he -will return the money. The banker has no power to -compel him.</p> - - -<h3>Stopping Payment of a Cheque or Bill.</h3> - -<p>This must be done by the drawer or acceptor, as -the case may be, and by him alone. He should write -a note to his banker, giving an exact copy of the -cheque or bill he wishes returned, and the banker -will then mark his ledger and instruct the cashiers to -refuse payment of the document, if presented. Should -he pay the instrument in spite of the customer’s order -to the contrary, he will have to make good any loss -occasioned by his negligence.</p> - - -<h3>Lost Cheques.</h3> - -<p>The payee or the holder who loses a cheque can, -of course, give notice of his loss to the banker upon -whom it is drawn, and the banker would doubtless -question any presenter, but he, the payee or holder, -must obtain an order from the drawer instructing -his banker to stop payment. The drawer, though he -cannot refuse such a request, may insist upon receiving -security before he issues a fresh cheque. Further, -if the drawer employ the customary means of communication, -such as, for instance, sending his cheque -through the post, or should the payee himself select a -particular channel, then any loss falls upon the latter. -A holder for value, however, provided the cheque be -not tainted with forgery, and that it be not crossed -“not negotiable,” can compel payment from the<span class="pagenum"><a name="Page_33" id="Page_33">[33]</a></span> -drawer, who must then fall back upon his indemnity -should he have issued a duplicate cheque.</p> - - -<h3>Sending Cheques through the Post.</h3> - -<p>When remitting cheques to one’s banker for the -credit of one’s account it is advisable to write across -the face of each: “A/C Payee, with —— Bank of -London.” In the event of a cheque thus marked -getting into dishonest hands no banker would care -to collect it. Where the sender is the holder, and -not the payee, he would, of course, cross the cheque -“A/C John Jones,” etc.</p> - -<p>As the paying banker is not liable on a forged -indorsement, it is always desirable to receive an -acknowledgment from the payee of a cheque posted -to him. Should not this come to hand in proper -time, then payment of the cheque might be stopped -at the bank, and the stop removed when the receipt -arrives. It is, perhaps, as well to remember, when -sending a crossed cheque through the post, that the -addition of the words “not negotiable” lessens the -risk of both payee and drawer.</p> - - -<h3>Paid Cheques.</h3> - -<p>These are the legal property of the drawer; but a -banker is entitled to an acknowledgment from the -customer before he surrenders them.</p> - - -<h3>Providing for Cheques Specially.</h3> - -<p>A customer, whether his account be overdrawn or -not, may pay in a certain sum to his credit, and re<span class="pagenum"><a name="Page_34" id="Page_34">[34]</a></span>quest -his banker to pay a particular cheque against it. -The person who adopts this procedure is invariably -somewhat “hard up”; and having issued cheques -which, in the aggregate, amount to more than the -balance at his credit, or which would, if presented, -overdraw his account beyond the agreed sum, he is -naturally nervous lest his banker should return one or -two of them. Assuming that he has some half-dozen -cheques in circulation, but is particularly anxious to -pay one to John Smith, who has threatened to -sell him up, for £30, and another for £40 to William -James for rent, then he should pay £70 to his credit, -and write across his paying-in slip: “To provide for -my cheques of £30 to John Smith and £40 to W. -James specially.” The banker, if he accept the slip, -is bound to hold the money against the cheques in -question.</p> - - -<h3>Present your Cheques at Once.</h3> - -<p>A business man, in order to give himself every -chance, will pay all cheques to the credit of his banking -account upon the day he receives them from his -customers. He has, in the legal sense, until the close -of the first business-day following the day he gets the -cheque, when, if he like, he can post it to his agent, -who has the same time-allowance for presentment, -provided the cheque be not drawn upon a bank in -his own town. If he delay longer any loss incurred -by the drawer through non-presentation will fall -upon the payee’s shoulders. For instance, should<span class="pagenum"><a name="Page_35" id="Page_35">[35]</a></span> -the bank fail, the payee might be saddled with a -bad debt through his delay.</p> - -<p>A customer who has a doubtful cheque in his possession, -and who is anxious to know whether the -drawer has funds to meet it, can instruct his banker -to forward the cheque in question direct to the -drawer’s bankers, with the request that they telegraph -back whether or not the cheque is paid. Or -he may ask them to wire only in case of non-payment, -and so save himself the expense of a telegram. -Some companies, when they think a customer will -stand it, charge 1<i>s.</i> for doing this; but one should -decline to pay more than the price of the telegram, -viz., 6<i>d.</i></p> - - -<h3>Returned and Dishonoured Cheques.</h3> - -<p>It does not follow that, because a banker returns a -cheque, the money is not there to meet it, as, more -often than not, a cheque is sent back for some irregularity -in the indorsement, which can be at once put -right. It is necessary, therefore, before jumping to -conclusions, to carefully examine the words written -upon the document. The following are the usual -answers given by bankers, with their abbreviations:</p> - -<p>“R/D” (refer to drawer). Such an answer clearly -implies that the cheque has been dishonoured for lack -of funds.</p> - -<p>“Effects not cleared.” Here the client, assumably, -has enough money to meet the cheque, but the -banker has not yet cleared or realized the documents<span class="pagenum"><a name="Page_36" id="Page_36">[36]</a></span> -he has paid in, and the drawer’s credit is so poor that -he will not honour his cheque until this has been -done. A cheque thus marked is usually re-presented, -but, obviously, the drawer is weak.</p> - -<p>“N/S” (not sufficient). We gather from this -that the drawer has some money standing to his -credit, though not enough to meet the cheque.</p> - -<p>“Words and figures differ” does not require an -explanation, though, perhaps, it may be remembered -that weak drawers have a trick of making mistakes -in order to gain time. “Payment stopped,” “Post-dated,” -“Incomplete,” “Another signature required,” -“Indorsement irregular,” and other answers -that might be given, are self-explanatory. Cheques -returned for these reasons naturally do not reflect -any discredit upon the drawers. Of course, a person -with an open, charitable mind is free to make his own -deductions.</p> - -<p>Occasionally a banker returns a customer’s -cheque when he is in funds. Such a mistake generally -occurs through a credit having been posted to -the wrong account, and as often as not the two customers -are blessed with the same surname, though -not with an equal amount of this world’s goods. -Brown, for instance, is not an uncommon name, so -we will assume that a credit of poor Brown’s has been -posted to rich Brown’s account by mistake, and that -the banker returns the former’s cheque for £50 -marked “refer to drawer.” Now poor Mr. Brown -has a good case against his banker, and should at<span class="pagenum"><a name="Page_37" id="Page_37">[37]</a></span> -once consult his solicitor, who will see that he gets -compensation for the damage done to his credit. -Most bank-directors, who are modest, retiring -gentlemen, prefer to settle such a case privately, as -it is not thought desirable to advertise the fact that a -mistake of this nature, with their perfect system of -book-keeping, is possible.</p> - - -<h3>Drawer too Ill to Sign.</h3> - -<p>In the above instance the customer makes his -mark, which is usually witnessed by his doctor. -Sometimes he authorizes a person to draw cheques -upon his account up to a certain sum, and cancels -the authority upon his recovery.</p> - - -<h3>Backing a Cheque for a Friend.</h3> - -<p>The man who backs a cheque in order to oblige -a friend should remember that he makes himself -responsible for its payment, and that should his -friend have no money to meet it, he, the indorser, will -be called upon to make good the loss. He does not -merely vouch for the respectability of his friend, -but he also guarantees that his cheque will be duly -honoured upon presentation, which is quite another -matter. One should, therefore, decline to back a -cheque for a stranger upon any consideration.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_38" id="Page_38">[38]</a></span> -<h2 class="nobreak"><a name="CHAPTER_IV" id="CHAPTER_IV"></a>CHAPTER IV <br/> -<small><small>CREDIT-ACCOUNT CUSTOMERS</small></small></h2> -</div> - - -<p>As by far the greater number of a bank’s customers -keep their accounts in credit, we will begin this chapter -by considering what average balance should -entitle a person to have his account worked free of -charge. In London, a man who opens a small account -with a bank, and whose credit balance averages -£100, will not be debited with any commission at the -end of the quarter or half-year when the companies -rule off their books, while in the suburbs an appreciably -smaller balance is accepted, and, occasionally, -interest is allowed there upon current-account -balances, though one will have to press pretty hard -for it. Competition is now so keen between bank -and bank that it is sometimes possible to make very -close terms.</p> - -<p>In the country it is considered that an average -balance of £50 upon a small account pays expenses. -However, the bank-manager, who is as human as the -gentleman who sells one a dog, seldom neglects to -make a small charge upon these accounts when he -considers that their owners will stand 10<i>s.</i> a year or<span class="pagenum"><a name="Page_39" id="Page_39">[39]</a></span> -so. Broadly speaking, you can please yourself -whether you pay it or not. This class of business, of -course, is absolutely safe; so the customer, if he cannot -come to terms with the manager, is able to take -his account to the cheapest market, always remembering -that it is never wise to bank with a second-rate -firm, whatever advantages may be offered.</p> - -<p>Though a man keep a balance of £10,000 to his -credit, he will not receive one penny in the shape of -interest unless he ask for it, and, even after having -arranged a rate, it is advisable to check the banker’s -figures and ascertain that you are getting it, as, sometimes, -they are apt to err in his favour, through small -debits that have been deducted from the interest, -and which, consequently, do not appear in your pass-book.</p> - -<p>The following illustration, perhaps, will show how -matters stand:—</p> - -<p class="pad4"> -A keeps an average balance of £150<br /> -B keeps an average balance of £600<br /> -C keeps an average balance of £5,000<br /> -</p> - -<p>The banker, if B and C are easy-going men, whose -financial experience is small, will conduct their -accounts on the same terms as he does A’s. He will, -that is to say, work each account free of charge. But -such treatment is evidently unfair, for if A’s account -is worked free, then assuming that those of B and C -give but little more trouble, each is entitled to some -allowance upon his average balance. They should -certainly endeavour to obtain it.</p> - -<p><span class="pagenum"><a name="Page_40" id="Page_40">[40]</a></span></p> - -<p>If the manager be interviewed, he may endeavour -to convince either B or C, by a process of reasoning, -which is more persuasive than scientific, that money -is so cheap that, really, a high rate is out of the question. -He will further explain that his directors, as -a rule, do not make an allowance upon creditor current -accounts; but should either just hint at -removing his account, a rate will be instantly allowed, -for competition among the banks for a large credit -account is so active that the customer has only to -be firm and fairly reasonable in his demands. The -manager, of course, will endeavour to pay as little as -possible. Of that we may be quite sure. The customer, -on his side, should try to obtain the maximum -rate, which is 1½ per cent. below Bank rate in London, -and in the provinces the usual country rate.</p> - -<p>Original sin, not being yet eradicated from our race, -a bank-manager, who is endowed with his full share, -sometimes endeavours to persuade a customer to -transfer sums from his current account to deposit -receipt, but it is always prudent to remember that -his advice is not disinterested, and that he is acting -“upon instructions.” Experience proves that, after -a little while, a customer becomes tired of continually -transferring sums from his running account to -deposit, and then, when his account is getting low, -paying the deposit-receipts to his credit. Finding -the process a weariness to the flesh, he often ends -by giving it up in disgust, when once again the wily -banker is a gainer at his expense. By obtaining a<span class="pagenum"><a name="Page_41" id="Page_41">[41]</a></span> -rate of interest upon his daily current-account -balances the customer is spared this trouble; and, -if he fail to induce his banker to grant it, then when -his account is in credit beyond a certain agreed sum, -he should take care to get a deposit-receipt.</p> - -<p>Bankers, like individuals, are the slaves of their -environment, and in the Midlands and elsewhere, -where it is usual to allow a rate on the daily balances, -commission is also charged on the turn-over or sums -debited. Interest upon the daily creditor balances is -allowed at, say, 1½ per cent. below bank rate, and a -commission of ⅛ per cent. is charged on the cheques -a customer draws. The lower the rate of interest and -the higher the commission rate, the more profitable, -of course, is the account to the banker. The customer, -therefore, when checking his banker’s charges and -allowances, will take care that he is receiving the -maximum rate of interest, and paying the minimum -or lowest commission rate, which varies from ⅛ to ¹/₁₆ -per cent., while it is sometimes possible to arrange for -a reduced and merely nominal charge. A person, -when he sees a “little interest” credited in his pass-book, -is disposed to increase his balance, on the -assumption that he is being allowed a rate; but -before doing so he should certainly ascertain what -the rate will be, for, upon examination, this allowance -is occasionally found to appeal more strongly -to one’s senses than to one’s critical acumen.</p> - -<p>Having disposed of the paying average credit -balances we can now discuss those accounts that<span class="pagenum"><a name="Page_42" id="Page_42">[42]</a></span> -have a large turn-over. A trader, for instance, who -draws a considerable number of cheques during the -course of a half-year, and whose balance is small, -cannot expect his banker to work his account free of -charge; but it is difficult to draw up a table showing -what he ought to pay, for the simple reason that some -bank-managers debit him with a rate which they -think he will stand. A ¹/₁₆ per cent. commission, that is -to say, 1<i>s.</i> 3<i>d.</i> upon each £100 he draws out by -cheque, seems a very full rate; and as there is a good -market for this class of account he should not disburse -one penny more. The owner, who always has a -balance on the right side, can, if he find his banker -unreasonable, easily negotiate with his rivals, who are -delighted to see fresh faces. Indeed, it is quite possible -that he may succeed in getting his account -worked free, or for a nominal fee of half a guinea -or so, if the turn-over is not very large.</p> - -<p>It is now time, perhaps, to give a brief sketch of -the manner in which a manager charges his ledgers at -the end of the quarter or half-year. As a rule he and -the accountant go through the books together; and -as there is no recognized scale by which the charges -are regulated it follows that they consider the man as -well as the nature of his account. The business of -the manager is to make his branch pay; therefore, if -you do not criticize your commission rate, you may -rest assured that he will succeed brilliantly at your -expense. Should he think that the customer lacks -experience, and is not acquainted with the fact that<span class="pagenum"><a name="Page_43" id="Page_43">[43]</a></span> -competition between bank and bank for creditor -accounts is active, then he charges him ⅛ per cent. -When, on the other hand, he is aware that the client -checks his expenses, caution is exercised; and if the -manager decide to claim commission the sum debited -will be extremely small.</p> - -<p>After all, in the ordinary affairs of life one does not -accept without question the price of the seller; and if -a customer be so unwise as to think that a bank-manager -has a higher sense of honour than his kind, -then he must be prepared to take the natural consequences. -For instance, D and E keep an average -balance of £100 in their bankers’ hands, and the turn-over -of each account is about £1,500 for the half-year. -The manager, knowing that D is not critical, charges -him ¹/₁₆ per cent. commission, or 18<i>s.</i> 9<i>d.</i> E, he -asserts, is a most unpleasant man, who, when charged -upon a previous occasion, threatened to remove his -account unless the sum were given back to him; E, -therefore, who is aware that competition is one of the -factors that determine price, has his business done -free.</p> - -<p>A large trader or merchant, as a rule, does not allow -his banker to have the use of a considerable amount -of money free of interest; and those accounts that -are from, say, £1,000 to £10,000 in credit, usually belong -to women, who are not accustomed to the management -of money. The manager, anxious to stand -well with his directors, some of whom increase his -salary if he add to the profits of his branch, does not,<span class="pagenum"><a name="Page_44" id="Page_44">[44]</a></span> -of course, suggest to these ladies the advisability of -receiving interest upon at least a portion of their -balances, but, on the contrary, being wise in his -generation, endeavours, by resorting to those social -amenities that raise him higher and higher in their -estimation, to hide the awkward word from their -view, while laughing in his sleeve at their excessive -credulity.</p> - -<p>The customer who keeps his account in credit -should ask his banker: “What average balance -must I maintain in order that your people will work -my account free?” That sum ascertained, he can -act upon the advice contained in this chapter.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_45" id="Page_45">[45]</a></span> -<h2 class="nobreak"><a name="CHAPTER_V" id="CHAPTER_V"></a>CHAPTER V <br/> -<small><small>DEPOSIT-RECEIPT CUSTOMERS</small></small></h2> -</div> - - -<p>A deposit-receipt, which is not a negotiable instrument, -cannot be transferred by one person to another. -Where the receipt is issued in more than one name, -instructions should be given to the banker as to -whether, in the event of withdrawal, the note is to be -signed by all or by any two or any one of the depositors. -Should no instructions be given, then all must -sign when a withdrawal is made, or when the interest -is taken. These receipts, as a rule, are issued subject -to either seven or fourteen days’ notice of withdrawal; -but the notice, in practice, is not enforced, bankers -merely writing it upon the note in order to protect -themselves in the event of a run. Most banks, however, -decline to pay interest unless the sum has remained -in their possession for at least one month.</p> - -<p>The large London banks, though they compete -eagerly the one against the other for well-secured -advances and loans, have closed up their ranks -against the depositor, their practice being, both in -London and the suburbs, to allow 1½ per cent. below -Bank rate upon money left with them on deposit,<span class="pagenum"><a name="Page_46" id="Page_46">[46]</a></span> -every alteration in the rate being advertised in the -leading papers. All one has to do, therefore, in order -to ascertain the London rate for money on deposit-receipt -is to deduct 1½ from the Bank of England rate -which may be seen in the city-article of every newspaper. -Whether or not certain banks offer special -rates to favoured individuals is a matter of opinion; -or, again, they may bid higher for large sums for fixed -terms; but the small depositor may take it for -granted that, with their rates on loans and advances -reduced by competition among themselves, the banks -are determined to keep down the deposit rate. In -fact, the large London bankers have united for this -very purpose, though it must be remembered that the -agreement is not binding at the country branches of -the London and provincial institutions.</p> - -<p>A banker is a middleman who borrows from depositors -at a rate in order that he may lend to others -at a higher rate, the difference between the two rates -being his margin of gross profit. A certain portion of -his deposits, we know, he obtains in exchange for -granting banking facilities, and upon the rest he -allows a rate of interest, while he has to maintain a -reserve of so-called cash and gilt-edged securities -against the danger of sudden withdrawals and panics. -At the moment the companies cannot control the -advance rate, or fix from time to time a minimum -rate for secured advances; but in London we see -that they have succeeded in getting the depositor -under their thumb, thereby, of course, increasing<span class="pagenum"><a name="Page_47" id="Page_47">[47]</a></span> -their profit margin at his expense. Their next move -will probably be an attempt to corner the borrower -against tangible securities, as has been successfully -accomplished by the banks in Scotland. The number -of English banks is rapidly decreasing through absorptions -and amalgamations, so, in the end, it is more -than probable that we shall see a monopoly, and that -all the large banks will one day unite for the purpose -of fixing, at each change of the Bank rate, their deposit -rate, and, also, their lowest or minimum rate -for secured advances.