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The
G e r m a n
G r e a t
B a n k s
times, even worse experience than the other banks, as,
for instance, in the case of the taking over of the
Heinrichshiitte (Heinrich Smelting Works) in 1857; the
founding in 1872 and the subsequent development of
the Dortmunder Union; the Grosse Venezuela-EisenbahnGesellschaft, the Internationale Druckluft- und ElektrizitdtsGesellschajt (Popp), founded in 1890, and the blasting
works at the Iron Gate in Hungary taken over from
the firm G. Luther. Between the years 1891-1894 the
Disconto-Gesellschaft had to write off losses of about
10,000,000 marks on account of its industrial and other
participations.
On the other hand, in 1873 it founded the Gelsenkirchener
Bergwerksgesellschaft (G. Mining Co.), which became one
of the most prominent concerns in the mining industry.
Adolph von Hansemann, who at that time was one of
the general partners of the Disconto-Gesellschaft, and
its most talented manager, became the chairman of the
supervisory board of the new mining company. In this
way the bank secured numerous connections with indus
trial undertakings and cartels. These connections became
even more important when on January 1, 1905, a com
munity of interests was formed between the Gelsenkirchener
Bergwerksgesellschaft, the Aachener HiLtten-Aktien-Verein
Rote Erde (Aix-la-Chapelle Smelting Company Rote Erde)
and the Schalker Gruben- und Hiitten-Verein (Schalke
Mining and Smelting Company).
The Disconto-Gesellschaft actively and successfully
participated in the organization of the Rhenish-West
phalian Coal Syndicate, which was finally accomplished
in 1893, after many grave obstacles had been overcome.
483
»
N at io n a l
M on et a r y
Commi ssi on
In the eighties and nineties it effected a number of issues
for the August Thyssen Mining and Smelting enterprises,
especially the Schalker Gruben- und Hutten-Verein and the
Gewerkschaft Deutscher Kaiser. In 1874 it participated in
a syndicate formed under the leadership of the Seehandlung (the Prussian State Bank) for the underwriting and
issuing of a 5 per cent loan of 10,000,000 thalers for the
Krupp Works. This operation deserves special mention
because, on this occasion, for the first time in Germany,
the loan took the form of fractional bonds secured by
blanket mortgage and provided for common representa
tion of the holders of these bonds, which since then has
become the common form of such obligations.47
6
The Disconto-Gesellschaft maintains close relations with
the Rheinische Stahlwerke (since 1877), the Stumm Works
in Neunkirchen, the Aktiengesellschaft Gute HoffnungsHiitte (Gute Hoffnung Smelting Company) in Oberhausen,
the Bochumer Verein fur Bergbau und Gusstahlfabrikation (Bochum Mining and Cast Steel Manufacturing Com
pany) and the Kattowitzer Aktiengesellschaft fur Bergbauund Hiittenbetrieb (Kattowitz Mining and Smelting Com
pany) , the latter founded with a capital stock of 16,000,000
marks through the reorganization of the mining and smelt
ing properties of the von Tiele-Winckler estate.
The Disconto-Gesellschaft through its connections with
Herm. Schmidtman and the Schmidtman mining and
other enterprises, especially the potash works in Aschersleben, stands in close relation to the potash industry.
In the field of machinery construction it is closely related
to the Schichau ship yards in Elbing and Danzig, the
Henschel Machine Works in Cassel, the Saxon Machine
484
The
G e r m a n
G r e a t
B a n k s
Works (formerly Richard Hartmann) in Chemnitz, the
Berlin Machinery Construction Company (formerly L.
Schwartzkopff) and the machine and milling machinery
works of G. Luther in Brunswick.
The Disconto-Gesellschaft has always taken a prominent
interest in the business operations of the Ludwig Loewe
Company and in all the enterprises founded by this com
pany, a managing partner of the Disconto Bank serving on
the supervisory board of each of these undertakings. Thus
it participated in the administration and the security issues
of the Deutsche Wafjen- und Munitionsfabriken (German
Arms and Ammunition Works) in Berlin and Karlsruhe, the
Union-Elektrizitats-Gesellschaft (Union Electric Company),
which took over the electrical department of the Ludwig
Loewe Company, the Gesellschaft fiLr Elektrische Unternehmungen (Corporation for Electrical Enterprises), etc.
It also cooperated in a large number of stock and bond
issues of the firm of Siemens & Halske.
In the sphere of insurance it maintains close relations
to the Aachener und Miinchener FeuerversickerungsGesellschaft (Aix-la-Chapelle and Munich Fire Insurance
Company), the Lebens- und Feuerversicherungsbank (Life
and Fire Insurance Bank) in Gotha, the Lebensversicherungs-Gesellschaft Nordstern (Northern Star Life Insurance
Company), which was organized in 1881 in Berlin, etc. It
participated in the financing of minor and secondary rail
ways (Klein- und Nebenbahnen) only through its close
relations to the Westdeutsche Eisenbahn-Gesellschaft.
In the sphere of real estate business proper the DiscontoGesellschaft participated only occasionally, assisting in
the parcelling of some land tracts.
http://fraser.stlouisfed.org/
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Federal Reserve Bank of St. Louis
485
N at io n a l
M on e t a r y
Commission
In more recent times the Disconto-Gesellschaft de
veloped an energetic activity in the petroleum field. (See
above, p. 418 and following.)
Finally, the Disconto-Gesellschaft has been very active
in the sphere of mortgage and agricultural credit. In
1864 it participated in the founding of the Erste Preussische Hypotheken-Gesellschajt (First Prussian Real Estate
Mortgage Company), which was later (Mar. 4, 1870) taken
over by the P reussische Zentral-Bodenkredit-Aktien-Gesellschaft; and in 1895 in the organization of the Landbank,
which was intended to encourage domestic colonization
and to promote German landed interests and agriculture in
the eastern provinces. The presidency in the supervisory
board of the new institution was taken by the managing
partner of the Disconto-Gesellschaft, Ad. von Hansemann.
The picture so far presented of the industrial and kin
dred activities of the Disconto-Gesellschaft, while unusually
varied and animated, does not, however, vary materially
from the general picture of the activity of the other great
banks in the same field.
As regards concentration the Disconto-Gesellschaft, as
we shall show later in greater detail, was active as
early as 1871, when it organized the Promnzial-DiscontoGesellschajt in Berlin, which in turn became the parent
institution of a large number of other provincial discount
banks. We shall explain later the reasons why this first
step necessarily failed. The failure caused the DiscontoGesellschaft to refrain for a long time from founding any
subsidiary institutions. It was only in 1880 (Feb. 13)
that the Disconto-Gesellschaft participated in the recon
struction of the Handels- und Plantagen-Gesellschaft (Com
486
The
G e r m a n
G r e a t
B a n k s
mercial and Plantation Company) of Samoa, more par
ticularly in the organization of the Neu Guinea-Kompagnie and in the preliminary negotiations during the years
1883 to 1885. By assuming certain obligations this com
pany, on May 17, 1885, obtained a special charter giving
it the rights of territorial sovereignty; also the exclusive
privilege to acquire landed property.
These activities were followed in rapid succession by
the organization of the Brasilianische Bank fur Deutsch
land (Brazilian Bank for Germany) in 1887, the estab
lishment of commandites in Buenos Aires and Antwerp
(1890), the founding of the Bank fur Chile und Deutsch
land (1895), the Banca Generala Romana (1897), the OtaviMinen- und Eisenbahn-Gesellschaft (Otavi Mining and
Railway Company) (1900), the Banque de Credit in Sophia
(1905), the Deutsch-Ostafrikanische Bank, and the Deutsche
Afrika-Bank in 1905. Aside from this, the DiscontoGesellschaft participated in all the enterprises undertaken
jointly by the large banks, thus, in the founding of the
Deutsch-Asiatische Bank (1889), the Banca Commerciale
Italiana (1898), the two Shantung companies (1899), the
telegraph and cable companies (1898-1908), and the
Kamerun-Eisenbahn-Gesellschaft (1906).
From what has been said it appears that the special
characteristics of the Disconto-Gesellschaft were the
extensive and far-sighted assistance rendered by it to
industrial exports, as well as to all foreign, particularly
oversea commerce; also the fostering of the regular bank
ing business, especially the current account business,
begun in the first period and developed with great skill
and success during the second period.
487
N at i o n a l
Mo n e t ar y
Commission
The results in the various lines of operations, while very
considerable, are not so steady as those of the Deutsche
Bank. This is particularly brought out in the presenta
tion, by ten-year periods, of the current account figures,
as found in the jubilee report (1901) of the DiscontoGesellschaft.
During the first nine years (beginning with 1852) the
debits on current account amounted to 32,000,000 marks
in round numbers. At the close of the decade they
showed a decline in 1869 to about 29,000,000 marks,
though rising again in 1870 to 30,500,000 marks.
The next decade since 1871, starts with the greatly in
creased figure of nearly 93,000,000 marks; at the close of
1880 the amount had fallen again to 49,000,000 marks.
In the decade following we see the figures rapidly rise
from 53,000,000 marks in 1881 to 112,000,000 marks in
1885, and then again decline to 82,500,000 marks in 1890.
Beginning with 1901, however, we find, with the excep
tion of a few small interruptions, an almost steady growth
of the debits on current account, which reached a total of
294.000. 0iie marks at the close of the fiscal year 1908.
c>
The figures of credits in current account show a similar
fluctuation. In i860 they were about 13,000,000 marks,
in 1865 they had fallen to 10,500,000 marks, while the
closing year of the decade, 1870, showed a decided in
crease to 39,000,000 marks. In 1877 the amount had
declined to 29,000,000 marks, in 1880 it had risen to
55.000. 000 marks, and in the next decade, in 1885, again
the maximum figure up to that time was shown, namely,
154.000. 000 marks, which, however, declined at the close
of the decade (1890) to 90,000,000 marks.
488
The
German
Great
Banks
Similarly, beginning with 1891, and with much smaller
fluctuations than before, a steady growth of the credit
figures is shown, the statement for December 31, 1908,
indicating a total of credits on current account of 235,000,000 marks.
In the discussion of the deposit business we gave the
reasons why the deposit business of the Disconto-Gesellschaft showed similar and at times even greater fluctu
ations. We may disregard the first period because at
that time, as we have shown (p. 73), there was no sys
tematic fostering of the deposit business.
In 1870 the total deposits amounted to 3,500,000 marks
only.
The new period begins, however, with 15,000,000 marks
deposits (1870), which rapidly grew to nearly 65,000,000
marks in 1873, but dropped to 10,000,000 marks in 1880.
Similar fluctuations occurred in the following decade,
which began in 1881 with 20,000,000 marks. By 1887
the amount had declined to 8,000,000 marks, while at the
close of the decade (1890) a total of 36,500,000 marks was
reached. The next decade again starts with only 17,000,000 marks, but, beginning with 1895, when the DiscontoT
Gesellschaft, with the view of systematically fostering the
deposit business, opened deposit offices, the amount in
creased steadily to 48,000,000 marks in 1900. According
to its 1908 statement, in which, however, the deposits are
calculated in a different manner, (p. 207), the deposits of
the Disconto-Gesellschaft amounted to 218,500,000 marks.
Similar fluctuations are observed in the case of the com
missions, which in 1870 amounted to about 1,000,000
I
489
N a t io n a l
M on et a r y
Commission
marks. From 1,333,000 marks in 1871 they increased to
4.660.000 in 1872, declined to 1,500,000 in 1876, rose to
4.500.000 in 1900 and to 6,500,000 marks in 1908.
The dividends on the commandite capital of the Dis
conto-Gesellschaft in the second period (those of the first
period were shown on p. 68) were as follows:
Year.
Year.
Per cent.
Per cent.
Year.
Per cent.
T
OC
OC
I
1885..............
1886..............
1887..............
1888..............
8
8J
4
1876..............
S 'A
1878..............
6Vi
8
6
6
1881..............
1882..............
1883..............
8
10K
1896..............
IO
There is no other German credit bank whose annual
dividends ever came near the dividends of 24 and 27 per
cent, which the Disconto-Gesellschaft was able to distribute in the years 1871 and .1872.
The capital stock of the Disconto-Gesellschaft on De
cember 31, 1908, amounted to 170,000,000 marks, while
the surplus amounted to 57,500,000 marks, or 33.88 per
cent of the capital stock.
The manner in which the current banking business of
the Disconto-Gesellschaft has increased is illustrated
statistically in its Jubilee Report of 1901 (p. 25) by the
amount of correspondence carried on in this branch of
business.
490
The
G e r m a n
G r e a t
B a n k s
Letters
received.
Year.
Letters
sent.
87,513
5 3 3 ,102
626,043
The Disconto-Gesellschaft from the start was promi
nently connected with the Prussian Syndicate and
subsequently with the Rothschild Syndicate, thus par
ticipating in the Prussian, Austrian, and Hungarian
state loans. It was likewise a member of the syndicate
organized for handling the Russian and Italian state
loans and those of the German Empire. It took a leading
part in the financial operations of the Chinese Govern
ment and participated to a very large extent in the issue
of Brazilian and Argentine loans. It was also the leading
member of the bank syndicate which handled the various
Roumanian state and railway loans (for particulars see
Append. V. and VI).
In reviewing the activities of the Prussian and the
Rothschild syndicates as well as the other great inter
national financial operations of the German banks during
the second period, the jubilee volume of the DiscontoGesellschaft contains the following remarks: “ The small
proportion of failures in carrying out the numerous enter
prises of the last half of the nineteenth century * * *
is a lasting glorious testimony to the honest and efficient
management of the financial business of this period.”
A considerable part of this fully deserved praise may be
claimed by the Disconto-Gesellschaft.
491
mmission
TH E
D RESD NER
BANK.
The Dresdner Bank, which was founded in 1872 and in
1881 transferred its center of activity to Berlin, by the
establishment of a branch there, claims our special
interest in a number of directions.
It achieved remarkable success in the deposit business
within an unprecedentedly short period, although it was
not until 1896 that it followed the example of the Deutsche
Bank in establishing deposit offices. At the close of 1908
it was conducting an extensive deposit business by means
of its 16 branches and 44 deposit offices.
Its deposits grew within less than twenty years from
less than 3,000,000 marks in 1875 to 94,000,000 at the
end of 1894, and reached an aggregate of 224,000,000
marks at the close of 1908, or fifteen years later. It thus
overtook the Disconto-Gesellschaft in this branch of
business, although the latter had been in this field a
much longer time.
In the same rapid and brilliant manner it managed to
develop its regular business, the first extensive increase
of which, just as in the case of the Deutsche Bank, dates
back to the seventies, when it participated in the liquida
tion of 4 Saxon banks. Its further growth is due largely
to the founding of branches, the absorption of a large
number of banks and private banking concerns, and the
establishment of numerous communities of interest. Its
branches numbered 16 at the close of 1908, this being the
second largest number for any German bank. It also
managed to secure a strong foothold in southern Germany
by taking over in 1904 the banking house von Erlanger
492
I
The
German
Great
Banks
& Sons at Frankfort-on-the-Main with its extensive rami
fications, in the place of which it established a branch
of its own. In the same year it secured a large clientele
among the membership of the mutual credit societies by
taking over the Deutsche Genossenschaftsbank Sorgel, Parrisius & Co. For this new business it established a special
mutual credit department.
The credits on current accounts rose from 4,000,000
marks in 1873 to 95,000,000 marks in 1894 and 371,000,000
marks in 1908; the debits from about 9,000,000 marks in
1875 to about 95,000,000 marks in 1894 and 445,000,000
marks in 1908. As a result of great alertness and liberal
commission and interest terms, the bank succeeded in
securing a large number of customers wherever it ob
tained a footing, first among the circles of Saxon industry,
and soon after among wider circles. Its clientele increased
considerably through the absorption in rapid succession of
a number of banks and private banking houses, and later
through the entering of community-of-interest relations
with other banks in Rhineland-Westphalia and in Silesia,
by following the example of the Deutsche Bank. The
number of industrial undertakings, for which it acts as
fiscal agency (Zahlstelle), is exceeded only by that of the
Deutsche Bank.
Since 1892 it also undertook the systematic promotion
of foreign and oversea business, by establishing, just as
the Deutsche Bank, though not in the same order of
time, branches in Hamburg (1892), where it absorbed
the Anglo-Deutsche Bank, next in Bremen (1895) and
finally also in London (1901).
I
493
N ational
Monetary
Commission
Moreover, as early as 1889 it participated in the forma
tion of the Anatolian Railway Company and the Company
for the Operation of Oriental Railways (Betriebsgesellschajt
der Orientalischen Eisenbahnen), of the Deutsch-Asiatische
Bank, and the Deutsch-Afrikanische Bank. In 1891 it
took part in the foundation of the Bank fiir Orientalische
Eisenbahnen, in 1894 in the organization of the Banca
Commerciale Italiana, in 1899 in the establishment of the
two Shantung companies, and during the period 18981908 in the organization of the Deutsche TelegraphenGesellschajten und Kabelwerke, in the establishment of the
Deutsch-Westafrikanische Bank (1904-5) and of the
Kamerun-Eisenbahngesellschaft in 1906.
About the end of 1905, jointly with the A. Schaaffhausen’scher Bankverein (with which it had entered in
1903 into community-of-interest relations, now practi
cally dissolved) and the Nationalbank fiir Deutschland,
it established the Deutsche Orientbank, and about the
same time, in conjunction with the first-named institu
tion, the Deutsch-Sudamerikanische Bank.
It also promoted and fostered with growing success
the over-sea “ rembours” business (see p. 428), without,
however, attaining in this field, as well as in the general
field of international connections, nearly as favorable
results as the Deutsche Bank or the Disconto-Gesellschaft.
In various ways it sought to extend its continental
foreign connections. Thus, with the view of promoting
business in Austria-Hungary, it entered into close rela
tions with a number of Vienna banks. In order to
gain a foothold in the Italian and Swiss markets, it par
ticipated in the foundation of the Banca Commerciale
494
The
G e r m a n
G r e a t
B a n k s
Italiana and founded the stock company Speyr & Co.
in Basle.
In the field of “ minor,” i. e., urban and interurban
railway enterprises (Kleinbahn-Unternehmungen) the
Dresdner Bank manifested considerable activity by found
ing the Central Bank for railway securities (Centralbank
fur Eisenbahnwerte) and the Continental Railway Con
struction and Operation Company (Kontinentale Eisenbahnbau- und Betriebsgesellschaft) in Berlin; also by partici
pating in the Orenstein & Koppel Works for field and
“ minor ” railways. In 1898 it took a prominent part in the
formation of the Central Bank for railway securities
(1
Centralbank fur Eisenbahnwerte), a trust company,
which issues bonds of its own on the basis of AustroHungarian and German railway securities acquired by it.
Since 1909 it has been financially interested in the Oren
stein & Koppel Works for field and “ minor” railways,
Berlin, amalgamated with and successors to the former
firm Arthur Koppel.
According to Otto Jeidels (op. cit., p. 137), the number
of industrial emissions under the auspices of the Dresdner
Bank for the years 1895-1903 compares as follows with
those of the other great banks: Dresdner Bank, 220;
A. Schaaffhausen’seller Bankverein, 187; Berliner Handelsgesellschaft, 170; Disconto-Gesellschaft, 151; Deutsche
Bank, 150; Darmstadter Bank, 148.
In the electro-technical industry the Dresdner Bank
from the very beginning participated jointly with the
Disconto-Gesellschaft and the Darmstadter Bank in the
firm Budwig Loewe & Co. and its subsidiary companies.
After the absorption by the Allgemeine Elektrizitdts-
495
National
Monetary
Commission
Gesellschaft of the Union-Elektrizitats-Gesellschaft, one of
the Loewe creations, the bank became a member of the
A. E- G. syndicate.
The bank from the outset maintained and fostered close
relations to the bourse. It is this circumstance and the
peculiar composition of its security holdings which caused
the ofttimes undeserved criticism that this bank, more
than any other great bank, showed speculative tendencies.
It was also pointed out that the bank had considerable
participations in gold-mining enterprises and that its
debit accounts were at times largely composed of accept
ances for which the bank stood sponsor. Fault was found
occasionally also with the extensive participations of
the bank in real estate corporations, though its operations
in this field were always effected with great skill and
success. The Dresdner Bank owned considerable real
estate in Wilmersdorf (Berlin), was interested in the Moabit
(Berlin) and the Hanover real estate companies (Moabiter
Terrain-Gesellschaft, Hannoversche Immobilien-Gesellschaft);
also in the Park Witzleben (Berlin) Real Estate Stock
Company.’ It founded in 1893 the Berlin Real Estate
Company (Berlinische Boden-Gesellschajt) and in 1898
the Kurfurstendamm Real Estate Company {BodenGesellschajt Kurjurstendamm). Among its larger losses
there figures one of about 2,500,000 marks, caused to its
Hamburg branch through engagements with the export
and storehouse company J. Ferd. Nagel, which engage
ments, however, had been acquired from the AngloDeutsche Bank.
The bank distributed the following dividends:
496
a ..
The
G e r m a n
Year.
Per cent.
6
G r e a t
Year.
Per cent, j
1885...........
1886...............
1887.............
1888........
S* O
Year.
Per cent.
j
9
9
8
x!
10
1878................
B a n k s
6
7
1882................
1883................
5.5
8
8
8
8
8
8A
l
7y *
A gratifying percentage of these dividends is derived
from the profits yielded by the regular or current
business.48
6
The share capital of the Dresdner Bank has been raised
nine times from 9,600,000 marks in 1872, the year of its
foundation, to 70,000,000 in 1904, the first increase
taking place as early as 1878. In 1909 its share capital
amounted to 180,000,000 marks (increased to 200,000,000
marks ,by 1910) while its reserves totaled 51,500,000
marks— that is, 28.61 per cent of the share capital.
The bank took a large part in the underwriting and
emission of securities. In the international issue field
it succeeded particularly in the emission of Mexican
railway loans; it also participated, jointly with the Darmstadter and other banks in the emission of Portuguese
securities. (See App. V and VI.) During most years,
however, it managed to keep its syndicate participations
within moderate limits. On the other hand, its security
account shows large holdings of industrial shares, which
were often used rather skilfully to support its industrial
policy.
9 0 3 1 1 ° — 1 1 ------3 3
497
On the whole it may be said that the Dresdner Bank
has succeeded in very short time in gaining the permanent
favor of a large clientele because of the skill and alertness
of its management.
TH E
D AR M STAD TER
B A N K .
Among the great banks the Darmstadter Bank during
the first, and largely also during the second period took
special care in guarding most carefully the liquidity of
its resources and the principle of the distribution of risk, at
times even refusing to engage in operations that might
impair in any way the liquidity of its resources. If en
gagements of this sort were unavoidable, it showed the
utmost endeavor to liquidate as soon as practicable its
long-term engagements. This was the reason why soon
after its foundation it passed quite successfully the crisis
of 1857, and was able during that time to render effective
aid both to its clients as well as to various corporations
and other banks.
From the outset its reports contained many more par
ticulars regarding its operations than those of almost any
other bank. This is especially true of the information—
given regularly up to 1900— regarding the composition of
its security holdings and its syndicate participations.49
6
It was shown before that during the first period it took
a most prominent part in the construction of the German
private railways, in the underwriting of a large number of
state and communal loans, and in promoting the rapidly
developing industry. It may be said that during the
first period, and to a large extent even in the beginning of
the second period, it was almost exclusively a bank for
The
Ger man
Great
Banks
industrial promotions and only to a small extent a bank
for the emission of state, communal, and railway securities.
During the first epoch the bank, or at least its central
office, made but few systematic efforts to develop its cur
rent-account business. Its industrial connections origi
nated during those years mainly from its emissions of
industrial securities, mainly industrial shares, which the
bank from the outset retained in large blocks, thus preserv
ing a permanent influence on the administration of the
enterprises. This policy, while frequently the cause of
heavy losses, on the other hand enabled the bank to keep
a constant watch over those industrial undertakings
which it had founded or transformed into stock com
panies. We showed above that during the single year
1856 it founded seven industrial companies, in which it
retained a permanent participation extending to about
one-third of the entire share capital, or about 800,000
florins. Since these holdings resulted not from emissions,
but from promotions, it may be said that it engaged
designedly in entrepreneur activity, the risks of which,
it is true, were somewhat lessened by its continuous regard
for the liquidity of its resources, but which, nevertheless,
were quite apparent.
Neither did it make systematic efforts to foster the
deposit business during the first period and even during
a considerable part of the second period, for general rea
sons similar to those which are stated in the 1850 report
of the Schaaffhausen’scher Bankverein. (See pp. 73 and
74.) The bank proposed to carry on its business, as far as
practicable, with its own means, and in the interest of
the safety of the institution did not regard it expedient
l
499
t
N a t i on a l
M on e t a r y
Commission
to “ bring about an increase of deposits by holding out
more attractive terms.” It was shown, however, that in
the beginning of the second period its deposits amounted
to about 11,000,000 florins, as against only 2,000,000
marks in the case of the Disconto-Gesellschaft and about
2,500,000 marks in the case of the A. Schaaffhausen’scher
Bankverein. This relatively large amount most likely
resulted from its close connections with various railway
companies, such as the Hessian Ludwig Railroad Com
pany, and from the credits on current account of large
corporations and firms.
It was only in 1900, or much later than the other banks,
that the Darmstadter Bank resolved upon the founding
of deposit offices and thus upon a systematic fostering of
the deposit business. But meanwhile the other banks
had gained a considerable start and secured a growing
number of permanent and reliable investors for the se
curities emitted by them and, what is more important,
an ever-enlarging circle of current-account depositors.
To the credit of the bank it may be stated that it re
frained from issuing long-term bank obligations. The
charter of the Darmstadter Bank, following the model
of the Credit Mobilier, provided for the issue of such bank
obligations which, secured indirectly by the newly cre
ated industrial enterprises, were to combine the scat
tered small capitalist forces in the launching of large
enterprises.
The Darmstadter Bank as a rule kept aloof from exces
sive speculative dealings, except in a few cases, when it
was subjected to particularly vehement criticism. Thus
during the first period it lost heavily, having like many
500
\
The
Ger man
Gre at
Banks
other banks become involved in speculative contango
and share transactions, which about the same time, i. e.,
in 1857, were compensated by improper profits from the
trading in its own scrip (Berechtigungsscheine), the socalled Darmstadter Enkel,40
7
Even during the earlier period the bank took a con
siderable part in the foreign business in Italy, Belgium,
and more particularly in Austria-Hungary, where in the
beginning of the sixties, jointly with the Rothschilds
and the Kreditanstalt, it had engaged in Austrian state
and railroad finance operations, though joining the
Rothschild syndicate only some time later. As a result
of these and similar financial operations it felt constrained
as early as 1855 to have its capital of 10,000,000 florins
fully paid up (only 4,000,000 florins having been paid in
up to that time), and to increase it to 25,000,000 florins
in 1856. On the other hand, in 1857, when, according to
the by-laws adopted, the capital was to undergo a fur
ther increase to the maximum of 50,000,000 florins, the
increase was effected only to the infinitesimal extent of
additional 46,000 florins, a larger issue being headed off
by the crisis of that year.
The function of its offices in Frankfort-on-the-Main
(agency opened in 1854) and in Mainz (branch opened in
1854) was to foster more largely than could be done by
the central office in Darmstadt the bill and draft busi
ness and especially the current-account business. Until
the eighties and even later the bank was extremely con
servative in granting acceptance credit, so much so that
during the middle of the seventies the acceptance obli-
N at ion a l
M on et a r y
Commission
gations of the Berlin office and of the branch at Frank
fort-on-the-Main amounted to only a few million florins.
For the promotion of domestic and more especially
foreign business relations, a large number of commandites
were founded, which did not, however, justify expecta
tions, as they proved to be in advance of the time.
As early as 1854 the first commandite in New York
was formed with the firm G. vom Baur & Co., in 1857 the
first commandite in Paris, and in 1867 a commandite in
Vienna with the firm Dutschka & Co. The establish
ment of other commandites was planned in London, St.
Petersburg, Prague, and even in Smyrna and Constanti
nople, but these plans failed of realization partly because
of the unpropitious times, partly also because of legal
difficulties. At all events the Darmstadter Bank may
claim to have proceeded first designedly in this field in
accordance with the program laid down in its very first
report for the year 1853, which stated among others
“ that the bank’s organs both at home and abroad were
to facilitate the export trade as well as the innumerable
relations^of German industry to the money market.”
How far-reaching the plans of some people were even
in those early days may best be seen from the fact that in
1856 two of the founders and members of the supervisory
council of the Darmstadter Bank— Gustav V. Mevissen
and Abraham Oppenheim— quite seriously sounded the
Disconto-Gesellschaft whether it would not be advisable
to organize jointly a central bank for foreign commandites
with a capital of about 100,000,000 thalers, whose function
it should be “ to prevent in the future the scattering of the
capital of those German banks which strove after foreign
502
The
Ger man
Gre at
Banks
commandite connections and to bring about the most
competent possible representation of their interests.” 41
7
With the view of decentralizing its business, the bank
from the early years until the nineties preferred the com
mandite system to the establishment of branches. This
is largely accounted for by the unsatisfactory experience
it had had with some of its branches founded about the
end of the fifties and the beginning of the sixties. In
1863, “ in order to reduce the number of institutions
whose operations might lead to direct commitments of the
bank,” it thought it necessary to transform its branch
at Mainz into a commandite. It was only in 1890 that it
parted with this principle by opening a branch at Han
over, shortly afterwards followed by another in Strassburg
(in Alsace). At that time it still had 8 commandites in
Heilbronn, Mainz, Dresden, Halle, Mannheim, Bucharest,
Berlin, and Neustadt, while in 1909 this number had
fallen to 3.
The average rate of dividend for the period 1854-1862
was 6^4 per cent.
Between 1863-1872 the bank took over independently
many German and foreign, including several Russian
and Italian state bond issues, and participated in other
similar transactions. Its main activity, however, con
sisted in the financing and the construction of the German
and Austro-Hungarian railway systems, among others
the financing of the Gotthard Railway. During that
period it also founded a number of subsidiary banks
(Tochterbanken); for instance, the Amsterdamsche Bank
(in 1871), the Suddeutsche Bodenkreditbank, the Siiddeutsche Immobilien-Gesellschaft, the Ungarische Escompte-
50 3
H i.
mmission
und Wechslerbank in 1877, and the Deutsche Gold- und
Silber-Scheide-Anstalt, preceded by the foundation of the
Hessian Note Bank {Bank fur Suddeutschland).
The average dividend for the period 1863-1872
amounted to 8.7 per cent.
During the following decade, 1873-1882, after safely
passing through the crisis of 1873, finance operations
in Austrian and German railway, state, and communal
securities were effected, while beginning with 1879 the
conversion of German state, railway, and municipal
debentures was started, which attained increasingly large
proportions in the following years.
The average rate of dividends for that decade (18731882) was 8f4 Per cent.
As a result of the state purchase of the railroads in
Germany and Austria the finance transactions with large
railway companies greatly diminished. Instead, the
bank, first among the great banks, during the decade
1883-1902, in conjunction with the railway constructing
and operating concern Herrmann Bachstein, undertook
on a large scale the construction, operation, and financing
of the so-called minor railways {Kleinbahnen), in the first
place in Hesse, Baden, and Thuringia. The same period
witnesses the founding by the bank of several industrial
companies and the participation in the underwriting of a
number of state and communal issues and in the fusion
of the Jura-Berne-Tucerne Railway with the Swiss Western
Railway. During these years the bank jointly with a
number of other banks and banking firms took over the
issue of the Lisbon municipal and Portuguese state loans.
Apart from the Lisbon municipal loan, interest on which
50
4
| “r
The
G e r m a n
G r e a t
B a n k s
has been regularly paid, the other loans proved a source
of great losses and annoyance to the bank and greatly
hampered its subsequent activity, inasmuch as the bank
felt in honor bound to mitigate, as far as practicable, the
consequences of the defaults on the part of the State and
railways, with regard to the holders of the state and
railroad securities.
The average rate of dividends during that decade
(1883-1892) was below 7pi per cent.
During the following decade (1893-1902) its activity
became concentrated chiefly in the field of minor rail
ways. In 1895 it took a leading part in the founding of
the Suddeutsche Eisenbahngesellschaft. This company
amalgamated the small railways which had been com
pleted by that time and on the whole were then in a fair
financial condition. The bank also had a hand in a
number of state and municipal issues and of industrial
real estate transactions.
About the end of the decade the bank derived con
siderable profits from a number of reorganizations of sev
eral banking and industrial concerns such as the Deutsche
Grundschuldbank, the Preussische Hypotheken-Aktienbank, the Pommersche Hypothekenbank, and the mining
and iron works Differdingen-Dannenbaum, also from
taking over in 1902 the Bank fiir Suddeutschland and the
Breslauer Disconto-Bank. About the same time it en
tered into a community of interest with the Ostbank fiir
Handel und Gewerbe in Posen.
Notwithstanding all these multifarious activities
the average dividend rate for the decade was but
per cent.
50 5
National
Monetary
Commission
During the most recent period the bank paid special
attention to the fostering of the current-account and
deposit business. Its efforts in this field proved emi
nently successful, so much so that by skilful management
it was able to restore the liquidity of its resources, which
had become temporarily impaired. As a member of the
Loewe group it participated in all the enterprises of that
combination. It also took part in a number of state and
municipal loans as well as in several industrial issues. In
1905 it established community-of-interest relations with
the Bayerische Bank fiir Handel und Industrie.
The number of its deposit offices at the end of 1908
was 39, exclusive of 7 agencies.
In 1900 it strengthened its foreign connection? by the
founding of the Bankers’ Trading Syndicate in London,
in 1902 by entering into close relations with the Wechselstuben-Aktiengesellschaft Merkur in Vienna, and in 1903
by establishing community-of-interest relations with the
Nordwestdeutsche Bank in Bremen. During the years
1904-5 it participated in the transformation of its
former corpmandite in Bucharet into a stock company,
which assumed the firm name Banca Marmorosch Blank
& Co., Societate anonima. During the same period it
absorbed the banking firm Rob. Warschauer & Co., which
had important foreign business connections, especially in
Russia, and in which it had held a silent-partnership
interest since 1898.
In 1889 the bank participated in the founding of the
Deutsch-Asiatische Bank; in 1898, jointly with other
domestic and foreign institutions, it took a prominent part
in the founding of the Banque Internationale de Bruxelles.
The
German
Great
Banks
During the years 1898-1908 it cooperated in the launch
ing of the German Telegraph and Cable companies, in
1899 in the founding of the two Shantung companies, and
in 1906 in the organizing of the Kamerun Railway Com
pany.
In 1906, jointly with several domestic and foreign
banks, it founded the Amerika-Bank for promoting busi
ness relations with the United States. This institution,
however, was placed in liquidation in 1909.
It may be said in conclusion that the Darmstadter
Bank from the very beginning acquired a high standing
among large circles. Its management, while not always
following a uniform business policy, adhered, however,
almost steadily to the principle laid down in paragraph 10
of its first by -laws.42 As a result, it continued to
7
enjoy public confidence in an undiminished degree, at
first in southern Germany and subsequently in the whole
country, even during times which proved critical for many
commercial undertakings and banks.
THE
A . S C H A A F F H A U S E N ’S C H E R B A N K V E R E I N .473
This institution is the oldest German credit bank. Its
foundation dates back to the year 1848, when it super
seded the banking firm A. Schaaffhausen, which at that
time had become involved in financial difficulties. The
capital of the reorganized institution was fixed at 5,187,000
thalers, of which, however, only 3,199,800 thalers were
paid in. As the firm A. Schaaffhausen had maintained
extensive industrial connections in Rhineland-Westphalia,
the new institution was in a more favorable situation than
the other present-day great banks, which were able to
50 7
N a t to n a l
Monetary
Commission
acquire a steady clientele only after years of laborious
efforts. Its primary task was to maintain and develop the
connections of the old and well-renowned banking firm,
whose clientele it had taken over, by means of trans
forming industrial undertakings into stock companies or
otherwise to mobilize the industrial participations in which
the capital of the old firm had been tied up, and to liqui
date them as soon as the profitableness of the under
takings and general business and market conditions
would permit such action.
On pages 71 and following we enumerated a long list of
transformations and new foundations, effected by the A.
Schaaffhausen’scher Bankverein during the years 18511858. We mentioned there that from the outset the far
sighted and expert management of the institution recog
nized clearly “ that the permanent success of the Bank
verein was inseparable from the prosperous growth of
Rhenish industry in all its branches. ’ ’ Subsequent develop
ment fully proved the soundness of its position. The A.
Schaaffhausen’scher Bankverein has grown great with the
surprisingly rapid and strong development of the RhenischWestphalian industry, which until the most recent period
has been furnishing the very core of its industrial clientele.
The careful fostering of the current-account and under
writing business was a natural corollary of its industrial
connections and the necessity to extend and strengthen
these connections. The same can not be said of the deposit
business, to which the Bankverein paid no systematic
attention during the first period for general reasons men
tioned in the chapter relating to the Darmstadter Bank.
As a matter of fact, its total deposits about the end of the
The
G e r m a n
G r e a t
B a n k s
first period, in 1869, amounted to 883,616 thalers only.
The founding of branches, agencies, and commandites
contemplated as early as 1853 did not at first materialize.
Neither did the bank succeed, as it then intended, in open
ing a branch in Berlin, as such action presupposed a change
of its by-laws, for which the then required state sanction
could not be obtained. The Bankverein passed through
the crisis of 1857 without being compelled to cancel any
outstanding credits.
During the first epoch, while manifesting great activity
in the founding and transforming business, it figured to a
relatively small extent in the underwriting field, though
participating in numerous syndicates organized during
that period by other banks.
Even during the second period the Bankverein was an
“ industrial” rather than an “ emission” bank. At the
same time it was careful enough not to permit any undue
swelling of its acceptance account. Having its central
field of activity in the domain of the rapidly developing
Rhenish-Westphalian industry, its importance during the
second period as an industrial bank became preeminent.
Owing to its old-established industrial connections, it
continued during all stages and changes of business, not
withstanding severe competition, as the foremost industrial
counsel, financial aid, and agent in the execution of the
ofttimes ambitious schemes of a number of industrial
establishments. Foremost among the latter is the Horder
Bergwerks- und Hiittenverein, founded as a stock company
in 1852, whose rapid growth up to 1873 and financial
troubles after 1873 claimed the energetic support of the
Bankverein up to the reorganization of the concern by
5 °9
N a t to n a l
M on et a r y
Commission
the Bankverein jointly with the firm of Deichmann & Co.,
of Cologne. It was only after some time and the general
improvement of the business situation that this operation
led to a series of profitable emissions and other transac
tions. Even at present a director of the Bankverein is
the chairman of the supervisory council of the Horder
Verein, while, in turn, the general director of the latter is
a member of the supervisory council of the Bankverein.
Close relations were established with a number of large
industrial concerns, such as the Harpener Bergbaugesellschaft, the Bochumer Verein, the Phoenix and the Hoesch
steel works. This necessitated the increase of the re
sources of the bank, and thus fostered its concentration
tendencies. Both in the interest of successful industrial
issues as well as for other reasons to be considered later
closer relations with the leading bourse center became
necessary. It was only in 1891, however, that the Bank
verein established such relations by opening a branch in
Berlin. Notwithstanding this action, the Bankverein by
no means became a Berlin great bank. It preserved its
essential character of a Rhenish great bank, though its
importance at the new center grew, as a matter of course,
with the absolute and relative growth of the branch, in
contradistinction to the Darmstadter Bank, which by
shifting its center of activity from the commercially unim
portant town of Darmstadt to Berlin became to all intents
and purposes a Berlin great bank, the more so as with the
further growth of its business its clientele gradually ceased
to be exclusively or mainly south German.
In proportion as the tasks of the Bankverein in the field
of industrial credit and issues grew in size and number it
had to increase in comparatively rapid succession its paid-in
510
The
G e r m a n
G r e a t
B a n k s
capital from 9,600,000 marks to 36,000,000 in 1880, to
60,000,000 in 1895, and to 145,000,000 at the end of 1905.
During the second period it joined the concentration
movement by the opening of branches, which numbered
10 at the end of 1908, and of deposit offices, the number of
which increased to 13 during the same time; also by the
establishment of a subsidiary bank (Tochterbank), the
Westfdlisch-Lippische Vereinsbank, Aktiengellschaft in
Bielefeld, and finally by the absorption of several banks
and banking houses. It has only one commandite (in
Dresden), and after the dissolution of the community of
interest with the Dresdner Bank maintains such relations
at present only with the Pfdlzische Bank in Ludwigshafen
(1901) and the Mittelrheinische Bank in Coblenz (1903).
From what has been said heretofore it may be seen that
the Schaaffhausen’scher Bankverein possesses no extensive
international connections. This probably was one of the
main reasons which induced it to establish the community
of interest with the Dresdner Bank, which maintains a
large number of such connections. This community of
interest became effective January 1, 1904, for a term of
thirty years, but was essentially terminated January 1,
1909. One result, however, of the temporary combination
was that the Bankverein had to take part in the common
foreign enterprises of the other great banks, such as the
Deutsch-Asiatische Bank, the Banca Commercial Italiana,
and to take even a leading part in the establishment of
the telegraph and cable companies. It also participated
in the founding of the Banque Internationale de Bruxelles,
the Shantung companies, and the Kamerun Railway Com
pany, and jointly with the Dresdner Bank in the founding
5“
of the Deutsche Orient Bank and the Deutsch-Sudamerikanische Bank.
The special domain of the Bankverein is, however, the
industrial field, especially that of the Rhenish-Westphalian
district. It is particularly interesting and instructive to
observe the various types of relations, as were shown by
the example of the Horder Verein, which the bank formed
during the second period.
The bank as a rule and with good reasons avoided
permanent large participations in industrial enterprises.
Its holdings of the stock of the Internationale Bohr-Gesellschaft (International Exploration Company) at Erkelenz—
devised to continue indefinitely— can hardly be regarded
an exception, since it needed this stock to support its
industrial policy in various directions,44as, for instance, the
7
maintenance of its influence in the second coal syndicate,
the penetration into various mining branches in Germany
and foreign countries, especially in Belgium, and, finally,
for the purpose of developing the Roumanian petroleum
business, entered into jointly with the Dresdner Bank.
(See above, p. 419.) These latter connections brought
it into contact with Silesian industrial interests, likewise
interested in the Roumanian petroleum fields. The result
was a new combination in 1904, which included, beside the
interests named, also the Dresdner Bank, the International
Exploration Company, and became known as the Petro
leum Stock Company Regatul Romana.
The Bankverein also took a leading position in the group
of the Elektrizitdts-Gesellschaft normals Schuckert & Co.
until 1898, when it withdrew, having failed in its efforts to
bring about the amalgamation of the above group with
512
The
G e r m a n
G r e a t
B a n k s
the Loewe group. It was only in 1903 that a combination
with the Siemens & Halske group was effected. Since
1898 the Bankverein participated in all the enterprises
and transactions of the Loewe group, viz, the British
Thomson-Houston Company, the Benrath Machine Works,
the stock company Boehler Bros. & Co., etc. The A. E. G.
(Allgemeine Elektrizitdts-Gesellschaft) group and its activity
assumed larger proportions in 1904 by the accession of the
banks forming the Loewe group, after the taking over of
the U. E. G. (Union Elektrizitdts-Gesellschaft) by the
A. E. G.
As a result of its connection with the Dresdner Bank,
the Bankverein was brought into contact with various
transportation companies, in the first place with the
Great Berlin Street Railway Company. It also became
connected with the Aktiengesellschaft fur V erkehrswesen
(Stock Company for Transportation Enterprises) Lenz
& Co., and the Bank fur Deutsche Eisenbahnwerte (Bank
for German Railway Securities). It was these corpora
tions which for several operations brought about the joint
action of the Bankverein with the close ally of the Lenz &
Co. concern, the Berliner Handelsgesellschaft. Jointly
with the latter it founded in 1895 the Westdeutsche Eisenbahngesellschaft, which, in turn, organized the Vereinigte
Westdeutsche Kleinbahn Aktien-Gesellschaft (United West
German Minor Railways Stock Company) with a capital
of 6,000,000 marks, and in 1896 the Bank fur Deutsche
Eisenbahnwerte with a capital of 10,000,000 marks.
