Full text of Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy

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61ST CONGRESS

2d Session

j DOCUMENT

SENATE

N o . 405

Interviews
on the

Banking and Currency
Systems
of

England, Scotland, France,
Germany, Switzerland,
and Italy
Under the direction of

H O N . N E L S O N W. ALDRICH
Chairman
NATIONAL MONETARY

COMMISSION

Washington : Government Printing Office : 1910

NATIONAL MONETARY

NELSON W. ALDRICH, 1
EDWARD B . VREELAND

COMMISSION.

.hode Island, Chairman.
New York, Vice-Chairman.

JULIUS C. BURROWS, Michigan.

J E S S E OVERSTREET, Indiana.

E U G E N E H A L E , Maine.

J O H N W . W E E K S , Massachusetts.

PHILANDER C. K N O X , Pennsylvania.

ROBERT W. BONYNGE, Colorado.

THEODORE E . BURTON, Ohio.

SYLVESTER C , S M I T H , California.

J O H N W. DANIEL, Virginia.

LEMUEL P . PADGETT, Tennessee.

H E N R Y M. TELLER, Colorado.

GEORGE P . BURGESS, Texas.

HERNANDO D. MONEY, Mississippi.

A R S E N E P . P U J O , Louisiana.

JOSEPH W . BAILEY, Texas.

ARTHUR B . SHELTON, Secretary,

A. P I A T T ANDREW, SPe

vial Assistant to Commission.

CONTENTS.
ENGLAND.
Page.

The Bank of England
The Union of London & Smith's Bank
The London Joint Stock Bank
Lord Swaytheling.._
The Union Discount Company of London
The London and Westminster Bank
Lord Avebury

7
34
60
92
104
115
118

SCOTLAND.

Royal Bank of Scotland
Bank of Scotland—
Union Bank of Scotland
Commercial Bank of Scotland

127
142
157
172
FRANCE.

Bank of France
Credit Lyonnais
Comptoir d'Escompte
Banque de Paris et des Pays-Bas
Credit Foncier
Minister of Finance
Caisse des D6p6ts et Consignations
Credit Agricole
Caisses d'Epargne (Savings Banks)

189
219
249
268
277
292
296
309
324

GERMANY.

Reichsbank
The Royal Seehandlung
The Deutsche Bank
_*
The Dresdner Bank
Disconto-Gesellschaft
Berliner Handels-Gesellschaft
Pfandbrief Bank- _
Preussische Central-Bodencredit Actien-Gesellschaft
Preussische Central-Genossenschafts-Kasse
The Schulze-Delitzsch Cooperative Societies
Kur-und-Neumarkisches Ritterschaftliches Kredit Institut,
Neues Brandenburgische Kredit Institut, and Kur und
Neumarkische Ritterschaftliche Darlehns Kasse

335
359
371
392
419
422
424
43 2
441
452
469

National

Monetary

Commission
Page.

Berliner Kassen Verein
Berliner Sparkasse
Herr von Mendelssohn..
S. Bleichroeder

486
488
494
496

SWITZERLAND.

Swiss National Bank

501
ITALY.

Banca d' I talia.

511

ENGLAND

THE BANK OF ENGLAND.
Report of answers to questions addressed to the Governor and
Directors of the Bank of England.

Q. When was the Bank of England founded?
A. In July, 1694.
Q. When does your present charter expire?
A. The bank's exclusive privileges of banking continue
subject to one year's notice and to repayment by the Government of the debt of £11,015,100 and of all other public
debt held by the bank at the time.
Q. What is the par value and present selling price of
your shares?
A. The bank's capital is in the form of stock, £100 of
which is at present quoted at about £267.
Q. How many stockholders have you?
A. There are at present over 10,000 accounts.
Q. Is the stock fully paid?
A. Yes.
Q. Have your shareholders any liabilities in addition
to the ownership of shares?
A. Legal opinion is to the effect that there is no further
liability on bank stock.
Q. Is there any limit to the number of shares which
may be held by any one person, and is your approval required before a transfer of your stock can be made?
A. There is no limit—the bank's approval is not required.
Q. How often do your shareholders meet?

National

Monetary

Commission

A. There are two half-yearly general courts for receiving
half-yearly reports and for the declaration of a dividend.
There is also an annual general court for the election of
governors and directors.
Q. Does every share have a vote at shareholders'
meetings?
A. To have a vote a proprietor must hold £500 of stock,
but no matter how much additional stock a proprietor may
hold he can not have more than one vote.
Q. What control have the shareholders over the management and conduct of the business?
A. The proprietors, i. e., the holders of bank stock, elect
the governors and directors and may make what by-laws
they please in general court for the conduct of the bank's
business, provided that the "by-laws be not repugnant to
the laws of this our Kingdom.''
Q. Has the Government any voice in the management
of the bank or any interest in it through the ownership of
shares?
A. The Government has no voice in the management of
the bank, nor does it own any stock. The members of a
government may of course hold stock in their individual
capacity.
Q. Describe the organization and management of the
bank, stating the number of officers and directors with
their respective functions, and for what periods and by
whom are they elected?
A. The supreme control of the affairs of the bank rests
with the governor, deputy governor, and court of 24 directors, who are elected annually by the stockholders.
It is customary for a governor and deputy governor,
at the close of their first year of office, to be reelected
to the same positions for a further term of one year,

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England

and a deputy governor is usually elected to the office of
governor immediately on vacating the former position after
the completion of a two years' tenure of that appointment.
The governor, whilst directing the general policy of the
bank and supervising and controlling the whole of its affairs, devotes his attention more especially to the business
of the head office, whilst the deputy governor concerns himself more particularly with the business of the branches and
with the upkeep and maintenance of the bank's various
premises.
The directors, in addition to attending the weekly
meetings of the court, serve on various committees appointed by that body.
As regards organization, it will probably suffice to say
that the bank is divided into two great departments:
i. That under the chief accountant, who is responsible for the management of the stocks forming the national
debt and other registered stocks—home, indian, colonial, etc. He also keeps the bank's own accounts.
2. That under the chief cashier, who has charge of the
issue and payment of notes and all banking business,
such as drawing accounts, loans, discounts, and all other
matters involving dealings in cash.
There are also the secretary's department and the audit
department, the titles of which sufficiently indicate the
duties respectively performed by them.
Q. Is it customary to reelect directors at the expiration of their terms?
A. It is customary for directors to be reelected.
Q. Is there any custom restricting the class from which
the directors may be selected?
A. There is no legal restriction as to the class from which
directors may be selected, except that they must be

National

Monetary

Commission

"natural-born subjects of England, or naturalized," but in
actual practice the selection is confined to those who are,
or have been, members of mercantile or financial houses,
excluding bankers, brokers, bill discounters, or directors
of other banks operating in the United Kingdom.
Q. How frequently do the directors meet?
A. The court of directors meets once a week. Subsidiary committees are held as required.
Q. How many branches have you?
A. There are n branches—2 in London and 9 in the
provinces.
Q. How are your branches managed?
A. These branches are managed by "agents" and "subagents," corresponding to "managers" and "submanagers" in other banks.
Q. Who names the managers of branches?
A. The agents and subagents are appointed by the court
of directors.
Q. Have the managers of the branches full control
of the business in granting discounts, etc.; if not, what
discretion is usually given them?
A. The agents have full control of the business at their
respective branches, subject to regulations and to supervision from head office.
Q. Have you any system of distribution of profits
among the managers of branches?
A. No.
Q. Are all your branches of the same class, or have
you main and subsidiary branches?
A. All the branches are of the same class.
Q. Is the business conducted at your branches of the
same class as at your main office in London?
A. Yes.

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England

Q. Do your branches have business relations with
merchants, farmers, and all classes of people in their
respective localities?
A. There are no restrictions of any kind as to the class
of people with whom the bank has business relations.
Q. How frequently are you required by law to publish
statements of condition?
A. By the act of 1844 statements must be published
weekly.
Q. How frequently is it your custom to publish them?
A. Weekly.
Q. Is either your issue or your banking department at
any time examined by the Government, or in any way
under its supervision?
A. There is no actual inspection or supervision by the
Government; but by act of Parliament the bank is required to furnish weekly statements of their position to
the chancellor of the exchequer and to the commissioners
of stamps and taxes.
Q. What local or general taxes are paid by the bank?
A. The bank is subject to the same local and general
taxes as other banks and householders.
Q. Is the Bank of England a member of the London
Clearing House?
A. Yes; but "on one side only," as it is termed. The
Bank of England presents, through the clearing house,
all drafts drawn on clearing bankers paid in to it by
its customers; but the clearing bankers do not present,
through the clearing house, drafts on the Bank of England paid in to them by their customers. Such drafts
are paid direct to the credit of their accounts at the Bank
of England.

National

Monetary

Commission

Q. In the statement of your issue department you
show—
Liabilities.
Notes issued
£53,364,645

Assets.
Government
debt

Other securities.
Gold coin and
bullion
53, 364, 645

£11,015,100

7,434,900
34,914, 645
53, 364, %5

What is the law governing your note issues, and how are
note issues limited and how secured?
A. The law governing the issue of Bank of England
notes is 7 and 8 Vict., Cap. 32. Notes are issued against
securities to the amount of £18,450,000. Beyond this
sum notes may be issued to any amount against gold coin
and gold and silver bullion; but at no time must the silver bullion held exceed one-fourth part of the gold coin
and bullion at such time held in the issue department.
(No silver bullion has been held for many years.) The
act of 1844 fixed the amount of the fiduciary issue—i. e.,
the amount of notes issued against securities—at
£14,000,000, but empowered the Government, in the
event of any banker then issuing notes ceasing such issue,
to authorize the Bank of England, upon making application, to increase the amount of its fiduciary issue to an
extent not exceeding two-thirds of the amount of notes
which the bank so ceasing may have been authorized to
issue.
Q. Will you explain the items "government debts" and
"other securities'' in the statement and give the reasons
for the changes in amount since 1844?
A. The government debt of £11,015,100, which appears
as an asset in the issue department, is the balance which

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England

was outstanding in 1844 of amounts which had been advanced to the Government and which, by the act of that
year, the bank is empowered to include in the securities
against which notes are issued. The other securities are
the securities required to make up the amount of the authorized fiduciary issue, which now stands at £18,450,000.
The increase of £4,450,000 since 1844 represents twothirds of lapsed issues of other banks taken up under the
authority explained in answer to earlier question.
Q. To what extent are your notes legal tender in Great
Britain?
A. In England and Wales for sums above £5. They
are not legal tender in Scotland.
Q. What other banks have the right of issue in England?
A. Twenty-three provincial banks, the survivors of
those to whom the right of note issue was preserved by
the act of 1844, the total amount of their authorized issue
being £1,204,490.

Q. Are the notes of your issuing banks secured; and
if so, how?
A. On the general assets of the banks and on the estates of the shareholders, as under the companies act of
1879, there is no limited liability with regard to note
issues.
Q. What is the total amount of their outstanding issues?
A. The aggregate of their average circulation for the
week ending 8th May, 1909, was £312,886.
Q. Are the notes of other banks legal tender?
A. No.
Q. Is there any discrimination between the notes of
other banks and your notes in the public estimation, or
do all circulate freely throughout the country?

National

Monetary

Commission

A. In some outlying rural portions of the limited districts where the 23 provincial banks do business the local
note may perhaps be more frequently seen than the Bank
of England note. Outside the particular district of one
of these provincial banks the notes of that institution
would not pass freely.
Q. Do you pay the Government in the form of taxes,
or otherwise, either directly or indirectly, for your privilege
of note issue?
A. See answer on page 16.
Q. Do other issuing banks pay for the privilege of note
issue?
A. Prior to 1844 the other issuing banks were required
to take out a separate annual license in respect of each
of the first three towns or places at which notes were
issued by them, and one further annual license to cover
all additional towns or places at which they issued notes.
By the act of 1844 they are required, in addition to the
above, to take out a further annual license in respect of
every town or place at which the first issue of notes took
place at a date later than the 6th May, 1844. The stamp
duty on each annual license is £30.
Q. Have you acquired the right of issue from any other
bank, and upon what terms?
A. Since the passing of the act of 1844 the Bank of
England has acquired and exercised the right to issue
notes against securities to an additional amount of
£4,450,000 (see answer on p. 10).
Q. To what do you attribute the weekly and seasonal
fluctuations in the amount of outstanding notes, and are
these fluctuations constant from year to year?
A. The active circulation, or total of notes held by the

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England

public, generally reaches its maximum and minimum at
the following times:
Maximum.
i. Weekly
2. Quarterly

3. Yearly

Monday or Friday
Beginning and end of quarter
(in third quarter at beginning
of August in addition).
Beginning of August

Minimum.
Saturday.
Middle of quarter.

Middle of February.

These variations may be explained thus:
i. Weekly.—There has been a steady reduction of late
years in the volume of business conducted in London on
Saturdays, and the amount of the notes withdrawn from
the bank on that day is now as a general rule very much
less than on the other days of the week. The balance
outstanding at the close of the day generally shows, therefore, a material shrinkage.
On Mondays notes are withdrawn in larger quantities
than usual in order to replenish tills after the reduction
in the amounts held on the previous Saturday, whilst on
Fridays also the withdrawals are above the average to
meet the demands occasioned by weekly payments, such
as wages, etc.
2. Quarterly.—The increased total at the close of each
quarter is occasioned by withdrawals to meet payments
due on the four quarter days, Lady Day, Midsummer,
Michaelmas, and Christmas.
3. Yearly.—The large total at the beginning of
August—of late years generally the maximum for the
year—is due to withdrawals for holiday and harvest purposes, whilst the low figures which usually occur in the
middle of February may be attributed to the absence of
any holiday demand, and to the fact that reaction after

National

Monetary

Commission

Christmas, coupled with the comparative absence of visitors to London, causes the retail trade to be less active
than in the second and fourth quarters.
Q. Are you willing to inform us as to the expense of
note issue and the profits derived therefrom?
A. The bank is not prepared to furnish the detailed
information asked for. The following facts bearing on
the matter may be ascertained, however, from acts of
Parliament and from the Annual Report on the Finance
Accounts of the United Kingdom presented to Parliament. The bank is required to pay annually to the Government the following sums, viz:
i. £60,000 in consideration of the exemption of its
notes from stamp duty and from the profits of issue;
2. £120,000 provided for in acts 3 and 4, William IV,
c. 98, in consideration of the exclusive right of note issue
in London and the country 65 miles round which was
specifically secured to the bank by that act; and
3. A further sum equal to the net profit in respect of
all notes in excess of £14,000,000 which are issued against
securities under rights acquired since the passing of the
act of 1844.
The total sum paid to the Government under heads 2
and 3 in 1906-7, the most recent year for which the finance
accounts report has been published, was £186,593.
Q. Under what conditions or terms has your capital
been increased from time to time?
A. The original proprietors' capital in 1694 was
£1,200,000 and has been increased at various times between
1694 a n d 1816, bringing the total up to £14,553,000,
at which figure it still remains. The increases in capital
have mostly been for the purpose of advancing moneys to
the Government. In 1816, when the last increase in the

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England

bank's capital took place, the government debt due to
the bank was £14,686,800. In 1834 the Government
paid off a fourth of the outstanding debt by the issue of
a certain sum of reduced 3 per cent annuities to the bank,
bringing the outstanding debt of the Government down
to the figure at which it at present stands.
Q. Have the obligations of the bank to the public or
to the Government been changed from time to time?
A. No, not in any important particular.
Q. Are you required by law to invest your capital, or
any part of it, in any particular securities? If so, in
what class and to what amount?
A. No.
Q. Does the law require that before full distribution
of profits you shall accumulate and maintain a certain
amount of rest (surplus), and are you required to invest
this in any particular way?
A. No.
Q. Referring to the weekly statement of your banking
department, dated August 12, 1908, you show public deposits, £5,145,638. Will you explain the character of
these deposits, stating in general from what departments
they are received?
A. The term "public deposits'' denotes balances held on
accounts controlled by the various departments of the British Government, such as—
The exchequer, the commissioners for the reduction of
the national debt, the customs and inland revenue, the
paymaster-general, the post-office, the supreme court of
judicature, etc.
Q. Does the Government have accounts with other
banks?
60481—10

National

Monetary

Commission

A. Subsidiary accounts are opened with other banks on
behalf of collectors of customs and excise, military and
naval district paymasters, local postmasters, prison authorities, and officials of that character in localities where
there is no branch of the Bank of England within convenient proximity.
Q. Do you allow interest upon these deposits?
A. No.
Q. Are you required to furnish security for them?
A. No.
Q. Approximately to what extent do the public deposits
fluctuate from time to time during the year, and can the
extent of these fluctuations be predicted?
A. The difference between the maximum and minimum
totals in recent years has amounted to sums varying between £10,000,000 and £15,000,000. These fluctuations
can to some extent be predicted.
Q. You show "Other deposits, £45,546,992." Will you
tell us in a general way from whom these deposits are
received? Do they include deposits received from banks,
merchants, and individuals?
A. Yes.
Q. Do you allow interest upon any of these deposits?
A. No.
Q. Are they subject to considerable fluctuations, and
are these fluctuations regularly recurrent?
A. Regarded as a whole they are subject to considerable
fluctuations; under certain heads fluctuations occur more
or less regularly, while in others little variation takes place.
Q. Are all of these deposits payable on demand?
A. Yes.
Q. Do you at any time allow interest on special deposits?

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England

A. It is not the practice of the bank to allow interest on
any deposit.
Q. Will you describe the item " Seven-day and other
bills?"
A. These are commonly known as "bank post bills," a
form of draft issued by the bank and drawn upon itself at
7 and 60 days' sight in exchange for cash. These bills were
at one time much used for making remittances by post,
more especially to the Continent, where they pass readily
much in the same way as Bank of England notes. Of recent years the demand has greatly decreased and the total
of the bills issued becomes smaller year by year.
Q. In the statement of assets what constitutes the item
"Government securities, £15,532,293?"
A. All securities of the British Government, or bearing
the guaranty of the British Government, held by the bank
as investments and all temporary advances made to the
British Government.
Q. Is it your custom to carry in your banking department about this amount in government securities?
A. While a considerable amount is always invested in
government securities, there is no rule or fixed ratio.
Q. What proportion of the item, "Other securities,
£27,737,982," represents bills discounted, and what proportion represents loans on collateral?
A. The details of this total are not made public.
Q. What, if any, other securities except these are included in the item?
A. All securities held as investments other than those
described as "government securities."
Q. Can you state approximately the average length
of time and the average size of bills discounted by you?

National

Monetary

Commission

A. Time, forty to fifty days; size, probably about
£1,000.

Q. Is the character of your discounts or loans regulated or restricted by law or fixed by the statutes of
the bank?
A. Regulated by the court of directors from time to
time.
Q. Will you state (a) the class of bills usually discounted by you, giving the number of names required;
(6) the minimum size; and (c) the maximum length of
time to run?
A. (a) Two British names, of which one must be the
acceptor; (b) no minimum; (c) four months, exceptionally
six.
Q. What classes of collateral are accepted by you
for loans?
A. The various classes of marketable securities quoted
on the London Stock Exchange, with the exception of
mining shares, are accepted; also, with discretion, good
securities, not so quoted, when their value can be ascertained.
Q. Will you state approximately the average length
of time and the average size of loans on collateral?
A. Such loans are granted for periods varying from
seven days to three months, subject to possible renewal,
and vary in amount from £100 to hundreds of thousands
of pounds.
Q. What is the distinction between what are known
as "prime bills" and other bills?
A. A "prime" bill we should define as a bill accepted
by a London or provincial bank in first-class credit or a
merchant or merchant banker of the first class whose
business it is to grant credits.

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England

Q. Do you discount any but prime bills?
A. Yes.
Q. What is the usual difference in the rate charged
by you upon a prime bill and for a high-class loan secured
by collateral having the same period to run?
A. It is impossible to give a precise answer to this
question.
Q. What is the difference between a trade bill and a
finance bill—is the rate the same on each?
A. A trade bill is a bill made to liquidate an actual
commercial transaction. The rate for such a bill would
be entirely governed by the credit of the names upon it
and would range from the lowest market rate of the day up
to bank rate or even over. There are many classes of bills
which may be called finance, e. g., (a) representing exchange transactions; (b) made to carry stocks of goods or
securities; (c) made in anticipation of public loans; (d) accommodation bills, pure and simple.
(a), (6), and (c) are bills which, if accepted by a firstclass bank or merchant house, would usually command the
fine market rate for prime bills to a customer of the bank.
Bills to which the term " finance" is usually applied are,
however, those under (d).
Q. Do you discount to any considerable amount for
individuals and merchants?
A. The bank discounts all approved bills offered to it
by persons or firms having properly constituted accounts.
Q. Is it your custom to employ surplus funds in
purchase of bills from discount houses?
A. No.
Q. Do you rediscount bills for the joint stock or other
banks?

National

Monetary

Commission

A. The bank is always prepared to rediscount for other
banks at its official rate, and does a large business from
time to time with the colonial and foreign exchange banks
who are from the nature of their business always sellers of
bills. The London Clearing and West End banks who are
ordinarily buyers of bills and not sellers do practically no
discount business with the bank.
Q. What changes have taken place from time to
time in the character of the bills you accept for discount
from discount houses and what was the purpose and effect
of the changes?
A. The currency of bills accepted for discount is from
time to time regulated by resolutions of the court of
directors, and varies constantly (within the limits so laid
down) at the discretion of the governor, who is guided
by the existing condition of the market. As regards the
class of bills accepted no particular change has taken place
of late years.
Q. Is the rate for discount at your branches for
customers' paper and for prime bills the same as at the
central office?
A. The rates current in London are telegraphed each
morning to the branches for their guidance.
Q. What are the rules governing purchase by you of
foreign bills?
A. The bank does not buy foreign bills.
Q. Will you explain the difference between a foreign
and a domiciled bill?
A. A foreign bill is a bill accepted payable abroad. A
domiciled bill is a bill drawn on a foreigner residing abroad
but accepted by him payable in London.
Q. Is it your custom to discount any bills payable in
foreign countries?

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England

A. No.
Q. Do you sometimes purchase "prime bills" in the
market at a lower rate than bank rate?
A. The bank does not purchase bills in the market.
Q. Would you charge a merchant house having a
good account with you the bank rate or the market rate
for prime bills?
A. The market rate.
Q. To what extent does bank rate govern your discount and loan transactions?
A. The rates for discount and loan transactions at the
bank usually approximate more or less closely to the bank
rate.
Q. Is the amount of accommodation extended by
you to discount houses or others predicated upon the
amount and character of balances carried with you or
governed by the necessities of the general situation?
A. As regards discount houses and money dealers, by
the necessities of the general situation, modified to some
extent by the credit of the individual borrower. As
regards others, the credit of the borrower would chiefly
govern the amount of accommodation given, while the
character of his account would affect the rate charged.
Q. Do you at times discount bills for parties having no
account with you?
A. No.
Q. Are a considerable number of your loans on call?
A. None.
Q. Do you allow overdrafts, or do you make any
advances of the kind made by the Scotch banks, called
"cash credits?"

