diff options
Diffstat (limited to 'old/60436-0.txt')
| -rw-r--r-- | old/60436-0.txt | 3983 |
1 files changed, 0 insertions, 3983 deletions
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. Special rules, set forth in the General Terms of Use part -of this license, apply to copying and distributing Project -Gutenberg-tm electronic works to protect the PROJECT GUTENBERG-tm -concept and trademark. Project Gutenberg is a registered trademark, -and may not be used if you charge for the eBooks, unless you receive -specific permission. If you do not charge anything for copies of this -eBook, complying with the rules is very easy. You may use this eBook -for nearly any purpose such as creation of derivative works, reports, -performances and research. They may be modified and printed and given -away--you may do practically ANYTHING in the United States with eBooks -not protected by U.S. copyright law. Redistribution is subject to the -trademark license, especially commercial redistribution. - -START: FULL LICENSE - -THE FULL PROJECT GUTENBERG LICENSE -PLEASE READ THIS BEFORE YOU DISTRIBUTE OR USE THIS WORK - -To protect the Project Gutenberg-tm mission of promoting the free -distribution of electronic works, by using or distributing this work -(or any other work associated in any way with the phrase "Project -Gutenberg"), you agree to comply with all the terms of the Full -Project Gutenberg-tm License available with this file or online at -www.gutenberg.org/license. - -Section 1. General Terms of Use and Redistributing Project -Gutenberg-tm electronic works - -1.A. By reading or using any part of this Project Gutenberg-tm -electronic work, you indicate that you have read, understand, agree to -and accept all the terms of this license and intellectual property -(trademark/copyright) agreement. If you do not agree to abide by all -the terms of this agreement, you must cease using and return or -destroy all copies of Project Gutenberg-tm electronic works in your -possession. If you paid a fee for obtaining a copy of or access to a -Project Gutenberg-tm electronic work and you do not agree to be bound -by the terms of this agreement, you may obtain a refund from the -person or entity to whom you paid the fee as set forth in paragraph -1.E.8. - -1.B. "Project Gutenberg" is a registered trademark. It may only be -used on or associated in any way with an electronic work by people who -agree to be bound by the terms of this agreement. There are a few -things that you can do with most Project Gutenberg-tm electronic works -even without complying with the full terms of this agreement. See -paragraph 1.C below. There are a lot of things you can do with Project -Gutenberg-tm electronic works if you follow the terms of this -agreement and help preserve free future access to Project Gutenberg-tm -electronic works. See paragraph 1.E below. - -1.C. The Project Gutenberg Literary Archive Foundation ("the -Foundation" or PGLAF), owns a compilation copyright in the collection -of Project Gutenberg-tm electronic works. Nearly all the individual -works in the collection are in the public domain in the United -States. If an individual work is unprotected by copyright law in the -United States and you are located in the United States, we do not -claim a right to prevent you from copying, distributing, performing, -displaying or creating derivative works based on the work as long as -all references to Project Gutenberg are removed. Of course, we hope -that you will support the Project Gutenberg-tm mission of promoting -free access to electronic works by freely sharing Project Gutenberg-tm -works in compliance with the terms of this agreement for keeping the -Project Gutenberg-tm name associated with the work. You can easily -comply with the terms of this agreement by keeping this work in the -same format with its attached full Project Gutenberg-tm License when -you share it without charge with others. - -1.D. The copyright laws of the place where you are located also govern -what you can do with this work. Copyright laws in most countries are -in a constant state of change. If you are outside the United States, -check the laws of your country in addition to the terms of this -agreement before downloading, copying, displaying, performing, -distributing or creating derivative works based on this work or any -other Project Gutenberg-tm work. The Foundation makes no -representations concerning the copyright status of any work in any -country outside the United States. - -1.E. Unless you have removed all references to