Through its current-account business the Bankverein
as a matter of course came to arrange for and undertake
the transformation into stock companies of industrial
90311 °—11---- 34
513
N a t i on a l
M on e t a r y
Commission
undertakings of its customers. Under this head fall the
transformation of the firm Carl von Bom into the
Hiitten-Aktiengesellschaft normals Carl non Born at Dort
mund in 1896; of the firm Bucklers & Jannsen into the
Diilkener Baumwoilspinnerei A. G. (Duelken Cotton Spin
ning Stock Company); of the firm Burtscheid, Ulrici & Co.
in Dtilken into the Rheinische Webstuhlfabrik A. G.
(Rhenish Weaving Looms Manufacturing Stock Company),
in 1897; and of the firm Mannstaedt & Co. into the Kalker
Walzwerk (Kalk Rolling Mills) Mannstaedt & Co. in 1898.
Other operations of the Bankverein originating in the
same manner were: A commandite interest acquired in
the firm C. Luckerath (Limited), cloth dealers, the trans
formation of the Siegrheinische Geuuerkschaft (Sieg-Rhine
Mining Concern (Limited), into a stock company (1897);
the transformation of the Selbecker Bergwerksnerein into a
limited mining company (Gewerkschaft); the taking over
in 1901 of the bankrupt worsted spinning works, Eitorf,
Karl Schafer & Co., and its immediate transformation
into the Worsted Spinning and Weaving Works Eitorf
Stock Company, and the reorganization of the machine
tool factory, de Fries & Co., stock company, in Heerdt
near Dusseldorf. In the same class belong the amalga
mation of two friendly concerns into the United Steel
works von der Zypen and the Wissen Iron Mills Stock Com
pany, and the union of the works of two of its currentaccount customers into the Eschweiler-Koln Eisennuerke
Aktien-Gesellschaft.45 In 1904 the Bankverein, in the inter
7
ests of its clients, the Kolnische Maschinenbau-Aktiengesellschaft in Cologne-Bayenthal, for the purpose of
settling the deficit in its balance sheet, purchased jointly
5i 4
The
G e r m a n
G r e a t
B a n k s
with other firms certain grounds owned by the works and
transferred them to a newly formed real estate company.46
7
In connection with the operations just described, a
number of other transactions were effected partly in
the interests of the bank itself, partly in the interests of
friendly business houses, as for instance, the sale of its
participation in the above-mentioned Hiitten-Aktiengesellschaft normals Carl von Born in Dortmund to the likewise
mentioned H order Verein.
The number of industrial issues of the Bankverein
during the years 1895-1903 amounted to 187, as com
pared with 220 effected by the Dresdner Bank, 170 by
the Berliner Handelsgesellschaft, 151 by the DiscontoGesellschaft, 150 by the Deutsche Bank, and 148 by the
Darmstadter Bank. Among the 187 industrial issues
of the Bankverein 103 were those of industrial bonds.47
7
The number of companies for which the Bankverein ef
fected industrial issues during the period 1895-1903 was
207, compared with 181 served in this manner by the
Dresdner Bank, 154 by the Disconto-Gesellschaft, 149 by
the Berliner Handelsgesellschaft, 140 by the Darmstadter
Bank, and 139 by the Deutsche Bank. It is seen that in
this field the Bankverein attained the highest record.
Of the various industries the Bankverein has been in
closest touch with the mining and smelting industries.
As shown above, it maintained particularly intimate re
lations with the Horder Verein in Dortmund, also with
the Lothringischer Hiittenverein Aumetz-Friede in Kneuttingen, which it reorganized in 1901 and again in 1903,
and which was amalgamated in the same year with the
Fentscher Hiitten-Aktienverein. The indirect consequence
\
N a t io n a l
M o n et a r y
Commission
of these close relations was that the Aumetz-Friede
works ordered its machinery from a client of the Bankverein, the Cologne Machine Construction Stock Company,
a practice which is often found among customers of the
same bank. The Bankverein maintained also close rela
tions to the Harpen Mining Company, which it had founded
jointly with the Berliner Handelsgesellschaft, the iron
works Phoenix in Laar, the Hosch Steel Works, and the
Bochumer Verein, and through its connections with the
firm Spaeter & Co., part owners of the Rombacher Hiitienwerke, with the latter works.
By reason of the above-named and other close connec
tions with the Rhenish-Westphalian industry, the lead
ing element in the coal mining and metallurgical indus
tries of the country, the Bankverein came to play a
most important part in the development of the industrial
cartels. Thus in 1899 it opened a syndicate office (Syndikats-Kontor) ^yith a capital of 1,000,000 marks, which was
to undertake the representation of industrial combinations
and syndicates. The Steel Works’ Union was formed after
hard struggles mainly for the reason that the Bankverein
held the majority of stock of the Phoenix Works and was
thus able to force a resolution in the general meeting of
stockholders to join the union against the wishes of the
director of the works.
In conclusion, it may be said that the A. Schaaffhausen’scher Bankverein from the start to the present day
was the leading institution in the Rhenish-Westphalian
industrial region. When in the course of development
the policy and management of these industries began to
exercise a considerable influence on the other German
516
1 -
The
G e r m a n
G r e a t
B a n k s
industrial districts, the Bankverein in its capacity as the
leading institution in a special branch of business gained
also an influential position among the great German banks.
TH E
B E R L IN E R
H AN D EESG ESELLSCH AFT.
The Berliner Handelsgesellschaft which was founded in
1856, was organized as a stock company “ en commandite ”
for the reason that the latter form of organization did not
require a state concession in Prussia. At the time of its
organization its capital stock amounted to 15,000,000
thalers (45,000,000 marks) of which, however, only
3,740,150 thalers were paid in. Since the first period it
has been a prominent flotation bank (E m issio n sb a n k )
with the result that in the matter of issuing and placing
securities it may boast of methods technically equal if not
superior to those used by any other bank. As shown
above (p. 75 and following) it participated during the first
period in the underwriting of a large number of domestic
and foreign state and railway loans, including the issue of
Russian railway bonds.
In section 2 of its constitution it was expressly stated
that its activities should comprise especially “ industrial
and agricultural enterprises, mining, smelting, the con
struction of canals, highways, and railways, as well
as the creation, fusion, and consolidation of joint stock
companies and the issue of stock or bonds of such
companies.”
Although during the earlier period it ventured but com
paratively little into the industrial field and conducted
neither a current-account nor a deposit business, yet it
succeeded in earning large and almost steadily increasing
517
I
N at io n a l
M onet a r y
Commission
gains from its business of reorganizing and floating
enterprises and from its operations in the underwriting
and issue field. Its dividends in the first period were
as follows:
P e r c e n t.
1857..................... • ........... 5 X
1858.................... ............ 5 X
1859....................
i860.................... ....................... 5 X
1861....................
1862..................... ............ 9
1863..................... ............ 8
1864. .
1865. .
1866.. ..........
1867 . .
1868. .
1869. .
P e r ce n t.
8
Negotiations for the establishment of “ com m andites in
other localities,” provided for in the by-laws and men
tioned in the report for 1857, had to be abandoned on
account of the crisis of 1857.48
7
Among serious losses which the Handelsgesellschaft
suffered during that period may be mentioned that of
150,000 thalers on account of the D essauer K redita nstalt,
or more correctly, the latter’s New York commandite,
besides a loss growing indirectly out of the failure of an
export firm in Danzig. This failure involved the banking
house of Breest & Gelpcke, of Berlin, which was conducted on account of the Berliner Handelsgesellschaft
since January 1, 1857. No difficulties were experienced
by the bank during the crisis of 1857. During the second
period the bank devoted itself systematically and with
correspondingly good results also to the current-account
business, though keeping aloof from the deposit business.
It also took a leading part during the first years in the
foundation and transformation of industrial enterprises.
These operations, while a source of rich returns, naturally
resulted also in some losses. In 1871 it was able to
increase its capital to 10,500,000 thalers. Its attempts at
5*8
The
G e r m a n
G r e a t
B a n k s
enterpreneur activity at the beginning of the second
period proved, however, disastrous, as mentioned on a
previous occasion. The construction of the Muldetal
Railway, which was financed by the bank, consumed,
according to the report of 1876, a large part of its available
resources. This necessitated a call for the payment of 30
per cent on the new stock.
The dividends during the first thirteen years of the
second period were as follows:
P e r c e n t.
1870.....................
1871.....................
1872.....................
1873..................... ...................
1874..................... ....................
1875..................... ....................
1876.....................
P e r c e n t.
1877.......................
6K
7
5
1878................
1879....................... ................• 5
1880................ .................... 5X
1881................
1882................
The losses occasioned by the Muldetal Railway enter
prise caused the passing of dividends during the years
1876 to 1878, which in the year 1872 were as high as
12% per cent; in fact, they caused even a deficit.
In 1878, after the sale of the railway to the Saxon
government, which entailed a loss to the bank of 6,500,000
marks, its capital stock, which had grown to 15,000,000
thalers (45,000,000 marks), was reduced to 30,000,000
marks, and the profits from this operation were devoted
to the creation of a large special reserve fund for pending
industrial business.49 During the following years, 1879
7
and 1880, the bank was able again to pay dividends of 5
and 5X per cent, respectively.
During the year 1880-81 the bank again suffered on
account of its participation in two industrial enterprises,
viz: The Deutsche Lokal- und Strassenbahngesellschaft
5x9
»
N at i on a l
M on et a r y
Commission
(German Local and Street Railway Company) and the
Petroleum-Bohr- Gerechtsamen- und Olland- Gesellschaft
(Petroleum Drill Privilege and Oil Land Company), as
well as on account of extensive speculations in shares of
the bank's own capital and in Russian paper currency by
one of the partners of the institution. The losses resulting
from these operations necessitated in 1882 a reduction of
the capital stock from 30,000,000 to 20,000,000 marks.
The above-mentioned speculation alone entailed a loss
of 8,250,000 marks.
There is no doubt that many present-day economists,
who on such occasions as well as after every general
crisis demand government intervention, including official
supervision, control, and inspection, or restrictive legis
lation, would at that time have seen the only salvation
in the carrying out of similar demands with regard to the
Berliner Handelsgesellschaft and for that matter to all
German credit banks. But there is likewise no doubt
whatever that such measures would have caused only
further disaster, and would have prevented or restricted
the splendid development of German banking, which was
so very essential to the interests of the nation. In this
respect, as in many others, the practical wisdom of the
English, resulting from greater business experience, and
finding expression in the maxim, “ Not measures, but
men,” has proved far more successful.
Splendid results followed the inauguration of a new
management by careful as well as skilful partners (of
whom one is still on the board of management) and the
adoption of a business policy based on new principles,
and this notwithstanding the fact that confidence in the
520
The
G e r m a n
G r e a t
B a n k s
bank, which had been almost completely lost, had to be
regained by the new partnership.
Even for the first year after the reorganization (1883)
a dividend of 7 per cent could be declared, and ever since,
with the exception of slight interruptions from time to
time, due to general economic conditions, the Berliner
Handelsgesellschaft has been following a career of con
tinuous and increasing success.
Its dividends during the following years were as follows:
P e r cent.
P e r c e n t.
1883
••
7
1884
1885
1886
1887
1888
••
9
1889
1890
1896
1897
••
••
9
9
9
..
9K
8
••
..
8
..
..
9
9
1898
1899
1900
..
10
1901
••
7
..
12
1902
lA
1903
..
8
1891
.. 9K
•• lA
• •
1904
..
8
1892
..
6
1905
1893
1894
• •
5
1906
.. 9
.. 9
••
7
1907
1895
.. 8
1908
••
..
9
9
On December 31, 1908, the “ commandite” capital of
the Berliner Handelsgesellschaft was 110,000,000 marks,
while the surplus amounted to 34,500,000 marks, or 31
per cent of the capital stock. The debits on current
account amounted to 192,250,000 and the credits to
206,250,000 marks.
The peculiar character of the Berliner Handelsgesell
schaft among the other great Berlin banks grew out of its
relations to:
1. The electrotechnical industry.
2. The so-called “ heavy” industries, especially mining
and smelting enterprises.
521
N at i o n a l
M on e t a r y
Commission
3. The street railways and minor steam railways.
It was particularly in the first-mentioned field that the
Berliner Handelsgesellschaft developed a many-sided and
fruitful activity. The great success achieved by the Allgemeine Elektrizitdts-Gesellschaft (General Electric Company)
was due as much to the marvelously efficient management
of its general director, Emil Rathenau and his associates,
as to the intelligent and skilful financial cooperation of
the Berliner Handelsgesellschaft. The latter, as the chief
financial adviser of the General Electric Company, proved
as successful as did the Deutsche Bank in the case of the
firm of Siemens & Halske.
The Handelsgesellschaft undertook a large number of
financial transactions of all sorts as a result of its connect
ion with the General Electric Company. Aside from the
numerous issues which it carried through for the General
Electric Company and other concerns which were either
allied with or subsidiary to it, such as the Berliner Elektrizitdtswerke, I may mention its organization of separate
electrical companies in Seville and Barcelona (1894), m
Warsaw afid Bilbao (1896), the foundation of the Bank
fur Elektrische Unternehmungen in Zurich (1897); the
Deutsche Ueberseeische Elektrizitatsgesellschaft (German
Transmarine Electrical Company) in Berlin, and the
A luminium-Industrie-A ktiengesellschaft (Aluminum Manu
facturing Company) in Neuhausen (1898), the ElektroChemische Werke (Electro-Chemical Works) in Bitterfeld
and Rheinfelden (1896), which were consolidated in 1899
and, finally, the Elektrizitdts-Lieferungs-Gesellschaft (Elec
tric Light and Power Company), etc.
522
The
G e r m a n
G r e a t
B a n k s
After the Union-Elektrizitats-Gesellschaft (U. E. G.)
was taken over by the General Electric Company in the
year 1904, the bank group which financed the General
Electric Company was strengthened by the alliance with
the bank group which financed the Loewe enterprises
(viz, the Disconto-Gesellschaft, the Dresdner Bank, the
Darmstadter Bank, and the A. Schaaffhausen’scher Bankverein). This group thus represents an enormous power
alongside that of the bank group headed by the Deutsche
Bank, which finances the Siemens & Halske concerns and
the newly organized limited stock company (G. m. b. H.)
of the Siemens-Schuckert Works, which grew out of a
combination in 1903 of some of the Siemens-Halske works
with the Schuckert Company. This latter combination
presents many points of contact and common interests
with the groups mentioned. The Berliner Handelsgesellschaft is, moreover, represented in the syndicate for
handling the Siemens & Halske securities.
In the “ heavy” industries, especially in mining and
smelting, the Berliner Handelsgesellschaft also played an
important and at times even the leading part alongside
the A. Schaaffhausen’scher Bankverein. Together with
this institution, it is largely interested in the Harpener
Bergbaugesellschaft (Harpen Mining Company), is closely
connected with the Rombacher Huttenwerke (Rombach
Smelting Works), and wields an important influence in the
Ruhr coal district through its intimate connection with
the Konsolidation and the Hibernia mining companies.
In conjunction with the banking house of S. Bleichroder
and other banks, it succeeded in preventing the acquisition
of the Hibernia mines by the Government.
523
N ational
Monetary
Commission
The Berliner Handelgesellschaft, furthermore, is well
connected with the Upper Silesian iron and coal district
through its close business relations with the Oberschlesische
Eisenindustrie-A ktiengesellschaft Caro-Hegenscheidt (Upper
Silesion Iron Company Caro-Hegenscheidt) and the firm
Emanuel Friedlander & Co. in Berlin, one of the two sales
agencies of the upper Silesian coal combination.
Finally, in the field of street and minor railway enter
prises the activities of the Berliner Handelsgesellschaft
had a particularly wide scope. It assisted the General
Electric Company in 1895 by the founding of the Leipzig
Street Railway Company and through the issue of the
securities of the Karlsruhe, Breslau and Stettin street
railway companies and those of the Allgemeine Lokal- und
Strassenbahngesellschaft (General Local and Street Railway
Company). Like the Darmstadter Bank, but at a later
date, it undertook also the promotion on a large scale of
minor railways (Kleinbahnen).
In this field its relations with the Stettin Railway Con
struction and Transportation Concern, Lenz & Co. were as
close as those of the Darmstadter Bank with the firm
Herrmann Bachstein. In view of its own former disas
trous experience and that of other large banks, it began
its activity in this field by organizing in 1895, in conjunc
tion with the A. Schaaffhausen’scher Bankverein, a trust
company at Cologne, known as the Westdeutsche Eisenbahngesellschaft (West German Railway Company), which
took the place of the Handelsgesellschaft in the operating
and financing of the Lenz enterprises. In 1896 another
trust company, the Bank fur Deutsche Eisenbahnwerte
(Bank for German Railway Securities) was organized,
The
G e r m a n
G r e a t
B a n k s
while the Badische Lokaleisenbahnen-A. G. (Baden Local
Railway Company) was founded to take over a part of the
Lenz railway system located in Baden and the Ostdeutsche
Eisenbahngesellschaft in Bromberg (in 1899) to take over
another part of that system. In 1899 the Vereinigte
Westdeutsche Kleinbahn-Aktiengesellschaft (United West
German Minor Railway Company) was founded, which
controlled as separate enterprises a large part of the rail
roads of the West German Railway Company. In 1901
the Handelsgesellschaft founded, alongside the older
limited company, Lenz & Co., a new Aktiengesellschaft fur
Verkehrswesen (stock company for transportation), with
a capital of 10,000,000 marks, which took over all the shares
of the former company. The Berliner Handelsgesellschaft
engaged, in a large measure, also in speculative dealings
in urban land tracts (Terraingeschaft).
We saw above (in the discussion of the A. Schaaffhauen’scher Bankverein, page 515) that with reference to
the npmber of industrial issues effected during the years
1895 to 1903, the Berliner Handelsgesellschaft ranked
third, with 170 issues (as against 220 effected by the
Dresdner Bank and 187 by the A. Schaaffhausen’scher
Bankverein). It ranked fourth if the number of financed
companies is considered, this number being 149.
It is also represented by its managing partners on the
supervisory boards of a large number of industrial cor
porations. The international connections of the Handels
gesellschaft are extensive and of a high order. The com
pany took a leading part in the formation of the DeutschAsiatische Bank in 1889 and of the Banca Commerciale
Italiana in 1894. It also participated during the years
525
National
Mo n et a ry
Commission
1898 to 1904 and in 1908 in the organization of all the
German telegraph and cable companies, in 1899 in the
organization of the two Shantung companies, and in
1906 in the founding of the Kamerun Railway Company.
Among its connections in the countries of continental
Europe we may note the following institutions in the
foundation of which it took part:
Schweizerischer Bankverin in Basle (1872), the Banque
Internationale de Bruxelles (1898), the Banca Marmorosch
Blank & Co., Societaie anonima in Bucharest (1904-5)
and the banking company, formerly Andreevics & Co.,
in Belgrade (1908). Since 1905 it has been operating
the Usambara Railway in German East Africa, and
in conjunction with the firm of Lenz & Co. it is engaged
in the construction of the railway from Eiideritzbucht
to Kubub.
It participated, in some cases most prominently, in
all of the Russian, Chinese, and Japanese bond issues
effected during the second period and emitted several
Servian state and railway loans. (See App. V and VI.)
The prominent place among the large Berlin banks
attained by the Berliner Handelsgesellschaft proves in a
striking way the truth established by years of experience
that the fate of banks as well as of industrial and coinmerical enterprises depends chiefly upon the ability and
trustworthiness as well as the energy and farsightedness
of the management.
526
/
The
S
G e r m a n
e c t i o n
v e s t m
AN D
E
7.
T
he
o f
e n t
s o
G
s t a b l i s h m
s p e c i a l
)
e n t
c a e e e d
e r m a n
C O M M E R C IA L
b a n k e n
-
G r e a t
c a p i t a l
E N T E R P R IS E S ,
o f
r e f e r e n c e
e x p o r t
c a p i t a l i s m
i n
f o r
t o
—
T
he
b a n k s
(T
w
T
h
E
o c h t e r
b u s i n e s s
c o n n e c t i o n
i n
i n d u s t r i a l
S E C U R IT IE S .
f o r e i g n
i t s
p o l i c y
f o r e i g n
AN D
s u b s i d i a r y
e x c l u s i v e l y
i n d u s t r i a l
e x p o r t
B a n k s
,
it h
w
-
i t h
t h e
. 480
(A)
In a previous part (sec. 4, sub. 1) it was shown
that the development of the foreign, and especially the
over-sea banking business during the second period,4 1
8
which was started by the energetic activity of the
Deutsche Bank represents the outcome of a well-designed
business policy42 on the part of the great German banks
8
which is directly and inseparably connected with the
general industrial export policy.
In order to judge whether this business policy has
been proper, necessary, or desirable from the point of
view of the public welfare, we must bear in mind the
facts presented in Part III, Chapter I, page 87 et seq.,
bearing on the development of the general economic
conditions in Germany during the second period (1870
to the present time).
We saw that German agriculture and forestry during
this period were not in a position to supply the domestic
demand by their own products. We also know that
in view of the large and continuous growth of our popu
lation, notwithstanding the best efforts and zeal, this
deficiency in the domestic supply could not be made
up by the application of more intensive methods in
agricultural production or by the extension of the culti
vated area. Our deficiency in agricultural products,
527
N a t i on a l
M on et a r y
Commission
therefore, had to be made up to an increasing extent by
the foreign importation of foodstuffs.
Moreover, German industry was not in a position to
supply its needs at home, especially in the matter of
raw materials, and was compelled on the whole— i. e.,
apart from single branches— to supply the demand for
raw materials largely and, in some instances almost exclu
sively, by importation from abroad.
It is self-evident that we can not pay in cash for these
very large imports of agricultural products and raw mate
rials used in manufacture without impairing our national
capital resources. These imports must be paid, there
fore, in some other way; and this is unavoidable, because
we need these imports for the existence of our agricul
ture and our industry— that is, for the sustenance and the
employment of our population.
Such payment has been made thus far in an unimpor
tant degree by the exchange of such raw products as we
do not need for home consumption, but mainly by export
ing manufactured products43 to the countries from which
8
we import ’foodstuffs and raw products.44
8
The necessity for these exports of manufactured prod
ucts is thus growing in proportion to the increasing defi
ciency in the supply of domestic foodstuffs and raw mate
rials. Under present conditions, therefore, especially in
view of the constantly increasing population, our indus
trial export policy can not be said to have been a device
arbitrarily adopted, and therefore one eventually to
be abandoned. Nor is it an end in itself, but on the
contrary a means, indispensable to our entire economic
existence,45 of paying to a very material extent for our
8
absolutely necessary imports.
528
1
1
The
G e r m a n
G r e a t
B a n k s
As stated before, the German banks regarded it as one
of their chief functions actively to support both at home
and abroad domestic industry46 and the export policy
8
adopted by the latter by promoting energetically German
foreign commerce. In connection with this general policy
they came to establish branches in foreign countries and
to' organize for the foreign business special subsidiary
banks both at home and abroad, which, it is true, in many
cases proved at the same time the means of securing new
and profitable business. They also cooperated with the
government policies regarding the colonies, navigation,
canals, the navy, and cable connections, all of which bore
the closest relations to the above business policies.
It is plain, therefore, that the activities of the banks in
all these fields were of national importance. For upon
the successful discharge of the above functions depends
not only the maintenance and the extension of our influ
ence and our importance abroad, but, what is more, our
entire economic existence.
It may be said that for some time at least the necessity
of this development from the point of view of the com
mon national interests did not appeal to wide circles,
especially to those classes which were injuriously affected
by this development. For it goes without saying that in
the course and as the result of the industrial export move
ment, as in the case of any other fundamental economic
change, serious disadvantages manifested themselves.
With the steady growth of population the industrial ex
port policy continued to be emphasized more and more
until about 1882, when it may be said to have reached its
point of culmination. During all these years agriculture,
9 0 3 110— 1 1 ----- 35
I
529
N at i on a l
M on et a r y
Commission
notwithstanding all its importance to the economic well
being of the nation, received but scant support, losing
much of its former strength, means, credit, and labor.
It is that policy which is partly responsible for the fact
that the percentage of population engaged in agriculture
decreased from about 61 per cent of the entire popu
lation in Prussia in the middle of the past century to 28.6
per cent of the entire German population in 1907, while
at the same time the population engaged in commerce and
industry increased from about 24 per cent (in the middle
of the past century in Prussia) to 56 per cent of the Ger
man population engaged in gainful occupations in 1907.
The latter circumstance has contributed materially to the
enormous growth of the manufacturing towns (up to 17
and 18 times the figures for the middle of the past century).
(B)
The above-mentioned activities represent, how
ever, only part of the functions of the banks in this
field.
For as was made clear from the statistical compilations,
which were closely scanned by the banks as well, not withstanding all efforts in the fields of industry and foreign
trade, only part, though quite a considerable part, of our
imports of foodstuffs and raw materials could be compen
sated by means of exports of manufactures and similar
products. After deducting the value of our exports of
manufactures there still remained a very considerable
balance in favor of the foreign countries. The excess of
imports for consumption over domestic exports at the
close of 1907, as we saw above (p. 112), amounted, in round
figures, to 1,300,000,000 marks. To this extent, there
fore, the balance of trade was against us.
53 °
The
G e r m a n
G r e a t
B a n k s
Now, there is no doubt that the claim that an unfavor
able balance of trade in itself is disastrous for a country
can not be maintained as a general proposition, since nu
merous countries may be cited which show an unfavorable
balance of trade, but which with a particularly favorable
balance of payments, enjoy the utmost prosperity. These
are the countries which utilize the available surplus of
large capital accumulations, derived from their industrial,
agricultural, or colonial successes, for the improvement of
their balance of payments. The more favorable the bal
ance of payments of such a country the less perilous will
be an unfavorable balance of its trade. In other words,
the more favorable its balance of payments becomes, the
less a country may hesitate to let other countries “ work
for it,” that is to say, permit itself to be supplied by other
countries with raw materials and foodstuffs, even though
as a result of such a policy its balance of trade may be
come unfavorable. For Germany the problem presented
itself pf compensating the unfavorable balance of trade
by the utmost practicable improvement of our balance
of payments, in order to escape ultimate disaster through
a constant accumulation of unfavorable trade balances.
In this respect, as well, there was no choice of means.
The problem was primarily one of creating debits in
our favor on the part of those countries which had a
favorable balance in their trade with us,47 debits at least
8
large enough to counterbalance the credits due them from
us by reason of the excess of their sales over their pur
chases in their trade with us. In the case of industriallydeveloped countries, the activities accomplishing this
result develop to a considerable extent automatically,
S3i
N at i o n a l
M on et a r y
Commission
i. e., as natural consequences of the industrial relations
to the less developed foreign countries, and to a smaller
extent, as the result of fixed plans and designs.
Foreign countries may become our debtors—
(i)
Through business operations which we carry on
in and with foreign countries, which include exchange,
arbitrage, and commodity transactions with these coun
tries undertaken either for speculative purposes, to secure
payment, or to attract gold from them, and through serv
ices which we render those countries, or through mercan
tile, industrial, or transportation enterprises which we
establish in the foreign countries or in which we partici
pate.
The German enterprises established in foreign Euro
pean countries, which were mentioned in section 4, sub. II
(p. 432 et seq.), include the foreign branches of the Ger
man banks, such as the Deutsche Bank, the DiscontoGesellschaft, and the Dresdner Bank in London. The
foreign German participations include the ownership by
German banks of stock in foreign banking institutions,
such as the ownership by the Commerz-und DiscontoBank of shares in the London and Hanseatic Bank, by
the Dresdner Bank of stock in the General Mining and
Finance Corporation (Limited) in London, etc. Accord
ing to the report of the Central Federation of German
Banks and Bankers (Centralverband des Deutschen Bankund Bankiergewerbes) of December, 1903 (concerning
the effects of the stock exchange act and the stock ex
change tax act), since the stock exchange act of January
1, 1897, went into effect, numerous time transactions and
other dealings of the German public in (American) rail532
a ..
The
G e r m a n
G r e a t
B a n k s
way stock and in mining shares transacted in many
foreign countries, particularly in London, Paris, and
New York, have to be considered in which, to escape the
German tax on securities, the securities to a large extent
remained abroad. According to the inquiry of the central
federation (see above report, p. 48), which was only par
tially successful, the securities (for the most part probably
of the classes above mentioned) 48 which the 18 largest
8
banks and banking houses of Berlin, namely, the members
of the so-called Stempelvereinigung, had in foreign deposi
tories on December 31, 1902, on their own and outside
accounts amounted to 602,268,000 marks, while the value
of securities which only 149 other German (provincial)
banks and bankers had at the same time in foreign
depositories amounted to 454,151,000 marks.
According to Paul Dehn 49 the total investments of
8
French capital in foreign countries in the middle of the
year 1902, according to official investigations, amounted to
24.000. 000.000 marks (30,000,000,000 francs).40 Dehn
9
further states:4 1 “ It is reported that the English draw
9
annually 1,000,000,000 marks in interest from American
securities which they hold, from plantations, factories,
constructions, etc., which they have instituted and with
which they pay for the foodstuffs which they import from
the United States.” According to an address of Sir Edgar
Speyer before the Institute of Bankers, made on June 7,
1900., on “ Some aspects of national finance,” the total
amount of British working capital invested in foreign
countries was estimated to aggregate £2,500,000,000
or 50,000,000,000 marks. According to Helfferich,42 the
9
former director of the Credit Lyonnais, Germain, estimated
533
N a t i on a l
M on e t a r y
Commission
that during recent years France invested annually about
1,500,000,000 francs in foreign securities.
(2)
Through our acquisition of foreign securities the
interest or dividends on which are to be paid by foreign
countries, or the capital amounts of which we are to
receive when they become due, or when the securities are
sold abroad.
It may be objected that these investments in the first
place require means which must be drawn from domestic
sources and which go abroad (as, for instance, when a for
eign loan is taken up at home) in consequence of such
investments, and that in the beginning at least we become
debtors of the foreign country, while any improvements
in this balance begin to show only later from the earnings
of our investments, and that, for the time being, our bal
ance of payments is not improved but rather made more
unfavorable. But while there are doubtless cases where
this argument is effective, yet in the majority of cases the
amounts which we invest abroad— that is, which we have
to pay to foreign countries in gold— are paid out of the earn
ings on other foreign securities which are in our possession
or through the sale or exchange of other foreign securi
ties, or else are paid with goods which we furnish to the
foreign countries, it being as a rule agreed, when loans are
made to foreign countries, that our industries shall be
favored with the contracts and orders for the payment of
which the loans were contracted. A portion of the securi
ties which have been taken up eventually find their way
back to the foreign countries, or other changes in the
international balance of payments may take place with
which we must also reckon. Such changes happen con534
The
G e r m a n
G r e a t
B a n k s
tinually and daily through the importation and exporta
tion of securities. Absolutely no information exists as to
the course in time or the volume of these movements,
although such data only would enable us to perceive more
fully the significance of the imports and exports of mer
chandise and specie, i. e., of the international commercial
exchanges.43
9
In so far as the German banks, either on their own
account or as intermediaries, have been active in both
directions named, and granting that they have observed
the necessary care and foresight in preventing or arrest
ing a dangerous decline in those earnings of our foreign
investments, which might be applied to improving our
unfavorable balance of payments, they have undoubtedly
rendered valuable service, absolutely essential in the in
terests of our national economy. The following important
limitations, however, must be made:
The undertaking of or participation in foreign invest
ments is practicable only when there is a considerable
surplus of capital at home and permissible only after the
domestic demand for capital is fully met. Even if these
conditions exist such investments are not to be favored,
when in the long run they result in the strengthening of
foreign industry and the enhancing of foreign competition
against our domestic trade and industry.
Such participations of German capital in foreign coun
tries comprise chiefly banks, manufacturing, colonization,
plantation, mining, light, power, and railway undertak
ings and other land and water transportation enterprises.
The earnings from these participations increase the credit
side of our balance of payments only to the extent that
535
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Commission
they exceed the earnings of foreign investments in Ger
many. The latter are chiefly gas works and street and
local railway enterprises.
One of the important, if not the most important, item in
the balance of payments is represented by the credits
which we grant to foreign countries in our commercial
dealings with them. Since these amounts can be obtained
only from the books of the individual concerns which grant
these credits, it follows again that a total of the item in
question can at best be but approximately estimated.
On the other hand domestic enterprises and participa
tions abroad, in so far as they do not merely benefit foreign
industry, are to be regarded favorably as a rule, especially
when proper care is used in their selection, when, in the
main at least, they are conducted on domestic account,
and when they are either intended or suited to extend the
domestic sphere of influence and to serve as a basis for
larger activity of domestic industry. These factors do not
affect immediately the balance of payments, though sooner
or later they are bound to find expression in ponderable
items in our necessarily inexact balance of payments.
The above considerations, it is true, do not justify
foreign investments, whenever and in so far as the earn
ings from our foreign investments and enterprises exceed
the amounts required to pay for our excess of imports.
As a matter of fact the returns from our foreign invest
ments by far exceed the latter amount (see below, p. 545).
But we must always reckon with the possibility that
our domestic exports may decline, while our imports
will remain the same, or even increase. This would
result in a steadily growing adverse trade balance, which
536
The
G e r m a n
G r e a t
B a n k s
might become the more portentous the smaller the credit
items in our balance of payments, i. e., our foreign in
vestments which render the foreign country tributary to
us, and the returns from which can be used to counter
balance the debit items in our trade balance. Further
more, unless we render foreign countries tributary to
us to an increasing extent, the time might come when,
with the growing importance of their own home mar
ket, these countries would no longer be constrained
to furnish us with their foodstuffs and raw materials.
As it is, these exports or the money equivalent thereof
go to meet their obligations toward us in the shape of
profits and interest.
A large decline of our imports would also tend to de
stroy our industry, and thus our export trade, which fur
nish food and employment to our population, and which,
as it is, is greatly jeopardized by the growth of imperi
alistic and protectionist tendencies in countries which
are at present our principal customers.
(C)
It is clear even from what has been said that our
foreign investments, as a whole, must necessarily go
beyond the lowest limits set by our adverse trade bal
ance. But for a number of special classes of invest
ment, the returns from which serve to improve our
balance of payments, the necessity and utility is proven
by other important and cogent reasons, which retain
their validity, even if the above general considerations
be regarded of insufficient strength.
(a) As regards the German insurance business in
foreign countries, it is desirable for the domestic in
surance business for the reason, among others, that by
extending the scope of the business a broader distribu
537
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N a t i on a l
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Commission
tion of the risks is effected in time and place.44 The
9
returns from the foreign business of the German in
surance enterprises naturally increase the credit side of
the balance of payments only in so far as they are not
counterbalanced by the earnings of foreign insurance
companies in and on account of Germany.45
9
(6) The oversea banking business makes it possible for
our domestic exporters and importers, as well as for our
general commercial activity in foreign countries, to dis
pense with foreign intermediaries for their financial
transactions and credit needs. Through the financing of
the foreign business of our merchants German bank
acceptances have been introduced to foreign markets,
with the result that the ofttimes considerable earnings
of foreign concerns in this field have been turned into
German channels and have thus become available for
improving our balance of payments. Thus, for instance,
as late as 1888, according to consular reports, the com
mercial exchanges between Germany and Chile valued
in the aggregate at 60,000,000 marks yielded about
500,000 m^rks of profits to British bankers, merely
because all acceptances by means of which these ex
changes were effected had to be liquidated in the British
market.46
9
In the excellent “ Tabellen zur Wahrungstatistik ” 47
9
(tables regarding currency statistics) of the Austrian
Ministry of Finance an estimate is mentioned— according
to which out of the total value of the oversea trade of the
European Continental countries more than 6,000,000,000
marks is yearly drawn on England. According to estimates
of the British board of trade, which relate to the year 1898,
538
1
1
The
G e r m a n
G r e a t
B a n k s
bankers’ and other commissions aggregated in that year
18,000,000 pounds sterling (that is, about 432,000,000
marks).
The over-sea banking business, furthermore, opens up
possibilities for the investment of the domestic surplus
capital (see above, p. 92). This annually growing surplus
increases the demand for investment opportunities, which
can not be met fully by the issue of domestic state, com
munal, and other loans.
Our foreign banks are also in a better position to obtain
timely information regarding more important contracts,
works, and government orders about to be awarded or
regarding the impending issue of foreign loans, and are
thus able to lend much more effective assistance to German
concerns seeking the awards. Through their connections
with the foreign markets they are also in a position to call
the attention of foreign purchasers to German firms and,
vice versa, to bring to the notice of German manufacturers
and traders suitable representatives and purchasers in the
foreign countries.
Under the same head come also the profits of domestic
banks from trading in foreign securities and returns from
other foreign business. Against these earnings have to
be set, as elsewhere, the corresponding earnings of foreign
banks from German business, including the commissions
paid to foreign fiscal and disbursing agencies on account of
our coupons and bonds, loan conversions, talon renewals,
etc.
There is no means of estimating even approximately the
volume of the foreign business, including dealings in
foreign securities effected by our banking institutions, nor
539
N ationa l
M on et a r y
Commission
of the returns from this business in the shape of interest,
commissions, etc. They include chiefly the earnings from
underwriting, emitting, converting, unifying, and rehabil
itating foreign state, railroad, and private securities; from
the financing of foreign operations and enterprises, from the
granting of credit to foreign firms, institutions, enterprises,
concerns, and individuals by way of current account,
bills and other credit operations; profits from the loaning
of domestic securities abroad, from the foreign bill busi
ness, including brokerage and remittances; from the for
eign trade in specie, also earnings of interest, commissions,
and brokerage in international commercial transactions;
profits from the purchase of foreign bills of exchange and
the accumulation of credits (payable in gold) abroad;48
9
from services in connection with the payment of foreign
coupons, from the redemption of drawn or otherwise
matured debentures, the delivery of new coupon sheets,
as well as the talon renewals of foreign securities.
(c) The earnings of the German merchant marine from
oversea shipping also constitute an important factor in
our balance of payments. The above-mentioned ‘‘ Tabellen
zur Wahrungsstatistik,” prepared by the Austrian Ministry
of Finance, estimate the freight receipts of the AustroHungarian merchant marine in the foreign trade at 60,000,000 crowns and the credit accruing therefrom to the inter
national balance of payments of the country at 30,000,000
crowns.49 It is unnecessary to demonstrate that the ser
9
vices of our merchant marine in the oversea trade have
proved of immense value in the development of our export
trade and have contributed largely to increase our prestige
among foreign nations, our national power and influence,
as well as our financial strength.
540
.
it ..
The
G e r m a n
G r e a t
B a n k s
(d) Furthermore, we must take into account the earn
ings on account of foreigners traveling in Germany, which
are, however, more than fully set off by the corresponding
foreign earnings on account of Germans travelling abroad.
(e) Other items in the balance of payments are: The
charges of domestic railways for carrying goods in transit
to foreign countries; the excess charges for the mu
tual renting of railway cars; clearance balances re
ceived in the international postal, passenger, telegraph
and telephone services; the expenditures of foreign
vessels in the home ports (minus our own payments in
foreign ports); the charges for the construction of vessels
on foreign account in our dock yards and our claims from
the sale of domestic vessels to foreigners; the claims arising
from the international exchange of patents and copy
rights; the claims of members of the liberal professions,
i. e., technical experts, teachers, physicians, actors,
musicians, etc.., engaged abroad; the claims resulting from
the ownership in foreign countries of land and mort
gages,-from liquidated inheritances and from marriage con
tracts concluded abroad, and, according to Ad. Soetbeer,50
0
also the extraordinary payments5 1 which one country
0
must make to another as the result of political relations
or events (war indemnities, subsidies, pensions, cost of
administration).
Finally, an important factor in the balance of pay
ments is presented by—
(/) The investments of home capital in foreign securities,
the utility and necessity of which are based on a number
of weighty reasons besides those mentioned above.
Any attempt to liquidate the very considerable adverse
balance of our trade with foreign countries by means of
»
N at ion a l
Mo net ary
Commission
cash remittances instead of the interest and dividends
on foreign securities or the sales of such securities would
prove to be very expensive. It would lead to serious
disturbances in the money market, at times even to
crises, and might endanger in a large measure our cur
rency and credit systems. Besides we need proper
foreign securities, i. e., such as are payable in gold to
secure our financial readiness for war (see p. 22 et seq.)
as a necessary means of compensation against eventual
withdrawals of large foreign credits.
We need them, furthermore, in order to be able to
draw gold from abroad to satisfy the urgent and pressing
needs for credit and instruments of payment which
usually occur in the last days preceding and the first
days following a declaration of war,52 as well as to meet
0
the violent demand for cash, which is apt to occur at
such times during a temporary loss of confidence in any
form of currency except gold. The holdings of such
international securities which can be realized at the
various international bourses present, therefore, the
11
best protection against the excessive fall during warlike
times in the quotations of our domestic securities and
against the weakening or glutting of our own stock
exchanges.
In this connection it must be remembered what impor
tant political results have been brought about by the grant
ing or refusing of loans to foreign states and to what extent
the home government may use for political purposes its
power of permitting or prohibiting the issue, official
listing, and pledging of foreign securities, especially at
times when the foreign state, either because of the closing
542
The
G e r m a n
G r e a t
B a n k s
or overstocking of other foreign markets, is confined to
our exclusive assistance and when it is in our power to
inflict great damage on it by our refusal or prohibition.
The skirmishes of the political advance posts are fought
on financial ground, though the selection of the time
and the enemy as well as the manner in which these
skirmishes are to be fought depends upon those responsible
for the direction of our foreign policy.
Much more than ever before we Germans will have to
bear in mind that industrial contracts, commercial enter
prises, and capital investments are conveying from one
country to another not only capital and labor but also
political influence.
Dehn very properly shows how French capital, for
instance, has rendered pioneer services to the French
foreign policy in Tunis and Morocco, in Turkey and
Greece, and, above all, in Russia, while Sombart goes
so far as to characterize “ the whole Franco-Russian
alliance as a bankers’ creation” (Bankiergebilde) ,53 an
0
assertion which is rather extreme. In the same vein,
Georg v. Siemens, in his article on “ The National Impor
tance of the Bourse” (in the Nation, Oct. 6, 1900), calls
attention to the great political advantages which we
gained in Italy, after political discord had grown up
between Italy and France, when we immediately placed
at Italy’s disposal our capital and stock exchanges, and
that the battle between Russia and England about Persia
was primarily fought “ on financial ground.”
In more recent times we witnessed the beginning of
better political relations between France and Italy,
brought on primarily through financial reconciliation, par
ticularly the taking over a few years ago by a French
543
N at io n a l
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Commission
banking group of a large amount of stock in the Banco,
Commerciale Italiana, created at the start without the
cooperation of French capital. We saw only recently
that the French Government threatened to withdraw
the listing privilege from the Turkish state bonds unless
certain contracts were awarded to French industry.
The British Government sought to prevent in every way
the granting of a banking concession in Persia to the
German Orientbank for fear that such a grant might lead
to a diminution of its' own political influence.
The taking over of loans for China and Japan became
an object of contention among all great nations, for the
well-known reason that financial influence merely paves
the way for political influence. France and England are
competing in Spain and Portugal— and nearly all the great
powers in Turkey— to gain political influence by means of
financial-aid. Notwithstanding some painful experience
in Argentina, the English banks and capitalists have been
tenaciously lending financial support to the efforts of their
Government to maintain and strengthen the British politi
cal sphere of influence in that part of the world. In Canada
and Mexico and in Central and South America the Ameri
cans are systematically planning by investments of capi
tal and all sorts of financial measures to drive out both
European political interference and European commerce.
In view of the above facts and considerations, the ques
tion whether issues of foreign securities even beyond the
amount required to balance the excess of our foreign
imports are economically correct in principle must be
answered in the affirmative.
The
G e r m a n
G r e a t
B a n k s
The presumptions under which, in each individual case,
the issue of foreign securities is permissible and unob
jectionable from the national point of view have been
discussed in detail above (p. 384 et seq.).