National

Monetary

Commission

A. Except in special circumstances overdrafts are not
allowed by the bank. The bank does not make advances
of the kind termed "cash credits'' in Scotland.
Q. In view of the fact that you receive accounts
from corporations, merchants, and individuals, and discount for them, are you not in a measure a competitor
for business with the joint-stock banks?
A. In a sense; yes.
Q. Is the bank, through its branches, employed by
other banks to any considerable extent for the transfer
of funds from one city to another?
A. Large sums are constantly transferred both by
means of letter and telegram between London and the
larger branches on account of the other banks, but not
to any considerable extent between one branch and
another.
Q. What specific services are rendered by the bank to
the Government in connection with the management of
the public debt, and as a depositary of public funds?
A. The bank performs the following specific services in
connection with the management of the various stocks,
bond issues, etc., forming the national debt:
i. The entire conduct of all operations incidental to
any issue of stock;
2. The keeping of the stock ledgers and transfer books
relating to inscribed stock;
3. The issue of stock certificates to bearer;
4. The preparation and payment of dividends on stock
and the payment of stock certificate coupons;
5. The issue and payment of treasury bills and exchequer bonds; and as depositary of the public funds it
keeps the banking accounts of all the various government departments, receiving money, paying drafts and

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England

holding securities, as in the case of ordinary banking
accounts. It facilitates the transmission of reveuue
moneys from the provinces, and acts as the medium for the
issue of gold and silver coin and for the withdrawal of
light coin from circulation. It also grants temporary
advances to the Government in accordance with regulations sanctioned by Parliament.
Q. Does the bank receive any compensation for such
services?
A. The bank is remunerated for its services to the Government under an arrangement extending over a term of
years. From time to time this arrangement is carefully
considered in all its bearings by both parties, and fresh
conditions are settled as circumstances may demand.
Q. You show in your statement, ''Notes, £23,838,855;
gold and silver coin, £1,636,258," being 50 per cent of
your deposit liabilities. Is there any general rule of the
bank with reference to the percentages of cash reserve held
in the banking department against deposit liabilities?
A. No.
Q. Do the banks in England, Scotland, and Ireland
have balances with you, and are these balances regarded as
a very important part of their cash reserves?
A. All the large London banks, most of the Scotch and
some of the Irish banks have accounts with the Bank of
England. Provincial English banks and branches of
London banks in towns where the Bank of England have
branches have local accounts with the bank. As to the
balances maintained on these accounts, the question of
their importance in relation to their cash reserves is rather
one for the banks themselves to answer.
Q. Can you estimate the percentage of cash (coin
and notes), the deposit liabilities in all the banks in Eng-

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land, including the banking department of the Bank of
England?
A. No; because only in a few cases are coin and notes
recorded as a separate item in balance sheets.
Q. How and by whom is the bank rate fixed?
A. The bank rate is fixed at the weekly meeting of the
court of directors, but the governor has power to raise the
rate at any intermediate time, should circumstances in
his opinion render such a course necessary.
Q. When and under what conditions is the bank rate
changed?
A. The bank rate is raised with the object either of
preventing gold from leaving the country, or of attracting gold to the country, and lowered when it is completely
out of touch with the market rate and circumstances do
not render it necessary to induce the import of gold.
Q. Is any notice given in advance of, an intended
change?
A. No.
Q. Do you regard prompt and adequate increase in
the bank rate as the most effective measure to protect
the bank's reserves?
A. Yes.
Q. Does the raising of the bank rate ever fail to
attract gold and change the course of exchanges?
A. Experience seems to prove that the raising of the
bank rate to a sufficient level never fails to attract gold,
provided the higher rate is kept effective.
Q. How do you account for the fact that at times a
higher bank rate in England fails to attract gold from
the Continent when lower rates prevail there?
A. Because there is no gold market on the Continent
so free as the London market and the continental mar-

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England

kets frequently do not release gold for export until the
rate in London has reached a figure which threatens disturbance to their own financial position.
Q. Is the raising of the bank rate more effective in
controlling gold movements now than at the time of the
last suspension of the bank act in 1866?
A. Yes.
Q. To what do you attribute this increased efficiency?
A. To the increased and more rapid means of intercommunication between financial centers.
Q. What effect did raising the rate in the period from
October, 1907, to January, 1908, have upon the bank's
gold supply?
A. On the 15th August, 1907, the bank rate was raised
to 4 ^ per cent and so continued till the 31st October,
when it was further raised to ^]/2 per cent. On the latter date the total bullion held by the bank was £3i,70o m
and the proportion of reserve to deposits 39.9 per cent.
On the 4th November, owing to further withdrawals of
gold, the governor, acting on his powers, raised the rate
to 6 per cent. On the 7th November the court of directors raised the rate to 7 per cent, the total bullion
being £28,700™ and the proportion 35.2 per cent. Thenceforward the inflow of gold was greater than the outflow,
thus demonstrating the power of an effective increase of
rate. On the n t h December the total bullion was
£34,100™ and the proportion 47 per cent. At the end
of January, by which time the rate had been gradually
reduced to 4 per cent, the total bullion was £38,5oom
and the proportion 56.6 per cent.
Q. From how many countries did the bank receive gold
as a result of the increase at that time?
A. Twenty-four, including British colonies.

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Q. If the maximum rate of 7 per cent fixed by the
bank had not been sufficient to attract gold, would the rate
have been further increased?
A. Yes.
Q. Do you take other steps in addition to raising the
bank rate to protect gold in times of a crisis?
A. Yes.
Q. Is it customary at such times to advance money
without interest to importers of gold to cover the time required in transportation?
A. At such times facilities for bringing gold have been
given in the shape of free advances during transit, adequate
security having been lodged.
Q. Is it the practice of the bank in times of stress
to discount bills of a satisfactory character for its customers freely?
A. At such times the bank is always ready to discount
bills of a satisfactory character for its customers or for the
market.
Q. Is it the policy of the bank to discriminate
against finance bills in times of financial crises?
A. The bank always discriminates against " accommodation" bills pure and simple, but in times of financial
crises each case would be considered on its merits.
Q. Does the understood policy of the Bank of England to advance bank rates rapidly and at the same time
to extend liberal credit in times of serious financial trouble
meet with general approval in business and banking circles?
A. This is a question more for the general public to answer, but it is believed that on the whole the action of the
bank during the autumn of 1907 met with general approval.

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England

Q. Does the bank sometimes borrow money in the
open market for the purpose of raising the market rate?
A. Yes.
Q. Do you sometimes sell consols for the same purpose?
A. Yes; on rare occasions.
Q. What are the provisions of law with reference to
the purchase of gold by the bank?
A. Under the act of 1844 all persons are entitled to
demand notes in exchange for bar gold at the rate of
£3 17s. 9d. per ounce standard, subject to such gold being
melted and assayed at the expense of the seller by persons approved by the bank.
Q. What is the usual price paid by the bank for gold
purchased?
A. (See answer to previous question.)
Does the bank under some conditions advance its rate
for gold purchases?
A. Yes.
Q. Under what circumstances and to what extent does
the bank charge a premium for gold bullion or foreign
coin?
A. When there is a demand for either gold bullion or
foreign coin for export to another country the bank follows
the same rule as the seller of any ordinary commodity.
Q. Is the gold purchased by the bank sent to the
mint or deposited in the issue department and notes issued
against it?
A. In the first instance such gold is held in the issue
department; later it may be sent to the mint as required
for purposes of coinage, or sold. Until sold notes can be
issued against it.

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Q. Is London the only free market for gold in Europe?
A. In practice; yes.
Q. Do the joint stock and other banks rely upon the
reserves of the banking department of the Bank of England as their ultimate resource in case of trouble.
A. Yes.
Q. Do you favor an increase in the fiduciary note circulation?
A. No.
Q. Do you favor the issue of £ i notes?
A. No.
Q. If not, what is the reason for your objection?
A. Our objection is based principally on the opinion
that if there were £ i notes in circulation they would take
the place of gold in the pockets of the people and thus
tend indirectly to drive gold from the country.
Q. Does the proposition for a secondary gold reserve
meet with approval?
A. The question of a secondary gold reserve is one upon
which no definite agreement has so far been reached.
Q. Is it desirable that bank reserves generally should
be strengthened?
A. Probably.
Q. Has the experience of the United Kingdom with
reference to note issues under the legislation of 1844 and
1845 been satisfactory?
A. Yes; we think it may truly be said that the system
has been highly satisfactory.
Q. With respect to the monopoly of notes issue, are
any modifications or amendments to the bank act suggested; and if so, what is the nature of the proposals?

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England

A. We are not aware that any modifications or amendments have been seriously proposed.
Q. Is there any substantial demand for what we in
America call "greater elasticity" in volume of currency
(notes and coin) to answer business demands?
A. No.
Q. Is there any inclination to adopt the German system of taxed issues for emergencies or some modification
of it?
A. The German system has been suggested, but we are
not aware that there is any inclination to introduce it into
this country.
Q. Is there any tendency to return to the system of
note issue in existence prior to 1844?
A. No.
Q. Is there any contention in banking or economic
circles that it is necessary to restore or extend the right of
issue to banks other than the Bank of England, to enable
them to increase their own profits or to afford adequate
facilities to borrowers or to meet legitimate business demands?
A. Not that we are aware of.
Q. Has the rapidly increasing use of checks, bills of
exchange, and other instruments of credit and clearing
house facilities, rendered the enlarged employment of
bank notes unnecessary?
A. Yes. Whereas during the last twenty years the
total amount of the effects passed through the London
clearing house in one year has increased from
£6,942,172,000 to £12,120,362,000, or about 75 per cent,
the annual average of Bank of England notes in circulation, inclusive of £2,250,000 additional nates issued

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against securities in lieu of lapsed issues of other banks,
has only increased during the same period from
£24,283,000 to £28,870,000, or about 19 per cent.
Q. What, if any, artificial means are taken by you
to secure changes in the volume of currency (notes and
coin) to make it responsive to business demands?
A. The volume of notes and coin in circulation adapts
itself automatically to the public need. No artificial
steps are required.
Q. What effect has a marked increase in the commercial and industrial activities of Great Britain on the
volume of note issues?
A. Owing to the very extended use of cheques, any
increase in the issue of notes at such times is comparatively trifling.

9
BANK OF ENGLAND.
An account pursuant to the Act 7 and 8 Vict. cap. 32, for the week ending on Wednesday, the 12th day of August, 1908.
ISSUE DEPARTMENT.
Notes issued

^53.364.645

$259, 699, 045

53,364,645

259,699,045

Government debt
Other securities
Gold coin and bullion

;£i 1,015,100
7,434,900
34,914, 645

$53, 604, 984
36, 181, 941
169, 912, 120

53.364.645

259,699,045

£15.532,293
27, 737, 982
23,838,855
1,636, 258

$75. 587,904
134, 986, 889
116, o n , 788
7, 962, 850

68, 745, 388

334, 549, 431

BANKING DEPARTMENT.
Proprietors' capital
^.14, 553, 000
Rest
3,466,251
Public deposits (including exchequer,
savings banks, commissioners of national debt, and dividend accounts) _ _
5, 145, 638
Other deposits
45. 546, 992
Seven-day and other bills
33, 507

68,745,388

$70, 822, 175
16. 868, 510

Government securities
Other securities
Notes
Gold and silver coin

25, 041, 247
221, 654, 437
163, 062
334.549.43i

THE UNION OF LONDON & SMITH'S BANK
LIMITED.
Interview with Sir Felix Schuster, Bart. (Governor).
Q. Your bank is organized under the General Companies Acts as are all joint stock banks in England?
A. Yes.
Q. You are not under government supervision or
examination?
A. No.
Q. This bank was organized by the union of two institutions, was it not, or was that a later development?
A. That was a later development. The bank was
started in 1839, as an unlimited company, but registered
in 1882 under the act of 1881 as a limited company, as
most of the unlimited banks were at that time. There
had been a great outcry after the failure of the City of
Glasgow Bank, which was an unlimited concern, and there
was a great feeling in the country against the unlimited
liability. The result was that many responsible holders
of shares, however good the concern might be, showed a
desire to sell out, and there was a fear that only those
people would remain shareholders whose liability would
not count. The feeling all over the country was so
strong that an act was passed in 1880 enabling those unlimited companies to register themselves as limited companies with a very large uncalled liability, and we and all
the other London clearing banks registered as limited

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England

companies at that time, and no joint stock banks in the
country were unlimited. We remained a purely London
institution until 1902; we then enlarged our operations by
establishing some branches throughout the country in
various towns, and that we achieved by buying several
banks in the country.
Q. The authorized par of your stock is £100, and
£15 1 os. have been paid on each?
A. Yes. The subscribed amount of each share is
£100. Every holder of a share having paid £15 10s. is
liable for another £84 10s., but of that £84 10s., £50
could only be called up in case of liquidation. It is a
reserve liability. We have no power now to call up more
than £34 10s. for the development of the business; the
other £50 reserve liability would be for the creditors in
case of a liquidation.
Q. Are your shares held by individuals and corporations?
A. By individuals, not by corporations. There are
upwards of 8,600 different shareholders.
Q. In the transfer of shares, do you require the name
of the transferee to be submitted and approved before
the transfer is made?
A. Yes.
Q. That of course is in order to insure the responsibility of your stockholder?
A. That is in order to insure the responsibility of our stockholder, and it goes a little further than that. I will explain
that later on. Although we have the power to withhold
our consent to a transfer, we use it very sparingly. It
would be rather hard on the man who wants to sell his stock
to a responsible party to have consent willfully withheld.
As a matter of fact, the cases do not frequently occur,

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but where we should certainly exercise that power would
be in a case where we saw an attempt on the part of one
holder to secure too large a holding. At one time we had
a sort of self-denying ordinance even amongst the directors
that no director should hold more than a specified number
of shares. If we saw any attempt outside on the part of
anyone to get too large an interest, we should use our
power and refuse to put more stock in his name. We
also provide against that danger by giving no single proprietor more than 20 votes, however large his holding
may be. Every 10 shares carry 1 vote, so the holder of
200 shares has a maximum number of votes.
Q. Is that the usual custom with the joint stock banks
of England?
A. I am afraid I can not answer offhand. I suppose it
is so in some cases, but the practice varies. It is certainly so in this bank, and I think it is a very good and
useful rule.
Q. It is customary in England we find to distinguish
between current accounts and deposit accounts. Will
you describe the distinction you make?
A. I am rather surprised you should say you find it
customary, because I believe we are the only bank who
make that distinction in their published balance sheets.
Q. That is true as regards the published balance sheets,
but a distinction exists between current accounts and
deposit accounts, although not stated separately.
A. Yes.
Q. Allow me to say here that your statement is one
of the most satisfactory in form of any we have seen.
A. We have always tried to make it so, and we always
think it is good policy to give our own shareholders and
the public as much information about the state of affairs

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England

as is compatible with the proper conduct of business.
You know what we mean by the ordinary drawing accounts of our customers. When customers have balances
they have the power to draw against them; these are
ordinary business accounts; deposit accounts are accounts
which represent moneys which we receive from the public
at large whether they are customers or not, and those
moneys are always at notice—seven, fourteen, thirty
days, or whatever the notice may be. They do not represent a liability which is immediate, whereas current
accounts represent moneys which can be drawn upon on
demand. Deposit accounts are subject to notice.
Q. Your acceptances and guarantees are your acceptances of bills drawn by your customers who have arranged
with you for a credit?
A. Yes. To a very large extent they represent shipments of produce under credits against shipments from
one country to another, but they are all of them covered
by security. Although that is not provided for in our
deed of settlement or in our articles, yet that is a rule
which we lay down and which I think is a salutary rule in
deposit banks. We do not give what are called open
credits, and every acceptance is covered by a deposit of
security.
Q. It may be in the form of bonds or shares or warehouse receipts?
A. Yes; but mostly it is in the form of bonds or shares—
readily negotiable securities.
Q. And almost without exception those bills are drawn
by customers outside of London?
A. Yes. They may be drawn on behalf of customers
in London, but they would not be drawn in London; they
would be drawn outside. That is a case which occurs

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frequently. A customer in London wishes to open a
credit in China or India, and he gets his correspondent to
draw on us; he deposits his own security here; he gets the
goods consigned to him and we provide the acceptance.
Q. Are such bills usually drawn at not to exceed
ninety days?
A. That depends entirely on the usage of the country
where they are drawn. For instance, from the United
States they used to be sixty days mostly, but as you
know perfectly well there has been rather a habit latterly
to alter the tenor to ninety days. In some countries they go
to three or four months, and in the Far East to six months,
but Far Eastern bills are getting shorter. The longer
period was applied for sailing vessels, but these are going
out of use, and the bills have got shorter. There is nothing beyond six months.
Q. What is the customary charge for acceptance of a
ninety-day bill?
A. Generally speaking, you would say that one-fourth
per cent was the minimum. Of course when it is for shipments of produce the commission would be higher where
we have to watch for margins and so on; one-fourth per
cent is the minimum.
Q. Your acceptance constitutes what is known in London as a prime bill?
A. Yes, and not only in London, but I think everywhere throughout the world, and not only because of the
security the acceptance itself affords, but also, I think,
because it is known that no one would draw on the Union
Bank who has not security deposited with us. That
practice being known, it is practically certain that every
bill drawn on the bank will be accepted; at least, it is a
fair assumption.

Interviews

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England

Q. Is there discrimination in easy times between a merchandise or trade bill and a finance bill?
A. Oh, yes. When you are dealing with bank bills,
such as our acceptances or those of other first-class banks
in London, there would be no discrimination, but when
you come to financial houses there is a discrimination,
and the ordinary genuine trade bill is very much preferred, and it would not be safe for any firm, however
strong, to disregard that feeling, and people for their own
protection would not care to accept a purely finance bill.
We try to discriminate in the business. We do an accepting business, but when we think the bill is drawn purely
for finance reasons, such as stock exchange speculation,
we do not care for the business; we decline. Our acceptances are only £4,000,000. If we chose to go in for accepting finance bills, that might be five times the amount very
easily.
Q. Is there any other bank in London which shows in
its reports the item of cash in hand separately as you do
in yours?
A. I do not think so.
Q. You are a strong advocate of that practice, are you
not?
A. Yes.
Q. Have you an idea of the amount of cash, gold and
silver, in the banks of England, and the percentage of this
amount to the deposit liabilities of all the banks, including
the Bank of England?
A. No. It is a figure you can not arrive at, because it
is not published. Silver we can eliminate. It is used
only as token money and legal reserve up to £2. I
believe the Mint made a census this last June of the
amount of gold held by the banks in England who have

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been asked to supply the figures and have done so voluntarily, and I believe that amount, exclusive of the Bank
of England, is £35,000,000, but I have not seen any
official statement to that effect. It has not been published.
Q. Some of the economists have estimated that the
total gold reserve to deposit liabilities of all banks is
about 6 per cent?
A. I should say that was about a correct figure. It is
a sort of figure one has in one's mind, but it is very
difficult to really tell what the liabilities of the banks
are, because there is a great deal of duplication in enumerating. The total liabilities of the joint stock banks in
England and Wales would be about £700,000,000, those
of the United Kingdom about £900,000,000, but Scottish
and Irish banks are subject to special conditions.
Q. You refer to the total deposit liabilities?
A. Yes; the deposit liabilities, but then several amounts
are counted twice over. Say we have a balance belonging
to a country bank of half a million; that half a million
would appear in our liabilities, and that liability would
also be represented in the figures of the country bank
which keeps the account with us. Again, that might represent the liabilities of a third bank. Therefore in reckoning the total liabilities at £700,000,000 you have to
make very large allowances. I think when you come to
analyze the actual amounts due to the public you will
find they are very much smaller through this duplication.
Then your proportion of reserve would be larger naturally.
It is moreover very difficult to estimate the amount of
actual cash, because many banks in their statements do
not distinguish between cash and money at call and give
the two together in one item.

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England

Q. Does your money at call and short notice represent loans to stock exchange houses on collateral?
A. Not very largely. It includes that, but it is not
by any means the larger proportion; in fact, it is only
comparatively a small proportion of this. It is mostly
against bills of exchange which mature from day to day.
We lend to the discount market here against bills as
collateral.
Q. It is considered by you a secondary reserve?
A. Yes.
Q. You show investments of approximately £5,000,000
in government securities of different character; that is a
little more than your capital and surplus; is that a normal
figure? Do you endeavor to have your capital and surplus invested in government securities?
A. I do not think the figure has been arrived at as representing capital and reserve; I think it is rather as representing a certain proportion of our liabilities. You will
find, roughly speaking, that all these items represent certain proportions of liabilities. You appreciate it is impossible to keep to exact figures; that is to say, as between
cash in hand and money at call we generally take about
35 per cent, the two together. That is a figure we hardly
ever get away from, or if it gets lower than that we try
to make it up. Probably these figures [handing document]
represent a larger proportion. It goes up to 40 per cent
of our liabilities between these two items. You have heard
of window dressing probably and all that sort of thing.
Personally I do not mind so much whether the money is
in actual cash on a given day, provided we have control
of it. Of course, I must have a certain proportion in actual
cash, but if money is in demand overnight against good
security I do not mind reducing the cash for a few days

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for certain purposes, but that 35 to 36 per cent we always
keep.
Q. That is as to current or both current and deposit
accounts?
A. Both current and deposit accounts. The current
account proportion would be very much larger. Next to
that in the items of reserve I should place the bills which
mature, bills discounted. Investments represent probably about 16 or 17 per cent of our liabilities. It is sometimes felt that investments are perhaps not so readily
available, but it is useful to have a certain proportion in
these investments which is practically outside the run of
your ordinary business—something quite away from your
ordinary business.
Q. It is your practice to employ your surplus funds in
the purchase of prime bills through bill brokers?
A. Yes.
Q. Is that the general practice in London?
A. Yes.
Q. Is the bill broker an important factor in financing?
A. A very important factor, almost too important in
many ways, because the liability of the bill broker is one
which only can be met in ordinary times, and in troubled
times he is at the mercy of the banks and of circumstances.
Q. The item of bills discounted, £4,700,000, are those
bills purchased or from customers?
A. They would be both.
Q. Do your loans and advances represent your business
with dealers?
A. Loans and advances are the advances to trading
firms.
Q. Are those advances all secured?
A. Yes.