</p> - -<p>In the provinces the banks, when loanable capital -is cheap, are able to lend and to discount at higher -rates than in London, so the country deposit rate -never falls so low as that of London. Neither, however, -does it advance so high when loanable capital is -dear, because the provincial banks then find some -difficulty in increasing their rates upon bills and loans -proportionately. The following table will enable one -to see the difference between the rate allowed in London -and the country:—</p> - -<table summary=""> -<tr> -<th class="hdab">Bank Rate.</th> -<th class="hdab pad2">London Deposit Rate,<br />1½ below Bank Rate.</th> -<th class="hdab pad2">Country Deposit Rate.</th> -</tr><tr> -<td class="tdl pad2">5</td> -<td class="tdl pad4">3½</td> -<td class="tdl pad4">3</td> -</tr><tr> -<td class="tdl pad2">4½</td> -<td class="tdl pad4">3</td> -<td class="tdl pad4">2½ to 3</td> -</tr><tr> -<td class="tdl pad2">4</td> -<td class="tdl pad4">2½</td> -<td class="tdl pad4">2 to 2½</td> -</tr><tr> -<td class="tdl pad2">3½</td> -<td class="tdl pad4">2</td> -<td class="tdl pad4">2</td> -</tr><tr> -<td class="tdl pad2">3</td> -<td class="tdl pad4">1½</td> -<td class="tdl pad4">1½ to 2</td> -</tr><tr> -<td class="tdl pad2">2½</td> -<td class="tdl pad4">1</td> -<td class="tdl pad4">1½</td> -</tr><tr> -<td class="tdl pad2">2</td> -<td class="tdl pad4">½</td> -<td class="tdl pad4">1½</td> -</tr> -</table> - -<p><span class="pagenum"><a name="Page_48" id="Page_48">[48]</a></span></p> - -<p>In the country, we must remember, there is no combination -or ring of bankers who meet to decide the -rate, which, therefore, is not “fixed” from time to -time on the basis of the Bank rate, though, of course, -the country deposit rate moves up and down in -sympathy with the Bank of England’s published rate -of discount or official minimum, as it is called. There -is, moreover, some competition for deposits in the -country, but it is very slight; and, unless the banker -think that a man may be useful, he seldom bids -appreciably higher than his rivals for his money. -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.</p> - -<p>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. In every probability one’s -principal would be safe, but it would not be <i>so</i> safe as -in the hands of the really large London and provincial -institutions, whose reserves afford the customer a -much better guarantee; consequently it is always -wise to consider whether the additional risk, be it -never so small, is worth taking for the slight increase -in the rate.</p> - -<p>Of course the country depositor will take care to<span class="pagenum"><a name="Page_49" id="Page_49">[49]</a></span> -inquire what rates the other large banks in his town -are granting, so that he may judge whether his own -banker is allowing him a fair rate. Again, if the -amount of his deposit be, say, over £1,000, he can -sometimes obtain a special rate; and he may rest -quite assured that, if he do not interest himself in the -matter, the bank-manager will allow him the lowest -rate possible, for as there is not a fixed minimum it -follows that some, more especially during certain conditions -of the market, are obtaining better rates than -others. A little pressure will occasionally induce the -manager to quote, as he quaintly calls it, a “special” -rate of interest, if he consider the customer’s name be -worth keeping on his books. It may be added that -some people, in order to minimize their risk, keep -their current accounts with one banker and deposit -with another.</p> - -<p>We can now refer to the table of rates on page 48. -The country rate, of course, is stated approximately, -for we have seen that under certain conditions the -customer may possibly obtain more. Glancing at the -table, we find that when the bank rate is at 2, the -London depositor receives ½ per cent. and the country -depositor 1½. If the London customer deal with a -London and provincial bank, it will obviously pay -him better to deposit at one of the country branches. -He should, therefore, if he consider that money is -likely to be cheap for some considerable time, give -notice in London and transfer his deposit to the -country. If his banker object, he can deposit with<span class="pagenum"><a name="Page_50" id="Page_50">[50]</a></span> -any large, well-managed provincial bank. With the -Bank rate at 2½ the move would pay him, but when -it rises above these figures the rate is either equal or -in his favour. A person who keeps two banking -accounts, one in London and the other in the country, -can make this move with the greatest of ease; and by -transferring his deposit from the one to the other as -the rate favours him, he may easily increase his interest. -Conversely, with a high bank rate it may pay -the country depositor to transfer his principal to -London. There is no occasion to let the banker see -the move.</p> - -<p>In London and the great cities a large proportion -of the deposits at interest, especially during periods -of depression, would represent capital temporarily -withdrawn from trade, and awaiting either more -profitable investment or an increased demand and -rising prices. It is this accumulation of idle capital -that tempts the company-promoter from his lair, and -sometimes results in a Stock Exchange boom, whilst -it always produces an increased demand for the so-called -gilt-edged variety of securities and a consequent -rise in their price. The country depositor, however, -even when he leaves fairly large sums at interest, is -generally waiting to invest his money in house -property, which will return him from 5 to 6 per cent., -or to place it out on a first mortgage at from 3½ to 4 -per cent. In the first instance, he is careful not to -purchase old property that will swallow up much of -his rent in repairs. Cautious by nature, he shakes<span class="pagenum"><a name="Page_51" id="Page_51">[51]</a></span> -his head dubiously at the glowing prospectus of the -promoter, and refuses to believe in the high-toned -and cunningly tuned leaflets with which the bucket-shops -favour him, for he likes to see his investment, -to feel it, to walk upon it. Paper does not satisfy -his soul; he is not even without his suspicions of -banker’s paper; but when he possesses house property, -then all he has to fear is the Almighty and a -bad earthquake, and he can sleep comfortably on -those risks.</p> - -<p>Country depositors consist largely of working -men, clerks, artisans, small shopkeepers, dressmakers, -women of slender means, and so on, together with -the banks’ current-account customers. The huge -aggregate of deposits is made up principally of small -sums, so it is easy to keep down the rate, because the -great majority are ignorant of the condition of the -money-market, and hardly seem to be aware that the -Post Office gives 2½ per cent. upon small sums left -with it. The companies trade upon the ignorance of -their depositors; and though a few of the better-informed -customers withdraw their savings when -the rate is extremely low, experience has taught -the banks that the great bulk of them simply -grumble and take what is offered.</p> - -<p>Seeing that the deposits are spread over so great -an area, and among men and women who have not -sufficient business knowledge to invest their savings -advantageously, the banks have been able to keep -down rates without reducing their own resources;<span class="pagenum"><a name="Page_52" id="Page_52">[52]</a></span> -and the few who do withdraw their savings when the -deposit rate is at 1½ per cent. are practically of small -account when contrasted with the alternative policy -the companies would have to adopt in order to retain -them, for it obviously pays better to lose a few receipts -than to raise the rate to 2 for the whole of the -deposits. For instance, a bank would rather lose -£100,000 by withdrawals when the rate is at 1½ than -pay 2 per cent. on £5,000,000 for the purpose of preventing -the drain, £25,000 being too large a premium -to sacrifice for the purpose of retaining its connexion -intact, when, perhaps, money is being employed in -the London shortloan market at 1½ per cent. and -under.</p> - -<p>Again, very many of the country depositors look -upon the deposit-receipt as an investment, and the -banks, quite naturally, do not wish to inform them -that even Consols are a more profitable one. Not so -very many years ago the country minimum deposit -rate was 2, and it was not without certain misgivings -that it was reduced to 1½; but, as we have seen, the -experiment proved safe, though the banks, given -another long period of a 2 per cent. Bank rate, will -hardly care to risk 1 per cent. in the provinces, as -it seems pretty certain that, were the minimum -further reduced, disgusted depositors would invest -their savings either in the Post Office or the gilt-edged -class of securities. Having once turned this -stream of deposits into another channel, it is improbable -that a higher rate would tempt them back<span class="pagenum"><a name="Page_53" id="Page_53">[53]</a></span> -again; and as the depositor is essential to the modern -banking system, the provincial banks will think -many times before they risk a rate below 1½, even -when cheap capital is again reducing their dividends -right and left.</p> - -<p>A customer, before leaving his money with a -banker, will be careful to inquire what rate he is to -receive, and if the rate be not written upon the -receipt, then he might pencil the answer he gets upon -the back of the document. If there be three good -banks in his town, and he has, say, £200 to deposit, -there can be no harm in his going to all, and asking -the highest rate each is allowing. John Jones, we -will assume, holds a deposit-receipt for £200 dated -10th June and he takes it to the bank on 9th -December following in order to draw the interest -at the rate of 2 per cent. per annum. Between -10th June (excluding the first day) to 9th December -(inclusive) there are 182 days, so the banker owes -him 2 per cent. per annum on £200 for 182 days. -Hence the following sum:—</p> - -<table summary=""> -<tr> -<td class="tdc bb">200 × 2 × 182</td> -<td rowspan="2"> = £1 19<i>s.</i> 10<i>d.</i></td> -</tr> -<tr> -<td class="tdc">100 × 365</td> -</tr> -</table> - -<p>The cashier, therefore, pays John Jones £1 19<i>s.</i> 10<i>d.</i> -in cash, and gives him a new receipt, dated 9th -December, for £200. A depositor, as a rule, draws -his interest twice a year. Some persons, however, -leave their receipts from three to five years without -disturbing them; and the bank-manager, always<span class="pagenum"><a name="Page_54" id="Page_54">[54]</a></span> -anxious to swell the profits of his branch, is careful, -when they are presented, to make his calculations at -simple interest instead of at compound. Deposit -customers, therefore, even when they do not require -the interest due to them, should present their receipts -six months after date in order to have the interest -added to the principal, when both bear interest -together.</p> - -<p>For instance, assuming that John Jones had not -required his interest, then he would have taken a new -note for £201 19<i>s.</i> 10<i>d.</i>; but Mr. Jones, who is -acquainted with the internal economies of a bank, -and who is also aware of the intense frugality of the -agent, knows that the companies do not allow interest -upon the odd shillings of a deposit-receipt; so, giving -the cashier an additional twopence, he takes a fresh -note for £202, and walks away very well satisfied with -himself. Were he to omit taking this precaution -each half-year, and to hold his receipt for, say, five -years, then, when he took it in, he would merely get -certain rates upon £200 for five years. The larger -the principal the greater, of course, is the loss of -interest to the depositor.</p> - -<p>Should not the depositor reside in the neighbourhood -he can, after the expiration of six months, write -his name on the back of the note and send it through -the post to his banker, with the request that a new -receipt be returned to him for the amount of the principal -and interest. In the event of his wishing to -draw the interest, a banker will send him either a<span class="pagenum"><a name="Page_55" id="Page_55">[55]</a></span> -draft or postal orders for the amount due to him, as -he may direct. Of course, if he at any time require -part of the principal, he will state what amount, and -give directions whether the interest is to be added to -the new receipt for the balance or to be included with -the sum he is withdrawing, while he will take care -to write his name upon the back of the note before -despatching it. When sending a receipt by a -messenger it is usual to write a note to the banker, -telling him just what one requires and requesting -him to pay the bearer of the letter.</p> - -<p>Where interest amounting to £2 and over is withdrawn, -the deposit-receipt must have on the back -a penny postage stamp, which the depositor should -cancel by writing his name across it. This must -be done upon each note when the depositor has a -plurality of receipts. Where, however, the interest -upon any one is less than £2, a stamp is unnecessary. -Nor is it required when the depositor adds principal -and interest together and takes a fresh note for the -aggregate, but where principal and interest or principal -or interest amounting to £2 or over is <i>withdrawn</i>, -the receipt must bear a penny stamp.</p> - -<p>We now come to the question of the seven or fourteen -days’ notice on these receipts, and, as previously -stated, the banker seldom or never enforces his -claim, though, when notice is not given, he occasionally -deducts fourteen days if the whole of the principal -be withdrawn. When this is contemplated it is -better, perhaps, to give the necessary notice, but the<span class="pagenum"><a name="Page_56" id="Page_56">[56]</a></span> -manager, should the customer protest against this -deduction, generally gives way. Again, if the note -be for £100, and the depositor withdraw £50, and -take a new receipt for the balance, the banker may -deduct a certain number of days from the term on £50 -(the sum withdrawn without notice). The customer, -by checking his interest, will discover this loss, -which the teller, if he remonstrated with him, will -obligingly make good. It is also as well to bear in -mind that some banks have two rates.</p> - -<p>The London depositor, we know, receives 1½ below -Bank rate; so assuming that Mr. Jones, of Whitechapel, -held a note for £200, dated 5th February, -1903, and took it to the bank to draw the interest on -5th July of the same year, he would want to know -how much was due to him at the latter date. First, -therefore, he must ascertain whether any changes -were made in the Bank rate during the period in -question; and upon inquiry he found that the -“official minimum” was raised to 4 per cent. on -2nd October, 1902, and lowered to 3½ on 21st May -following, and to 3 upon the 18th June next.</p> - -<p>Now, from 5th February (exclusive) to 5th July -(inclusive) there are 150 days. His banker, therefore, -owed him:—</p> - -<table summary=""> -<tr> -<th> </th><th> </th><th class="hdab">Bank Rate was from</th> -</tr><tr> -<td class="tdr">105</td> -<td class="tdr">days’ int. at 2½ p.c. p.a. on £200</td> -<td class="pad1">Feb. 5 to May 21</td> -<td>4 p.c.</td> -</tr><tr> -<td class="tdr">28</td> -<td class="tdr">days’ int. at 2 p.c. p.a. on £200</td> -<td class="pad1">May 21 to June 18</td> -<td>3½ p.c.</td> -</tr><tr> -<td class="tdr">17</td> -<td class="tdr">days’ int. at 1½ p.c. p.a. on £200</td> -<td class="pad1">June 18 to July 5</td> -<td>3 p.c.</td> -</tr><tr> -<td class="tdr bt bb">150</td> -<td>days</td> -</tr> -</table> - -<p><span class="pagenum"><a name="Page_57" id="Page_57">[57]</a></span></p> - -<p>Here we get three rule-of-three sums, and, perhaps, -it were as well to give a statement of the first, viz.:—</p> - - -<table summary="" class="bordcoll"> -<tr> -<td> </td> -<td class="tdr"><span class="bb">200 × 2½ × 105</span></td> -<td rowspan="2" class="padh">=</td> -<td rowspan="2" class="tdr padh">£1</td> -<td rowspan="2" class="tdr padh">8</td> -<td rowspan="2" class="tdl padh">9</td> -</tr> -<tr> -<td> </td> -<td class="tdr">100 × 365 </td> -</tr> -<tr> -<td colspan="2" class="tdr">28 days at 2 p.c. per annum on £200</td> -<td class="padh">=</td> -<td class="tdr padh">0</td> -<td class="tdr padh">6</td> -<td class="tdl padh">1½</td> -</tr> -<tr> -<td colspan="2" class="tdr">17 days at 1½ p.c. per annum on £200</td> -<td class="padh">=</td> -<td class="tdr padh">0</td> -<td class="tdr padh">2</td> -<td class="tdl padh">9½</td> -</tr> -<tr> -<td colspan="2" class="tdr">Interest due</td> -<td> </td> -<td class="tdr bb bt padh">£1</td> -<td class="tdr bb bt padh">17</td> -<td class="tdl bb bt padh">8</td> -</tr> -</table> - - -<p>Mr. Jones, of Whitechapel, then, should have received -£1 17<i>s.</i> 8<i>d.</i> from his banker in cash and a fresh deposit-receipt, -dated the 5th July, 1903, for £200. At -each change of the bank rate the London depositor, -when calculating his interest, must make a fresh sum, -as in the above illustration, and so, too, must the -country depositor when the fluctuation of the Bank -of England rate is sufficiently wide to influence the -rate of interest allowed in the provinces, though the -latter must remember that he can only ascertain the -rate by making inquiries of the bankers themselves -or among those of his friends who deposit with them.</p> - -<p>Adverting to the dates in the foregoing illustration, -a few words of explanation are perhaps -necessary, for it will be seen that under the heading -“Bank rate was,” 21st May and 18th June, the days -upon which the official minimum was changed, are -placed opposite different rates. The Bank of England -directors examine their weekly return or -balance-sheet, which is made up to the close of -business each Wednesday on the Thursday following,<span class="pagenum"><a name="Page_58" id="Page_58">[58]</a></span> -and in the afternoon of the latter day any change in -the Bank’s rate of discount is announced. Of course, -during abnormal times the rates may be changed on -any day as the exigencies of the moment may direct; -but, fortunately, though the money-market is subject -to fits, its surface, as a rule, is seldom so violently -perturbed as to call for drastic remedies, and we shall -find that the dates in question were Thursdays. It -follows, therefore, that these days opened with the -bank rate at one figure and closed with it at another. -Hence the anomaly to which attention has been -drawn. The banker owed Mr. Jones, of Whitechapel, -interest at 2½ per cent. from 5th February -(exclusive) to 21st May (inclusive). On the 21st -May, we know, the Bank rate was reduced from 4 -to 3½ per cent.; so he owed him 2 per cent. on his -principal from 21st May (exclusive) to 18th June -(inclusive)—the date of the next change. Should not -the reason of this be quite clear to any reader, if he -remember that from 21st to 22nd May the Bank rate -would have been one day at 3½ per cent. the difficulty -will probably disappear.</p> - -<p>From an investment point of view the deposit-receipt -seems hardly worth consideration, because -even Consols, over a period of five years, will return -an appreciably higher yield; but when one is merely -waiting for a suitable investment to turn up, or for -a revival of trade, then the deposit-note exactly -meets one’s requirements, for its only charm lies in -the fact that the depositor gets back his principal<span class="pagenum"><a name="Page_59" id="Page_59">[59]</a></span> -intact. When the deposit rate is low trade is generally -dull, and the prices of gilt-edged securities consequently -move up. The depositor, therefore, when the -rate is high should not be tempted to let his money -remain with his banker for that reason alone, because -he can then, as a rule, buy gilt-edged securities at -cheaper figures, and, needless to say, the average -return on his purchase-money will greatly exceed the -average rate of interest on deposit. Conversely, if he -buy the so-called gilt-edged variety of securities when -interest is low, he is much more liable to a loss of -capital should he want to realize them when trade is -good and the rate of interest high. It follows that -the man of business, who finds capital accumulating -in his hands during periods of temporary depression, -when interest, of course, is low, prefers taking a -deposit-receipt for his idle capital, which he hopes to -again use in his business directly markets improve, to -purchasing, say, Consols at a time when demand -has enhanced their price, and, consequently, added -to his risk of loss upon realization.</p> - -<p>Some banks, instead of issuing a deposit-receipt for -money left at interest, give the depositor a pass-book, -in which the sum he leaves is credited. Each time -the depositor leaves new money he takes his book -with him, and the cashier enters the amount therein -to his credit, while he draws out his interest, or any -part of the principal he may require, by cheque. As -the banker rules off his deposit-ledgers half-yearly, -and then adds the interest due to each customer to the<span class="pagenum"><a name="Page_60" id="Page_60">[60]</a></span> -principal, it follows that principal and interest, when -the balance is brought forward, give a return to the -customer, who by this method receives compound interest -on his capital or savings. The advantages of -this system are too obvious to call for explanation, -but it may be added that, when a deposit customer is -given a cheque-book, he should be careful not to -operate too freely upon his account, as some bankers -then transfer the balance to their current-account -ledgers, their reason being that the account has -ceased to be used for the purpose for which it was -opened, and that, therefore, the depositor is no -longer entitled to interest.</p> - -<p>The chapter on “Unclaimed Balances” should -prove especially interesting to depositors.