(D)
With regard to the volume of the foreign invest
ments of home capital,54 the report of the Reichs-Marine0
Amt of December, 1905, on Die Entwickelung der Deutschen Seeinteressen im letzten Jahrzehnt (the development
of German marine interests during the last decade) gives,
on the basis of consular reports, the following estimates.
The latter, of course, are based in turn upon estimates
more or less accurate of others furnished to the consuls at
their respective seats.
(a) The amount of German capital invested in foreign
undertakings, plants, business enterprises, and partici
pations is estimated at 7,700,000,000 to 9,200,000,000
marks, equivalent to an income, reckoned at an average
of 6 per cent, of 462,000,000 to 552,000,000 marks.
Concerning this estimate the report remarks as follows
(Introduction, p. X I): “ In these amounts (7,700,000,000
to 9,200,000,000 marks) the current German merchandise
credits, which amount to at least one-fourth to one-third,
perhaps even to one-half, the amount of the yearly German
exports— that is, to 1,500,000,000 to 2,750,000,000 marks—
are included only in part, and the same is true of the credits
frequently advanced on account of imports.” We have
already remarked above that there are no means of even
estimating the total credits granted by us to foreigners
in international trade, and the same is true of our charges
for services of all sorts rendered by us.
9 0 3 1 1 ° — 1 1 -------3 6
545
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N ationa l
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Commission
(b)
The amount of foreign securities in the possession
of German holders is estimated at least at 16,000,000,000
marks (ib., introduction, pp. X II, and 169), equivalent to
an income of 800,000,000 marks, reckoned at 5 per cent.
Accordingly the total amount of our foreign capital
investments for the year 1905 may be estimated at a
minimum of 24,000,000,000 to 25,000,000,000 marks
(with yearly earnings of about 1,352,000,000 marks) an
amount which very likely falls considerably short of the
true amount. (See note 20, p. 803.)
As a matter of fact, as was illustrated before in a few
important instances, the true volume of the foreign invest
ments of domestic capital in the main fields, on account
of the lack of safe statistical bases, can not be estimated
even approximately. This is shown strikingly and in great
detail by the “ Tabellen zur Wahrungsstatistik 55 prepared
0
in the Austrian Ministry of Finance, especially in the
chapter dealing with “ earnings in foreign countries”
(Erwerbstatigkeit ausser Landes), although the subject
is treated in the report with the utmost care and
thoroughness.
S
8.
e c t io n
D
R
I.
P
e f o r m
e p o s it s
a n d
r o p o sa l s
t h e ir
GENERAL
J
C
o n c e r n in g
u s t if ic a t io n
B
a n k
(506) .
O B S E R V A T IO N S (50 ° ) .
6
It was pointed out in an earlier chapter how the
German banks developed hand in hand with the scanty
means of the German people and in accordance with the
demands of German trade and industry. In England a
different development took place, which, while in equally
close touch with English requirements and the given
546
The
G e r m a n
G r e a t
B a n k s
concentration in the fields of distribution, credit, and
national wealth— all of which was entirely lacking in
Germany— led from the outset to a sharp differentiation
between the deposit banks and other banks. This is
sufficient ground for a large number of Germans, who are
wont to underrate domestic as compared with foreign
achievements, to point to the English system as the only
true one, and to demand its unrestricted adoption at
home. Similar views are, however, held in certain nota
ble scientific quarters. It is particularly Adolph Wagner
who has been advocating for a long time a reform along
English lines, based in his case upon scientific conviction,
which, as is well known, is least apt to change under the
influence of mere practical experience.
To my mind it was a fortunate fact that the German
banks, from the very start, placed themselves at the
particular service of trade and industry. But at all
events it will be granted that this was due to the histori
cally given German conditions and requirements. As a
result of this connection the banks have taken a consider
able part in the splendid industrial and commercial
development of the country, which is characteristic of the
last decades. Starting at a time when domestic agri
culture was no longer in a position to provide sufficient
food and work for the greatly increased population the
German banks contributed indirectly toward transform
ing Germany from an agricultural country, if not into an
exclusively industrial and commercial country at least
into one where these two economic interests are of pre
ponderant importance. This is sufficient to arouse against
the banking interest all those who detest the whole trend
547
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Commission
of “ industrialization.” The charge is made against the
banks that through their deposit system they deprive
agriculture of considerable funds, which they use instead
for the support of industry, especially of the export indus
tries. Political circles sharing these views are supported
in this campaign by the extremists on the opposite
side— i. e., the social democrats, who oppose the banks as
the most powerful and dangerous representatives of
movable capital.
A regrettable feature of German banking in common
with other industries is the gradual ousting of small enter
prises by large-scale enterprise. This development has
caused a number of members and spokesmen of the
“ middle classes” (in this case the smaller bankers— for
instance, Caesar Straus) to attack the German banks on
the ground that they were pursuing an altogether wrong
course. Notwithstanding the heterogeneity of political
and economic views and the great variety of motives and
mutually exclusive purposes of those who have been
advocating “ reform” in the field of deposits during the
last few decades, there is unanimity on one point, namely,
that “ something must be done” that in some way or
other the funds flowing to the banks should be diverted
in a larger degree to agriculture, or “ national economic
ends,” to use the more popular catchword. As soon,
however, as practical proposals are called for, various cur
rents and parties appear with often obscure and contra
dictory demands, despite the fact that the several parties
and assailants very often contrive to veil their true ends
and purposely move in separate columns with the view,
however, of combined attack. Moreover, each time a
548
The
G e r m a n
G r e a t
B a n k s
crisis occurs, an event which can hardly ever be avoided
in economic life under any banking system, there appear
on the scene any number of patented critics or persons
who have become experts overnight, who, to say the
least, try to impress the public that had the German
banking system been intrusted to their care it would
have worked faultlessly, and who use such favorable
occasions to prove their capacity of “ saving the country”
by means of the most radical proposals.
i. Safety
of
D epositors— A R eason
for
R eform Proposals.
The majority of known reform proposals hitherto
made are based on the following considerations:
The German banking system, which, unlike the English
system, combines the issuing of securities and speculating
activity on own and outside accounts with the receiving
of money deposits endangers, of necessity, the safety of
the deposits. These are intrusted to the banks with
the confidence in their absolute security. The banks,
however, use them in providing the means for their
own enterprises and for speculation in securities on out
side account.57 In Germany the detrimental effects
0
of such a system have already become evident in a
marked degree through overspeculation, excessive security
issues,58 crises,59 and bankruptcies, which have caused
0
0
great losses to depositors.
2. T he P articular P roposals, made with this end in view by C sar
^B
Straus, Orro Warschauer, and Count von A rnim-Muskau .
We are therefore urged to adopt the British banking
system. The latter, it is said, provides for a strict
division of the field arid for the complete divorce between
549
N at i on a l
Mo n e t ar y
Commission
stock exchange and deposits, and thus guarantees the
safety and prudent administration of the moneys de
posited. In other words, it is imperative to effect a
complete separation between the deposit business and
the issue and flotation business. This is the general
trend of the proposals of the late Caesar Straus, a former
private banker in Frankfort-on-the-Main, and of Otco
Warschauer.
Straus advocates the establishment of a central deposit
bank for the whole German Empire by private means,
but under government supervision, with a capital of
60.000. 000 marks, of which 25 per cent, that is, 15,000,000
marks, is to be paid in; the bank to maintain branches
in all important trade and money centers and to transact
business in other places through the intermediary of the
Reichsbank.50
1
Warschauer advocates the establishment of a Reichsdepositenbank (Imperial Deposit Bank) with a share capital
of 50,000,000 marks, of which 50 per cent, that is,
25.000. 000 marks, is to be paid in. Alongside this
imperial institution, deposit banks for the individual
States might be founded, which would bear the same
relation to it as the present private note banks do to
the Reichsbank.511 The proposed institution, just as
the Reichsbank, should follow a plan of decentralizing its
operations through the opening of a large number of local
offices in the various confederated States. He presages
for the proposed central deposit bank, the deposits of
which, in his opinion, would reach the total of at least
1.000. 000.000 marks, a dividend of 21 to 22 per cent
(“ an extremely low estimate,” as he expresses himself).
55 ®
The
G e r m a n
G r e a t
B a n k s
Judging by the average profits of the London stock banks,
he assumes as “ extremely probable” a dividend in the
long run of 12 per cent. The above prediction may pos
sibly explain the fact that, according to Warschauer, the
proposed deposit banks are to be permitted to acquire
first-class mortgages as well as to advance money on
industrial securities and bank shares, to be sure with
the limitation that only “ first-class securities” are to
be considered. This he thinks will cause a gradual
defection of depositors from the credit banks. The
latter, in his view, represent merely private interests
with no claim to special protection by the Empire, and
through their alertness will undoubtedly soon find new
and perhaps even more profitable fields of operation.52
1
At the same time both Warschauer and others before
and after him made a number of substitute proposals
to be applied to those of the existing banks which receive
deposits. Most important among these are the following:
The proportion of deposits, in so far as they are savings
deposits,5 to the share capital— in other words, the
13
maximum amount of deposits a bank might be permitted
to receive should be fixed by law at about 200 per cent
of the share capital, as against 50 per cent, which is the
legal maximum for mortgage banks, since the smaller the
working capital the less secured were the rights of the
creditors.
Furthermore, the principle of publicity should be
adopted more largely than heretofore with regard to
“ savings deposits” (Spareinlagen), which should be
stated separately in the balance sheets either by all54
1
banks, banking associations with limited liability, and
SSI
n e t ar y
mm i s s i o n
mutual credit societies,55 or by such professional deposi
1
taries, who receive the funds of the general public to the
extent of 50 per cent over and above their own invested
capital, who carry on a flotation and speculation busi
ness, or who participate in industrial undertakings,56
1
which would again be inclusive of all present-day banks
and even bankers. All of them should be held to publish
quarterly (as proposed by Count v. Arnim-Muskau before
the Bourse Law Committee under date of March 10, 1896)
or monthly reports, the form of which should be fixed
by law, and which should also state the percentage of
savings deposits to share capital.
These summary balance sheets should state:
(а) The total amounts of undertakings or flotations on
own or outside account.
(б) The total liabilities on the date of the statement
on account of participations or undertakings of any kind
whatever.
(c) The amounts of stock held apart from securities of
other classes.
(d) THfe amounts used for contango or collateral credit.
(e) The total liabilities incurred through the hypothec
ation or “ carrying over ” (Reportierung) of securities and
participations owned by the bank or through the hypothe
cation or “ carrying over” of securities and participations
owned by outsiders.
Other proposals include the demand, either that the
savings deposits, as in the case of the national banks in
the United States, should be granted a prior lien as over
SS3
The
G e r m a n
G r e a t
B a n k s
other creditors5 or else that a certain percentage of the
17
deposits should be invested in a special manner to be
prescribed by law.
3.
R e fo r m P r o po sa ls B ased on o th e r C o n s id e r a t io n s .
Under this head comes the recent proposal made by
Heiligenstadt, the president of the Prussian Zentralgenossenschajtskasse (Central Bank of Mutual Credit
Societies). Without desiring to prejudice further neces
sary legal enactments, and pointing to American regula
tions, he demands that at least a beginning of legal regu
lations be made by requiring that “ whoever makes a
profession” of lending or administering moneys shall
maintain at the Reichsbank a cash reserve of 1 to 2 per
cent of all funds held on current account or deposit.58
1
This proposal, which was advocated on nearly the
same grounds also by two experts before the bank in
quiry commission, is not based on the claim that the
German credit banks do not present sufficient safety for
their deposits, but primarily on the consideration that
mainly through the fault of the banks, the proportion
in German trade and commerce as a whole of invested
capital to the necessary liquid working capital and the
proportion of the liquid assets of the banks to their
liabilities, which represent their working capital, is un
sound and should be improved.
At the same time, and perhaps even in the first placef
the proposed reform, together with other measures, advo
cated by him, is intended, as Heiligenstadt expressly
states,5 “ to strengthen the operating resources of the
1*
553
I
N at i on a l
M on et a r y
Commi ssi on
Reichsbank ” and to raise it to the position of “ steward
of the national reserve,” with the view of providing
greater security for the constantly increasing deposits
on current-account and other bank deposits.50
2
It is probably in this sense that the resolution of the
Tax and Economic Reform Association (Vereinigung der
Steuer- und Wirtschaftsreforvier) dated February 13 and 14,
1906,5 1 is to be interpreted, in which the imperial chan
2
cellor is requested “ to provide for the legal regulation of
the modes of securing the deposits at the Reichsbank (!)
and other banks, especially in view of the growing pro
portions of the giro and deposit business ever since 1875,
that is, the year of the foundation of the Reichsbank.
So far as the Reichstag is concerned it confined itself
until the present to point out the presumed insecurity of
the deposits by passing on June 17, 1896, the following
resolution, proposed by one of its committees:
Whereas the professional use b y banks and business men of current
account- and other deposits urgently demands protective measures in the
interests of the depositors, the Chancellor is requested to inquire into the
subject with the view of ascertaining how such measures can best be taken,
to examine the principles underlying the present draft and the accompany
ing report, and to lay before the House as soon as practicable a bill in
regulation of the matter.
4.
C o n s id e r a t io n s on w hich t h e fir s t - n am ed R eform P ro po sals a r e
based .
Before proceeding to a critical discussion of the individ
ual reform proposals, it seems proper to inquire whether
reforms in the field of bank deposits— that is, protective
measures in the interests of depositors— are at all neces
sary or even urgent in the present state of affairs or in
view of past experience. It is such measures that are
554
The
G e r m a n
G r e a t
B a n k s
advocated in the first batch of proposals, mentioned on
page 550 and following and in the Reichstag resolution.
(a )
SUPPOSED SU PERIO RITY OF TH E ENGLISH BA N KIN G SYSTEM .
It has been asserted repeatedly that the English banking
system, with its division of labor between deposit banks
proper and other banks engaged also in the flotation and
underwriting business, necessarily presents a larger degree
of security for depositors, as compared with the German
“ mixed” system. For the underwriting and flotation
business, it is argued, as is amply proved by the experi
ence of the various countries, carries with it great dangers,
which in the case of the regular banking business do not
exist at all, or at least, only to smaller extent.
As a matter of fact, however, it has been incontestably
proven, especially by Ad. Weber and Edgar Jaffe that
it is precisely the English deposit banks— not to mention
the most recent experience of the American note banks—
which despite their theoretic superiority have in practice
shown' the most serious evils and abuses.
It is true, that the English joint-stock companies,
conforming to theory, have abstained in a direct way
from flotations and the underwriting business as well
as from bourse speculation. But this very fact causes
another great evil, namely, that the banks have never
shown any interest in the newly founded companies or
in the securities issued by these companies, while it is a
distinct advantage of the German system, that the Ger
man banks, even if only in the interests of their own
issue credit, have been keeping a continuous watch over
the development of the companies, which they founded.
555
I
N at i on a l
M onetary
Commission
On the other hand the English banks have been promoting
stock exchange speculation, company flotations and se
curity issues to an alarming extent by their practice of
placing at the disposal of the larger jobbers and dealers
their daily surplus money against the hypothecation of se
curities of all kinds.52 This went so far that the Journal
2
of the Institute of Bankers referring to this practice in its
issue of October, 1899, page 409, used the following strong
terms: “ Nearly the whole of the professional speculation
on the Stock Exchange is carried on with bank money.”
Among the securities hypothecated during the last
decade there was an enormous number of gold-mine and
American railway shares, which during critical times can
either not be realized at all or only at great sacrifice;
thus it is just in critical times that the joint-stock banks
have had to fall back for assistance on the Bank of
England.SS During critical times therefore the joint2
stock banks have to depend upon the “ single-reserve
system,” that is, upon a system, which even English
authorities have long ago condemned as inadequate and
dangerous, the more so as the Bank of England in turn
is lending out the funds deposited with it.54 It is
2
these large sums, indirectly placed at the disposal of
the stock exchange and speculators, which in the state
ments of the joint-stock banks constitute the largest
part of the item “ money at call and short notice.” 55
2
In Germany these sums would figure under the head of
“ Reports and Bombards,” whereas Caesar Straus,
strangely identified them with the item “ Kupons und
Sorten” (coupons and specie) of the German balance
sheets, and therefore regards them as perfectly harmless.56
2
556
The
G e r m a n
G r e a t
B a n k s
It is these amounts loaned by the deposit banks and
looking so innocent in the summary balance sheets,
which are mainly responsible for the conditions, which
Edgar Jaff6 67 characterizes in the following caustic ex
2
pressions :
Nowhere are there so many swindling promotions as on the London
Stock Exchange, nowhere else has the general public lost such enormous
sums.
On the other hand it is also a fact 68 which I believe
2
to have amply proven in another work of mine,58 that
2
during the great crises, through which England, like other
countries, has had to pass, an alarmingly large number of
deposit banks have failed.
It may also be shown that in other respects as well the
much-vaunted merits of the English joint-stock banks are
but illusory. The paid-up capital of the English deposit
banks is extremely small, both taken by itself as well as
in proportion to the liabilities. In 1904 it amounted for
87 deposit banks to 65,250,000 pounds sterling in round
figures, equal to 1,305,000,000 marks, or an average of
only 15,000,000 marks per bank. On the other hand the
proportion of surplus funds to the paid-up capital, but
not to the total liabilities is shown to be exceedingly high,
ranging between one-half to two-thirds and even up to
100 per cent. This is the sole cause, why even with small
gross profits the banks have been able to declare the
high dividends 50 (on their paid-up capital, of course) to
3
which Warschauer refers, though advocating a much larger
paid-up capital for his proposed Imperial deposit bank.
Finally Jaffe5 1 showed that “ with the exception of a
8
small number of the very best banks, which have a cashreserve of 5 to 10 per cent, the English deposit banks kept
I
557
a ..
N at i on a l
M on e t a r y
Commission
no amounts on hand, which may be regarded as reserves
in the above sense. ’ ’ In view of the large amount of time
deposits and deposits on current account and the small
paid-up capital of the English deposit banks, Jaffe rightly
considers it impossible to class under this head the item
“ money at call” (contango— and other loans to billbrokers and on exchange), since a portion of the money
lent out on the stock exchange could not be realized in
the event of a panic.
Neither can the item “ cash” (i. e., cash on hand plus
credits at the Bank of England), the only one that might
be regarded as reserve, be classed as such in its entirety,
since part of it is absolutely necessary for the daily use of
the banks themselves. But even this, he emphasizes
expressly, is probably too favorable a picture, since,
according to his experience, a large number of the English
deposit banks— and some of the largest banks are the
worst offenders in this regard— in order to make the item
“ cash on hand” appear as large as possible in their public
statements, withdraw from the market large amounts at
the end of'each month and particularly at the end of each
half year. 52 It may be said, though, that this state
3
ment no longer holds true for the most recent time, since
under the pressure of public opinion and following the
example of the leading institutions, nearly all the English
deposit banks maintain at present reserves in the above
sense which amount from io to 15 per cent of the liabili
ties. It may thus be seen how far the practical operation
of the English system justifies the enthusiasm for it as a
model to be adopted by us.
The
G e r m a n
G r e a t
B a n k s
We shall now take up the discussion of the reform pro
posals, which start with the assertion that the German
banks do not accord sufficient security to their depositors,
and examine the validity of the underlying assertions
that in Germany, as distinct from England, the propor
tion of share capital and reserves to liabilities, also the
proportion of liquid assets to immediately or shortly due
liabilities, is far too small; further, that deposits are used
in Germany for syndicate business and stock speculation,
and finally that the combination of the deposit business
with the underwriting and issuing business has caused
great injury to the public.
We shall start with the first and most prevalent charge.
(b )
TH E ALLEGED SM ALL OWN RESOURCES (SH ARE CA PITAL AND SU RPLU S)
OP TH E GERMAN CREDIT BA N K S AS COMPARED WITH TH EIR L IA B ILITIE S.
The 169 German credit banks with a capital each of
1,000,000 marks and over, of which nearly all are holding
deposits (totaling about 2,750,000,000 marks) separately
mentioned in their balance sheets, show under date of
December 31, 1908:
Marks.
Share c a p ita l........................................................................ ..
2, 646, 000, 000
Surplus........................................................................................
607,000,000
own resources......................................................
3,253,000,000
T o ta l
As against these items there stand—
Marks.
Credits on current account, including acceptances............... 4, 510,000,000
D e p o s its .......................................................................................
2,746,000,000
Or total liab ilities............................................................. 7,256,000,000
In other words, the own resources of these 169 banks con
stituted almost one-half of their total liabilities, including
acceptances and deposits, whereas in England the paid-up
559
mmission
capital constituted only about io per cent of deposits of
all kinds (jremde Gelder) .53
3
The 2,746,000,000 marks of deposits in the German
credit banks were more than fully covered by the share
capital and the surplus.54
3
As far as the eight great banks are concerned, the pro
portion between deposits of all kinds (liabilities) to share
capital and to share capital plus surplus, or to the bank’s
own operating capital (eigenes werbendes Kapital), may be
seen from the following table:
Banks.
Share cap
ital plus
surplus, i.e.,
Share cap own op
ital (1,000
erating
marks).
capital
(1,000
marks).
Deposits
(F r e m d e
Liabilities in per
cent of the—
G elder)
(1,000
marks).
Share
capital
= 100.
Capital
plus
surplus
” 100.
Deutsche Bank.....................
Dresdner Bank.....................
200,OO
O
301.831
231,500
1,274,648
637
422
180,000
5 9 9 .6 4 3
333
259
Bank fur Handel u. Industrie.
Schaaffhausen’scher Bankverein...................................
Berliner Handels-Gesellschaft.
Comm.-u. Discontobank.......
Nationalbank ifiir Deutschland..................................
154,OO
O
184.358
3 9 5 . 133
2
57
214
145,000
n o, 000
85,000
1 7 9 .1 5 7
297,440
209,103
210,179
s
166
144,500
97,702
190
145
37
4
215
80,000
92,820
184,438
229
198
20
It goes without saying that the own resources of the
German credit banks have grown far less than the liabil
ities, for it must be borne in mind that during periods of
depression, when only small dividends were paid, fresh
issues of stock were altogether out of question. At all
events, there was no inducement then for working with
excessively large capital on which no adequate returns
could be expected.
560
r
The
G e r m a n
G r e a t
B a n k s
The surplus funds alone of all credit banks steadily
increased from 12.90 per cent of the share capital in 1885
to 22.90 per cent in 1908, amounting then to 607,070,000
marks. In the case of the Berlin banks these percentages
grew from 17 per cent in 1885 to 29.10 per cent in 1908.
It is my opinion, however, that this splendid showing
is due not so much to the superiority of our banking
methods, as is thought by Ed. Wagon,55 as to the
3
excellence of our corporation laws. These surplus funds
contribute at present more than 1 per cent of the divi
dend earnings of all the banks and 1.73 per cent (as against
1.87 per cent in 1906) of the dividend earnings of the
Berlin banks.
It should be stated, though, that while the share capi
tal and surplus are “ guaranties,” and while the increase
in their size improves the financial condition of the bank
and diminishes the danger of bankruptcy, yet they, as
well as the part of the debits which is not required to
meet the claims of creditors, are on the main guaranties
for the stockholders.
(c) THE LIQUIDITY OE THE RESOURCES OP THE GERMAN CREDIT BANKS—
COEFFICIENT OF
l iq u id it y
(Liquiditatsschliissel).
The guaranties for the creditors, especially for the
depositors, are represented in the first place by those
assets in which the capital of the bank is invested, since
the creditors must have assurance not merely of the sol
vency of the bank, but even more so, that their demand
claims will be paid upon presentation and that the other
claims which are due on stated terms will be met when due.
In other words, the security of the creditors, especially of
90311°— 11------ 37
561
N at ion a l
M on et a r y
Commission
the depositors, depends primarily upon the amount of
liquid assets which the bank possesses and the mode
of their investment.56
3
The liquid assets for securing the demand and short
term liabilities must be large enough and of such a kind
that the bank may be able to pay without delay those
liabilities, the presentation of which might be expected
during a crisis. The question as to what percentage is
likely to be presented for payment during a crisis can be
answered only according to rules of probability,57 differ
3
ing according to circumstances (time, state of the mar
ket, etc.), which are learned only from practical experi
ence, change with it, and can not therefore be fixed by
law. Similarly only experience during a long period can
teach what kind of assets may be regarded in a general
way as liquid assets, though it is much easier to deter
mine those which can not be so regarded.
It is perfectly obvious, therefore, that there is no fixed
method of calculating the degree of liquidity applicable
at all times and places and to all institutions. Any
method may and will be objected to in one point or
another. There is the further drawback that the manner
in which the balance sheets are drawn up have varied
greatly, at least until the most recent period. Moreover,
there is no means of telling to what extent the various
items which, like bills, contango, advances on collateral,
may be regarded generally as liquid assets, contain amounts
that are not liquid, and inversely, to what extent an item
which, as a rule, does not come under the general head
of liquid assets does not comprise, in any concrete instance,
consols or other securities which can be quickly realized
under all circumstances or at least during normal times.
562
The
G e r m a n
G r e a t
B a n k s
Finally, in calculating the degree of liquidity, exact
and correct results may be obtained only if a distinction
is made between the daily liabilities, including commer
cial deposits, and those which fall due after some time,
since it is only the former which require security by
means of quick assets, while the latter may be properly
secured by those assets which will be realized on some
future date.58
3
After these preliminary remarks we may state that,
according to the method most commonly used in calcu
lating the liquidity of bank resources, the liabilities
include the following items:
Credits on current account, including acceptances,
Deposits {Depositen) ,
Claims to net profits, undivided at the end of the busi
ness year;
while the liquid assets include:
Cash on hand,
Contango and loans secured by collateral (the two,
however, appearing in most balance sheets under one
common head),
Bills,
Securities.
Debits on current account are not included among the
liquid assets.
There is no doubt that this method, which is followed
by the daily press, especially the Frankfurter Zeitung,
and special periodic publications, as the Deutscher Oekonomist, is extremely schematic, as no distinction is drawn
in the case of credits on current account and deposits
between those claims which are daily due and those which
563
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Commission
fall due at a later date. Nor is it borne in mind that as a
rule, even during critical times, the majority of the clients
will forward to the bank at maturity funds to secure the
payment of their acceptances. The scheme is also faulty
for the reason that it includes among liquid assets all
securities— an altogether too optimistic an assumption—
while it excludes all debits on current account, notwith
standing that even during critical times a great number of
the debtors may be expected to pay up their due debts
within reasonable time after demand.
All these faults of classification are, however, of no
serious account, since the errors are not only in favor
of greater liquidity (as, for instance, when securities are
included among the liquid assets) but also against i t 59
3
(as, for instance, when all debits on current account are
excluded from among the liquid assets and all accept
ances are included among the liabilities), and thus com
pensate each other to a certain extent; also because the
same methods of calculation are used in the comparison
of the more recent with the older balance sheets.
This cdn be proved arithmetically by changing slightly
the schedule so as to avoid the errors named, for instance,
by omitting acceptances from the liabilities or consider
ing them only to the extent of one-third of the total, by
including at the same time among the liquid assets debits
on current account to the extent of one-half or one-third
of the total, and by including not the total securities, but
only one-third or io per cent of that total. It will be
seen that even with such a change of the schedule very
similar results will be obtained.
564
The
G e r m a n
G r e a t
B a n k s
According to the customary schedule the coefficient of
liquidity— that is, the proportion of the immediately
available or quick assets to all liabilities, without dis
tinction between those daily due or those maturing after
some time 50has been as follows since 1893:
4
For all
German
credit
banks.
For the
Berlin
banks.
For all
German
credit
banks.
For the
Berlin
banks.
P e r cent.
P e r cent.
P e r cent.
P e r cent.
85
81
88
83
72
76
67
66
78
70
64
73
The proportion has grown constantly worse during the
last fifteen years (except for the years 1896, 1897, and
1902) up to 1907, and it is mainly this fact which supplies
grist to the mills of the heterogeneous elements opposing
our present banking system. There can be, however, no
doubt that this falling off can be traced on the one hand
to the strong concentration movement in banking and
industry, particularly characteristic of this period, and on
the other to the unexpectedly large demands of industry
and the accompanying growth of speculation. It would
not be difficult to trace in detail the influence of the
above factors through the growth of debits on current
account and the long-term credits. The working of the
first factor, particularly in the shape of the so-called com
munities of interest, is discernible in the increase of the
56s
N at ion a l
M on e t a r y
Commission
permanent participations; the two last factors are mainly
responsible for the growth of debits on current account
and of acceptances. The expectation seems, however,
justified that with the abatement of the concentration
movement and the strengthening of the numerous
branches, agencies, etc., founded by the banks during the
period, all of which make large demands upon the parent
institutions until they are able to stand on their own feet,
these items will show some reduction. An adverse
change in industrial activity may contribute to the same
result while causing a similar reduction of the bank dis
count and general interest rate. The picture presented
by the balance sheets of the banks must necessarily reflect
that of the entire national economy, since the banks are
the cash keepers of the nation. It is, therefore, hardly in
accord with the truth to speak of or object to the banks
as the “ leaders of national enterprise” or of domestic
economic activity.
As it is the above table shows that the proportion of the
quick assets of the banks to their liabilities or the coeffi
cient of liquidity of their resources even for the worst
year of the period (1907) was 60 per cent for all credit
banks, taken as a whole,5 1 and 63 per cent for the
4
Berlin banks. That is to say, the liabilities of the Ger
man credit banks to the extent of almost two-thirds of
the total-were secured 52 by liquid resources.53
4
4
The coefficient of liquidity in 1907 for 11 great Berlin
banks has been calculated by Heinemann in an article in
the Nation (No. 32, dated May 7, 1898) at 61 per cent,
while for 1906 54 (by disregarding the item of securities)55
4
4
he reckons it at a little over 50 per cent. Similarly A. Kop566
The
German
Great
Banks
pel, writing for the Plutus of May 26, 1906, figures out a
decrease of liquidity for the 5 largest banks from 75 per
cent at the end of 1890 to 50 per cent at the end of 1905.
In this calculation he fails, however, to include securities
among the assets, while including among the liabilities
even the so-called Avale (i. e., bank sureties for the pay
ment of railway freights, excise, and import duties).
An article of the Frankfurter Zeitung, dated April 4,
1907 (No. 93), discussing the coefficient of liquidity for 45
banks (9 Berlin great banks and 36 provincial banks, each
of them with a minimum capital of 10,000,000 marks),
with a total nominal capital of 2,198,800,000 marks, fol
lows the customary method (without, however, considering
the net profits) and places this coefficient at 67.8 per cent
for the 8 Berlin great banks, arriving thus' at the same
proportion of two-thirds security for the outstanding
liabilities.
Finally, the Deutscher Oekonomist of November 23,
1907, page 561, by using the customary method of calcu
lation j but omitting acceptances from the liabilities and
securities from the liquid assets, places the coefficient of
liquidity on December 31, 1906, for 143 banks, with a
minimum capital of 1,000,000 marks each, also at about
two-thirds (credits on current account and deposits,
6,304,000,000 marks; cash on hand, bills, and loans on
collateral, 4,043,000,000 marks). Almost the sajne result
would have been attained by reckoning in the case of
these 143 banks the acceptances among the liabilities at
the ratio of one-third of the total and placing with
deposits and net profits the credits on current account
at the ratio of one-half of the total, i. e., by considering
567
N at io n a l
M o n et a r y
Commission
merely the immediate liabilities (as distinct from those
maturing after some time), according to the average
ratio between the two and by including among the liquid
assets, besides cash on hand, bills, and loans on collateral,
including contango, also one-third of the securities, but
excluding from the liquid assets any debits on current
account. The amounts thus obtained are 7,394,000,000
marks of liabilities, as against 4,406,000,000 marks of
quick assets.
These results tally fairly well with the coefficient of
liquidity of 62.76 per cent, which Waldemar Mueller as
sumed for 45 banks with a minimum capital of 10,000,000
marks each, at the Hamburg bankers’ convention, although
he counted among the liquid assets one-half instead of onethird of the securities and omitted the net profits, but, on
the other hand, placed among the liabilities all credits on
current account. By excluding the total of acceptances
from the liabilities, which I regard, however, as improper,
he obtained an even higher coefficient of liquidity of 81.92
per cent.
It will hardly be denied that the coefficient of about
two-thirds obtained by the various methods, even for the
worst year, unless the methods used were altogether arbi
trary, is sufficiently satisfactory, although in this regard
conditions in the English banks, for reasons already
stated, are far more favorable. But even for the German
credit banks the coefficient would be far more favorable
if we compared their quick assets merely with their imme
diate liabilities. This, however, is impracticable, at least
for the present, since the balance sheets of many banks
contain no information on that point.
568
The
G e r m a n
G r e a t
B a n k s
The composition of the liquid assets may likewise be
regarded, on the whole, as satisfactory.
On December 31, 1908, cash on hand in all banks
amounted to 537,500,000 marks,56 i. e., almost to 8 per
4
cent of the 7,256,000,000 marks, the combined credits on
current account and deposits, exclusive of acceptances.
In England, as we saw, even the best joint-stock banks
show a cash reserve of only 5 to 10 per cent, whereas the
majority of the banks have no amounts which may be
regarded as reserves in the sense used by Edgar Jaffe. In
the case of the German banks, the item cash is supple
mented by the bill holdings, which on an average 5 7 present
4
a very satisfactory amount, amounting to 2,742,400,000
marks, on the above date, so that on December 31, 1908,
the items cash and bills alone constituted 3,279,900,000
marks, as against deposits of 2,745,800,000 marks.
The statement was made and assiduously propagated
in the foreign press that part of the funds entrusted to the
banks, and even part of the deposits, are being used in
syndicate operations or speculation. This is refuted by
the mere fact that at the end of 1908 the combined total
of the items— securities, mortgages, and syndicate partici
pations— in the case of the above-mentioned 143 (169 in
1908) credit banks, with a minimum capital of 1,000,000
marks each, was 1,298,052,000 marks, or less than onethird of the combined capital and surplus funds of these
banks, viz, 3,253,673,000 marks.58 About two-thirds more
4
of this amount would therefore have to be invested in this
manner before there could be any talk that outsiders’
funds, not to speak of deposits, were invested in specula
tive securities or participations.
569
N at i on a l
M on et a r y
Commission
The above, it is hoped, will afford sufficient proof that
neither the amount nor the composition of the liquid
resources, nor the coefficient of liquidity afford any cause
for demanding the “ reform” of our banks for the sake
of increasing the security of the deposits. Finally, the
statement, that the combination of the deposit business
with the promoting and issuing business has led to grave
losses, is correct only to the extent that in a number of
failures of credit banks as well as cooperative credit
societies and private banking firms depositors have also
suffered. So far as private firms were concerned, these
failures were brought about by the criminal acts of the
bank management, which had no connection whatever
with promoting or issuing transactions. Similar expe
rience, only on a larger scale, was had with the English
deposit banks and is not likely to be avoided through any
legal regulations.
The figures of such losses as given by Otto Warschauer59
4
brought down to the year 1907 by the managing partner
of the Disconto-Gesellschaft, Dr. Arthur Salomonsohn,
were presehted to the bankers’ convention at Hamburg.50
5
These data, the accuracy and completeness of which
will hardly be doubted, relate to nine credit banks,
nearly all of them with very small capital, and two other
institutions, the Hannoverscher Hypothekenverein and the
Spar-und Vorschussbank, in Dresden, which either at the
opening of bankruptcy proceedings or before were coop
erative societies. The total losses sustained by depositors
by reason of all these failures during the fourteen years
between 1894 and 1907 are calculated at about24,ooo,ooo
marks. It is rather difficult to ascertain the proportion
57 °
The
G e r m a n
G r e a t
B a n k s
which these losses bore to the total deposits of the German
credit banks.
It would not be correct to compare the total losses with
the amounts due to the depositors on December 31 of
each of these fourteen years, since the amount for each
successive year includes those for the preceding years.
Even if only the amount for December 31, 1906 (2,700,000,000 marks), were taken the total would be altogether
too small. For what we are concerned with are the total
amounts deposited during each year, and these naturally
will be much larger in view of the withdrawals, which are
especially heavy during the last months of the year.
This maximum amount of 2,700,000,000 marks represents,
therefore, a total far below the actual amounts deposited.
On the other hand, the total loss of 24,000,000 marks,
as estimated by Salomonsohn is probably far too high,
since according to his explanation the claims of the
depositors were figured from the last bank statements
preceding the failures. In many cases, however, the
opening of bankruptcy proceedings is preceded by a run,
during which part cf the deposits is repaid. It is plain,
therefore, that the amount of deposits— of which only
part represents savings deposits— is estimated too low,
while the losses are estimated too high. But even if we
accept both figures without change and divide the total
loss of 24,000,000 marks by the total deposits of 2,700,000,000 marks it will be seen that the average loss on all
bank deposits in the German Empire during the fourteen
years from 1894 to 1907 was about nine-tenths of 1 per
cent; in other words, of every 100 marks deposited during
the fourteen years, from 1894 to 1907, not quite 90
571
N at i on a l
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Commission
pfennigs was lost. This period includes the crisis years
of 1901 and 1906, during which the German banks and
banking system, on the whole, proved their utmost sound
ness despite all difficulties and dangers. It is true that
subsequently, in 1907 and 1908, new important cases
occurred, when banking institutions which were receiving
deposits failed and the depositors suffered losses. Accord
ing to my own inquiries these cases include 29 private
banking establishments, 11 registered cooperative credit
societies with limited liability, 1 industrial bank, 1 savngs
and credit bank, 2 loan and credit societies, 1 people’s
bank, not registered as a limited credit society, and only
2 credit banks, viz, the Solinger Bank in Solingen and the
Bonner Bank fur Handel und Gewerbe in Bonn.5 1
5
After the foregoing discussion it would seem rather
unreasonable to maintain that deposits are being used
for syndicate participations or speculative operations or
that “ grave losses” have been caused to German deposi
tors by our banks and banking system, and to demand in
the same breath the introduction of special deposit banks
or special safeguards, the more so, as failures have by no
means been rare even among the special deposit banks in
England. It is not surprising that the constant reitera
tion of such statements, hurtful to German credit abroad,
in the long run finds a loud echo in foreign countries,
which are only too anxious for such news, and that even
the London Economist could treat his readers in a recent
issue to the news that the German banks were “ investing
their deposits in mortgages.” 52
5
572
The
G e r m a n
G r e a t
B a n k s
II. CRITICISM OR THE INDIVIDUAL REFORM PROPOSALS.
I. T h e CREATION oe a c e n t r a l
ERNMENT d e p o s it b a n k fo r
p r iv a t e
th e
d e p o s it b a n k s f o r e a c h o p t h e
d e p o s it b a n k o r
G er m a n E m p ir e an d
G erm an S t a t e s .
OP A GOV
o p s im il a r
In order to bring German banking into conformity
with the English model, Caesar Straus proposes the crea
tion of a private central deposit bank and Otto Warschauer the establishment of a government deposit bank
for the German Empire alongside of a series of deposit
banks for the individual States.
In view of the above discussion and the German and
English experience in this field, the change does not seem
justified in the interests of greater security for the depos
itors. Furthermore, the proposed changes are either
impracticable or dangerous. Straus’s idea of a central
(einheitliche) deposit bank is impracticable, even if only
for the reason that neither the German great banks,
nor the other banks or bankers, are likely to join in the
foundation of such a central bank, since, being more con
servative in their business views, they believe that, con
trary to Warschauer’s calculations, such a bank for the
present and a considerable time to come is not likely to
prove profitable.
The idea is impossible of realization, also, because the
Reichsbank, for obvious reasons, will never agree to trans
act the business of the deposit bank in those places,
where the former only, but not the latter, may have
branches of its own. If I am rightly informed the pro
posal met with scant favor at the time, just in the lastmentioned quarter.
Nat ional
Monetary
Commission
For various reasons the Warschauer proposal of an
imperial special government deposit bank, either singly or
in conjunction with like banks for the individual States,
is likely, at least for the time being, to share the same
fate. 53 In the first place our authorities would hardly
5
disregard the reasoning that it would not do to substitute
bodily a foreign credit system, which owes its develop
ment to special local conditions, for a domestic system,
which is no less the result of peculiar conditions at home.
It will also be recognized that our banks have had a con
siderable share in the brilliant economic development
during the last decades, and that, therefore, any attempt
to paralyze their activity is likely to inflict grave injury
on our national industry. There will be the more hesi
tation about making the change when it is borne in mind
that the coming decades will undoubtedly bring a very
severe struggle for our national industry against foreign
competition, in which the unimpaired assistance of our
banks will be needed more than ever before.
Nor is it likely that there will be much sympathy with
any plan ’that is likely to diminish the ‘ ‘ highly appre
ciated” and always welcome ability of our banks to con
tribute their share of taxation. In the case of the Reichsbank, which has had to pass through a severe struggle
with the competing note banks, there would be the
additional danger that the newly established state de
posit banks might interfere with and thwart its discount
policy. That such a danger exists, is shown by conditions
in England, 54 where the Bank of England’s own bill
5
business has been declining for some years past, and
where the bank, owing largely to competition with the
574
The
G e r m a n
G r e a t
B a n k s
large deposit banks, is compelled to discount bills at the
prevailing market rate, which in most cases comes nowhere
near the official discount rate. It may also be shown that
the Bank of England no longer controls the market for
loans on collateral, as the large deposit banks find it
possible to supply the market with vast amounts for such
loans and are thus in a position to oppose successfully
any increase of the discount rate which the Bank of Eng
land might deem expedient. Thus it has come to pass
that of all the functions devolving upon it, and of which
no one can be eliminated without injury to the commu
nity, the Bank of England exercises successfully only one,
viz, the regulation of the currency.
This also proves the error of the writers who hold55
5
that “ no conflict of interests between the Reichsbank
and a private central deposit bank need be feared,” that,
on the contrary, “ they have common interests,” and that
both institutions, with the Reichsbank as “ the leading
institution,” would “ cooperate in maintaining and sup
porting the proper monetary circulation” of the country.
The establishment of state deposit banks would, more
over, involve a radical change for the worse, and not for
the better, of the entire German banking system.
It is not likely that the German credit banks will re
sort to any measures of self-protection during the early
stages, believing, no doubt, that for some time at least,
their deposit business will not be seriously endangered by
the fresh competition. Should, however, the founding of
government deposit banks, or even a more energetic quest
after deposits on the part of the Seehandlung and other
state institutions, come to be regarded as a serious danger
575
N at i on a l
M on e t a r y
Commission
to their own deposit business, the credit banks would, as a
matter of course and of self-protection, have to enter the
competitive struggle with all the means at their disposal.
In such a case they would proceed to transform, as far
as practicable, their present deposit departments into
separate deposit banks or to found new ones, and in
either case take over or keep the control,56 management,
5
and shares of the new deposit banks.
We should then have an imperial deposit bank, deposit
banks for the individual States, and a large number of
competing private deposit banks, all of which, including
the state and private banks, would be compelled to cover
the country with a network of branches. Sooner or later
all these institutions, possibly in conjunction with the
then surviving state note banks, would be found seriously
hampering, if not entirely blocking, the discount policy
of the Reichsbank.57 This, contrary to Ad. Weber
5
(op. cit., p. 262), we regard by no means as a “ cura pos
terior.” Such a picture of the future is by no means ex
aggerated, if we are to judge by English experience.
Warscha^er’s proposal is based upon the erroneous view
that our banking system is inferior to the English system
and must give place to the latter. In order to refute
his views, it may suffice to state that for a long time the
English have been energetically demanding a reform of
their own banking, while pronouncing our system su
perior to their own, until their usual keenness of percep
tion became blunted by the agitation which had sprung up
in our own midst. As late as July, 1906, the following
expressions were used in an article on “ The future of
international banking,” which appeared in the Bankers’
Magazine (No. 748, p. 51):
576
The
G e r m a n
G r e a t
B a n k s
“ In Germany we find a banking policy which, though
in minor points borrowed from other countries, differs
essentially from all others in giving full expression to the
national genius. It is as scientific and thoroughly coor
dinated as English banking is unscientific and haphazard.