Interviews

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England

Q. Is it the general practice in London to make advances to very responsible people on a single name?
A. Not in London.
Q. Quite unusual?
A. Quite unusual. The London bankers' practice is
only to make an advance against collateral, but in some
of the country towns certain banks do give overdrafts
upon credits, particularly in Manchester, but local practices vary very much indeed. I think the practice tends
very much more to assimilate between country and
London. It has become much more the practice in the
country to ask and to get security against advances.
There are several reasons for that. In the first place,
the amalgamation of the provincial banks with the great
London banks, which has taken place, as you know, in
the last fifteen or twenty years. The London banks take
the place of the purely private banker, the man who
dealt with his own money and lent a great deal on personal security and nothing else. The joint stock institution has come in with more rigid rules; and they try to
get security where they can, and they get it in most cases.
I will not say that the general banking practice all over
the Kingdom is to make no advance without security,
and I could not say even in our own case there may not
be some instances where there is no collateral, but they
are an infinitesimally small proportion. The general
practice is to get security. The second reason why that
practice has grown so much is the conversion of private
trading firms into joint stock companies, unlimited
partnerships being turned into limited liability companies
often with debentures out, and the position of the banker
or any other creditor becomes quite different. He is entitled to ask for security where in former cases there
might have been no necessity.

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Q. Is it customary for you to receive as collateral for
loans to stock exchange houses any securities which are
listed on the exchange?
A. No. We certainly discriminate against securities
and reject them if they are not to our liking and we draw
a great distinction. We do not look so much perhaps to
the intrinsic value of the security as to the negotiability
of it. We must have a security which has a ready market. With stock exchange firms the usual rule is to have
a margin of 15 to 20 per cent.
*Q. If a broker offered you a loan secured by Union
Pacific shares, Pennsylvania Railroad shares, United
States Steel common, Amalgamated Copper, a fair proportion of each, would it, generally speaking, be of satisfactory character?
A. It depends on the standing of the broker, but those
securities I for one with a good margin should not object
to at all. I should look upon that, dealing with respectable people, as a well-secured loan, because I know if
there was no market for them here I could sell them
somewhere else, and I always prefer a security which has
two markets or three markets to one that has only one.
Q. Do you pay interest on both current accounts and
deposit accounts?
A. Not on current accounts. Again you have a distinction between the practice in the country here and in
London. In London we pay no interest on current
accounts at all. In the country it is the practice to pay a
certain rate of interest on current accounts, but then you
get a commission on the turnover, whereas in London
you make your profit out of the balance.
Q. How does the bank rate affect the rate allowed by
you on deposit?

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England

A. The rate on deposit is strictly regulated by the bank
rate. In fact, there is an understanding between the
banks as to that rate of deposit. Every time the bank
rate is changed the bankers meet and fix the deposit
rate.
Q. Is it usually i}4 per cent under the bank rate?
A. It is usually i ]/2 per cent under the bank rate. But
there is always a special meeting to fix that rate.
Q. In London there is usually a difference between the
rates charged on loans and bills in favor of bills, is there
not?
A. Yes.
Q. Would you say that that difference is perhaps from
one-half to i per cent in favor of the bill?
A. It depends so very much on the circumstances of the
moment that it is very difficult to generalize. At the
present moment I would say a three months' bill is worth
i ^ , and a three months' loan would be worth perhaps $%.
Q. You have several branches, have you not?
A. I think there are 150, roughly.
Q. In your statement I notice that several firms are
incorporated with you. Does that mean that they are
now branches of the Union of London & Smith's?
A. Yes. The naming of these old firms in our statements is intended to show the continuity of the business,
that although the bank itself was only established in 1839
these firms whose business is carried on date much farther
back. There is one of them I believe established in 1688,
and so on—very old businesses-—and there is a certain
personal element represented by the names of those firms.
They are branches and are entirely under the control of
the board here.

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Q. Were most of your branches organized by you or
were most of them other institutions purchased by you?
A. Some of them were other institutions; some of them
were organized by us; most of them were those old banking firms which were carried on as private businesses and
have since become branches of our bank. Of course, the
organization is that of the bank. For instance, we have
80,000 clients in the bank—90,000 probably—but I can
ring this telephone now and send up to my country branch
manager, "How is so and so's account in Bristol?" or in
Nottingham, and he will tell me how that account stood
and what the security was at the end of last week, and he
will give me the complete history of each account.
Q. Have you in mind how many branches you had ten
years ago?
A. I have in my mind how many there were when I
joined this bank; there were four; that is, twenty-two
years ago.
Q. The tendency is for the consolidation of banking in
Great Britain, is it not?
A. Yes.
Q. Very strongly in that direction?
A. Very strongly in that direction, yes.
Q. As a matter of fact, a large part of the commercial
banking in England is done by about a dozen institutions,
is it not?
A. No; I would not put it quite as low as that. There
are a good many of the small banks, independent banks,
not amalgamated with the big banks, who still do a great
deal in the provinces. In Liverpool and Manchester
there are very important local banks. It is no doubt the
fact that four or five banks do about half the banking
business.

Interviews

—

England

Q. Has the conversion of a private bank into a branch
of your bank generally met with favor in the community
where that bank is located?
A. No.
Q. At the outset did you find opposition?
A. Certainly.
Q. Do you believe that the community is as well or
better served through your bank than through the independent bank?
A. Better.
Q. Do you believe that the customer of that bank gets
as fair consideration from you, that is, that you are in a
position to judge fairly of his merits and his needs, as the
private bank?
A. Yes, I am convinced of that, but there ought to be
a qualification. I do not think he would get perhaps the
exceptional treatment that he might have had under the
old conditions from a private bank.
Q. But in the main you believe that the banking situation is stronger and better and the country is better served
through the system of branches than through the independent banks?
A. I am quite convinced of that, if only for one reason,
that I do believe the indiscriminate granting of credits
to the individual is injurious to himself, the private
bankers being too much in the habit of regarding old
family associations and not so careful as the joint
stock company would be, and he has accustomed people
to trade on the credit that they get from the banker. I
do not think that is banking business. The bank ought
never to supply the trader with working capital. I
think it is bad for the trader. I think the banker ought
to give temporary accommodation to tide the trader over

National

Monetary

Commission

the time when he is short until the time the money comes
in again—for temporary purposes only. If a trader is not
sufficiently provided with working capital and depends
on the bank, there is sure to be trouble at some time.
Q. The Clearing House of London is a close corporation
and a very important factor, is it not, not only as to its
machinery but also as a factor in controlling the conditions in London?
A. No; I should hardly put it so high as that.
Q. Is it not quite essential to the success of a financial
institution doing a commercial business to become a
member of the Clearing House if it is to meet with a large
degree of success?
A. No. After all, there are only 17 banks, I believe now
in the Clearing House, but there are a great many other
institutions who are not members of the Clearing House
and who do not suffer from that fact. Scotch banks with
branches here who do a large banking business are not
members of the Clearing House. There are all the colonial
banks with head offices or branches in London and other
large institutions; those are not members of the Clearing
House. There are Barings and Rothschilds; they are not
members of the Clearing House.
Q. Would you say the Bank of England is in any way
a competitor of the other banks in England?
A. Yes. That is a source of very grave complaint by
the other banks.
Q. The Bank of England do not pay interest on any
accounts?
A. No; but in some cases they act as intermediaries for
lending money. It is a very subtle distinction. It will
probably be denied -by the representatives of the Bank
of England that they are competitors; it is a constant

I n t e r v i e w s

—

England

source of disagreement between us. There is absolutely
no doubt that they are. To start with, they have our
balances, which they use in the market, or 40 per cent of
which they use in the market. That in itself is competition. If we held our balances ourselves (according to
this statement this bank's balance alone was £3,400,000;
they use probably £2,000,000 of that)—if we held it
here, they could not; but in other directions also they
compete.
Q. Do you care to state in what directions?
A. It is very difficult to specialize and to say where
they compete with us. They might say the joint stock
banks compete with them. The fact is the course of
business is altered. The Bank of England despised
business at one time which at the present time they
would be glad to do. They allowed the other banks to
grow up round them and get very strong and powerful,
and, having perceived that, they rather tried to retrace
their steps and get a little of that business themselves.
It is an anomalous position.
Q. What would you say are the most important
functions of the Bank of England?
A. At the present time?
Q. Yes.
A. The Bank of England is the central reservoir of the
whole banking system of the United Kingdom. Through
their holding the balances of the joint stock banks, of the
clearing-house banks, and the government balances, of
course they have obtained very great power, and they can
control the market by witholding advances, by fixing their
rates, by borrowing from the market when they feel inclined to do so. Practically they have the whole control
of the money market in their hands, and they are also in
60481—10

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Monetary

Commission

touch with general movements that are taking place; they
can judge better than anybody else from the state of the
balances of the joint stock banks how trade is in the country, whether there is a large demand for money, whether
those balances show a tendency to shrink, or whether they
show a tendency to accumulate. That in itself gives them
an insight, and consequently power; and of course the tax
collectors' checks flow into them at one given period of
the year. They can lend that out; if they did not lend it
at that time, freely, of course the market would be deprived of the funds that flow in. Of course these are conditions which are very acute in your country. That is
what the Bank of England has to see to. They minimize
the locking up of funds in one quarter. It is generally
assumed that in times of trouble it is the duty of the Bank
of England to grant accommodation to solvent parties who
have good security to offer. The Bank of England does
not openly acknowledge such a duty, which has never been
officially imposed upon it, but it has always acted up to
it, and were it not so its strength and raison d'etre as
holder of the ultimate reserve and bankers' bank would be
gone and other arrangements would become imperative.
I have dwelled on this point, the "implied" duties of the
Bank, which are much more important than the legal
duties, in one of my papers, "The Bank of England and
the State." I also furnish you a copy of a paper I wrot e
four years ago on foreign trade and the money market,
which has an evident bearing on the questions under discussion.
Q. What steps taken are most effective in attracting
gold or in the preventing of its outflow?
A. The raising of the discount rate, and not only of the
nominal Bank of England rate, but of the market rate

Interviews

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England

as well. You often have a condition which you describe
as the open-market rate, that is i to 2 per cent lower than
that of the bank rate, and in those conditions the Bank has
no influence whatever. What the Bank have to do under
those conditions if they wish to attract gold and prevent
its leaving is to pay more in the market for money than
other people would; they must artificially raise the value
of money outside; they immediately become borrowers
and sweep up all the floating supplies at a higher rate than
a discount broker would pay us. They do not do it themselves. In one instance they have done it direct, but in
most cases they employ a broker. They give security for
those loans and in a short time they sweep up the surplus
funds, and that becomes effective in raising the discount
rate. That again has an influence on the foreign exchanges. It is the foreign exchanges that regulate the
outflow or influx of gold, and foreign exchanges can only
be regulated by the value of money.
Q. Does the Bank of England sometimes suggest the
policy the joint stock bank should follow, say in not
accepting finance bills?
A, There is one thing I should like to say; there is no
official way of communicating, no regular meeting between the banks and the Bank of England. I, for one,
most strongly advocate that there should be periodical
meetings. The Bank of England are not members of the
Clearing House. They do not take part in the ordinary
meetings that bankers t*ave amongst themselves; they
stand outside. There is no regular vehicle of communication. As to the allegation that certain banks have
been told by the Bank of England that they prefer them
not to accept finance bills, I really can not say whether
it is true or not; there has been such a report but I have

National

Monetary

Commission

no knowledge of it, and I personally doubt it; but it may
be so. As a matter of fact, this outcry against finance
paper being accepted by banks at that particular period
was absolutely unjustified. There was a good deal said
about it. There was a great deal of finance paper in circulation accepted by finance houses and outside banks,
but the acceptances of the banks were not above the
normal amounts, although perhaps in one instance there
may have been a very considerable increase. Our own
acceptances at that time were much below their normal
figure. We had foreseen somewhat troubled times and
had deliberately reduced them very materially. In a
paper I read before the Institute two years ago I gave the
figures. I said: "A glance at the figures of the clearing
bankers who publish monthly statements will show how
much truth there is in this allegation. The aggregate
acceptances of these clearing bankers for the last twelve
months are as follows: 1905, November, £24,200,000;
December, £23,400,000; 1906, January, £22,300,000;
February, £23,100,000; March, £23,300,000; April, £21,800,000; May, £19,200,000; June, £16,400,000; July, £17,'
900,000; August, £18,000,000; September, £18,800,000;
October, £20,900,000; November, £25,255,000. Thus it
is shown that although in the autumn there has been
some increase, as is usual and incidental to the time of
the year, there is absolutely nothing exceptional in these
figures.''
Q. How are checks on the Bank of England cleared?
A. They are in one side of the clearing and not in the
other. We pay our checks on the Bank of England direct
into an account with it. Checks on us which the Bank
of England hold go through the Clearing House.

I n t e r v i e w s

—

England

Q. While the bank rate is fixed and is to-day, say, z\
per cent, is it not a fact that the Bank of England do some
business for their customers and also purchase bills for their
account at a lower rate?
A. That is so, and that is one of the matters of complaint. By fixing the rate at 2 J per cent or 3 per cent or
4 per cent they can regulate the rate we fix for our own
customers. We regulate our deposit rate in accordance
with the bank rate. We also regulate the rate we charge
for our loans in accordance with the bank rate, and we
are bound by it to a certain extent, and they themselves feel
at liberty to depart from it.
Q. Is the bank rate the maximum rate charged by them
on paper acceptable to them for any period?
A. They vary the period from time to time.
Q. They would charge the same rate for ninety days as
for thirty days?
A. Not invariably, and it is not strictly correct to say it
is their maximum rate, because of recent years they may
have raised the rate suddenly to something above the bank
rate and that is taken as a warning that next Thursday the
bank rate would be raised.
Q. What, then, does the bank rate mean; what does it
govern in fact?
A. It means the general charge to the trade of the country, because although we say that bills in the market
are discounted at a lower rate than bank rate, yet there is
a vast number of trade bills which are purely governed by
the bank rate.
Q. Would a customer of yours in a branch in a remote
part of England receive accommodation from you under
normal conditions at less than 4 per cent?

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Monetary

Commission

A. Oh, yes; in most cases. We very often take the
bill at bank rate, especially when the bank rate is
rather high. We might have an arrangement that we
take bills at bank rate subject to a minimum of 3 or 3^
per cent, but a great many customers would get their
trade bills done at the bank rate even though the bank
rate is lower. The Bank of England regulate the conditions under which the trade of the country is carried
on, and impose a charge on the trade of the country for
legitimate accommodation. Nearly all our loans are regulated by the bank rate. You have not, so far as I know,
that profession of the bill broker in such prominence as
we have. Here the bill broker will go all over the country
to good traders and offer to them to discount their paper,
and he knows he can take it to the Bank of England, if
it is good paper, at the bank rate; therefore he can do
business for them at a very small charge. The bill broker
plays a much more important part in our commercial life.
Q. That business is growing very rapidly with us. We
call them note brokers. They take the paper of various
houses throughout the country and offer it for sale to
banks.
A. I remember the first time I was in the States; in
Chicago and New York I found a difference of something
like 3 per cent.
Q. We found both in Germany and in France the question of the amount of reserves, either in specie or in bank,
was regarded as of little importance by the bankers.
They depend on the Reichsbank and the Bank of France
for rediscount in times of need.
A. Both in France and in Germany banks are much
more dependent on the central institution than we are
here. They lean on their central institution to a very

I n t e r v i e w s

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England

great extent; for instance, the rediscounting of bills and
borrowing from the central institution is, I believe, quite
a usual occurrence. Here it is an occurrence which would
only take place in the last resort. As far as I am aware
this bank has never as long as it has been in existence had
one penny from the Bank of England, whether by way of
an advance or by way of a rediscounted bill. We do not
rediscount our bills in the market either; so every transaction we enter into we have to see through to the very
end. A bill, whether three or six months, once here does
not get out again, and for that reason there is much more
need to keep larger reserves in case of greater demands
coming. Then, again, you have the whole question of
the currency of gold. In the Bank of France you have
this huge gold reserve and the whole trade of the country is carried on with bank notes. There is practically no
banking system in our sense of the word in France, nor
is there in Germany. Although the German system
comes closer to our own, it is a very long way from it. The
check has not taken the place of coin or bank notes on the
Continent, but here we have practically no bank-note
circulation at all. Our business is carried on through
checks. It is the great distinction between English banking and continental banking. The whole circulation of
bank notes in England is practically nil. It does not
come to anything. The Bank of England's active circulation now is something like £30,000,000, of which perhaps £20,000,000 is in the hands of the banks, but our
trade is not carried on by notes or coin; it is carried on
through bankers' balances, through checks.
Q. They held in Germany that the reserve was in the
hands of the people.

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Monetary

Commission

A. That may be so to a greater extent than in England.
People here have little in their strong rooms; their strong
rooms are banking accounts.
Q. It is estimated there are 1,000 millions of dollars
in the pockets of the people in Germany.
A. That may be. In this country it is estimated at
ioo million sterling, 500 million dollars. I should say it
was more. Then again we are still the only country that
has a pure gold standard, and we want to defend that
position. That gives us our great strength. If you have
a bill on Germany you could get gold for it at most times,
but there are times when they tell you the gold is there
but they would rather you did not take it, and the eame
in France.
Q. Why can France maintain a 4 per cent bank rate
when the rate is higher here?
A. Because they have not the international trade that
we have and that Germany has. Of course France is not
a great industrial country now. It is a stock-exchange
country, an investing country, and an agricultural country;
it is not so liable to sudden fluctuations that a great crisis
in another country exposes us to. When you want gold
you have to come here. We are much more susceptible
as the center of the whole banking community of the
world; therefore we are much more vulnerable. Every
occurrence in any part of the world will affect London.
Q. Do you consider France a great creditor nation?
A. Yes. They are a creditor nation and also an exporting nation. In wines they have practically a monopoly
all over the world. We, too, are a very large creditor
nation, probably more so than France, but we are importers to a very large extent. We have the country to
feed. But that our fluctuations are more violent is, I

Interviews

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England

think, greatly due to the fact that we are the bankers of
the world; everybody has deposits here and a banking
account in London. As we are the gold country, foreign
nations feel that they must have bills on London or
balances in London which become a reserve for them.
Directly anything happens they try to convert this into
gold.
Q. Do you regard your system of currency issue as sufficiently elastic for your needs?
A. No.
Q. What would you advocate as a change of system?
A. I advocate several things, one of them being more
elasticity in the power of issuing notes, somewhat on the
German plan, but I would only have that provided other
reforms were carried out as well. I do not think it is to
be simply added to our present system without adding
counteracting conditions. I think our fiduciary issue is
too large; the note issue of £11,000,000 against Government debt. The Government debt ought to be repaid,
and I for one am in favor of the banks having a gold
reserve of their own, but adding it to a central fund which
can be drawn upon under certain conditions, but I do not
think that the plan has at present found favor.
Q. Have you that plan worked out in your mind?
A. Yes; and this paper [handing document] represents
my ideas as they were two years ago. I have modified
them to some extent since; but this, roughly speaking,
represents my views.
Q. Can we secure a copy of your articles of association
and of your deed of settlement?
A. I can let you have a copy for your private use. We
do not publish them. You were asking if I had the
thing worked out in my mind. My idea of our system is

National

Monetary

Commission

this: Our whole currency is represented by deposits in
banks and people have no money in their pockets, but
they have balances at their banks. Therefore in times of
difficulty, in time of general anxiety, there might be a tendency to take money out of the banks and put it into the
pockets. We ought to have greater reserves, and each
individual bank, who after all makes the profit, in the
common interest should contribute to a general fund in
proportion to its liabilities.
Q. Assume in time of trouble that one of the many
banks should have heavy withdrawals. How would you
arrange to give them the benefit of any more of that fund
than they had deposited?
A. They would have to ask for assistance at the Bank
of England. The Bank of England would be supplied by
the general fund with everything; that fund would finally
resolve itself into a deposit with the Bank of England.
But the conditions under which it could be used would
have to be specified and settled at the time by consultation
between the parties.
Q. It would amount to this: You believe that the banks
should not only have their cash in vault and credit at the
Bank of England, but should have a fund of gold deposited
in the Bank of England to be held for them in gold by the
Bank of England?
A. Yes, and only to be used in certain conditions. Their
contribution to the fund should represent a certain proportion to their liabilities, 3 to 4 per cent, perhaps. They
ought to manage their business quite independently of
that fund. I am bound to say it is not an idea that finds
very much favor with other bankers. Of course with you,
you have your fixed cash reserves. I think that rigid 25
per cent becomes no reserve at all; when you are tied down

THE UNION OF LONDON & SMITH'S BANK LIMITED.
Statement of accounts of the Union of London and Smiths Bank (Limited) for the half year ending June 30, 1008.
G E N E R A L BALANCE.
DR.

LIABILITIES.

Capital subscribed, £22,934,100 in 229,341 shares of £100
each; paid up, £15 10s. per share
3 ,554,785
Reserve fund invested in consols, local loans stock, and
Transvaal government 3 per cent guaranteed stock, as per
contra
I 150,000
£
s. d.
Current accounts
24,203,999 11 o
Deposit accounts
11,811,876 9 11
Acceptances and guarantees
Liabilities by indorsement on foreign bills sold
Other liabilities, being interest due on deposits, unclaimed
dividends, etc
Rebate on bills not due
Profit and loss:
£
s. d.
Balance brought forward
164,245 9 6
Net profit for the half year ending
June 30, 1908
224,534 5 1

015,876
3 467, 798
16,925

ASSETS.

s. d.
10

$17,299,363
S, 596, 475

117, 788, 764
57, 482, 497
0 11 175, 271, 261
7 0 16, 876, 041
82,367
7 9

533,148 11 1
30, 90S 16 10

2, 594, 568
IS©, 403
799, 301

388.779 14

1, 092, 696
1,891,997

Cash in hand
Cash in Bank of England

Money a t call and at short notice
Investments:
Securities of and guaranteed by the
British Government
2, 939, 802
India stock and Indian railway guaranteed bonds
275,553
English corporation stocks, railway
and waterworks debenture and
preference stocks, colonial stocks,
foreign government and railway
debenture bonds
1, 530, 958
Other investments
88, 752

60481—10.

(To face page 59.)

2 219,762,475

s. d.

CR.

s. d.

6,421,551 14
6,587,603 1

5
2

$14, 644, 425
16, 606, 056
31,250,481
32,058,570
14,306, 547

i,34o,979

7, 450, 408
431, 913

4,835,065 19 11
Reserve fund: £567,000 consols; £515,500
local loans stock; £207,600 Transvaal
government 3 per cent guaranteed
stock
1,150,000
Bills discounted:
(a) Three months and under
(6) Exceeding three months

45,158,219

_. 3,009,231 10 11
3,412,320 3 6

23, 529, 847
S. 596, 475
5,985,065 19 11

4,271, 256 o
465,753 14

4
4

29,126,322
20, 786, 067
2, 266, 590

4,737,oo9 14 8 23, 052, 657
Loans and advances
79, 740,347
16,385,564
Liabilities of customers on acceptances and guarantees, as
per contra
16, 876, 042
3 467,798
Liabilities of customers for indorsements, as per contra
82,365
16,925
Bank premises, chieflv freehold
6, 898, 151
1,417476
Other assets, being interest due on investments, etc
677, 540
139,224 3 10
45,158,219 8 2 2 1 9 , 7 6 2 , 4 7 5

I n t e r v i e w s

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England

to one particular percentage and can not depart from it,
that reserve might for practical purposes just as well be at
the bottom of the sea, in my humble opinion. What
appears to one's mind as the most desirable reform in your
country is to prevent the locking up of your government
funds through the huge revenue collections, without letting the market have the advantage of them, which ought
not to be allowed to accumulate at certain periods, instead of circulating freely. That is a distinct loss, and
if you have found a way of doing that you have done
something.