</p> - - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_61" id="Page_61">[61]</a></span> -<h2 class="nobreak"><a name="CHAPTER_VI" id="CHAPTER_VI"></a>CHAPTER VI <br/> -<small><small>THE BANK RATE IN RELATION TO BANKERS’ CHARGES</small></small></h2> -</div> - - -<p>Very many persons who are out of touch with -money-market problems fail to see why the Bank of -England’s rate of discount should be in any way connected -with a banker’s charges; and though, to -those who have not studied the question, the swaying -of the pendulum seems due to some occult influence, -the forces that move it are both visible to the naked -eye and capable of explanation. In the first place, -the Bank of England keeps the cash reserves of all the -banks in the United Kingdom, and, as a natural consequence, -possesses the only large store of gold in the -land. The other banks, which are dependent upon -this accumulation, become nervous immediately the -gold in the Bank’s vaults begins to leave the country -in appreciable quantities, because, should not the -Bank of England be able to meet their demands, -they, too, will be unable to supply the requirements -of their own customers.</p> - -<p>We need not, in a small book of this description, -enter into the mysteries of the foreign exchanges, or -discuss internal and external drains of gold, but the<span class="pagenum"><a name="Page_62" id="Page_62">[62]</a></span> -Bank, in order to arrest a drain of gold outwards, -raises its rate, when the other banking companies, -equally anxious to stop the efflux, raise their rates -too, with the result that borrowers, whether upon -bills or securities, have to pay more. Conversely, -when the Bank’s reserve is high and the political -horizon unclouded this nervous feeling no longer -exists. The Bank, we will assume, then lowers its -rate, and the other banks follow suit, when the -borrower pays less.</p> - -<p>When speaking of the money-market, the London -money-market is always implied, and here we encounter -the bill-brokers to whom the banks advance -their surplus funds. The banks, that is to say, -finance their rivals, who make bills a speciality, and -whose knowledge of bills of exchange is doubtless -both extensive and peculiar. Seeing that the banks -themselves discount trade-bills for their customers, -the necessity of a middleman or bill-broker between -the person who discounts a bill and the banker who -supplies the capital is not very apparent, but the -broker’s “turn,” when he re-discounts with the -banks, is extremely small; so it is quite possible that -were the banks to establish special departments to -deal with this business, the slight increase in their -rates would not compensate them sufficiently for the -troubles of management. As, under this system, -the brokers’ rate of discount is below that of the -banks, it follows that all the bank-bills and most of -the best trade-bills pass through the hands of the<span class="pagenum"><a name="Page_63" id="Page_63">[63]</a></span> -bill-brokers, while bills are also sent to them from all -the great cities. The bankers, consequently, discount -inferior paper at higher rates for their own -customers.</p> - -<p>But the Bank of England is a great bank of discount. -Moreover, it pays a dividend like any other -bank, and, as the bill-brokers are its rivals, it follows -that it cannot afford to allow all the business to drift -into their hands. When, therefore, the brokers’ rate -(the market rate) is below its own, it either takes -steps to make its own rate of discount, as the saying -is, “effective,” or else it reduces its advertised rate of -discount (the Bank rate). The Bank makes its rate -representative or effective by selling Consols, and -thereby reducing “bankers’ balances.” 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.</p> - -<p>We can see, therefore, that though the Bank rate is -sometimes either above or below the market rate, it is -necessarily never out of touch with it for any very considerable -length of time; so now, perhaps, it will be -understood why the banks allow 1½ below Bank rate -on deposit; and their reason for basing their rate -for loans and advances upon the Bank of England’s -advertised rate of discount will also be apparent.</p> - -<p>Of course, the demand for, and the supply of, -loanable capital decides the rate of interest, and as<span class="pagenum"><a name="Page_64" id="Page_64">[64]</a></span> -demand and supply are never equal, the rate is always -fluctuating, but we might just remember that our -artificial banking system “influences” the rate from -time to time. During periods of dull trade, when -loanable capital accumulates in the hands of the -banking companies, we should expect to see a low -Bank rate, because, prices of commodities having -fallen, people are less anxious to borrow, while fewer -bills are on offer, and, the demand for those bills -having increased proportionately, it follows that the -holders can discount them at a cheap rate. But -when business is brisk and the prices of commodities -are rising, more bills are drawn, and as the fund -with which they are discounted is not limitless, it -follows that the increasing demand upon that fund -sends up the rate. Bankers, consequently, who -have also to meet the requirements of their current-account -customers, are sometimes obliged to administer -a salutary check to speculation by making the -rate almost prohibitive in order to protect their -reserves of cash, as if they then lent to all and sundry -even Lombard Street would collapse.</p> - -<p>Now the Bank of England, we have seen, holds the -national reserve, as it were, and is, in consequence, -the pillar upon which the money-market rests. -Threadneedle Street (the Bank) is, therefore, the -centre of the money-market (hence the description -“central institution”) into which Lombard Street -(the rest of the banks in the United Kingdom) pours -its reserve and surplus cash. We might describe the<span class="pagenum"><a name="Page_65" id="Page_65">[65]</a></span> -Bank as the heart of the money-market, through -which a stream of cash and credit-documents is continually -flowing. The brokers (the outside market), -who practically keep no reserves of cash, are largely -financed by Lombard Street, which, however, calls -in its advances to them during certain conditions -of the market; and the bill-brokers are then compelled -to fall back upon the Bank of England which -holds the bankers’ reserves. In assisting the brokers -the Bank is also supporting the credit of Lombard -Street; so, clearly, the interests of each division are -identical; and the closer and more friendly the -relations between them the smoother will be the surface -of the money-market.</p> - -<p>But we have to consider the Bank rate in relation -to bankers’ charges; and here another factor must be -introduced, to wit, the nature of the securities deposited -by the customer. The business man’s favourite -investments are English railways, Corporation -Stocks, Industrial Companies, and so on, whilst occasionally, -endowed with imagination, and recognizing -how erratically the earth dispenses her favours, -the blessed uncertainty of mines appeals to his gambling -instinct. As a rule, a banker’s loans and -advances are not covered by Consols, because it -would pay the borrower better to sell out and place -the sum they realized to his credit. Advances -against Consols would be made principally to stockbrokers -and to speculators who had bought them -largely in the hope of a rise in price.</p> - -<p><span class="pagenum"><a name="Page_66" id="Page_66">[66]</a></span></p> - -<p>Competition for an advance, which is covered by -tangible securities, is keen both in London and the -provinces, and competition, we must remember, tends -to reduce the rate. Then, again, assuming that the -Bank rate be 3 per cent., and that a banker suggests -4 per cent. on an advance covered by railway debentures, -the customer may not see the force of maintaining -a margin of 10 per cent. between the market-price -of his stock for the protection of his banker, -and paying him, say, ¾ per cent. more than his -securities return on his purchase-money. As the -customer’s loan or advance is well secured, and as the -banker will only advance to the extent of 90 per cent. -of the market-price on the condition aforesaid, he is -only willing to pay Bank rate upon the sum he -borrows.</p> - -<p>We next have to consider the amount of pressure -the customer can bring to bear on his banker, of -whom his securities make him practically independent. -He may, in the first place, threaten to remove -his account unless his banker grant him a loan at 3½. -Secondly, he may decide that it will pay him better -to sell his debentures at the market-price. Again -he may only require the loan for a few months or even -weeks; and as, in his opinion, the debentures will -probably appreciate in value, he may decide to pay -4 per cent. for a short period to either selling out or -troubling to find a cheaper market. Obviously, the -higher the Bank rate advances the less disposed is -this class of customer to pay ½ per cent. above it; so,<span class="pagenum"><a name="Page_67" id="Page_67">[67]</a></span> -when the official minimum is at 5 and 6, he can often -arrange for an advance at Bank rate or even at a ½ -below it. On the other hand, the banker, when -Bank rate is at 2 or 2½, generally refuses to lend at -less than 3 per cent. per annum. The rate, therefore, -upon a secured advance is influenced by the -nature of the cover deposited as well as by the state -of the money-market.</p> - -<p>This description of the market is, of course, the -veriest sketch, but, perhaps, it may possibly prove -somewhat enlightening to those who have hitherto -regarded this very simple subject as an exceptionally -difficult one.</p> - - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_68" id="Page_68">[68]</a></span> -<h2 class="nobreak"><a name="CHAPTER_VII" id="CHAPTER_VII"></a>CHAPTER VII <br/> -<small><small>LOANS AND ADVANCES IN LONDON</small></small></h2> -</div> - -<p>We are told that London banking is quite different -to country banking, but it is a difference of degree -rather than of kind, and in London, as in the provinces, -the bank-manager has two rates—one for -those who, taking him at his word, do not attempt -to bate him down, and a second and lower rate for -those persons who, knowing that he is of the City, -and scenting instinctively a servant of the company, -who is in possession of instructions, literally force -his hand. A seller in a free market where competition -is vigorous generally has at least two prices, -though, of course, he only advertises one of them, -and the banks, which are not one whit in advance of -the commercial ethics of the times, base their rate -upon expediency as well as upon the Bank of England’s -rate of discount. In stating so human and -obvious a fact one can only apologize for its intense -triteness, and urge, in extenuation, the blind, unreasoning -faith of some people in the modern bank-manager. -Such faith may be beautiful, but, believe -me, it is costly.</p> - -<p><span class="pagenum"><a name="Page_69" id="Page_69">[69]</a></span></p> - -<p>Mention has been made of the distinctions between -country and London banking, and one of these -appears to be the adoption of the “loan-account” -system by the City banks, but “loan accounts” are -not by any means unknown in the provinces, though -the opening of them is exceptional. Moreover, though -this system is greatly in evidence at the head-offices -of the joint-stock banks, the farther one moves away -from Lombard Street the less firmly is it established, -and one finds in the books of the London branch -banks a medley of the two systems. That is to say, -some customers adopt the “loan-account,” and others -pay a rate upon their daily debtor balances, together -with a commission on the turn-over of their accounts.</p> - -<p>When a “loan account” is opened by a customer, -the banks do not charge a commission upon his -current account, but, as we shall see, neither do they -neglect to make amends for this omission. A customer, -we will suppose, when the Bank rate is at 3 -per cent. obtains a loan of £20,000 from his banker -at Bank rate. He draws a cheque for this sum, -which the banker debits to a “loan account” in his -name, then places £20,000 to the credit of his current -or running account. Now the interest at the rate -of, say, 3 per cent. is calculated on the loan account, -so if the customer’s average credit balance for the -half-year amounts to about £4,000, then he has paid -3 per cent. per annum upon £4,000 which he has -never used. In other words, he has given his banker -something like £60 for working his account during<span class="pagenum"><a name="Page_70" id="Page_70">[70]</a></span> -the half-year. Further, some London banks charge a -commission of ⅛ per cent. on the amount of the loan. -This they add each half-year to his interest, which, in -the present instance, would be debited in his current -account pass-book thus: To Interest, £325. By -carefully checking his banker’s charges he will make -this discovery, and, of course, promptly demand that -£25 be returned to him.</p> - -<p>It can now be seen that the London bank-manager -is as eager to snatch a commission as his country -<i>confrère</i>, and, moreover, that he is not without his -opportunities, which, when the client is considered -safe, he seldom neglects. In other words, he does his -duty like other honest folk whose misfortune it is to -be employees; and he does not specify the ⅛ per cent. -on £20,000 in the pass-book for the simple reason that -he knows it is safer disguised as interest.</p> - -<p>The customer naturally does not see why he should -pay a rate upon £4,000 which he has not wanted, and -which, in reality, the banker has not lent, though he -has created credit in his own books to that extent by -two simple entries on the debit and credit side of his -ledgers. Assuming that no commission was charged -on the loan, £60 a half-year seems a large sum to pay -him for working an account, especially as most of his -rivals will bid against him for a well-secured loan. -The customer, therefore, should insist upon receiving -the same rate upon his daily creditor current-account -balances as he is paying upon his loan, and if he consider -that his banker is entitled to a commission for<span class="pagenum"><a name="Page_71" id="Page_71">[71]</a></span> -working his account, then he can arrange for a fair -nominal charge, but he may succeed in getting it -worked free. Again, when his current account is -largely in credit, he can transfer a certain sum therefrom -to his loan account, and, by moving balances -from the one to the other, as occasion may arise, save -himself an appreciable sum in the shape of interest; -but he may be too busy to adopt this course, and it -is evident that the first suggestion, which is better -adapted to his wants, will save him both time and -money. Naturally the banker will object, but the -client will make it his business to endeavour to overcome -such opposition, which will be either strong or -weak in proportion to the nature of his cover and the -desirability of retaining his account.</p> - -<p>We next come to the rate a borrower should pay -upon a well-secured loan or advance, and here, again, -we may touch upon a distinction between London and -country banking. A banker, like any other dealer, -adapts his business to his surroundings, but in a great -city like London he is practically compelled to -specialize more or less, and but little money is lent -in the City upon mortgage, whereas overdrafts are -granted freely in the country against the deeds of -house property. Of course there are exceptions; -and certain well-known firms, whose credit is beyond -question, may not even be asked for any security -when they borrow at certain times of the year, but -they soon would be if the loan began to assume a permanent -character; for though a banker may be will<span class="pagenum"><a name="Page_72" id="Page_72">[72]</a></span>ing -to advance to an influential and reputable firm -without cover just at those seasons when demand -upon it is heaviest, he assumes that such assistance -will only be required temporarily, and would instantly -become nervous should it appear from his -books that the firm was slower than usual in reducing -the loan, whilst immediately he perceived that a -certain amount of it threatened to take the form of -a permanent advance he would ask for security.</p> - -<p>The City banks are too busy to give much attention -to the wants of the small man of business, and, -broadly speaking, they require marketable securities -before they will grant a loan or advance. The suburban -manager, however, who is only on the edge of -this struggling mass of humanity, views the smaller -applicant with a kindlier eye, because the large -borrower seldom approaches him, so in the suburbs -one can borrow on mortgage just as one can in the -country. Indeed, suburban banking approximates -very closely to country banking, the one noticeable -distinction being the deposit rate. The West-end -banker, again, has his peculiarities, and it by no -means follows that the rules and regulations of a -bank’s head-office in the City are in complete harmony -with those of one of its branches within a -quarter of an hour’s walk of the seat of government. -It is, therefore, impossible to define London banking, -because London is vast, and the system eminently -elastic and adaptable.</p> - -<p>The following table will give one a fair idea of<span class="pagenum"><a name="Page_73" id="Page_73">[73]</a></span> -what rate should be paid upon a loan or advance, -fully covered by securities which can be sold on the -Stock Exchange practically at any moment:—</p> - -<p> -With Bank rate at 2 % Customer pays 2½ to 3 %<br /> -With Bank rate at 2½ % Customer pays 2½ to 3 %<br /> -With Bank rate at 3 % Customer pays 3 to 3½ %<br /> -With Bank rate at 3½ % Customer pays 3½ to 4 %<br /> -With Bank rate at 4 % Customer pays 4 to 4½ %<br /> -With Bank rate at 4½ % Customer pays 4½ to 5 %<br /> -With Bank rate at 5 % Customer pays 4½ to 5½ %<br /> -With Bank rate at 5½ % Customer pays 5 to 6 %<br /> -With Bank rate at 6 % Customer pays 5½ to 6 %<br /> -</p> - -<p>It must be distinctly understood that this table will -only serve the purpose of a guide to what the rate -ought to be, and that the customer can, if his credit be -good, by bringing pressure to bear upon his banker, -very probably make a closer bargain with him. For -instance, with the Bank rate at 4½, a person whose -securities and credit are beyond question might obtain -a loan at ½ below Bank rate. He may further -arrange that his rate shall be ½ per cent. below Bank -rate, with a minimum to the banker of 3 or 3½. That -is to say, his rate will never be less than 3 or 3½, -and when the Bank rate is above 3½, then he pays ½ -below it.</p> - -<p>On the other hand, the customer who accepts the -rate mentioned by the manager without question -fares badly, for no dealer quotes his minimum rate -first. He reserves that, as is usual in the highest<span class="pagenum"><a name="Page_74" id="Page_74">[74]</a></span> -financial circles, until last, and he finds it difficult to -look pleased when it is forced from him, because his -directors, if he quoted it too often, may come to the -conclusion that his hand is losing its cunning. The -client will have to do more than ask in order that he -receive: he must use argument that is convincing. -Knowing that certain bank-managers are running -about the City in search of desirable accounts, just as -are bill-brokers for first-class paper, he not unnaturally -comes to the conclusion that he can find a cheaper -market elsewhere, so, having exhausted the gentler -modes of suasion, the client finally and reluctantly -threatens to apply elsewhere, or reveals the fact -that he has already done so, and with what result, -when the manager, if he think him in earnest, quotes -his very lowest rate, and asks him not to mention it -outside. Where the loan is a small one, however, the -directors will not trouble themselves greatly as to -whether it either goes or remains.</p> - -<p>The much-vaunted 1 per cent. above Bank rate is, -of course, only paid by the small man, whose securities -are not of the better class, and by the customer -who has not studied the market. Some London -banks, we know, charge a rate on the daily balances -and a commission, but this is the ordinary country -practice, so, in order to avoid reiteration, it has been -thought desirable to discuss the method in the next -chapter.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_75" id="Page_75">[75]</a></span> -<h2 class="nobreak"><a name="CHAPTER_VIII" id="CHAPTER_VIII"></a>CHAPTER VIII <br/> -<small><small>OVERDRAFTS IN THE COUNTRY</small></small></h2> -</div> - - -<p>In the preceding chapter we discussed the “loan -account” and its mysteries, and now we are brought -face to face with the country practice of granting the -customer a “limit.” The banker, we will assume, -agrees that, upon his depositing certain securities, he -<i>may</i> overdraw his current account to the extent of -£1,500. This sum, then, is the client’s “limit” -which he is not supposed to exceed, and if he draw a -cheque that would, when presented for payment, -overdraw his account beyond the agreed figures were -the banker to honour it, the latter is entitled to -return the document without notice. As a rule a -bank reserves to itself the right of calling in a loan -or advance at any moment, but in practice reasonable -notice is always given.</p> - -<p>Though the customer has arranged for a “limit” -of, say, £1,500, it is quite possible that he will not -overdraw his account to that extent; but at those -seasons of the year when his outgoings are always in -excess of his receipts the balance against him at the -bank will draw closer to his limit. If, however, his<span class="pagenum"><a name="Page_76" id="Page_76">[76]</a></span> -business be in a healthy condition the corner will -soon be turned; and as his payments in begin to -exceed the cheques he draws, his indebtedness to the -bank speedily sinks below the average. Each payment -to his credit reduces his debit balance, and -every cheque debited, of course, increases it, but as -the banker charges him a rate upon the sum owing -at the end of each day, it follows that the customer -only pays interest upon the actual money he has -borrowed—not upon the amount of the “limit” -as does the London client upon the amount of his -“loan.” This arrangement is much the fairer to -the borrower, who, however, must take care that the -banker do not charge him a high rate of commission -upon his turn-over under it.