Project Gutenberg: - -1.E.1. The following sentence, with active links to, or other -immediate access to, the full Project Gutenberg-tm License must appear -prominently whenever any copy of a Project Gutenberg-tm work (any work -on which the phrase "Project Gutenberg" appears, or with which the -phrase "Project Gutenberg" is associated) is accessed, displayed, -performed, viewed, copied or distributed: - - 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. - -1.E.2. If an individual Project Gutenberg-tm electronic work is -derived from texts not protected by U.S. copyright law (does not -contain a notice indicating that it is posted with permission of the -copyright holder), the work can be copied and distributed to anyone in -the United States without paying any fees or charges. If you are -redistributing or providing access to a work with the phrase "Project -Gutenberg" associated with or appearing on the work, you must comply -either with the requirements of paragraphs 1.E.1 through 1.E.7 or -obtain permission for the use of the work and the Project Gutenberg-tm -trademark as set forth in paragraphs 1.E.8 or 1.E.9. - -1.E.3. If an individual Project Gutenberg-tm electronic work is posted -with the permission of the copyright holder, your use and distribution -must comply with both paragraphs 1.E.1 through 1.E.7 and any -additional terms imposed by the copyright holder. Additional terms -will be linked to the Project Gutenberg-tm License for all works -posted with the permission of the copyright holder found at the -beginning of this work. - -1.E.4. Do not unlink or detach or remove the full Project Gutenberg-tm -License terms from this work, or any files containing a part of this -work or any other work associated with Project Gutenberg-tm. - -1.E.5. Do not copy, display, perform, distribute or redistribute this -electronic work, or any part of this electronic work, without -prominently displaying the sentence set forth in paragraph 1.E.1 with -active links or immediate access to the full terms of the Project -Gutenberg-tm License. - -1.E.6. You may convert to and distribute this work in any binary, -compressed, marked up, nonproprietary or proprietary form, including -any word processing or hypertext form. However, if you provide access -to or distribute copies of a Project Gutenberg-tm work in a format -other than "Plain Vanilla ASCII" or other format used in the official -version posted on the official Project Gutenberg-tm web site -(www.gutenberg.org), you must, at no additional cost, fee or expense -to the user, provide a copy, a means of exporting a copy, or a means -of obtaining a copy upon request, of the work in its original "Plain -Vanilla ASCII" or other form. Any alternate format must include the -full Project Gutenberg-tm License as specified in paragraph 1.E.1. - -1.E.7. Do not charge a fee for access to, viewing, displaying, -performing, copying or distributing any Project Gutenberg-tm works -unless you comply with paragraph 1.E.8 or 1.E.9. - -1.E.8. You may charge a reasonable fee for copies of or providing -access to or distributing Project Gutenberg-tm electronic works -provided that - -* You pay a royalty fee of 20% of the gross profits you derive from - the use of Project Gutenberg-tm works calculated using the method - you already use to calculate your applicable taxes. The fee is owed - to the owner of the Project Gutenberg-tm trademark, but he has - agreed to donate royalties under this paragraph to the Project - Gutenberg Literary Archive Foundation. Royalty payments must be paid - within 60 days following each date on which you prepare (or are - legally required to prepare) your periodic tax returns. Royalty - payments should be clearly marked as such and sent to the Project - Gutenberg Literary Archive Foundation at the address specified in - Section 4, "Information about donations to the Project Gutenberg - Literary Archive Foundation." - -* You provide a full refund of any money paid by a user who notifies - you in writing (or by e-mail) within 30 days of receipt that s/he - does not agree to the terms of the full Project Gutenberg-tm - License. You must require such a user to return or destroy all - copies of the works possessed in a physical medium and discontinue - all use of and all access to other copies of Project Gutenberg-tm - works. - -* You provide, in accordance with paragraph 1.F.3, a full refund of - any money paid for a work or a replacement copy, if a defect in the - electronic work is discovered and reported to you within 90 days of - receipt