German banking does not stand aloof from industry and
commerce, as ours does. The three are all closely asso
ciated. They have a common understanding and a
strong sentiment of solidarity.
This is a foreign opinion.58 In Germany the mere
5
fact that a hen is laying golden eggs suffices to call forth
in many quarters the desire to have it killed.
In view of the above considerations and the negative
attitude assumed by the imperial chancellor at the open
ing of the deliberations of the bank inquiry commission
toward the proposals to change by law our existing
mixed banking system, it would seem unnecessary to
repeat again the arguments propounded in the second
German edition of this work (pp. 155-160), that the
profits of the new central deposit bank, at least during
the early period, would most likely be very moderate
and not, as Warschauer believes, 21-22 per cent (!), or
at least 12 per cent.59
5
2. T h e G r a n t in g
oe
P r io r it y R ig h t s
to
D e p o s it o r s .
It was shown above that our past experience does not
justify the demand that priority rights be granted to
depositors. Such a demand, even if better founded,
could hardly be conceded, as such a preferment of depos
itors to other creditors of the bank, who may have en
trusted their cash to the bank in current account or
9 0 3 1 1 0— 1 1 -----38
577
%
N a t io n a l
M on et a r y
Commission
otherwise, would be a death blow to the credit of the
banks. It may be also argued against it that the very
conception of deposits is not fixed either in theory or in
practice and still less defined in law with regard to their
manifold and constantly varying relations to credits on
current account, contango, etc.50
6
3. T h e F ix i n g
of
a
L e g a l R a t io
th e
betw een
S a v in g s D e p o s it s
and
S h a r e C a p it a l .
The objection to a fixed ratio between share capital
and deposits “ in so far as they are savings deposits” is
directed mainly against Warschauer,5 1 who advocates a
6
scheme similar to that legally prescribed for our mort
gage banks.
This scheme would be unacceptable even if the words
“ in so far as they are savings deposits” were omitted.
As a matter of fact, while it might have been desirable to
fix such a ratio in the case of the mortgage banks, which
are engaged in what may be called the standard business
of issuing mortgage bonds, such or other regulations would
be ill adapted to the credit banks with their innumerable
and constantly varying business relations. Warschauer’s
proposal is based on the premise that the share capital
(he wrongly disregards entirely the surplus funds) ought to
bear a certain ratio to the deposits, whereas it was demon
strated above that the foremost protection of the creditors,
including depositors, are the liquid assets 52 and not the
6
capital (and surplus), and that in Germany large share
capitals are required mainly in view of the diversity of
business transacted by our banks. This view is shared
in England, to which our opponents are in the habit of
turning for their authority.
578
The
G e r m a n
G r e a t
4. L e g a l R e g u l a t io n s R e g a r d in g
th e
I nvestm ent
B a n k s
of
D e p o s it s .
Proposals were made by certain experts who appeared
before the bank inquiry commission of 1908, to the effect
that those modes of investment of deposits which were
found correct and had been carried out at that time by
most of the great banks should be made the basis for
legal regulation, as it was intolerable that the “ adminis
tration of the national wealth” 53 should be entrusted
6
to 10 or 12 persons without any legal safeguards. This
remark occurs frequently in banking literature and in
other connections.
Accordingly a legal regulation is demanded requiring
that a certain proportion of the deposits is to be invested
in German government bonds, the price of which would
thus incidentally be raised. As an alternative it is
proposed that about one-third or 35 per cent of the
deposits in savings banks, cooperative societies, and credit
banks be required by law to be invested as follows: Twenty
per cent in bills of exchange in accordance with the Reichsbank regulations, i. e., provided with three signatures and
running for a term not exceeding three months, and 15 per
cent either in other bills, in accounts at “ giro ” banks, and
in loans on collateral not exceeding a term of three months
on securities quoted at a German bourse (excepting the
bank’s own shares or those of a “ concern” bank, or such
securities as have been put on the market by the institu
tion in question within three years preceding), or in Ger
man state loans or German imperial government bonds,
or finally, in first mortgages.
Against this it may be urged that even if the above
demand were complied with, the depositors, having no
579
N a t i on a l
Monetary
Commission
exclusive lien on these securities, would run the same
risk as they do now in the case of bankruptcy or crisis,
the only difference being that believing themselves guar
anteed by law against all losses they would have all the
more reason to complain.
Unlike the mortgage banks and insurance companies,
whose business moves along beaten paths, the German
credit banks engage in an immense variety of compli
cated enterprises. Hence no regulations of the kind
above described could be applied to them without injury
to the special activity of each bank and of the credit
business in general. It seems impossible to imagine how
any set of regulations, suitable for all times, places, and
conditions, could be devised to determine the manner
in which the working capital is to be invested. At any
rate, the attempt to do so would be a very risky under
taking. Moreover, it is more than doubtful whether any
manner of investment could be legally prescribed that
would under all circumstances guarantee the liquidity
of the investments.
\
\
5. D e p o s it in g
a
C e r t a in P o r t io n of t h e P r iv a t e D e p o s it s
R e ic h s b a n k .
at th e
Heiligenstadt’s proposal 54 that the credit banks should
6
be required to deposit one to two per cent of the average
annual amount of all their credit items in cash at the
Reichsbank represents a totally different and broader
standpoint. The proportion was raised to 5 per cent by
some experts of the bank inquiry commission, who in all
other points adopted bodily the proposal and its argument.
Starting with the alleged fact that on an average only
50 per cent (between 1895 and 1905 only 37 per cent) of
580
The
G e r m a n
G r e a t
B a n k s
the annual national economic working capital (“ volkswirtschaftliches Betriebskapital”) placed in the hands of
the banks between 1886 and 1895 was used for working
purposes in the shape of cash, bills, and loans on collateral
(p. 83 loc. cit.), Heiligenstadt concludes that the balance
(i. e., during the latter period 63 per cent) of the money
belonging to the creditors or depositors was used for pur
poses of investment; in other words, that an excessive
part of the nation’s working capital was converted into
investment capital through long-term credit or otherwise.
The above proposal was therefore considered justified,
inasmuch as the increase of the capital of the Reichsbank
(the regulator of the money circulation and of the credit
business) would be the best means to keep an adequate
portion of German working capital permanently liquid for
working purposes (p. 87) and to take the power of decid
ing the mode of employment of capital, at least to a
certain degree, out of private hands (p. 85).
Thus the proposal is said to be intended, first and fore
most, to strengthen the working capital of the Reichs
bank (p. 98, under X ), and at the same time to prevent
the banks from tying up an excessive proportion of their
resources and thus endangering the security for their
liabilities (p. 95).
The supporters of this proposal described the sum to
be deposited in cash at the Reichsbank as “ the national
working reserve,” or “ iron reserve” (“ eiserne Reserve”)
which would enable the Reichsbank to issue three times
the amount in bank notes, the security for which could
not be withdrawn, and by which the nation could be
constantly supplied with liquid working funds.
581
TV a t i o n a l
M on et a r y
Commission
When subjected to analysis, both the premises on which
these views are based and the aims, as well as the con
clusions arrived at, prove untenable.
As regards the premises, the facts set forth on previous
pages of the present work suffice to disprove the assertion
that German credit banks are in the habit of tying up an
excessive part of their resources (p. 83), and thereby
endanger the security of their liabilities. On the con
trary, we saw that all the liabilities of the German credit
banks are covered almost up to two-thirds of their amount
by liquid resources, whereas the law requires that even
bank notes payable on sight may be covered by cash
reserves only up to one-third of their amount.
Heiligenstadt’s method of calculating the coefficient of
liquidity (p. 83) is altogether too unfavorable. I can not
see on what ground cash, bills, and even loans on collateral,
are by him considered only partly as liquid means, con
tango and securities being omitted entirely.55
6
As regards the purpose aimed at by the proposal, it is
not clear how the Reichsbank (in the event of its noteissuing power being increased by the 2 per cent or 5 per
cent of fresh cash funds to be furnished by the banks) will
be able to keep these funds in any more liquid form than
that in which they are furnished by the banks; for the
banks would have to withdraw these very cash funds
from their most liquid resources, namely, cash balances,
bills, loans on collateral, etc. The same cash funds would
thereupon be invested by the Reichsbank in practically
the same form, namely, in bill discounts and loans on
collateral, for which it would issue its notes.
582
The
G e r m a n
G r e a t
B a n k s
Most probably, however, no fresh cash would flow into
the Reichsbank at all in this manner. The banks would
deduct from their “ giro” account (which almost always
exceeds the contemplated “ iron reserve”) and place to
the credit of the Reichsbank whatever amount they might
be required to deposit, just as they would probably do in
case of a direct increase of the Reichbank capital in which
they were to participate.
Nor can it be maintained that even in this case the
Reichsbank, by reason of the sums placed to its credit,
would become possessed of a permanent security for a
threefold issue of bank notes. A permanent deposit, or
“ iron reserve,” is out of the question for the reason that
the sums which, it is supposed, can not be withdrawn
from the Reichsbank directly can be withdrawn indi
rectly in the form of larger loans, through bills, discounts,
or loans on collateral, or through deductions from the giro
balances exceeding the minimum deposit.
During a crisis— and Heiligenstadt’s proposal is essen
tially intended for times of crisis, since for times of pros
perity no reform proposals are needed— very many de
posits will be withdrawn from the banks, and they will
themselves be forced to withdraw from the Reichsbank
at least a part of their 2 to 5 per cent reserve.
But even if this were not the case, the Reichsbank in
time of crisis, in order to prevent a run or bankruptcy,
would have no other means than to put in circulation all
or part of the “ national working reserve,” whereas in
times when money is plentiful this reserve would prove a
useless ballast.
583
N at i o n a l
M on et a r y
Commission
This brings us to a question which is by no means
unimportant, namely, whether the 2 to 5 per cent reserve
at the Reichsbank should bear interest or not.
If it is to yield interest, then all the grave reasons
become valid that may be urged against the acceptance
by a central note bank of interest-bearing deposits, and
which have caused the most prominent of these banks,
upon repeated deliberation, to refrain from accepting in
terest-bearing deposits. This attitude is mainly dictated
by the consideration that, if the central note bank does
not wish to bear the loss involved in the payment of such
interest— and it is hard to see why it should bear such
loss with indifference— it would be compelled to seek
lucrative business in the form of discounting and loans
on collateral, and possibly just at a time when it ought
to employ all the resources at its command to combat an
excessive demand for credit throughout the country, es
pecially by raising the discount rate.
On the other hand, if the 2 to 5 per cent reserve is not
to bear interest, that would mean a considerable loss for
the credit Banks carrying those reserves. They, too, would
of course not regard that loss with indifference, but would
be compelled to reimburse themselves in one way or
another, especially by paying their depositors less inter
est— a decidedly undesirable result. Furthermore— a still
more undesirable result in normal times— they would have
less funds to place at the disposal of the credit business.
An increased demand in the money market being thus
met by a diminished supply, the result would be a rise in
the rate of interest. Finally— and this would be the most
undesirable result of all— the banks, judging by past ex
584
The
G e r m a n
G r e a t
B a n k s
perience, would probably diminish their noninterest-bear
ing cash reserves necessary for their liquidity by an amount
corresponding to their share in the “ national working re
serve” carried at the Reichsbank.
The ultimate result would be that the liquidity of the
banks, and with it of the body economic, would be im
paired to exactly the same extent that Heiligenstadt
intended to improve it.
In substance, if not in form, this proposal amounts to
the same thing as the proposals which the Reichstag com
mittee, for good reasons, had rejected on the occasion of
their deliberations on the stock-company bill of 1884.56
6
These proposals, which aimed at prescribing a special mode
of investing the legal reserve funds in cash, or in trustfund securities, were revived in 1901 in an article in the
Gegenwart by Imperial Bank Director Doctor Vosberg.
They are, however, liable to serious objections, at any
rate so far as the joint-stock banks are concerned; and
the same objections, therefore, apply also to the proposals
now under discussion.57
6
If the banks were compelled to keep their surplus in
cash, or to maintain a cash reserve at the Reichsbank,
they would have to withdraw this sum from their fully
employed working capital (for the suggestion that only
surplus capital is to be withdrawn is absurd), to wit, such
assets, as the bill holdings, securities, etc.
Thus they would be compelled either to restrict their
business operations, i. e., to call in credit previously
granted and refuse to grant new credit, a proceeding
which might lead to a crisis, especially in industry; or
they would have to attempt to make good this deficiency
585
in working funds by the issue of fresh shares, which course,
if successful, would lead to a fresh strengthening of concentrative tendencies and, furthermore, to a fresh with
drawal of ready money from the market to an amount
equal to the total value of the share issues. If the attempt
to issue fresh shares proved unsuccessful, the calamitous
state would continue, namely, the injury to trade and
industry, which were to be protected by the proposals in
question. In many cases, however, the issue of fresh
shares would not be possible, because the deposit of ready
money would either lead directly to a curtailment of busi
ness transactions, and hence of dividends, or would create
the fear of such curtailment, the result in either case
being a fall in the market value of the shares.
If the banks, despite the curtailment of business, en
deavored to obtain satisfactory dividends— which is neces
sarily the aim of the business management of every jointstock company— they might easily find themselves com
pelled to resort to hazardous transactions, particularly
to force the founding and issue business more than ever.
Since, moreover, after the deposit of the guaranty re
serve, they would possibly and even probably pay less
regard to their liquidity, that liquidity, as well as the
quality of their investments, might in the event of a run
turn out to have been impaired to a greater extent than
ever. If, however, securities were deposited instead of
cash, most of the banks, being compelled, in case of a run,
to sell the deposited securities, might not be able to do so
at all or only at a great loss. If these happened to be
trust-fund securities their market value would become
unduly depressed during the time of panic.
586
The
G e r m a n
G r e a t
B a n k s
Heiligenstadt’s proposals would thus deprive the busi-.
ness community of productive capital in two ways—
through the deposit of a cash reserve at the Reichsbank
and through the issues of shares that might become neces
sary. Some of the supporters of the proposals have
already raised the amount of the proposed reserve from
1-2 per cent to 5 per cent; in fact, the amount would be
variable at pleasure in an upward direction. I assume
that this amount is to be deposited at the Reichsbank,
without the creditors having a lien— that is to say, a right
of segregation of these deposits (Absonderungsrecht) in
case of failure of the credit banks. If this be the case,
the Reichsbank, as has been pointed out, would have to
part with this cash reserve in the case of a run, which
might result in the claims of other creditors than the de
positors being satisfied, on the principle of “ first come—
first served,” and the depositors might be turned away
empty handed.
If this is not to be the case, that is to say, if all creditors
are to be given a lien on the cash reserve, or the right
of segregation, then the Reichsbank, according to general
regulations, would not be permitted to part with this
reserve in case of a run, so that the failure which the
cash reserve was intended to ward off would in that very
case become inevitable.
It is also clear from the above that the practical con
sequences of these proposals would be directly opposed
to the efforts, recently made with such commendable zeal,
of expanding the check and transfer system, and thus
dispensing with the use of ready money in payments and
making it available for credit transactions.
587
N at i on a l
Monetary
Commission
Again, it should be borne in mind that a cash reserve,
even of 5 per cent of all credit accounts at the Ger
man credit banks, that is to say, about 200,000,000 to
250,000,000 marks, could in nowise influence “ the ratio
of working capital to invested capital” in German
trade and industry to any appreciable extent. Fur
thermore, while Heiligenstadt’s proposal lays special
stress on the strengthening of the working resources of
the Reichsbank, a bill (since then disposed of) “ to change
the bank a ct” (No. 1178 of Reichstag documents) ad
mitted that the Reichsbank’s own means had sufficed
hitherto for the purposes they were intended to serve,
and that consequently there was no need of increasing
them. Accordingly provision has been made merely for
a gradual increase in the working resources, by a gradual
strengthening of the surplus. Lastly, it must not be
forgotten that the Reichsbank will, as a matter of fact,
be placed in possession of considerable and increasing
working resources, through an agreement by which it
undertakes the administration of the sums which the
postal administration collects through the postal transfer
and check systems.
The fact that Heiligenstadt began by proposing a
reserve of 1 to 2 per cent, that the experts before the bank
inquiry commission afterward thought a reserve of 5
per cent appropriate, and that since then one of these
experts has felt prompted to raise the proportion to
10 per cent,58 ought to suffice to demonstrate the
6
inept and dangerous nature of all these proposals. For
why stop at 10 per cent? Someone is sure to turn up,
whether inside or outside the Reichstag, who, with “ holy
588
The
G e r m a n
G r e a t
B a n k s
zeal ” and with perfectly incontestable logic, will declare
even the io per cent insufficient, for it is obvious that 50
per cent at the Reichsbank are a far better safeguard than
10 per cent. The banks, to be sure, would in that case
fare like the donkey who was just getting accustomed to
live without food when he died.
My attitude toward the proposals here discussed, as
well as toward any reform proposals in the banking busi
ness, is based on the fundamental principle that all those
proposals are to be condemned which, without being of
any appreciable benefit to the community as a whole, are
injurious to so important and necessary a factor in
German national economy as the banks. In the same
way I am opposed to those proposals which do more harm
than good to the community at large, or which are obscure
in their motives and aims, and of whose consequences no
estimate can be formed. On the other hand, I should
not a priori be opposed to measures the execution of
which would impose certain sacrifices on the banks, pro
vided -such proposals promise to result in notable benefit
to the whole community and thus perhaps in indirect
advantages to the banks.
6.
T he
P u b l ic a t io n
or
S u m m ary
B ank
S t a t e m e n t s (R o h b il a n z e n )
A cco rd in g to a L e g a l l y P r e sc r ib e d F o r m .
Such a benefit to the general public and to the banks
is put forward as an argument for the publicity proposals,
especially that of Count Arnim-Muskau.59 Though not
6
worded to that effect, yet the meaning of this proposal,
in view of the nature of the German banking business,
amounts to this, that all banks and merchants who as a
part of their business accept deposits to amounts exceed
ing on an annual average half (?) of their liable capital
58 9
N at i on a l
M on et a r y
Commission
shall be under legal obligation to publish summary state
ments on the first of every quarter. These statements,
it is proposed, are to conform to a legal schedule, a draft
of which is given, and are to be published at the latest on
the first of the following month in newspapers publish
ing official communications.
I do not believe that such statements would fulfill the
purpose of adequately enlightening the general public,
and especially the depositors, as to the condition of the
bank to which they have entrusted or intend to entrust
their deposits, no matter what schedule may be adopted.
If the schedule goes into minute details, it will as a rule
not be read any more than long prospectuses. If it does
not go into details, but merely gives “ total amounts” for
the various items, as is natural, and as is in fact contem
plated in the Arniin proposal, it will be read, but will
seldom fulfill its purpose of enlightenment, since it will
leave the reader in the dark on those very points that are
of the greatest importance as regards the soundness of the
banks.
In particular, if the statement draws a distinction be
tween the secured and unsecured debk accounts, the
essential point will be the kind of security given in the
individual case, whether a mortgage on improved rural or
urban real estate, a factory, or unimproved ground, and
whether the mortgage is first or second, whether securi
ties have been deposited, and if so, what is their qual
ity, whether bond has been given, and if so, what is the
financial standing of the bondsmen, etc. On all these
points the balance sheet will fail to enlighten the
reader. Neither will it be possible to gather from it the
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composition of the various items, such as the security and
syndicate accounts. In particular, it will be impossible
to tell whether the securities, bills, contango, loans on
collateral, debits on current account enumerated in the
statement are good or bad; and yet the quality of the
assets is the main point, the quantity being of secondary
importance. Further, acceptances may quite properly
have been substituted for book credit, and vice versa.
Business discretion, which is an imperative necessity,
will of itself forbid the publication of details, but even if
such publication were attempted it would simply cause
the statement to remain unread. This is precisely what
took place with the prospectuses, the publication of which
was vehemently demanded some time ago in the interest
of public enlightenment. If they are too long they are
never read, except long after their publication, for the
purpose of constructing a claim for indemnity when the
market value of the securities has greatly declined.
Further “ total amounts” fail to indicate the most dan
gerous cases of credit granting, which have so frequently
caused banks to fail 50 in England as well as in Ger
7
many— I need only refer to the Leipziger Bank— for
instance, the case in which a bank has granted excessive
credit to one and the same person, firm, company, or
institution, or to one and the same branch of industry.
The obligation imposed on American note banks never to
grant individual credit beyond a certain portion (onetenth) of their share capital, does not take sufficiently
into account the situation and status of each bank. It is,1
therefore, on the one hand, too schematic, while on the
other hand, as experience has shown, it can easily be
evaded.
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Experience has proved, moreover, that the most dis
graceful failures, such as those which took place in Eng
land, particularly in time of crisis, occurred among those
very deposit banks that had published their statements.
The collapse frequently occurred immediately after such
publication, perfectly legal in form, without anyone
being able to gather from these documents even the
slightest hint of the impending crash.
Space does not permit all the details of the Armm
proposal to be discussed here. I should only like to
make the following remarks in reference to the oftrepeated demand for a statement of all assessments due
on account of participations. Even the managers of a
syndicate are often unable to foretell the amount of these
assessments with any degree of certainty. Such is the
case with the liquidation of long-term engagements
resulting from the taking over of railways or factories or
other establishments, with the rehabilitation of distressed
or wrecked undertakings, with international business
whose management and central offices are located abroad.
Again, there are cases in which it is utterly impossible at
the time of publication of the statements to foretell the
amount to be ultimately invested in an enterprise (per
haps a fonds perdu) or the date of maturity and the
amount of subsequent assessments, or— a case of par
ticularly frequent occurrence— the amount of the repur
chases (Ruckkdufe) which have to be undertaken so often
and to such extent even after the syndicate business
proper is ended. Syndicate assessments are like house
hold budgets; those expenses that could not be foreseen
at the time the estimate was made are the very ones that
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crop up most frequently and are surest to disturb the
whole forecast.5 1
7
Finally, summary statements may be misleading, be
cause frequently losses to be written off and other
deductions (Riicklagen) can only be ascertained in the
course of the business year or at or even after its close,
just before the drawing up of the annual balance sheet;
and yet the necessity and amount of these items are of
essential importance in gauging the bank’s position.
Again, in a summary bank statement credit and debit
items appear without anything to show whether a creditor
is at the same time a debtor, and vice versa, and whether
compensations must accordingly be allowed for to a large
extent.52
7
But while I do not believe that the periodical publica
tion of summary statements can contribute much toward
the enlightenment of the public regarding the true condi
tion of a bank, yet I will not dispute the beneficial effect
of the public criticism that may be elicited by such publi
cations. The comparison of statements of different banks,
published simultaneously, would afford a far broader and
more reliable basis for such criticism than can be expected
of a single statement.
I also regard these publications as a very excellent
means of self-education for the banks. Their mutual
criticism, based on the published statements, may grad
ually lead to uniform or approximately uniform principles
of business management, especially regarding the manner
and extent of credit granting, and gradually to an under
standing concerning some lines, at least, of business
policy. This understanding might thereupon develop in
9 0 3 i x ° — i i ------- 3 9
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all these directions into firm and sound traditions, which
hitherto have largely been lacking.
For theoretical and practical reasons I should also con
sider it a very desirable and beneficial result if these
periodical statements should lead to uniformity in their
compilation, and gradually also to uniform annual bal
ance sheets. This would facilitate the comparison of the
balance sheets of all the credit banks, a matter which at
present is attended with great difficulties.
Finally, it must not be forgotten that every new device
which enables us, unswerved by the current of phenomena,
to read, as it were, from a barometer, the present and the
near future of economic conditions must naturally restrict
the limits of error, which in this matter are necessarily so
wide. Summary statements of credit banks, 53 published
7
periodically, would serve that purpose, just as does the
publication of the condition of the Reichsbank, or of the
fluctuations of the Reichsbank discount (official) rate and
of private discount rates, of the demand for labor at the
German labor exchanges, as well as the publication regard
ing tfte revenue from the stamp tax, from which the amount
of bills in circulation at any moment can be ascertained,
and of the receipts from railway traffic, from which the
existing condition of industry can best be gauged. These
publications supplement each other.
Despite the undeniable and considerable advantages
which the periodical publication of summary bank state
ments thus affords, I am decidedly opposed to the legal
enforcement of such publication. My objections are based
on what seem to me the following cogent reasons:
In the first place, I consider it an ill-advised step on
the part of the legislator to give rise to the belief (which
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would naturally gain ground among wide circles of the
general public) that from a publication of this kind, which
has never yet been adopted in England, depositors could
gain a clear idea as to the status, and therefore as to
the soundness, of the bank to whose charge they have
entrusted or intend to entrust their deposits. This belief
would be an erroneous one, no matter what form of publi
cation might be adopted, and it is not becoming or
incumbent on the legislator to aid in propagating such
errors. Cases like those of the Eeipziger Bank and the
Marienburger Privatbank would most probably have
occurred under the same management, even if those banks
had published summary statements. As a matter of fact,
they did publish most handsome annual balance sheets,
which were, moreover, accompanied by a “ business report.”
My second reason, which to my mind is decisive, is that
a compulsory legal regulation of this kind can not be con
ceived without a legal schedule for drawing up the state
ment. In fact, a multitude of such schedules have
already been suggested by competent and incompetent
persons.
Now, a legal schedule, unalterable for a series of years,
is an absurdity, for the business spheres of banks are con
stantly changing, and accordingly the schedule would of
necessity be subject to constant changes, dictated by
practical experience. A schedule drawn up by the bank
themselves to-day would of necessity be different from
one drawn up ten years ago and from one that might be
drawn up ten years hence.
If ever the impotence of legislation in any field was
evident a priori, it is in this field, where the business in
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question does not proceed in a stereotyped and automatic
manner, as is in the main the case with note-issuing banks,
insurance companies, and mortgage banks. The latter
are, on that account, much more susceptible of govern
ment regulation, which our German habit, the result of
centuries of drill, still prompts us to regard as the last
resort (ultimum refugium) in all cases demanding a remedy.
In the third place, practical experience, in Germany
especially, has abundantly shown that legislative ca
pacity and skill are as yet imperfectly developed among
us, especially in economic matters. Such matters as the
publication of bank statements or the deposit of cash
reserves for the security of deposits, which to the layman
seem self-evident, urgently necessary, and simple in
execution— “ simple solutions are always seductive to
simple minds”— are in reality exceedingly difficult and
complicated. Hence it is to be feared that the advocates
of these proposals, starting from the most diverse premises
and pursuing the most diverse purposes, would carry
them into execution in a form which can not fail to lead
n
to the gravest embarrassments, as experience has repeat
edly proved. Above all, there is imminent danger— as
illustrated by the very wording of the Arnim resolution—
that, aside from credit banks, not only savings banks
and mutual credit societies would be compelled to pub
lish statements, but also private bankers, which, to my
mind, is utterly inadmissible, for deposits are entrusted
to a private banker not so much in consideration of the
amount of his private means, but in consideration of his
supposed integrity. To compel him to publish a state
ment of his financial position would injure and paralyze
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him in the competition within the private banking pro
fession. Legislators should under all circumstances guard
against ill-advised measures likely to cause injury to
and to hasten the suppression of the small bankers and
thus repeat the mistakes of the Bourse law.
Impressed with these considerations, I heartily wel
comed the decision of the Berlin great banks to publish
voluntarily (beginning with 1909) at the end of February,
April, June, August, and October (in December the annual
statement is issued) summary statements according to a
schedule discussed and agreed on among them which
essentially corresponds to the schedule of the “ Deutsche
Bank.” This example has been followed to a great
extent by the joint-stock banks, and will doubtless in
time become the universal practice. During the early
deliberations of this question I pointed out that whatever
schedule was chosen, it would be sure to be criticized.
However, it is not easy to conceive a schedule which would
not be condemned by some critics, no matter whether it
was drafted by the banks or by other critics.
7. P e n a l t y
appeals
for
or
“ B anks
T hrough
B a n k e r s w h o b y P u b l ic o r W r it t e n
A g e n t s S o l ic it ( anreizen ) D e p o s it s or
and
S a v in g s .”
On the occasion of the passing of the bank-act amend
ment of 1909 the Reichstag petitioned the imperial
chancellor for a bill to ward off the danger caused by banks
and bankers who by public or written invitation or
through agents solicit (anreizen) the public to “ invest
with them their deposits or savings.”
According to the debate in committee, the bill aims
at the suppression of low-class or touting bankers
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(Winkel-oder Animierbankiers), or of business men who
have no claim to the name “ banker,” but who, by prom
ises of specially high rates of interest or other advantages,
entice the public to hand over to them their savings, while
the persons making these promises are neither able, nor
in many cases willing, to return the deposits.54
7
Certainly these are the only cases in which there exists
any danger for the public, and some of these cases may
at once be eliminated from the discussion. If a written
invitation to open an account is issued by a business man
who at the time of invitation is not willing to return the
deposit, nor likely to be able to do so at that or some
future time, it should be considered as an attempt to
defraud.
Under the law relating to unfair competition, the
Central Union of Bankers and Banks at Berlin (“ Centralverband des Deutschen Bank- und Bankiergewerbes zu
Berlin”) established for the protection of banking and
bankers’ interests, is empowered to proceed against
persons who by their occupation are not entitled to call
themSfelves “ bankers,” with a view to enjoining them
from making public use of that designation. I am in a
position to state that such action has been taken on
several occasions.53 But neither these sham bankers
7
(Nicht-Bankiers) nor savings banks, whose resources, as
we have seen, are often far from liquid, are aimed at in
the badly worded Reichstag resolution, which only
demands that steps be taken against banks and bankers.
Besides this the two absolutely different terms “ deposits”
and “ savings” are once more lumped together.
Furthermore, the resolution recommends that legal action
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be taken even when the invitation to invest deposits (?)
or savings (meaning, probably “ investment of funds in
the form of deposits or savings”) (zur Anlage von Depositen) is not made publicly, provided it be in writing.
But such a written invitation, which certainly is one
form of “ solicitation,” may under certain circumstances
become the duty of a bank or banker in a case where
through negligence or ignorance a customer whose busi
ness they look after leaves money deposited without
interest.
Moreover, as the word “ solicit” (anreizen) used in the
resolution is extremely elastic, having received the most
diverse interpretation both in theory and in practice, I
do not believe that the measure proposed in the Reichs
tag resolution can lead to any practical results. It is
hard to say which is the graver mistake, to enact penal
laws whose effect far exceeds the desired and economic
ally correct purpose or such as are rendered nugatory in
practice.
8. A S u p e r v i s o r y B o a r d .
I am equally unable to approve the idea of a govern
ment board of supervisors recently advocated in many
quarters, especially by Obst. Such an institution has
never yet afforded protection against fraudulent manipu
lations, while on the other hand it is very apt to lull the
public into a feeling of security which such a board, from
its very nature, is not able to provide. Even though pos
sessed of the most thorough expert knowledge, such a body
would not be in position to obtain a sufficiently correct
estimate of the quality of the assets of a bank, to say
nothing of the fact that no bank can be expected to allow
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its competitor who might be called upon to act as
expert adviser to the board to gain an insight into its
business.50
7
The experience of all countries and at all times in regard
to the natural inadequacy of state supervision (see note
23 on p. 789, also pp. 54 and 601) should serve as a warn
ing against any repetition of such experiments.
Herewith ends the discussion of the reform proposals
hitherto made. In obedience to the prevailing tendency
in Germany and to the current of the times, nearly all
these proposals aim at some intervention by the State or
by legislation, which, as far as deposit banks are con
cerned, has always been most decisively condemned in
England, the very country which is assumed to be the
pattern for Germany to follow in this matter. Although
I am by no means an adherent of the defunct Manchester
theory, I must confess that in this important, compli
cated, and difficult question I share the opinion expressed
fifty years ago by a prominent authority in this very mat
ter, an opinion which unfortunately has not lost its
actuality and correctness: “ The unfortunate system of
tutelage has never yet stood the test of practice. It
merely leads from step to step, and when it has once been
adopted, there is nothing in which the State does not
think itself called upon to interfere in the interest of its
citizens and for which the latter do not look hopefully
and imploringly to the State, while they themselves limit
their activity to complaints.”
The man who wrote these words in 1857 was no other
than Adolph Wagner.5 7 I frankly admit that I find this
7
confession written during his younger years more con600
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vincing than his later views and proposals, which, I regret
to say, are quite different.
No State measures will avail against a criminal or
negligent treatment of deposits, especially no legal regu
lations nor any supervisory board, such as Wagner pro
posed some years ago while under the immediate impres
sion of the crisis of 1901, that is to say, at a time least
suitable for judicial and matured proposals.58 I feel
7
convinced that the German banking community did not
in any way deserve such a manifest vote of censure— for
a vote of censure it was; there is no use in blinking the
fact. The one thing that is essential above all in this
matter is the honesty, trustworthiness, and efficiency of
the bank managers. In the United States 59 the Comp
7
troller of the Currency, who may order an investigation
of the national banks by special examiners, declared in
his official report for 1895 (p. 57 et seq.) that as a rule
the examiners detect mistakes, defects, and crimes only
after the failure has occurred, and that no supervision
by outsiders can serve as a substitute for the honesty
and competency of bank managers.50
8
60 X
I
THE PROGRESS OF CONCENTRATION
IN GERMAN BANKING DURING THE SECOND
PERIOD (1870 TO THE PRESENT).
P a r t IV .
C
h a p t e r
I.
C
a u s e s
M
I.
o e
o v e m
G E N E R A L
t h e
e n t
C
o n c e n t r a t i o n
.
C A U S E S .1
As was shown in the first part of the volume, the
German banks entered upon the present period with
very limited capital. The question therefore remains
to be answered: By what means have they managed to
meet the ever-increasing duties imposed upon them by
the tremendous industrial development of this period?
In a general way the answer is as follows: The same
factors which we have shown above to have been domi
nant in the general economic development of the period
appear again in the development of banking, viz, the
expansion and concentration of capital, resources, and
industrial enterprise. These two factors appear to the
superficial observer to be mutually exclusive. In fact,
however, they are related to one another as cause and
effect.
Concentration, a child of the capitalist system, is pe
culiar neither to modem development nor to German
conditions. It is as old as the capitalist system itself
and equally international. It appears with practically
all its concomitants in the activities of the state as well
as in private industry.
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As proof of its age we may quote one of many exam
ples. As early as “ the last quarter of the fifteenth and
the first quarter of the sixteenth century there took
place a concentration of capital invested in mining with
a rapidity scarcely equaled in our time.” 2 Certain forms
of concentration such as the combination in one enter
prise of successive stages of industrial production may be
traced back to the very beginnings of large-scale industry.
Its international character is evident from its appear
ance in England and America, in France and Belgium
in the same or even in a more pronounced form than in
Germany,3 both in industry and in banking.
It is present equally in public and in private industrial
activities. This is but natural, for the same causes are
at work in both spheres even if not to the same extent.
Above all there is the necessity for uniform management
of all industry from one center. Thus the postal system
was united practically under one authority after all the
original enterprises, systems, and regalia had been abol
ished. In the same way the railroads passed out of the
control of the innumerable private companies, to be op
erated, in the first place independently by the various
States. Ultimately, after passing through intermediary
stages, they may be operated by the Imperial Govern
ment or form part of an imperial railroad union. Even
now, there are some unmistakable signs of a movement
in that direction. Thus, for example, there is the Prus
sian-Hessian Railroad Union, entered into by two States,
and the agreements regarding the joint use of operating
material among a number of the States of the Imperial
Federation.
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A similar development is shown in the absorption of
capital, industrial enterprise, and labor forces by large
cities; in the ever-increasing migration of rural laborers
to the cities during this period; in the great increase of the
urban population, particularly in the industrial cities; in
the conflict between commerce and industry on a large
scale and the retail trade, house industry, and handi
craft, between large and small industrial establishments;
in the ascendancy of “ mixed” over “ pure” establish
ments; of commercial distribution on a large scale, in
cluding department stores over the small retail trade; of
the large landowner over the small peasant proprietor, the
large flour mill over the small milling establishments, etc.4
The difference in this period has been only in the in
tensity and rapidity with which the tendencies toward
concentration have manifested themselves. This has
been the result of certain factors which completely revo
lutionized the conditions and scale of production and
marketing, to wit: The extension and greater reliability
of the means of transportation as well as the great dis
coveries and inventions which revolutionized entire in
dustries and imposed new tasks on them or created new
industries.
It was inevitable that the movement toward expan
sion and concentration during this period should have
proceeded with particular rapidity in German industry,
which at that time was developing by leaps and bounds.
This applies also to the German banking system, united for
weal and woe with German industry by a thousand and
one ties, due to its current-account, check, giro, and
credit business, and to the banks’ activities in the fields
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of flotation of securities, organization of firms into cor
porations, the rehabilitation of companies, consolidations,
and loans.5 The main reason of this development was
that the German banks, with scarcely an exception,
appeared on the scene organized as stock companies or
in the kindred form of stock companies “ en commandite.”
The stock company is the keenest and surest, and hence
the favorite weapon which the capitalist system can
use in its struggle for concentration. In itself the stock
company represents a form of concentration, viz, the
union of small and scattered units of property, in most
cases too small to be fitted for productive uses, into a single
mass of capital suited and intended for industrial or pro
ductive purposes under single management. The facility
with which the shares can be marketed or transmitted by
inheritance, the probability of a longer term of existence for
the corporation, owing to the far greater degree to which
it is independent of the personality of the entrepreneur as
compared with other forms of business organization, and
finally the absence (at least in theory) of any limitation
on the amount of dividends that may be expected on the
combined capital— all these elements give the corpora
tion great power to attract available capital. More than
any other form of business organization, the stock com
pany has the means of satisfying its needs for credit and
for expansion by capital increases. The ease with which
additional capital can be secured naturally stimulates the
tendency toward capital increases. This tendency grows
in constantly increasing ratio by reason of what may be
regarded as an economic law in the realm of industry,
trade, and banking alike, according to which a twofold
605
increase of capital means more than a twofold increase
of production and sales.6 For this reason the tendency
toward capital increases is enhanced by this very growth
of capital.
2. S P E C I A L C A U S E S .
As stated above (p. 383) the period under consideration
was characterized by an unforeseen, suddenly developing
demand for capital on the part of the state and communes
and particularly industry and trade. This demand natur
ally made itself felt in the two important fields of bank
ing activity, viz. that of national and international clear
ings and payments, and mainly in that of credit. It
became, therefore, an imperative necessity for the banks
to strengthen and extend the exceptionally weak foun
dation of capital and credit with which they had entered
upon this period.
Accordingly, the available funds of the country were
forced under great pressure to the central institutions of
credit— the banks which served, so to speak, as the dis
tributing reservoirs for the collection of the resources of
capital and credit. From there, as from a higher altitude,
it was easiest to survey the extent of the general needs,
to calculate the proper mode of distribution of the avail
able resources and to direct them more readily and
quickly into the various channels below. In other words,
the concentration of banking capital brought about in the
first place through an increase in the capital stock of the
banks meant the progressive accumulation in the banks
of the funds needed for industrial credit.
In this field concentration became especially urgent, on
account of the imperative necessity for distributing and
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minimizing risks7 a principle which can be applied
—
most thoroughly where business is conducted on a large
scale. There are a number of purely technical factors
which work in the same direction. When the banks are
relieved by central banks of issue of the task of providing
the necessary currency, they concentrate their activity
in the field of credit. The latter has the unmistakable
tendency to increase much faster than the cash resources
on which it is based. Moreover, the difficulty of securing
these resources, especially by way of capital increases,
grows more rapidly than the demand for credit. This
is because the ability of a bank to increase its capital
depends not only on the dividends which it has been pay
ing and on the market value of the old shares, mainly
though not exclusively determined by these dividends,
but also on the condition of the money market. The
value of bank stock, like that of industrial securities,
fluctuates with variations in industrial prosperity and
the prospect of dividends. At a critical moment it may
easily happen that no market, or only a very limited mar
ket, can be found for new issues and for new bank
stock in particular, as the market may be paralyzed by
blundering legislation or by the fact that new issues had
been made in excessive amounts or in too rapid succession.
Furthermore, there are special technical or business
limitations on a bank’s ability to increase its capital.
Hard times are never entirely absent, and these affect
the profits from the flotation of securities as well as from
the regular banking business. Under such conditions it
may become difficult for abnormally large stocks of capi
tal to earn adequate dividends, though we may question
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the remark made to the writer in 1889 by the head of one
of the largest private banking firms, that in the long run,
with their larger capital, the banks could not earn more
than the current rate of interest— a pessimistic view,
which has since been proved to be entirely groundless.
There being thus limits— differing, of course, with par
ticular circumstances— beyond which the banks’ own
capital can not be increased, it becomes evident that the
banks must attract outside funds for use in their expand
ing business. The accession of these funds enables the
banks to do more than merely increase the earnings of the
business— i. e., the rate and, what is more, the steadiness of
dividends. In establishing special deposit offices for the
purpose of attracting available funds the banks are able to
increase the size of their clientele, particularly among the
investing class, to greatly extend their capacity to float
securities on their own or outside account, and to place
them securely and permanently among customers whose
circumstances and reliability are accurately known.
Every successful flotation of securities tends in turn to
increase the bank’s power through its psychological effect,
which in this matter counts for a good deal. Every in
crease in the power of the bank tends to augment largely
the tendency toward concentration. It also serves to
enlarge the volume of the bank’s business. Furthermore,
the bank gains the custom of the provincial bankers, who
form such an important part of the clientele of the Berlin
banks. These as well as other customers naturally pre
fer to deal with those banks from which they are likely to
derive, in addition to the ordinary benefits, the largest
financial advantages in connection with the issue of
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securities, either by being allotted subsidiary participa
tions, by being designated as offices for the receiving of
subscriptions or instalment payments, or by being given
special bonuses.
To accomplish successfully the flotation of securities
presupposes very large capital resources on the part of the
bank undertaking the operation, for it must be in a posi
tion to carry for a long time unsold securities without
detriment to its other business. The flotation of securi
ties promotes concentration in another direction. Every
issue of securities naturally seeks a center where a strong
stock exchange offers the best prospects for the ready and
permanent sale of the securities. Accordingly, from the
very beginning of this period, Berlin was preferred to all
other places, because from 1870 to the time when it was
greatly weakened by the stock exchange act (Jan. 1,
1897), the Berlin bourse greatly surpassed all other Ger
man exchanges in strength— that is, in its ability to absorb
securities in good times and in its power of resistance in
bad times, and was able to exert a great and at times de
cisive influence on the other markets, especially those of
London and Paris.
This gave to the Berlin banks another advantage over
the other banks. Besides, they were first to attract out
side funds, particularly in form of deposits. In this they
were successful partly for general reasons and partly as a
result of the system of deposit offices which they had
inaugurated. Thus the business of issuing securities
again stimulated concentration of capital in the me
tropolis— that is, in the Berlin banks.
This increased power to float securities of necessity
proved important in a number of ways in the international
9 0 3 1 1 — 11
40
609
I
N at io n a l
M on et a r y
Commission
business of the banks. For in the case of large inter
national operations in the issue field the preference is
naturally given to those banks which by previous success
in that field have proved their power to issue and dispose
of securities. Whenever the German market is resorted
to in the quest for a larger sale of securities— a practice
which has become less and less frequent since the end of
the nineties owing to wrong legislation, which impaired the
power and importance of our exchange— the bank that
will naturally be favored above all others is the one that
shows the greatest strength both by reason of the large
number of its customers and the extent of its business.
The same or similar considerations will hold in other
instances, where it is not so much a question of extending
the market for the securities, of giving them a wider cur
rency, or of facilitating arbitrage transactions, as a ques
tion of the successful and prompt accomplishment of tasks
dependent on international cooperation, such as the
conversion of large amounts of securities which have
been listed and placed in many countries. In such cases
11
preference will again be shown for the bank which has
given evidence that it is likely to prove a valuable ally
for the successful liquidation of the business in hand
because of its demonstrated ability to float successfully
its own issues, and of its large circle of cutomers, extensive
international connections, and the large amount of coupon
redemptions on account of the loan in question.