</p> - -<p>We can now consider the rate of interest a customer -should pay on an advance which is more than covered -by marketable securities that can be sold on the -Stock Exchange at a moment’s notice. Most provincial -towns, we know, are over-banked; and as -each banker is the rival of the rest it follows that a -person whose cover is tangible can, by playing off -the one against the other, obtain very fine rates. -But he may not care to adopt these tactics; still, as -the method may appeal to some, it would be a pity -not to dwell upon its possibilities, for it is often -undoubtedly effective where argument fails. The -would-be borrower of this class may be referred to -the table of rates in Chapter VII, and to the remarks -made concerning well-secured advances in London,<span class="pagenum"><a name="Page_77" id="Page_77">[77]</a></span> -as, competition for a secured overdraft being even -more keen in the country, where tangible securities -are less in evidence, he should experience little -difficulty in coming to a similar arrangement with -reference to the rate of interest.</p> - -<p>For instance, suppose a man who possesses a good -list of marketable stocks and shares wishes to borrow -£5,000 from his banker, and calls upon the branch-manager, -who at once expresses the opinion that his -directors will have no hesitation in granting his request. -They next discuss terms. The manager, who -is a humble servant of the company, and who, moreover -is anxious to pass the rest of his days in that -honourable capacity, looks at his customer, thinking -hard the while, and then, trusting his man lacks -business experience, suggests 5 per cent. per annum -on the overdraft and ⅛ per cent. on the turn-over. -The turn-over of an account consists of the cheques, -bills, etc., debited during the quarter or half-year, -and the customer, therefore, is asked to pay a commission -of 2<i>s.</i> 6<i>d.</i> upon each £100 debited in his -pass-book. There is nothing very remarkable in -this request on the part of a dealer in cash and -credit who is selling his wares, and to express surprise -is to display a lack of knowledge of business -procedure, but to agree to his proposals would betoken -a lamentable ignorance of the market.</p> - -<p>Should the Bank rate be at 4 per cent. the customer -would endeavour not to pay more, for his securities -do not give him that return, and he has the option of<span class="pagenum"><a name="Page_78" id="Page_78">[78]</a></span> -selling them. And as to paying a rate on his turn-over, -he knows that if he make application elsewhere -he can probably find a banker who will forego that -charge, so he either refuses to entertain it or else -agrees to pay a merely nominal sum. With a higher -Bank rate than 4, he will try to obtain his advance -at ½ below the official minimum; and if the Bank -rate be low, and loanable capital therefore cheap -at the moment, he can suggest “½ per cent. -below Bank rate with a minimum of 3½.” Here, -again, reference may be made to the previous chapter. -Of course, if there are only two banks in his -town, and consequently but little competition, he -will not find the manager so ready to listen to him, -but he certainly should not pay more than Bank rate -when it is above 3½, while he will remember that the -manager’s advice, if he be so rash as to express an -opinion, is not disinterested.</p> - -<p>We next come to the customer whose “limit” is -covered by marketable securities and deeds of house -property or land. The banker will have the property -valued by his own man, and then perhaps advance -up to about two-thirds of the value placed upon it -after the deeds have been examined by the bank’s -solicitor and formally deposited, the customer, of -course, paying all expenses. The securities, if they -are a fairly good list, he will advance against to the -extent of about 75 per cent. of their market value, -thus leaving a margin of 25 per cent. in his favour -to cover the risk of depreciation, for they take care<span class="pagenum"><a name="Page_79" id="Page_79">[79]</a></span> -of themselves—these bankers. The majority of -advances in the provinces would be made against -securities and deeds in varying proportions, and it -is as well to remember that the larger the proportion -of tangible securities the smaller should be the rate.</p> - -<p>A banker, it need not be said, does not want to be -bothered with a man, however good his securities, if -he think that there is the probability of his having to -call in the advance or to claim against his estate in -the Bankruptcy Court; and though a customer cannot -deposit marketable stocks and shares to the full -extent of his advance, but is compelled to offer deeds -and securities, as in our illustration, his credit is -often so good that many other bankers in his town -would readily listen to his proposals, and be only -too glad to get his name on their books, perhaps even -at a small sacrifice. Such a person can make a very -close bargain with his banker, and would not, for instance, -think of paying 5 per cent. when the Bank -rate is at 3 or under. He would, in fact, especially if -he were conducting a large business, probably be in -a position to make as good terms as the man whose -securities are wholly tangible.</p> - -<p>The manager, of course, let the Bank rate be what -it may, will endeavour to obtain from 4½ to 5 per -cent. upon the overdraft of an account thus secured, -and to charge a rate of from ¹/₁₆ to ⅛ per cent. upon the -turn-over; but if the customer show fight, and losing -the account may not be thought desirable, because of -the local influence he possesses, then, rather than risk<span class="pagenum"><a name="Page_80" id="Page_80">[80]</a></span> -his applying elsewhere, the agent usually lowers his -rates, for he naturally does not enjoy the thought -that esteemed clients are perhaps paying little calls -upon his rivals, and thereby advertising his own unpopularity. -When the rate of commission is the bone -of contention the customer’s first aim will be to pay -no commission whatsoever, and to at least arrange for -his advance at Bank rate with a minimum of 4 per -cent. Probably he may do better with reference to -his interest rate; and, if he finds that the manager -holds out for commission, then he can agree to a -nominal charge of from one to five guineas or so each -half-year according to the volume of his business.</p> - -<p>We now have to discuss the position of those persons -who can only offer their banker the deeds of -house property, land, and those other securities for -which the market is a purely local, and, therefore, uncertain -one. A banker, whose deposits are mostly -payable at call and short notice, naturally prefers to -advance against those securities that are quoted on a -Stock Exchange, and does not care to lock up a large -proportion of his resources in house property, etc., of -which he cannot readily dispose in an emergency. -But tangible securities are not always to be had for -the asking; and, as he must employ his capital in -order to pay a dividend, he is compelled to advance -to a certain extent against, from his point of -view, the less desirable securities such as houses and -shares in some local company, though he always -prefers to deal with the man who can deposit the<span class="pagenum"><a name="Page_81" id="Page_81">[81]</a></span> -more easily negotiable variety. Further, a prudent -banker will only devote a certain amount (and that -a relatively small amount) of his resources to advancing -against the deeds of houses, land, and so on; and -as the demand for overdrafts against this class of -cover is always greatly in excess of the supply, it follows -that those persons who borrow upon it have to -pay high rates.</p> - -<p>We have seen that the client who possesses tangible -securities can, broadly speaking, make his own terms -but it is otherwise with the man who wants an overdraft -for business purposes against the deeds of a -house he owns; and he it is who is compelled to pay -5 or 5½ per cent. per annum interest, be the Bank rate -what it may, and ⅛ per cent. on the turn-over of his -current account; for he will not find the competing -banks anxious to secure his business by lowering their -rates. Should his credit be good, and his business be -considerable, he might succeed in reducing his commission -rate to ¹/₁₆ or even ¹/₃₂ per cent., and, of course, -he will make the attempt, but it would be unwise -to more than wish him success in his endeavour. A -really large tradesman, however, whose securities -consist of this variety, will sometimes find a bank-manager -anxious to secure his account, because he -thinks he may influence others in his favour, and such -a man will not pay high rates before he has at least -sounded two or three managers of well-known banks -and discovered that their terms are not more liberal. -He may even find that he can get his account worked<span class="pagenum"><a name="Page_82" id="Page_82">[82]</a></span> -free of commission, or have the one he is paying -appreciably reduced.</p> - -<p>Again, a man can mortgage his property, but, as a -rule, he prefers to obtain a “limit” on it from his -banker, more especially if he intend gradually paying -off the advance, as, should he borrow £500 on mortgage, -he will have to pay a rate on that sum, but -when he obtains a “limit” of £500, and his account is -only £250 on the wrong side, he pays on the smaller -amount only. As a rule, a solicitor acts as middleman -between a mortgager and mortgagee; and the borrower -might remember that solicitors, when advancing -their clients’ money, or, indeed, when they act in -any capacity, are quite as human as bank-managers, -and that it is always advisable to higgle with them -over the rate, which, of course, should be based on -the value of loanable capital at the time. The deed -usually stipulates for six months’ notice on either -side.</p> - -<p>A customer who is desirous of obtaining an advance -upon property which already has a first mortgage -upon it, will not find the banks either sympathetic -or eager to assist him; though if his banker be -“in” with him he will, of course, accept any additional -security which is likely to lessen his risk or -minimize his loss. In the usual course of his business -second mortgages and equities of redemption are not -thought desirable, and then, again, the law does not -give a second mortgagee all the protection it might.</p> - -<p>The current-account customer, who calls upon the<span class="pagenum"><a name="Page_83" id="Page_83">[83]</a></span> -bank-manager with the object of obtaining an overdraft -against property, will generally be asked if his -life is assured, and if he reply in the negative, he may -be requested to assure to the extent of the “limit” -the bank is ready to grant him, and to deposit the -policy as collateral security with the deeds. Many -men of small means assure their lives, and a banker, -provided the office be a good one, will generally advance -up to the surrender-value of the policy. This -he ascertains by applying to the assurance company, -which tells him at what figure they will commute it. -The rates charged upon this class of security are -high.</p> - -<p>Where the customer’s overdraft is only partially -secured, he must make the best terms he can for himself; -and, as there is practically no competition for -such an account, he will probably have to pay from -5 to 6 per cent. per annum interest and from ⅛ to ¼ -per cent. on his turn-over. These are the maximum -rates, which, no doubt, he will attempt to reduce, -though with what success must remain problematical. -The person who obtains an overdraft without security -must, as a rule, give thanks, and pay up with a light -heart, for should he apply elsewhere he would be -received with open-mouthed astonishment. A good -name in the banking world implies that its owner -is worth some few thousands of pounds; and -though, in the moral sense, its value is considered beyond -price, directors, while appreciating it in the -abstract, regret their inability to safely ensconce it<span class="pagenum"><a name="Page_84" id="Page_84">[84]</a></span> -within their safes, and therefore, as practical men, -their powerlessness to advance against it unless -backed by collateral securities.</p> - -<p>Lastly, a few words may be said anent personal -security. If you have a wealthy friend who is willing -to sign a promissory note with you, or to guarantee -your banker against loss up to a certain sum, an overdraft -can soon be arranged; but such a request puts -friendship to the severest test, and it may be extremely -difficult to find your friend at home should -he as much as suspect the reason of your visit.</p> - -<p>We can see that competition is centred around the -safe business, and that though those persons who -possess tangible securities can make very close bargains, -the less desirable is the cover from a banker’s -point of view, other considerations being equal, the -higher are the rates the customer will probably be -asked to pay. The man who possesses the right class -of securities should, therefore, take them to the -cheapest market, and the owners of the less marketable -varieties might remember that from 4½ to 5 per -cent. per annum on the overdraft and ⅛ per cent. -commission on the turn-over are very full rates, -which may often be considerably reduced when the -customer, whose credit is good, does a large and profitable -business.</p> - -<p>The only remaining subject for discussion is the -relation that exists between the bank-manager and -his directors, who confine his power to very narrow -limits. The city-manager, for instance, at the head-<span class="pagenum"><a name="Page_85" id="Page_85">[85]</a></span>office -of a London joint-stock bank, might be empowered -to grant loans to the extent of from £2,000 -to £3,000 without first obtaining the consent of the -board. Any application in excess of his “discretionary -power,” as it is called, would have to be -submitted to the directors, two or three of whom, -during certain hours, are always in attendance each -day, in order to deal with those requests for large -loans where an immediate decision is essential, while -a full board would probably sit twice a week. The -board, of course, would be asked to confirm the decisions -of the “daily” committee, and from time to -time the loans granted by the city-manager would -be subjected to criticism by that body.</p> - -<p>At the metropolitan, suburban and country -branches the “discretionary power” of the agent or -manager would be based upon the amount of business -transacted at the branch. In a small town of from -20,000 to 30,000 inhabitants a manager might have -power to grant, when necessary, loans to the extent -of £350 and under, without first obtaining the sanction -of the board. All applications for advances in -excess of his power would have to be immediately submitted -to the head-office, accompanied by a letter, -describing the nature of the security offered, and -stating the desirability of obtaining or keeping, as -the case may be, the account. This report, in every -probability, would be addressed to the “advance -department,” where it would be criticized by the -officials before going into the board-room. Many<span class="pagenum"><a name="Page_86" id="Page_86">[86]</a></span> -questions would be asked with reference to the working -of the applicant’s account, his annual turn-over, -and so on. If he came to them from a rival bank -then they would want to see his pass-book, and, were -he already a customer, the manager would send a list -of his daily balances and comment upon his means, -habits, etc. Having satisfied themselves upon these -points, the chief of the advance department reports -to the general manager, who submits the application -to the board. The process, it will be seen, is cumbersome -and necessarily slow, for it often takes the -machine as many days to give a decision as it does a -private banker minutes.</p> - -<p>The manager, evidently, has very little real power -under this system, and, practically, the branches are -managed from the head-office, the agent being a kind -of clerk-in-charge, who reports to, and announces the -decision of, his directors. Indeed, the rules and regulations -are framed for this very purpose, and the -banks make it part of their policy to effectually hold -their managers in check, and to so arrange the work -of an office that but little is left to their decision, while -it is the duty of the accountant to instantly report -any irregularity to the general managers. The average -bank-manager, it must be remembered, has had -neither a business nor a financial training, and it -would therefore be extremely risky to give him a -large field in which to make experiments. Of the two -evils the boards of the banking companies choose by -far the lesser, and, by allowing him a small “power,”<span class="pagenum"><a name="Page_87" id="Page_87">[87]</a></span> -they tether him like a donkey to a stake, thereby -limiting his grass to the length of his rope.</p> - -<p>In a large manufacturing city a manager’s discretionary -power would not exceed £1,000 to £1,500, -and in the smaller cities it would range from £500 -to £1,000, while in the provincial towns it would be -from £300 to £500, according to population. Each -month the manager, as a rule, has to send to the head-office -a report upon all accounts that are <i>over</i> his -power, together with a separate one relating to bills -discounted, and at least twice a year he must submit -a long return of every overdrawn account on the -books of the branch certified by the accountant and -himself. The head-office, in short, watches him as a -cat does a mouse, and criticizes those advances he -himself is allowed to make severely should they not -meet with the approval of those in authority.</p> - -<p>Then, again, as though determined that his steps -shall not stray from the beaten track, inspectors visit -his branch four or five times during the course of a -year, and, needless to say, the board thinks it neither -necessary nor desirable to advise him of the day one -will arrive. When the inspection is a short one the -unwelcome visitor counts the cash, checks the bills -and securities, just glances casually through the -ledgers and then takes his departure, when the atmosphere -seems lighter by his very absence, for exalted -officials are a weariness to the flesh. But during a -long inspection, which occurs about twice a year, the -manager has to make a short report upon every over<span class="pagenum"><a name="Page_88" id="Page_88">[88]</a></span>drawn -account in the books. This done, he gives his -report to the inspector, who reads through his remarks -and proceeds to criticize them. Having added -a few words of his own, the visitor posts the bulky -report to the advance department at the head-office, -and, finally, it is laid upon the board-room table. -Then the fun begins. The manager, after a few -weeks of anxious suspense, receives a long list of -caustic inquiries relating to certain overdrawn -accounts which have failed to satisfy the board, together, -perhaps, with imperative instructions to get -such-and-such overdrafts reduced to certain figures -at a given date. Sorely tried in temper, the poor -agent sets about answering the questions put to him, -and then, much against his will, he writes to certain -clients whom he asks to give him a call.</p> - -<p>Now, perhaps, the customers of the joint-stock -banks will understand why they receive so many -letters requesting them to keep their accounts at the -agreed limit, or even to reduce or pay off the overdraft -unless they can deposit either more desirable or -additional security. At such a moment an irritable -person is disposed to regret that “a company has -neither a body to be kicked nor a soul to be damned.”</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_89" id="Page_89">[89]</a></span> -<h2 class="nobreak"><a name="CHAPTER_IX" id="CHAPTER_IX"></a>CHAPTER IX <br/> -<small><small>HOW TO CHECK BANKERS’ CHARGES</small></small></h2> -</div> - -<p>Bankers make up their pass-books in two ways. -When the customer is in account with the banker the -cash he pays in appears on the right-hand side of his -book, and the cheques he draws out on the left. The -more general method, however, is to make the bank -in account with the customer, when the debits and -credits in the pass-book are an exact copy of the -client’s own cash-book, whereas the entries in the -bank’s ledger are reversed. The latter and more -usual practice will be adopted in this chapter.</p> - -<p>Customers often complain that they are unable to -check their half-yearly charges, that they do not -quite understand at what rates they have been -charged; and as some bankers are most careful to -add the interest and commission together, and then -to enter the aggregate in the pass-book as “charges” -simply, it is a little difficult to understand how they -expect their clients to check their interest and commission. -For instance, suppose a man is charged -£5 2<i>s.</i> 6<i>d.</i>, and that the banker writes in his pass-book:</p> - -<p class="center"> -By charges, £5 2<i>s.</i> 6<i>d.</i><br /> -</p> - -<p>Here we have a puzzle that is more than Chinese in<span class="pagenum"><a name="Page_90" id="Page_90">[90]</a></span> -its intricacy and suggestiveness, for it is evident that -unless the customer remembers that he has arranged -to pay, say, 4 per cent. per annum interest and ⅛ per -cent. commission, he will experience considerable -difficulty in verifying the figures. As a matter of -fact, the companies are not particularly anxious to -enlighten him, for see how easily the client could have -checked his charges were they specified thus:—</p> - -<table summary="" class="bordcoll"> -<tr> -<td>By interest at 4 per cent.