Page:The New International Encyclopædia 1st ed. v. 02.djvu/545

BANK, BANKING. makes a profit upon bullion and foreign coin. These are brought to the Bank for notes; they are worth £3 17s. 10½d. per ounce; but the Bank is obliged by its charter to purchase them at £3 17s. 9d. The holders prefer taking this price to having their bullion and foreign coin coined, free of charge, at the public mint, as the delay in the coining is equal to a loss of interest of 1½d. per ounce. The amount of notes in the hands of the public averages about £25,000,000; but the amount issued by the issue department is greater. The difference is the amount lying in the banking department, and represents the reserve of gold of that department; that is to say, the banking department retains only a half or three-fourths of a million of coin, and transfers the bulk of its reserve to the issue department in exchange for notes. The reserve of the banking department is regarded as gold, though it consists of notes issued by the other department.

Viewed in its banking department, the Bank differs from other banks in having the management of the public debt, and paying the dividends on it; in holding the deposits belonging to the Government, and making advances to it when necessary; in aiding in tlie collection of the public revenue, and in being the bank of other banks. For the management of the public debt, the Bank receives about £247,000, against which there has to be set £124,000 of charges. The remaining profits of the Bank are derived from its use of its deposits, on which it allows no interest, and of its own capital. The capital was originally £1,200,000; in 1816 it reached £14,553,000—the present amount. There is besides a reserve of about £3,200,000. In December, 1901, the public deposits were £10,493,177, and the private were £39,460,027; the maximum of deposits, public and private, is about £50,000,000.

In 1797, the Bank, being on the verge of bankruptcy, was ordered by the Government to suspend the redemption of its notes in coin, and the notes became the main currency of the nation, until the resumption of specie payments in 1821. The notes during this interval not having been convertible into coin on demand, there was no check upon the Bank in the amount of its issues; and the currency became depreciated. It is, however, said that the value of gold at the time was enhanced owing to absorption by hoarding and by military-chests, and that the depreciation was more apparent than real. The export of gold following on a rise of prices occasioned by an issue of bank or Government notes is unlimited, except by exhaustion, if these notes are not payable in coin on demand, and are issued without any check from without or self-imposed. But as prices estimated in these notes rise, the price of bullion, like other commodities, rises too, and the price of coin which can be converted into bullion, or be used abroad at its previous purchasing power, rises also. Since 1821 the Bank has more than once been on the verge of a suspension of payments, owing to foreign drains of gold. The separation of the Bank into two departments is regarded by many as having a tendency to produce a suspension in times of panic, when the reserve is reduced by withdrawals to supply a foreign drain, or to meet an internal run. Before the separation, the Bank, in the case of withdrawals of gold, had the whole amount of gold within its vaults to meet them; but now it loses the command of all

the gold in the issue department. It cannot get that gold unless in exchange for notes, but, its reserve being reduced or exhausted, it has none to spare. The restriction of credit consequent upon the approach to an exhaustion of the reserve of the banking department, is so great that the fear of it occasions a panic; and in 1847, 1857, and 1866, on the possible suspension of payments by the banking department, owing to a reduction of its reserve, being apparent, the Government of the day took the responsibility of authorizing the Bank to lend additional notes, not represented by gold, which was an indirect way of getting at the gold in the issue department, where the object of the borrowers was to obtain gold. The Bank of England is situated in the centre of London; but it has two branches in the metropolis and nine branches in the provinces.

While the Bank of England long held a monopoly of banking in London, it could not prevent the rise of bank's throughout the provinces. In the first instance these banks were merely private partnerships, and the number of partners could not exceed six. These country banks issued notes, and were without any Government supervision or control. After the panic of 1825, a law was passed permitting the country banks outside of a radius of 65 miles from London to organize as joint-stock companies, with their right to issue notes unimpaired. The Bank of England strenuously but ineffectively opposed the extension of the joint-stock principle, which had been conceded in the provinces, to the London banks. In 1833 an act of Parliament authorized the establishment of such banks in London, though it refused to give them the note-issuing privilege. When the Bank of England was rechartered in 1844, all joint-stock banks and private banks were restrained from issuing further notes, though they were authorized to maintain the circulation then outstanding, calculated on the average of the twelve weeks prior to April 27, 1844. At the time the Bank Act went into effect, the outstanding issues other than Bank of England notes were £5,153,417 for 207 private banks, and £3,478,230 for 72 joint-stock banks. In the course of time the number of issuing banks decreased, so that in 1902 there remained only 27 private banks and 24 joint-stock banks, having note issues to the extent of £2,462,662.

The earliest banking institution in North Britain was the Bank of Scotland, instituted by a charter of incorporation from the Scottish Parliament in 1695. The original capital was £1,200,000 Scots, or £100,000 sterling. In 1774 the amount of stock was extended to £200,000 sterling; now it is £1,250,000 sterling. In 1727 a new and similar establishment was constituted under the title of the Royal Bank of Scotland, whose advanced capital is now £2,000,000. In 1746 another association was formed, and incorporated by royal charter, with the title of the British Linen Company. From £100,000, its capital has increased to £1,000,000. Besides those three banks, there are in Scotland eight other joint-stock banks, but no private banks.

In consequence of allowing interest on deposits, the banks in Scotland may be said to hold the whole capital of the country, minus only the