As the number of issues and the amounts involved
increase, it becomes more and more necessary and advan
tageous for the banks to follow a policy of expansion and
simultaneous concentration, so as to be in a position to
610
The
G e r m a n
G r e a t
B a n k s
meet all the demands of the domestic and international
security market. This involves the flotation and sale of
securities on a large scale and can be done successfully
only by powerful establishments, whose extensive busi
ness operations and exact knowledge of the character and
financial standing of their large clientele enable them to
dispose of securities permanently and securely by placing
them “ in strong hands.” 8 Such banks free themselves
and their domestic or foreign associates of the very
unpleasant necessity of having to intervene and to take
up securities thrown back on the market immediately
after they have been issued.
Similar phenomena may be observed where the banks
have built up an extensive bill business. The bills of
customers flow most abundantly toward those banks
which have learned first how to extend their industrial
and commercial connections. With the growth of these
connections there goes a simultaneous concentration of
capital and an expansion of operations which in turn leads
to still more extended business connections, also to con
stantly increasing activity in the international money
market, and thereby to business in foreign bills of
exchange. The processes here involved are both cause
and effect of progressive concentration.
The same is true of the acceptance business of the banks.
The extent of these transactions, as we have seen, has
been largely increased by the development of oversea
relations (cf. supra, sec. 4, I—
III). These in turn lead
to the establishment of branches or the founding of special
banks abroad, of commandites, or other connections of
various kinds. This serves largely to increase the tend
ency toward concentration, for it is but natural that in a
6n
foreign market particularly the acceptances of a wellknown large bank with extensive capital should be
taken and circulate for larger amounts and on more
favorable terms than the acceptances of a small bank
unknown abroad.
When provincial bankers or traders want bank accept
ances their preference will be not merely for those banks
which can offer better terms or other conveniences, and
in addition further favors outside of acceptances, but
rather for those banks whose acceptances can be dis
counted with the least difficulty at the private rate,
regardless of the number of bills and their amount.
The development of clearing and giro methods9
likewise makes for concentration in the sense that this
service becomes of greater value in proportion as the
connections of the bank extend and the number of cus
tomers benefited by that service increases. The latter
moreover presupposes the carrying of a minimum account,
the amount of which has been considerably increased
dur#ig recent years.1 For after all the giro, check, and
0
clearing methods constitute merely a system of making
payments through the banks which, while carried on
without the transfer of cash, nevertheless rests on the
presence of a cash reserve.11
Aside from the special economic causes enumerated,
as making for expansion and concentration in German
banking, we must refer also to such influences which
were not purely economic or commercial in nature, but
were due to other external motives such as etiquette,
competition, and so forth.
612
I
The
G e r m a n
G r e a t
B a n k s
Thus quite often a bank would feel impelled to follow
suit after another bank had led, as for example in estab
lishing a branch at the identical place where it had been
established by another bank, though not in the same
order.1 In determining the amount by which the
2
capital should be increased banks would be guided not
merely by consideration of their needs, but also by the
determination not to be outdone in the capital increase
by a competing bank.
C
h a p t e r
R
II.— C
a p i d i t y
a u s e s
o f
t h e
D
C
e t e r m
i n i n g
E
t h e
o n c e n t r a t i o n
M
x t e n t
o v e m
e n t
a n d
.
SECTION I . GENERAL CAUSES.
The extent to which concentration may go in banking
is a priori unlimited. In theory at least there are no
bounds to capital in this field. Here concentration meets
with less resistance and fewer technical difficulties and
obstacles of the kind likely to be met with in industry, for
instance, when it is intended to enlarge the plant or estab
lishment. On the contrary, banking capital not only
permits but even incites constant and continuous expan
sion and concentration. This inherent tendency of bank
ing capital grows with the increase of the country’s wealth,
i. e., with the growth of capital available for productive
use. It is strengthened in proportion as this productive
capital comes to be distributed among increasingly larger
strata of the population. Nor is there any such powerful
counterweight to this tendency of capital as there is in
trade, where business on a small scale still predominates
and offers very serious resistance to the progress of largescale enterprise. The situation is also different from that
613
I
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in industry, where, at least at times and in some branches,
the cartels have to a certain extent done more to help and
maintain than to hamper the existence of small and weaker
establishments.
S E C T IO N
2.
SPECIAL, C A U S E S .
Both the intensity and the rapidity of the movement
toward concentration are greatly enhanced whenever
special causes, operative in banking to a greater degree
than elsewhere, remove existing obstacles in the way of
the movement, or introduce new factors which initiate
this development with great suddenness, or cause it to
develop more powerfully and rapidly than might other
wise have been the case. In such instances the movement
toward concentration precipitates itself headlong like a
flood and proceeds with awful violence, as if all contriv
ances for stemming the tide had been swept away and all
dams had been destroyed by some natural catastrophe.
In both directions just mentioned there have been at work
during the last period three factors of particular impor
tance.
I. The liquidation of banks (Entgriindung), which set
in after the panic of 1873. The course of this movement
is described more fully below (p. 636 and following).
II. The cartel movement in industry, which had begun
as early as the seventies, but became most noticeable in
the nineties. In this connection the most important
events were the formation of the Rhenish-Westphalian
Coal Syndicate in 1893 and of the Rhenish-Westphalian
Pig Iron Syndicate in 1897.1
3
The psychologic effects of the formation of these com
binations were felt all over Germany, and not the least
614
The
G e r m a n
G r e a t
B a n k s
among banking circles, which naturally were first to appre
ciate the commercial advantages of the new development.
In the first place, it was universally assumed that the
concerted action of these syndicates would soon put an
end to reckless cutting of prices at home and to competi
tion abroad and usher in a period of prosperity in the
mining and smelting industries and with it also in bank
ing. But in order to win the struggle both within and
without, and also to be prepared for the boom period
which was believed to be imminent, large funds were
needed. These funds had to be provided in the first place
by the banks, which, as many financial reports in those
days kept emphasizing, were in duty bound to stand by
industry in its struggles. On the other hand, the banks
might naturally expect decided business advantages from
the development of more intimate relations with indus
try, and particularly with the mining and smelting in
dustries in Rhenish-Westphalia and Upper Silesia. Furth
ermore, the assumption seemed justified that, with con
stantly increasing operations, the mining industry would
not content itself with the capital and credit which the
banks heretofore connected with the industry were able
to supply, although some of these, like the A. Schaaffhausen’scher Bankverein, had from the start made the
mining industry their special field. Intimate relations
with the mining industry and particularly with the newly
created coal and iron syndicates in the Rhenish-West
phalian and Upper Silesian districts held out the hope of
profitable business both in the fields of current account
and credit; they also promised a large influx of available
funds, and in addition increased power and influence in
various directions.
6 15
N at i on a l
M on et a r y
Commission
It was these reasons primarily which prompted the
Deutsche Bank in 1897, the year in which the RhenishWestphalian Pig Iron Syndicate was organized, to carry
out at one swoop a plan which had probably been con
ceived as early as 1893, the year of the formation of the
Rhenish-Westphalian Coal Syndicate, whereby the bank
secured a firm foothold in both the Rhenish Westphalian
and Upper Silesian districts. This was the establishing of
communities of interest on the one hand with the BergischMarkische Bank in Elberfeld, a bank with an old and wellestablished standing in Rhenish Westphalia, having nu
merous branches and old-time connections with industry
in general and mining in particular, and, on the other
hand, with the Schlesischer Bankverein, which had like
wise developed extensive and highly-profitable industrial
connections in Upper Silesia. In this manner the Deutsche
Bank achieved the purposes which had prompted it to
enter upon these communities of interest with a skill
equalled only by the large scale of the operations involved.
Only after some time did the other banks follow suit, and
then^with more or less energy and success. Competition
set in for the creation in one way or another of close indus
trial connections, as we shall have occasion to point out
more fully in a subsequent chapter.
As coming under the head of the cartel movement, wr
e
may mention here the fact, already pointed out in another
connection, that in 1897 the A. Schaaffhausen’scher Bank
verein organized a limited-liability company under the
firm name of the Syndikatskontor desA. Schaaffh ausen’schen
Bankvereins G. m. b. H., which was to serve as the sales
agency and clearing office primarily for the Federation of
6x6
The
Ger man
Gr e at
Banks
German Wire Rope Manufacturers (Verband Deutscher
Drahtseilfabrikanten), but later also for other syndicates, car
tels, and combinations. Moreover, many banks which had
not yet secured a firm position in this respect now began
gradually to obtain representation on the supervisory
boards of those mining and smelting companies which had
large influence in the management of the important syn
dicates. Gradually the Dresdner Bank, Deutsche Bank,
and Darmstadter Bank obtained representation on the
board of the Harpener Bergbau-Aktiengesellschaft and be
came members of the bank group identified with that
company, and the first two entered the board of the Gelsenkirchener Bergwerks-Aktiengesellschaft and joined the
group of banks connected with the latter concern. The
Dresdner Bank joined the board of the consolidated
Konigs- und Laurahutte and the group of banks which
stand behind that concern. The Deutsche Bank attained
the same position with regard to the Konsolidation Berg
werks-Aktiengesellschaft at Schalke, the Phoenix, etc. In
versely, representatives of large industrial interests, espe
cially persons of great influence in the mining industry,
joined in increasing numbers the supervisory boards of the
large banks. Thus at the end of December, 1908, repre
sentatives of industrial interests appear on the boards of
the banks in the following numbers:
Bank fur Handel und Industrie.............................................................
4
Berliner Handelsgesellschaft..................................................................
Deutsche B a n k .........................................................................................
15 (14
)
4
Disconto-Gesellschaft...............................................................................
Dresdner B a n k .........................................................................................
4(15)
11 (16
)
A. Schaaffhausen’scher Bankverein.........................................................
19
On the other hand, the intimate relations with the
large banks and their extensive resources served as a new
617
I
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M on e t a r y
Commission
stimulus for various industrial establishments to extend
their operations and influence in their respective districts,
to establish more firmly their position as against other
establishments, groups, and particularly cartels, as well
as within the cartels, by way of combinations, consolida
tions, and fusions of all sorts. In this way concentration
in banking, which had been greatly influenced both in the
extent and rapidity of its progress by developments in
industry, and particularly by the formation of cartels, in
turn helped to bring about concentration in industry.
III.
Mistakes of legislation.— The stamp and stockexchange laws.— The rapidity of the movement toward
concentration was heightened by the heavy burdens
imposed on the trading in securities by the imperial
stamp acts of April 27, 1894, and June 14, 1900, and by
the stock-exchange act of June 22, 1896, which entered
into force on January 1 of the eventful year 1897.
1. As early as 1884, when it was proposed to impose a
percentage tax on stock transfers (as was done by act
of May 24, 1885), it was pointed out by experts that the
effect would be “ to monopolize the banking business in
the hands of a few powerful concerns.” 17
Nevertheless the policy once entered upon was con
tinued. The imperial stamp tax of April 27, 1894,
doubled the existing tax on transfers (increasing it from
one-tenth to two-tenths per mille) and prescribed that
the tax should no longer be levied as before on every
full thousand marks, but also on any additional frac
tion of a thousand marks. It left, however, transactions
of less than 600 marks exempt as heretofore.
618
The
G e r m a n
G r e a t
B a n k s
The act of June 14, 1900, not only abolished this ex
emption,18 but increased substantially all the rates of
the stamp tax on securities, raised the stamp tax on the
final certificate of transfer (Originalschlussnote) of shares
and bonds of foreign corporations to three-tenths per
mille, and introduced a tax on the issue and transfer of
mining stocks (Kuxe).
Under the act of October 1, 1885, the provincial banker,
who had forwarded his customer’s order to a central
banker on the stock exchange, was at least permitted
under certain circumstances to hand over the original
transfer certificate to his customer without paying a new
tax. However, the provincial banker could not avail
himself of this relief unless he was willing to disclose the
name of the central banker to his customer. Accordingly
until a more practicable method was introduced by the
act of April 27, 1894, ^ie provincial banker had to affix
a stamp also to his own certificate to the customer. The
result was an increase in the expense of the business, to
which there had to be added the commission of the pro
vincial banker and the commission and brokerage fees
of the central banker, which at the time were more
equitable and in accord with the trouble and the general
expense involved than they are at present. The direct
result was that, in order to save expense, the customers
of the provincial bankers, in spite of all efforts on the
latter’s part, began to deal directly with the central
banker or with the branches established in the district
by the great banks. This trend assumed ever larger pro
portions when the banks started to propose to their
customers to participate in the issue of securities as well
619
»
N at i on a l
M on et a r y
Commission
as to hold out to them more favorable terms and lower
commissions with the view of attracting orders in the
field of security business.
There were further defects in the stamp-tax legislation
which contributed to bring about a reduction in the rates
of brokerage. The banks to an increasing extent were
able to offset against one another within the bank the
large number of buying and selling orders that came pour
ing in from customers. As long as this procedure of
offsetting orders continued to be exempted from taxa
tion they were able to gain at least the equivalent of the
entire stamp on every transaction settled within the bank.
Owing to this profit, they were able to cut lower and lower
the rate of commission for their services until it reached
the unprecedented rate of one-half per mille, a rate which
nowhere comes near a reasonable compensation for the
trouble, expense, and risk involved, and which probably
is not found in any foreign country. These “ compensa
tory transactions ” became subject to taxation only three
and a half years after the stock exchange act went into
effect under section 12 of the imperial stamp tax law of
June 14, 1900. In other words, they remained untaxed
until the extensive increases in bank capital, which had
been made as a result of the stock exchange legislation,
and the large number of branches and deposit offices
which had meanwhile been established, made it seem
hopeless for the smaller provincial bankers ever to over
come the lead which the banks in the meantime had
gained on them.
Moreover, the increase in the stamp tax rendered it
impossible for the smaller private banker, or at least for
620
The
G e r m a n
G r e a t
B a n k s
a large proportion of them, to engage in what had been in
former years important and lucrative branches of business.
Under this head comes speculation in daily exchange
quotations. This consists in taking advantage of fluctu
ations in the daily quotation of securities. Its effect is
to bring about more stable and uniform quotations by
eliminating small variations in the daily quotations.
This function of the banker has ample business justifica
tion and renders a valuable service in the formation of
prices. However, as the margin of profit is small it can
not stand a tax of three-tenths per mille.1
9
Under the same head comes the so-called arbitrage
business. This consists in taking advantage of variations
existing on different exchanges in the quotations of
domestic securities and of so-called international securi
ties dealt in also on foreign exchanges. This activity
serves to a great degree to equalize and establish a uni
form level for prices of securities and, moreover, renders
valuable economic service in facilitating the settling of
our international balance of trade and payments.2
0
Furthermore, a part of what had been the business of
the private banker was now taken from him partly as a
result of the tax burden imposed and partly in conse
quence of the provisions of paragraph 8 of the bankdeposit law of July 5, 1896,2 and of the restrictive
1
stock exchange legislation to be discussed below. I refer
to trading in foreign securities. This part of the business
went to foreign countries and came to be attended to by
foreign bankers in place of our own bankers. As a result
of all this the brokerage business in securities left to the
smaller private bankers fell off from year to year and
621
became progressively less profitable. The only way to
increase profits, given the ruling low rates of commission,
was to increase the scale of operations. This, however,
was out of the question, since the bulk of the business
now went more and more to the banks, and primarily to
the Berlin banks and their branches.
2. We can not enter here upon the extent of the injury
inflicted by the stock exchange legislation on the German
bourses, and indirectly also on the strength and com
petitive power of German banking. On this point I must
refer particularly to the discussion and the data con
tained in the two memorials of the Centralverband des
Deutschen Bank-und Bankiergewerbes (Central Union of
German Banks and Bankers) of June, 1901, and De
cember, 1903.2 Here only a particular aspect of the
2
question can be dealt with, namely, to what extent
this legislation tended to hasten the movement toward
concentration.
The prohibition of “ future” dealings in securities,
affecting large and very important classes, particularly
mining and industrial securities, and the extensive limi
tations on “ future” dealings in other securities,2 ac
3
complished but little more than the bringing to the fore
of cash dealings in the stock exchange business. The
result was that since 1897 “ a larger amount of cash was
made necessary for the same amount of transactions and
that the total requirements of currency on the part of
the German business community was increased still fur
ther just at a time when the volume of business showed
extraordinary gains.”2
4
The
G e r m a n
G r e a t
B a n k s
The smaller private bankers were naturally in no posi
tion to meet with their own funds the increased require
ments of ready money for cash transactions, neither
could they afford to tie up their funds in this way. On
the other hand, as soon as the stock exchange legislation
was proposed the banks foresaw that the restrictions of
future dealings would necessitate the use of larger amounts
of cash.2 Accordingly, when the law went into effect,
5
and even before, they largely increased their capital and
available funds without difficulty,2 and as a result
6
were able to draw to themselves even more effectively
than before the custom of the private bankers.
Granted even that the tendency toward unification and
toward operation on a large scale is common to all branches
of industry, and that, judging by the experience of foreign
countries (except the United States for the time being),
sooner or later the position of the private bankers as a
class would gradually have become weakened as a result
of the general concentration tendencies2 there can be no
7
doubt that the provisions of the stamp tax and the stock
exchange legislation did much to hasten this movement,
or, in other words, to accelerate and aggravate the decline
of the economic power of private banking.2
8
In judging of this development the main question is
whether there has been an essential decline, and not
whether there has been a decrease in numbers. It is only
the former question which may claim economic and scien
tific interest. There may be a decline of a profession in
spite of an increase in the number of persons or establish
ments belonging to it.2 This is particularly so when the
9
increase is only the natural and proportionate result of the
623
a
National
Monetary
Commission
general growth of population or when the gain is due to
numerous accretions, though all insignificant in point of
capital, while the losses, though small in number, involve
a large exodus of capital.
Again, a profession may be highly flourishing and improv
ing in position and influence, even when the number of indi
viduals or establishments is declining. This has happened
frequently abroad, notably in England and France, where
the number of banks decreased because of the absorption
of a large number of small concerns by large establish
ments, which have thereby increased their power.3
0
It is, therefore, unscientific to base any general conclu
sions merely on an observed increase or decrease of abso
lute numbers without making a most careful analysis of
the underlying causes. It is self-evident that we do not
mean to deny that an absolute numerical decrease or in
crease in the number of establishments or persons may go
hand in hand with the decline or advance of the particular
class, but this is not necessarily so. This much by way
of preface. We may now take up Ernst Eoeb’s data.3
1
According to the table prepared by him, during the period
1892-1902— the decade including the great boom period
of 1898-1900— the number of private bankers rose from
2,180 to 2,564. In all, there was an increase of 380 for the
whole of Germany. Even if there were no doubts of the
accuracy of the statistics, they would prove very little.
An increase so small as not to be proportionate, either to
the growth in population during this period or to the eco
nomic progress of the decade mentioned, would tend to
confirm rather than to refute the view that the class, as a
624
The
G e r m a n
G r e a t
B a n k s
whole, had been on the decline, even though there might
be no falling off in absolute numbers.
As a matter of fact, however, the table, in my opinion,
is not correct; in fact, it is out of question that it be so.
In the Deutsches Bankierbuch, on the basis of which the
table is prepared, the names of extinct firms or of firms
which have gone out of business are frequently continued
for some time. This is easily comprehensible. More
over, as Toeb himself admits (op. cit., p. 248), a large
number of persons who appear in the table as bankers
are either brokers or curb dealers (Remisiers). For Ber
lin alone this is true of at least 93 names as early as 1896,
and of more than 120 at present. In Frankfort-on-theMain there were between 30 and 50 names of persons
who style themselves bankers, but who are, in fact,
merchandise dealers engaged in the grocery or other
trades, who do banking only incidentally and as occasion
offers. This view is confirmed by the investigations made
by the Central Union of German banks and bankers
among 154 official trade bodies.3 The returns made are
2
surely not “ consciously falsified as to facts and figures
in order to mislead public opinion.” 3 The answers of
3
115 of the trade bodies cover both the newly organized
establishments and those that had retired from business.
The answers show that in the districts of these 115 cham
bers of commerce for the years 1891-1896, or before the
stock-exchange law was enacted, the number at the close
of the period as compared with the number at the begin
ning was 65 more for banks and 32 less for private bankers.
In both cases branches are included. For the years
9 0 3 1 1 ° — 1 1 ------- 4 i
625
mi n t s s t o n
1897-1902, however, the number of banks and their
branches at the end of the period was 207 greater than
at the beginning, whereas the number of private bankers,
including branches, was at the close of the period 125
less than at the opening. There seems thus to have
been, also, an absolute decline in numbers.
As has been explained before, without a detailed
examination of the phenomena under discussion, no‘con
clusive scientific proof can be attached to the absolute
figures. Relative numbers are, however, much more
important when and in so far as they permit of definite
conclusions. In this respect even Loeb3i calls atten
tion to the fact that for the ten-year period 1892-1902, in
which, as he thinks, there has been an absolute increase
by 380 in the number of private bankers, the growth of
the banks, both in number, in capital, and in the number
of branches and deposit offices, has been incomparably
greater. The number of joint-stock banks grew in this
period from 379 to 616, the number of branches (even if
we disregard the branches of the Berlin banks) from 73 to
2645? while even in the briefer period from 1894 to the end
of 1899 the amount of their capital stock had grown from
449,000,000 to 871,000,000 marks.3
5
The decline of private banking,3 in part absolute
6
and in part relative, is more striking in comparison with
the rapid strides toward concentration among the banks.
It is, moreover, marked by a variety of other phenomena.
In the first place it is notable that in Berlin, the seat of
the greatest stock exchange, there was a great decline in
the absolute number of private bankers. According to
Loeb3 the decrease was from 538 in 1892 to 370 in
7
1899. In the other larger cities the number appears
626
The
G e r m a n
G r e a t
B a n k s
either to have remained stationary or to have increased
somewhat.
More important, as showing the decline of the private
bankers as a class, is the relative number of those par
ticipating in the giro business. As these statistics include
only the better class of private bankers, they give evidence
not only of the numeric but also of the more serious qual
itative decline of the private bankers as a class.
Number participating in the giro business within the German Empire.
Banks
and their
branches.
At the end of—
130
203
245
4X
3
4 S9
Private
bankers
and their
branches.
974
1 . 413
x. 4 7 5
1.496
1. 504
These figures are very eloquent. They prove an enor
mous growth of giro accounts for the period from the
beginning of 1877 to the close of 1890. It is seen that
the number of accounts of banks and their branches had
increased by only 73, while those of private bankers and
their branches had grown by no less than 439. On the
other hand, in the period affected first by the stock
exchange legislation and later by the imperial stamp-tax
legislation of June 14, 1900— the period from the begin
ning of 1897 to the end of 19023 the giro accounts of
8
the banks and their branches had increased by 214 and
those of private bankers and their branches by 29 only.3
9
Little as this increase is, nearly all of it is to be ascribed
primarily to banking in the large cities, to which this bus
iness has drifted along with business in general. It shows
627
N at i o n a l
M o n et a r y
Commission
a tremendous speed of the movement of concentration,
notably in these six years, and a corresponding decline
during the same period in the position of private bankers
as a class.
In view of the notorious outcome of the entire develop
ment, it may be doubted whether it is still worth while
at this time to differentiate and contrast the rate of
growth of the Berlin banks for this period with that of
the provincial banks. The clearly established fact is
that the same concentration which went on among the
large banks took place also among the provincial banks,
though the rapidity of this movement was not the same
for the provincial banks in the various parts of the
country.
Thus, for example, during the years 1893-1900, inclu
sive— the period when with the exception of the BergischMarkische Bank (to be sure the most important of these
banks), the Rhenish-Westphalian banks had not yet
become “ affiliated”— the 12 most important banks of the
district increased their capital from 107,000,000 to 350,000,000 marks, or about 226 per cent.4 The following
0
statistics compiled from the returns in the memorial
of the Centralverband, under date of December, 1903,
show that as contrasted with the average for the period
1883-1890 the average capital and surplus funds (werbende
Kapitalien) had increased as follows:
Between the years—
1891—
1896.
22
institutions at that time independent of the Berlin great
1897-1902.
P e r cent.
P e r cent.
1 4 •9
43-7
628
53-9
IS3 - 2 n
The
G e r m a n
G r e a t
B a n k s
After a large part of the provincial banks had become
“ affiliated” with the several Berlin great banks, there can
be no question but that their striking growth in capital,
number of branches, etc., was naturally affected in a large
degree by their connection with the great banks. On the
other hand, since 1905 and as a result of the very rapid
growth of the great banks and their chains of banks out
side of Berlin, the provincial banks which had not become
affiliated with the great banks sought to extend their
sphere of operations, with a view to maintaining their
independence and field of action. This was particularly
the case during 1906 and 1907, when the process of con
centration among the great banks had become arrested.
I shall call attention here only to a few striking
examples. Thus in central Germany the Magdeburger
Bankverein, founded in 1867 as a stock company en com
mandite under the firm name of Klincksiek, Schwanert &
Co., incorporated under the above name in 1897 with a
capital of 15,000,000marks, had on December 30,1908, seven
branches (in Aschersleben, Burg near Magdeburg, Dessau,
Hildesheim, Nordhausen, Peine, and Stendal). In 1909 a
branch at Braunschweig was added. It also has a deposit
office (in Greussen) and a commandite (G. Vogler in Quedlinburg). It has absorbed the following banking firms:
I9°5> S. Frenkel, Nordhausen; 1905-6, Herzfeld & Biichler,
Aschersleben; 1906, H. Bach, Nordhausen; 1907, Gebriider
Dux, Hildesheim; 1907, Friedrich Franz Wandel, Dessau;
1908, I. Wertheimer, Peine (1909, Otto Weibezahl,
Braunschweig).
Since 1907 it has been intimately connected with the
Disconto-Gesellschaft. A director of this bank is a mem
ber of the supervisory board of the Bankverein.
629
N at ion a l
Monetary
Commission
Thus between 1905 and the close of 1909 alone the
Magdeburger Bankverein absorbed seven banking firms
for the purpose of establishing branches.
The Magdeburger Privatbank of Magdeburg and Ham
burg (founded 1856, capital stock 36,000,000 marks, sur
plus about 4,000,000 marks) has—
Thirteen branches (Dessau, Eisenach, Eisleben, Erfurt,
Halberstadt, Halle-on-the-Saale, Tangensalza, Miilhausen
in Thuringia, Nordhausen, Sangerhausen, Torgau, Weimar,
Wernigerode a. H.).
Twenty-eight deposit offices (Aken a. E., Bismark in
the Altmark, Burg near Magdeburg, Calbe a. S., Egeln,
Eilenburg, Finsterwalde N.-L., Frankenhausen, Gardelegen, Genthin, Helmstedt, Hettstedt, Merseburg, Neuhaldensleben, Oschersleben, Osterburg, Osterwieck, Perleberg, Quedlinburg, Schonebeck a. E-, Sondershausen,
Stendal, Tangerhiitte, Tangermunde, Thale i. H., Witten
berg (district of Halle), Wittenberge (district of Potsdam),
Wolmirstedt).
One commandite (Ascherslebener Bank, Gerson Kohen
& Co., Kommanditgesellschaft in Aschersleben).
The Magdeburger Privatbank has absorbed the following
banks and banking firms:
1905. Nordhauser Bank, Nordhausen; Wilhelm Hauffe,
Eilenburg; Julius Elkan, Weimar; Tobias Fricke, Garder
legen.
1906. F. W. Quensel, Sangerhausen; Diskonto-Gesellschaft, Hettstedt.
1907. F. Unger, Erfurt; Wittenberger Spar- & Leihbank,
Registered Mutual Society (Limited), Wittenberg; Paul
Thiele, Merseburg; Eislebener Bankverein, Ulrich, Zickert
630
The
G e r m a n
G r e a t
B a n k s
& Co., Eisleben; Kreditbank Eisenach (Incorporated),
Eisenach (capital, 1,500,000 marks); Vereinsbank Miilhausen (Thuringia) with a branch in Langensalza (capital
2,100,000 marks); Torgauer Bank, Torgau (capital,
1,000,000 marks); Sangerhauser Bankverein, Sangerhausen
(capital, 898,000 marks); Wernigeroder Koinmanditgesellschaft auf Aktien (stock company en commandite) Fr.
Krumbhaar, Wernigerode, with a branch in Osterwieck
i. H. (capital, 1, 500,000 marks); Wechslerbank, Hamburg
(founded 1872; capital, 7,500,000 marks).
1908. Erfurter Bank Pinckert, Blanchart & Co., Erfurt
(capital 3,008,100 marks); A. Sonnenthal, Dessau; Vorschuss- & Sparverein, Weimar, Registered Mutual Society
(Limited), continued under the name Thuringische Landesbank, A. G. Weimar, which in 1908 absorbed theGewerbeund Landwirtschaftsbank G. -m. b. H. Jena.
1909. Dresdner Bankverein, Dresden (founded in 1887;
capital 21,000,000 mark). This bank had absorbed the
following: 1887, Weimarische Filialbank, Dresden; 1890,
the branches of the Geraer Bank in Dresden, Chemnitz,
and Leipzig; 1900, Hch. Wm. Bassenge & Co., Dresden,
continued under the old firm name. This firm in turn
has branches in Meissen (1904) and a deposit office in
Lommatzsch; 1907, Ernest Petasch, Chemnitz, and
Krober & Co., Meissen.
In addition to the branches growing out of these banks
and firms which had been taken over, the Dresdner Bank
verein has branches in Wurzen, Kamenz, and Sebnitz,
and a deposit office in Oederan.
After the consolidation (effective January 1, 1909)
the Magdeburger Privatbank adopted the firm name of
631
National
Monetary
Commission
Mitteldeutsche Privat-Bank Aktiengesellschaft and increased
its capital stock to 50,000,000 marks.
Thus since 1905 the Magdeburger Privat-Bank (now
Mitteldeutsche Privatbank), for the purpose of establish
ing branches and deposit offices, absorbed 8 private bank
ing firms and 12 banks.
In southern Germany the following banks have been in
the forefront of the concentration movement.
The Bayerische Vereinsbank in Munich (capital 45,000,000
marks). It has 12 branches— Augsburg, Bad Kissingen,
Bayreuth, Erlangen, Kempten, Kitzingen, Landshut,
Nuremberg, Passau, Regensburg, Straubing, and Wurz
burg. It also has 2 deposit offices in Munich. It has
absorbed the following banks and banking firms: 1885-86,
Joseph von Hirsch, Munich; 1891-92, Guggenheimer &
Co., Munich; 1898—
99, Adolph Bohm, Landshut; 1905,
Stiglmeier & Bohm, Straubing; Gregor Oehninger Sohn
& Co., Wurzburg; 1906-7, Franz Eglauer, Passau;
1907-8, Niirnberger Bank in Nuremberg, Lauf, Erlangen,
Schwabach, and Hersbruck; Wiirzburger Volksbank,
Wurzburg; Friedrich Feustel, in Bayreuth and Kissingen;
Leyherr & Co., Augsburg; F. S. Euringer, Augsburg;
August Leipert, Kempten.
Thus since 1885 the Bayerische Vereinsbank absorbed
10 banking firms and 2 banks.
The Bayerische Handelsbank in Munich increased its
capital in 1906 from 27,171,800 marks to 33,963,800, and
in 1908 to 35,600,000 marks. Between 1906 and 1908 it
established branches in Ansbach, Immenstadt, Bayreuth,
Hof, Gunzenhausen, Lichtenfels, Miinchberg, Nordlingen,
Neuberg on the Danube, Markt-Redwitz, Mindelheim,
632
The
G e r m a n
G r e a t
B a n k s
Regensburg, Rosenheim, Schweinfurt, and Wurzburg.
Earlier it had established a branch at Kempten (in 1899),
and branches at Bamberg, Kronach, Kulmbach, Memmingen, and Aschaffenburg in 1905. For the purpose of
establishing or enlarging branches it took over the follow
ing banking establishments:
1899. Ignaz Wolfsheimer, Kempten.
1905. Hermann Hellmann, Bamberg and Kronach;
F. E. Bauer, Kulmbach; L. Ullmann & Sohne, Kempten;
Gewerbebank Memmingen. G. m. b. H. (Limited), Memmingen; Heinrich Mayer, Memmingen; Wolf S. Gutmann,
Ansbach; M. Wolfsthal, Aschaffenburg.
19067. A. Krauss, Bayreuth and Miinchberg; Schul
ler & Co., Bayreuth and Hof.
1907. Hans Mayer, Lichtenfels; Ludwig Rosenfelder,
Nordlingen; Fr. H. Miller, Mindelheim; Max de Crignis,
Neuberg on-the-Danube.
1907- 8. Wilhelm Frank, Gunzenhausen.
1908. Haymann & Co., Regensburg; Richard Kirchner,' Wurzburg; Kreditbank Rosenheim A. G. (capital
1,000,000 marks); I. Gutmann, Ansbach.
Thus the Bayerische Vereinsbank absorbed since 1899
17 banking firms and 2 banks.
In western Germany among others the Banner Bankverein of Barmen absorbed the Bonner Privatbank, the
Westfdlische Bankkommandite Ohm, Hermekamp & Co.
(now the Niederdeutsche Bank), and the Godesberger
Bank.
The Rheinisch-Westfdlische Disconto-Gesellschaft in Aixla-Chapelle (capital 80,000,000 marks), which we omitted
from the chain of banks belonging to the Disconto-
633
m m i ss i on
Gesellschaft for the reasons given on p. 673 (regarding it
as an independent provincial bank) has now 17 branches
at the following places: Bielefeld, Bochum, Bonn, Cob
lenz, Cologne, Dortmund, Diisseldorf, Godesberg, Giitersloh, Lippstadt, Maria-Gladbach, Neuss, Neuwied, Reck
linghausen, Remscheid, Traben-Trarbach, and Viersen. It
has, besides, 7 deposit offices— 3 in Cologne and 1 in each of
the towns of Kalk, Kreuznach, Malmedy, and Ratingen,
and 2 commandites, Delbriick, Leo & Co., Berlin, and M. W.
Koch & Co., Frankfort-on-the-Main. It has absorbed
the following banks and firms:
Capital.
Establishments.
M arks.
Bank fur Rheinland and Westfalen.........................................
Koblenzer Bank.....................................................................
Groethuysen & Linxweiler, Viersen.........................................
Kolnische Wechsler-und Kommissionsbank.............................
Neuwieder Bankverein.......................................................... .
Bochumer Bank, Bochum (with branches in Dortmund and
Recklinghausen)............................................................
Westfalische Bank, Bielefeld, Lippstadt, and Gutersloh.........
Otto Lohmann, Bielefeld......................................................
Diisseldorfer Bank, Diisseldorf................................................
Johann Ohligschlaeger (Limited), Aix-la-Cliapelle...................
Ziilpicher Volksbank, Zulpich...............................................
Remscheider'kredit-und Sparbank........................................
Unnaer Bank in Unna..........................................................
Crefelder Bank in Crefeld (continued as a branch).................
Volksbank, Erkelenz.............................................................
Hardy & Co. (Limited), Berlin..............................................
1901
8 ,3 3 4 ,0 0 0
1901
2 , O O O ,O O O
1902
1904
1 2 , O O O ,O O O
I , O O O ,O O O
I9 ° 5
5 ,o o o ,o o o
1 0 ,o o o ,o o o
5 ,o o o ,o o o
5 ,5 0 0 ,ooo
1906
1907
7 5 0 ,ooo
1908
3 , o o o ,o o o
1909
The Rheinisch-Westfalische Disconto-Gesellschaft has
formed communities of interest with the following banks:
Eschweiler B a n k ...........................................................................
Durener B a n k ................................................................................
This bank absorbed in 1905 the Euskirchner Volksbank
and the Julische Volksbank and established branches at
Euskirchen and Julich.
Capital (marks).
« 1, ooo, 000
8, 500, 000
a 600,000 marks paid in.
634
II
The
G e r m a n
G r e a t
B a n k s
Volksbank Geilenkirchen-Hiinshoven........................................
3 1 5 >000
Oberbergische-Bank, O h l42. ........................................................
i» 5° 5 >000
Eupener K red itb an k .....................................................................
Herforder Discontobank...............................................................
5°°> 000
2, 500, 800
Bunder Bank.
SECTION 4. SPECIAL CAUSES OF THE RAPIDITY OF THE CON
CENTRATION MOVEMENT DURING 19 O I-I9 0 4 .
The concentration movement proceeded with an un
usual degree of rapidity in the years following 1870 and
again during the years 1901-1904, inclusive. The earlier
period, characterized by the establishment of so-called
provincial banks,4 is at present of no more than his
3
toric significance. It was during the latter period partic
ularly that concentration assumed striking and at times
even uncanny dimensions. While even before this the
movement had advanced quite rapidly, these four years
witness a record speed in this development.
The progress in concentration was greatly accelerated
by the influence of psychologic factors, as is so often the
case in this sphere of business.
I.
THE CRISES OF 1873 AND 1900.
The general observation may be made that every crisis
is followed by a marked strengthening of existing tenden
cies toward concentration and by an increased rapidity of
the movement in that direction.
After every crisis, which results in the annihilation and
sweeping away of many undertakings, the weaker estab
lishments which were able to survive in halfway sound
condition only through assistance of some sort realize
that they can achieve permanent safety only by merging
with other establishments. This is particularly true of
635
N at i on a l
4*
M on e t a r y
Commission
those establishments which have broadened their base of
operation during the prosperous years before the panic
by enlarging their business or increasing their capital to a
point where they cannot make full and rational use of
their plant or capital while business is at a standstill.
Wallich4 properly points out, therefore, that the move
4
ment of concentration which set in in German banking
during the boom period 1870-1872 proceeded at a more
rapid pace immediately after the crisis of 1873, as a result
of the liquidation or “ disestablishment” of banks, which
was carried out by stronger banks. While the latter fre
quently saved from total collapse weaker banks that had
fallen into sore straits, and at any rate made it easier for
them to realize their assets, they made sure at the same
time of taking over valuable existing business connections,
fiscal agencies, etc., and thus largely increased their power
and influence.
It was in this manner and with this purpose in view
that the Deutsche Unionbank during the period 1871-1874
undertook the liquidation of four banks, the Deutsche
Bank during the period 1873-1876— the liquidation of
the Allgemeine Depositenbank, and of the Elberfelder
Disconto- und Wechselbank, also of the just-mentioned
Unionbank, which paid the extreme penalty for tying
up its resources in the above operations. The Dresdner
Bank during the years 1873-1878 undertook the liquida
tion of four banks, viz, the Dresdner Handelsbank, Sachsischer Bankverein, Sachsische Kreditgesellschaft, and Thiiringische Bank in Sondershausen. Lastly, in 1875, the
Wurttembergische Vereinsbank undertook the liquidation
of the Stuttgarter Bank.
The
G e r m a n
G r e a t
B a n k s
Soon after this (from 1876 and on into the eighties) the
Deutsche Bank carried on the liquidation of four other
banks— the Berliner Bankverein, the Berliner Wechslerbank, the Frankfurter Bankverein (which resulted in the
establishment of a branch in Frankfort-on-the-Main), and
the Niederlausitzer Bank in Kottbus. In 1876 the state
ment of the Deutsche Bank contained an item of 6,500,000
marks of “ securities” chiefly of banks in liquidation,
which it had bought up cheaply. During the same period
the number of its accounts on which it had to pay com
missions had increased from 855 to 1,354.
The establishments that had weathered the crisis with
their own resources, without being obliged to resort to out
side help, were mainly those that had been able to strengthen
their resources greatly before the crisis through the con
centration and consolidation of their business and capital.
Outsiders usually learn of this for the first time during the
panic, and those establishments which have failed to do
so in time now hasten to follow the example set by the
successful establishments. On the other hand, those banks
which have been able not only to survive the panic, but
also to extend assistance to others, come out of the panic
with renewed spirit of enterprise. Moreover, during a
panic they are able, at relatively small cost and with the
prospects of more than average profits, to satisfy their
ambition for expansion by making suitable investments.
The result is liquidation or absorption of the concern
seeking assistance, at all events, however, permanent de
pendence upon the assisting bank. According to the
memorial of the Centralverband des Deutschen Bank- und
Bankiergewerbes, during 1901-2, i. e., during and after the
637
National
Monetary
Commission
panic, no fewer than 41 branches were established by
banks, mostly in place of private banking firms that had
been absorbed. During the same brief period 116 bank
ing firms had gone out of business. Moreover, quite an
array of larger banks might be cited which had been able
to preserve their independence during the boom period,
but which by adverse circumstances were forced to seek
the aid of one of the great Berlin banks and to resign
part of their former independence according to the looser
on closer relationships established, being thus made to pay
a heavy tribute to the crisis.4
5
In 1903 the “ permanent participations ” of the Deutsche
Bank amounted, in round figures, to 57,000,000 marks
(as against 50,000,000 in 1899), those of the DiscontoGesellschaft to 58,000,000 marks (as against 51,000,000
marks in 1899).
Confidence plays a notably large part in banking, and
after every crisis general confidence naturally turns, above
all, to those institutions which have displayed energy,
insight, and power in going to the rescue of other institu
tions or Tn intervening energetically on the stock exchange.
On the other hand, there is a loss of confidence, often thor
oughly unjustified, in other institutions— that is to say,
in the smaller banks and private bankers. In other cases
the safety of the securities left on deposit with those insti
tutions may be brought into question, particularly if
events like those which took place in Berlin during the
fall of 1891 are of a nature to disturb, even only tempora
rily and in isolated instances, public confidence in the
safety of the institutions.
The
G e r m a n
G r e a t
B a n k s
Owing to such causes, the concentration movement re
ceived a great impetus from the prompt and effective
intervention of the large banks on the occasion of the col
lapse in 1901 of the Pommersche Hypotheken Bank (Pomer
anian Mortgage Bank), the Preussische Hypothekenaktienbank (Prussian Mortgage Bank, Incorporated), and the
Deutsche Grundschuldbank (German Real Estate Mortgage
Bank). A similar effect was produced by the notably
energetic intervention of the Deutsche Bank, which an
nounced the opening of its own branch in Leipzig on the
very day, June 25, 1901, when the Leipziger Bank sus
pended payments.
2.
THE FOUNDING OF THE UNITED STATES STEEL CORPORATION, FEBRUARY
23, 1901.
During those years (from 1901 onward), and again in
1904, the record year in the rapidity of the concentration
movement, other important events exerted a profound
psychologic influence. It is no exaggeration to say that
few events during the second epoch (1870-1905) occupied
the thoughts and stirred the feelings of the widest circles
so strongly as the founding of the United States Steel Cor
poration on February 23, 1901, with the enormous capital
of 1,100 million dollars.
The Germans had either overlooked or ignored the fact
that this event simply marked the culminating point, pro
visional at that, in a concentration movement which had
begun in the United States with great energy as early as
1881 in many lines of industry, mainly in the form of
trusts. The “ law of the large numbers” has rarely pro
duced so great an effect as in this case. Not until this
639
t
N at i on a l
M on e t a r y
Commission
culminating event took place were Germans of all classes,
far beyond banking circles and the industrial circles
directly concerned, made aware that Germany would have
to prepare for a struggle destined to grow more and more
severe, a struggle which threatened to be defensive rather
than offensive and in which Germany’s chances were not
likely to be improved by her far inferior capital resources.
In the face of this situation it seemed urgently necessary
to accelerate the movement of concentration. This neces
sity became the more apparent in view of the peculiar
form of American industrial combinations, the trusts,
which involves complete control of the associated enter
prises and of their business management, permitting a
reduction in the cost of production, an effect which the
German cartels had almost completely failed to attain
owing, for one thing, to the autonomy of the enterprises
included in the cartels.
3.
THE FOUNDING OF THE STAHLWERKVERBAND (STEEL WORKS’ UNION) IN
DUSSELDORF, MARCH I, 1904.
Such a reinforcement of the concentration movement
seemed demanded both in the field of industry, represent
ing the most advanced and exposed part of the battlefield,
as in the field of German banking, the auxiliary of industry.
Thus under the fresh impression of the event that had oc
curred in the United States, the long-continued and labo
rious efforts to establish the Steel Works’ Union in Dusseldorf were, on March i, 1904, brought to a successful issue
and hailed far and wide as an auspicious result. This was
followed, on January 1, 1905, by the founding of the Upper
Silesian Steel Works’ Union (Oberschlesischer Stahlwerkverband).4 All these developments in the United States
6
640
1 ..