</td> -<td class="padh tdr">£4</td> -<td class="padh tdr">2</td> -<td class="padh tdr">0</td> -</tr><tr> -<td>By ⅛ per cent. commission on turn-over</td> -<td class="padh tdr"> 0</td> -<td class="padh tdr"> 15</td> -<td class="padh tdr"> 6</td> -</tr><tr> -<td>By postages</td> -<td class="padh tdr">0</td> -<td class="padh tdr">5</td> -<td class="padh tdr">0</td> -</tr><tr> -<td> </td> -<td class="padh tdr bt">£5</td> -<td class="padh tdr bt">2</td> -<td class="padh tdr bt">6</td> -</tr> -</table> - -<p>Such a statement is almost beautiful in its simplicity, -and the entry “postages” may, perhaps, give us -some clue to the mystery, as it is evident that a manager, -by debiting charges in one sum, is thereby -enabled to hide certain debits such as “postages,” -“telegrams,” “legal expenses,” “stamps,” and so -on, at which, were they entered separately in the -bank-book, the customer would probably strongly -protest. And then, again, by adopting this method -of darkness, those persons who leave everything to -the agent never know their rates, and they are sometimes -too timid to call and inquire, as though fearing -that such a request would reflect upon the agent’s -honour.</p> - -<p>Certain banks have an account open in their ledgers -called Law Charges or Sundry Charges, to which<span class="pagenum"><a name="Page_91" id="Page_91">[91]</a></span> -doubtful debits are posted in the names of various -customers. At the end of each half-year these sums -are credited to the account in question and included -in the clients’ charges. When, for instance, a manager -does not wish a person to know that he is paying -a fee of £3 3<i>s.</i> to the bank’s solicitors for the examination -by them of certain deeds which he has deposited -as security, he will probably resort to this subterfuge.</p> - -<p>We can now criticize the account of John Jones, -who on the 31st December, 1902, owed his banker -£500 2<i>s.</i> 6<i>d.</i>, and examine the entries in his pass-book -from that date to the 30th June, 1903, when his -bankers rule off their books and calculate their -charges. Assuming that Mr. Jones keeps proper -books, he will have an account in his ledger, which, -after making allowance for cheques drawn but not -presented for payment, will agree with his pass-book -in every particular. The following is a copy of his -bank-book:—</p> - - -<p><span class="smcap">The London and Cheatem Bank, Ltd.</span>, with <span class="smcap">Mr. John Jones</span>.</p> - -<table summary="" class="bordcoll"> -<tr> -<td colspan="6" class="tdc bb br bt">Dr.</td> -<td colspan="6" class="tdc bb bt">Cr.</td> -</tr><tr> -<td colspan="2" class="tdc pad1">1903.</td> -<td> </td> -<td> </td> -<td> </td> -<td class="br padr1"> </td> -<td colspan="2" class="tdc pad1">1902.</td> -</tr><tr> -<td class="pad1">Jan.</td> -<td class="tdr">20.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">£300</td> -<td class="tdr padh">1</td> -<td class="tdr padh br padr1">6</td> -<td class="pad1">Dec.</td> -<td class="tdr">31.</td> -<td class="pad1">By Balance</td> -<td class="tdr padh">£500</td> -<td class="tdr padh">2</td> -<td class="tdr padh padr1">6</td> -</tr><tr> -<td> </td> -<td> </td> -<td> </td> -<td> </td> -<td> </td> -<td class="br padr1"> </td> -<td colspan="2" class="tdc pad1">1903.</td> -</tr><tr> -<td class="pad1">Apl.</td> -<td class="tdr">22.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">90</td> -<td class="tdr padh">1</td> -<td class="tdr padh br padr1">3</td> -<td class="pad1">Feb.</td> -<td class="tdr">15.</td> -<td class="pad1">By Smith</td> -<td class="tdr padh">10</td> -<td class="tdr padh">0</td> -<td class="tdr padh padr1">0</td> -</tr><tr> -<td class="pad1">May</td> -<td class="tdr">15.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">200</td> -<td class="tdr padh">5</td> -<td class="tdr padh br padr1">0</td> -<td class="pad1">Mar.</td> -<td class="tdr">31.</td> -<td class="pad1">By Jones</td> -<td class="tdr padh">70</td> -<td class="tdr padh">3</td> -<td class="tdr padh padr1">4</td> -</tr><tr> -<td class="pad1">May</td> -<td class="tdr">18.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">50</td> -<td class="tdr padh">0</td> -<td class="tdr padh br padr1">0</td> -<td class="pad1">Apl.</td> -<td class="tdr">22.</td> -<td class="pad1">By Robinson</td> -<td class="tdr padh">8</td> -<td class="tdr padh">0</td> -<td class="tdr padh padr1">6</td> -</tr><tr> -<td class="pad1">May</td> -<td class="tdr">31.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">9</td> -<td class="tdr padh">0</td> -<td class="tdr padh br padr1">0</td> -<td class="pad1">May</td> -<td class="tdr">26.</td> -<td class="pad1">By Self</td> -<td class="tdr padh">5</td> -<td class="tdr padh">10</td> -<td class="tdr padh padr1">0</td> -</tr><tr> -<td class="pad1">June</td> -<td class="tdr">10.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">100</td> -<td class="tdr padh">0</td> -<td class="tdr padh br padr1">0</td> -<td class="pad1">June</td> -<td class="tdr">5.</td> -<td class="pad1">By Williams</td> -<td class="tdr padh">16</td> -<td class="tdr padh">11</td> -<td class="tdr padh padr1">2</td> -</tr><tr> -<td class="pad1">June</td> -<td class="tdr">28.</td> -<td class="pad1">To Cash</td> -<td class="tdr padh">7</td> -<td class="tdr padh">0</td> -<td class="tdr padh br padr1">0</td> -<td class="pad1">June</td> -<td class="tdr">25.</td> -<td class="pad1">By Brown</td> -<td class="tdr padh">7</td> -<td class="tdr padh">2</td> -<td class="tdr padh padr1">3</td> -</tr><tr> -<td class="pad1">June</td> -<td class="tdr">30.</td> -<td class="pad1">To Interest</td> -<td class="tdr padh">0</td> -<td class="tdr padh">3</td> -<td class="tdr padh br padr1">2</td> -<td class="pad1">June</td> -<td class="tdr">30.</td> -<td class="pad1">By Charges</td> -<td class="tdr padh">5</td> -<td class="tdr padh">2</td> -<td class="tdr padh padr1">6</td> -</tr><tr> -<td> </td> -<td> </td> -<td> </td> -<td> </td> -<td> </td> -<td class="br padr1"> </td> -<td> </td> -<td> </td> -<td class="pad1">By Balance</td> -<td class="tdr padh">133</td> -<td class="tdr padh">18</td> -<td class="tdr padh padr1">8</td> -</tr><tr> -<td> </td> -<td> </td> -<td> </td> -<td class="tdr bt bb">£756</td> -<td class="tdr padh bt bb">10</td> -<td class="tdr padh bt bb br padr1">11</td> -<td> </td> -<td> </td> -<td> </td> -<td class="tdr padh bt bb">£756</td> -<td class="tdr padh bt bb">10</td> -<td class="tdr padh bt bb padr1">11</td> -</tr><tr> -<td class="padth pad1">June</td> -<td class="tdr padth">30.</td> -<td class="pad1 padth">To Balance</td> -<td class="tdr padh padth">£133</td> -<td class="tdr padh padth">18</td> -<td class="tdr padh br padth padr1">8</td> -</tr> -</table> - -<p><span class="pagenum"><a name="Page_92" id="Page_92">[92]</a></span></p> - -<p>Mr. Jones’ ledger, then, assuming that none of his -cheques are outstanding, will show the same balance at -the debit of “bank,” though, of course, the dates will -not agree, as Mr. Jones credits the bank on the day -that he draws a cheque, whereas the bank debits him -on the day that it pays it. We can see that his banker -paid a cheque to Smith on the 15th February. If -John Jones drew the said cheque on the 12th, then he -debited Smith’s account and credited the bank on the -same day. But these entries, as we shall see in our -next illustration, appear upon the opposite sides of -the banker’s ledger.</p> - -<p>Mr. Jones, whose securities are tangible, has -arranged with the manager that he is to pay 4 per -cent. per annum on the overdraft and ⅛ per cent. -on his turn-over, and to receive 1½ per cent. on -his daily credit balances. Having received his pass-book, -he wishes to check his charges, and after -making two or three attempts, he is convinced of the -futility of his efforts, so renounces his task in despair. -He has worked the figures out in his own way, which, -though a little primitive, he generally finds answers -pretty well, and, as his figures come to something -like those entered in the pass-book, he supposes -that it is all right. Perhaps the following copy -of his account as it stands in the bank’s ledger may -therefore prove both illuminating and instructive:—</p> - -<p><span class="pagenum"><a name="Page_93" id="Page_93">[93]</a></span></p> - - -<p class="center"><span class="smcap">Jones, John</span>, General Dealer, 5, High Street, Exeter.</p> - -<table summary="" class="bordcoll cellpadh"> -<tr> -<th colspan="2" class="br bt bb">Date.</th> -<th colspan="1" class="br bt bb">Particulars.</th> -<th colspan="3" class="br bt bb">Dr.</th> -<th colspan="3" class="br bt bb">Cr.</th> -<th colspan="1" class="br bt bb">Dr.<br />or<br />Cr.</th> -<th colspan="3" class="br bt bb">Balance.</th> -<th colspan="1" class="br bt bb">Days.</th> -<th colspan="1" class="br bt bb">Total.</th> -<th colspan="3" class="bt bb padrh">Total.</th> -</tr><tr> -<td colspan="2" class="br tdc">1902.</td> -<td colspan="1" class="br tdc"> </td> -<td colspan="3" class="br tdc">£</td> -<td colspan="3" class="br tdc">£</td> -<td colspan="1" class="br tdc"> </td> -<td colspan="3" class="br tdc">£</td> -<td colspan="1" class="br tdc"> </td> -<td colspan="1" class="br tdc">£</td> -<td colspan="3" class="tdc padrh">£</td> -</tr><tr> -<td>Dec.</td> -<td class="br tdr">31.</td> -<td class="br">To Balance</td> -<td class="tdr">500</td> -<td class="tdr">2</td> -<td class="br tdr">6</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Dr.</td> -<td class="tdr">500</td> -<td class="tdr">2</td> -<td class="br tdr">6</td> -<td class="br tdr">20</td> -<td class="br tdr">10,000</td> -</tr><tr> -<td colspan="2" class="br tdc">1903.</td> -<td colspan="1" class="br tdc"> </td> -<td colspan="3" class="br tdc"> </td> -<td colspan="3" class="br tdc"> </td> -<td colspan="1" class="br tdc"> </td> -<td colspan="3" class="br tdc"> </td> -<td colspan="1" class="br tdc"> </td> -<td colspan="1" class="br tdc"> </td> -<td colspan="3" class="tdc padrh"> </td> -</tr><tr> -<td>Jan.</td> -<td class="br tdr">20.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">300</td> -<td class="tdr">1</td> -<td class="br tdr">6</td> -<td class="br tdc">Dr.</td> -<td class="tdr">200</td> -<td class="tdr">1</td> -<td class="br tdr">0</td> -<td class="br tdr">26</td> -<td class="br tdr">5,200</td> -</tr><tr> -<td>Feb.</td> -<td class="br tdr">15.</td> -<td class="br">To Smith</td> -<td class="tdr">10</td> -<td class="tdr">0</td> -<td class="br tdr">0</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Dr.</td> -<td class="tdr">210</td> -<td class="tdr">1</td> -<td class="br tdr">0</td> -<td class="br tdr">44</td> -<td class="br tdr">9,240</td> -</tr><tr> -<td> Mar.</td> -<td class="br tdr">31.</td> -<td class="br">To Jones</td> -<td class="tdr">70</td> -<td class="tdr">3</td> -<td class="br tdr">4</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Dr.</td> -<td class="tdr">280</td> -<td class="tdr">4</td> -<td class="br tdr">4</td> -<td class="br tdr">22</td> -<td class="br tdr">6,160</td> -</tr><tr> -<td>Apl.</td> -<td class="br tdr">22.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">90</td> -<td class="tdr">1</td> -<td class="br tdr">3</td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdr"> </td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br">To Robinson</td> -<td class="tdr">8</td> -<td class="tdr">0</td> -<td class="br tdr">6</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Dr.</td> -<td class="tdr">198</td> -<td class="tdr">3</td> -<td class="br tdr">7</td> -<td class="br tdr">23</td> -<td class="br tdr">4,554</td> -</tr><tr> -<td>May</td> -<td class="br tdr">15.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">200</td> -<td class="tdr">5</td> -<td class="br tdr">0</td> -<td class="br tdc">Cr.</td> -<td class="tdr">2</td> -<td class="tdr">1</td> -<td class="br tdr">5</td> -<td class="br tdr">3</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">6</td> -</tr><tr> -<td>May</td> -<td class="br tdr">18.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">50</td> -<td class="tdr">0</td> -<td class="br tdr">0</td> -<td class="br tdc">Cr.</td> -<td class="tdr">52</td> -<td class="tdr">1</td> -<td class="br tdr">5</td> -<td class="br tdr">8</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">416</td> -</tr><tr> -<td>May</td> -<td class="br tdr">26.</td> -<td class="br">To Self</td> -<td class="tdr">5</td> -<td class="tdr">10</td> -<td class="br tdr">0</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Cr.</td> -<td class="tdr">46</td> -<td class="tdr">11</td> -<td class="br tdr">5</td> -<td class="br tdr">5</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">235</td> -</tr><tr> -<td>May</td> -<td class="br tdr">31.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">9</td> -<td class="tdr">0</td> -<td class="br tdr">0</td> -<td class="br tdc">Cr.</td> -<td class="tdr">55</td> -<td class="tdr">11</td> -<td class="br tdr">5</td> -<td class="br tdr">5</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">280</td> -</tr><tr> -<td>June</td> -<td class="br tdr">5.</td> -<td class="br">To Williams</td> -<td class="tdr">16</td> -<td class="tdr">11</td> -<td class="br tdr">2</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Cr.</td> -<td class="tdr">39</td> -<td class="tdr">0</td> -<td class="br tdr">3</td> -<td class="br tdr">5</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">195</td> -</tr><tr> -<td>June</td> -<td class="br tdr">10.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">100</td> -<td class="tdr">0</td> -<td class="br tdr">0</td> -<td class="br tdc">Cr.</td> -<td class="tdr">139</td> -<td class="tdr">0</td> -<td class="br tdr">3</td> -<td class="br tdr">15</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">2,085</td> -</tr><tr> -<td>June</td> -<td class="br tdr">25.</td> -<td class="br">To Brown</td> -<td class="tdr">7</td> -<td class="tdr">2</td> -<td class="br tdr">3</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc">Cr.</td> -<td class="tdr">131</td> -<td class="tdr">18</td> -<td class="br tdr">0</td> -<td class="br tdr">3</td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh">396</td> -</tr><tr> -<td>June</td> -<td class="br tdr">28.</td> -<td class="br">By Cash</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">7</td> -<td class="tdr">0</td> -<td class="br tdr">0</td> -<td class="br tdc">Cr.</td> -<td class="tdr">138</td> -<td class="tdr">18</td> -<td class="br tdr">0</td> -<td class="br tdr">2</td> -<td class="br tdr padr0">2,268<a name="FNanchor_A_1" id="FNanchor_A_1"></a><a class="fnanchor" href="#Footnote_A_1">*</a></td> -<td colspan="3" class="tdr padrh">278</td> -</tr><tr> -<td>June</td> -<td class="br tdr">30.</td> -<td class="br">By Interest</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">0</td> -<td class="tdr">3</td> -<td class="br tdr">2</td> -<td class="br tdc">Cr.</td> -<td class="tdr">139</td> -<td class="tdr">1</td> -<td class="br tdr">2</td> -<td class="br tdr"> </td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh"></td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br bt tdr">181</td> -<td class="br bt tdr">37,422</td> -<td colspan="3" class="bt tdr padrh">3,891</td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdr"> </td> -<td colspan="3" class="tdr padrh"> </td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br">To Charges</td> -<td class="tdr">5</td> -<td class="tdr">2</td> -<td class="br tdr">6</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr">133</td> -<td class="tdr">18</td> -<td class="br tdr">8</td> -<td colspan="2" class="tdl">4 per cent. per ann. on</td> -<td colspan="3" class="tdr padrh"> </td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br">To Balance</td> -<td class="tdr">133</td> -<td class="tdr">18</td> -<td class="br tdr">8</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl pad1">£37,422 for 1 day</td> -<td class="tdr">£4</td> -<td class="tdr">2</td> -<td class="tdr padrh">0</td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="bt tdr">756</td> -<td class="bt tdr">10</td> -<td class="br bt tdr">11</td> -<td class="bt tdr">756</td> -<td class="bt tdr">10</td> -<td class="br bt tdr">11</td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl">⅛ per cent. on turn-</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="tdr padrh"> </td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl pad1">over £617</td> -<td class="tdr">0</td> -<td class="tdr">15</td> -<td class="tdr padrh">6</td> -</tr><tr> -<td>June</td> -<td class="br tdr">30</td> -<td class="br">By Balance</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr">133</td> -<td class="tdr">18</td> -<td class="br tdr">8</td> -<td class="br tdc">Cr.</td> -<td class="tdr">133</td> -<td class="tdr">18</td> -<td class="br tdr">8</td> -<td colspan="2" class="tdl">Postages</td> -<td class="tdr">0</td> -<td class="tdr">5</td> -<td class="tdr padrh">0</td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl"> </td> -<td class="tdr bt bb">£5</td> -<td class="tdr bt bb">2</td> -<td class="tdr bt bb padrh">6</td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl"><i>Allowed</i>—</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="tdr padrh"> </td> -</tr><tr> -<td> </td> -<td class="br tdr"> </td> -<td class="br"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td class="br tdc"> </td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="br tdr"> </td> -<td colspan="2" class="tdl">1½ per cent. per ann.</td> -<td class="tdr"> </td> -<td class="tdr"> </td> -<td class="tdr padrh"> </td> -</tr><tr> -<td class="bb"> </td> -<td class="bb br tdr"> </td> -<td class="bb br"> </td> -<td class="bb tdr"> </td> -<td class="bb tdr"> </td> -<td class="bb br tdr"> </td> -<td class="bb tdr"> </td> -<td class="bb tdr"> </td> -<td class="bb br tdr"> </td> -<td class="bb br tdc"> </td> -<td class="bb tdr"> </td> -<td class="bb tdr"> </td> -<td class="bb br tdr"> </td> -<td colspan="2" class="bb tdl pad1">on £3,891 for 1 day</td> -<td class="bb tdr">£0</td> -<td class="bb tdr">3</td> -<td class="bb tdr padrh">2</td> -</tr> -</table> - -<div class="footnote"> -<p><a name="Footnote_A_1" id="Footnote_A_1"></a> -<a href="#FNanchor_A_1"><span class="label">*</span></a> -Three days’ interest upon “cheques” paid to credit. 756 × 3.</p> -</div> - -<p>Now everything should be as clear as the flowing -brook to Mr. Jones. He should, in the first instance -rule a sheet of paper in exactly the same manner as -the specimen page of the banker’s ledger. He next -carries the entries from his pass-book to the ruled -sheet, taking care that each amount, whether debit -or credit, is placed under its right date, and at the -end of each day, or when the next date appears, he -extends the balance, as in our illustration, for it is<span class="pagenum"><a name="Page_94" id="Page_94">[94]</a></span> -upon this balance that the bank either allows or -charges him interest for one, two, or twenty days, as -the case may be, at an agreed rate. He then multiplies -this balance by the number of days, and carries -the product into a “total” column, which he adds -up at the end of the half-year. This done, the rest is -a very simple business for anybody who can manage -a rule-of-three sum.</p> - -<p>The banker, we can see, brings forward the amount -of Mr. Jones’ indebtedness on the 31st December -when his books were ruled off. This opening entry, -which amounts to £500 2<i>s.</i> 6<i>d.</i>, is placed in the debit -column of his ledger, and extended as a debit balance. -Upon the morning of the 1st January, therefore, one -day’s interest was owing on £500, but the next operation -upon the account did not take place until 20th -January; and as from 31st December (excluding the -31st and counting 1st January as one day) to 20th -January (inclusive) there are twenty days, the customer -owes twenty days’ interest upon £500. If we -multiply 500 by 20, as in our form, and carry the -product into “total” column, he then owes one -day’s interest upon £10,000. The result, of course, is -precisely the same; so a banker, in order to save a -multiplicity of calculation, adopts this rule throughout, -with the result that, at the end of the half-year, -his client owes one day’s interest upon £37,422.</p> - -<p>Bankers, when referring to the figures in the “total” -columns, speak of them mysteriously as “decimals,” -and the customer, upon hearing so ominous a<span class="pagenum"><a name="Page_95" id="Page_95">[95]</a></span> -word, jumps to the conclusion that bankers’ calculations -are most difficult and involved, when, in reality, -they are of the simplest nature imaginable. Evidently -the product in question is the result of a -simple multiplication sum; so why bankers should -speak of extending the “decimals,” when there is -none to be extended, must ever remain one of the -enigmas of their trade.</p> - -<p>As a rule, should the shillings in the balance -column be ten or over, the banker, in making his calculations, -calls them one pound, and when less than -ten shillings he ignores them. On the 20th January, -for instance, the shillings are excluded, but upon the -26th May £47 is the sum we have to multiply by five. -Further, in arriving at the number of days between -two dates, exclude the first date and include the -second, or vice versa, but do not include both dates.</p> - -<p>The second “total” column of our form is for -creditor results, or, as bankers incorrectly call them, -creditor decimals, the left-hand column being, of -course, the debtor, and the right the creditor, just as -though they were left-and right-hand pages of a -cash-book. Having ascertained the number of days -from date to date, we add them up, and next proceed -to balance them. From 31st December, 1902, exclusive, -to 30th June following, inclusive, there are 181 -days, and, as those are the figures in our days’ -column, we know that they are correct. Next we add -up the “total” columns, and here great care is necessary, -because it is impossible to balance the figures.</p> - -<p><span class="pagenum"><a name="Page_96" id="Page_96">[96]</a></span></p> - -<p>Dealing with the debit total first, we find that -John Jones owes his banker one day’s interest at 4 -per cent. per annum upon £37,422. Hence:—</p> - -<table summary=""> -<tr> -<td class="tdc bb">37,422 × 4 × 1</td> -<td rowspan="2">= £4 2<i>s.</i></td> -</tr> -<tr> -<td class="tdc">100 × 365</td> -</tr> -</table> - -<p>But Mr. Jones will make these figures £35,154, and -the answer £3 17<i>s.</i> 1<i>d.