LONDON JOINT STOCK BANK.
Interview with Mr. Charles Gow, General Manager of the London
Joint Stock Bank, Limited.
Q. When was your bank organized?
A. 1836.
Q. Under the general companies law?
A. It is now; it was not then; it was under the company law then, but unlimited liability at that time; every
stockholder was liable for all he possessed to pay the
debts of the bank.
Q. Did you then have a special charter?
A. No; we worked under what we called a deed of settlement. That was the method at that time; that is to say,
the bank entered into a contract with certain parties representing it to do such-and-such business; that was the
deed of settlement.
Q. Your capital stock is £100 authorized, £15 paid?
A. Yes.
Q. What is the liability of the stockholder on that
stock?
A. £85 on each share.
Q. That is, he may be called upon to pay in £85?
A. Yes.
Q. We found in some of the banks here that the authorized amount might be, say, £100 with £25 paid, and that
they could call for £25 more for capital purposes?
A. Yes.
Q. But that the remaining uncalled was only as a shareholder's liability in case of loss?
A. Liquidation; that is to say, that arose too, but I
spoke about the total liability of shareholders in the con-

Interviews

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England

tingency of winding up. We may go up to £50 paid up
for legitimate trading transactions; but if we pass that,
then on liquidation £50 more.
Q. Where are your shares owned?
A. Almost entirely by private people; that is to say,
by individuals, not held by corporate bodies. We do not
admit corporate bodies as holders of shares.
Q. Your stock is all registered?
A. Every one; every share is registered.
Q. Does your board pass upon a new stockholder?
A. Yes.
Q. His name has to be submitted and approved before
the stock can be transferred?
A. That is so. Frequently we do not make much trouble
about that, but some banks do; some banks are very particular and inquire about everyone. We do not quite do
that.
Q. What is the organization of the bank as to the managers and the board?
A. The board of directors is an elected board out of
the body of the shareholders. The most prominent of
them are men of position and importance, whose duties
are generally to superintend. All the power rests with
them, all the power of appointing officers. I am an
appointee of the board of directors and not the direct
appointee of shareholders in meeting called, and so the
whole volume of authority is vested in the board of
directors to appoint every officer connected with the bank.
It is vested in them to do all business of the bank, the
right to do it, but that power is delegated to appointed
officers as they think fit.
Q. How often do your shareholders meet?
A. Every six months; we have two meetings a year.

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Monetary

Commission

Q. Do you have two elections a year?
A. Of directors? Oh, no; we have rotation directors
for a certain period; I am not quite sure exactly how long
that is; say three years, and a certain proportion of them
go out by rotation, but being eligible, if they are, they as
a rule wish to continue and are reelected.
Q. What is the purpose of two meetings a year?
A. Only that we may more frequently present the state
of affairs to the shareholders.
Q. So that at one meeting you merely present to the
shareholders a statement of the condition of the bank?
A. Oh, no; both meetings are absolutely equal in that
respect and both meetings are likely to declare a dividend
if a dividend is declared half yearly, and in order to do
that we make a clear statement of affairs and present it
every half year. Some bankers do not do that.
Q. Is it your custom to ask the approval of the shareholders of the dividend to be declared?
A. We, ourselves, no. The directors reviewing the profit
and loss account determine upon a dividend and declare it.
They announce at a meeting: "We have resolved to declare such-and-such a dividend." So that it is not left to
the shareholders.
Q. Who really conducts the business of the bank?
A. The managers, who are appointed by the directors;
that is to say, myself and all those belonging to me.
Q. You are the general manager?
A. I am. Then I have two assistant managers sitting
in the room, and there are managers, not so called, but
of the different departments—heads of the departments
they are really. There is a chief cashier, a man who has
charge really of all cashiers, and a number of other men

Interviews

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England

besides, but there are heads of other departments not
called managers.
Q. How frequently do you issue a statement?
A. Every six months, made up to June 30 and December 31.
Q. The law requires you to issue but one statement a
year?
A. That is so; but you may make as many more as you
like.
Q. In your statement of liabilities there is the amount
due by the bank on current accounts, deposit receipts, circular notes, etc., $89,250,000; that represents what we
call deposits?
A. Yes.
Q. What is the distinction between current accounts
and deposit receipts?
A. That is peculiar to us, perhaps; we have the two
classes of accounts. The current account entitles the customer to draw his checks. The principle of check accounts with us is that the current accounts must be kept
on which no interest is allowed. A customer opens an
account for the purpose of being free to draw checks on
us payable on demand against funds which he has to his
credit. That is the basis of our London business. We
charge nothing for that, but our remuneration is found in
the sum that he leaves habitually at his credit, for which
we give him no interest, and that is what we call a current
account, and the total of the balances which are left at
credit of this current account are what we use in our business, or such a proportion of them as we think we may
freely use. Then beyond that we take in deposits repayable at short notice, and those are the deposit receipts or
deposit accounts which make up the other portion of our

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business. Deposit accounts are not free to be checked
upon. A man who wants to withdraw money from them
must give you the prescribed notice, say seven days, as
the majority of our deposits are. Sometimes we take
them for longer on special terms, but as a rule seven days'
notice is the term for which we take in these interestbearing deposits, and they are not liable to a man's check.
An ordinary current account customer may transfer part
of his balance if he does not require it to this interestbearing account, and then he may transfer it back again
to the current account.
Q. Do you issue a pass book in the deposit account, or
do you give a form of receipt?
A. Mostly a form of receipt.
Q. What is the item "Circular notes?"
A. Those are such things as we give our customers who
wish to travel on the Continent; they want £100 in circular notes available at different places on the Continent.
They give us £100 for them; they buy them.
Q. I t is a letter of credit?
A. A letter of credit, and the money* is put on that
account to meet the circular notes.
Q. Would you state approximately the percentage of
current accounts in this item?
A. From 60 to 65 per cent of that total represents
current accounts.
Q. You show "Acceptances on account of customers''
of about $7,300,000. Those are drafts drawn upon you
by your customers and accepted by you?
A. Yes; either drawn directly by our customers or
drawn by other parties on the credits which they issue;
what we call reimbursement credits. You know, I dare
say, customers in the West or in Europe authorize people

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in the East to draw for cotton shipments, or what not,
on us.
Q. Are most of those acceptances secured?
A. Every one.
Q. How are they secured, generally speaking?
A. They are secured in the great majority of cases by
bills of exchange, by first-class securities with plenty of
margin, even by cash in hand at a moderate extent, and
in a very small extent by bills of lading for produce
shipped. That is a very small item.
Q. You speak of first-class securities; you mean bonds
and shares?
A. I mean American railroad bonds, for instance,
United States government securities or European government securities, and all things of the first class. We
will not take anything else.
Q. What is the average life of those acceptances?
A. Three months; sixty or ninety days; rarely four
months, and still more rarely six. We do not go beyond
that.
Q. What is the usual commission charged for the
acceptance?
A. The usual commission would, for three months, be,
roughly, one-fourth per cent. There are cases where we
have to abate from that at, say, one-eighth per cent, but
we generally keep in mind one-fourth per cent as the rate
of commission for a three-months* bill, which is really I
per cent per annum.
Q. Can you state the reason for accepting those bills
instead of furnishing the cash?
A. We accept those bills because it happens to be the
custom of the particular banks to draw a long bill. The
customer himself who buys cotton in Bombay, or wherever
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it may be, acts according to the custom there to draw a
bill to a certain usance. Now, for instance, with regard to
an inland bill, we would not give a credit of that sort to a
man in London, but wherever there is a regular course of
business abroad to draw at long usance we comply with it.
Q. That transaction, in fact, creates what is known in
London as a prime bill, does it not?
A. Yes.
Q. And that bill is sold immediately upon your acceptance to some other bank or through a bill broker?
A. Yes.
Q. In your statement of liabilities you show "Cash in
hand and at the Bank of England*' of approximately
$15,000,000. I assume it is not your custom to publish
the amount of cash in hand separately from the amount
of cash in the Bank of England?
A. No; there is no other reason why we do not do it
than that we think it is unnecessary. The banks here
think it is unnecessary.
Q. You regard your balance in the Bank of England
the same as cash?
A. Subject to our check at any moment, just the same
as a customer's balance with us on current account is
liable to his check.
Q. This question„suggests itself: Of course the Bank
of England does carry a large cash reserve as against
their deposit liabilities, usually from 40 to 45 per cent, but
that, as a matter of fact, forms a very large part of the
cash reserve of the banks of England and of Great Britain,
does it not?
A. Yes; I regard it this way, that the bank's deposits
in the Bank of England are neither more nor less than
similar deposits made with our own individual banks,

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but attached to these balances at the Bank of England
is the peculiar knowledge the Bank of England has as to
how they are to be regarded. They are more reserve
balances than balances, which we mean to deplete very
heavily. They can fairly well count on so much of that
balance of ours being there practically at all times, but
also they know that it is a kind of reserve balance with
us, therefore while they are at liberty to make certain use
of a portion of it it must be limited by that knowledge that
it is a reserve balance not liable to be called upon.
Q. Have you any idea of the actual amount of gold
reserve to deposit liabilities in the Bank of England and
all the other banks in England?
A. No; such a figure scarcely exists; we do not quite
know. It goes up and down according to requirements.
We get more cash reserve at one time than another.
Sometimes the cash reserve is suddenly depleted by particular conditions of trade. Then you have got to fill it
up again.
Q. It is your endeavor and that of other banks to carry
a certain amount of actual gold reserve?
A. Yes.
Q. You deem that necessary for the proper protection
of your depositors?
A. That is so. We would deem that to be an element
of proper banking.
Q. It has been stated that the actual gold or cash
reserve to deposit liabilities in all the banks of England
including the Bank of England is about 6 per cent.
A. Well, I am not quite well posted enough to say that
definitely, but I should have expected a good deal more.
For instance, if you take the group of these banks in
London, ourselves included, and all the principal banks

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which really do center in London, the average holding in
cash, including what they keep at the Bank of England,
comes to anything from 14 to 19 or 20 per cent of cash in
hand and at the Bank of England in relation to the total
deposits.
Q. Yes; but of course the Bank of England carries only
a percentage usually of 40 to 45 per cent of reserve against
those reserves.
A. Yes; that is quite true, only, of course, that is a very
large proportion in itself. I should put it higher than 6,
decidedly; I think not less than 10. I should perhaps be
liable to correction on that; my own rough estimate would
be certainly not less than 10, taking the whole thing.
Q. In your assets you show a little over $11,000,000 of
consols and other securities guaranteed by the British
Government. Is it your general practice to carry as large
an amount of Government securities as that?
A. Yes; pretty generally. We do not fluctuate those
figures to any important extent.
Q. What is your particular reason for doing that; do
you regard that holding as in the nature of a secondary
reserve?
A. Yes. The investment of Government securities is
really by way of a kind of secondary reserve, as you say.
In the very best securities that are to be had, what interest
they bear is of quite secondary importance to their negotiability.
Q. You also show Indian Colonial Government and
other securities amounting to about $7,600,000. So that
the total investment in securities of this character exceeds
your capital and surplus by about a little over $3,000,000?
A. Yes; that is a little accidental just now; there have
been opportunities of making favorable investments and

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money has been in poor demand, so that the total of
securities has rather gone up above what it would normally, but taking it very roughly the idea is to have the
paid-in capital and the reserve fund practically invested
in securities of the very best possible and others equally
good, but more varied in character.
Q. Have you in mind about the interest return that
that account shows?
A. No; but it would be from 3 to 3^ per cent, spread
it over.
Q. Do you mean by railroad bonds those that are
guaranteed by the Government?
A. We buy Pennsylvania Railroad bonds. There is a
sample. Indian railroad bonds are mostly guaranteed by
the Indian Government, and those we hold to a certain
extent, but not very large, because the market is limited
and that is a check upon that. It is rather a matter of
special negotiation to sell these things, therefore we do
not want many of them.
Q. It is your practice, then, to confine your investments in other than government securities to a small
figure?
A. A comparatively small figure. The essence of
negotiability is the first thing. Of course there are a
few things that one can take in the ordinary course, good
things, too, but not so negotiable, but the proportion of
those is kept down always to very limited figures. The
first thing we think of is how can we turn it out.
Q. The negotiability?
A. Yes. The negotiability.
Q. Do you ever buy any shares of railroad or industrial
companies?

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A. No; we will not have risks of that sort among our
investments.
Q. Do you ever own bank shares?
A. No; never.
Q. You show about $51,000,000 in bills discounted,
loans, and other securities. About what percentage of
that item is bills discounted?
A. That fluctuates considerably according to the state
of the money market. If my outlook is that rates will
be lower in the course of the next three months I hurry
up to buy all the bills I can possibly get to-day, and so
that I might have perhaps from 30 to 40 per cent on
that in bills.
Q. What is the character of those bills?
A. Those are all marketable bills, trade bills; you know
what they are; they are between the manufacturer and
the man to whom he sells; it might be a promissory note
indorsed by the payee. Those are the two names on it;
the payee perhaps is the manufacturer on a promissory
note given by the purchaser. Instead of that here our
manufacturer draws a bill on the person to whom he sells,
and that man accepts it. Those trade bills are good bills
mostly, but we only discount those for our own particular
customers, people whose affairs we know all about, but
many of them are discounted in the open market to discount houses such as Nugent's. Then I buy bills from
him with his indorsement, which is very valuable, and get
money on these trade bills from him.
Q. You always require two names?
A. Always.
Q. About what is the average length of time of these
bills?

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A. Those bills as a rule are three months to run and less.
Very occasionally I may buy a four months' bill or a six
months' bill, just according to how I think it promises to
be a profitable venture, but as a rule the three months'
engagement is all I feel myself free to deal in to any large
extent. I want my money. We never rediscount, never
turn the bills out again. It is enough to wait for their
maturity; therefore it stands to reason I can not afford
to spend money for six months and sit there and wait for it.
Q. Can you give me an idea of about the minimum sizes
of those bills?
A. No. They are of all sizes from £100 to £10,000.
From our own customers I take such bills as they have and
they perhaps run mostly in small amounts, but from discount houses I do not want to be troubled with such small
bills. We have to take them and keep them; so generally the bills I take from them run from £500 upward—
perhaps an average of £1,000 apiece. That is only a
question of labor. I say I am buying those bills and will
not put up with the labor of those little bills unless you
give me the better rate for them.
Q. The item "Other securities" means some railroad
bonds such as you mention?
-A. Yes; just occasionally some of them get in there.
The loans, of course, are all secured upon the best collateral that we can manage to collect. We reject loans continually because we are not satisfied with the collateral,
so that the collateral there is all, to the best of our knowledge and belief, solid.
Q. What does the form of obligation by the borrowers
upon collateral take?
A. The form of obligation is that he undertakes to repay
the advance by some specified date together with the inter-

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est upon it at the agreed price, and in the meantime as collateral he puts up such and such securities as are described
in the document, and he gives to the lending bank, or
lender, authority, in the event of his failing to pay his
loan by the date named or if he does not keep up the margin
on the securities, to sell the collateral even although the
loan may not have come due.
Q. It is practically the same as our form of promissory
note?
A. Just the same.
Q. I assume that the item "Liability of customers for
acceptances'' represents the entry you make when you
accept a bill?
A. It corresponds exactly to the item on the other side.
We can not take more than 20 shillings in the pound out of
the customer. We may have collateral from him to the
tune of, say, 50 per cent margin, but it is not good for more
than 20 shillings in the pound for the debt. That is why
we put in exactly the corresponding item there.
Q. Would you say that it is the general practice of the
joint stock banks of London to carry government securities to an amount at least equal to their capital and surplus?
A. I should say yes, without their being bound any
more than we are by any hard-and-fast rules, simply what
they consider to be prudent at any given time. Of course,
we do not vary our securities much; not any of us.
They are rather investment securities up a point which
we think reasonably fair. Some mature, and we may not
reinvest them.
Q. The law does not require you to invest in any securities?
A. No.

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Q. As a matter of fact, the law does not restrict your
investments in securities or in paper. You may do any
class of business that you see fit?
A. We are under no restrictions at all. Then, of course,
we have no note obligations, no note issue.
Q. Your money at call and short notice, amounting to
about $17,000,000, is also regarded by you as a secondary
reserve?
A. Yes; the whole of it is money recallable within thirty
days, and a very large proportion of it recallable at much
shorter notice than that. I lend money to Mr. Nugent in
hundreds and thousands of pounds and to acknowledged
companies and good firms in the discount market, and I
lend it rarely beyond a week. It comes due at the end of
that week, and it is for me to say, "I want that money;
pay it back," or go on for another week, or go on for a
couple of days.
Q. You loan also to stockbrokers?
A. Yes.
Q. On mixed collateral, railroads, industrials, etc.?
A. Yes; with a margin, of course.
Q. What is the usual margin required?
A. Ten per cent upon the best securities up to 15 or 20.
Q. You would accept a loan on such securities as New
York Central and Pennsylvania Railroad, Union Pacific,
or United States Steel?
A. Yes.
Q. Amalgamated Copper?
A. Yes; anything that commends itself to us as a good
negotiable kind of security we always think, beyond the
borrower, that if the security was thrown on our hands
how easily could we realize it and repay ourselves.

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Q. If you were heavily drawn upon and your reserve
depleted, your first step would be to call upon your short
money?
A. Yes.
Q. And your .next step would be to sell some of your
securities?
A. Yes.
Q. You could, if it were necessary, take your bills with
your indorsement to the Bank of England, and they
would rediscount them?
A. Yes; and we could, if necessary, take our securities
to the Bank of England and borrow upon them there.
Q. You would have to pay a higher rate upon your
securities than you would upon your bills?
A. Probably, yes.
Q. Do you receive interest upon your deposits in the
Bank of England?
A. No.
Q. What rate of interest do you pay upon deposits?
A. The rule for seven days' deposits is i j per cent under
the current Bank of England rate, rising and falling with
that, but not allowing more than, say, a maximum of 5
per cent to the depositor, unless upon special occasions
and special arrangements.
Q. What rate do you allow upon your current accounts?
A. The current accounts in the main are, as I say, noninterest bearing; a man who has money on current account
in consideration of what work we do for him and paying
his checks, keeps a balance with us of $5,000 or $10,000
or $500 as the case may be without getting any interest
upon it.

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Q. So that, as a matter of fact, you have quite a large
sum of deposit upon which you pay no interest?
A. Yes.
Q. Do you think that is generally true with the other
joint stock banks of England?
A. Yes; our principles in the main are all the same. A
little variety occurs in country banking, which is not
quite the same as London banking. London is the
freest of all the bank system; but in the main the principles are the same.
Q. You have branches, have you not?
A. We have about forty-odd branches all in London
and close to London.
Q. You do not then endeavor to acquire a country
business through your branches?
A- For this reason, that we commenced as a purely
London bank, and we have so far kept to that original
determination of not launching out into country business,
because, as I say, it differs from the ordinary London
business. Country business is not quite so liquid, and
can not be. In the country there are manufacturers and
farmers and what not, and the only business to do is to
lend them on what collateral they have got, even on the
crops in the field and material in process of manufacture,
and so on, but London is free from that to a large extent,
and will have negotiable collateral.
Q. So that you regard your business as practically
confined to London?
A. Confined to London.
Q. Do all of your branches report to your main office?
A. Yes; every one, every day, practically.
Q. Those branches are conducted by managers appointed by you?

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A. Appointed again by the board of directors.
Q. For a definite period or during the pleasure of the
board?
A. During the pleasure of the board, but practically
all our people are life-long servants. They come in from
18 to 19 years of age, after they have had a little business
experience elsewhere, so that they are used to us as soon
as they come in, and as long as they behave themselves
they are here for life. I entered the bank in 1865 myself,
so I have spent a good long time here; I began at the
bottom.
Q. How does the small tradesman in London receive
accommodation at the bank?
A. He must have some sort of collateral to put up.
Q. As a matter of fact, a small tradesman rarely has
collateral?
A. Then it is not much accommodation he gets.
Q. It is difficult, is it not, for him to secure accommodation even through a guarantor?
A. No; if he gets a good guarantor. We do not care for
guarantees as a rule, because of the difficulty of enforcing
them. A guarantor says, "You must sell your principal
debtor up before you come on me. I am only an ultimate
guarantor, and if your debtor fails you then you can come
to me;" so that I do not like guarantees in that way.
Q. You have accounts of many small tradesmen?
A. Yes, lots. They get accommodation, say, in our
discounting trade bills. A manufacturer of any kind of
tin goods or wood goods, or anything of that kind—dealers in lumber—they sell to some other fellow in the country, or wherever it may be, and they draw that trade bill
upon them at not more than three months from its date,
and that these small traders may bring in to us, and we

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rigidly scrutinize them as to the customer who brings
them in, to see that he is a respectable man, doing an honest business, and so we will help him by discounting those
bills, if we are equally satisfied with the acceptor, if we
think he is doing legitimate business with honest, legitimate people. So he gets accommodation there without
any security at all. We only get the security of another
name.
Q. The practice in England is for the wholesaler or the
large manufacturer to finance the retailer?
A. To some extent, but as a rule that wholesaler draws
his bill on his retailer, and so he has a larger volume of
these trade bills, and he goes to his bank, or to the Union
Discount Company, and discounts these in larger batches.
Q. And in that way the retailer pays for his goods by
an acceptance?
A. Yes.
Q. Which the wholesaler discounts?
A. Yes.
Q. If you had an account of a man running, say, a hat
store, his account was satisfactory in character and had
been carried with you for several years, and he wanted to
stock up on hats, there would be no way in which he could
go to you and borrow the money with which to buy those
goods unless it was through a guarantor?
A. No. He would go then to the wholesaler from whom
he would buy the goods, and give that wholesaler his bill,
and that bill would be a discountable article, and that is
how the money would be raised.
Q. What discretion do you give the managers of your
branches?
A. That again is a very open thing. They may do
nothing that is in any way out of a very regular course,

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and they may only give accommodation by discounting
bills or lending upon collaterals to a moderate extent,
some few hundred pounds, according to the importance of
the branch, without coming first to the head office and
asking approval for it.
Q. Do you ever allow overdrafts, as they do in Scotland?
A. They are not unheard of, but not a principle of our
business. Overdraft is a principle of country banking;
the reverse is the principle in London. They say "You
put up collateral and we will give you a definite advance
against it," so that we live by the balances on the current
account left there; we must always have some money
there.
Q. Have you a system of charging a customer on the
amount of turnover of his business if the balance is not
sufficient to compensate you?
A. Sometimes. That again is a continual practice with
country banks, but not with London banks.
Q. What is your system of audit? Have you a force
traveling about from branch to branch?
A. Yes; we have our own internal system of audit, the
regular accounting department, which is charged with the
duty of auditing everything, and we have also a staff of
what we call inspectors, who travel round to all the
branches and look into all they do and pass upon it, and
make weekly reports of all they have done. Our board
meets every week, and its duty is to receive these reports
from the head office and all the branches of everything
that has gone on in the course of the week; accounts
opened, accounts closed; in fact, the general condition of
the head office and branches is produced for the private
use of the directors every week.