1
The
G e r m a n
G r e a t
B a n k s
and in Germany in their turn gave a new impetus to the
movement of concentration in German banking. This
movement proceeded by leaps and bounds during those
years, especially in 1904, to a large extent at the expense
of the smaller banks.
C
h a p t e r
III.
S E C T IO N
I.
M
e t h o d s
a n d
OUTW ARD
A.
T
h e
F
o r m s
CO URSE
OF
o f
C
o n c e n t r a t i o n
.
DEVELOPM ENT.
S everal G reat B an k s.
The outward development of the Berlin great banks,4
7
of which as many as ten were usually enumerated even as
late as 1903, is represented in tabular form at the end of
this book in Appendix VII. From that tabular state
ment the following data may be gathered as regards the
present number of the great banks:
The 54,000,000 marks of capital of the Mitteldeutsche
Kreditbank has been considerably surpassed by that of
several provincial banks. Thus the Allgemeine Deutsche
Kreditanstalt has a capital of 90,000,000 marks; the
Rheinisch-Westfalische Disconto-Gesellschaft, 80,000,000
marks; the Rheinische Kreditbank, 75,000,000 marks;
the Bergisch-Markische Bank, 75,000,000 marks; the
Banner Bankverein, 60,000,000 marks; the Essener Kre
ditanstalt, 60,000,000 marks. The capital of the Commerz- und Disconto-Bank (85,000,000 marks) and of the
Nationalbank fur Deutschland (80,000,000 marks) was
also surpassed by that of the Allgemeine Deutsche Kredit
anstalt and was equaled in 1908 by that of the RheinischWestfalische Disconto-Gesellschaft, and even surpassed in
1909, when it reached 95,000,000 marks. Thus beginning
9 0 3 1 1 — 11
42
641
with January i, 1905, and ranging them solely by the
amount of the capital, the term great bank being assumed,
as usual, to imply a minimum capital of 100,000,000
marks, only the following six banks can be grouped under
that term:
1. Deutsche B a n k .........................................................................
Capital (marks).
200,000,000
2. Dresdner B a n k .........................................................................
180,000,000
3. Disconto-Gesellschaft............................................................... 170,000,000
4. Bank fur Handel und Industrie.............................................
154, 000, 000
5. A. Schaaffhausen’scher B an kverein ......................................
145,000,000
6. Berliner H andelsgesellschaft..................................................
n o , 000, 000
But if we place the limit at 80,000,000 of capital, we
shall now have to include in the list of great banks also the
Rheinisch-Westfalische Disconto-Gesellschaft (80,000,000,
since 1909, 95,000,000 marks), the Allgemeine Deutsche
Kreditanstalt (90,000,000 marks), the Commerz- und
Disconto-Bank (85,000,000 marks), and the Nationalbank
fur Deutschland (80,000,000 marks).
With 80,000,000 as the limit, the term “ Berlin great
banks” would include not only the six above enumerated,
which have their home office or at any rate their financial
center of gravity in Berlin, but also the Commerz- und
DiscontO-Bank and the Nationalbank fur Deutschland, so
that the total number would be eight.
Of all these banks the Berliner Handelsgesellschaft only
has strictly adhered to the principle of absolute centrali
zation; it has neither branches, nor commandites, nor
deposit offices, nor communities of interest.4
8
B. T h e A g g r e g a t e C a p it a l P o w e r R e p r e s e n t e d b y t h e G r e a t B a n k
G ro u ps.
At the present time the five largest Berlin banks,
together with their domestic communities of interest either
through the ownership of stock or through contract, and
642
The
G e r m a n
G r e a t
B a n k s
the domestic communities of interest of the latter (count
ing only capital and surplus funds, but not deposits), form
the following groups, whose capital power is given as per
December 31,1908:
I. The group of the Deutsche Bank.— Including:4
9
Capital.
M a r k s.
The Deutsche Bank itself........................................ 200, 000, 000 5
0
Also the following:
1. Bergisch-Markische Bank in Elberfeld........
75,000,000
2. Schlesischer Bankvereln in Breslau.............
30,000,000
22,500,000
3. Hannoversche Bank in Hannover...............
Together with:
(0) Osnabriicker Bank in Osnabriick. . . 14,500,000
(6) Hildesheimer Bank in Hildesheim . .
8,000,000
4. Duisburg-Ruhrorter Bank in Duisburg.......
12 , O O O
O ,O O
5. Essener Kreditanstalt in Essen a. d. R .......
60,O O O
O ,O O
Together with the Westfalischer Bankverein
in Munster..............................................
8,000,000
6. Siegener Bank fur Handel und Gewerbe in
Siegen....................................................
4,000,000
7. Sachsische Bank in Dresden.......................
30,O O O
O ,O O
8. Essener Bankverein in Essen a. d. R ..........
15,O O O
O ,O O
9. Oldenburgische Spar- und Leihbank in Oldenburg.................................................
4,000,000
10 Privatbank zu Gotha..................................
'.
7,900,000
11. Mecklenburger Hypotheken- u. Wechselbank in Schwerin....................................
9,000,000
Together with the Mecklenburgische Sparbank......................................
3,000,000
ia. Rheinische Kreditbank in Mannheim..........
75,000,800
With the
Surplus.
M a r k s.
101,831,917
23.014,53s
II,O O O
O ,O O
4.100,000
3 .775.000
2 , 200 , O O
O
247.152
18,176,O O
O
1,621,O O
O
970,O O
O
7, 500, 000
2 , 200 , O O
O
I , 900,O O
O
1.615.735
5.875.135
500,O O
O
10, 529, 176
Mannheimer Bank in Mannheim..........
And the
I,O O O
O ,O O
100,O O
O
Suddeutsche Bank in Mannheim..........
10, OOO,OOO
801,647
588,900,800
197,9 5 7 .295
Total.......................
197.9 57.295
Total capital and surplus combined. . 786,858,095
Adding the “ friendly (befreundete) banks” (see Append.
VII, p. 993), the share capital of the group is increased
by 212,500,000 marks, the surplus funds by 46,038,260
643
mm is s i on
marks, making a total of 258,538,260 marks, so that the
total power of the group rises to 1,045,396,355 marks.
II.
The group of the Disconto-Gesellschaft.— Including:5
1
Capital.
M arks.
The Disconto-Gesellschaft itself.................................
Also:
1. Norddeutsche Bank in Hamburg....................
2. Allgemeine Deutsche Kreditans talt in Leipzig. .
Together with:
(0) A. Busse & Co. in Berlin...................
(b) Vogtlandische Bank in Plauen i. V . . .
(c) Oberlausitzer Bank in Zittau.............
(d ) Vereinsbank in Zwickau...................
3. Barmer Bankverein in Barmen......................
4. Siiddeutsche Disconto-Gesellschaft. Mannheim.
Subsidiary institutions (T o c h te r -G e s e lls c h a ft e n ):
5. Bayerische Disconto- und Wechselbank in
Nuremberg.................................................
6. Bank fur Thiiringen vorm. B. M. Strupp, stock
company in Meiningen, capital 10,000,000
marks, of which paid in ..............................
Total......................................................
Surplus.
M arks.
170,000,000
5 7 .592.611
50, O O O
O ,O O
90,O O O
O ,O O
i i . 3 5 5 .ooo
3 7 . 850, 751
2,O O O
O ,O O
5,500,O O
O
2 , 700 , O O
O
4,500,000
59,836,200
31,250,O O
O
129,070
3,606,689
735,000
2,318,800
T O , 825,000
2,219,716
12 , O O O
O ,O O
179.474
10,O O O
O ,O O
149,Ol8
437 ,786,200
126,961,129
126,961,129
564,747.329
III. The group of the Dresdner Bank.— Including:5
2
n
Capital.
M arks.
The Dresdner Bank itself..........................................
Also:
1. Markische Bank in Bochum...........................
2. Rheinische Bank in Essen..............................
3. Oberschlesische Bank in Beuthen...................
4. Wiirttembergische Landesbank in Stuttgart. .
5. Oldenburgische Landesbank in Oldenburg,
3,000,000 marks, paid in 40 per c e n t = .......
6. Mecklenburgische Bank in Schwerin, 5,000,000
marks, paid in 40 per cent = ......................
Together with the following:
(a) Rostocker Gewerbebank, A.-G. in
Rostock............................................
(b ) Neuvorpommersche Spar- und Kreditbank in Stralsund......................
644
Surplus.
M arks.
180,000,000
51,500,000
9 ,000,000
2,500,O O
O
8,000,000
1,060,000
1,350,000
445,000
273.605
I , 200,O O
O
677.313
2,O O O
O ,O O
388,662
980,000
154.835
I,O O O
O ,O O
21,003
21,O O O
O ,O O
The
G e r m a n
G r e a t
B a n k s
Surplus.
Capital.
Continued.
7. Landgraflich Hessische konzessionierte Landesbank in Hornburg v. d. H ...........................
8. Schwarzburgische Landesbank zu Sondershausen, 2,500,000 marks nominal, paid in . .
M arks.
M a rk s .
1.000.
000
225,006
1.000.
000
166,995
227,680,000
56,262,419
56,262,419
283,942,419
IV.
The group of the A. Schaaffhausen'scher Bankverein.— Including:5
3
Capital.
M arks.
The A.
Also:
1.
2.
3.
4.
Surplus.
M arks.
Schaaffhausen’scher Bankverein itself............
i 45,000,000
34,iS 7 . 125
Pfalzische Bank in Ludwigshafen...................
Mittelrheinische Bank in Koblenz..................
With the Miilheimer Bank in Miilheim a. d. Ruhr
Subsidiary bank: Westfalisch-Lippische Vereinsbank A.-G. in Bielefeld........................
50,000,000
20,000,000
9,000,000
8,849,813
3, 171,988
929.075
7,000,000
430,OOO
231,000,000
4 7 . 5 3 8 , ooi
Total....................................................
278,538 . 001
V. The group of the Darmstadter Bank.— Including:5
4
Capital.
M arks
The Darmstadter Bank itself.................................
Also:
1.
2.
3.
4.
5.
Surplus.
M arks.
154,O O O
O ,O O
Breslauer Discontobank in Breslau.................
25.000.
000
Ostbank fiir Handel und Gewerbe in Posen®6
.
18.000.
000
Nordwestdeutsche Bank in Bremen................
33.000. 000
Bayerische Bank fur Handel und Industrie. . . (M) i 7 . 75°, 000
Subsidiary bank: Wiirttembergische Bankanstalt vormals Pflaum & Co. ^ ......................
8, 000,000
255.75°.000
41,687,490
2 97 . 4 3 7 . 49 °
645
30,250,O O
O
1,686,098
2,914, O O
O
3, 500, O O
O
887,392
2,450,O O
O
41,687,490
N at i on a l
M o n e t ar y
Commi ssi on
Combining capital and surplus (with the reservation
explained above) and adding those of the “ friendly
(befreundete) banks” of Group I, these five groups thus
comprise a capital power o f5 2,470,061,594 marks, or
8
not far short of 2,500,000,000 marks, while the capital
alone amounted to 1,954,617,000 marks and the surplus
funds to 516,444,594 marks.
Evidently these sums would be much higher if we were
to add the deposits used in the business of these banks,
but this seems to me improper.5 The growth of these
9
affiliations is shown in Appendix VII.
It is interesting to note the shiftings that have occurred
and still occur, both within the banks of a group and as
regards their connection with the various groups. Thus the
Bergisch-Markische Bank in Elberfeld, originally founded
by the Provinzial-Discontogesellschaft (see note 43, p. 862)
belongs not to the group of the Disconto-Gesellschaft
but to that of the Deutsche Bank. Again the Ostbank
fur Handel und Gewerbe, belonging to the group of the
Darmstadter Bank, has absorbed the Ostdeutsche Bank
Aktien-Gesellschaft vormals J. Simon Wittwe in Konigsberg in Prussia (province), which used to belong to the
group of the A. Schaaffhausen’scher Bankverein. Thus
again, within the group of the Deutsche Bank, the Essener
Kreditanstalt in 1909 absorbed the Duisburg-Ruhrorter
Bank and in 1906 the Westfalischer Bankverein, with
which it had maintained a community of interest since
1904. Finally the Emder Bank, which belongs to the
group of the Deutsche Bank and has a community of
interest with the latter, was absorbed in 1907 by the
Osnabriicker Bank, which has a community of interest
with the Hannoversche Bank (Deutsche Bank group).
646
The
G e r m a n
G r e a t
B a n k s
Judging from the past course of concentration, partic
ularly as affecting the provincial banks in recent years,
it would seem that the end of concentration in German
banking, at least outside of Berlin, is not yet in sight.
SECTION 2. GENERAE TENDENCIES AND FORMS OF
CONCENTRATION.
I. S c h e m e
of
G en er al D evelopm en t.
The concentration in German banking was on the one
hand a local concentration of banks in Berlin; on the
other hand a concentration of capital and power.
The latter was accomplished either—
(A) In a direct way, to wit:
(1) By increase of capital.
(2) By affiliation of enterprises (banks or private
banking establishments).
(3) By the creation of permanent communities of
interest, to wit:
(a) By the founding of subsidiary or trust com
panies.
(b) By the acquisition of shares.
(c) By agreement.
(d) By exchange of shares.
Or it was accomplished—
(B) In an indirect w ay,6 by decentralization of
0
operation, to wit:
(1) By the founding of commandites (silent partner
ships) .
(2) By the founding of branches.
(3) By the founding of agencies.
(4) By the founding of deposit offices.
6 47
I
N at i on a l
Monetary
Commi ssi on
In this classification the term “ local (‘ ortliche’) con
centration” is coextensive with the term “ local (‘ lokale’)
concentration” used by Ad. Weber,6 and the term
1
concentration of capital is coextensive with Ad. Weber’s
term concentration of property (V ermogenskonzentration)— i. e. absorption of previously independent institu
tions or increase of capital. Under the term “ concentra
tion of capital and power” I have comprehended both
Ad. Weber’s4 concentration of property” and his “ admin
4
istrative concentration ” (founding of friendly institutions,
extension of the network of branches, in certain cases the
undertaking of liquidations and reorganizations).
I used this expression “ concentration of capital and
power” because it is hardly accurate to speak of a “ con
centration of capital” when the actual operation consists
in a decentralization of operation through the founding of
commandites, branches, agencies, and deposit offices, while
this operation certainly involves a concentration of power.
To my mind Weber’s term, “ administrative concentra
tion,” is liable to the same objection, when, as in the case
of an extension of the network of branches, the actual
operation involves, not administrative concentration, but
the very contrary, viz, decentralization of functions.
On the other hand, I purposely excluded from my
scheme of concentration the operation called by Ad. Weber
“ concentration of interests,” to wit, “ combinations of
banks for the common pursuit of definite single interests;
for example, the Prussian syndicate, the Rothschlid
group.” In so doing I was led by the consideration
pointed out in the footnote 2, on page 233 of the second
edition, that the formation of syndicates or groups, while
648
The
G e r m a n
G r e a t
B a n k s
constituting one of the factors which indirectly promote
concentration, is not prompted by any conscious aim to
bring about concentration. On the contrary, this forma
tion of permanent syndicates or groups is due to entirely
different motives and pursues quite different aims. It is
founded on the principle of the distribution of risk, and
aims at a greater safeguarding of the underwriting or
issuing bank, on the one hand, and, on the other, at facil
itating the issue operation, etc.
However, I am in complete accord with Weber as re
gards the bearing of his classification, and I hope that the
present work will prove it. If such is the case, the ques
tion of the true scheme is immaterial. Both he and I are
trying to lay bare the motives, the internal or external
factors that lead to concentration. He tries to show
where concentration in banking leads to concentration in
industry, and vice versa. To this I had not devoted suffi
cient attention in earlier editions of this book, while in the
present edition I have laid special stress on it (see Part V,
p. 703, et seq.).
In connection with this subject the following remarks
may not be inappropriate.
On surveying the process of development, especially in
recent time, I can not agree with Weber’s statement that
the great banks show an unmistakable course toward
specialization, inasmuch as the A. Schaaffhausen’scher
Bankverein devotes special attention to mining, the
Dresdner Bank to the textile and chemical industries,
the Deutsche Bank to the electrical industry and oversea
trade, the Discontogesellschaft to transportation— the
Darmstadter Bank not being mentioned. So far as such
649
N at i o n a l
M on e t a r y
Commi ssi on
specialization can be observed, it may at least in part be
explained historically. Thus in the case of the A. Schaaffhausen’scher Bankverein, the special attention to mining
in the Rhenish-Westphalian district may be explained by
its geographic location and by its continuation of the old
connections of the A. Schaaffhausen banking house from
which it sprang; in the case of the Dresdner Bank by its
special connections with the industry of Saxony. To
some extent this specialization was merely the expression
of a definite program, whereby, for example, the Deutsche
Bank was led to devote special energy to the development
of the deposit business, of oversea business relations, and
the vigorous promotion of the policy of industrial exports
(see above, Ch. I ll, sec. 6, under i).
Such specialization as did exist has become less and less
pronounced, for the reason that the scope of banking ac
tivity has constantly widened, each bank being led, even
if only by competitive reasons, to extend its activity to
departments in which previously some other bank had
been predominant. Thus, for example, it would be de
cidedly inexact to say nowadays that the Deutsche Bank
makes a specialty of the over-sea or the electric business,
or even that it devotes its main attention to them, the
Disconto-Gesellschaft and the Berliner Handelsgesellschaft being its close rivals, the former in the over-sea busi
ness, the latter in the electric business.
Similarly, as shown by Jeidels and in the present work, the
mining industry has long ceased to be the special preserve
of the A. Schaaffhausen’scher Bankverein,6 which, in
2
fact, is no longer completely dominant in its own home
district. In the matter of banking relations to the mining
650
11 ..
T
The
G e r m a n
G r e a t
B a n k s
industry it has been either equaled or surpassed by a num
ber of other banks, such as the Dresdner Bank, the Ber
liner Handelsgesellschaft, the Disconto-Gesellschaft, and
the Deutsche Bank. Of the Dresdner Bank, too, it can no
longer be said that the textile and chemical industries are
its special province.6
3
In the field of transportation all the great banks are
to-day as active as the Disconto-Gesellschaft, while in the
special field of local and street railways the Dresdner Bank,
the Berliner Handelsgesellschaft, and the Darmstadter
Bank are about equally represented.
Thus in speaking of the business activity of the great
banks we can no longer speak of specialties, but only of
more or less pronounced tendencies.
These criticisms, however, are directed only against one
of the arguments underlying Weber’s proposal. The pro
posal itself, as I have tried to show in this third edition, is
none the less well founded.
Rud. Eberstadt6 proposes a distinction between a
4
“ centralization of capital ” and a “ centralization of organi
zation,” according as the capital or the organization is con
centrated at a single point. I have not been able to con
vince myself of the propriety of this distinction. At any
rate it does not bring out any factor of decisive impor
tance in German development, and hence fails to render
the subject clearer, since the two kinds of concentration
are as apt to occur in combination as separately.
II. T h e T w o P e r io d s in t h e H i s t o r y o r C o n c e n t r a t io n .
Two periods may be distinguished in the process of con
centration.
In the first period (1870-1897) the tendency toward
concentration made itself felt along those lines which had
651
N at i on a l
M o n et a r y
Commi s s i on
led to concentration in industry and commerce— that is to
say, first of all, through the system which, after the prece
dent of industrial combinations, we have called the
“ mixed” method of operation— the combination of the
current business (including the deposit business) with the
founding, transformation, and issue business; next by
way of increases of capital and through the various forms
of decentralization of operation, such as commandites,
branches, agencies, and deposit offices. Of the great
banks the only ones that remained completely centralized
during that period were the Disconto-Gesellschaft and* the
Berliner Handelsgesellschaft, while the Nationalbank fur
Deutschland also remained almost completely outside the
process of decentralization.
During the second period (1897 to date) the tendency
toward concentration manifested itself to an ever-increas
ing degree, not so much in the decentralization of opera
tions as in the extension of community-of-interest relations, whose main object is the strengthening of industrial
connections, together with the broadening of the basis of
issues aficl the increase in marketing power.
During this period the Berliner Handelsgesellschaft was
the only one that remained completely centralized.
In both periods the choice of the forms of concentration
was dominated by economic considerations which may be
formulated as follows:
Among the various forms available the preference is
always given to that which is deemed most likely to enable
the nearest and most important aim to be reached not
only most fully, but also most simply and quickly, and
with the least possible cost and risk.
652
n ..
The
G e r m a n
G r e a t
B a n k s
SECTION 3. THE SEVERAE W AYS AND FORMS OF CONCEN
TRATION, THEIR ADVANTAGES AND DISADVANTAGES.
Some of the advantages and disadvantages of concen
tration become manifest from the discussion of the various
ways and forms which the process of concentration
assumed in the German banking business. This discussion
may most conveniently follow the scheme given above
(Sec. 2, under I, pp. 647 et seq.) for the general direction
of concentration.
I. L o cai , C o n c e n t r a t io n .
After what we have said of the economic development
of Germany in general, and of Berlin in particular, it will
readily be understood that the capital city became a
special point of attraction for banks and bank capital.0
5
The drift toward the capital, in which most of the federal
offices of the Empire are located, naturally became most
pronounced in the banking business, because the city of
Berlin, with the exceedingly rapid growth of its popula
tion, which meant a vast increase in the number of wageearners and consumers, became not only the central point
of wholesale demand and wholesale consumption, of finan
cial, tax-paying, and purchasing power, and of numerous
industrial and mercantile enterprises, but also the most
powerful focus of attraction for available funds. It be
came the seat of a number of the most important gov
ernment offices and establishments closely connected with
our system of payments and credit, in part also with
the issue business. Among these may be mentioned the
Reichsbank, established in 1875-76, the Seehandlung, the
increasingly influential Berlin Bourse, the Bank des Ber
liner Kassenvereins, founded as early as 1850, etc.
653
I
N at i on a l
Monetary
Commi ssi on
Accordingly, we find that very soon after the establish
ment of the German Empire the German banks established
during the first epoch, with main offices outside of Berlin,
hastened, one after the other, to open offices in Berlin.6
8
The following are worthy of note:
1871. The Bank fur Handel und Industrie (Darmstadt).
1873. The Mitteldeutsche Kreditbank (Meiningen, later
Frankfort-on-the-Main).
1881. The Dresdner Bank (Dresden).
1891. The A. Schaaffhausen’scher Bankverein (Cologne).
1898. The Commerz- und Disconto-Bank (Hamburg).6
7
From the moment these branches were established, the
business center of these banks tended more and more to
be shifted to Berlin,6 so that they have for many years
8
been classed as Berlin banks and reckoned among the
Berlin great banks. In the case of the A. Schaaffhausen’scher Bankverein, it is to be noted, this displacement was
effected only in a qualified sense.
This process, of which the recent acquisition of the
banking firm Hardy & Co. G. m. b. H. in Berlin (in 1909)
by the "Rheinisch-Westfalische Disconto-Gesellschaft in
Aachen (Aix-la-Chapelle) formed an interesting continu
ation, must not be overlooked. It tends to disprove the
alleged contrast of “ the general tendency of develop
ment ” in England, based on the supposition that the expan
sion of banking in England proceeded from the provinces
toward London, while in Germany it proceeded from the
capital toward the provinces.6 Furthermore, it must
9
not be forgotten that the establishment of branches in
Berlin must have appeared to the provincial banks in
654
The
G e r m a n
G r e a t
B a n k s
general, up to 1897, as an enterprise of questionable
promise, in view of the tremendously rapid rise of the
financial power of the Berlin banks. After 1897, of course,
the amalgamated banks (Konzernbanken) had no longer
any motive to establish branches in Berlin. The estab
lishment of a community of interests between the Deutsche
Bank, the Bergisch-Markische Bank, and the Schlesischer
Bankverein in 1897 is expressly stated in the 1897 busi
ness report of the Deutsche Bank to have been prompted
by the following considerations:
“ The continued concentration of the banking business
in Berlin, which has already led a number of provincial insti
tutions to establish branches in Berlin, seemed, to make it
necessary that our connections with the provinces be
strengthened.”
Here we see that the expansion toward the provinces is
positively described as a consequence of the movement,
already in progress, of the provincial banks toward Berlin.
For that matter, even as regards England, we must
remember that the movement of the provincial banks
toward the capital,7 which I agree with Eberstadt in re
0
garding as a “ natural ” movement, did not begin until late,
having been artificially kept back by legislation. Only
since 1833 have provincial banks been allowed to establish
themselves in London, and within a radius of 65 English
miles, and even then only on condition that they were to
issue no bank notes.7 Later on the situation was re
1
versed, owing to certain advantages which were granted
only to banks domiciled in London. In particular, the
provincial banks, in order to secure for themselves and
655
N at i o n a l
M on et a ry
Commission
their customers the advantages of participation in the
“ country clearing,” had to appoint as clearing agent a
banking firm domiciled in London and belonging to the
clearing house, and to make a large deposit with that firm.
Finally, beginning with 1896, a tendency of the London
banks to spread to the provinces has been observed.7
2
II. T h e C o n c e n t r a t io n
oe
C a p it a l
an d
P ow er.
A. IN A DIRECT W AY.
i . By means of increase of capital.— In the preceding pages
we have had repeated occasion to speak of that kind of
concentration of capital which finds its expression in in
creases of capital and which is going on in other countries
as well as in Germany.7 We have pointed out in par
3
ticular the limits within ♦which it is confined, both for
economic and of business reasons.7 Increases of capital
4
were prompted7 both by external processes, such as the
5
founding of branches, the absorption of banks, the estab
lishment of communities of interest through exchange of
stock, etc., and by internal reasons. Foremost among the
latter is the necessity of obtaining the means of strength
ening and extending the current business and to establish
the equilibrium of the balance sheet, the liquidity. Ac
cording to sound principles, the increase of the bank’s own
capital must take place also in those cases in which the
volume of business has largely grown through the increase
of outsiders’ funds entrusted to the bank.
It may be said that the undertaking or omission of such
increases of capital at the right moment and in sufficient
amounts furnishes a test of the perception, prudence, and
656
11
..
The
G e r m a. n
G r e a t
B a n k s
foresight of the bank’s administration. However, the
movers for an increase of capital must often be prepared
for disappointment at the bourse, which, as a rule, is not
interested in an increase of capital, unless there is left a
rather wide margin between the rate of issue of the new
and the market rate of the old shares, which opens the
field for speculative operations.
It is interesting to study the increases of capital of the
great banks.
The capital of the four oldest banks increased as follows:
[Amounts expressed in millions of marks.]
Capital.
Year
of foun
dation. At foun
dation.
Darmstadter Bank 76
.........................................
Berliner Handelsgesellschaft7 ...........................
7
Disconto-Gesellschaft7 .....................................
8
A. Schaaffhausen’scher Bankverein 7 .................
9
Total.....................................................
i 853
1856
1851
1848
1870.
End of
1908.
17. 1
16.8
30.O
15-6
25.8
16.8
30 .O
no
170
1 5 -6
145
7 9 -5
88. 2
579
154
While the capital of the Mitteldeutsche Kreditbank,
also one of the oldest banks (founded in 1856 with a capi
tal of 24,000,000 marks; see above, pages 77 et seq.),
had by the end of 1905 risen to 54,000,000 marks, hav
ing thus little more than doubled,8 the four banks above
0
enumerated, during the twenty-one years from 1848 to
1869, increased their capital only by 8,700,000 marks;
on the other hand in the thirty-eight years from 1870 to
the end of 1908 their capital rose from 88,200,000 to
579,000,000 marks, having thus multiplied more than
sixfold 8
1
9 0 3 11”— 1 1 ------ 43
657
N ational
M o n et a r y
Commission
The capital of the two banks founded in the beginning
of the second epoch (1870 and 1872) increased as follows:
[Amounts expressed in millions of marks.]
Capital.
Year of
foun
dation. At foun End of
dation.
1908.
1870
1872
200
l8o
24. 6
Total....................................................................
9•6
380
iS-o
Thus in thirty-nine and thirty-seven years, respec
tively, it multiplied more than fifteenfold.
The capital of the other great banks increased as follows:
[Amounts expressed in millions of marks.]
Capital.
Year of
foun
dation. At foun End of
dation.
1908.
1870
1881
Total....................................................................
\\
IS
20
85
35
165
80
Thus the increase was more than fourfold.
2. Through absorption of banking firms and fusion of
banks.— We have already discussed the main reasons
that led to the concentration of capital through the ab
sorption of private banking firms.
Up to the end of 1908 the great banks had directly
absorbed only private banking firms, while the number
of banks combined with them through fusion was only 11.
On the other hand, the 5 bank groups (Konzernbanken),
according to Appendix VIII at the end of this book, had
658
The
G e r m a n
G r e a t
B a n k s
up to the end of 1908 absorbed 89 private banking firms
and 43 banks, as follows:
P r iv a t e
b a n k in g
firm s.
D a r m s ta d te r B a n k g r o u p .....................................................................................
17
D e u ts c h e B a n k g r o u p .............................................................................................
3i
D is c o n to -G e s e lls c h a ft g r o u p ................................................................................
23
D re sd n e r B a n k g r o u p .............................................................................................
A . S c h a a ffh a u s e n ’ sch e r B a n k v e r e in g r o u p ..................................................
7
II
89
B an ks.
7
21
8
I
6
43
Thus the great banks and bank groups together had,
up to December 31, 1908, absorbed 129 private banking
firms and 54 banks. Including the firms absorbed by
the banks before their fusion with the great banks, or
by subsidiary banks of the latter, the total number ab
sorbed by the great banks and their “ concerns” up to
December 31, 1908, included 164 private banking firms
and 60 banks.
The provincial banks which remained independent
show a similar record.8
6
Such absorptions were often prompted, outwardly, by
the desire of the banks to gain a firm footing, a wide
circle of customers and business relations for contem
plated branches by the acquisition of flourishing private
banking firms at the localities in question. Those
(domestic) branches that were established without such
absorption were in fact greatly in the minority, and, as
might be expected, had as a rule to pass through a much
longer time of waiting until they were established on a
fairly paying basis, with appreciable influence in their
district. Generally, also, their dependence on the home
659
continued a good deal longer. The number of
branches created by means of such absorption or without
it varies greatly in the case of the different banks. In the
case of the Dresdner Bank the great majority of its 27
branches originated in such absorptions; in the case of
the Disconto-Gesellschaft, which up to 1908 had only 3
branches,8 2 of them, Bremen and Frankfort-on-the-Main,
7
originated in that way, the latter branch having assumed
at least a large part of the business connections of the
firm of M. A. von Rothschild and Sons; in the case of the
Deutsche Bank, out of 8 branches only 3 were the result
of absorption, viz, those of Leipzig, Dresden, and Frank fort-on-the-Main;8 finally, in the case of the Darmstad8
ter Bank, out of 11 branches only 2, those of Hanover
and Halle-on-the-Saale, were acquired in that way.
A similar condition prevails among the banks belonging
to the groups. Of these the Pfalzische Bank, belonging
to the Dresdner Bank-Schaaffhausen community of inter
est, established nearly all, if not all of its 16 branches in
this way. The same is true in the main also of the great
provincial banks, such as the Bergisch-Markische Bank,
the Magdeburger Bankverein, the Magdeburger Prvvatbank,
the Bayerische Vereinsbank, and the Bayerische Handelsbank.
The absorption of banks by way of fusion also took
place for the most part with a view to the creation of a
basis for the establishment of branches. Aside from this
aim, however, fusion, as we have seen, never played an
important part, either in the case of the great banks or in
that of the so-called “ concern ” banks,8 which, according
9
to Table VII, absorbed during the second epoch only a
660
L
The
G e r m a n
G r e a t
B a n k s
total of 20 banks. Experience teaches that at each fusion
a number of connections, some of them quite valuable, are
lost, being taken away by competitors, etc. Hence fusion
is not attempted unless prompted by special business
reasons, particularly the following:
(a) To get permanently rid of inconvenient competition.
Cases of this kind are exceedingly rare. In the case of the
provincial banks the fusion of the Dresdner Bankverein,
with a capital of 21,000,000 marks, with the Sachsische
Discont-Bank (capital, 3,000,000 marks), effected in 1905,
may be cited under this head.
(b) To secure an extension of business connections.
This refers to those cases where the institution to be fused
with the expanding bank is pursuing about the same busi
ness policy in the same or another district (province, fed
eral state), having, for example, for many years devoted
itself to the commission, current account, or bill business,
like the expanding bank. (Example: The fusion of the
Magdeburger Privatbank at Magdeburg with the Dresdner
Bankverein in Dresden, in 1909.)
(c) When a bank is unable either from the very start
or not to the proposed extent,9 or when it is no longer
0
able to accomplish its purpose,9 its fusion with another
1
bank may sometimes be accomplished under specially
favorable conditions for the latter. In such cases the
fusion Is as a rule a forced one so far as the less successful
bank is concerned.9 One of the specially favorable
2
conditions in such cases may be this, that the intrinsic
value (liquidation value) of the bank to be absorbed by
fusion may greatly exceed the purchase price of its stock,
so that the absorbing bank thus acquires silent reserves,
661
i
National
Monetary
Commission
provided, of course, that the status assumed to exist at
the moment of fusion is not altered in the course of liqui
dation through diminished returns or losses.9
3
Such a forced fusion may also occur when a bank be
longing to a bank group is induced, through pressure
exerted by the leading bank, to fuse with another bank of
the same group. Such a case occurred in 1905, when the
Ostfriesische Bank, having suffered considerable loss
through a bankruptcy, was induced to fuse with the
Osnabriicker Bank.
Motives of a different nature, but yet belonging to the
domain of group policy, led in 1909 to the absorption of
the Duisburg-Ruhrorter Bank by the Essener Kreditanstalt, the latter, together with the Deutsche Bank, as the
leader of the group, having in 1902 acquired a majority of
the stock of the Duisburg-Ruhrorter Bank.
In foreign countries the concentration of banks was ac
complished mainly by way of fusion. Thus in Scotland as
early as 1829-1844 there were no fewer than 16 fusions of
great banks, followed by 4 more during 1857-1864.9
4
In England fusions were the ordinary way by which pro
vincial banks expanded and finally made their entrance
into Eondon. According to the Bankers’ Magazine (Lon
don) , the number of bank fusions in Great Britain was as
follows: 1877-1886, 42; 1887-1898, 124; 1889-1905, 86.
In London alone the number of private banks (excluding
colonial banks) was thereby diminished from 115 m 1885 to
38 in 1905, while the number of joint-stock banks decreased
from 112 in 1889 to 62 in 1905. One bank, now known as
the London City and Midland Bank, founded under another
name in 1836 in Birmingham, in its career of expansion
662
The
G e r m a n
G r e a t
B a n k s
and concentration absorbed not less than some 20 pro
vincial banks and 2 great London banks, while another,
the Lloyd’s Bank, in twenty-one years (1884-1904)
swallowed 35 other banks. In England the huge bank
ing establishments were invariably formed by the absorp
tion of the small or medium-sized banking firms within
their territory, either step by step or, if an opportunity
presented itself, at one fell swoop. The number of bank
ing firms incorporated in the large firms during the recent
decades is exceedingly great; the external organization of
English banking has thereby been completely altered since
1880. The process of fusion continues, and has become
rather more pronounced during recent years.9 In 1909
5
a fusion was effected between two of the most powerful and
oldest London deposit banks, the London and Westmin
ster Bank (Limited) and the London and County Banking
Company (Limited). The former was the oldest deposit
bank in London (founded in 1834); the latter was estab
lished, in 1836, had 222 offices, and over £40,000,000 ster
ling in current and deposit accounts. The united bank
will bear the name London County and Westminster Bank
(Limited), with a capital of £14,000,000 sterling, (£3,500,000 paid up),surplus funds to the amount of £4,250,000 in
round figures, and current and deposit accounts to the
amount of more than £70,000,000, which will put it in the
second place among the deposit banks of Great Britain.
“ The growth of banks solely through the extension of
their own system of branches, without any amalgamation
with existing banks, occurs only where the aim is to open
up entirely new territory not previously reached by bank
ing operations.” 9 In the period 1877-1904 not fewer
8
663
I
N at i on a l
M on et a r y
Commission
than 224 banks were absorbed in England by other banks
which still exist.
In the United States, in which the concentration on the
whole tends to be effected rather by way of communi
ties of interest of great groups of banks, 21 national
banks were in 1901 absorbed by other national banks and
6 by other banks; in 1902, 46 by national banks and 11 by
other banks;9 in 1903-4, altogether, 38 banks. In
7
France, fusions of different banks are of frequent occur
rence in the case of the so-called banques d'affaires, while
they have been rare among the great credit institutions,
which, however, have absorbed many private banking
firms.9
8
3.
Through the creation of permanent communities of in
terest.— Since 1897 the process of concentration in Ger
man banking has been mainly effected in the form of com
munities of interest between great banks and provincial
banks, mostly brought about through an exchange of
stock.
At the end of 1896 there were only two (domestic) communi ties of interest, to wit:
(1881) That of the Wurttembergische Bankanstalt vormals Pflaum&Co. (subsidiary of the Bank fur Handel und
Industrie) with the Wiirttembergische Vereinsbank, this
community being based on agreement.9
9
(1895) That of the Disconto-Gesellschaft with the Norddeutsche Bank, based on ownership of shares.
Between the beginning of 1897 and the end of 1900 as
many as 9 (domestic) communities of interest were en
tered into, so that the number of them had quadrupled by
the end of 1900.
The
G e r m a n
G r e a t
B a n k s
By the end of 1902 the number had risen to 16, an eight
fold increase, compared to 1895; by the end of 1908 it had
risen to 32, and, including the subcommunities of interest
of the banks in the groups (Appendix VIII), to 41, a
twenty-two-fold increase over 1896.
The lion’s share in this increase belongs to the years
1904 and 1905, in which 18 communities of interest,
including those of the banks in the groups {Konzernbanken), were entered into, as follows:
Communities of in
terest formed by
the—
Other
Leading
banks of
bank.
the group
Bank fur Handel und Industrie.........................................
1
Deutsche B a n k ......................................................................
6
Disconto-Gesellschaft...........................................................
2
Dresdner B a n k ......................................................................
6
2
T o ta l...........................................................................
15
3
I
On 'December 31, 1908, the communities of interest, en
tered into both by principal and subsidiary banks within
the groups up to that date, were distributed as follows:
Communities of in
terest formed by
the—
Other
Leading banks of
bank.
the group.
Bank fur Handel und In dustrie..........................................
4 .............
Deutsche B a n k ......................................................................
13
3
Disconto-Gesellschaft...........................................................
3
Dresdner B a n k ......................................................................
5
8
A. Schaaffhausen’scher B an kverein ..................................
2
1
T o ta l............................................................................
665
32
2
9
»
N at i on a l
M on e t a r y
Commi ssi on
Of these communities of interest, not less than 13
belong to the mining districts, Rhineland-Westphaha and
Upper Silesia, distributed as follows:1 0
0
I. In Upper Silesia.— Communities of interest:
Capital.
1. Of the Bank fur Handel und Industrie with the Breslauer DiscontoBank in Breslau (10 branches).......................................................
2. Of the Deutsche Bank with the Schlesischer Bankverein in Breslau (13
branches)......................................................................................
3. Of the Dresdner Bank with the Oberschlesische Bank in Beuthen (2
deposit offices in Konigshiitte).......................................................
M arks.
25.000.
000
30.000.
000
2,500,000
II. In Rhineland-Westphalia.— Communities of interest:
Capital.
1 Of the Deutsche Bank with—
(0) The Bergisch-Markisclie Bank in Elberfeld (19 branches). . . .
(6) The Duisburg-Ruhrorter Bank in Duisburg (4 branches).......
(c) The Essener Kreditanstalt in Essen (13 branches and 4
agencies)..........................................................................
(d ) The Siegener Bank fiir Handel und Gewerbe in Siegen.........
(e) The Essener Bankverein in Essen (3 branches)....................
Total (30 branches and 4 agencies)...................................
2. Of the Disc<Hito Gesellschaft1 1 with the Barmer Bankverein in Bar0
men (17 branches).........................................................................
3. Of the Dresdner Bank with—
(0) The Markische Bank in Bochum (9 branches)......................
(6) The Rheinische Bank in Essen (formerly in Mtilheim-onthe-Rhine) (6 branches)..................................................
M arks.
75,000,000
12,000,000
60,000,000
4,000,000
15.000,000
i 66,000,000
59.836,200
9.000,000
21,000,000
4. Of the A. Schaaffhausen’scher Bankverein 1 2 in Cologne (Rhineland)
8
branches) with.......................................................................... 145.000,000
(0) The Mittelrheinische Bank in Koblenz (2 branches) and its
community of interest:....................................................
20,000,000
The Miilheimer Bank in Miilheim-on-the-Ruhr (2 branches). .
9,000,000
( b) The
Westfalisch-Lippische Vereinsbank in Bielefeld (4
7,000,000
branches).........................................................................
(8
Total (16 branches)......................................................
66
6
a ..
181.000,000
The
German
Gr e at
Banks
Thus in the Rhineland-Westphalia mining district alone
there were in existence on December 31, 1908, beside a
great bank with 8 branches, not fewer than 11 “ con
cern ’ ’ banks with a share capital (without counting
surplus funds and deposits) of 291,836,000 marks, and
in addition 79 branches, 4 agencies, and 1 deposit office of
such banks, the number of the latter being constantly on
the increase. This organization— as yet far from com
pleted— thus represents a considerable part of the outfit
with which the several groups of banks carry on the
competition for the industrial connections which at the
present day constitute their foremost interest.
The creation of permanent communities of interest
may be effected:
(a) Through the founding of subsidiary companies
(Tochtergesellschaften) or trust companies.
(b) Through the acquisition of shares of existing banks;
(c) Through agreement;
(d) , Through exchange of shares.
We will now discuss these various kinds of communities
of interest in detail.
(a) Through the founding of subsidiary companies
(Tochtergesellschaften) or trust companies. The establish
ment of subsidiary banks played a rather prominent
part in the beginning of the second epoch, but is at
present merely of historic interest, inasmuch as all these
subsidiary banks have disappeared. We have in mind
the so-called provincial banks of the early seventies,
to which attention has recently been called by Tischert1 3
0
and especially by Wallich.1 4 They were independent
0
creations of the parent bank, established by it at its own
667
I
N at i on a l
M on et a r y
Commi ssi on
home. In most cases they proceeded, immediately after
their foundation, and as a rule on the basis of private
banking business acquired by them, to open branches and
commandites in the several states or provinces. However,
being established at the home of the parent bank, in con
trast with branches established elsewhere, they had to
limit their activity so as not to compete with the parent
institution. Owing to that fact, as well as to the circum
stance that the provincial banks, even before they them
selves had taken root, began to set up branches and com
mandites elsewhere, without being able either to sup
port them adequately by their own means or to super
intend them properly in virtue of their own experience,
and also for general economic considerations, all these
provincial, branch, and central banks bore the germ of
death within them at their very birth. The industrial
relations of banks at that time were quite undeveloped,
while private banking firms were for the most part still of
great importance. Thus I am unable to share the view
that the plqp was “ well devised,” 1 5 but in advance of the
0
time.
Four such “ provincial discount companies” were estab
lished in Berlin in 1871 and 1872. The largest of them
was the Provinzial-Disconto-Gesellschaft in Berlin, founded
by the Disconto-Gesellschaft with a nominal capital of
30,000,000 thalers. It soon set up a large number of
branches and commandites, to wit, in Hanover (involving
the absorption of the banking firm M. J. Frensdorff),
in Bernburg, Strassburg, Hamburg, Duisburg, Braun
schweig, Hameln, and Halle; also the Bergisch-Markische
Bank in Elberfeld and the Aachener Disconto-Gesellschaft
668
The
G e r m a n
G r e a t
B a n k s
in Aachen (Aix-la-Chapelle). In the two cases last men
tioned the parent bank retained an interest in the form
of an undivided share of 500,000 thalers in each case,
which is noteworthy as a special and early case of “ per
manent participation ” of one bank in another. However,
in 1878 the Provinzial-Disconto-Gesellschaft had to be
taken over by the Disconto-Gesellschaft at the cost of
great sacrifices and difficulties, the branches having pre
viously been given up one by one.