</i>, and upon asking for an -explanation he will be told that he has been charged -three days’ interest upon the cheques he paid to his -credit during the half-year. The banker argues that -his client receives credit for the cheques he pays in -immediately, whereas he himself has to collect them -through the “clearing,” and does not receive the -money for two or three days. The argument is somewhat -fallacious as to the length of time, but we need -not discuss that minutely. Mr. Jones points out that -he pays in cash and local cheques as well as cheques -upon London and country bankers, and that, therefore, -he cannot understand why the manager charges -him three days’ interest upon the total sum paid to -his credit during the half-year. He will, of course, -decline to submit to this charge, and request the -manager to refund him 4<i>s.</i> 11<i>d.</i> (three days’ interest -upon £756 at 4 per cent. per annum).</p> - -<p>With reference to the rate, the average Bank rate -from 31st December to 30th June works out at -£3 17<i>s.</i> 1<i>d.</i> While his account was overdrawn, however, -the official minimum was at 4 the whole time, -so the rate is a fair one, but this question has already -been discussed in the previous chapter.</p> - -<p><span class="pagenum"><a name="Page_97" id="Page_97">[97]</a></span></p> - -<p>His banker owes him 1½ per cent. per annum upon -his creditor balances, which are multiplied by the -days and extended in our second “total” column. -He has, therefore, to receive 1½ per cent. per annum -upon £3,891 for one day. Hence:—</p> - -<table summary=""> -<tr> -<td class="tdc bb">3,891 × 1½ × 1</td> -<td rowspan="2">= 3<i>s.</i> 2<i>d.</i></td> -</tr> -<tr> -<td class="tdc">100 × 365</td> -</tr> -</table> - -<p>As this is the sum debited in the pass-book, Mr. -Jones’ mind is at rest <i>à propos</i> of the correctness of -the figures; but it will probably occur to him that -the rate might be improved, for the fact that one is -borrowing at 4 and lending at 1½ is not conducive to -harmonious thinking.</p> - -<p>Next, he checks the commission on his turn-over, -which he makes £117. He pays ⅛ per cent., of -course, upon the amount of the cheques credited in -his pass-book during the half-year, and these come -to the sum aforesaid. Hence:—</p> - -<table summary=""> -<tr> -<td class="tdc bb">117 × 1</td> -<td rowspan="2">= 2<i>s.</i> 11<i>d.</i></td> -</tr> -<tr> -<td class="tdc">100 × 8</td> -</tr> -</table> - -<p>But his banker has charged him ⅛ per cent. on -£617. His glance falls upon the balance forward of -£500 2<i>s.</i> 6<i>d.</i>, and it at once occurs to him that the -manager has charged him thereupon, that, in short, -a mere banker’s opening entry has been included -in his turn-over. Excited by this discovery, Mr. -Jones calls upon his banker, and points out to him, -with a touch of Celtic intensity, that he sees no earthly -reason why he should pay 12<i>s.</i> 7<i>d.</i> simply because the -bank has made an entry of its own in his pass-book.<span class="pagenum"><a name="Page_98" id="Page_98">[98]</a></span> -Moreover, with a keen eye for mathematics, he -clearly demonstrates that he has already paid commission -upon the various transactions which resulted -in the said balance; so the manager, adjusting his -spectacles, and praying Mr. Jones to moderate his -language, allows that, in the hurry of business, a little -mistake has occurred. A customer, when checking -his charges, should see that he does not pay commission -upon opening entries of this description, as, -needless to say, they are merely there in order to -enable the banker to balance his books, and bear no -relation whatever to a client’s turn-over, though -they are sometimes added to it.</p> - -<p>Just referring to the rate of commission, ⅛ per cent. -we know, seems too much, so Mr. Jones may be recommended -to read Chapter VIII of this book.</p> - -<p>Lastly, we come to the entry “Postages, 5<i>s.</i>” -The manager, during the half-year, writes numerous -letters to his customers, sends their pass-books to -them through the post, and so on; therefore, in order -to reduce his incidental expenses, he debits a few -shillings to certain easy-going clients before the books -are ruled off, and so as to prevent awkward questions -being asked, he includes these small sums with -“charges.” Mr. Jones, who has probably not -received half a dozen letters from the bank during -the half-year, will naturally refuse to pay this -imposition.</p> - -<p>Should a customer not have made arrangements -with the manager as to the rates he is to pay, he -would ask at what rates his account has been charged,<span class="pagenum"><a name="Page_99" id="Page_99">[99]</a></span> -and then proceed to check the banker’s figures in the -manner indicated in these pages. Such an entry as -“charges” has nothing better than its extreme -vagueness to recommend it, and the client, when he -finds this word in his pass-book, should, if he experience -any difficulty in checking the figures, return it to -the manager with the request that he will give him -full particulars as to the rates of interest and commission, -and also tell him the amount of any additional -charge or charges, if there be any.</p> - -<p>We can now make out a table of the amount Mr. -Jones has to reclaim from his banker:—</p> - -<table summary="" class="bordcoll calc"> -<tr> -<th colspan="4" class="tdc">Customer’s Calculations.</th> -<th class="pad2"> </th> -<th colspan="4" class="tdc">Banker’s Calculations.</th> -</tr><tr> -<td>4 per cent. per annum</td> -<td> </td> -<td> </td> -<td> </td> -<td class="pad2"> </td> -<td>4 per cent. per annum</td> -<td> </td> -<td> </td> -<td> </td> -</tr><tr> -<td class="pad1">on £35,154</td> -<td class="tdr">£3</td> -<td class="tdr">17</td> -<td class="tdr">1</td> -<td class="pad2"> </td> -<td class="pad1">on £37,422</td> -<td class="tdr">4</td> -<td class="tdr">2</td> -<td class="tdr">0</td> -</tr><tr> -<td>⅛ per cent. on £117</td> -<td class="tdr">0</td> -<td class="tdr">2</td> -<td class="tdr">11</td> -<td class="pad2"> </td> -<td>⅛ per cent. on £617</td> -<td class="tdr">0</td> -<td class="tdr">15</td> -<td class="tdr">6</td> -</tr><tr> -<td>Postages, <i>nil</i></td> -<td class="tdr">0</td> -<td class="tdr">0</td> -<td class="tdr">0</td> -<td class="pad2"> </td> -<td>Postages</td> -<td class="tdr">0</td> -<td class="tdr">5</td> -<td class="tdr">0</td> -</tr><tr> -<td>Balance to be refunded</td> -<td class="tdr">1</td> -<td class="tdr">2</td> -<td class="tdr">6</td> -<td class="pad2"> </td> -<td> </td> -<td> </td> -<td> </td> -<td> </td> -</tr><tr> -<td> </td> -<td class="bt bb tdr">£5</td> -<td class="bt bb tdr">2</td> -<td class="bt bb tdr">6</td> -<td class="pad2"> </td> -<td> </td> -<td class="bt bb tdr">£5</td> -<td class="bt bb tdr">2</td> -<td class="bt bb tdr"> 6</td> -</tr> -</table> - -<p>The commission on £617 is 15<i>s.</i> 5¹/₁₀<i>d.</i>, but a banker -would charge 15<i>s.</i> 6<i>d.</i> Mr. Jones, we can see, has -been overcharged to the extent of £1 2<i>s.</i> 6<i>d.</i>, and we -may rest quite assured that he will not be easy in his -mind until he has recovered this sum from his banker.</p> - -<p>Sometimes a customer, when ruling off his own -books, draws a cheque for, say, £600, and pays it to -his credit at the bank. This would be a cross entry. -But does he understand that this sum will be included -in his turn-over, and that if he be charged ⅛ per cent. -thereupon, he pays 15<i>s.</i> to his banker for making a -couple of entries in his ledger? Again, if the manager<span class="pagenum"><a name="Page_100" id="Page_100">[100]</a></span> -charge him three days’ interest at 5 per cent. per -annum upon the sums paid to his credit, he will pay -another 5<i>s.</i> (about), and at this rate a cross entry of -£600 would cost him 20<i>s.</i> The luxury, it must occur -to him, is expensive; and as this illustration is not a -figment of my imagination it is evident that everybody -who keeps a banking account should understand -how to check a banker’s charges.</p> - -<p>It seems an act of supererogation to point out that -the average account would contain very many more -entries than the one under review, but if the reader -will carefully follow these instructions he should -find little difficulty in checking the charges in any -bank-book. Where the account has been overdrawn -during the entire quarter or half-year the first “total” -column must be used. Our example is that of a -mixed account, and both columns are required; but -should the account be a creditor one, then the extensions -are made in the second “total” column, and -the banker, of course, will allow the customer a rate.</p> - -<p>When checking the interest of a loan account it -is advisable to obtain a separate pass-book from -the banker, and not to take out the entries from -the current-account pass-book wherein the interest is -debited. Should it be found that the commission has -been charged upon the amount of the loan, the customer -would ask for an explanation, and in checking -his interest he would proceed in exactly the same -way as shown in our example.</p> - -<p>Again, we have seen that some customers arrange -that their rate shall be either Bank rate or ½ above<span class="pagenum"><a name="Page_101" id="Page_101">[101]</a></span> -it, as the case may be. Suppose that the Bank rate -on the 22nd April were raised from 3 to 3½ per -cent., and that it had stood at 3 from 31st December. -The customer, who has agreed to pay his banker ½ -above Bank rate, will then owe 3½ per cent. per -annum on the sum or sums he has borrowed from 31st -December to 22nd April. Applying this hypothesis -to the account under review, we rule a line beneath -the figures 6,160 in “total” column, and add up the -column, which comes to 30,600. From 31st December -(exclusive) to 22nd April (inclusive) there are 112 -days (see page 59), and, as the figures in the days’ -column give the same result, we know that they are -correct. The customer, then, owes his banker one -day’s interest at 3½ per cent. per annum upon -£30,600. At each change of the Bank rate this process -must be repeated; so instead of having one rule-of-three -sum to work out, as in our illustration, there -may perhaps be four or five of them.</p> - -<p>Should the fortunate possessor of a large creditor -account have arranged with his banker that he is to -receive 1½ per cent. <i>below</i> Bank rate on his daily credit -balances, then assuming that the balances on our -form were creditor, the banker would owe 1½ per cent. -per annum on £30,600 for one day. The customer, -when calculating the amount due to him, would proceed -in the same manner as indicated above, and he -might remember that, in arriving at the number of -days from one change of the Bank rate to another, he -excludes the day from which he calculates and includes -the date to which he calculates. The rest is easy.</p> - - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_102" id="Page_102">[102]</a></span> -<h2 class="nobreak"><a name="CHAPTER_X" id="CHAPTER_X"></a>CHAPTER X <br/> -<small><small>BILLS, COUPONS, FOREIGN DRAFTS, ETC.</small></small></h2> -</div> - -<h3>Discounted Bills.</h3> - -<p>The city-article of every morning paper contains a -list of market discounts from which one can see at -what rates the bill-brokers and discount-houses are -taking the various classes of bills. Bank-bills would -be paper either accepted or indorsed by the banks; -and fine trade-bills or best trade-bills would be the -acceptances of those firms whose credit is so good -that the question of their paper not being paid at -maturity is practically never considered. As the -credit of the banks ranks highest it follows that -bank-bills can be discounted at the finest rates. -Again, less risk is run on a three months’ bill than -upon one for four or six months. In other words, the -position of an acceptor is less liable to change in -three months than in six, therefore short bills are in -greater favour; consequently, the rate upon a six -months’ bill, other considerations being equal, will -be higher than that upon one which has three months -to run, though the difference, of course, will only be a -fractional one.</p> - -<p><span class="pagenum"><a name="Page_103" id="Page_103">[103]</a></span></p> - -<p>The bill-brokers, we know, obtain most of the -bank and the fine bills, but they are also dependent -upon Lombard Street for the greater part of their -resources; and as a bank, which owes huge sums on -demand, likes to keep its assets as liquid as possible, -it follows that bankers take short bills from the -brokers in preference to those which are drawn for -long terms, for the simple reason that should they -think the outlook uncertain and deem it prudent -to strengthen their reserves, the shorter bills will run -off the more quickly, thereby providing them with -additional cash. A three months’ bill, therefore, from -a banker’s standpoint, is considered more desirable -than one at six months’ date.</p> - -<p>When trade is active and loanable capital dear -market rates of discount will naturally be high, and -the Bank rate, speaking broadly, is generally in touch -with the market rate for three months’ bank-bills. -Conversely, when trade is dull and the prices of commodities -are falling, fewer bills will be on offer; but -the fund with which they are discounted will be proportionately -greater, consequently the market rates -of discount will be low, as, also, will be the Bank rate. -It must be remembered, however, that the Bank of -England discounts bills for its own customers below -its published rate—when its minimum is temporarily -above the market rate; for were it not to adopt this -course its customers would naturally discount their -bills with the brokers.</p> - -<p>As the bill-brokers are middlemen between Lom<span class="pagenum"><a name="Page_104" id="Page_104">[104]</a></span>bard -Street and those merchants who have bills to sell -it follows that the market rate of discount is always -below the bankers’ rates, and that, therefore, holders -of the better-class paper take it to the brokers, but -this peculiarity has been mentioned in Chapter VI. -It may, however, be added that the remittance of the -best country bills to the London bill-brokers is a comparatively -new movement, which the banks do not -regard with favour. Competition between the brokers -being keen, it is questionable whether the finest rates -are quoted in the papers, for the merchants who have -bills for sale will, of course, not neglect to higgle with -the brokers, who, like the bankers themselves, certainly -would not advertise their lowest rates.</p> - -<p>The large discount-houses and brokers possess considerable -capital, though it would look extremely -small when contrasted with the short-loan fund, and -they deposit certain approved securities with the -banks against the money at call advanced to them; -but the small bill-brokers are little better than runners -for the banks with whom they re-discount their -bills almost as soon as they are in their cases, and -their capital would consist principally of a silk-hat -and a bill-case. Certain brokers on the Stock -Exchange, it may be added, stand in much the same -relation to Lombard Street. Besides borrowing -from the banks the bill-brokers also accept deposits -from the public, basing their rate upon the Bank rate, -and allowing a slightly higher rate than the London -bankers.</p> - -<p><span class="pagenum"><a name="Page_105" id="Page_105">[105]</a></span></p> - -<p>The market for bills is a special market, into which -the banks pour their surplus funds, so customers will -be careful not to confuse the price of a bill with the -price of a loan, though, of course, there is a close -connexion between the two; for when loanable -capital is dear discount rates too are high, and when -the former is cheap the latter are low. The London -customer, who discounts fine bills with his banker, -will naturally take care that he does not pay a higher -rate than the bill-brokers would charge him, and -when he discounts second-rate trade-bills he will -remember that competition is very keen, and that if -his credit be good he can generally induce the manager -to quote a fine rate.</p> - -<p>Coming to provincial banking, we have seen that -the large merchants and manufacturers remit some -of their best trade-bills to London; but in the great -cities, where the banks are numerous, the competition -for good paper is considerable; and as the customer -usually keeps his current account at the bank -with which he discounts his bills, he can generally, if -his account be worth retaining and his credit good, -get his paper discounted at Bank rate, or even -slightly under when the market rate is below it.</p> - -<p>In the small country towns, however, the banks’ -rates are higher, but then, of course, the paper they -discount there is not of the same class; and a capitalist, -be he a money-lender or a banker, raises his rate -in proportion to the risk he runs, the one thinking a -bill so doubtful that 100 per cent. will just tempt him<span class="pagenum"><a name="Page_106" id="Page_106">[106]</a></span> -to risk his principal, and the other drawing the line at -about 7 per cent.</p> - -<p>A, for instance, has an acceptance of C’s for £100, -dated the 1st January and drawn for one month, so -the bill, allowing the usual three days’ grace, will be -due upon the 4th February. A takes this bill on the -5th January, to his banker, by whom it is discounted. -From the 5th January exclusive, to the 4th February, -inclusive, there are thirty days; and assuming that -the discount rate be 5 per cent. per annum, and the -rate of commission upon the amount of the bill ⅛ per -cent., we get the following:—</p> - -<table summary="" class="bordcoll p106"> -<tr> -<td class="pad2"> </td> -<td class="bb tdc pad0">100 × 5 × 30</td> -<td rowspan="2" class="tdc">=</td> -<td rowspan="2" class="tdr">8<i>s.</i></td> -<td rowspan="2" class="tdr">2<i>d.</i></td> -</tr><tr> -<td> </td> -<td class="tdc pad0">100 × 365</td> -</tr><tr> -<td colspan="2" class="tdr">⅛ per cent. upon £100</td> -<td class="tdc">=</td> -<td class="tdr">2<i>s.</i></td> -<td class="tdr"> 6<i>d.</i></td> -</tr><tr> -<td> </td> -<td> </td> -<td class="tdc"> </td> -<td class="bt bb tdr">10<i>s.</i></td> -<td class="bt bb tdr">8<i>d.</i></td> -</tr> -</table> - -<p>A, therefore, has paid about 6½ per cent. per annum -for the accommodation. The country banks, when -they charge 5 per cent. per annum interest and ¼ -per cent. commission upon short bills, obtain something -like 8 per cent. per annum upon their capital; -but, needless to say, the persons who pay these -rates are either out of touch with the market or else -their credit is so bad that they are glad to discount -their bills with a banker upon almost any terms. -And then, again, there is not much paper of this description -under discount with the provincial banks.</p> - -<p>Country customers, whose credit is above suspicion, -make very close bargains when they take good trade-<span class="pagenum"><a name="Page_107" id="Page_107">[107]</a></span>bills -to the banks to be discounted, and seldom pay -any commission upon the amount of the bill, though, -of course, the manager will attempt to exact it if he -think that his man will pay without protest. As -previously stated the customer almost invariably discounts -his bills with the banker with whom he keeps -his current account, and he generally pays the same -rate on his paper as he does upon his overdraft. -Competition for desirable accounts being keen, it -follows that a client who discounts largely can always -bring pressure to bear upon the manager, should he -consider that his rates are excessive and altogether -out of touch with the market rates.</p> - - -<h3>Coupons.</h3> - -<p>Many people leave their coupons with bankers -for collection, and here, again, we get an example of -making those pay who will. The usual rates are ⅛ -per cent. commission on English and ¼ per cent. upon -foreign and colonial coupons, but, as a matter of fact, -certain managers keep a list of those persons who -refuse to pay these charges, while they who do not -protest, no matter how large a sum they may keep to -their credit upon current account, are made to pay -the ordinary rates. It is only fair that a person whose -average credit balance does not exceed £50 should -pay a rate; but when a man keeps from £250 to £500 -and above on the right side, the banker can quite well -afford to forego his charge.</p> - -<p>Suppose a banker receives £40 from his London<span class="pagenum"><a name="Page_108" id="Page_108">[108]</a></span> -agent or through the coupon department of his head-office -on account of coupons remitted for a customer. -He deducts his charge of 2<i>s.</i>, and, without informing -the person for whom they have been collected, -credits £39 18<i>s.</i> in his pass-book. The client, in five -cases out of six, remains under the impression that he -has received the market value for his coupons, whereas, -had the manager credited the account with £40, -and debited it with 2<i>s.</i> commission, the customer in -every probability would have asked for an explanation.</p> - -<p>The customer, by examining his pass-book, will -soon discover whether a rate has been deducted, and -if he consider that the balance he keeps at his credit -amply repays the bank, then he can request that the -commission be returned to him, and that his name be -placed on the free list with those of other “conscientious -objectors.” Where the face-value of the -coupons is given in a foreign currency, he will, of -course, have to discover the rate of exchange at which -they were sold. Allowance, too, must be made for -income-tax.</p> - -<p>When purchasing stocks or shares through his -banker the latter divides the commission with the -broker, and it is perhaps advisable to see the broker’s -note, as a zealous manager, anxious to augment the -profits of his branch, and believing devoutly in the -old-fashioned maxim “every little helps,” occasionally -adds a small charge of his own. Should he do -this, then he sends the customer a <i>copy</i> of the broker’s<span class="pagenum"><a name="Page_109" id="Page_109">[109]</a></span> -note instead of the note itself, and in the copy he has, -it need not be said, added a small commission of his -own to the broker’s. As a banker guarantees the -customer against loss through the failure of either the -broker or the jobber, purchasing shares through a -bank has its advantages for the bona-fide investor; -but the speculator, who may want to “carry over” -from account to account, must deal with a member of -the Stock Exchange.