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Q. Country checks received by you on other places in
England are sent through the London Clearing House, are
they not?
A. Yes.
Q. If you were to receive a check on the branch of
Parrs Bank at Liverpool you would send that through the
London Clearing House to Parrs Bank in London?
A. Yes.
Q. How much time would be required for the settlement of that check?
A. We receive that check from Parrs Bank, Liverpool, say, this morning by 12 o'clock. It gives us time to
present it in the Clearing House by, say, 1 o'clock. Of
course there is a lot of manipulation to do. Then they
send it down by post to-night; it reaches Liverpool to-morrow morning, is advised back to London to-morrow night
as paid or unpaid. That advice reaches Liverpool on Tuesday; the advice of payment or nonpayment reaches London at Parrs Bank on Wednesday morning, and we settle
up with Parrs Bank on Wednesday morning.
Q. In cash?
A. In cash.
Q. If I desired to make a payment in Birmingham
to-day of £10,000 and applied to you, how would you
handle that transaction?
A. That payment would probably be made to the
customer of some bank in Birmingham.
Q. That is, you would handle it through some London
bank having a branch in Birmingham?
A. Yes. You ask me to pay £10,000 for you in Birmingham to-day. I say to you, "What is the name of
the person to whom it is to be paid, and who does he
keep his banking account with?" When you have told

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me that, I go to the London agent of that Birmingham
bank and say, "Here is £10,000 which I want you to
cable to that bank in Birmingham for the credit of Mr.
So-and-so."
Q. Would they make a charge for that?
A. Probably they would. There again there is absolutely no hard-and-fast rule. If their customer in Birmingham were keeping a very good account with the
Birmingham bank, they might let him off.
Q. Do you recall how many members there are in the
London Clearing House?
A. No. I can not say straight off; practically every
London bank is in the Clearing House; I suppose every
bank in the city of London is actually in the Clearing
House; those outside the range—Coutts and Drummonds
and such banks—are not in the Clearing House directly,
but they are indirectly, because they have an agent in
the city who is a member of the Clearing House.
Q. There are about 17 members according to my information.
A. That may be so.
Q. My information is that there has not been a bank
admitted to the Clearing House for many years; it is
really a very close corporation, is it not?
A. Yes; it is quite a close corporation; none of the
Scotch banks are in it. The head offices of the Scotch
banks are all in Scotland, but many of them have branches
in London. Those are not allowed into the Clearing
House. The rule has been that no bank shall be allowed
in the Clearing House whose head office was not in London.
Q. As a matter of fact, if a first-class bank with ample
capital were to be established in London to-day, do you

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not think it would be rather difficult for them to gain
admission to the Clearing House?
A. It might be, because it is purely elective. The
existing body will say, "Yes," or " N o , " to the admission
of a new member.
Q. My observation leads me to believe that the banking
situation in London is practically controlled by 12 or 14
of what are known as the London joint stock banks,
through their offices and through their branches?
A. Yes; I think that is right.
Q. So that the banking of England is really confined
to very few institutions?
A. Of course, of late years that has become much more
clearly so because of these amalgamations that have
gone on. You see Lloyds Bank and the City and Midland
Bank; those two banks are enormous concerns as they are
the result of, I was going to say, innumerable amalgamations. Buying up country businesses. They began themselves in comparatively a small way. They have bought
this, that, and the other bank, and built themselves up
to be these huge concerns with one central office controlling
the whole thing, so that in late years the number of independent banks has been vastly curtailed.
Q. The tendency is very marked in that direction?
A. Yes; it is not yet universal, that is, there are still
independent banks in the country, and I doubt whether
amalgamation will go very much farther than it has
gone. You see, these amalgamated banks have already
become so large that they begin to get a little unwieldy.
Lloyds Bank is an enormous thing, with $350,000,000
of current and deposit accounts.

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Q. Would you say that the public are better served
through these branches than they were through the
independent banks?
A. Some say they are not so well served, that accommodations are curtailed now as compared with what they
used to be, and that I can understand to some extent,
because, working a very large concern from one center,
you see, fiats will go forth, "Cut that man's credit off,"
and not listen to taking a large view. They say," I have
enough of that kind of accommodation; I have ioo shipbuilders or shipowners; I am not going to give out more
than a proportion of my money into that particular trade;
therefore, I will not have a n y m o r e / ' whereas the independent banks would be perhaps a little more accommodating.
Q. How is the conversion of an independent bank into
a branch bank looked upon by the people of the community where the bank is located?
A. Judging by experience, it has all passed very well
indeed; but I have heard complaints; I have had them,
in fact, from time to time from people who have said
their facilities have been reduced, but, on the other
hand, if facilities have been reduced they have in very
many cases been legitimately reduced, making for general
safety, even if a limited amount of accommodation is
given, so that I will not join in any of the complaints on
that subject.
Q. What influence does the bank rate have upon rates
charged by you to your customer?
A. There, to speak in general terms, all the business
we do has a certain relation to the Bank of England
rate. Discounts, of course, are done for the period of the
bill at a fixed rate. I may lose money on that, because

Interviews

—

England

of that fixed rate. If the bank rate goes up to-morrow,
the bills I take to-day I have done a bad business with,
but still, on the other hand, when the rates are falling
away, the bills I buy to-day are made more profitable by
the fall in the bank rate, because I do not pay so much
for the money.
Q. If you were to buy a prime bill to-day, you would
lake it at about 2\ per cent, that being the bank rate?
A. I should have to buy it at a little nearer the market
rate. The market rate fluctuates, as you know; that
might for that bill to-day be 2 per cent, and I should have
to take it at 2 per cent.
Q. If you were discounting bills for your customers,
about what would be the rate to-day on a ninety-day
bill?
A. If I were discounting some trade bills, say for a
moderate trader who brings me in these smaller bills I
have spoken of, I should charge him the Bank of England
rate, or even one-half per cent more than that, but when
you get prime bills, such as bills drawn on the clearing
banks, bills drawn on Rothschild's, those are prime bills,
and you have to take them at a lower rate.
Q. Would not the average trader have to pay you 2>H
or 4 per cent to-day if he were to make a loan?
A. Yes; on a collateral. We distinguish, as regards the
discount of a bill, in the date of maturity and the man
responsible at the end to pay and a collateral which, if
your borrower does not pay his loan, you have to sell or
let him keep the money for any period. Those are the
disadvantages which entitle you to charge him something
more for it.
Q. If I were to go to you to-day with a ninety-day trade
bill, the acceptor known to you as good, and also with a

National

Monetary

Commission

loan secured by Pennsylvania Railroad bonds, my loan to
mature in ninety days, what rate would you charge me on
those separate items?
A. The bank rate to-day is 2]4 per cent. You are a
good customer, and I should charge you 2% per cent for
discounting that trade bill, and I might charge you 3 per
cent, or even perhaps sH per cent on the Pennsylvania
Railroad collateral for that reason, that one is not as
realizable as the other. When the bill becomes due it has
to be paid, or I give it back to my customer, and say
"Give me the money for that." I can not quite say the
same to him about his collateral.
Q. Are the other joint stock banks of London generally
conducted on conservative lines?
A. I should say yes; undoubtedly.
Q. Is it customary for other banks to occasionally carry
stocks as investments, shares of railroads or corporations?
A. Oh, yes; some of them do; some of them take a little
wider view of what they may invest in than we do. Some
of them have much larger funds to invest, and so they may
perhaps afford to take a little broader view, and of necessity also to get enough securities they have to broaden the
field a little bit, and may safely do it.
Q. What dividends do you pay?
A. The last dividend was at the rate of 10 per cent per
annum upon the paid-in capital upon each share, 10 per
cent on the £15 paid-in capital.
Q. What per cent of earnings on your capital did you
show?
A. You mean on the whole thing?
]Q. I mean did you earn, say, 18 or 20 per cent?
A. Yes, roughly, we earned 20 per cent. It cost us 50
per cent of our gross earnings to run the business.

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England

Q. Were your net earnings about 20 per cent?
A. Yes.
Q. It is your custom to pay out in dividends about half
of your earnings?
A. It comes to that, pretty well. Earnings, £246,000;
current expenses, directors' remuneration, and superannuation allowances, £121,000—just about half. Then
out of the balance we provide reserve funds and allocations to superannuation funds, and various things like
that. We pay dividend out of the rest.
Q. What taxes do you have to pay?
A. We pay income tax on all our earnings, and deduct
from our gross profits. We are entitled to deduct, roughly
speaking, our expenses, and then upon the remainder we
have to pay the income tax, or whatever it is, at 1 shilling in the pound, for instance, now.
Q. Are you examined by the Government?
A. No.
Q. The Government exercises no supervision?
A. No supervision at all, but we come under a general
law, which requires that our shareholders shall appoint
what we call auditors. They may be anybody the shareholders choose to appoint, but they shall be appointed
by the shareholders without any control by Government
whatever.
Q. Have you any other taxes than income tax?
A. None except establishment charges—taxes upon the
buildings that we occupy. There is no other government
tax of any kind.
Q. Does your shareholder who receives the dividend also
pay an income tax?

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Monetary

Commission

A. We pay it for him on the dividend we pay to him,
and also he is entitled to deduct that on his return to
Government.
Q. Do you regard the Bank of England as in any way
a competitor of yours?
A. Yes; the Bank of England has a department in which
it has customers just exactly as we have keeping current
accounts. It pays no interest on any money, so to that extent it differs from ourselves. It does not pay interest
on deposits.
Q. Will the Bank of England take from a customer
a two-name trade bill?
A. Yes; in its banking department it does exactly as
I do.
Q. Is that department of the Bank growing?
A. I t is difficult to tell that; probably it is. The same
influences that are at work upon all the rest of the banks
apply to them to meet their customers' requirements, and
they are subject to influence by the importance of their
customer. They depend on the connection, the good will
of their friends, to bring them fresh business, and so on, so
in the banking department I take it they have to look
after it just as we do and seek to keep it on and increase
it; they have as much need as we have, any one of us.
Q. Are they very particular as to the character of their
depositors?
A. Yes; they are.
Q. More so perhaps than the other institutions?
A. Perhaps a little more because, of course, there is
considerable prestige in banking at the Bank of England,
but they have troublesome customers just as we have,
not perhaps in such great number.

I n t e r v i e w s

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England

Q. It is their desire, you think, to increase their business as it is the desire of any other private bank?
A. Oh, quite.
Q. Their stock being owned by the public they need to?
A. Exactly, they have to earn their dividend from
trading just the same as we have.
Q. Would you say that the Bank of England is a popular banking institution among other banks in England?
Q. Yes, I should say so decidedly. Its popularity goes
to this extent, that it is absolutely indispensable to them.
Some of them may grumble at this proceeding or that proceeding, but they have one and all to own that the Bank
of England is indispensable to them.
Q. Do you believe that if the Bank of England did
not exist to-day an institution of like character could be
organized?
A. The necessity for the work which the Bank of England performs here in our community is so absolutely
necessary that it is unthinkable how we could get on without it, or without some other institution exactly taking
its place.
Q. What would you say are the particular functions
of the Bank of England?
A. The important function is that it is the very center
of the whole of the banking interest. Everything that goes
on in banking all over the country practically clears itself
in the Bank of England. The whole of the town clearing,
the whole of the country clearing, all centers in the
London Clearing House, and the settlements of the
London Clearing House are made in account with the
Bank of England. Our balance, which, as I have said
before, we look on as a reserve balance, is in the Bank of
England; the reserve balance of all the other banks is

National

Monetary

Commission

in the Bank of England; we look on the Bank of England
if we want to draw on our reserve fund; we go to the Baijk
of England for notes or gold, as the case may be, without
a thought of not getting it when we want it.
Q. Would you say that the issue department was the
second function in importance?
A. Yes.
Q. Is there any demand for greater elasticity in the
currency?
A. Practically none at all. If, for instance, you look
at the range of the issue of the Bank of England notes
you find it extraordinarily level, and while banking
deposits have expanded enormously the Bank of England
issue of notes has not expanded at all in proportion. We
do without them; we do not need them, and the issue of
Bank of England notes consists very, very largely of what
I keep in my till, and what other banks keep, and keep
pretty permanently there. If I run down to, say, £ 100,000
of notes, and I issue them in legal tender as payment
across my counter, I go and fill up again to-morrow
morning; take out of my balance there Bank of England
notes and fill up.
Q. Have you any idea of the percentage of actual cash
or bank notes which is used in the transaction of business
in the Kingdom?
A. No; but infinitely small. We will collect in the
Clearing House, or rather, say, we will pay in the Clearing
House on one given day, say, £8,000,000 sterling checks
and bills drawn on and made payable at our bank, and the
whole of our cashier work at the counter paying out Bank
of England notes and paying out coin may not be a couple
oi hundred thousand pounds; it is very small indeed.

I n t e r v i e w s

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England

Yesterday our actual payments were made 2 y2 per cent in
cash and 97X per cent in checks.
Q. Do you think that the centralizing of the privilege
of note issue in the Bank of England is to the advantage
of the community?
A. Very much to the advantage of the community.
You see, we have really arrived at this point after having
had large issues of notes by all the banks all over the
country, and those have gradually ceased by the banks
going out of existence, for one thing by their giving up
their issue to the Bank of England, which gives them
certain compensation for it, until there is hardly such a
thing as an independent issue of bank notes in the country.
We do not want it.
Q. There are some banks which still have the right of
issue?
A. Just a few. I can hardly name them to you; I
will not venture on figures because they are all matters
of fact just the same as the number of banks in the Clearing House, and I might be wrong.
Q. You almost never see one of their notes, I presume?
A. Very rarely indeed. Within my knowledge I used
to see lots of them. Thirty-five or forty years ago we
were agents in London for the National Provincial Bank
of England, which was a provincial bank doing no banking business in London and having a very large note
circulation. Those notes would pour into us, and we
would pay them and send them back to the country, so
we saw the volume, and it paid the National Provincial
Bank to come to London and open an office and do a
regular business and give up the whole of that issue of
notes because of the law which does not allow a bank
having a head office banking in London to issue notes.

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Commission

Q. Are the bankers—that is, the heads of the important
banks—usually informed when there is to be a change of
bank rate?
A. No. It is in the air very much. I anticipate a
change; all the circumstances seem pointing that way,
and in conversation we come to the same sort of conclusion; but the actual deciding of it is a matter for the
Bank of England board of directors alone, and when
they have made the change they announce it and you
know it.
Q. The increase in the Bank of England rate is regarded
as effective, is it not, for the protection of gold?
A. Yes. There have been times when it has been said
it is not effective at all, but times will come round again
when we think it is effective; in the main, it undoubtedly is.
Q. What other action is taken by the Bank when they
want to increase their gold, or perhaps stop the withdrawal
of gold?
A. The one direct remedy is the putting up of the
rate to penalize the man who wishes to discount his bills
and take out the proceeds in gold; that is one way; in
fact, that is about the principal way. Another way the
Bank has at times is that it itself borrows money from
the market; sells its securities—practically sells its securities—and takes in the money to itself, and so reduces the
volume of loose money there is outside, and that immediately begins to hold up business. The whole essence of
it is to increase the cost to the man who wants to take the
gold up to the point when he has to say " I must do something else."
Q. As a matter of fact, if you had presented to the
Bank of England last fall some bills which had been nego -

LONDON JOINT STOCK BANK.
Balance sheet, June 30, igo8.
CR.

DR.

To capital authorized:
120,000 shares of £100 each

£
12,000,000

s. d.
o o

To capital issued:
120,000 shares, on which £15 per share has been called
and paid
To reserve fund
To amount due by the bank on current accounts, deposit
receipts, circular notes, etc
To acceptances on account of customs
To rebate of interest on bills discounted, not yet due, carried
to new account
To amount of net profit for the
half year ended 30th June, including £26,950 10s. iod.
($131,153) balance of profit
and loss account, Dec. 31,
£
s. d.
1907
124,335 5 1 $605,077
Less amount transferred to superannuation allowance fund_
5,000 0 0
24,333

$58,398,000

£
1,800,000
1,165,000
I7»850,504
1,458,589
28,128

(To face page QI.)

8,759,7oo
5,669,473
86,869,480
7, 098, 225

136,889

£
s. d.
2,988,579 15 10
3, 556, 092 o o

By investments:
Consols and other securities of, or
guaranteed by, the British Government, of which £20,000 is
lodged with Public bodies
2, 249, 133 15
Indian, colonial government, and
other securities
1,526,406 10

5
4

$14,543,924
17,305,721

£
s. d.
6, 544, 671 15 10

31,849,645

10, 945. .;io

By bills discounted, loans, and other securities
By liabilities of customers for acceptances as per contra__
By freehold and leasehold premises

ii9,335
22,421,558

60481—10.

s.
o
o
12
9
17

By cash in hand and at the Bank of
England
By money at call and short notice

7,428, 256

3, 775, 54o 5 4
10,175,847 o 5
1, 458, 589 9 4
466,909 13 9

18,373, 666
49,520,759
7,098,225
2,272,216

580,744
8 109,114,511

22,421,558

109,114,511

I n t e r v i e w s

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England

tiated through you which appeared to be finance bills, do
not you think they might have gently hinted that it was
not agreeable to them to have you negotiate any more
finance bills?
A. Yes, they have that remedy; they would not have
said it to us, but they would have said it to anybody.
Q. When I said " y o u " I was speaking generally.
A. I may say they have that resource, and they might
say to me if I gave them any just cause for doing it, just
the same as anybody else.
Q. In other words, the Bank of England has such a
commanding position here among the financial institutions which control all the finances of Great Britain that
they dominate it when they choose to?
A. When they choose.
Q. And the banks can not afford and do not want to
act contrary to their express wishes?
A. Decidedly not. The Bank of England is our ally,
and our best possible ally, and speaking for myself I will
do nothing contrary to the general desires of the Bank of
England. I work in harmony with the Bank of England,
and in no respect hostile to it; it is too indispensable a
friend.
Q. It is the custom of the Bank to cooperate very cordially with the other banks, is it not?
A. Oh, yes; we are as free as free can be. There is very
little conference, or anything of the kind; we are all
pretty good friends all round. The essence of it is our
great freedom. Each one conducts business on the safest
lines he can manage to find for himself; we are all bound
together on that principle, some a little different from the
others, but all on the same leading principle. Hard-andfast lines do not exist with us at all.

Conference with Lord Swaytheling.
Q. We would like your opinion as a banker of long
standing and as an acknowledged authority on foreign
exchange upon some of the problems we are considering.
A. I have been sixty years in the banking business, or
a little over, in the city, so I know pretty well what has
been going on during that time—since 1848.
With regard to central or state banks, the fault with
the Bank of England is that in time of panic they have
on occasions, more frequently in former years than now,
had to apply for an order in council to suspend the bank
charter. That is doing an illegal act to meet special circumstances; and I think is a blemish. The French system of going to the Assembly and the Senate to get their
issue enlarged every now and again is also not good. And
their check system is very much inferior to ours; in fact,
no country's system I think is as good as ours. I do not
know much about what happens in the States, but here
almost everybody pays by check down to a pound and even
sometimes lower, and it serves the double purpose of safety
in transmission, and in being also a sort of receipt or proof
of payment, and therefore is very much appreciated in
this country. Nobody would be foolish enough to carry
any large sum of gold about with him—£10 or £20 is
almost the maximum—and therefore we economize the
currency very largely in that way. The next best is Germany, which has a heavy tax of 5 per cent on the excess
of her issue. A certain sum is allowed to be issued untaxed
and above that they have to pay tax; but there are certain
complications about the system there that want clearing

Interviews

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England

away—it is not perfect. But in Germany and in France the
great boon to the inhabitants is the number of branches
which give great facilities for carrying on business by their
being able to move funds so easily; not like what we have,
ten or a dozen places, but they have got hundreds of places
where money can be transferred without cost, excepting a
loss of a day's interest, which does not count. I think
that Italy has adopted the German system with modifications. And an old friend of mine, Signor Luzzatti, declares
that they have an improved German banking system there.
I thought of writing to Signor Luzzatti. He has written
to the "Economist" views which I entirely agree with.
He is a very able man and was Minister of the Treasury
when his party was in power. He praises their system;
they have a certain number of branches—they are rather
old-fashioned in Italy; but my own impression is that in
the States you ought to adopt the German system simplified and improved upon by getting rid of the red tape
which is so much in evidence in Germany, the bureaucracy, as they call it.
Q. Speaking of checks, of course we use checks very,
very largely and perhaps as largely as you do here.
A. Not for small transactions. I thought you used
what were called in olden times shinplasters.
Q. Oh, no, those are obsolete; they are not in circulation.
A. Well, the greenbacks.
Q. Our greenbacks are in circulation; but we use
checks for all amounts, even less than one dollar. They
are used very commonly. What have you to say of the
claim that the gold in the pockets of the people of Germany
is a reserve and a valuable asset to the country?
A. That is a fallacy which Mr. Goschen started here;
it is a fallacy, because when you want money you can not

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Monetary

Commission

get it. Therefore what is the good of gold in the pockets
of the people if you can not open them when you need to?
On the contrary, the people accustom themselves so
much to gold that it causes a run upon gold when otherwise they would be satisfied with bank notes. I look
upon the system of carrying gold to any large amount
in the pockets of the people as an absurdity. I could
understand an ideal currency which would go down
to £ i in paper and silver as small change, and then
you need not have gold as currency excepting half sovereigns. But certainly with gold in the pockets of the
people, who are timid when anything is occurring, you
can not touch it. In the course of time I admit that if
your trade goes persistently against you the gold comes
out, then the people must pay gold, and their savings
must go out to buy food and other necessaries of life.
If there is a real trade depression then the gold in the
pockets of the people is as good or almost as good as if it
were available at the Bank of England, which it even
then is not. In times of excitement they cling to it;
they put it into their stockings, as they say, and the
advantage is exaggerated immensely.
Q. It seems to us a little strange to hear the argument
that in times of war the people would open their pockets,
because we are quite accustomed to find them closed in
times of trouble.
A. Of course, these people think " We had better save the
gold we have." There is another point which I have for
many years urged upon the Bank of England; but they
have always been opposed o it—at least not opposed to it,
because in theory they approve of it—but in practice they
are very difficult to move. I say to them, "Why not
imitate Oermany, Italy, and Austria, and hold a portfolio

I n t e r v i e w s

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England

of foreign bills? " The way to hold such a portfolio is very
simple. For instance, take the first million—you get a
good bank here, a good firm, to buy the bills. Then you
open negotiations with the best firms in the country
where the bills are payable. When they are short, you
renew them and you stop pro tanto the gold withdrawals
by selling. You see, it is a protection which they could
avail themselves of. Now supposing that in Germany
the exchange rises above 50, gold would pay to send
abroad, to England; they immediately sell their bills on
London, lower their exchange and also make a profit;
because they buy when the exchange is favorable and
sell when the exchange goes up; I have pointed out that
to the Bank of England; and I proposed it to the Bank
of Holland years ago, and tfiey do it to some extent. If
you examine the statements of the Bank of Italy and
banks of other countries, you will see they have a large
amount of foreign bills. If you create a state bank, you
ought to hold a portfolio of sterling German and French
bills, whichever pays you the best interest—hold them
and renew them quarter after quarter until the danger
occurs of losing inconvenient sums of gold; and then sell
and get your profit and retain your gold.
Q. Would you favor the Bank of England issuing notes
against those bills?
A. No; they must hold the bills as a part of their reserve.
I do not believe in issuing any legal-tender notes except
as against government securities—a certain amount of
government security and the rest in gold, or in times of
pressure of paying heavy interest to the State for the permission to overissue, so that it is to the interest of banks
of issue to get their notes reduced as quickly as possible.
Q. Is the issue system of the Bank of England inelastic?

