Readings in Money and Banking Part 37

Friction between the old private bankers and the joint-stock banks grew less as amalgamations and absorptions increased, and before many years the committee of London clearing bankers and joint-stock banks committee amalgamated, it being agreed, as a condition of the joint-stock banks committee ceasing to exist, that all the banks would abide by the ruling of the committee as to the rate of deposit at seven days' notice.

Henceforth, every bank in the clearing house was ent.i.tled to have one representative on the committee. Such representatives have hitherto been chosen solely from the board or the partners and are nominated by their banks and formally elected by the committee. The committee elects its own chairman, vice-chairman, and honorary secretary. This committee meets regularly on the first Thursday in each month, Thursday being the day on which the Bank of England in normal times makes any alteration in the bank rate of discount, but it may be summoned by requisition at any time and meets automatically should the bank rate be altered, since this governs the rate of deposit allowed by the bankers.

The committee has full power over all clearing house matters, and from the importance of the banks who compose the clearing house its opinion carries very great weight on all matters in the banking world. It is, however, controlled only by the mutual agreement of its members: and the decision of the majority of its members, though followed loyally, is never used with any ultimate power of compulsion in matters affecting banking in general.

In 1907 a third clearing, the Metropolitan, was established. Hitherto, with the exception of one or two city offices which were included in the town clearing, the collection of drafts on London branches of the clearing banks had been effected by the post and by the sending out of walk clerks by each bank; but in 1907 it was determined to do away with such means of collection as far as possible and to collect the branch checks through the clearing house. This proved so successful that the West End banks were approached the following year, and with one exception readily consented to come into the new plan by which their clearing agents had delivered to them at the Metropolitan clearing all checks drawn upon them. This clearing is the first clearing made each morning and is handled so expeditiously that even the most distant London branches get their checks almost earlier than under the old system. They have, therefore, plenty of time to go through them and to make returns of any checks that cannot be paid in time for such return checks to reach the clearing house early in the afternoon. There are now over 330 banks and branches using this clearing.

For the better defining of the three clearing areas--town, metropolitan, and country--the letters T M C have been placed in the corner of all bank checks. From February 19, 1907, the date of the initiation of the Metropolitan Clearing, up to December 31 of that year, 482,227,000 was paid in this clearing, while for the year 1908 the total was 647,842,000, as compared with the town clearing total for that year of 10,408,254,000 and the country total of 1,064,266,000, making in all a grand total of 12,120,362,000, which figures, vast as they are, were a decrease of 610,031,000 on the total 12,730,393,000 for the previous year, 1907.[137] The work entailed by such vast figures as these could scarcely have been dealt with by hand alone, but by the installation of adding machines the work is easily and quickly done.

It must not be thought that all checks on London are presented through the clearing house, for checks on the London branches of the Scotch banks and of the colonial and foreign banks are still presented over the counter.

Moreover, though it is mutually understood between the clearing banks that checks on each other will only be presented through the clearing house, this agreement has no legal binding.

Two exceptions are continually made; doc.u.ments or goods have to be taken up against cash, and the owner before parting wishes to be certain of his money. In this case the presenting banker either presents his check for marking--that is to say, the paying banker having ascertained from his customer's account that there is sufficient money thereon, marks the check for payment, which has the same effect as if the banker had accepted it; or, as is becoming more usual, the paying banker gives one of his own drafts on the Bank of England in exchange for the check.

PROVINCIAL CLEARINGS

Besides the London clearing house, which is an irregular building of no architectural features whatever, there are eight provincial clearing houses in England--Birmingham, Bristol, Leeds, Leicester, Liverpool, Manchester, Newcastle and Sheffield.[138]

Two only of these clear over 100,000,000 in the year. Manchester cleared 320,296,332 in 1907, with an average weekly total of 6,159,545 and an average daily total of 1,039,923, and Liverpool 196,325,829.

The others cleared in the same year from 12,000,000 to 61,000,000.

Small figures, indeed, compared with London, where the highest total paid on any one day was, in 1907, 106,703,000. In 1908 the highest total paid in one day in the London clearing was 85,833,000 and the lowest 24,903,000.

In London, as in the provincial places, the object of the clearing house is primarily the convenience of exchange of checks, not the regulation of banking, and little is regulated save, perhaps, the rate of interest to be paid on deposits at seven days' notice.

In these days, too, when the tendency is strong for amalgamation, the local banks are dwarfed by their gigantic compet.i.tors, with their branches in many counties and head offices in London, with the result that London each year controls more of the banking in England and the provincial clearings cease more and more to be under local control, but are controlled by their London head offices.

This may, if the present tendency of amalgamation continues,[139] result in the committee of London clearing bankers becoming an important controlling body, but that time is not yet at hand, and though, as we have said, an expression of opinion on the part of the committee carries very great weight, yet anything like dictation would very properly be resented by the important and old-established banks in both London and the provinces that are outside the clearing house.

FOOTNOTES:

[121] James G. Cannon, _Clearing Houses_, Publications of the National Monetary Commission, Senate Doc.u.ment, No. 491, 61st Congress, _2nd Session_, p. 1.