The other “ provincial banks ” founded at the same time
in Berlin by parent banks were: The Provinzial-Wechslerbank (founded by the Berliner Wechslerbank), the Provinzial-Gewerbebank (founded by the Gewerbebank H.
Schuster & Co. in Berlin), and the Provinzial-MaklerBank in Berlin.
Beginning with 1872 the following were established:
The Siiddeutsche Promnzialbank in Stuttgart (by the
Stuttgarter Bank), the Provinzial-Wechsler-Bank in Bres
lau (by private banking firms in Breslau), and the Allgemeine Deutsche Filialen-Kreditanstalt (by the Allgemeine
DeutscHe Kreditanstalt in Leipzig).
Finally, the Deutsche Unionbank in Berlin, which itself
had to be liquidated as early as 1876, with the aid of the
Deutsche Bank, founded a chain of Unionbanks, beginning
with 1871, of which only the Unionbank in Mannheim
(absorbed by the Pfalzische Bank in 1895) eked out a
somewhat longer existence; while a Berlin banking firm
founded a number of South German Zentralbanken in
1873 (the Bayerische Zentralbank in Munich, the Badische
Zentralbank in Karlsruhe, the Frankische Zentralbank in
Nuremberg, the Wurttembergische Zentralbank in Stutt-
669
N at i on a l
'
M on e t a r y
gart, and the Siiddeutsche Zentralbank in Frankfort-onthe-Main). All these, however, underwent liquidation,
most of them immediately after their foundation.
As may be seen by the sketch of the development of the
several great banks (Appendix V II), the establishment of
subsidiary companies by the banks never assumed large
proportions in Germany, either in the first or in the second
epoch. On the other hand, the establishment of German
“ subsidiary banks” in foreign countries played a rather
important part,'inasmuch as, for reasons already set forth,
they proved to be a business necessity for the special
purpose of the development of over-sea trade, for which
the establishment of mere branches was neither sufficient
nor desirable, at least on a large scale, for reasons to be
discussed later.
Except for the purpose of subserving the needs of over
sea trade, the relations to the colonies, or the extension of
business relations with foreign countries,1 6 the number of
0
“ subsidiary companies” established has never been great
even in recent time (aside from the above-mentioned pre
mature and"hence unsuccessful experiments of the seven
ties) . In addition to two stock companies established in
1905 after the model of the Deutsche Treuhandgesellschaft
(the Revisions- und Vermogens-Aktiengesellschaft and the
Treuhand Vereinigung, Aktiengesellschajt in Berlin) the fol
lowing instances of recent date1 7 may be enumerated: The
0
establishment, in 1900, by the A. Schaaffhausen’scher
Bankverein, of the Westfdlisch-Lippische Vereinsbank,
prompted probably by special personal and local rea
sons; of the Bayerische Disconto- und Wechselbank in Nu
remberg, in 1905, by the Disconto-Gesellschaft jointly with
the Bayerische Hypotheken- und Wechselbank;1 8 of the
0
670
n ..
Commission
The
G e r m a n
G r e a t
B a n k s
Bank fur Thuringen normals B. M. Strupp Aktiengesellschaft
in Meiningen, in 1905, by the Disconto-Gesellschaft jointly
with the Mitteldeutsehe Kreditbank, the B. M. Strupp
Banking House and the Allgemeine Deutsche Kreditbank;
the transformation of the private banking firm of Ludwig
Peters Nachfolger at Braunschweig into the Braunschweiger Privatbank Aktiengesellschaft, in 1905, by the
Hannoversche Bank jointly with the Osnabrucker Bank
and the Hildesheimer Bank, and the transformation of the
banking firm Peris & Co. in Breslau into the Schlesische
Handelsbank Aktiengesellschaft in Breslau, in 1905, by
the Disconto-Gesellschaft in cooperation with the Berliner
Plandelsgesellschaft.
On the whole, practical experience has shown that
domestic subsidiary companies possess almost exclusively
the disadvantages of branch banks without their advan
tages.
Not only do subsidiary companies readily escape all in
fluence on their business management, which may thus
adopt methods fundamentally different from those of the
parent bank, but they are equally apt to rid themselves
of anything like thorough and permanent inspection of
their business activity. On the other hand, they require
a permanent ownership of shares, and often make large
demands on the parent bank for capital, especially in
critical times, which of course is particularly inconvenient.
We were able to trace this process in the history of the
Credit-Mobilier, whose collapse was largely brought about
in that way.1 9
0
These are probably the main reasons why the sub
sidiary banks have hitherto exercised far less influence,
671
»
N ation aJ
M on et a r y
Commission
within Germany, both on the development of banking and
in particular on the concentration movement, than the
trust companies, which have been extensively established
by the great banks either directly or with their coopera
tion, in the industrial field, especially in the domain of the
electro-technical industry. To discuss the nature and the
advantages and disadvantages of these trust companies
would be beyond the scope of the present work. The
most important trust companies in the field of the electro
technical industry are enumerated in notes 98 and 100 on
page 811. They are related to our present subject only in
so far as they served, directly or indirectly, to relieve the
banks of a part of their financial tasks, especially as
regards the issue business; also in so far as they were
intended to serve the needs of smaller enterprises,
whose securities could not be emitted by the banks
themselves, the trust companies taking up the securi
ties of these enterprises and utilizing them as a basis
of obligations to be issued, thus rendering them market
able1 110 finally, in so far as they were employed to in
;
crease the influence of the banks on certain branches of
industry in the establishment or enlargement of industrial
enterprises, through aid rendered at the time of organiza
tion and in the sale of securities.111
From the nature of these functions it is evident that the
trust companies subordinated to the banks strongly tended
to promote concentration.
(b)
Through acquisition of shares. The creation of per
manent connections through communities of interest by
means of the acquisition of the stock of existing banks,
which is going on very extensively, needs no special discus672
The
G e r m a n
G r e a t
B a n k s
sion. Only one point has to be mentioned, viz., that a mere
possession of stock does not of itself result in a community
of interest, unless it is accompanied by other factors es
tablishing a close connection, which, in fact, in most cases
becomes the occasion for the purchase of shares. These
factors may be (i) an agreement with the bank whose
shares have been acquired by which that bank undertakes
to transact at least the larger part of its business with the
acquiring bank, while the latter guarantees to the former
the “ most favorable treatment,” or (2) the appointment of
one or more representatives of the acquiring bank as mem
bers of the supervisory board of the bank whose stock is
acquired.112
So far as I am able to learn, these two factors are for the
time being absent from the relation of the Disconto-Gesellschaft to the Rheinisch-Westfalische Disconto-Gesellschaft.113 Accordingly, reversing the views expressed in the
first German edition of the present work (p. 188, No. 3), I no
longer, include that bank in the group of the DiscontoGesellschaft, although the Disconto-Gesellschaft is said to
own shares of the Rheinisch-Westfalische Disconto-Gesell
schaft to the amount of about 2,000,000 marks.114 On
the other hand, the Magdeburger Bankverein, having en
tered into a closer relation with the Disconto-Gesellschaft
by the reciprocal appointment of a representative of each
bank on the supervisory board of the other, is properly
included in the group of the Disconto-Gesellschaft.
(c)
Through agreement. A community of interest may
be established by agreement between two banks, generally
about equal in strength, providing for a pro rata division
of the proceeds resulting from the business transactions
9 0 3 1 1 — 11-
-44
673
N at i on a l
M on et a r y
Commission
of both. From a purely theoretic standpoint, this ar
rangement certainly can accomplish the intended pur
poses only on condition that the two contracting parties
either follow in the main the same business policy or are
mutually complementary in their business activity.
For a while the typical example of a community of in
terest through agreement was the Dresdner Bank-Schaaffhausen combination, created by the agreement of Sep
tember io, 1903. In this case the activities of the con
tracting parties were certainly complementary, inasmuch
as the Dresdner Bank, at the time of the agreement, had
devoted itself far more extensively to the promotion of
foreign business, Bourse transactions, the deposit business
and the issuing business, while the A. Schaaffhausen’scher Bankverein had cultivated intimate relations to in
dustry, especially mining, and more particularly to the
iron industry of Rhineland-Westphalia, not only for a
much longer period than the Dresdner Bank, but also to a
much greater extent and with greater success.115
In this case, therefore, it may be assumed that this com
plementary character of the two banks was the decisive
factor that led to the creation of the community of inter
est. Evidently every such combination, with the result
ing union of forces, intelligence, enterprise, and capital,
signifies an immense increase of power on the part of the
contracting parties, whose organic union will always mean
a far greater force than the mere arithmetic sum of the
separate forces.
However, as I previously pointed out, the weakness and
dangers of such a community of interest must not be un
derestimated. They are especially apt to be felt in cases
674
The
G e r m a n
G r e a t
B a n k s
where there is not a substantial equality of weight between
the two scales.
First of all, a community, which leaves the formal
independence of the contracting parties unimpaired, does
not necessarily lead to a saving in the operating expenses,
at least not to a large extent.
Differences of opinion regarding the business manage
ment and the common business policy can hardly lead to
serious danger, provided the contracting parties are about
equally strong; but if one of the parties has any degree
of preponderance, such differences may lead to grave
consequences. The weaker party in such cases has gen
erally no other recourse but an appeal to the committee
or council of delegates, consisting as a matter of course
of members of the two administrations, and hence apt
to decide in favor of the stronger party. But even if
this is not the case, disappointment is apt to result.11
0
The agreement being as a rule made for a long period,
such disappointment becomes a source of annoyance.
Having gained an insight into each other’s business con
duct, the two parties find it difficult to separate, even
when separation would be the natural course, while
fusion, the opposite alternative, is not without its objec
tions.
Dissatisfaction of another sort may arise from the fact
that one of the two parties may have made poor profits,
perhaps repeatedly, while the other has made good profits.
The latter thereupon will not be greatly pleased at the
prospect of having to “ feed” its needy partner. Such
a situation may become dangerous if the less successful
partner, impressed by the regular good results of the
675
N ation al
M on e t a r y
Commission
successful one, finds in them not so much a spur to its own
ambition to attain equal success, as a comfortable in
surance of the share which by virtue of the agreement
will accrue to it in any case from the earnings of its partner.
In a word, one partner may get into the habit of letting
the other work for him.
A still graver situation may present itself if one of the
parties, insisting on the mode of distribution established
on the basis of the status existing at the time of signing
of the agreement, but which would no longer be fair in
case of the enlargement or extension of the enterprises,
attempts to prevent the other from an expansion which it
feels justified to undertake. This situation would be
especially difficult to endure if the weaker partner should
try thus to prevent the development of the stronger.
Other sources of dissatisfaction and dissension may
arise from a difference of views regarding reserves, losses,
etc. This may happen even when there exists a council
of delegates for the decision of such questions, because
such a„council can only decide disputes, but not remove
the dissatisfaction.
It is not to be expected that there will be many cases
in which two enterprises will so happily complement each
other in their business operations, or be so nearly of equal
weight, that the danger here indicated will either disap
pear or be greatly diminished. Hence this form of com
munity of interest is hardly likely, in my opinion, to
make much headway among German banks.117 At the
same time it can not be denied that, theoretically at least,
this method of eliminating mutual competition through
the placing of two institutions on a footing of equality
The
G e r m a n
G r e a t
B a n k s
by agreement is better than the annihilation of one of
the two institutions through ruthless competition.
(d)
Through exchange of shares. A totally different
situation as shown by practical experience is created
through a community of interest resulting from exchange
of shares, such as was effected in 1897 by the Deutsche
Bank, first with the Bergisch-Markische Bank and the
Schlesischer Bankverein.
Many such communities of interest were established
in the German banking world between a large bank and
other banks, some of them much smaller, in the pursuit
of definite aims of industrial policy on the part of the large
bank. Thus, for example, in entering on the community
of interests above indicated, the aim of the Deutsche Bank
was to gain a footing in the most important industrial
districts, those of Rhineland-Westphalia and Upper
Silesia.
In entering on a community of interest with the
Duisburg-Ruhrorter Bank, in 1902, the Deutsche Bank
was doubtless prompted by a consideration of the close
connection existing between that bank and the Haniel
family, the owners of the Gute Hoffnungshiitte and the
Rheinpreussen mines.
In entering into a community of interest in 1904 with
the Essener Bankverein, the foremost aim of the Deutsche
Bank was doubtless to form a connection with Mr. Carl
Funke, the large industrial entrepreneur in Essen, who
owns the Konig Eudwig mines.
Finally, in entering into a community of interest in
1903 with the Mittelrheinische Bank in Koblenz, the A.
Schaaffhausen’scher Bankverein was evidently prompted
677
N ationa l
M on e t a r y
Commission
by the desire to get in touch with the collier firm of
Spaeter & Co., founders of the Rombach Smelting Works,
closely allied with the Mittelrheinische Bank, the fur
ther aim being to become connected through that firm
also with the Lorraine-Luxemburg iron industry. This
desire may have been sharpened by the consideration that
Mr. Hugo Stinnes, a large entrepreneur, was a member of
the supervisory board of the Mittelrheinische Bank.
It is not difficult to explain the rapid spread of commu
nities of interest through exchange of shares.
First of all, this kind of community of interest among
banks either pursuing the same business policy or supple
menting each other in their business activity, especially in
their relations to industry, offers a strong business attrac
tion, which will be all the greater the higher the premium
on the shares of the bank which makes the offer of ex
change to the shareholders of the banks to be “ annexed,”
the exchange rate being calculated for the party making
the offer and the party consenting to the exchange by the
ratio of the market values of the stock to be exchanged.
This ratio will, of course, be all the more favorable for the
bank making the offer the higher the market value of its
own shares.
In other respects a community of interest through ex
change of shares offers hardly anything but advantages
for both parties.
While eliminating any competition that may have ex
isted between the two parties, it leaves to each complete
internal autonomy, with freedom of movement and devel
opment, at the same time securing singleness of manage
ment outwardly from one central point.
678
The
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B a n k s
It enables the “ concern” banks to concentrate their
strength on the district where the roots of that strength are
located, without “ causing them to be diverted from their
proper sphere by an establishment in the national capi
tal,” 118and without being obliged to engage in competition
in Berlin itself, in which their chances would be all the
smaller the later their entrance into the capital. It
affords to them the advantage of connection with a
great bank, which means not only a strengthening of their
position, power, and influence, but a large part of the ad
vantages possessed by the great bank itself. Finally, in
case of need, in critical times, it assures to them a strong
hold, the very existence of which is apt to serve as a sup
port of their own arrangements.
On the other hand, the great bank also derives numerous
advantages from the combination. It extends the area of
its power and business activity and enlarges its knowl
edge of the situation of the different branches of industry
and commerce through expert information obtained from
institutions situated or represented at the locality. In
case of an issue it has at its disposal a wide market. It is
in position to procure for its customers greater advantages
and better information, and especially to lend them
prompter and more extensive support in their business
operations. Finally, it is enabled to set up a uniform pro
gram for its entire business policy, and is able to take
account of the general economic interests better than
with a smaller business scope or with scattered forces.
All of these advantages are obtained, both to the largest
possible extent and in the simplest and least risky manner,
through communities of interest established by means of
679
n eta ry
mmission
an exchange of shares, since the object may be attained
even by a relatively unimportant ownership of shares.
There is, indeed, some danger in this case, too, that the
leading bank may expose itself to excessive demands for
assistance,119but this danger is lessened from the very start
by the fact that, by virtue of the combination, the leading
bank acquires greater and greater available resources
through the amalgamated banks and their customers.
B. IN AN INDIRECT WAY, BY MEANS OF DECENTRALIZATION OF OPERA
TIONS.
i. Through the founding of silent partnerships (commondites).— The number of commandites, which in 1895 ac“
cording to Appendix VI was only 13 for all the great banks
together— that is to say, very small— dropped to 11 by the
end of 1905, so that there is on an average only 1 com
mandite to each great bank.
The 32 allied banks (Konzembanken) had at the end
of 1908 only 18 commandites (Table 10, p. 1012), a still
lower average.1 0
2
The llarmstadter Bank possessed originally a very large
number of commandites (as many as 16), having set up
one of them in New York as early as 1854, another in
Paris in 1857, at the same time planning others at St.
Petersburg, London, Smyrna, and Constantinople, to foster
foreign business. As early as 1856 one of its founders,
Gust, von Mevissen, planned nothing less than the estab
lishment of a “ Central Bank for Foreign Commandites”
with a capital of 100,000,000 thalers (!), to the end “ that
the capitals of the various German banks— all of them
seeking to establish commandites abroad— might no longer
680
The
G e r m a n
G r e a t
B a n k s
be scattered, and that at the same time the ablest pos
sible representation might be secured.” 12
1
In the years of business depression toward the end of
the fifties and the early sixties the Darmstadter Bank had
had a discouraging experience with the system of branch
banks to which it had at first given the preference. Ac
cordingly, in 1863 it abolished even its branch in Mainz,
founded in 1854, and transformed it into a commandite,
“ solely in order to limit the number of institutions apt
to create liabilities for the bank by their operations.”
But while the commandite does have this advantage
over the branch, that the leading bank is not made directly
liable through the business transactions of the comman
dite, yet the difference is rather formal, because when a
commandite through bad management has got into diffi
culties, the leading bank can not abandon it any more
than it can abandon a branch. In addition, the nature
of the commandite gives rise to dangers which do not
affect, the branches, or at any rate, not to the same extent.
First of all, a commandite, like a subsidiary company
(Tochtergesellschaft), even though bound by an agree
ment granting special rights of control to the leading
bank, is more difficult to control than a branch. More
over, it will be all the less willing to be controlled the
greater its success, the justifiable feeling of self-confidence
on the part of the management leading it in such cases
to resent any attempt at interference. Hence a com
mandite is more apt than a branch to develop its entire
business policy along lines at variance with the leading
bank, occasionally even in opposition to it.
681
I
N at i on a l
M on e t a r y
Commission
It is also more apt to cause surprises, since the com
mandite is less disposed to submit— all the less the longer
it has existed— to binding instructions, impeding its free
movement, for example, as regards the amount of uncov
ered credit, the kind of security in case of covered credits,
the amount of acceptances, etc. We have seen that by
reason of such surprises the Deutsche Bank, among others,
had to liquidate with heavy loss its commandites in New
York and Paris (see sec. 4). Moreover, such instructions
are apt to neutralize the advantages afforded by the very
autonomy of the management and by its freedom to give
untrammeled expression to its individuality in business
matters.
Furthermore, while the commandite derives very marked
advantages in diverse directions from its connection
with the leading bank, the advantages accruing to the
latter are often inconsiderable, especially since the com
mandite, with its limited means, often finds it difficult to
face the competition of large banks in its locality. On
the other hand, there is the danger that the commandite,
having attained a certain importance, may terminate the
agreement with the leading bank and make itself com
pletely independent.
Finally, in case the manager of a commandite is remiss
or unsatisfactory in the conduct of its business, the leading
bank has no power to interfere, while in the case of a
branch bank such power exists and is most likely to be
exercised.
If the manager dies, the business will have to be
liquidated, which in most cases is not to the interest of the
bank, or, if the agreement contains special provisions for
682
The
G e r m a n
Gr e at
Bank;
this event, as is generally the case, the bank may become
involved in great difficulties and annoyance until a suit
able successor is chosen. The fact is that the commandite
is essentially bound up with the person of its manager,
not only in its success but to a large extent in its very
existence.1 2
2
Furthermore, the advantage which the leading bank
might obtain through a widening of its business rela
tions and its industrial and commercial information, in
virtue of its connection with the commandite, is lessened
by the greater looseness of the connection between the
commandite and the leading bank, as compared to a
branch bank, whose manager is obliged to make periodic
reports, etc.
On the other hand, it must be acknowledged, as an
advantage of the commandite, that in many cases the
personal influence and reputation of the manager, com
bined with his accurate knowledge of the local conditions
and 'customers, secures to the bank both a dignified rep
resentation and a satisfactory income, even though this
in most cases is not high. The Darmstadter Bank, for
example, obtained 7 per cent interest on its commandite
investments of 153,000,000 marks between 1875 and 1889,
during which time the number of its commandites fell
from 13 to 9. During the same time its “ permanent partici
pations” in joint-stock banks, amounting to 1,690,000,000
marks, yielded only 6 per cent interest.1 3 During the
2
period 1896-1900 the reaims from its commandites varied
between 73T, 10, 8, 10, and 7 per cent, while in 1901 and
1902 they were only 4 and 6 per cent.1 4
3
683
I
National
Monetary
Commission
That advantage, however, as we have seen, is counter
balanced by weaknesses and dangers. Hence it is only
natural, as shown by the figures above given, that the
establishment and maintenance of commandites tends to
become rare in the German banking world.
2. Through the founding of branches.— As regards the
decentralization of operations through the creation of
branches (within Germany), we see from Appendix VIII
that their number in the case of the German great banks
at the end of 1908 was exceedingly small, both absolutely
and relatively; the total being 69 for the eight great
banks of Berlin1 5 (61, if we deduct the 8 established in
2
the same city where the home offices of the banks are
located), and (according to Table 10 of the same appendix)
241 for 32 allied banks (Konzernbankeri), making an aver
age of not quite 8 branches to each concern bank.1 8 A sim
2
ilar situation exists as regards the other provincial banks.
In the provinces the number of branches, at least so far as
the absolute figures are concerned, is greater than in
Berlin, blit in the latter case regard should be had for the
very large number of deposit offices.
On the whole, however, the number of branches, at
least in proportion to the number of banks concerned, is
not large.
This is all the more surprising because in almost all
foreign countries, with the exception of the United
States,1 7 the system of branch banks has become enor
2
mously developed. Thus Ad. Weber1 8 reports that in
2
England and Wales as far back as the end of 1899 there
were 12 banks, each of which numbered more than 100
branches, and which together (including the main offices)
684
The
G e r m a n
G r e a t
B a n k s
had 2,304 establishments, while the total number of bank
ing establishments in England and Wales at the end of
1899 was 4,540 (3,548 in 1876), of which 816 were not
open daily but only on special days (for example, market
days).
In 1901 there were in England 21 banks having more
than 100 branches each, and the total number of banking
establishments in the United Kingdom was 6,672, to wit,
4,872 in England, 1,087 m Scotland, 690 in Ireland, and
23 on the Isle of Man,1 9 of which, however, 1,124 were
2
not open every day.1 0 Over one-fourth of all the exist
3
ing branches were opened in the eight years 1896-1903,
“ so that the president of the London and County Bank
at the general meeting in February, 1902, was able to
say that there was almost no street in London that did
not have a branch bank, and if things continued in that
manner, the branch banks would by and by exceed the
barrooms in number.” 13 A single bank, the London City
1
and Midland Bank, had in the beginning of 1905 as many
as 447 branches, that is to say, 257 branches more than
all the Berlin great banks, together with the 52 provincial
banks affiliated with them at the end of 1904; on Decem
ber 31, 1907, according to the Economist, the English
joint-stock banks, then numbering only 74 (excluding the
colonial and foreign banks), 35 of these being authorized
to issue bank notes, had not less than 6,809 branches and
subbranches.
The Lloyd’s Bank and the above-mentioned London
City and Midland Bank have each more than 400 branches,
the former, in round numbers, 500 “ places of business
685
v
»
National
Mo n e t ar y
Commission
(branches)” and, in round numbers, 160 “ subbranches and
agencies,” making a total of 560 establishments.
In France1 2 the number of agencies and branches in
3
creased in the fourteen years from the end of 1894 to the
end of 1908 as follows:
Agencies and branches.
1908.
1894.
Paris
and
suburbs.
Credit Lyonnais..............................
Comptoir National d’Escompte.......
Socidtd gendrale..............................
27
iS
37
Prov
inces.
96
24
141
Paris
and
suburbs.
62
49
88
Prov
inces.
174
150
637
Foreign
countries.
including
Algeria.
20
2
Thus at the end of 1908 these three institutions alone
had, together, 199 branches and agencies in Paris and
suburbs, and 961 branches, agencies, and bureaus in the
provinces.
In Scotland1 3 the number of branches, as compared
3
with the above-mentioned 1,087 in 1901 (belonging to 10
banks), was as follows: 589 in 1865, 688 in 1872, 912 in
1873, 1,021 in 1895, and 1,015 in 1896. As early as 1871
there were in that country branch banks1 4 at 283
3
places, including 61 localities having less than 1,000 inhab
itants, 70 between 1,000 and 2,000 inhabitants, 35 be
tween 2,000 and 3,000 inhabitants, and 33 between 3,000
and 4,000 inhabitants. As early as the seventies there
were at Brechin, which then numbered 9,000 inhabitants,
not less than 7 branches of different banks. This is an
exceedingly large number, even allowing for the fact that
the town includes the rural districts adjoining.
686
The
G e r m a n
G r e a t
B a n k s
At the end of 1908 the Credito Italiano founded in Rome
as late as 1895, with German cooperation, had already 17
branches in Italy, and the Banca Commerciale Italiana, in
Milan, founded in 1894, also with German cooperation,
even as many as 33.
It must not be supposed however, that all these figures
may, without further qualification, be compared with
those of Germany, as is often done, and that they indicate
a more profound difference than really exists.
(a) As regards France, the numerous branch establish-"
ments existing in that country are, in large part,1 5 not so
3
much branches, in the German sense, as “ agencies,” 1 6
3
much easier to establish and possessing far less importance
and a far less extensive business circle than the German
branches, some of which occasionally undertake operations,
especially of local scope, in which the home office does
not participate.
(b) Nor can any direct comparison be made with Brit, ish conditions. On the one hand, as already pointed out,
many of the banking offices enumerated as branches,
especially in London, have the character of the German
deposit offices rather than that of the German branches.
On the other hand, the banks in Scotland are mere note
banks, while those in England are partly note banks and
partly deposit banks, which, in founding branches, were
prompted by business reasons, sometimes cogent ones,
totally different from those prevailing in German bank
ing. German banks either do not carry on the deposit
business at all, or only in combination writh a great num
ber of other activities, among which the deposit business
never occupies the foremost place.
687
N a t io n a l
M o n et a r y
Commission
Now, the note banks, in order to raise the note circula
tion,13 are positively forced to create an ever denser net
7
work of branches, if they are to carry out their plans suc
cessfully, while the deposit banks are compelled to resort
to the same policy for the purpose of attracting the funds
of wider and wider circles, especially of the middle class and
small capitalists and tradesmen, who are not confined to
the great cities. We should probably witness a similar
development in Germany if the “ central (einheitliche)
deposit bank,” or even several competing deposit banks,
were to become realities.
“ Without the issuing power, the Scotch banks would
have been unable either to establish so many branches or
to extend so many facilities to depositors, and without
the branches and the facilities granted they would never
have had any deposits.” 1 8
3
(c)
In Germany there was from the first but little in
clination to allow the advantages of central management
from one point to be weakened by the establishment of
branches. Again, it was largely feared that the demands
by the branches on the parent bank might easily become
excessive, and that they might thwart the business policy
of the bank as well as the general disposition over its
resources, which must rest in a single hand.
Still even in Germany it was impossible not to recog
nize the advantages afforded through a decentralization
of operations by means of branches, including increase of
power and greater resisting capacity.
Foremost among these advantages is the close touch
which a branch necessarily gains little by little with in
dustry and commerce within its district; the accurate
688
The
G e r m a n
G r e a t
B a n k s
insight which daily contact gradually affords into the needs
for credit, the habits, financial condition, and reliability
of firms'and individuals within that district, so that such
a branch is in a position to give the most accurate and
reliable information on all these important details to the
central bank. Moreover, in many cases the special local
conditions lead to a widening of the field of activity of the
bank in that district; it is found necessary or possible to
engage in special lines of banking which the bank had not
previously put on its program, owing, perhaps, to lack
of expert personnel. Thus the branches and their man
agers, as well as the officials trained in them, often form
a welcome addition to the central administration of a
bank, its directors, and subordinate officials.
Various means suggest themselves and are actually used
by some banks by which the advantage of the information
gained by the central bank through its branches may be
considerably increased. Since these branches are as a
.matter of course required to submit periodical statements
regarding their cash on hand, the state of their engage
ments, their loans on collateral, debit and credit accounts,
bills, acceptances, etc., they may readily be required, in
addition, to furnish to the central bank written reports
on the state of the industries specially represented in their
district, and these reports may thereupon be circulated
among the other branches. In addition to this, the man
agers of the branches may assemble at stated periods—
say quarterly— at the seat of the home office, and there,
at a meeting presided over by one of the directors, make
verbal reports on the business events that have taken
place in their locality in the interval, while on the other
9 0 3 1 1 — 1 1 -------4 5
689
mmissi on
hand they may learn the views of the home office and its
aims for the immediate future, as well as its judgment
regarding the general economic situation, the branches
being thereby enabled to shape their business manage
ment accordingly. The written and oral reports will at
the same time enable the central office to ascertain
whether, and to what extent, the branches have been too
partial in the distribution of the credits granted by
them, or whether they have exceeded the limits which,
for general or special reasons, are deemed advisable, or
whether there has been an overstretching of resources, to
be remedied by appropriate measures, etc. All these views
may at the same time be brought to the knowledge of all
the managers of branches.
The branches afford to the central bank another advan
tage in enlarging its security issuing power, since the cir
cle of customers for the securities issued is often greatly
extended through the branches, while at the same time
the issuing operations are rendered easier. The branches,
as a matter of course, relieve the central bank of all the
issues of merely local importance, such as industrial se
curities of local enterprises, or communal obligations, agri
cultural and other mortgage bonds, etc., within the district
covered by the branch, also of all issues which, owing to
their insufficient amount, do not come up to the require
ments for admission at the bourse, and hence can not be
effected by the central office itself in its home city.
Again, the branches tend to enlarge the field of invest
ment for the customers of the bank, since a branch will,
as a rule, be able to furnish to the central office expert
60
9
I I
The
G e r m a n
G r e a t
B a n k s
and reliable information, difficult to obtain otherwise, con
cerning the intrinsic value of local securities.
Furthermore, the branches, possessing accurate knowl
edge of the firms and individuals of their district, their
financial status, the situation of their business, etc., will,
as a rule, be in position to attract as deposits available
funds, especially those belonging to the small and petty
traders and capitalists. Through the collective activity of
its branches the parent bank is thus also enabled to an
ever-increasing extent to grant facilities to its customers
in the matter of payment and handling of bills and to aid
these customers by valuable information and advice. The
central office will also gain thereby a broader basis for
the giro, clearing-house, and check business, with decided
advantage to the public at large.
At the same time the variety of the business activity of
its branches is a kind of insurance to the parent bank
against losses which it might suffer, either in its own busi
ness or in that of any of its branches, since these losses
may be more easily compensated by the larger profits of
other branches during the same period.
According to the table prepared by Ernst Eoeb13 the
9
collective turnover of the branches of the Deutsche Bank
in the years 1896-1902 was somewhat larger than the total
turnover of the central office, their cash account was con
siderably higher, the bill and current accounts were about
the same, while the acceptance account, owing, no doubt,
to the over-sea business carried on by the central office,
was only from one-third to one-fifth of the acceptance
account of the central office.
691
N a t io n a l
M on e t a r y
Commission
During those years the deposits of the Deutsche Bank
were distributed as follows:
[Amounts expressed in millions of marks.]
Central
office.
Branches.
Total.
1896
66. 0
2 6 .6
92. 6
1897
75-
6
26. i
1 0 1.7
31.5
121. 7
1898
90. 2
1899
114- 5
41.
O
155.5
1900
138. 2
52- 7
190.9
2 1 4 .
1901
149-9
6 4 .6
1902
157-8
55-
1
5
213.5
However, these advantages are offset by a number of
disadvantages, some of them quite grave.
First of all, the carrying out of a general business policy
of the bank will, of course, be more difficult the greater the
number of its branches, since each branch has to receive
special instructions, according to tlje kind and extent of
its business and the special aims which it pursues in view
of the special conditions of its district. To reduce the
whole system to one scheme by means of general instruc
tions to be observed by each branch is in most cases im
practicable, except as regards certain rules deduced from
experience, as, for example, that second mortgages or mort
gages on unimproved real estate (Terrainhypotlieken) or
special kinds of paper, or unlisted securities shall not be
accepted as security for credit, or only under certain con
ditions, or not without additional security. General in
structions for this purpose not accurately adapted to the
individual case would be habitually disregarded, and hence
had better not be issued. But even carefully devised
instructions will be of use only in the hands of intelligent
692
II
The
G e r m a n
G r e a t
B a n k s
branch managers. Even then they may fall short in two
ways:
They may be too strict, leaving too little room for the
independent action of the manager and compelling him in
any matter of importance to consult the board of directors.
In such case the initiative of the manager is paralyzed, he
is converted into an automaton, or he loses the very spirit
by which he should be constantly animated, namely, that
of personal responsibility.
Or the instructions may be too loose and too mild, in
which case they may readily add to the centrifugal
tendency which is inherent in the branches in any case.
Unchecked by clear and definite directions, the branches
may take little interest in the general business and admin
istrative policy of the bank; they may regard themselves
as entirely detached and independent, and not as members
of a single organism, all of which may lead to grave con
sequences.
As regards the supervision, the theoretical aim is to
forestall every surprise and to discover any defect in
time to apply a remedy. The law in article 246 of the
Commercial Code (Handelsgesetzbuch) even imposes this
task on the members of the supervisory board in the words:
“ To superintend the management of the business in all its
branches.” This task presents great difficulties both for
the board of directors, located at a distance from the
branches, and for the permanent inspectors appointed by
it. It necessarily becomes more and more difficult and
complicated the more the branches grow in number and
in the extent of their business activity. Hence it becomes
of special interest to learn how in England a bank with
693
some 400 branches is able to solve this question always in
a perfectly satisfactory manner,1 0 since, in view of the ex
4
treme conscientiousness and integrity of English business
men, it may be assumed as certain that they devote the
most scrupulous care to this subject. This is all the more
noteworthy in view of the fact that in England the law
imposes on the board of directors hardly any duty “ of
using the proper diligence,” it being even questioned
whether the directors are liable for “ gross negligence,”
that is to say, for a degree of negligence known to English
law, which is even higher than our “ lata culpa ” (culpable
negligence).14
1
Another disadvantage, to wit, the more or less long time
of waiting before the branch has been permanently estab
lished on a paying basis, has already been pointed out.
Especially in those cases where the branch has been estab
lished without being grafted on a previously existing busi
ness, it will generally be a good while (aside from excep
tional cases) before it is able to stand on its own feet, and
to become a creditor of the parent bank, instead of being
its debtor, as is generally the case, to very large amounts.
Still longer will be the time before it yields an adequate
return. The expenses of operation1 2 as a rule are very
4
considerable from the start, and in many cases are
greatly increased by the acquisition of buildings, which the
branch, for the sake of competition, if for no other reason,
endeavors to erect either at once or as soon as possible.
In most cases also, at least in the beginning, the capital
which the bank is obliged to invest in its branches is very
large. In fact it often requires an increase of the share
capital. The table drawn up by Ernst Eoeb1 3 shows
4
694
The
G e r m a n
G r e a t
B a n k s
that the Deutsche Bank, for example, at the end of 1902
had invested not less than 40 per cent of its capital in its
branches.
Finally, by reason of the legal requirement of recording
and the official publication of the record, a branch whose
establishment proves to have been a mistake can not be
transferred or abolished with nearly the same ease as an
agency or deposit office.
Most of these disadvantages, however, existed also in
foreign countries, where nevertheless the development of
the branch system has been very great. Hence they
would hardly suffice to explain the slight development of
branches in Germany, especially since those disadvan
tages, as we have seen, are offset by important advantages.
In view of the pronounced tendency toward concen
tration, manifested in other directions, it seems to me that
the slow development of branches in Germany can only
be explained as follows:
First of all, owing to the importance and urgency of
the tasks which the German banks had to accomplish
during that epoch in very brief time, the development of
their internal organization was somewhat retarded.
In the next place, up to the nineties, a large proportion
of the German banks, as shown by the entire attitude of
various great banks at that time, felt little inclined, as a
matter of principle, to favor the concentration move
ment through decentralization of operations, except as
regards the establishment of deposit offices at the locality
of the main office, where they could be more easily super
vised
695
Finally, as regards the time after 1897, the method of
communities of interest offered a means of concentration
by which the objects of a system of branches could be
attained both more fully and simply, and with less capital,
expense, and risk.
However, since the development of communities of
interest will within measurable time attain its natural
limits, while the tendency toward concentration is sure
to continue, it seems to me beyond doubt that in Germany
too, we shall witness a larger development of the branch
system as soon as those limits shall have been attained, if
not before.
3.
Indirect concentration through the founding of
agencies.— As regards the decentralization of operations
through agencies, there can be no doubt that in Germany
these would be the best form for an extensive development
of banking organs. An agency is the easiest form to set
up, and since, unlike a branch, it need not be recorded— in
fact, can not be legally recorded— it can with the same ease
be abolished or transferred. It requires a much smaller
personnel, and in other ways involves smaller running
expenses, since it is less prominent outwardly than a
branch;1 4 but the fact that an agency, unlike a branch,
4
can not be recorded in the commercial register as such,
leads to important consequences, the first being this—
that the legal representation of the agency can not be
effected according to the principles prevailing in bank
by-laws and banking practice, but only in a roundabout
and laborious way. One difficulty that is particularly irk
some is this— that, for the same formal reason, the agency
is not recognized as such by the very authorities with
696
The
G e r m a n
G r e a t
B a n k s
which it has to deal every day. The Reichsbank does not
admit the agency as such to the giro transactions; the
post-office delivers no letters and other mail, and espe
cially no valuable matter, to the agency. This attitude
on the part of the Reichsbank involves considerable loss
of interest through the shipment of cash to and fro, while
the attitude of the post-office compels the bank to appoint
special representatives, who can only represent the bank,
not the agency.
Thus the establishment of agencies as local offices of
banks is unfortunately subject in Germany to very great
and regrettable difficulties. From the considerable num
ber of “ agencies” which are actually maintained by pro
vincial banks, and which, according to Appendix VIII,
amount to 325 in the case of the 32 amalgamated banks
alone, one might be tempted to infer that these agencies
had after all made themselves at home in the provinces,
and that thus the means had been found to attain through
“ agencies” what it was found impossible of inadvisable
to attain by means of branches. This inference would be
a grave mistake. Of the 325 agencies of the amalgamated
banks, not fewer than 287, according to Appendix VIII,
are found in Mecklenburg and adjoining districts (Neuvorpommern and Oldenburg), where peculiar conditions pre
vail.1 5 The so-called agencies in these districts are
4
agencies only in name, if by that name we denote inde
pendent banking establishments (Bankniederlassungen) .
In reality the agents in these cases are either independent
merchants, engaged also in other lines of business, or, in
accordance with local customs, retired mayors and lawyers
or other prominent or reliable persons, who perform the
697
National
Monetary
Commission
functions of bank agents as a side issue. In some cases,
when they are registered as merchants, they add to their
firm name the designation: “ Agency of th e -------- Bank,”
in order to characterize their business, in accordance with
article 18, section 2, clause 2 of the Commercial Code.
These agents, of course, act only under a limited
authority, extending, first and foremost, to the receiving
of money and securities and possibly to a limited number
of incidental operations. Such authority can be given
only in case the bank has at its disposal in the districts
in question a number of absolutely reliable persons, and
when, moreover, in view of the restricted and easily sur
veyed field of operations, such objections as may exist can
not become very grave. For in such cases the bank faces
a peculiar dilemma. Either the agent, who is not one of
the regular employees of the bank, has to be authorized,
contrary to the usual banking practice, to receipt in the
name of the bank for deposits intrusted to him,1 0 in
4
which case the bank rims the risk of not receiving the sums
thus deposited or not receiving them in time, or this
authority is not given, the bank or one of its branches, to
which the agency is subordinated, reserving the right to
receipt for the sums deposited with the agency. In such
case the public will hesitate to confide large amounts to
the agency, and no great custom can be developed.
All these conditions arise from local needs and usages
and can only be understood by reference to them. They
are in fact practically confined to Mecklenburg, Olden
burg, and adjoining districts and can not be transferred
to larger areas.
698
The
G e r m a n
G r e a t
B a n k s
4.
Indirect concentration through the founding of deposit
offices.— We have thus arrived at the last form which
the movement of decentralization has assumed in Ger
many, to wit, the creation of deposit offices— that is to
say, establishments which conduct all kinds of banking
business, with the exception of the issue business and
the purchase and sale of their own securities. The
managers of such offices receive an authorization which,
as a rule, is displayed in the office. By this authoriza
tion the manager is usually empowered to perform such
functions and to make such declarations in the name
of the bank as are involved in the regular operations of
a deposit office (and exchange office).
In Germany, as elsewhere, the establishment of de
posit offices with any prospect of success was only pos
sible at a time when the accumulation of capital had
already assumed certain proportions.
According to Appendix VIII, the number of deposit
offices of the Berlin great banks was only 27 at the end
of 1896. In 1897 the bourse law, which accelerated the
movement of concentration, became effective, and from
that year to 1900 the number of deposit offices rose to 53,
and thus almost doubled.
Between 1900 and 1902 the increase was even greater.
While in 1896 the number of deposit offices was only
27, in 1902 it was 87, having thus more than trebled.
It continued to rise, though less rapidly, to the end of
1908, when it amounted to 264, so that from 1896 to the
end of 1908 the number of (domestic) deposit offices of
the great banks multiplied almost elevenfold.
699
National
Monetary
Commission
On the other hand, according to Table io of Appendix
VIII, the number of deposit offices of the 32 amalgamated
banks at the end of 1908 was only 102, being thus quite
insignificant, both absolutely and relatively.
We have repeatedly discussed the economic and
commercial advantages afforded by the deposit offices.
One prominent advantage consists in the opportunity
afforded to the smaller and smallest capitalist and
trader for the productive investment of their savings,
even of the smallest amounts. This very opportunity
constitutes a strong inducement to the accumulation of
cash and of surplus, which can thus be made produc
tive. Moreover, the bank in this way assists them in
keeping a proper cash account, which otherwise might
be quite irregular. The bank, on the other hand, is
thus enabled, within certain limits and under certain
restrictions, to utilize these deposits within the limits
of the current account business;1 7 to profit by a
4
constantly growing circle of customers whose habits,
integrity, and financial condition it learns to know quite
fully. In this way it is enabled to find a market for
its securities— that is to say, to reinforce its issuing
pdwer. It will also be enabled, through this circle of
customers, to extend the check, giro, and clearing busi
ness— that is to say, to facilitate payments and dimin
ish the need of cash circulation, thereby rendering a
service to the public at large and contributing to the
better development of credit. Finally, mention must
be made of the other advantages pointed out by
Conrad1 8 and others.1 9 “ Through the activity of the
4
4
bank, the deposit is made to perform several economic
700
The
G e r m a n
G r e a t
B a n k s
tasks at one and the same time. The same sum which
the customer has entrusted to the bank may be used
by him for business purposes, the manufacturer being
able to make contracts, the merchant to order goods,
etc., on the strength of his bank balance; the banker
uses the money for his own purposes, granting a loan
to a customer. This customer again— say, a manufac
turer— uses the loan to pay his workmen, who in turn
use it to make purchases; and all these transactions
take place during the intervening few weeks while the
deposit remains at the bank. Thus the same sum has
performed several economic functions at the same time
and in so doing has rendered to the public several times
the amount of service that it could have done without
the intervention of the bank. Herein lies the main
advantage of the banks for the money circulation, an
advantage which is not sufficiently appreciated.”
For the present the number of deposit offices as a
, general thing is still rather insignificant, not only in
the case of the 32 amalgamated banks, which at the
end of 1908 had only 102 such offices, but also in the
case of the other provincial banks; but it can hardly
be doubted that it will greatly increase. It is also
entirely probable that the number of deposit offices
of the Berlin great banks, which even now is quite con
siderable (264 at the end of 1908), will be multiplied
both in Berlin and elsewhere. Even now there are
streets in Berlin which, as regards the deposit offices
of the several banks, fully answer the description given
of the conditions in London: “ In one of the London
suburbs there are on a single street, within a radius of
701
National
Monetary
Commission
ten minutes’ walk, seven branches, and three more on
an adjoining street.” 1 0 In fact, in Berlin the radius of
5
ten minutes’ walk would have to be shortened.