</p> - -<p>Again, when buying foreign drafts through one’s -banker inquiry should be made as to the rate of -exchange, so that one can check his figures. In a -small book of this description much must necessarily -be omitted, but it may just be added that in these -days the facilities bankers grant their customers -range from taking charge of their plate and valuables -to allowing them to have their letters addressed to the -bank, while they will even pay their subscriptions for -them. The difficulty is to say what they will not do, -and some day, perhaps, we shall have their young -men calling in the morning for orders with the baker.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_110" id="Page_110">[110]</a></span> -<h2 class="nobreak"><a name="CHAPTER_XI" id="CHAPTER_XI"></a>CHAPTER XI <br/> -<small><small>UNCLAIMED BALANCES</small></small></h2> -</div> - -<p>I would describe this banking custom as legal stealing.<a name="FNanchor_A_2" id="FNanchor_A_2"></a><a href="#Footnote_A_2" class="fnanchor">*</a> -Bankers, as well as other estimable persons, -obtain their gleanings and their perquisites, which are -credited to certain sundry accounts, such as “unclaimed -dividends,” “unclaimed balances,” and so -on. Those banks, too, that issue notes must profit -to a certain extent by the paper that is lost and -destroyed by the public; and though it is impossible -to estimate the gain to the banks from these sources, -their absolute silence on the subject seems to indicate -perhaps more eloquently than statistics, that the -fund thus derived must be considerable, even if it be -not vast.</p> - -<div class="footnote"> - -<p><a name="Footnote_A_2" id="Footnote_A_2"></a><a href="#FNanchor_A_2"><span class="label">*</span></a> The Government is not prepared to promote legislation -for the purpose of requiring the banks of the United -Kingdom to make a return showing the sums of money in -their hands in respect of dormant and obsolete accounts.—Vide -Press, Feb. 1908.</p></div> - -<p>Coming to the definition of an unclaimed balance, -it must be confessed that it is somewhat difficult to -explain exactly what an “unclaimed” balance is, for -the simple reason that the banks, when an account<span class="pagenum"><a name="Page_111" id="Page_111">[111]</a></span> -becomes dormant, seldom make an effort to discover -whether the owner be either dead or alive, or to -whom the balance belongs. On the other hand, if -they do not court inquiry, it cannot be said that they -obstruct it. Neither, however, do they encourage it, -nor assist the owner or claimant in any way, but content -themselves with passively carrying forward the -figures from half-year to half-year. The public may -well be dissatisfied with this treatment, for it is quite -apparent that were the banks to make it their business -to discover the owners or claimants they would -be successful in five cases out of six, and, further, the -longer they nurse these so-called “unclaimed” -balances, the greater is the probability that they will -for ever retain them.</p> - -<p>We will first discuss the position of the current-account -customer in relation to this practice. As a -rule, it is well known to the members of a deceased -man or woman’s family where the banking account -was kept; so inquiries are usually made, and the -balance standing to the credit of the deceased ascertained. -There are, however, exceptional cases. A -man may have accounts with two different bankers -and though one is known, the second may not be. If -the pass-book relating to the second account be at the -bank, the manager very probably will keep it there. -Again, a person on a visit to a place may open a small -temporary account at a bank there, and should he -die suddenly the manager will not make any attempt -to trace his representatives. When the pass-books<span class="pagenum"><a name="Page_112" id="Page_112">[112]</a></span> -which relate to these “unclaimed” balances are at -the bank, some managers are most careful that they -shall not go out again; and, in order to prevent their -being sent through the post to the addresses on the -ledgers, the books are generally placed in some out-of-the-way -corner of the strong-room, there to await -the coming of their owners. This is certainly a novel -way of protecting the interests of one’s clients, -though it doubtless has not the smallest claim to -originality, and may not be completely unknown in -other trades than that of banking.</p> - -<p>Secondly, we come to the deposit-receipt or deposit-note; -and it will readily be allowed that a small -piece of paper of this description may easily be either -lost or accidentally destroyed. It must be borne in -mind, too, that the companies, in the event of a -depositor’s death, do not take any steps to inform -either his next-of-kin or his legal representatives -that certain sums of money are standing to his credit -in their deposit-ledgers, even when they are aware of -his decease. Then, again, after a depositor’s death -these documents are sometimes overlooked or inadvertently -cast aside with other papers. Such -sums, after a lapse of years, might go to swell a -company’s unclaimed balances.</p> - -<p>But it is a misnomer to speak of these sums as -“unclaimed,” when it is obvious that they are simply -“unpublished,” and that the banks, were they so inclined, -could find the true owners of a large number -of these balances in a very short space of time. In<span class="pagenum"><a name="Page_113" id="Page_113">[113]</a></span> -many instances they have good reason to think that -the customers are dead, even when they possess no -positive information to that effect; and as they have -their addresses in the deposit-ledgers, all they have to -do is to write a few letters of inquiry. However, the -banks have the law on their side; and though they -are obliged to answer any questions which may be -made by a deceased’s representatives, they are not -compelled to give information gratuitously, so they -choose to remain silent, and insist upon the initiative -being taken by interested persons.</p> - -<p>Furthermore, a deceased depositor may have held -three deposit-receipts. Should two of these be presented -for payment by his executors, the manager -need not inform them that there is a third sum standing -to the credit of the deceased in the books of the -bank; and he possibly will not. An interested person, -therefore, should always inquire whether there be -any other sums standing to the credit of the deceased, -either on current account or deposit.</p> - -<p>It need not be remarked that should the balance be -a debit one the bank will speedily send in its claim, -together with a note of sympathy to the widow, -begging her to consider the company quite at her -service. So hardened is a bank-manager that he will -actually attend the funeral of an old and esteemed -client whom he has been charging 5½ per cent. interest -and ¼ per cent. commission for years. It is a -bad sign when a limited liability company is represented -at a funeral by an official; and should two<span class="pagenum"><a name="Page_114" id="Page_114">[114]</a></span> -bank-agents put in an appearance, one can only -quote: “Where the carcass is, there will the vultures -be gathered together.” Seeing that they are so eager -to exhibit their respect for the rich dead, it may be -considered somewhat surprising that they are not -more sympathetic towards the poor living, and, also, -that they do not publish their so-called unclaimed -balances for the benefit of their customers’ descendants; -but life is full of these little contradictions, -and, after all, the acids and the sweets, judiciously -blended, give a zest to existence.</p> - -<p>Finally, some banks, we know, issue pass-books to -their depositors instead of receipts. It sometimes -happens that, at a depositor’s death, the book is with -the banker. Unless, therefore, his own people chance -to know that he had a deposit account, all traces of its -existence are obliterated, for the banker, who has the -book in his possession, is not compelled to give any -notice. After the publication of one of my books my -publisher received a letter from a lady complaining -bitterly that a certain bank had treated a kinswoman -of hers in this manner. Should the relations of a -deceased man or woman have reason to suspect that -money has been saved and placed somewhere, they -should go to every bank in the town where the deceased -resided and inquire whether any sums are -standing to his credit in the books of the banks. -Their application cannot be refused, and the result -may possibly be somewhat surprising, while they will -at least have the satisfaction of knowing that their<span class="pagenum"><a name="Page_115" id="Page_115">[115]</a></span> -kinsman’s savings are not being devoted by the banks -to their own use.</p> - -<p>As the law now stands, a deceased customer’s balance -is, to a certain extent, at the mercy of his -banker; but whether these unclaimed balances would -in the aggregate amount to the huge total at which -some people are disposed to estimate them is rather -doubtful. That the law urgently requires amending -cannot, however, for a moment be questioned, for -persons whose own interests conflict with those of the -public can seldom be trusted to judge impartially; -and it is quite evident that directors, who are imbued -with the commercial instinct, are not exceptions to -the rule. The aggregate, no doubt, would be represented -by a large sum, but the public, where money -is concerned, generally looks pretty smartly after it, -so one would imagine that this total would consist -principally of numerous small balances, and that -large windfalls must be few and far between.</p> - -<p>These so-called “unclaimed” balances are, we -have seen, in reality <i>unpublished</i> balances, and steps -certainly ought to be taken to compel the joint-stock -banks to advertise in certain London and local papers -the names and last known addresses of those individuals -in whose names sums of moneys, in excess of -say £5, have been standing intact in their books for -any period in excess of five years. The banks might -also be made to hang a list of these names in a conspicuous -part of their offices, so that those who are -entitled to these sums should at least have an oppor<span class="pagenum"><a name="Page_116" id="Page_116">[116]</a></span>tunity -of claiming them. Were the companies compelled -to adopt this course, we should hear very little -more of unclaimed balances, for the thought of publicity -would be distasteful to them, and they would -immediately take steps to put themselves in communication -with either the customers or their kinsfolk. -One would think, too, that the Government had -a better claim to these balances than the banks. Mr. -Asquith, for instance, might find them useful as -a basis for his old-age pension scheme!</p> - -<p>Depositors, seeing how matters stand, should keep -their receipts in some place where they cannot be -overlooked; and in the event of a pass-book being -received, a note should be made in a diary, or even in -the “Family Bible,” to the effect that such a book is -in existence; as, should it be at the bank at the -time of a customer’s decease, we know that the -manager may retain it, with the result that all trace -of the money will be lost.</p> - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_117" id="Page_117">[117]</a></span> -<h2 class="nobreak"><a name="CHAPTER_XII" id="CHAPTER_XII"></a>CHAPTER XII <br/> -<small><small>BANK SHARES</small></small></h2> -</div> - -<p>There is not space in this chapter to deal exhaustively -with the risks of shareholders, but it may be -mentioned that, with the exception of the old chartered -banks, the members or partners of every joint-stock -bank in the United Kingdom were, prior to -1858, liable jointly and severally for the debts of the -company. This Act, Statute 1858, c. 91, was not, -however, compulsory; and although no bank of unlimited -liability has since been formed, it was not -until the passing in 1879, after the failure of the City -of Glasgow Bank, of the Act 42 & 43 Victoria, c. -76, that all the unlimited banks eventually limited -the liabilities of their members. Naturally, a person -of considerable wealth would hesitate to risk his -fortune by buying shares in an unlimited bank which -perhaps returned him only 5 per cent. on his purchase-money; -but this objection is not now applicable, -though it must not be forgotten that the shareholder -is liable for a certain known sum, part of -which may be callable and the remainder reserved -liability, or all of which may be reserved liability<span class="pagenum"><a name="Page_118" id="Page_118">[118]</a></span> -and callable only in the event of the company -being wound up. Where notes are issued the -members may also be liable for the circulation.</p> - -<p>Now that the liability on bank shares is a certain -sum that cannot be exceeded the investor is inclined -to regard them favourably; and though a rich man, -who can afford to take a certain amount of risk, may -decide to hold a few bank shares among his other -securities on account of their higher yield, this -liability, be the risk of a bank coming to grief never so -small, makes them a most undesirable investment for -those persons the interest upon whose capital is just -sufficient to supply their wants. Bank shares, in short, -are rich men’s shares; but this fact was brought -home to the public so forcibly during the Australian -banking crisis of 1893 that it seems unnecessary to -dwell upon a point which must be apparent to everybody. -Besides, we all know that a man of small means -cannot afford to incur a liability on bank shares any -more than he can sign an accommodation bill, and it -would be as foolish of him to accept the one responsibility -as the other. Nor is he the class of shareholder -to whom the depositor can look with confidence.</p> - -<p>While allowing that the great majority of our -banks are prudently managed, it must be granted -that banking history is a remarkably stormy one, -though it is equally true that the surface of the waters -has been but little ruffled during recent years; still, -the Baring crisis of 1890 is not yet ancient history;<span class="pagenum"><a name="Page_119" id="Page_119">[119]</a></span> -and seeing that the banks are intimately connected -with the Stock Exchange, the bill-brokers and the -commercial community, a person who predicts that a -British bank will never again be in difficulties must -be blessed by the Almighty with a most sanguine -temperament, for such a prediction is altogether -opposed to the weight of evidence adduced by the -past, and though its fulfilment is eminently desirable, -so peaceful a solution of the banking question seems -highly improbable.</p> - -<p>In Chapter II, on the choice of a banker, an -attempt was made to show why a customer should -select a strong institution whose working resources -are plentiful, and whose reserve of liquid assets is -large enough to enable it to meet a drain of deposits -during a run or a panic. The shareholder who guarantees -the customers of a bank against loss to a limited -extent will naturally take care that he is a partner in -a company which maintains an adequate reserve of -cash and securities as an insurance fund against those -accidents which are quite beyond the control of the -most able board of directors. A shareholder, say, -holds twenty-five shares in a bank. These shares are -for £80 each, and the amount paid up upon each is -£20. He, then, receives a dividend upon £500, and -incurs a liability of £1,500. But he bought these £20 -paid shares at such a price that they only yield him 4½ -per cent., and he certainly cannot afford to run any -great risk for such a return; so he therefore, before -purchasing, took care that the bank held a large<span class="pagenum"><a name="Page_120" id="Page_120">[120]</a></span> -accumulation of cash and gilt-edged securities as a -reserve fund against those banking risks for which -he pledged £1,500 of his fortune. Every prudent -man should take the same precaution.</p> - -<p>The following illustrations, which are taken from -the balance-sheets of two English joint-stock companies -that need not be named, will clearly demonstrate -that there are banks—and banks.</p> - - -<h3>An English Provincial Bank.</h3> - -<p>Liabilities to the public upon current, deposit and -other accounts are given in the balance-sheet as -£4,200,000. The bank’s liquid assets are thus described:—</p> - -<table summary="" class="bordcoll bank"> -<tr> -<th> </th> -<th> </th> -<th colspan="3" class="bhdr"> -Ratio per cent.<br /> -of liquid assets<br /> -to public liabilities<br /> -of £4,200,000.</th> -</tr><tr> -<td> </td> -<td class="tdc">£</td> -<td class="p1b"> </td> -<td class="tdc">£</td> -<td class="p1b"> </td> -</tr><tr> -<td>Cash in hand, at call and at</td> -<td class="tdr"> </td> -<td class="p1b"> </td> -<td> </td> -<td class="p1b"> </td> -</tr><tr> -<td class="pad1">short notice</td> -<td class="tdr">582,750</td> -<td class="p1b"> </td> -<td class="tdr">13·8</td> -<td class="p1b"> </td> -</tr><tr> -<td>Consols and other securities</td> -<td class="tdr">172,170</td> -<td class="p1b"> </td> -<td class="tdr">4·1</td> -<td class="p1b"> </td> -</tr><tr> -<td> </td> -<td class="bb bt tdr">£754,920</td> -<td class="p1b"> </td> -<td class="bb bt tdr">£17·9</td> -<td class="p1b"> </td> -</tr> -</table> - -<p>This bank’s position might be described in one very -short word. In the first place, it has neglected to -state the amount of its cash in hand and with bankers -at call separately, but has mixed it up with its loans -at short notice. The only deduction to be made is -that the bank possesses so little legal tender that it -deems it prudent not to give the figures in its balance-<span class="pagenum"><a name="Page_121" id="Page_121">[121]</a></span>sheet, -but to inform the public that it holds £13·8 of -cash in hand, at call and at short notice to each -£100 of its public indebtedness. The second entry -is equally vague. We are quaintly informed that -this unique institution, which owes some millions on -demand, is in possession of a certain amount of Consols, -but the exact sum, and the price at which they -are taken, have been left to our imagination, so the -bank may be the proud possessor of either £100 or -£1,000 of Consols; and goodness only knows what is -meant by “other securities.” The second column of -our form, however, shows us that this company held -£4·1 of “Consols and other securities” to each £100 -it owed to its customers. Then, with a touch of true -comedy, the auditors tell us that the balance-sheet, -in their opinion, exhibits a true and correct view of -the state of the bank’s affairs. One’s very soul goes -out to those auditors, and a longing seizes hold of one -to pat them on the back and shout bravo! No doubt -the statement is true and correct, but how strangely -incomplete.</p> - -<p>Of course there is a serious side to this question. -The bank, we can see from the total in our ratio -column, held only £17·9 of cash and certain securities -in reserve against each £100 it owed to the public. -Obviously it is trading on the reputation of its -better-prepared rivals, who, should a determined run -be made upon it, might feel disposed to save it; -but during a crisis, when each company has to take -care of itself, such a bank, were its depositors to be<span class="pagenum"><a name="Page_122" id="Page_122">[122]</a></span>come -nervous, would be compelled to close its doors in -a very few hours. Now, would any sane person buy -the shares of this bank at a price which returns him -about 4½ per cent. on his capital, and incur a liability -in excess of the amount of his holding? One would -say emphatically not; but it is a remarkable fact -that people are to be found who will take this risk -with a light heart. Surely they cannot understand -the nature of the security they are buying.</p> - -<p>A bank which is caught short of cash during a -crisis must apply for assistance to the Bank of England, -and the Bank, which at so critical a time is the -only market for securities in existence, would, before -making it an advance, demand to see its securities. -This bank, we know, possesses a list of “Consols and -other securities” which it values at £172,170; but if -the Bank advanced £100,000 against them, which is -highly improbable, how could it pay off even £500,000 -of its deposits? It seems to me that it must go -under. The usual fate of these weak provincial -banks is amalgamation with the better managed and -more powerful companies, but the danger is that a -storm may sweep them out of existence before they -drift into one or another of these havens of rest. -Fortunately, the state of the bank in question is -exceptional rather than representative, but it is -unwise to jump to the conclusion that the shares of -every English bank are a desirable investment.</p> - -<p>Our second illustration deals with the balance-sheet -of one of the large joint-stock banks whose<span class="pagenum"><a name="Page_123" id="Page_123">[123]</a></span> -liabilities on current, deposit and other accounts -amounts to £26,652,300. The liquid assets held in -reserve against this sum are:—</p> - -<table summary="" class="bordcoll bank"> -<tr> -<th> </th> -<th> </th> -<th colspan="3" class="bhdr"> -Ratio per cent.