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Monetary

Commission

A. No; it is elastic enough if you pay gold into their
coffers. You may have any quantity of notes if you give
them gold. It is true that in times of great straits, of
either war or panic or failures, the public are not always
sure of getting the accommodation they require. Of
course our plan has a restraining influence over speculation, which is a good feature, but I should prefer the
system where the bank is prudently managed and they
have to pay heavy interest on an excess issue. I like
that system, because I think it is more elastic than ours.
You can put a limit upon it, of course; you need not
allow any great issue; in fact, the Government should
control that. Now, with regard to your big banks, I do
not see that you need interfere with them or why they
should not keep a good deal of their money with the state
bank, as our great banks do here.
Q. What amount of currency have you in circulation?
A. We have in this country usually, say, £30,000,000 of
notes and £80,000,000 of gold and silver, say £110,000,000
in all.
Q. Foreign banks outside of state banks show almost
no gold reserve against their deposit liabilities.
A. But, you know, the state banks of France and Germany have protection through the bimetallic system. If
you go to the Bank of France and say," I want 1,000 francs
gold," they say, "No, thank you; we will give you 1,000
francs of silver." Thus, you see, they are protected. So
is Germany. They have got a lot of silver. I was told
by one of the Belgian banks that Germany in time of the
war of 1870 received bills from France for the indemnity,
and they said to the Belgian people, "Look out; we have
got some hundred million of francs; we will take away all
your gold." They said, "No, thank you; we can pay in

Interviews

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England

silver;" and do you know they had silver exports from
Belgium into France much larger than the Bank of France
liked, these Belgian 5-franc pieces coming over the border,
so they followed a very cute system. If a man paid in,
say, 100,000 francs in silver to the bank, whenever he
presented checks to draw his money they paid him in his
own silver, so he never could draw on his credit unless
he took back the silver; so that stopped it; but it is a great
protection to Italy, Austria, Germany, and France, having
the option of paying in silver.
Q. Yes; it may be a great protection to the central
banks, but in Germany and France the joint stock and
other banks hold practically no cash reserve except their
balances in the Reichsbank and the Bank of France,
and they depend upon the rediscount of bills as their
effective reserves. Do you think other reserve is needed?
A. I think that it is rather needed, that there should
be some reserve in the hands of the banks. They ought
to hold some reserve in gold, and I believe now the English
banks do hold a certain amount; they do not disclose it,
but they have got it there in case of need. I propose,
and many people agree with me, that the small note, the
£1 note, would build up the reserve of gold without any
cost but printing. I have advocated that they should
issue here, as in Scotland and in Ireland, for the convenience of the public, £1 notes, and they could issue
ten or twenty millions very easily.
Q. We have been impressed with the enormous amount
of business that is being conducted, both in Germany
and in France, upon the basis of confidence in the central
banks rather than upon an actual gold reserve.
A. Yes, because you see the Bank in Germany has the
privilege of issuing large sums in excess of their legal
60481—10

National

Monetary

Commission

circulation by paying 5 per cent interest to the Government. Therefore they can not plead they have not got
the money as the Bank of England might, who might
say, "Well, we do not like to ask for the suspension of
the bank charter act, and, therefore, we will not discount except at very onerous rates.'' We. require an
improvement, and I have always thought that Germany,
which is really a poor country in comparison with France,
England, or America, can weather the storm so easily
and strive and succeed in bringing down their currency
at the earliest possible moment within legal limits, and I
rather admire them for that; and they do pursue a steady
course without incurring losses.
I do not think they
lose to any large extent.
Q. What do you regard as the most important method
of protecting the gold of England in time of trouble?
A. The rate of discount; that is efficacious, and the
Bank is always very ready to put it up.
Q. London is the gold center of the world, is it not?
A. Yes, because it is the only country where they pay
freely in gold, but even that is now qualified in rather a
small way. They have got what they call an export
corner; that is, they sift out the minimum legal weight
of the sovereigns and heap them up for the exporters.
If they give us full-weight sovereigns we would be very
glad to get them, but they will not. We now could send
gold to France if we could get full-weight sovereigns,
but we can not get them. Formerly they did not do
those things.
Q. Where are the full-weight sovereigns?
A. Oh, they keep them for interior purposes. If Liverpool and Manchester banks want sovereigns they get full
weight, because freight is against us sending them from

I n t e r v i e w s

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England

the north to the Continent. In any of the north country
places you have the most beautiful, bright, heavy sovereigns which we should like to see in London, but we can
not get them.
Q. But you do not mean that the Bank would pay out
light-weight sovereigns?
A. Not light. There is a difference equivalent to about
i penny per ounce between the allowed weight and the
new full weight.
Q. And the foreign governments will not take them?
A. They take them, but we lose the one per mille, which
is equal to a penny per ounce.
Q. Why can France maintain a 4 per cent bank rate
when the rate here and in Germany is higher?
A. Because the French Bank will keep the rate at 3 per
cent unless on very, very rare occasions; there will always
be difficulties in the way of speculation that would lead to
an advanced rate. For instance, they will not take what
they call circulation bills. Even the Germans follow suit;
they will not take bills of bank on bank; they will not take
what is called kites, however beautiful. A kite is a bill
drawn for raising money; and however grand it may be in
the point of real security, it is not commercial; and if you
take the finest paper to the Bank of France of that description—there may be millions represented on the bill—they
will not take it, and this prevents inflation of credit at certain intervals. They are much steadier going, and then
a great deal rests with the people; the money is distributed much more equally in France than almost any other
country. The small farmer, the servant, in France saves
100 francs, and buys an obligation in a railway for 100
francs and gets 3 per cent or 4 per cent. If an English
housemaid saves £4, she buys a gold watch with it; there

National

Monetary

Commission

is the difference in character; the French people are
thrifty; they save every penny they can, and that is the
backbone of the country. I think France is a very, very
rich country.
Q. What is the relative position of France with reference to the international balance of trade?
A. Well, I do not think they progress. You see, their
people do not increase; they have got imbued with the
ideas that comfort lies wTith small families, and so on;
therefore they do not increase, and that keeps them
behind. It is a great advantage to a country to have
an excess of population, which forces emigration. This
Empire of ours has been built up by excess of population.
The whole of the colonies have been raised up. Even in
early days what is called the United States now was
built up by English colonists, and if by any magic you
arrested the population here there would be a decline in
the prosperity of the country. Well, that is the same
with Germany. You get your surplus population from
all over the world, but in France there is a stagnation t
and that imbues the rich with selfishness, a love of comfort and luxury, and the working class will not exert
themselves to make any effort to leave France; they
want to carry Paris with them wherever they go.
Q. Well, France could not maintain her position in the
finance of the world if she were not a very strong, rich
country and a creditor country, could she?
A. No; I think she has in her soil, her wine, and other
products sufficient; even the grain as a rule is sufficient
for their needs; they are always heaping up wealth. If
there is no revolution or no war, I look upon France as
destined to be almost, if not quite, the richest country in
the world.

ioo

Interviews

—

England

Q. She must be a creditor country in trade balance?
A. Oh, I think she must be. Every rich country imports more than it exports. This country imports considerably more than it exports, and why? Because she
does not want gold; she can not eat or drink gold; she
must have products. We receive the freights of merchant ships, those that trade to this country and elsewhere,
and also we have got the confidence of the world because
we are an island; they like to place their money where
there is no risk of an invasion, or very little; it is our
insular position and also the integrity of our merchants
which is still a great force; it was greater in former years;
it has gone a little down, but still it is very good.
Q. Could you have stopped the further exports of gold
to America last fall?
A. Yes; the Bank could have stopped it by a 10 per
cent rate.
Q. The Bank of England is required to buy any gold
presented, is it not?
A. Bound to at 77 shillings and 9 pence, and the Mint
is bound to pay 77 shillings and io>2 pence. It is such a
bother sending to the Mint that it is very, very rarely
done. That is another unwise thing in this country,
that they charge nothing for minting gold. You can take
a thousand new sovereigns, melt them down into ingots,
present the ingots to the Mint and you get your thousand
sovereigns. They work for you and charge nothing,
and it costs you nothing except a little loss of interest.
They ought to charge, like every other mint, a little for
their work done—one-fourth per cent, or something of
that sort. That would keep our gold a little tighter.
Q. I would like to understand the modus operandi of
the gold transactions in London. For instance, I noticed

IOI

National

Monetary

Commission

in the papers this morning that there would be laid down
£700,000 gold. Will you state how that is handled?
A. The gold arrives at the Bank of England from all
these treasure ships, and the bills of lading in the hands
mainly of the banks of the country, the African banks
and such like, and they go to the Bank of England, withdraw the gold, send it to the smelters, who melt it into
bars. Those bars are assayed by the Bank of England
and they are bound to pay you 77 shillings and 9 pence;
they frequently pay more, but the minimum they can pay
is 77 shillings and 9 pence, and they give an immediate
advance on the gold. If you present £10,000 of gold,
they will give you £9,500 at once and the balance when it
has been assayed; it is very simple.
Q. That gold comes from South Africa through the
banks there, and if France wants that gold, they would
bid for it through some house in London?
A. Yes; and they would get it; we send largely to
France; they would get it at a little higher than the Bank
of England would pay. Sometimes the Bank of England
takes a fancy to the gold and quietly bids a little more
than the foreigner; but at present she does not do it,
because there is no particular need, and the more gold that
the Continent takes the less likelihood of drafts upon the
Bank's resources.
Q. Is that gold offered at a certain hour each day?
A. No. At a quarter to 2 we meet together and fix
the price of gold and silver; it takes about a quarter of an
hour to fix the price, and then the orders are filled and the
gold is packed. It sometimes is melted, sometimes is
not melted. We do not melt the United States Mint
bars because they are assayed on the bar and everything
ready, but the general system is that the refiners here

102

Interviews

—

England

take whatever silver they can get out of the gold and
deliver the bars of gold to the weight the Bank of France
will receive it, not too heavy. They fix the limit at 400
ounces and then it is shipped as soon as it is delivered
from the refiners.
Q. What is the actual value of gold coin?
A. The full-weight sovereign is 77s. io>^d., the Bank
buying at 77s. 9d., or anything under io>^d., makes a
profit.
Q. Does the Bank ever pay in excess of that amount?
A. Excess of io>£d.? No.
Q. Never?
A. Never. I have known them to pay iod., but I do
not think they have ever paid more, because they would
lose.
Q. Why does gold ever sell at a price less than iod.?
A. If there are no orders for export you must take it to
the Bank and sell it for 9d.
Q. Certainly. Could not you take it to the Mint and
have it coined?
A. But you lose more in interest, as I explained.
They may keep you a week or two waiting; they say,
perhaps, "We are very busy; we can not deliver it."
No; there is very little ever goes to the Mint.

103

THE UNION DISCOUNT COMPANY OF LONDON,
LIMITED.
Answers to questions addressed to Christopher R. Nugent,
Manager of the Union Discount Company of London (Limited).
Q. Will you give a brief history of your institution?
A. The company, with a capital of £1,000,000 in 100,000
shares of £10 each, 50 per cent paid, was registered
April 24, 1885, to amalgamate the General Credit and Discount Company (Limited), and the United Discount Corporation (Limited), both of which institutions originated in
London. The company has no agencies or branches, its
business being conducted entirely at its offices in London.
The capital was increased in January, 1888, to £1,300,000
by the issue of 30,000 shares of £10 each, 50 per cent paid,
at a premium of £2 10s., and in August, 1899, to £1,500,000
by the issue of 20,000 shares of £10 each, 50 per cent paid,
at a premium of £4 10s.
Q. How many other similar institutions are there in
London?
A. One; but there are about 20 private firms doing
business of a similar character.
Q. What is the par value of your shares? What dividends do you pay? What is the present market price of
your shares?
A. The shares are for £10 each, £5 of which is paid up.
The dividends amounted to 12 per cent per annum on the
paid-up capital for the year ended December 31, 1908.
The present market price of the shares is £12 3s. 8d.

104

I n t e r v i e w s

—

England

Q. How many stockholders have you?
A. The number of our shareholders is 2,806.
Q. Is the stock fully paid?
A. No; the shares are each £5 paid, leaving £5 per share
to be called up in case of need.
Q. Does the law require that before full distribution of
profits you shall accumulate and maintain a certain amount
of surplus (reserve fund), and are you required to invest
this in any particular way?
A. No; the present reserve fund amounts to £520,000.
Q. Is there any limit to the number of shares which may
be held by any one person, and is your approval required
before a transfer of your stock can be made?
A. There is no specified limit to the number of shares
which may be held by any one person. The directors may
refuse to register a transfer to a transferee of whom they
do not approve.
Q. How often do your shareholders meet?
A. Twice a year—in January and July.
Q. Does every share have a vote at shareholders' meetings?
A. Yes.
Q. Describe the organization and management of the
company.
A. The management of the business and the control of
the company is vested in the directors, who at their discretion can appoint officers for permanent, temporary, or
special services, and can remove or suspend same. The
present number of officers is five. Of the directors, who
are elected or whose appointments are confirmed by the
shareholders in general meeting, one-fourth retire from
office by rotation and are eligible for reelection, at the

105

National

Monetary

Commission

first ordinary general meeting in every year. The present
number of directors is six. According to the articles of
association, the number of the directors must not be less
than six or more than twelve.
Q. Is it customary to reelect directors at the expiration of their terms?
A. Yes.
Q. How frequently do the directors meet?
A. Once every week.
Q. How frequently are you required by law to publish
statements of condition?
A. Once in every year.
Q. How frequently is it your custom to publish them?
A. Half yearly.
Q. What local or general taxes are paid by the company?
A. Income tax, house duty, land tax, police rate, consolidated and sewer rate, rector's rate, water rate.
Q. State the distinction between loans and deposits
among your liabilities.
A. " L o a n s " indicate money placed with the company
for which collateral security in the way of bills of exchange
or stocks is given, in addition to the obligation of the
company, while "Deposits" indicate money placed with
the company, for which no special security is given.
Q. Do you pay interest upon either or both? If so,
does the rate vary upon different classes of accounts?
A. Interest is paid on both. Occasionally "deposits"
receive somewhat higher interest.
Q. Are loans and deposits received from individuals and
mercantile firms as well as from banks?
A. Yes.

106

I n t e r v i e w s

—

England

_____
«
.
Q. What governs the fluctuations in the rates paid?
A. The rates paid for loans and deposits are governed
by the Bank of England's official rate of discount, and the
conditions prevailing in the money market.
Q. What percentage of your deposits are payable on
demand?
A. About 40 per cent.
Q. Describe the character of your item "bills rediscounted," their usual duration, and the kinds of institutions to which they are presented.
A. Bills sold by the company under discount to various
customers. Their duration is from a few days up to six
months, and they are chiefly bought by bankers in Great
Britain and on the Continent.
Q. Do you guarantee all of the paper which you sell to
the banks?
A. Yes.
Q. What is included in the item "Cash at bankers?"
A. Nothing but cash.
Q. Is it customary to confine your investments in
securities to government and public securities, or do you
purchase stocks and bonds of railways and other independent corporations?
A. To a small extent stocks and shares of independent
corporations are sometimes bought.
Q. Are you required by law to invest your capital or
any part of it in any particular securities? If so, in what
class and to what amount?
A. No.
Q. Is it your practice to invest an amount equal to
your capital in securities; and if so, in what general class
of securities?

107

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Monetary

Commission

A. There is no regular practice; investments vary
according to circumstances.
Q. What classes of collateral are accepted by you for
loans?
A. Bank and mercantile bills and stocks officially quoted
on the London Stock Exchange of a negotiable character,
with no further liability.
Q. Will you state approximately the average length of
time and the average size of loans on collateral?
A. The length of time is about three days; the size
about £20,000.

Q. Do you frequently employ surplus funds in loans on
call to dealers in securities?
A. Yes.
Q. Are a considerable number of your loans on call?
A. Yes.
Q. Describe the general character of your bills discounted, including their average size, thek average
length of time, and the number of names required.
A. The acceptances of banks and financial and commercial firms of good standing. The bills average about
£700 in amount and about fifty to sixty days in currency.
At least two names required.
Q. What is the minimum size and what is the maximum
length of time to run for bills discounted by you?
A. Rarely under £10 in size or longer than twelve
months.
Q. What is the distinction between what are known as
"prime" bills and other bills?
A. "Prime'' bills are the acceptances of banks and
leading firms. " Other" bills are the acceptances of
houses in a smaller position.

108

I n t e r v i e w s

—

England

Q. What is the usual difference in the rate charged by
you upon a prime bill and for a high-class loan secured by
collateral having the same period to run?
A. One-fourth to one-half per cent.
Q. What is the difference between a trade bill and a
finance bill? Is the rate the same on each?
A. A " t r a d e " bill is one drawn upon a merchant or
retailer for goods actually sold and delivered. A '' finance''
bill is one drawn against a deposit of securities, or sometimes without any such deposit, for the purpose of creating
credit. Rate is higher on "finance" bills.
Q. Do you discount foreign bills?
A. Yes.
Q. What is meant by "domiciled" bills?
A. In London the term is applied to a bill drawn on a
firm abroad, in sterling, but made payable in London.
Q. Do you always discount directly for individuals and
merchants?
A. Yes.
Q. To what extent does the bank rate govern your discount and loan transactions?
A. The bank rate is a great factor in our loan and bill
transactions, particularly when the money market is
stringent.
Q. Is the amount of accommodation extended to you
by the banks predicated upon the amount and character
of balances carried by you with them, or governed by the
necessities of the general situation?
A. The banks are mainly influenced by general conditions
in extending accommodation to the discount houses, but
they are more favorably disposed to those who carry balances with them.

109

National

Monetary

Commission

Q. Is there any general rule in your bank with reference
to the percentage of cash and balances in the bank to the
deposit liabilities?
A. No general rule.
Q. Can you estimate the percentage of cash (coin and
notes) to deposit liabilities in all the banks of England, including the banking department of the Bank of England?
A. The percentage of coin and notes to deposit liabilities
in all the banks would probably be about 15 per cent, that
of the Bank of England varying from 35 to 50 per cent,
according to circumstances.
Q. Do you regard prompt and adequate increase of the
bank rate as the most effective measure to protect the
bank's reserves?
A. One of the most effective measures certainly.
Q. Does the raising of the bank rate ever fail to attract
gold and change the course of exchanges?
A. It has not failed hitherto.
Q. How do you account for the fact that at times a
higher bank rate in England fails to attract gold from the
Continent when lower rates prevail there?
A, Probably at the times referred to the difference in
rates was only slight, and was more than neutralized by
the difficulties put in the way of gold shipments by the
responsible foreign authorities
Q. Is the raising of the bank rate more effective in controlling gold movements now than at the time of the last
suspension of the bank act in 1866?
A. Yes.
Q. To what do you attribute this increased efficiency?
A. To the fact that international relations are closer
than they were, and that the amount of gold held by

I n t e r v i e w s

—

England

foreign treasuries and banks throughout the world is
much larger than it was.
Q. What effect did raising the rate in the period from
October, 1907, to January, 1908, have upon the Bank's
gold supply?
A. It had the effect of attracting gold from home circulation and abroad, and lessened the facility with which it
could be obtained from the Bank for export to the United
States.
Q. What other steps are taken in addition to raising the
bank rate to protect the outflow of gold in times of a
crisis?
A. The Bank may borrow money in the open market to
produce increased firmness there, and it may exercise
greater discrimination in advancing upon bills and securities, thus restricting the facilities for obtaining money.
Q. Is it customary at such times to advance money
without interest to importers of gold to cover the time
required in transportation?
A. It has been done by the Bank of England occasionally, but it is not customary.
Q. Is it the policy of the Bank of England to discriminate
against finance bills in times of financial crises?
A. The Bank has not usually acted upon such a policy,
but there is an impression in Lombard street that it
might do so at any moment, and this feeling has a restraining effect upon the creation of this class of paper in bad
times.
Q. Does, the understood policy of the Bank of England
to advance bank rates rapidly and at the same time to
extend liberal credit in times of serious financial trouble
meet with general approval in business and banking
circles?

National

Monetary

Commission

A. Yes.
Q. Is London the only free market for gold in Europe?
A. Yes; in the complete sense of the word "free."
Q. Do the joint stock and other banks rely upon the reserves of the banking department of the Bank of England
as their ultimate resource in case of trouble?
A. I do not consider that the outside banks can be said
to "rely" upon the reserve in the banking department of
the Bank of England, chiefly or exclusively. They largely
regulate their transactions according to its size, but can
only "rely" on their own reserves in times of serious
trouble.
Q. Do your favor an increase in the fiduciary note
circulation?
A. No; I would prefer to see the present fiduciary issue
lessened or abolished.
Q. Do your favor the issue of £ i notes?
A. Yes.
Q. If not, what is the reason for your objection?
A. Answered by preceding reply.
Q. Does the proposition for a secondary gold reserve
meet with your approval?
.
A. No.
Q. Has the experience of the United Kingdom with
reference to note issues under the legislation of 1844 and
1845 been satisfactory?
A. Yes.
Q. With respect to the monopoly of note issue, are any
modifications or amendments to the bank acts suggested,
and if so, what is the nature of the proposals?
A. So far as the monopoly of issue enjoyed by the present
holders is concerned, I do not; know of any serious suggestions for its alteration.