Soon the time will come when the array of deposit
offices in Berlin will vividly recall the picture drawn of
the region between Duisburg and Dortmund as an illus
tration of industrial concentration: ‘‘ Shaft follows shaft;
furnace crowds on furnace.” 15
1
4
1
702
PART V. THE MUTUAL INFLUENCE OF CONCEN
TRATION IN BANKING AND IN INDUSTRY.
I.
I
n d u s t r ia l
C
o n c e n t r a t io n
C
a u s e s
a n d
I
t s
P
r in c ip a l
.
As the present book is not exclusively devoted to a
study of the development of concentration, the question
whether concentration of banking has been influenced by
concentration in industry, and vice versa, can only be
discussed in outline.
i . The beginning of the tendency toward concentration
in industry is necessarily coincident with the moment at
which domestic industry is replaced by what is called
town industry— production for one’s own use by produc
tion for customers, where the product of labor is no longer
intended exclusively for the consumption of the worker
and his family, but also to satisfy the needs of others.
The demand for this product begins forthwith to create
the laws of production. At that moment begins the
necessity of division of labor. With increasing uniformity
of demand and increasing concentration of requirements
there arises also the necessity of extending the volume of
production and concentrating the producing units.
The increase of the volume of production becomes
necessary also by reason of the knowledge, gradually
gained, that production becomes profitable only after it
has reached a certain amount. The profitableness of pro
duction depends, among other things, on the greatest
703
possible diminution of the cost of operation, which, in
industry at least, as a rule, diminishes in proportion to
the increasing size of the establishment. Now, the possi
bility of development of production with simultaneous
increase of profit and relative diminution of cost of
operation depends largely on the centralization of opera
tions and of management.
Such centralization may be attained in various ways:
(a) By concentrating the industry as much as possible
in certain localities (districts, towns) with a numerous
trained and cheap labor force or with available water
power and other advantages, such as convenient, rapid, and
cheap transportation of raw material and of industrial
products by water or land, etc.
i (6) Through the combination of establishments,1 which
is effected—
! (i) Through the union of an establishment with other
establishments engaged in operations preceding or follow
ing in the process of production, one of them furnishing
the raw material, while the other works it up. This is
the combination of several stages of production. In
this iway coal mines are combined with furnaces, steel
works with furnaces, machine factories with rolling mills—
that is to say, establishments which depend on each other
for the supply of raw material, such as ore and coal, or
establishments which depend on each other as regards
the finishing of the products, such as pig iron, wrought
iron, blooms, rolled wire, etc.
(2) Through the union of several plants working side
by side.
The
G e r m a n
G r e a t
B a n k s
(3)
Through the union of related plants or of such as
bear toward each other the character of auxiliaries.
Such cases occur, for example, when iron furnaces
combine with coal mines into “ furnace-mines” or when
coal mines unite with iron furnaces into “ mine-furnaces.”
According to the German cartel inquiry, there were
4,962 plants in the German iron industry alone that
had entered into such combinations up to 1905, com
prising 18 branches of production. Of these 4,962 com
bined plants, 12 united with 10 others, 23 with n
others, and 29 with 12 others.2 The advantages of
such combinations, from the standpoint of operating
technique, consists in this— that the several operations
come under one management, which sees to it that
the different plants shall work hand in hand and act
as mutual checks, so that, for example, the finishing
plant shall receive from the other plants material of only
such grade and composition as it needs for its special
.purposes, while poor material and waste may easily
find use in the original plant. There is also an opportunity
for a better division of labor or, conversely, a more
rational combination of labor. The economic advantages
consist, in the main, at least in most cases, in a dimi
nution of the general expenses of operation, of the cost
of raw material, of freight rates, etc., also in a kind of
insurance, since one branch can make a profit while the
other is losing, and diversified production may com
pensate for an unfavorable market condition in one
branch by a favorable one in another, while the complete
stoppage of an individual plant, which is apt to be
hurtful, both technically and economically, can more
90311 ° — 11------ 46
705
easily be avoided. Again, in mixed works, barring
provisions to the contrary in the cartel contracts, the
production and sales in one branch— that is to say, one
stage of production— may be enlarged in critical times,
while that in another branch is curtailed.
The advantages of such combinations are further
enhanced when the different plants are also concentrated
locally, “ so that a combination of enterprises is joined
to a combination of operations.” 3 This, however, is
not usually the case.
A combination of operations may also be effected—
(c) Through other modes of concentration, as, for ex
ample, through the complete union of several enterprises,
even though of different nature, by way of fusion, or
through the establishment of a community of interest, or
through the purchase of the stock of another enterprise,
or through the making of contracts excluding competition
or aiming at the delivery of coal or ore, etc. on preferen
tial terms, etc., or, finally, through a combination of mere
operation in conjunction with fusion- or community-ofinterest agreements.
A}J these cases may be illustrated by an abundance of
examples. I will only cite a few of the more recent ones.4
Among fusions may be mentioned: The Hoesch Iron
and Steel Works with the Westfalia mines; the Rheinische
Stahlwerke with the Zentrum mines; the Eschweil Roll
ing Mills with the Ehrenfeld Tube Works; the Phoenix
Mining and Smelting Stock Company with the N ordstern
,
coal mines (1907); the Bismarckhiitte with the Bethlen
Falva Iron and Steel Works (1906); the German-Austrian
Mannesmann Tube Works with the Saarbriicken Cast
706
The
G e r m a n
G r e a t
B a n k s
Steel Works. Under this head come also the purchase of
stock in the machine factories of Escher, Wyss & Co.
in Zurich by the Felten & Guilleaume-Eahmeyer Works
Stock Company (1906); and the acquisition of the Upper
Suabian Cement Works Stock Company by the Stuttgarter Immobilen- & Baugeschdft (1906). Other com
binations were the acquisition of the Henrichshutte with
rolling works and furnaces by the locomotive factory of
Ilendschel & Son in Kassel (1904), the community of
interest of the Upper Silesian Railway Operation Stock
Company with the firm Steffens & Nolle in Berlin, and
the community of interest of the Berlin-Anhalt Machine
Construction Stock Company with the Stettin Fireproof
Tile Factory Stock Company, formerly Didier, etc.
The following cases of most recent occurrence are of
special interest because of the motives that prompted the
combinations.
The acquisition of the Huldschinsky Smelting Works
Stock Company by the Upper Silesian Railway Supply
Stock Company by way of fusion, which took place in 1905,
was mainly prompted by the fact that in this way the
works of the former company received a welcome com
plement in the shape of raw material and half-finished
products which they had till then lacked, while the
absorbing company was thereby enabled through ex
change of labor to systematize and extend its operations.
The fusion of the Phoenix Mining and Smelting Stock
Company in Ruhrort with the Hoerder Mining and Smelt
ing Company, that is to say, two works of quite the same
nature, was mainly prompted by the fact that the two
works, notwithstanding their great size, were incomplete
707
National
Monetary
Commission
in certain ways, which were to be remedied by fusion.
In the case of the Phoenix, the incompleteness consisted
in an insufficient crude steel production, in the case of
the Hoerder Union— in an insufficient production of its
own coal, especially of coal suitable for coking. After
the fusion, each was enabled to furnish to the other
that which before they could only acquire by outside
purchase. Now they obtained these articles in such
quantity and of such quality as needed, a point which
is of special importance.
In this case, therefore, the fusion was effected for tech
nical reasons, despite the fact that the two works were far
apart geographically, one being located on the extreme
western, the other on the eastern border of the RhenishWestphalian industrial region. Similarly, the commu
nity of interest effected in the chemical industry be
tween the Hoechst Dye Works, formerly Meister, Lucius &
Briining at Hoechst-on-the-Main, and the firm of Leopold
Cassella & Co. at Frankfort-on-the-Main, to be described
in detail later on, was founded essentially for the reason
that the one produced certain raw materials required by
the other in its production, and that the two works are in
position to supplement each other favorably as regards a
number of products produced by the one and purchased by
the other. In addition, there was danger of a constantly
growing competition between the two works in certain
products.
Later on we shall have occasion to set forth the devel
opment of the concentration that took place in the
electro-technical industry, where it proceeded by leaps and
bounds.
708
The
German
Gr eat
Banks
2. The combination of enterprises brought about by
the above-described and other economic and technical
causes promoted at the same time the grouping of inde
pendent enterprises in the form of cartels, of which we
have spoken in detail in an earlier section (p. 167 and
following). The reason is that the chances of cartel for
mation in an industry increase with the growth of produc
tion and the size of the enterprises. One essential condi
tion of the formation of cartels, or, at any rate, one
condition which greatly promotes that process, as we have
seen, is the existence of a small number of concentrated
enterprises of vast extent— the fewer in number the better—
and the consequent large-scale production of staple goods.
3. The formation of cartels, in its turn, greatly pro
moted industrial concentration in its various forms, espe
cially the combination of establishments and the fusion of
enterprises, being the main cause of the rapidity with
which the industrial concentration was accomplished.5
The reason was that concentration offered to the indus
trial enterprises(a) a means of securing in a better position within the
cartels. In this way, for example, the mines united in the
Rhenish-Westphalian Coal Syndicate endeavored to ob
tain a higher quota within the cartel by combining with
other mines which at the time were idle or not profitable.
Under this head come the acquisition of the Steingatt mine
by the Konkordia Mining Company, of the Helene Mine by
the Nordstern Stock Company, of the Bommerbanker
Tiefbau Mine by the Mont-Cenis Mining Concern, etc.
(b) a means to make themselves independent of the
cartels, either entirely or, at least, as regards part of their
709
production. Thus, for example, the iron works united in
the Rhenish-Westphalian Pig Iron Syndicate, while unable
to increase their production quota, were yet able to employ
their works more remuneratively than would have been
possible under the syndicate conditions, by producing nonsyndicated articles, which they were enabled to do through
combination.
Similarly, the formation of the Rhenish-Westphalian
Coal Syndicate induced the iron works to acquire coal
mines, because the coal produced by themselves cost them
less than that bought of the syndicate.
The following examples may be mentioned:
Under the first coal syndicate: The fusion of the
Vereinigte Westphalia Mine with the Hoesch Iron and
Steel Works (1899); of the Vereinigter Hannibal Mine
with Friedrich Krupp (May, 1899); of the Pluto Stock
Company with the Schalke Mine and Furnace Stock
Company (June, 1899); of the Dannenbaum Stock Com
pany with the Differdingen-Dannenbautn Stock Company
(end of 1899); of the General Mining Concern with the
Lorraine Smelting Corporation Aumetz-Friede (January,
1900); and of the Zentrum Mining Concern with the
Rhenish Steel Works (May, 1900).
Under the second coal syndicate: The union of two works
into the United van der Zypen Steel and Wissener Iron
Works Stock Company at Cologne-Deutz (September,
1903); the union of the Lorraine Smelting Corporation
Aumetz-Friede with the Fentscher Furnace Works (Octo
ber, 1903) ; of the Upper Silesian Iron Industry Stock Com
pany and the Bismarckhiitte (February, 1904), and of the
above-mentioned Henrichshutte of the Dortmund Union
710
The
G e r m a n
G r e a t
B a n k s
with the Hendschel & Son Locomotive Works (March,
1904).6 For the same purpose, other enterprises ac
quired small coal fields, on which they themselves estab
lished coal mines, as, for example, Stumm Brothers, who
acquired the Minister Achenbach coal field, the Georg
Marien Mine-Furnace Corporation, which acquired coal
fields near Osnabriick (Werne), the firm de Wendel, which
acquired the de Wendel mine near Hamm, the Maximilian
Furnaces, which acquired the Maximilian coal mine near
Hamm, Friedrich Krupp and the North German Lloyd,
who acquired the Emscher-Lippe mine near Mengede.7
The Upper Silesian Coal Convention did not equally pro
mote the acquisition of coal mines by smelting works,
because nearly all the great smelting works of Upper Silesia
had had their own mines in most cases since their founda
tion. The same remark applies to the Ruhr district.
Thus, the Bochum Cast Steel Corporation had had coal
mines of its own since 1868, the Dortmunder Union since
1872, and the same was true of Friedrich Krupp, the
Horder Miring and Smelting Association, the Phoenix
(in the last-mentioned case through the purchase of the
Meiderich Coal Mining Company and the Westend, Ruhr,
and Rhein mines in 1886), and finally the firm August
Thyssen (through the acquisition of the Deutscher Kaiser
mine).
Finally, the concentration of enterprises served—
(c)
as a means to secure a stronger basis and reduce the
number of serious competitors, in the event that the
Rhenish-Westphalian Coal Syndicate should not be re
newed at its expiration in 1915, or in case it was broken
up before that time.
7u
m mission
This applies particularly to the association of the two
iron works, the Aachener Smelting Company Rote Erde
and the Schalke Mining and Smelting Company with
the Gelsenkirchen Mining Company (Jan. i, 1905). The
advantages of this union will become apparent only later,
because, so long as the present coal syndicate exists, the
furnace-mines, so far as their coal production exceeds their
own consumption, are bound by the provisions of the
coal syndicate, a situation which no fusions can alter.
II.
T
h e
I
n f l u e n c e
c e n t r a t io n
o n
o f
I
t h e
B
a n k s
n d u s t r ia l
C
a n d
B
C
a n k in g
o n c e n t r a t io n
o n
.
From the statements just made it is evident that the
immediate reasons for industrial concentration, perhaps
also the weightiest reasons, especially in the coal and iron
industry, were technical in character, arising from the
nature of industrial operations and large-scale production,
and from the formation of cartels within the industry.
At the same time that concentration was also influenced,
promoted, and even made possible by the banks and their
concentration.
As might be expected, this influence differed with the
various branches of industry, being decisive in some cases,
less so in others, and hardly perceptible in some cases.
I. INFLUENCE OF BANKS ON INDUSTRIAL CONCENTRATION UNAFFECTED OR
BUT SLIGHTLY AFFECTED BY THE FORMATION OF CARTELS.
If it be permitted to distinguish between creditor in
dustries and debtor industries, according as they are able,
as a rule, to keep balances in their favor in the banks, or
are obliged, as a rule, to ask the banks for credit, we may
712
The
G e r m a n
G r e a t
B a n k s
say that, on the whole, the electro-technical industry,8
as hitherto developed, is in the main a debtor industry,
while the chemical industry is a creditor industry. In
the mining industry the relation varies with the times,
companies, and market conditions.
(a )
t h e
e e e c t r o
-t
e c h n ic a e
in d u s t r y
.
The very fact that the electro-technical industry was in
the main a debtor industry would suffice to show, if any
proof were needed, that the development of that industry
(and the same is true of the street railway and minor rail
way business largely connected with the electrical business)
would have been simply inconceivable at any stage of its
concentration without the help of banks. At the very
birth of the industry, in the beginning of the eighties, that
aid was all the more necessary and welcome, because at
that time the possibility of the development of electric
light and power on an industrial scale was doubted by the
immense majority of the population. In this matter,
therefore, the banks which, despite the great risk, did not
refuse their aid, may justly claim to have been in part
creators of one of the most vigorous and important
branches of German industry of the present day. In order
to set forth the influence of the banks on the electro
technical industry, it is necessary to sketch the external
development of that industry in Germany.
In 1883, with the vigorous cooperation of a number of
banks and banking firms, the first German stock company
in the electric industry was established by Emil Rathenau, in concert with Siemens & Halske, the Paris Expo
sition of 1881 having led to the conviction, especially in
713
mmission
Rathenau’s mind, of the great possibilities of the new in
vention. That stock company was the “ German Edison
Company for Applied Electricity” (Deutsche Edison Gesellschaft fur angewandte Elektrizitat), which in 1884 made
itself completely independent of Siemens & Halske and in
1887 assumed the present firm name of the Allgemeine
Elektrizitats Gesellschaft (General Electric Company). It
succeeded in improving the so-called three-phased current
system to such an extent that in 1891 it was able to con
duct 300 horsepower with very favorable working effect a
distance of 173 kilometers to the electric exposition in
Frankfort-on-the-Main, an achievement which produced a
great impression.
In 1896 there were already in existence, as noted else
where (p. 123), 39 stock companies in the electrical indus
try, nearly all of them called into life by the aid of banks.
In 1900 the German bourses had already listed the stock
of 34 such stock companies, with capital of 436,000,000
marks (in Berlin alone 22 companies with capital of
396.700.000 marks) for trade and quotation. The divi
dend income of stockholders in those 34 stock companies
in the period 1883-1900 averaged 8.38 per cent.
In 1898 the total production of the German electro
technical industry was valued at 228,700,000 marks;
211.100.000 marks, or 92.3 per cent, being the value of
products of the strong-current factories, which twenty
years earlier was insignificant, while the products of the
weak-current industry in 1898 amounted only to 17,600,000
marks. Beginning with the middle of the nineties the
expansion of the electro-technical industry was enormous.
It can not be denied, however, that this rapid and desul714
The
G e r m a n
G r e a t
B a n k s
tory expansion was largely responsible for the general
overproduction which led to the crisis of 1901.
The fact is that during those years, up to 1900, a veritable
chaos of forms of enterprises and methods of financing had
been developed within the electrical industry, resulting in
seven groups with 28 companies, as follows:
I. The Siemens & Halske group, with:
x. The Siemens & Halske Stock Company in Berlin.
2. The Swiss Company for Electric Industry in Basle.
3. T he “ Siemens” Electric Works Stock Company, Berlin.
4. The Electric Light and Power Establishment Stock Company,
B e r lin .
II. The A. E. G. (Allgemeine Elektrizitats-Gesellschaft) group, with:
1 T he Allgemeine Elektrizitats-Gesellschaft (General Electric Com
pany), Berlin.
2. The Bank for Electric Enterprises, Zurich.
3. The General Local and Street R ailw ay Company, Berlin.
4. The Electricity Supply Company, Berlin.
III. The Schuckert group, with:
1. The Electricity Stock Company (formerly Schuckert & Co.), N u
remberg.
2. The Continental Company for Electric Enterprises, Nuremberg.
3. The Rhenish Schuckert Company for Electric Industry, Mannheim.
4. The Elektra Stock Company, Dresden.
IV . The U. E. G. (Union Electric Company) group, with:
1. The Union E lectricity Company, Berlin.
2. The Com pany for Electric Enterprises, Berlin.
V . The Helios group, with:
1. T he Helios E lectricity Stock Company, Cologne.
2. The Stock Company for Electric Establishments, Cologne.
3. T he Stock Com pany Bavarian Electric Works, Munich.
4. T he Bavarian Electric Company, Helios Stock Company, Munich.
5. T he Electricity Company, F elix Singer & Co., and Bank for
Electric Industry, Berlin.
V I. The Lahineyer group, with:
1. T he Electricity Stock Com pany (formerly W. Lahmeyer & Co.),
Frankfort on-the-Main.
2. The German Com pany for Electric Enterprises, Frankfort onthe-Main. (9)
V II. T he Kummer group, with:
1. I h e Stock Com pany Electric Works (formerly O. L. Kummer &
Co.), Dresden.
2. The Stock Com pany for Electric Establishments and Railways,
Dresden.
7i 5
mm is s io n
V II. The Ktimmer group, with— Continued.
3. The Baltic Electricity Company, Kiel.
4. The Electric Stock Company (formerly Hermann Poge), Chemnitz.
5. The Northern Electric and Steel Works, Danzig.
6. The South German Electricity Stock Company, Ludwigshafen.
7. The Electric Operation Stock Company, Dresden.
Each of these groups thus had at least one trust company
associated with it, intended to relieve the banks of a part
of the financing operations (founding, transforming, issue)
to which they would otherwise hardly have been equal.
These were the companies marked 2 and 4 in Group I, and
2 in Groups II-VII. All these trust companies were
founded between 1894 and 1898. On the other hand, the
independent electric firms organized themselves into a
“ Union of Electro-technic Installation Firms in Ger
many” and the factories of electro-technic specialties— into
the “ Union for the Protection of Common Economic
Interests of the German Electro-technical Industry.”
Behind those seven groups of electric enterprises stood
at that time (1900) as many banks and groups of bankers
whose organization was caused by the vast demands made
on their financial capacity by the electro-technic industry
united in G ' corresponding groups. These banking
groups were as follows:
I. Siemens & Halske Stock Company:
1. Deutsche Bank.
2. Bank fur Handel und Industrie (Darmstadter Bank).
3. Berliner Handelgesellschaft.
4. Diskonto-Gesellschaft.
,
5. Dresdner Bank.
6. Mitteldeutsche Kreditbank.
7. S. Bleichroeder.
8. Delbruck, Deo & Co.
9. Jacob S. H. Stern, Frankfort-on-the-Main.
10. L. Speyer-Ellissen, Frankfort-on-the-Main.
11. Bergisch-Markische Bank.
716
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German
Great
Banks
II. General Electric Company:
x. Berliner Handelsgesellschaft.
2. Deutsche Bank.
3. Nationalbank fur Deutschland.
4. Delbruck, Leo & Co.
5. Hardy & Co.
6. Gebriider Sulzbach, Frankfort-on-the-Main.
7. E. Heimann, Breslau.
8. Rheinische Diskonto-Gesellschaft.
III. Electric Stock Company, formerly Schuckert & Co.:
1. W. H. Ladenburg & Sohne, Mannheim.
2. Anton Kohn, Nuremberg.
3. Kommerz- und Diskontobank.
4. Von der Heydt-Kersten & Sohne.
5. E. Ladenburg, Frankfort-on-the-Main.
6. J. Dreyfus & Co., Frankfort-on-the-Main.
7. Bayrische Vereinsbank.
8. Bayrische Hypotheken- und Wechselbank.
,
IV. Union Electric Company:
1. Disconto-Gesellschaft.
2. Dresdner Bank.
3. Bank fur Handel und Industrie (Darmstadter Bank).
4. A. Schaaffhausen’scher Bankverein. 10
5. S. Bleichroeder.
6. Born & Busse.
V. Helios Electricity Company:
1. J. L. Eltzbacher & Co., Cologne.
2. J. H. Stein, Cologne.
3. Sal. Oppenheim, Jr., & Co., Cologne.
4. Deutsche Genossenschaftsbank Soergel, Parrisius & Co.
5. Berliner Bank.
6. C. Schlesinger, Trier & Co.
7. Deutsche Effekten- und Wechselbank.
8. L. Behrens Sohne, Hamburg.
9. Niederrheinische Kreditanstalt.
VI. Elektrizitats-Aktiengesellschaft, formerly W. Lahineyer & Co.:
1. von Frlanger & Sohne, Frankfort-on-the-Main.
2. Bank fur Handel und Industrie (Darmstadter Bank).
3. Grunelius & Co., Frankfort-on-the-Main.
4. Oberrheinische Bank.
5. B. M. Strupp, Gotha.
6. D. und J. de Neufville, Frankfort-on-the-Main.
7. Phil. Nic. Schmidt, Frankfort-on-the-Main.
8. Joh. Goll & Sohne, Frankfort-on-the-Main.
717
n et a r y
m mission
VII. Aktiengesellschaft Elektrizitatswerke, formerly O. L. Kummer &
Co.:
1. Kreditanstalt fur Industrie und Handel, Dresden.
2 . Deutsche Genossenschaftsbank Soergel, Parrisius & Co.
The development, however, did not stop at this point.
The Kummer group (VII in the table above) collapsed in
1900. About the same time the Helios group lost a large
part of its importance, and ownership of the shares of its
trust company, the company for Electric Establishments
passed to the Electric Light and Power Establishment
Stock Company, one of the subsidiary corporations of
the Siemens & Halske group.
In the year 1902-3 a community of interest was con
cluded between the Allgemeine Elektrizitatsgesellschaft and
the Union-Elektrizitatsgesellschaft, the subsidiary company
of the Loewe concern, which was followed in 1904 by a
complete merger, accompanied by the combination of the
banks of the U. E. G. group (IV, 1-6) with those of the
A. E. G. group.
In 1903 a part of the Siemens & Halske enterprises were
combined with the Schuckert Company into the SiemensSchuckert-Werke G. m. b. H. (original capital 90,000,000
marks), so that at present the Lahmeyer and Helios
groups are confronted by the much more powerful Sieinens-Schuckert group and the Allgemeine ElektrizitatsGesellschaft.
Toward the end of 1908 an agreement for cooperation
was concluded between the Siemens-Schuckert group and
the A. E. G., with the result that they jointly organized
the Elektro-Treuhand-Gesellschaft (Electrical Fidelity Com
pany) with a capital of 30,000,000 marks, a credit institu
tion whose object is to make loans on securities issued by
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The
G e r m a n
G r e a t
B a n k s
electrical undertakings and, on the basis of the securities
deposited, to issue bonds. In this work it will have to
make use of the assistance of the great banks, solidly
united for this purpose. The object seems to be to
make loans, repayable in annuities, to large customers
in the electric industry— that is to say, mainly public
corporations and large private companies— for the pur
pose of enabling them to enlarge or remodel their plants,
so as to insure a permanent demand for light and power,
even under unfavorable market conditions, without the
investment of large capital.
Thereupon the Felten & Guilleaume-Lahmeyer-Werke
Aktien-Gesellschaft in the beginning of 1909 established a
similar credit institution under the name of Treuhand-Bank
fur die elektrische Industrie, Aktien-Gesellschaft in Cologne,
with a share capital of 25,000,000 marks. The by-laws of
both companies permit the issue of bonds up to three times
, the amount of their capital.
As regards the question of concentration, each of the
great electric companies, through the above-described
network of trust, operating, and subsidiary companies,
which as a rule can only be started with the aid of the
supporting banks, forms a widely ramified group, whose
gradual development, extension, and differentiation is
rendered possible, or at any rate largely promoted, by
the banks. But when such groups are once formed their
demands quickly outgrow the forces of a single bank,
which of course is interested in a multitude of other indus
trial enterprises. The natural result is the formation of
bank groups behind the industrial groups, so that at this
stage the industrial concentration tends once more
jig
National
Monetary
Commission
directly to induce and greatly to promote concentration
in the banking business. Finally, the many relations
existing between the several industrial groups and indi
vidual banks belonging to a group of banks (some banks
belong to several groups) lead the banks on their part to
promote further industrial consolidations. This was the
case in particular with the establishment of a community
of interest between theAllgemeine Elektrizitdts-Gesellschaft
(A. E. G.) and the Union-Elektrizitdts-Gesellschaft (U. E. G.),
founded by the firm Ludwig Loewe & Co. in 1902-3, which
subsequently (1904) was followed by the complete absorp
tion of the latter by the former, combined with the
admission of the banks of the Loewe group into the
A. E. G. group, which meant a complete realignment of
the groups previously existing.
Similar processes took place when, in 1898, the A.
Schaaffhausen’scher Bankverein, which till then had
occupied the leading position in the Schuckert group,
attempted to effect a combination of the Schuckert group
with the Loewe group (U. E. G. group), and failing in
this attempt, seceded from the Schuckert group and
passed over to the Loewe group. In this way the Schuck
ert group in its turn was driven to seek an alliance with
another group, which took place in 1903 in the form of
a combination with the Siemens & Halske concern,
though in this case the combination did not involve the
admission of the banks of the Schuckert group into the
Siemens & Halske group.
Thus we see a constant fluctuation of mutual influence;
we perceive the powerful effect which the grouping process
in the industrial field exerts on the similar process in the
720
The
G e r m a n
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banking field, and vice versa, and how readily changes in
the one induce changes in the other.
(b)
TH E
C H E M IC A L IN D U S T R Y .
The concentration movement presents an entirely
different picture in the chemical industry. As I ob
served above, the chemical industry may properly be
described, for a number of years back, as essentially a
creditor industry. It has been less subject to the sharp
alternations of business prosperity and adversity than
other branches of industry. On the other hand it has
had to face daily new problems.11
At the close of this period the chemical industry
passed through a development similar to that of the
electrical industry. This applies particularly to the
aniline dye works,12 which supply by far the greater
part of the world’s demand for artificial dyes. As a
result of severe domestic competition, however, these
establishments recently felt the need of combination.
The most important aniline (coal tar) dye factories of
Germany are the following: The Badische Anilin-und
Sodajabrik in Tudwigshafen-on-the-Rhine; the Farbenfabriken normals Friedrich Bayer & Co., in Elberfeld;
Leopold Cassella & Co., in Frankfort-on-the-Main; the
Farbwerke vormals Meister, Lucius & Briining, in Hochston-the-Main, and the Aktiengesellschaft jiir Anilinfabrikationu (Aniline Dyes Manufacturing Company) in
Treptow, near Berlin.
In October, 1904, a close alliance was founded by the
following two concerns: The Dye Works, formerly Meister,
Tucius & Briining, of Hochst-on-the-Main, a corporation
9 0 3 1 1 ° — 1 1 -------4 7
721
having at the time a capital stock of 20,000,000 marks
and a bonded debt of 10,000,000 marks, and the firm of
Leopold Cassella & Co., in Frankfort-on-the-Main. This
union became effective on January 1, 1904. Its primary
justification lay in the fact that the first-named concern
was producing a large variety of raw materials needed
by the latter in its manufacture. Furthermore, these
plants could advantageously supplement one another for
the reason that a number of commodities produced by
the one were needed by the other, while for a number
of commodities, there was danger of increasing competi
tion between the two concerns. This union involved the
interchange of raw materials, cooperation in all matters
of patents and licenses, the joint purchase of coal, and
joint activity in establishing branches both in Germany
and in foreign countries. It was expected that this
combination would call a halt on the enormous decline
in the prices of coal-tar dyes, and put these establish
ments in a materially stronger position to meet competi
tion of foreign producers, particularly those in Switzer
land. At the time that country did not afford protection
to patented chemical products, with the result that Swiss
factories could exploit German inventions without extra
expense to themselves, a situation that was remedied to
a limited extent by the most recent German-Swiss com
mercial treaty.
The combination was effected in the following man
ner: The firm Leopold Cassella & Co. was reorganized
as a limited liability company with a capital stock of
20,000,000 marks and a bonded debt of 10,000,000 marks,
and transferred to the Hochst Dye Works (formerly
722
The
G e r m a n
G r e a t
B a n k s
Meister, Lucius & B riming) 5,500,000 marks of its shares
in exchange for the same amount of shares newly issued
especially for the purpose by the Hochst works. The
capital stock of the latter concern had thus become
increased from 20,000,000 marks to 25,500,000 marks.
At the same time the partners of the firm Leopold
Cassella & Co. were made members of the supervisory
board of the Hochst Dye Works, while some members
of the executive board of the Hochst concern joined the
advisory board of the firm of Leopold Cassella & Co.
In 1908 the firm Kalle & Co., a stock company in
Bieberich-on-the-Rhine, joined the combination. This
union was effected by the acquisition of the majority of
the stock of the above company by the Hochst Dye
Works. The latter increased its capital stock by 10,500,000
marks to a total of 36,000,000 marks, using part of the
increase (1,600 shares) to acquire a controlling interest
■ (3,200,000 marks) in the concern Kalle & Co. The
dual alliance thus became a triple alliance.
On the basis of a contract entered into December 3,
1904, a closer union than the above was founded by the
Rhenish establishments, the Badische Anilin und Sodafabrik, of Ludwigshafen, having a capital stock of
21.000. 000 marks, and the Farbenfabriken normals Fried
rich Bayer & Co., of Elberfeld, having a capital stock of
21.000. 000 marks, on the one hand, and the Aktiengesellschaft fur Anilinfabrikation, of Treptow, near Berlin, hav
ing a capital of 9,000,000 marks, on the other. The lastnamed company was drawn into the combination during
the course of negotiations between the other two. It
was about to embark upon the manufacture of additional
7 23
articles on which the patents had expired, and to increase
its output through the establishment of a new plant at
Rheinau, being thus in a position to offer keen competi
tion to the Ludwigshafen concern. A triple alliance was
thus founded which became effective on January i, 1905.
The members were to share in the profits and losses of the
combination, 14 per cent of the joint results to be the share
of the Treptow concern and 43 per cent the share of each
of the other two.
It is self-evident that this development has not yet
reached its final goal. There is even now an agreement
between the Badische Anilin-und Sodafabrik and the
Hochst Dye Works by which they act in common in
fixing the selling price of artificial indigo manufactured
by both. It is quite likely that the Hochst-CassellaKalle & Co. combination and the other triple alliance
(Badische Anilinfabrik, Bayer, and the Aktiengesellschaft fur Anilinfabrikation) will gradually get together
in one way or another and at some more or less distant
future time form a consolidation of all aniline dye works
or some looser union.
There is no doubt that the decisive factors making for
the progress of concentration in the chemical industry
have been essentially technical ones. The initiative for
the developments thus far has come, in the main, we
may say, exclusively from the industry itself. The extent
of concentration, the direction taken, and the rapidity
of the movement have accordingly been dependent on the
special needs of the industry. Whatever the assistance
of the banks in the formation of these alliances and groups
in the chemical industry— not to speak of their initiative
724
The
G e r m a n
G r e a t
B a n k s
in this movement— is so little perceptible that it may
safely be put down as very slight, indeed. In marked
contrast to the progress of concentration in the electrical
industry, there is no evidence of any considerable influence
exerted by the banks on the movement toward concen
tration. Inversely, this industry has had as little effect
on concentration in banking.
2. IN FLU EN CE OF B A N K S AND BA N KIN G CONCENTRATION ON CONCENTRATION
IN IN D USTRIES WITH STRONG CA RTEL TEN D EN CIES.
(TH E M INING AND
M ETALLU RGICAL IN D U STR IES.)
The process of concentration consummated in the
mining industry presents an entirely different picture.
As we saw, it was largely influenced by the formation of
cartels. Here banks and concentration in banking
have exerted a vast influence on industrial concentration.
As we shall show in detail, this influence varied greatly
not only in the different districts, but also in the different
coal mines and iron works.
There can be no question that in mining as in other
industries the choice of the forms in which concentration
was effected— merger, community of interest, etc.— was
not made without the influence of the banks or with
out due regard to their business interests or policies.
This was but the natural outcome of the fact that bank
directors were represented largely on the supervisory
boards of the mining and metallurgical companies, fre
quently occupying the very influential posts of chairmen
or vice-chairmen. Moreover, the intimate relations with
the banks existing in all business, and notably in the
mining and metallurgical industries, as a result of credit
7 25
»
National
Monetary
Commission
and current-account relations, naturally had their effect
on the choice of the forms of industrial concentration.1
4
In discussing above the industrial activity of the A.
Schaafhausen’scher Bankverein (p. 509 et seq.), we men
tioned a large number of instances which could be readily
multiplied in which the bank not only brought about the
organization of new corporations, the change of private
firms into corporations and reorganizations, but also
effected mergers of concerns which formed part of its
clientele. It did this with the express purpose of com
bining establishments devoted to various operations, a
type of concentration discussed above (p. 704 et seq.).
Moreover, as we saw, the A. Schaafhausen’scher Bank
verein in 1899 assumed directly the function of a sales
agency and clearing house for the Federation of German
wire rope manufacturers. Going farther, it organized a
special Syndicate Bureau of the A. Schaafhausen’scher
Bankverein (Limited), with a capital of 1,000,000 marks.
The bureau was intended to serve for other industrial
combinations in the same capacity as the parent bank did
for the federation just named.
It is certain, moreover, that the entire German banking
world, as may be seen from numerous reports, not only
welcomed such important cartels as the Rhenish-Westphalian Coal and Iron Syndicates and the Steel Works’
Union, but in many cases helped to bring them into
existence, as far as it lay in their power and within
limits compatible with their other duties. This they
did not only in the interest of the general welfare, and of
the prosperity of industry in general, but in the last
analysis also in the interest of their own business,
726
The
G e r m a n
G r e a t
B a n k s
closely bound up with the growth and prosperity of the
industry which was to be fostered by the establishment
of cartels. An example of the banks’ activity in bringing
about the formation of a cartel is the case of the Phoenix.
The management of the Phoenix was unwilling to enter
the Steel Works’ Union— which could not be organized
without it— unless it received greater advantages than
the union felt able to grant. There is little doubt that
these efforts on behalf of the cartel were started by the
banks which were not represented on the directorate of
the Phoenix and which were therefore entirely free in
their action. We may also grant that those firms which
were represented on the board, as they asserted, refrained
from exerting a direct influence on their customers as to
how they should vote at the special meeting of stock
holders of April 26, 1904, at which final action was to
be taken. On the other hand, it is equally true that
they maintained an attitude of “ benevolent neutrality”
toward the wishes for the realization of the Steel Works’
Union.
A benevolent neutrality of this kind was maintained on
similar occasions also by banking establishments which
counted among their clients concerns, whose interests
lay in the opposite direction. In business, as in politics,
such an attitude may be of great importance. Under
given circumstances it may be equivalent to the ad
vancement of the cartel. At least it would absolve the
latter from the necessity of taking measures for defense or
of granting concessions such as might otherwise become
necessary. Hans Gideon Heymann1 therefore justly
5
assumes that with the A. Schaaffhausen’scher Bankverein
I
727
t
National
Monetary
Commission
in control of the Internationale Bohrgesellschajt (Inter
national Exploration Company) through ownership of an
overwhelming majority of its stock, it was certain that no
obstacles would be put in the way of the Coal Syndicate
from this source, such as might have arisen from the sale
of its coal fields to interests outside the syndicate.
As far as my knowledge and experience go, complete
neutrality toward a cartel contemplated in any branch of
industry has been observed by the banks only where
there was a conflict of interests, and whenever they were
forced into that position through having influential clients
in both camps. Such a conflict of interests has fre
quently existed between the coal and iron industries, and
has become very pronounced when syndicates were con
templated in either industry. It was such a situation
which dictated the position taken by the A. Schaaffhausen’scher Bankverein and the Berliner Handelsgesellschaft at the time when the organization of the first coal
syndicate was being planned. Both institutions were
maintaining close relations with the Harpener Bergbaugesellschaft; at the same time, however, both of them
had large customers among the iron works.
A similar situation confronted the banks in the struggle
which has continued to the present between the so-called
“ mixed” and the “ pure” works (see p. 175), and again in
the conflict between the pure works and the Steel Works’
Union, and particularly during that phase when the
former demanded the abolition of the tariff duties on
their raw materials, an issue involving far-reaching conse
quences for other industries closely related to the banks.
Here, however, there was an entirely different alignment
728
The
G e r m a n
G r e a t
B a n k s
of forces, which made it easier for the banks to decide
what position to take.
On the other hand, there were cases, when the affairs of
some powerful customers were bound up so closely with
the bank, that the latter felt constrained to help them
directly in carrying out their plans, even where circum
stances would have seemed to make it imperative for the
bank to observe neutrality.
Thus we pointed out that in the negotiations looking
to the formation of the first coal syndicate (in September,
1903) the Disconto-Gesellschaft was most active in its
assistance to the Gelsenkirchener Bergwerksgesellschaft, one
of its best customers, which took the leading part in the
negotiations. In the same way the Darmstadter Bank
must surely have used every endeavor to help the DeutschLuxemburgische Bergwerks- und Hiittenaktiengesellschaft
(German-Buxemburg Mining and Furnace Company) in
its efforts to organize or extend the Buxemburg-Borraine
Pig Iron Syndicate, for it had furnished the large resources
needed for the reorganization of the Aktiengesellschajt fur
Eisen- und Kohlenindustrie Differdingen-Dannenbaum (the
Differdingen-Dannenbaum Iron and Coal Corporation)
and its transformation into the above-named corporation,
and had made of it technically one of the best equipped
concerns in the industry. The same no doubt applies to
the A. Schaaffhausen’scher Bankverein, whose relations
to the Aumetz-Friede Company were so intimate as to
compel the bank to pursue a similar fine of action.
Under this head we may include also the strenuous
efforts made by the banks to prevent the taking over of
the Hibernia Mining Company by the Government, and
729
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N at ion a l
Mo n et a ry
Commission
to insure its independent existence by equipping it with
all modern means of existence and growth. This case is
of particular interest as illustrating in a marked form how
the industrial policies of the great banks are shaped
according to the character of their industrial clientele.
On the one side, opposed to the government ownership
of the Hibernia, there was arrayed a number of banks
headed by the banking firm of S. Bleichroder and the
Berliner Handelsgesellschaft. On the other side, favor
ing the Government, there were lined up other banks,
notably the Dresdner Bank and the A. Schaaffhausen’scher Bankverein, making equally strenuous though
futile efforts to carry through the acquisition of the mines
by the Government.
The activity of the large banks in the formation of
syndicates has, however, as a rule, more important con
sequences. As we observed, the organization of large
cartels, which in themselves represent a type of concen
tration, usually involves the erection, equipment, and
amalgamation of large “ mixed ” works devoted to a vari
ety of operations, thus promoting another form of concen
tration. Such were primarily the results of the organiza
tion of the great coal, iron, and coke syndicates. Particu
larly is this true of the Lorraine-Luxemburg Pig Iron
Syndicate, the operations of which extend also to the
export trade. This syndicate was first organized in 1879
under the lead of the trading firm of Spaeter & Co., which
was particularly interested in the Rombach Furnaces.
Establishments carrying on more than one operation, or
so-called “ mixed” works, have long been overwhelmingly
in the majority in the Lorraine industry, the beginning of
73 °
The
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B a n k s
which may be traced back to the thirteenth century. As
early as 1704 the de Wendel family had taken over the
Hayinger Works, and at the opening of the nineteenth
century it had established “ m ixed” works. With the
annexation of Lorraine part of the works was transferred
to France or French branches were founded.
The chief works on the Saar (Burbach, Dillingen,
Stumm, Rochling) added their own blast furnaces in the
eighties and nineties.16 The Diidelingen Steel Works
were built from the very beginning as a “ mixed ” establish
ment. Here there is no evidence that the banks were an
important factor in the movement toward concentration.
In the Saar district, where coal mining dates back to
the fifteenth century, the Prussian Government is in con
trol of by far the larger part of the coal fields. Here coal
mining was from the beginning a prerogative of the terri
torial overlord. The only noteworthy private interests
in this district are those of de Wendel, which have an
output in the Lorraine district of about one million
tons, and of the Saar- und Mosel-Gesellschajt. The latter
is under the influence of Thyssen, Stinnes, and the Dresdner Bank. New coal fields in the Lorraine district have
been located by the International Exploration Company
{Internationale Bohrgesellschaft), controlled by the
A. Schaaffhausen’scher Bankverein, both of these cor
porations being closely related to the Rhenish-West
phalian Coal Syndicate.
More than one-half of the iron furnaces in the Saar
district were in the hands of the Stumm family more
than one hundred years ago. The Neunkirchener Iron
Works, the Dillinger Hiitte Aktiengesellschaft, and the
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N a t io n a l
Monetary
Commission
limited company Gebriider Booking & Co. do not compete
with one another, and are owned in whole or in part by
the Stumm family. Each plant “ takes in the different
processes in the manufacture of iron from the ore to the
finished product,” but each specializes in the production
of different finished articles. Here, too, we can not speak
of any large influence of banks on the process of concen
tration. Neither the coke nor the pig-iron syndicate have
entered the district, the establishments in the Saar district
consuming raw materials produced in the same section.
There was, however, a conflict of interests between the
Saar establishments and the works in the Moselle and
Ruhr districts, the latter closely allied with the banks.
The Saar establishments carried on a vigorous campaign
against the Moselle Canal, fearing they would be injured
by it, while the Moselle and Ruhr works would benefit.
The banks interested in the latter plants had to refrain
from taking part in this conflict, out of regard for their
clients in the Saar district.
The mining industry invaded the Sieg district in the
fifties, when mineral coal supplanted charcoal. With it
came the influence of capitalism as represented by the
banks. Mineral coal involved operation on a large scale
and this meant the application of capitalist methods.
When in 1856 the old furnaces of the Musener Stahlberg
were united into one of the most important of the mixed
establishments in the customs union— the Koln-Musener
Bergwerks-Aktien-Verein— there stood at the head of it
great Rhenish bankers and merchants like Deichmann
and Mevissen.1
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@FedFRASER