of the work. - -* You comply with all other terms of this agreement for free - distribution of Project Gutenberg-tm works. - -1.E.9. If you wish to charge a fee or distribute a Project -Gutenberg-tm electronic work or group of works on different terms than -are set forth in this agreement, you must obtain permission in writing -from both the Project Gutenberg Literary Archive Foundation and The -Project Gutenberg Trademark LLC, the owner of the Project Gutenberg-tm -trademark. Contact the Foundation as set forth in Section 3 below. - -1.F. - -1.F.1. Project Gutenberg volunteers and employees expend considerable -effort to identify, do copyright research on, transcribe and proofread -works not protected by U.S. copyright law in creating the Project -Gutenberg-tm collection. Despite these efforts, Project Gutenberg-tm -electronic works, and the medium on which they may be stored, may -contain "Defects," such as, but not limited to, incomplete, inaccurate -or corrupt data, transcription errors, a copyright or other -intellectual property infringement, a defective or damaged disk or -other medium, a computer virus, or computer codes that damage or -cannot be read by your equipment. - -1.F.2. LIMITED WARRANTY, DISCLAIMER OF DAMAGES - Except for the "Right -of Replacement or Refund" described in paragraph 1.F.3, the Project -Gutenberg Literary Archive Foundation, the owner of the Project -Gutenberg-tm trademark, and any other party distributing a Project -Gutenberg-tm electronic work under this agreement, disclaim all -liability to you for damages, costs and expenses, including legal -fees. YOU AGREE THAT YOU HAVE NO REMEDIES FOR NEGLIGENCE, STRICT -LIABILITY, BREACH OF WARRANTY OR BREACH OF CONTRACT EXCEPT THOSE -PROVIDED IN PARAGRAPH 1.F.3. YOU AGREE THAT THE FOUNDATION, THE -TRADEMARK OWNER, AND ANY DISTRIBUTOR UNDER THIS AGREEMENT WILL NOT BE -LIABLE TO YOU FOR ACTUAL, DIRECT, INDIRECT, CONSEQUENTIAL, PUNITIVE OR -INCIDENTAL DAMAGES EVEN IF YOU GIVE NOTICE OF THE POSSIBILITY OF SUCH -DAMAGE. - -1.F.3. LIMITED RIGHT OF REPLACEMENT OR REFUND - If you discover a -defect in this electronic work within 90 days of receiving it, you can -receive a refund of the money (if any) you paid for it by sending a -written explanation to the person you received the work from. If you -received the work on a physical medium, you must return the medium -with your written explanation. The person or entity that provided you -with the defective work may elect to provide a replacement copy in -lieu of a refund. If you received the work electronically, the person -or entity providing it to you may choose to give you a second -opportunity to receive the work electronically in lieu of a refund. If -the second copy is also defective, you may demand a refund in writing -without further opportunities to fix the problem. - -1.F.4. Except for the limited right of replacement or refund set forth -in paragraph 1.F.3, this work is provided to you 'AS-IS', WITH NO -OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT -LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE. - -1.F.5. Some states do not allow disclaimers of certain implied -warranties or the exclusion or limitation of certain types of -damages. If any disclaimer or limitation set forth in this agreement -violates the law of the state applicable to this agreement, the -agreement shall be interpreted to make the maximum disclaimer or -limitation permitted by the applicable state law. The invalidity or -unenforceability of any provision of this agreement shall not void the -remaining provisions. - -1.F.6. INDEMNITY - You agree to indemnify and hold the Foundation, the -trademark owner, any agent or employee of the Foundation, anyone -providing copies of Project Gutenberg-tm electronic works in -accordance with this agreement, and any volunteers associated with the -production, promotion and distribution of Project Gutenberg-tm -electronic works, harmless from all liability, costs and expenses, -including legal fees, that arise directly or indirectly from any of -the following which you do or cause to occur: (a) distribution of this -or any Project Gutenberg-tm work, (b) alteration, modification, or -additions or deletions to any Project Gutenberg-tm work, and (c) any -Defect you cause. - -Section 2. Information about the Mission of Project Gutenberg-tm - -Project Gutenberg-tm is synonymous with the free distribution of -electronic works in formats readable by the widest variety of -computers including obsolete, old, middle-aged and new computers. It -exists