[122] _Ibid._, pp. 148-150.

[123] _Ibid._, pp. 150-154.

[124] _Ibid._, pp. 163-165.

[125] 62 members in 1914.

[126] _Ibid._, pp. 41, 43, 44-46.

[127] _Ibid._, p. 37.

[128] _Ibid._, pp. 75-79.

[129] O. M. W. Sprague, _Banking Reform in the United States_, pp.

104-113. Harvard University. 1911.

[130] The figures in the text refer to the legal tender holdings of the banks. The banks also held a considerable amount of specie but it was not a free a.s.set as most of it had been received on special accounts payable in gold. Including the specie holdings the reserve ratio was 12.8 per cent.

[131] C. F. Dunbar, Economic Essays, chap. XVI.

[132] The increase in the amount of money in circulation for August, 1893, was estimated at $70,000,000.

[133] James G. Cannon, _Clearing Houses_. Publications of the National Monetary Commission, Senate Doc.u.ment No. 491, 61st Congress, _2d Session_, pp. 137-141.

[134] [A number of the more important cities such as St. Paul, St.

Louis, and Philadelphia, following the example of Chicago and Minneapolis, have inst.i.tuted clearing house bank examinations since 1907.]

[135] Adapted from Robert Martin Holland, _The London Bankers Clearing House_. Publications of the National Monetary Commission, Senate Doc.u.ment No. 492, 61st Congress. _2nd Session_.

[136] The date of the establishment of the Clearing House is not known.

The Clearing has, however, been in existence about 150 years.--EDITOR.

[137] [For the five years 1910-14, the total clearings of the London Clearing House were in the neighborhood of 15,000,000,000 per annum of which the Town, Metropolitan, and Country Clearings were about 86, 5.5, and 8.5 per cent., respectively.]

[138] [The approximate number of clearing houses outside of London, in England, in 1915 is twelve, but these are used only for local clearings.

In addition, most of the towns in England and Wales have a local exchange which is a clearing on a small scale.]

[139] This tendency has continued as to both the joint-stock and private banks.--EDITOR.

CHAPTER XX

STATE BANKS AND TRUST COMPANIES SINCE THE Pa.s.sAGE OF THE NATIONAL BANK ACT

[140]The banking inst.i.tutions of the United States other than national banks are ordinarily cla.s.sified into (a) state banks, (b) trust companies, (c) stock savings banks, (d) mutual savings banks, and (e) private banks. The following pages deal with two of these cla.s.ses, viz., state banks and trust companies. It will be desirable at the outset to distinguish them from the other cla.s.ses, and to outline the history of legislation concerning them since 1865.

The term "state bank" has been used in the United States in several different senses; but whatever the variance in meaning, such banks have always had one common characteristic--incorporation under state authority. In the bank reports of some of the States, private banks are not distinguished from state banks. This is due to the fact that in these States incorporated and unincorporated banks are subject to the same regulation. A private bank, however, is an unincorporated bank.

Not all banking inst.i.tutions incorporated by the States are state banks.

Mutual savings banks, stock savings banks, and trust companies are also corporations organized under state laws or charters granted by state legislatures. The distinction between mutual savings banks and state banks is clear. Mutual savings banks do not have a capital stock and do not carry on a discount and deposit business--_i. e._, they do not discount commercial paper, and do not receive demand deposits payable on check. State banks, on the other hand, have a capital stock and carry on a discount and deposit business. Many state banks, however, receive also savings deposits. The line of demarcation between state banks and stock savings banks is much less definitely marked. Both state banks and stock savings banks have a capital stock. Stock savings banks are primarily savings banks, and many of them do not do a discount and deposit business, but confine themselves to the savings bank business.

But in several States the distinction between state banks and stock savings banks is of the most unsubstantial character, since the stock savings banks carry on the business of a commercial bank, receiving demand deposits payable on check, and discounting commercial paper.

Finally, the distinction between state banks and trust companies is not exactly the same in any two of the States.

"State banks" then, as the term is used in the following pages, are banks of discount and deposit (as distinguished from savings banks, mutual and stock) incorporated by one of the States or Territories (in contrast with private banks, which are unincorporated, and with national banks, which are organized under the national-bank act).[141]

In 1860 there were in the United States 1,562 state banks. Owing to the repressive influence of the national-bank act, hastened in its effect by the 10 per cent. tax on state-bank notes, the number of state banks had by 1868 fallen to 247. One result of this decline in the number and importance of state banks was the cessation of state banking legislation. The old laws regulating state banks of issue were swept away by code revisions, or remained obsolete and unchanged on the statute books.

The number of state banks began to increase about 1870. In a few States old banking laws intended for the regulation of banks of issue hampered their development, but in the remaining States they were left for a considerable period almost entirely without regulation. As late as 1892, in his digest of the state statute law, Mr. Stimson said:

It seems unnecessary to incorporate the state banking laws in this edition. Nearly all the States, except the newer States and Territories, have special chapters in their corporation acts concerning banks and moneyed inst.i.tutions, but these chapters are usually of old date, and have practically been superseded for so long a time by the national banking laws that they have become obsolete in use and form.