112

I n t e r v i e w s

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England

Q. Is there any substantial demand for what we in
America call ilgreater elasticity'' in volume of currency
(notes and coin) to answer business demands?
A. No; I do not think there is.
Q. Is there any inclination to adopt the German system
of taxed issues for emergencies or some modification of it?
A. The subject has been much discussed, but I do not
think there is any inclination to adopt the German system.
Q. Is there any tendency to return to the system of note
issue in existence prior to 1844?
A. No.
Q. Is there any contention in banking or economic circles that it is necessary to restore or extend the right of
issue to banks other than the Bank of England to enable
them to increase their own profit, or to afford adequate
facilities to borrowers, or to meet legitimate business
demands?
A. No; the disposition (as indicated in reply to a
former query) is to leave the issue of notes in the hands
of those at present having this facility.
Q. Has the rapidly increasing use of checks, bills of
exchange, and other instruments of credit and clearinghouse facilities rendered the enlarged employment of bank
notes unnecessary?
A. Yes.
Q. What effect has a marked increase in the commercial
and industrial activities of Great Britain on the volume of
note issues?
A. An increase in the commercial and industrial activity
of Great Britain would tend to increase the "circulation"
of notes. The "issues" are more governed by the supply
of, or demand for, gold.
60481—10

113

National

Monetary

Commission

Q. What in your opinion is the effect of branch banking
and the amalgamation of banks: (a) Upon the amount of
cash held by the banks? (6) Upon local bank rates? (c)
Upon the prosperity and development of communities?
A. The effect of branch banking and the amalgamation
of banks is to (a) increase the aggregate amount of cash
held by the banks; (b) the establishment of branches by
competing banks tends to lower local rates, the amalgamation of banks tends to keep local rates firm, and even to
raise them; (c) is a favorable influence toward the development and prosperity of communities, provided that the
amalgamation process is not carried too far in centralizing
the control of the banking business of the community in a
few hands.

114

THE UNION DISCOUNT COMPANY OF LONDON, LIMITED.
Balance sheet, June 30, 1908.
DR.
£
s. d.
To capital account, 150,000 shares of £ i o . 1,500,000 o o
Amount paid, £5 per share
Reserve fund
Provident reserve fund_ _
To loans and deposits, including provision
for contingencies
15,906,247 2 2
To billsrediscounted
8,083,668 16 11

To rebate on bills discounted
Balance at credit of profit and loss for
appropriation
-_

143.515 19 10
132,217

60481—10. (To face page 114.)

s. d.

750,000 o
480,000 o
50,385 14
23.989,915 19

275.733

25.546,034 16

£
s. d.
By cash at bankers
882,968 4 o
By consuls, exchequer bonds, Indian government, and other
securities
3,238,423 17 1
By loans on securities at call and short dates, and other
accounts
1,213,901 7 o
By bills discounted, etc
20,098,019 18 7
6, i n 13 1
By sundry debit balances
By freehold and leasehold premises, fittings and furniture, at
cost, less annual depreciation written off
._
106,609 16 ix

9
25.546,034 16

CR.

THE LONDON AND WESTMINSTER BANK
(LIMITED).
Report of answers to questions addressed to Mr. T. J. Russell,
Manager of the London and Westminster Bank (Limited).
Q. Will you give us a brief account of your institution?
A. The London and Westminster Bank was established
in March, 1834. It was registered as a limited company
in March, 1880. It originated in London and is still confined to London and its suburbs.
Q. What is the par value of your shares, and what dividends do you pay?
A. The par value of our shares is £100, of which £20 is
paid. For the last four years dividends of 13 per cent per
annum have been declared. The present market price of
the shares is between £ 5 0 ^ and £51.
Q. How many stockholders have you?
A. Upward of 10,600.
Q. What additional payments can be collected from
your stockholders for the development of business, and
what in case of liquidation?
A. As £20 per share have been paid in, the shareholders
are left a liability of £80 per share, which can be collected
for the development of business or for liquidation.
Q. Does the law require you to accumulate a certain
amount of surplus?
A. No.
Q. Is there any limit to the number of shares which may
be held by any one person, and is your approval required
before a transfer of your stock can be made?

National

Monetary

Commission

A. There is no limit to the number of shares which any
individual may hold, but the approval of directors is
required before transfers can be made.
Q. How often do your shareholders meet?
A. Twice a year.
Q. Does every share have a vote at the shareholders'
meetings?
A. No; votes are distributed as follows: From 10 to 49
shares, 1 vote; from 50 to 99 shares, 2 votes; from 100 to
199 shares, 3 votes; from 200 shares upward, 4 votes.
Q. Describe the organization and management of the
bank, stating the officers and directors, and their respective functions, and for what periods of time and by whom
are they elected?
A. There are 682 officers and 15 directors, who are
elected by shareholders. Three of these directors retire
annually.
Q. Is it customary to reelect directors at the expiration
of their terms?
A. Yes.
Q. How frequently do the directors meet?
A. Daily.
Q. How many branches have you?
A. Thirty-six.
Q. In the main, have they been created by you, or have
they been formed by the absorption of independent banks?
A. They have mainly been created by us.
Q. How are your branches managed?
A. By an appointed manager, who is visited periodically by the superintendent and inspectors of branches,
and occasionally by directors.

116

THE LONDON AND WESTMINSTER BANK (LIMITED).
Balance sheet for December 31, 1908.
DR.

LIABILITIES.

,
To current accounts and deposits
To circular notes, credits on agents, provision for bad and
doubtful debts, rebate on bills discounted not yet due,
commission loans and other accounts
To acceptances.
To liability b y indorsement (bills negotiated for customers).
To capital, divided into 140,000 shares of £100, on each of
which £20 is paid, making a total of
To rest or surplus fund
To government securities depreciation account
£
s. d.
To balance of undivided profit June 30, 1908. 49,662 4 8
To net profit of the last half year
155.334 5 8

£
s. d.
26,625,620 12 2
1,030,776 2 3
1,231,053 3 10
19, 030 13 n
2,800,000
1,400,000
100, 000

o
o
o

204,996 10

33,411,477

60481—10.

(To face page 117.)

ASSETS.

CR.

s. d.

By cash in hand and at Bank of England
4 ,336,412 17 11
By money a t call and short notice
7 ,180,075 o o
B y Government securities, viz, £4,000,000 2% per cent consols a t 85 (of which £1,000,000 is lodged for London
County Council), £500,000 local loans stock a t 97 (subject to reserve for depreciation as per contra)
3, 885, 000 o o
B y colonial government securities, British corporation stocks,
and other investments
416,605 12 4
B y bills discounted, loans, and other accounts
15, 544, 428 14 7
B y liability of customers for acceptances, as per contra
1, 231,053 3 10
By liability of customers for indorsement, as per contra
19, 030 13 n
B y bank and other premises (at cost less amounts written
off)
__
798,870 19 11
33,4ii,477

Interviews

—

England

Q. Who appoints the managers of branches, and are
they usually selected from subordinate officers in the same
bank?
A. The directors appoint the managers of branches, who
are selected from among subordinate officers, but not
necessarily in the same branch.
Q. How frequently are you required by law to publish
statements of condition?
A. Twice a year.
Q. How frequently is it your custom to publish them?
A. Monthly.
Q. In your opinion, should more frequent and fuller
bank returns be published?
A. We do not consider this necessary.
Q. What legal or general taxes are paid by the bank?
A. The usual parochial and general taxes.

117

National

Monetary

Commission

Interview with Lord Aveburyf Partner of Robarts, Lubbock & Co.
Before proceeding to answer the questions I think I
ought to say that, while I have the honor to be chairman
of the London Bankers and president of the Central Association of English Bankers, I am speaking in my own
name, and have no authority to commit those institutions.
Q. Will you give a brief history of your institution,
stating whether its business is confined to London or is
also conducted through branches elsewhere in England?
A. Our bank was founded as a bank in 1772. Previous
to that, however, my ancestors had been established as
merchants, doing a certain amount of banking business.
In that year the two businesses were separated, my great
uncle, and afterwards my grandfather, however, remaining
at the head of both concerns. We have no branches, but
our business is by no means confined to London.
Q. How many stockholders have you?
A. As we are a firm and not a company, this question
does not apply to us.
Q. How frequently are you required by law to publish
statements of condition?
A. We publish our accounts yearly, but are under no
legal obligations to do so.
Q. Should more frequent and fuller bank reports be
published?
A. I see no necessity to do so.
Q. What local or general taxes are paid by the bank?
A. We pay the ordinary local rates and general taxes.
Q. Will you state the distinction between current
accounts and deposit accounts?
A. Deposit accounts are more or less stationary; current accounts are constantly operated on.

118

Interviews

—

England

Q. Do you pay interest on either, or both?
A. We pay interest on deposit, but not on current,
accounts. Money not likely to be immediately wanted
can always be transferred to deposit, and then bears
interest.
Q. What percentage of your deposits are payable on
demand?
A. The proportion varies.
Q. What is the usual length of time and what is the
usual duration of the acceptances drawn upon you by your
customers?
A. Not at more than three months.
Q. What is included under the item "Cash in hand" in
your statement?
A. Cash in hand includes nothing but cash.
Q. What is included under the item "Money at call and
short notice? ,,
A. This is money deposited at call, mainly with bill
brokers at call and against gilt-edge securities, or in part
lent on the stock exchange for not more than a fortnight.
Q. Do you confine your investments in securities to
government and public securities?
A. Our investments are mainly British government
securities, with a comparatively trifling amount of firstclass railway bonds, etc.
Q. Is it your practice to invest an amount equal to your
capital in securities; and if so, in what general class of
securities?
A. Our capital is invested in English government
securities.
Q. Describe the general character of your bills discounted.

119

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Monetary

Commission

A. The bills we discount have never less than two names,
nor more than three months to run.
Q. What is the usual difference in the rate charged by
you upon a prime bill and for a high-class loan secured by
collateral having the same period to run?
A. About one-half per cent.
Q. What is the difference between a trade bill and a
finance bill ? Is the rate the same on each ?
A. A trade bill is based on an actual sale; a finance bill
is a bill based on an exchange operation; an accommodation bill is merely a means of raising money. The first
two may or may not be good. It depends on the credit of
the houses. The third class we do not take.
Q. Do you discount to any considerable amount directly
for individuals and merchants?
A. At times.
Q. Do you frequently employ surplus funds in loans on
call to dealers in securities?
A. We generally have considerable sums lent out for a
few days on the stock exchange against readily salable
securities.
Q. Would you charge a merchant having a good account
with you the bank rate or the market rate for prime bills?
A. The market rate.
Q. To what extent does the bank rate govern your discount-and loan transactions?
A. The bank rate generally is an expression of the
market rate.
Q. Is it your custom to employ your surplus funds in
the purchase of bills from discount houses?

120

Interviews

—

England

A. We employ our surplus funds with discount houses
and companies and keep a certain amount with them
which is available for any daily requirement.
Q. Do you at times discount bills for parties having no
account with you?
A. No.
Q. Are a considerable number of your loans on call?
A. Yes.
Q. Do you allow overdrafts?
A. We occasionally allow a temporary overdraft, against
security, but prefer to make a loan for a definite amount
and a definite time. The Scotch system of "cash credits"
does not prevail in London.
Q. Is there any general rule in your bank with reference
to the percentage of cash and balances in the bank to the
deposit liabilities?
A. No.
Q. Can you estimate the percentage of cash to deposit
liabilities in all the banks of London?
A. No.
Q. Does the raising of the bank rate ever fail to attract
gold and exchange in the course of exchanges?
A. A sufficient bank rate always brings in gold.
Q. How do you account for the fact that at times a
higher bank rate in England failed to attract gold from
the Continent when lower rates prevail there?
A. Because there is no free market for gold except in
London.
Q. Is the raising of the bank rate more effective in controlling gold movements than at the time of the last suspension of the bank act in 1866?

121

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Monetary

Commission

A. I remember 1866 well. The bank act was not so
well understood then as it is now, and I think the rate
should have been raised sooner. A rate of 5 per cent here
will, I believe, always bring in gold, but it requires a
reasonable time.
Q. Is it the policy of the Bank of England to discriminate against finance bills at the times of financial crises?
A. I believe not. So far as we are concerned, we have
never as a matter of fact rediscounted any bill we have
taken or applied to the Bank of England for any advance.
No doubt, however, in the case of any general and unreasonable panic the Government would authorize the Bank
of England to take such steps as might be deemed wise
in the general interests. Twice since 1844 the Bank of
England has been authorized to utilize temporarily the
reserve of gold held in the issue department, but I believe
that in both cases this might have been altogether avoided
if the rate had been raised rather earlier. Moreover, the
effect of a rise in the rate of discount in attracting gold
was not as well understood then as it is now.
Q. Do you favor the issue of £1 notes?
A. No. I agree with the governor of the bank that £1
notes would take the place of gold, and thus tend to drive
it out of the country. Moreover, if as is now the case, the
banks took the numbers and the notes were not reissued
the expense would be greater than that of coin.
Q. Does the proposal of a secondary gold reserve meet
with your approval?
A. No.
Q. Has the experience of the United Kingdom with
regard to note issues under the legislation of 1844 and 1845
been satisfactory?
A. Yes.

122

I n t e r v i e w s

—

England

Q. Is there any substantial demand in England for what
we in America call "greater elasticity'' in the volume of
the currency to meet changes in business demands?
A. I should say not.
Q. Is there any inclination to adopt the German system
of taxed issues for emergencies or some modification of it?
A. Many years ago Mr. Lowe, when chancellor to the
exchequer, did me the honor of consulting me on this
point. He came to the conclusion that it was not necessary, and as to the working of the act of 1844 and the
effect of a high enough rate of interest in bringing gold
from abroad is better understood, this seems to me now
even more the case. At the same time I should see no
grave objection to giving the Bank of England power to
exceed the statutory note limit, paying at the rate of, say,
5 per cent per annum on any excess. The existence of
such a discretion might possibly tend to allay alarm.
Q. Is there any tendency to return to the system of
note issue in existence prior to 1844?
A. No.
Q. Is there any contention that the right of issue should
be restored or extended to banks other than the Bank of
England?
A. No.
Q. Has the rapidly increasing use of checks and other
instruments of credit and clearing-house facilities rendered
the enlarged employment of bank notes unnecessary?
A. Yes, Many years ago I took out and published the
experience of our house for a month. The percentage of
gold and silver was, to the best of my recollection, under
1 per cent, and that of notes only 2 or 3 per cent, the great

123

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Monetary

Commission

bulk being in checks. If thought worth while, I could
look up the exact figures.
Q. What effect has a marked increase in the commercial
and industrial activities of Great Britain on the volume
of note issues?
A. Comparatively little, owing to the very general use
of checks.

124

ROBARTS, LUBBOCK & CO., LONDON.
Balance sheet, January 30, 1909.
DR.

Paid-up capital and reserve fund
Current and deposit accounts
Acceptances against approved securities

£
s.
500,000 o
3»377.33* 7
70.842 10

d.
o
"
10

Cash in hand and at Bank of England
Cash a t call and at short notice
Consols 2% per cent stock, £500,000
Metropolitan water board 3 per cent " B " stock, £50,000

415. 000
46, 000

British Indian and colonial government securities, and corporation stocks.
English railway debenture and preference stocks and other investments..
Bills discounted, loans and advances t o customers
Liability of customers for acceptances per contra
Freehold bank premises
3.948,173 18 9

604.81—10.

(To face page 124.)

£
s. d.
776,986 9 7
757 400 o o
461 000
125 465
133 , 203
,493 530
70 842
129 746

5 8
o

9 6
10 10
2 8

3»948,i73 18

CR.

SCOTLAND.

125

ROYAL BANK OF SCOTLAND.
Interview with Adam Tait, Cashier and General Manager.
Q. When was the Royal Bank of Scotland founded?
A. In the year 1727.
Q. When does your present charter expire?
A. It is perpetual.
Q. What is the par value and present selling price of
your shares?
A. The par value is £100; the stock is selling at £262.
Q. How many stockholders have you?
A. About 3,500.
Q. Is the stock fully paid?
A. Yes.
Q. Have your shareholders any liabilities in addition
to the ownership of shares?
A. No.
Q. Is there any limit to the number of shares which
may be held by any one person, and is your approval
required before a transfer of your stock can be made?
A. There is no limit to the amount of stock held by
any one person; yes, our approval is required before a
transfer of stock is made.
Q. How often do your shareholders meet?
A. Annually.
Q. Does every share have a vote at shareholders'
meetings?
A. One vote may be cast for each complete £100 of
stock.

127

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Monetary

Commission

Q. What control have the shareholders over the management and conduct of the business?
A. They elect the directors.
Q. Has the Government any voice in the management
of the Bank or any interest in it through the ownership
of shares?
A. No.
Q. Describe the organization and management of the
Bank, stating the number of officers and directors, with
their respective functions; and for what periods and by
whom are they elected?
A. The management and control is vested in a governor, deputy governor, 9 ordinary and 9 extraordinary
directors. The ordinary directors have the management
of the Bank; the governor and the extraordinary directors are not entitled to interfere in the management,
and their offices are honorary, but they may be called in
to consult and advise. The deputy governor takes part
in the management, and when present presides over meetings of the ordinary directors. The active management
is in the hands of the general manager, and the directors
advise and control him.
Q. Is it customary to reelect directors at the expiration
of their terms?
A. Yes.
Q. Is there any custom restricting the class from which
the directors may be selected?
A. No; except that the policy has been to elect from
the professional classes and not from those actively
engaged in trade and who might themselves or through
their firms require advances.
Q. How frequently do the directors meet?

128

I n t e r v i e w s

—

Scotland

A. The whole nine meet once a week, constituting a
board meeting. Committees of three directors meet on
other two days in each week. The same three directors
take the committees for one month continuously.
Q. How many branches have you?
A. One hundred and fifty-two.
Q. How are your branches managed?
A. By resident agents, accountants, tellers, and clerks,
according to the extent and nature of the business of the
branch. The agent is the responsible officer, and, as a
general rule, is alone entitled to bind the bank by signing
documents on its behalf. Each branch is visited by an
inspector from the head office, who makes a very careful
scrutiny of all the advances and a balance of the cash, and
reports to the directors thereon.
Q. Who names the managers of branches?
A. The directors, on the recommendation of the general
manager.
Q. Have the managers of the branches full control of
the business in granting discounts, etc.; if not, what discretion is usually given them?
A. Yes; but the general manager may impose restrictions or limits or may require transactions to be submitted
for his approval or that of the directors. Large advances,
by way of loan, or overdraft, require the previous sanction of the head office.
Q. Have you any system of distribution of profits
among the managers of branches?
A. No; occasionally a commission is allowed to agents
to encourage them to secure deposit money.
Q. Are all your branches of the same class, or have you
main and subsidiary branches?
60481—10

129

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Monetary

Commission

A. In some cases there are sub-branches. Some are
mainly or almost entirely deposit branches; others have
few deposits, but a large advance business.
Q. Is the business conducted at your branches of the
same class as at your office in London?
A. No; the London office is itself a branch office and
much of the ultimate settlement of balances takes place
there. The conduct of the ordinary London business is
on the same lines as that of any other London branch
bank. No notes can be issued in London.
Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective
localities?
A. Yes, they have business relations with all classes of
people.
Q. How frequently are you required by law to publish
statements of condition?
A. We are under no legal obligation, except to submit
an annual statement to the stockholders.
Q. How frequently is it your custom to publish them?
A. Annually.
Q. Is either your issue or your banking department at
any time examined by the Government, or in any way
under its supervision?
A. No.
Q. What local or general taxes are paid by the bank?
A. All local and general or imperial taxes paid by any
other trading company.
Q. Is the bank a member of the London clearing house?
A. No.
Q. What is the law governing your note issues, and
how are note issues limited and how secured?

130

Interviews

—

Scotland

A. The act of Parliament of 1845 governs our note
issue. There is no limit to the amount of notes that may
be issued, but the Bank is required to hold gold (and silver
to an extent not exceeding one-fifth of the total) against
the notes in the hands of the public on the average of
even four weeks, and that at its head office in Edinburgh—
gold held at branch offices does not count—to an amount
sufficient each week on Saturday to cover the notes in the
hands of the public in excess of a certain amount specified,
£216,451. The notes are not secured.
Q. To what extent are your notes legal tender in Great
Britain?
A. Our notes are not legal tender at all.
Q. What other banks have the right of issue in Scotland?
A. The Bank of Scotland, the British Linen Bank, the
Commercial Bank of Scotland (Limited), the National
Bank of Scotland (Limited), the Union Bank of Scotland
(Limited), the Clydesdale Bank (Limited), the North of
Scotland and Town and County Bank (Limited).
Q. Are the notes of your issuing banks secured; and if
so, how?
A. They are not secured. In case of the liquidation of
the five last-named banks, however, their shareholders are
unlimitedly liable for their notes and they are liable to
contribute a sum necessary to restore to the general assets
the sums that may have been paid out of the same in
respect of claims under notes.
Q. What is the total amount of their outstanding
issues?
A. About £7,500,000.

Q. Do you pay the Government in the form of taxes or
otherwise, either directly or indirectly, for your privilege
of note issue?

132

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Monetary

Commission

A. Yes, we pay a license duty of £30 for each place at
which notes are issued, and a tax of 8s. 4d. per £100, or a
penny per £ 1 , on the average amount of notes in the
hands of the public at the close of each week.
Q. Do other issuing banks pay at the same rate for the
privilege of note issue?
A. Yes; we all pay at the same rate.
Q. Have you acquired the right of issue from any other
bank, and upon what terms?
A. Yes; from the Dundee Bank in 1864, but it was not
paid for, apart from the price paid for the business as a
whole. It was only the right to issue notes up to a certain figure, £33,451, without that figure being covered
by gold. The authorized circulation was, previous to the
taking over of the Dundee Bank, £183,000. It is now
£216,451.
Q. To what do you attribute the weekly and seasonal
fluctuations in ftie amount of outstanding notes, and are
these fluctuations constant from year to year?
A. Weekly fluctuations are chiefly due to the payment
of wages. The seasonal fluctuations are at harvest time,
at Christmas, and New Year, and to a much larger extent
at the half-yearly terms of Whitsunday (May) and Martinmas (November), when rents are paid, interest on
mortgages is collected, and half-yearly wages are paid.
Q. Are you willing to inform us as to the expense of
note issue and the profits derived therefrom?
A. The expense probably may be about £1 5s. per cent
on the total circulation—including license duty, stamp duty,
paper, and printing of notes and keeping registers of notes
issued and canceled. The profit, if any, is negligible.