because of the efforts of hundreds of volunteers and donations -from people in all walks of life. - -Volunteers and financial support to provide volunteers with the -assistance they need are critical to reaching Project Gutenberg-tm's -goals and ensuring that the Project Gutenberg-tm collection will -remain freely available for generations to come. In 2001, the Project -Gutenberg Literary Archive Foundation was created to provide a secure -and permanent future for Project Gutenberg-tm and future -generations. To learn more about the Project Gutenberg Literary -Archive Foundation and how your efforts and donations can help, see -Sections 3 and 4 and the Foundation information page at -www.gutenberg.org Section 3. Information about the Project Gutenberg -Literary Archive Foundation - -The Project Gutenberg Literary Archive Foundation is a non profit -501(c)(3) educational corporation organized under the laws of the -state of Mississippi and granted tax exempt status by the Internal -Revenue Service. The Foundation's EIN or federal tax identification -number is 64-6221541. Contributions to the Project Gutenberg Literary -Archive Foundation are tax deductible to the full extent permitted by -U.S. federal laws and your state's laws. - -The Foundation's principal office is in Fairbanks, Alaska, with the -mailing address: PO Box 750175, Fairbanks, AK 99775, but its -volunteers and employees are scattered throughout numerous -locations. Its business office is located at 809 North 1500 West, Salt -Lake City, UT 84116, (801) 596-1887. Email contact links and up to -date contact information can be found at the Foundation's web site and -official page at www.gutenberg.org/contact - -For additional contact information: - - Dr. Gregory B. Newby - Chief Executive and Director - gbnewby@pglaf.org - -Section 4. Information about Donations to the Project Gutenberg -Literary Archive Foundation - -Project Gutenberg-tm depends upon and cannot survive without wide -spread public support and donations to carry out its mission of -increasing the number of public domain and licensed works that can be -freely distributed in machine readable form accessible by the widest -array of equipment including outdated equipment. Many small donations -($1 to $5,000) are particularly important to maintaining tax exempt -status with the IRS. - -The Foundation is committed to complying with the laws regulating -charities and charitable donations in all 50 states of the United -States. Compliance requirements are not uniform and it takes a -considerable effort, much paperwork and many fees to meet and keep up -with these requirements. We do not solicit donations in locations -where we have not received written confirmation of compliance. To SEND -DONATIONS or determine the status of compliance for any particular -state visit www.gutenberg.org/donate - -While we cannot and do not solicit contributions from states where we -have not met the solicitation requirements, we know of no prohibition -against accepting unsolicited donations from donors in such states who -approach us with offers to donate. - -International donations are gratefully accepted, but we cannot make -any statements concerning tax treatment of donations received from -outside the United States. U.S. laws alone swamp our small staff. - -Please check the Project Gutenberg Web pages for current donation -methods and addresses. Donations are accepted in a number of other -ways including checks, online payments and credit card donations. To -donate, please visit: www.gutenberg.org/donate - -Section 5. General Information About Project Gutenberg-tm electronic works. - -Professor Michael S. Hart was the originator of the Project -Gutenberg-tm concept of a library of electronic works that could be -freely shared with anyone. For forty years, he produced and -distributed Project Gutenberg-tm eBooks with only a loose network of -volunteer support. - -Project Gutenberg-tm eBooks are often created from several printed -editions, all of which are confirmed as not protected by copyright in -the U.S. unless a copyright notice is included. Thus, we do not -necessarily keep eBooks in compliance with any particular paper -edition. - -Most people start at our Web site which has the main PG search -facility: www.gutenberg.org - -This Web site includes information about Project Gutenberg-tm, -including how to make donations to the Project Gutenberg Literary -Archive Foundation, how to help produce our new eBooks, and how to -subscribe to our email newsletter to hear about new eBooks. - |