<br /> -of liquid assets<br /> -to public liabilities<br /> -of £26,652,300. -</th> -</tr><tr> -<td> </td> -<td class="tdc">£</td> -<td class="p1b"> </td> -<td class="tdc">£</td> -<td class="p1b"> </td> -</tr><tr> -<td>Cash in hand and at Bank of</td> -<td class="tdc"> </td> -<td class="p1b"> </td> -<td> </td> -<td class="p1b"> </td> -</tr><tr> -<td class="pad1">England</td> -<td class="tdr">4,009,622</td> -<td class="p1b"> </td> -<td class="tdr">15·0</td> -<td class="p1b"> </td> -</tr><tr> -<td>Money at call and short notice</td> -<td class="tdr">6,876,195</td> -<td class="p1b"> </td> -<td class="tdr">25·8</td> -<td class="p1b"> </td> -</tr><tr> -<td>£4,000,000 2½ Consols at 90;</td> -<td class="tdc"> </td> -<td class="p1b"> </td> -<td class="tdc"> </td> -<td class="p1b"> </td> -</tr><tr> -<td class="pad1">£500,000 Local Loans</td> -<td class="tdc"> </td> -<td class="p1b"> </td> -<td class="tdc"> </td> -<td class="p1b"> </td> -</tr><tr> -<td class="pad1">Stock at £100</td> -<td class="tdr">4,100,000</td> -<td class="p1b"> </td> -<td class="tdr">15·4</td> -<td class="p1b"> </td> -</tr><tr> -<td> </td> -<td class="bb bt tdr">£14,985,817</td> -<td class="p1b"> </td> -<td class="bb bt tdr">£56·2</td> -<td class="p1b"> </td> -</tr> -</table> - -<p>Ambiguity is not the dominant note in this balance-sheet. -We can see at a glance that the bank is well -prepared to pay off a large proportion of its indebtedness -on demand, for it holds £15 in cash against every -£100 it owes. Money at call and notice (short loans -to the bill-brokers and stockbrokers), which is much -less liquid than cash, is stated separately, and its list -of investments consists entirely of British Government -securities. Moreover, we are told at what price -they have been taken. The balance-sheet, though -not perfect, is clear and informing; but a company -that holds £4,000,000 of Consols at 90 would not be -so foolish as to hide its financial light under a -bushel; so when a bank modestly refers to “Consols<span class="pagenum"><a name="Page_124" id="Page_124">[124]</a></span> -and other securities” we may be quite sure that its -holding of Consols is either remarkably small or else -that its directors are exceedingly stupid. It is more -probable, however, that they are astute gentlemen -who reason that the luminosity of a farthing dip -might call forth smiles of wonder and amazement were -it allowed to shed its radiance and waste its fragrance -outside the bushel.</p> - -<p>The bank we are discussing, then, held £56·2 of -cash, call money and gilt-edged securities in reserve -against each £100 of its liabilities to the public; and -such a bank, it need not be said, is splendidly prepared -to protect the balances of its depositors and -the interests of its members. As a matter of fact, -the real interests of both are identical; for if a bank -neglects to keep an adequate reserve of cash and -securities it exposes its customers to the risk of loss -and inconvenience through its stoppage during a run -or a panic; as, should the bank suspend payment, -the customers must either suspend too, or find another -banker, while its shareholders might lose all -their capital and also be called upon to make good -any deficit. Obviously, then, the bank which holds -£56 in liquid assets to each £100 it owes is the one -with which to do business. The shares of this bank -return about 4½ per cent. at the present market -price; and seeing that the company has minimized -the risks of its members its shares will be chosen in -preference to those of the institution which has accumulated -a somewhat doubtful reserve of liquid assets<span class="pagenum"><a name="Page_125" id="Page_125">[125]</a></span> -which works out at a ratio per cent. to its liabilities of -only £17·9.</p> - -<p>We next come to a banking company’s profits, -which are a source of great annoyance and wonderment -to certain people, who cannot understand how -dividends of from 10 to 20 per cent. can be earned in -the worst of times when everybody else is feeling the -depression in trade acutely. The mystery is not very -profound, for a banker’s business, of course, is only -profitable so long as he can trade with the money of -his depositors, and, as his own capital is usually small -when compared with his deposits, it follows that a -very small percentage on his working resources will -return a high rate of interest upon his capital. Upon -a certain amount of his deposits he allows a rate which -is regulated by the Bank rate; and he charges a rate -upon his loans and advances, the said rate being also -more or less influenced by the Bank rate, the difference -between the two rates representing his margin of -gross profit. He regulates this margin by changing -his deposit rate at each alteration of the Bank rate, -but he also obtains money upon which he does not pay -interest, and as that sum earns considerably more -when the Bank rate is at 4 than when it is at 2½, it -follows that his “free” money is largely responsible -for the fluctuations of his dividends.</p> - -<p>But a banker cannot trade with all his deposits. -He has to keep a certain sum lying idle in his safes -and tills, and with his London agents or the Bank of -England. He further requires a good list of securities<span class="pagenum"><a name="Page_126" id="Page_126">[126]</a></span> -which can be either converted or pledged with the -Bank of England should occasion arise, and such a -list will not return him much more than 3 per cent. -upon the sum devoted to that purpose. Then he -employs a portion of his funds in the short-loan -market, so he has only about 60 or 70 per cent. of -his deposits to advance in the shape of loans, overdrafts -and discounts to customers. In other words, a -well-managed bank has to devote a large proportion -of its resources to insuring its business.</p> - -<p>Take the bank in our second illustration. Its paid-up -capital amounts to £2,800,000, and its reserve -fund to £1,600,000, so the shareholders’ funds come -to £4,400,000. Deposits and other accounts are -£26,652,300, making its total working resources -£31,052,300. Now the net profit earned during the -half-year was £207,869, so the bank cleared ·669 of a -pound upon each £100 with which it was trading; -and seeing that the trader expects to make 10 per -cent. on his turn-over, it is pretty evident that -bankers’ profits shrink into insignificance when -compared with his. But the bank’s paid-up capital -is only £2,800,000; and as £14,000 will pay 1 per -cent. per annum for the half-year on that, this profit -of £207,869 enables the bank to declare a dividend -at the rate of 14 per cent. per annum, and to carry a -large amount forward to the profit-and-loss account -of the next half-year; yet it can hardly be said that -its earnings on £31,000,000 are enormous; still, they -look it when metamorphosed into a rate of 14 per<span class="pagenum"><a name="Page_127" id="Page_127">[127]</a></span> -cent. But this is only another illustration of how -easily the crowd can be deceived by statistics.</p> - -<p>It would be absurd to attempt in a short chapter to -discuss the price of bank shares; but as the banking -companies, unless they enjoy an exceptionally sheltered -position, earn less during those periods of -depression which from time to time overtake the -trade of the country, it follows that their dividends, -like their deposit rates, rise and fall with the Bank of -England rate. Bank shares, therefore, can be bought -cheaply when trade is bad and loanable capital -cheap. As the so-called gilt-edged securities, during -normal times, should then be dear, it often pays to -sell out of the latter, invest in bank shares, and wait -for the turning of the tide.</p> - - -<hr /> - -<div class="chapter"> -<span class="pagenum"><a name="Page_128" id="Page_128">[128]</a></span> -<h2 class="nobreak"><a name="CHAPTER_XIII" id="CHAPTER_XIII"></a>CHAPTER XIII <br/> -<small><small>THE PAY OF BANK-CLERKS</small></small></h2> -</div> - - -<p>It cannot be said that bank-directors, when considering -the question of remuneration, err on the side of -generosity; but nobody would dream of accusing -them of that crime, and if the bank-clerk is not paid -lavishly, his salary, as a rule, is appreciably above the -wages paid for clerical labour in the open market. -Nor can it be affirmed that the country private -banker was one whit more generous than a board -of directors. Indeed, the evidence points in quite an -opposite direction, for the clerks of those firms which -have been absorbed by the companies generally profited -by the change; so it must be allowed that the -joint-stock system has raised the standard of comfort -of the bank-clerk. Certain of the London private -bankers were more liberal, and others, again, had the -commercial instinct strongly developed, but we shall -see the salary scales of the joint-stock banks are not -calculated to excite envy in the mind of the multitude, -unless we except the unemployed and the -hungry.</p> - -<p><span class="pagenum"><a name="Page_129" id="Page_129">[129]</a></span></p> - -<p>The following scale is that of a large London and -provincial banking company:—</p> - -<table summary=""> -<tr> -<td>General managers</td> -<td class="rb">£1,500</td> -<td class="rb">to</td> -<td class="rb">£2,000</td> -</tr><tr> -<td>Managers in a city</td> -<td class="rb">500</td> -<td class="rb">to</td> -<td class="rb">1,500</td> -</tr><tr> -<td>Managers in towns of from 40,000 to 60,000 inhabitants</td> -<td class="rb">350</td> -<td class="rb">to</td> -<td class="rb">500</td> -</tr><tr> -<td>Managers in small country towns</td> -<td class="rb">250</td> -<td class="rb">to</td> -<td class="rb">350</td> -</tr><tr> -<td>Inspectors (with one guinea a day for travelling expenses)</td> -<td class="rb">300</td> -<td class="rb">to</td> -<td class="rb">500</td> -</tr><tr> -<td>Accountants or chief-clerks</td> -<td class="rb">160</td> -<td class="rb">to</td> -<td class="rb">210</td> -</tr><tr> -<td>Cashiers</td> -<td class="rb">160</td> -<td class="rb">to</td> -<td class="rb">210</td> -</tr><tr> -<td>Clerks</td> -<td class="rb">80</td> -<td class="rb">to</td> -<td class="rb">160</td> -</tr><tr> -<td>Apprentices</td> -<td class="rb">30</td> -<td class="rb">to</td> -<td class="rb">50</td> -</tr> -</table> - -<p>At the head-office in London, where there is a special -scale, the city-manager would receive from £1,000 to -£1,500 a year, and the chiefs of departments from -£300 to £1,000, according to the importance of the -department, while the salaries of the ledger-clerks -would be raised £10 each year until the maximum, -£300, had been reached. The maximum for clerks -is £180. At the metropolitan and suburban branches -however, the salaries are the same as those set out in -the foregoing list, and the managers would receive -from £300 to £800 or so a year in proportion to the -business done at the branch. Very few of the joint-stock -banks would pay a higher scale of wages than<span class="pagenum"><a name="Page_130" id="Page_130">[130]</a></span> -this, and the great majority of them, especially the -purely provincial companies, would pay considerably -less, while the Scotch banks are niggardly -in the extreme—a little national characteristic. -It is on record that a clerk in a certain Scottish -banking company, whose head-office is at Aberdeen, -was receiving £30 a year at the end of five -years’ service. In a fit of unaccountable generosity -his salary was then raised to £50 per annum, but the -recipient remarks that he showed his gratitude by -promptly moving to London.</p> - -<p>Adverting to our list, we can see that a youngster -entering this bank at the age of, say, seventeen, gets -£30 a year, out of which he has to pay certain subscriptions. -At the age of twenty his salary would be -increased to £80, and £10 at the end of each year’s -service would be added until the maximum for clerks, -£160, were reached. He would then be twenty-eight, -and there he would have to wait for the bank to make -him either a cashier or an accountant before he could -proceed to the next step. A few men remain clerks -all their lives, but the percentage would be a very -small one, and in every probability the clerk might -count upon being promoted at the age of thirty-three -or thirty-four. With good luck, or should he chance -to have a friend at “court,” he might gain this step -at thirty.</p> - -<p>Assuming that he were made a cashier at thirty-one, -he would start with a salary of £170, and, rising £10 -a year, would reach the maximum of this class,<span class="pagenum"><a name="Page_131" id="Page_131">[131]</a></span> -£210, when he was thirty-five years of age. The percentage -of men who remain in this class all their lives -is appreciable, and the average man probably would -not get a small branch before he was forty-five or -forty-eight. Of course, if he successfully accomplished -some such feat as marrying the plain daughter -of a general manager, or should he be distantly -related to a director or a Lord Mayor, he might get a -branch at forty. But the prizes are for the very few, -and those men who do really well, after having managed -a small branch to the satisfaction of the board, -are sent to a larger office upon a salary of £400 a year -rising to about £600. At this rate a clerk would be -from forty-eight to fifty-two or three before his salary -was £400 a year, and it must be remembered that -these are the fortunate ones; so it is evident that the -majority of clerks in a bank simply eke out an -existence.</p> - -<p>On the other hand, they are better paid than the -average merchant and solicitor’s clerk, while their -employment is constant, and, as a rule, they are -entitled to a pension, should they survive the -monotony of their surroundings, after having -attained the age of sixty. Seeing that these young -men are drawn from the same class as the merchant’s -clerk, and that the demand for their berths is greatly -in excess of the supply, it appears at first sight that -£160 a year is a fair wage for a person whose principal -accomplishments are a bold round hand and the ability -to add up long columns of figures with accuracy and<span class="pagenum"><a name="Page_132" id="Page_132">[132]</a></span> -despatch. However, it seems improbable that a -father, after having carefully considered the chances, -will choose a banking career for a son who can pass -examinations successfully.</p> - -<p>Then, again, the average youngster has more -chances in business; for while a few hundred pounds -will establish him as a trader, as many thousands will -not enable him to become a banker. The banks, so to -speak, take their men right off the market, and give -them a special training, which fits them for banking -alone, but which, as a rule, totally unfits them for -any other business; consequently, when a bank-clerk -suddenly find himself flung back on the market, -he at first usually feels as helpless as a bird which -suddenly turned out of the cage in which it was -bred, is compelled to sustain life after the manner -of its kind. As the bank-clerk generally enters a -bank for life, he has a right to expect that the -shareholders and directors will at least recognize -this fact, and, therefore, pay him a salary based, -not only upon the market price of clerical labour, -but also upon the assumption that he will pass his -days in the service of a company in which he will -always be a servant. In other words, as the directors -practically hire these men for life, it is their -duty to make their circumstances fairly easy, but -this is an obligation which the majority of them -quite fail to recognize.</p> - -<p>The smaller banks have a much lower scale than -that given in these pages; and certain of those com<span class="pagenum"><a name="Page_133" id="Page_133">[133]</a></span>panies -which are pushing out small suburban tentacles -in every direction pay the managers of these -offices from £80 to £120 a year, and the clerks in -proportion. Moreover, some boards have passed -resolutions to the effect that no clerk in their service -shall marry until his salary be such-and-such a -sum; and it seems intolerable that a body of men, -who are merely traders, be the resolution good or -bad, should be allowed to interfere with the liberty -of the subject in this arbitrary fashion. Mr. Punch’s -advice is doubtless excellent; but who are these -men, in their astounding consequence, to override -the law of the land? The whole nation should -indignantly protest against their impudence, for a -mere trading company, whose only object is gain, -is unfit to govern the sons of men. Possibly, if -these banks were to publish their salary scales -their sham philanthropy would be instantly apparent.</p> - -<p>Perhaps a few illustrations of the relations between -the banks and their clerks may prove interesting. -I have in my mind the case of a man who -sat by my side at a large branch bank in the North. -From being a chief-clerk or accountant in the service, -he had been reduced to £160 a year, and sent to -the branch in question. The cost of living being -expensive in a large city, he was compelled to send -his children to the Board schools. In fact, he was -so hard up that he wrote to the general managers -telling them that he could not live on the salary, -and asking them to increase it. He was told that,<span class="pagenum"><a name="Page_134" id="Page_134">[134]</a></span> -if he were not satisfied, he could take a year’s salary -(I think it was) and go. The bank, however, -ultimately succeeded in getting rid of him more -cheaply. The man, who was a tailor’s tout and an -insurance agent in his spare moments, did all in his -power to add to his income; but at last he fell so -low that he actually descended to taking money -from the men’s coats. Then followed detection -and dismissal.</p> - -<p>Now, who was the more to blame, the clerk or the -bank? The clerk had informed the directors that he -could not live upon his salary, and the directors -made him an impossible offer, for the man, who -must have been getting on for fifty, had been -in the service from a boy, and was therefore not -worth thirty shillings a week outside. Knowing -this, the offer of the directors was frankly brutal, -and losing hope the clerk became a petty thief. -My ethics may be somewhat shaky, but were I on -my trial for a harp and a halo I would rather stand -in the thief’s place than in that of those directors.</p> - -<p>Another man in the same office, although single, -could not acquire the art of living upon £160 a year, -and after some few years of unsuccessful striving -and vain endeavour, he was dismissed for drink -and debt. He then became a traveller in the wine -trade, and terminated his not uninteresting career -by getting drunk on his samples. A third man, -who was a married cashier, took two sovereigns -from his till, intending to return them upon the<span class="pagenum"><a name="Page_135" id="Page_135">[135]</a></span> -following day, but his till-money was counted the -very next morning by the accountant, who was -probably suspicious, and the man had to go. Out -of a staff of twenty-eight men, five, I think, were -cashiered within five years; it seems to me that -were a kinder spirit manifested by those in authority -much of this misery and suffering might be spared.</p> - -<p>For instance, in one service it is usual to send -old men and others who, for some reason or another, -have been reduced, to a large branch, where, after -a few months have elapsed, they are given a small -sum of money and quietly pushed into the street. -This procedure is adopted because a man at a small -branch is acquainted with the accounts of all the -customers thereat, and might, should he be dismissed -while there, hold forth in every public-house -in the town; but the expedient is unspeakably -mean, and surely a bank which counts its deposits -by millions can afford to temper justice with mercy. -The directors know the fate that awaits these men, -more especially when they are past forty, and it is -simply cruel to weed them out in this brutal fashion. -To my mind it is little short of murder.</p> - -<p>The system, of course, is bad. The banks place -one man in authority and to that man they pay a -good salary. He, in his turn, has to hold down the -rest, with the result that we have already seen. At -the branch in question the manager, who was an -old man, received £1,500 a year, and the accountant, -who was a man of about forty-two, got<span class="pagenum"><a name="Page_136" id="Page_136">[136]</a></span> -£300. The disparity between these two sums -is most marked, for the accountant was quite -as able a man as his chief, and if he were only -worth £300 a year, then the manager was not -worth more than £500 at the outside. Were a -bank to pay each man a fair salary, and to reduce -the manager’s rate of pay, it would increase its -expenses considerably, but at the same time it -would add to the efficiency of its staff, for most -of the men are dissatisfied, and the work, as a rule, -is not done willingly, while the directors are looked -upon as task-masters. Nor is this at all surprising, -for of sympathy they display but little, and their -humanity is unquestionably not superior to that of -the Zulu. I have weighed my words carefully, -and am writing without the slightest heat, my only -aim being to state my facts plainly, and I think -that, if the facts are unchallenged, the deductions -are as indisputable as they are discreditable to the -directors and shareholders of certain of the joint-stock -banks.</p> - -<hr /> - -<p class="ph4">Butler & Tanner, The Selwood Printing Works, Frome, and London.</p> - - -<div class="transnote"> - <p class="bd">Transcriber's Note</p> - <p>A few minor typographical errors have been silently corrected.</p> - <p>Some ditto marks in lists and tables have been replaced with - copies of the original text.</p> -</div> - - - - - - - -<pre> - - - - - -End of Project Gutenberg's Banks and Their Customers, by Henry Warren - -*** END OF THIS PROJECT GUTENBERG EBOOK BANKS AND THEIR CUSTOMERS *** - -***** This file should be named 60436-h.htm or 60436-h.zip ***** -This and all associated files of various formats will be found in: - http://www.gutenberg.org/6/0/4/3/60436/ - -Produced by Nigel Blower and the Online Distributed -Proofreading Team at http://www.pgdp.net (This file was -produced from images generously made available by The -Internet Archive) - - -Updated editions will replace the previous one--the old editions will -be renamed. - -Creating the works from print editions not protected by U.S. copyright -law means that no one owns a United States copyright in these works, -so the Foundation (and you!) can copy and distribute it in the United -States without permission and without paying copyright -royalties. 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