132

Interviews

—

Scotland

Q. Under what conditions or terms has your capital
been increased from time to time?
A. It has been increased under special charters from the
Crown, and it has been made a condition in all the charters that the increase capital shall be subscribed and paid
up in full. There has been no increase in the capital stock
since the year 1828.
Q. Have the obligations of the bank to the public or to
the Government been changed from time to time?
A. No.
Q. Are you required by law to invest your capital, or
any part of it, in any particular securities?
A. No.
Q. Does the law require that before full distribution of
profits you shall accumulate and maintain a certain
amount of rest (surplus), and are you required to invest
this in any particular way?
A. No.
Q. Do you allow interest upon deposits?
A. Yes; if the money remains undisturbed for thirty
days.
Q. Are deposits subject to considerable fluctuations, and
are these fluctuations regularly recurrent?
A. Yes; they fluctuate with the rates of interest allowed. When the rate of interest allowed on deposits is
low, the deposits gradually decrease, but not to a serious
extent.
Q. Are all deposits payable on demand?
A. Yes.
Q. Is it your custom to carry in your banking department a fixed amount in government securities?

i33

National

Monetary

Commission

A. Yes, but the amount is not rigidly fixed. In recent
years there has been a tendency to decrease the amount,
as the market for them has not been so free or active as
formerly, and the main purpose of keeping government
securities is to have securities that can be sold in large
blocks at any moment if required.
Q. Can you state, approximately, the average length of
time and the average size of bills discounted by you?
A. The bills average in length two months, three
months, four months, and six months. They range in
amount from £5 up to £5,000.
Q. Is the character of your discounts or loans regulated
or restricted by law or fixed by the statutes of the Bank ?
A. No.
Q. Will you state (a) the class of bills usually discounted
by you, giving the number of names required; (6) the
minimum size; and (c) the maximum length of time to
run?
A. Mercantile bills—that is, bills for the price of goods
or merchandise supplied, drawn by the seller and accepted
by the purchaser, £2 or £3 in some cases, up to £5/10,000.
Their maximum length is six months.
Q. What classes of collateral are accepted by you for
loans?
A. Stock exchange securities, and in some cases produce.
Q. Will you state, approximately, the average length of
time and the average size of loans on collateral?
A. The length of loans on collateral is variable. It is
not possible to state their average size; they are of all
amounts.
Q. Do you discount any but prime bills?
A. Yes; we do all classes of business.

i34

Interviews

—

Scotland

Q. Do you discount to any considerable amount for
individuals and merchants?
A. Yes.
Q. Is it your custom to employ surplus funds in purchase of bills from discount houses?
A. Yes; bills accepted by London banks.
Q. Do you rediscount bills for other banks?
A. No; except for foreign or colonial banks who are
correspondents.
Q. Is it your custom to discount any bills payable in
foreign countries?
A. Yes, occasionally; but the total is small.
Q. To what extent does the Bank rate govern your discount and loan transactions?
A. It invariably does so. The rates charged by us
always bear a relation to the Bank rate.
Q. Do you at times discount bills for parties having no
account with you?
A. Seldom.
Q. Are a considerable number of your loans on call?
A. No.
Q. Explain the phrase "cash credits," and upon what
conditions they are given.
A. A customer applies to be allowed to overdraw such
amount as he may require from time to time up to a
specified amount, and he and two or three sureties jointly
and severally become bound to repay the amount that
may at any time be owing with interest, on demand being
made on them. Each obligant is liable to pay the whole
sum, leaving him to obtain repayment from his co-obligants.

135

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Q. Is the bank, through its branches, employed by
other banks to any considerable extent for the transfer
of funds from one city to another?
A. Yes.
Q. Is it the practice of the bank in times of stress to
discount bills of a satisfactory character for its customers
freely?
A. Yes.
Q. Is it the policy of the bank to discriminate against
finance bills in times of financial crises?
A. Yes.
Q. Do you favor the issue of £ i notes? Why?
A. Yes; they have always been in favor with the public
in Scotland.
Q. What, if any, artificial means are taken by you to
secure changes in the volume of currency (notes and coin)
to make it responsive to business demands?
A. None are deemed necessary. Our system works
automatically. Our note issue is unlimited; we are only required to provide gold to cover the amount in the hands
of the public at the close of each week and on the average of each four weeks.
Q. What effect has a marked increase in the commercial and industrial activities of Great Britain on the
volume of note issues?
A. It increases it.
Q. It is customary in England, we find, to distinguish
between current accounts and deposit accounts. Will
you describe the distinction you make?
A. No interest is allowed on the balances on current
accounts. Interest is allowed on deposits only if the
money remains continuously undisturbed for at least
thirty days. Deposits are payable on demand.

136

Interviews

—

Scotland

Q. What is the customary charge for acceptance of a
ninety-day bill?
A. Five shillings per cent.
Q. Your acceptance constitutes what is known in
London as a prime bill?
A. Yes.
Q. Is there discrimination in easy times between a
merchandise or trade bill and a finance bill?
A. Yes.
Q. It is your practice to employ your surplus funds in
the purchase of prime bills through bill brokers?
A. Yes.
Q. Is it the general practice in Scotland to make advances to very responsible people on a single name?
A. Not to any great extent. Overdrafts are allowed
to such on the circumstances being explained calling for
the accommodation.
Q. Is it customary for you to receive as collateral for
loans any securities which are listed on the exchange?
A. Yes.
Q. Do you pay interest on both current accounts and
deposit accounts?
A. It is our custom to pay interest on deposits only.
In London, however, it is different; there interest is allowed in special cases on large balances on current accounts if left for some time.
Q. How does the bank rate affect the rate allowed! by
you on deposit?
A. The Scotch banks all allow the same rate and charge
the same rates for discounts and overdrafts, and these
are fixed relatively to the Bank of England rate.
Q. Were most of your branches organized by you or
were most of them other institutions purchased by you?

i37

National

Monetary

Commission

A. Most of them were originated by ourselves.
Q. Have you in mind how many branches you had ten
years ago?
A. About 136.
Q. The tendency is for the consolidation of banking in
Great Britain, is it not?
A. Yes.
Q. Has the conversion of a private bank into a branch
of your bank generally met with favor in the community
where that bank is located?
A. There has been no private bank in Scotland since
1844, and consequently no conversion from a private to a
joint stock bank since before that date.
Q. Do you believe that the^ community is as well or
better served through your bank than through the independent bank?
A. Yes; much better.
Q. Do you believe that the customer of that bank gets
as fair consideration from you—that is, that you are in a
better position to judge fairly of his merits and his needs,
as the private bank?
A. Yes.
Q. Would you say the Bank of England is in any way a
competitor of the other banks in Great Britain?
A. Yes; it does a general banking business in England
and has numerous branches.
Q. What relations do the Scotch banks bear to the
Bank of England? Do they deal with it directly?
A. The Royal Bank of Scotland has an account with
the Bank of England which has been in operation since
1728, and it collects bills and checks for the Bank of England all over Scotland. I can not tell what are the relations of the other Scotch banks to the Bank of England.

138

Interviews

—

Scotland

Q. What would you say are the most important functions of the Bank of England?
A. It is the Bank for managing the government finances.
It holds the ultimate gold reserve of all the banks and of
the country, and it practically, by its rate of discount,
regulates the rates of discount charged by and the rate
of interest allowed by all the banks and discount companies
throughout the country, their practice being to take the
Bank of England rate as the standard and to charge or
allow a rate a certain proportion higher or lower than that
rate, according to the character of the business.
Q. Does the Bank of England sometimes suggest the
policy the Scotch banks should follow, say, in not accepting
finance bills?
A. Very rarely, if at all.
Q. Is the question of the amount of reserves, either in
specie or in bank, regarded as of importance by Scotch
bankers?
A. Yes; but not directly.
Q. Do you regard your system of currency issue as
sufficiently elastic for your needs?
A. Yes; there never has been any difficulty. No Scotch
bank has ever failed to pay its creditors, including the
holders of notes, in full.
Q. In your statement of liabilities you show "Cash in
hand and at the Bank of England." I assume it is not
your custom to publish the amount of cash in hand separately from the amount of cash in the Bank of England?
A. No.
Q. You regard your balance in the Bank of England the
same as cash?
A. Yes.

139

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Monetary

Commission

Q. It is your practice to confine your investments in
other than government securities to a small figure?
A. Relatively, they are.
Q. Do you ever buy any shares of railroad or industrial
companies?
A. No.
Q. Do you ever own bank shares?
A. No.
Q. What does the form of obligation by the borrowers
upon collateral take?
A. A check on a loan account for the sum borrowed,
a transfer of the stock or shares forming the collateral, and
an agreement signed by the borrower expressing that the
purpose for which the stock or shares have been transferred is to secure payment of money borrowed and to be
borrowed and giving the Bank power to sell the stock or
shares.
Q. Have you any idea of the percentage of actual cash
or bank notes which is used in the transaction of business
in the Kingdom?
A. No.
A bstract state of affairs of the Royal Bank of Scotland on October 10, igo8.
LIABILITIES.
To the public:
Deposits with accrued interest
£14. 013, 795 n
Notes in circulation
1,003,428 o
Drafts outstanding
321,261 14
Acceptances and indorsement of foreign bills—on account
of banking correspondents, £444,566 7s. 6d.; on account
of other customers, £80,938 os. 2d
525,504 7
Total liabilities to the public
To the proprietors:
Capital, £2,000,000; rest, £1,005,473 8s. 2d.; proposed
half-year's dividend and bonus at Christmas, £110,ooo__
Total liabilities

140

15,863,989 14

8
o
8

8
o

3,115, 473

18,979,463

I n t e r v i e w s

—

Scotland

ASSETS.
Gold and silver coin, notes of other banks, and cash with
Bank of England and other London bankers, £1,425,437
3s. 7d.; money in London at call and short notice, and
checks, etc., payable on demand, in hand, and in transitu, £2,976,262 16s. 2d.; British Government securities (consols, 2 2<£ per cent annuities, local loans, stock,
etc.), £1,514,088 14s. 4d.; Indian and colonial government securities, Bank of England stock, and British
railway debenture and corporation stocks, £826,770
os. 8d.; foreign government stocks, Bank of Ireland
stock, Indian railway stocks, and other marketable
securities, £813,677 is. 5<i
Bills discounted, £3,836,402 3s. 7d.; advances on cash,
credit, and current accounts, £5,324,590 14s. 9d.; loans
on stocks and securities for short periods, £1,111,285
17s. id.; banking correspondents and other customers for
acceptances and indorsements, per contra, £525,504 7s.
8d.; bank buildings (partly yielding rent), £289,501 12s.
3d.; property yielding rent, £210,942 10s. 8d.; freehold
property in London (partly occupied by bank and partly
yielding rent), £125,000
Total assets

7.556,235 16

11,423,227

18, 979, 463
PROFIT AND L.OS* ACCOUNT.
DR.

Expenditure on bank buildings written off
Dividend for half-year, paid at midsummer
Dividend and bonus to be paid at Christmas
Balance, being free rest, or undivided profits carried forward __
__
__

£ 5 , 000
90, 000
110, 000
1, 005, 473
1, 210,473
CR.

Rest on October 12, 1907 __
w.
Gross profits, after deducting rebate on bills current and
income-tax, and providing for all bad and doubtful debts,
£416,607 u s . 2d.; less charges of management at head
office and 153 branch establishments, £176,355 7s. iod.—
net profits
„__

970, 221

240, 252
1,210,473

141

BANK OF SCOTLAND.
Interview with Sir George Anderson, General Manager.
Q. When was the Bank of Scotland founded?
A. In 1695.
Q. When does your present charter expire?
A. By act of Parliament the "governor and company of
the Bank of Scotland'' have "perpetual succession."
Q. What is the par value and present selling price of
your shares?
A. The present market price of the stock is £442 for
every £100 stock paid up.
Q. How many stockholders have you?
A. Three thousand seven hundred and thirty-three.
Q. Is the stock fully paid?
A. No; the subscribed capital, in the form of stock, is
£1,987,500, and the paid-up capital, £1,325,000.
Q. Have your shareholders any liabilities in addition to
the ownership of shares?
A. None beyond the amount of capital subscribed by
each.
Q. Is there any limit to the number of shares which may
be held by any one person, and is your approval required
before a transfer of your stock can be made?
A. There is no limit to the holding of stock. The
bank's approval is required before transfers of stock can
be made.
Q. How often do your shareholders meet?

142

I n t e r v i e w s

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Scotland

A. Twice a year. The annual general meeting is held
in April (when the annual report and balance sheet are
submitted) and the half-yearly general meeting is
held in October.
Q. Does every share have a vote at shareholders' meeting?
A. The proprietors have one vote for every £250 stock
paid up, but not more than 20 votes. The holders of
less stock than £250 paid up have no vote.
Q. What control have the shareholders over the management and conduct of the business?
A. The management and control of the business are
vested in a governor, deputy governor, 12 ordinary and 12
extraordinary directors, who are all elected by the proprietors, that is, stockholders. The extraordinary directors, however, take no active part in the management.
Q. Has the Government any voice in the management
of the Bank or any interest in it through the ownership
of shares?
A. No.
Q. Describe the organization and management of the
Bank, stating the number of officers and directors, with
their respective functions, and for what periods and by
whom are they elected?
A. The business is managed by a governor, deputy
governor, and 24 directors, 12 of whom, at least, must be
ordinary directors. The governor, deputy governor, and
extraordinary directors are elected for one year only, at
the annual general meeting of proprietors, but are eligible
for re-election. The ordinary directors are elected at the
same annual general meeting, and the three at the head
of the list retire annually at that meeting, but are eligi-

National

Monetary

Commission

ble for re-election. The officials at the head office at
present are as follows: (i) Treasurer (general manager),
(2) secretary, (3) superintendent of branches, (4) cashier,
(5) accountant, (6) signing officer. The branches of the
Bank, numbering 163 in Scotland, are manned by an
agent (or manager), teller (or cashier), and clerks, according to the volume of business conducted, and are all under
the control of the head office.
Q. Is it customary to re-elect directors at the expiration
of their terms?
A. Yes.
Q. Is there any custom restricting the class from which
the directors may be selected ?
A. Regard is had to their general standing and business
qualifications, and to their influence in furthering the
Bank's interests.
Q. How frequently do the directors meet?
A. The court of directors (that is, the governor, deputy
governor, and ordinary directors) meet once a week—on
Tuesdays—and on Thursdays and Fridays committee
meetings are held, the committee consisting of four ordinary directors.
Q. How many branches have you?
A. One hundred and sixty-three branches and 12 subbranches in Scotland; also an office in London.
Q. How are your branches managed?
A. By agents (managers at London and Glasgow).
Q. Who names the managers of branches?
A. They are appointed by the directors.
Q. Have the managers of the branches full control of the
business in granting discounts, etc.; if not, what discretion
is usually given them?

144

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Scotland

A. In the case of a customer having large discounts, a
limit or ''discount line" is usually applied for and fixed
by the head office, but in regard to other discounts the
agents usually exercise their own discretion, any applications of a special nature, however, being submitted by
them to the head office for approval.
Q. Have you any system of distribution of profits
among the managers of branches?
A. No.
Q. Are all your branches of the same class, or have you
main and subsidiary branches?
A. We have one hundred and sixty-three independent
branches and 12 sub-branches in Scotland.
Q. Is the business conducted at your branches of the
same class as at your office in London?
A. Only in a few particulars, such as current accounts,
deposit receipts, the issuing of drafts, etc.
Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective
localities?
A. Yes.
Q. How frequently are you required by law to publish
statements of condition?
A. No statements are required to be published by law.
Q. How frequently is it your custom to publish them?
A. Annually.
Q. Is either your issue or your banking department at
any time examined by the Government, or in any way
under its supervision?
A. There is no examination or supervision by the Government, but a weekly return of notes issued and coin
held is required to be made to them.
60481—10

145

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Monetary

Commission

Q. What local or general taxes are paid by the Bank?
A. The usual imperial and local taxes, and a bankers'
license (costing £30 per annum) must be taken out for
every branch issuing notes of the Bank.
Q. Is the Bank a member of the London clearing house?
A. No.
Q. What is the law governing your note issues, and
how are note issues limited and how secured?
A. The Bank is authorized to issue, without holding
coin against them, notes to the value of £396,852, but for
any excess beyond that amount we must hold, at the
head office, an equivalent value in gold coin, one-fourth
of which may, however, be in silver coin.
Q. To what extent are your notes legal tender in Great
Britain?
A. They are not legal tender in Great Britain.
Q. What other banks have the right of issue in Scotland?
A. Royal Bank of Scotland, British Linen Bank,
Commercial Bank of Scotland (Limited), National Bank
of Scotland (Limited), Union Bank of Scotland (Limited),
Clydesdale Bank (Limited), and North of Scotland and
Town and County Bank (Limited).
Q. What is the total amount of their outstanding
issues?
A. The average amount of notes of the eight Scottish
banks in circulation during the four weeks ending September 18, 1909, was £6,915,065.
Q. Do you pay the Government in the form of taxes,
or otherwise, either directly or indirectly, for your privilege of note issue?

146

Interviews

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Scotland

A. A bankers' license (costing £30 per annum) is
required for every branch issuing the bank's notes.
Stamp duty (compounded for) is also payable, and
amounts to practically id. per pound per annum on the
average circulation.
Q. Do other issuing banks pay at the same rate for the
privilege of note issue?
A. Yes.
Q. Have you acquired the right of issue from any
other bank, and upon what terms?
A. Yes; on taking over the business of the Central
Bank of Scotland in 1868 and the Caledonian Banking
Company (Limited) in 1907.
Q. To what do you attribute the weekly and seasonal
fluctuations in the amount of outstanding notes, and
are these fluctuations constant from year to year?
A. The circulation is highest at the beginning of each
month, and this is chiefly due to the payment of salaries
and the settlement of accounts. The payment of rates
and taxes about the end of the year also inflates the circulation. There are exceptionally large fluctuations at
the terms of Whitsunday (May 15) and Martinmas (November 11), when rents, interest, etc., are usually payable.
All these variations recur regularly.
Q. Are you willing to inform us as to the expense of
note issue and the profits derived therefrom?
A. We prefer not to supply the information desired,
but we may say, generally, that the expense connected
with our own note issue is very considerable, and in view
of the large amount of notes issued in excess of our authorized circulation (against which gold for a similar

147

National

Monetary

Commission

amount requires to be held) the profit derived from the
total issue is small.
Q. Under what conditions or terms has your capital
been increased from time to time?
A. The authorized capital of the Bank, originally
£100,000, has been increased under various acts of
Parliament, and now stands at £4,500,000. The subscribed capital, which is at present £1,987,500 (of which
£1,325,000 is paid up) has been increased from time to
time to meet the public requirements and to strengthen
the Bank's position as the business expanded. The
latest creation of stock—in 1907—was in connection
with the acquisition of the business of the Caledonian
Banking Company (Limited), stock of the Bank of Scotland having been allotted to shareholders of that bank.
Q. Have the obligations of the Bank to the public
or to the Government been changed from time to time?
A. The obligations of the Bank to the public have,
of course, increased as the business expanded, but their
nature has remained unchanged.
Q. Are you required by law to invest your capital,
or any part of it, in any particular securities?
A. No.
Q. Does the law require that before full distribution
of profits you shall accumulate and maintain a certain
amount of rest (surplus), and are you required to invest
this in any particular way?
A. We are not required by law to do so, but the " r e s t "
is added to from time to time. The amount of the fund
is not invested in any particular way.
Q. Do you allow interest upon deposits?

148

Interviews

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Scotland

A. Yes, on "deposit receipts;" but no interest is allowed
unless money has been lodged not less than one month.
No interest is allowed on operative accounts.
Q. Are deposits subject to considerable fluctuations, and
are these fluctuations regularly recurrent?
A. There are considerable fluctuations at the terms of
Whitsunday (May 15) and Martinmas (November 11),
but with few other exceptions the deposits show comparatively little variation in the course of a year.
Q. Are all deposits payable on demand?
A. Yes; in Scotland.
Q. Is it your custom to carry in your banking department a fixed amount in government securities?
A. Yes; proportionate to the amount of the Bank's total
liabilities.
Q. Can you state approximately the average length of
time and the average size of bills discounted by you?
A. The average length is three months; the average
size £100 to £200.
Q. Is the character of your discounts or loans regulated
or restricted by law or fixed by the statutes of the Bank?
A. No.
Q. Will you state (a) the class of bills usually discounted by you, giving the number of names required;
(b) the minimum size; and (c) the maximum length of
time to run?
A. Mercantile bills, also a few accommodation bills,
usually two names; minimum, say, £10. The maximum
length of time to run is six months.
Q. What classes of collateral are accepted by you for
loans?

149

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Monetary

Commission

A. Personal security, marketable securities, life policies,
mortgages over ships, shipping documents, etc.
Q. Will you state approximately the average length of
time and the average size of loans on collateral?
A. We do not know.
Q. Do you discount any but prime bills?
A. Yes; accommodation bills occasionally.
Q. Do you discount to any considerable amount for
individuals and merchants?
A. Yes.
Q. Is it your custom to employ surplus funds in purchase of bills from discount houses?
A. To a certain extent in London.
Q. Do you rediscount bills for other banks?
A. No.
Q. Is it your custom to discount any bills payable in
foreign countries?
A. Yes; certain bills.
Q. To what extent does bank rate govern your discount
and loan transactions?
A. The rates of interest and discount charged by the
Scottish banks (who act in concert) are for the most part
regulated by the Bank of England discount rate.
Q. Do you at times discount bills for parties having no
account with you?
A. Yes; occasionally.
Q. Are a considerable number of your loans on call?
A. Yes.
Q. Explain the phrase "cash credits/' and upon what
condition are they given?
A. A "cash credit" is a credit allowed, in virtue of
which a customer may draw checks on the Bank until the

150

Interviews

—

Scotland

balance due to us reaches a certain fixed limit. The
account is an ordinary operative one, and interest is
charged on the balances actually due to the Bank from
day to day. The security provided is usually personal,
two or more sureties signing the cash credit bond along
with the principal, each surety being liable for the amount
advanced up to the limit of the credit.
Q. Is the Bank, through its branches, employed by
other banks to any considerable extent for the transfer of
funds from one city to another?
A. The Bank of Scotland has power to draw drafts on
other banks in Scotland payable in places where the former has no branch, and the other Scottish banks have
similar facilities. We have also the privilege of drawing
on certain banking correspondents in England, Ireland,
and elsewhere, and they in turn have the power to draw
drafts on us.
Q. Is it the practice of the Bank in times of stress to
discount bills of a satisfactory character for its customers
freely?
A. There has been no occasion for this.
Q. Is it the policy of the Bank to discriminate against
finance bills in times of financial crises?
A. Yes; if occasion arose.
Q. Do you favor the issue of £ i notes? Why?
A. Yes; they take the place of gold as till money, and
are thus a source of some profit to the banks, as well as a
saving to the country from the loss arising from tear and
wear of coin. They also return to the issuing banks, which
gold issued by them might not always do.
Q. What, if any, artificial means are taken by you to
secure changes in the volume of currency (notes and coin)
to make it responsive to business demands?

151

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Monetary

Commission

A. None.
Q. What effect has a marked increase in the commercial
and industrial activities of Great Britain on the volume of
note issues?
A. The circulation expands under such conditions.
Q. It is customary in England, we find, to distinguish
between current accounts and deposit accounts. Will you
describe the distinction you make?
A. There is no distinction in Scotland, the term used
for an ordinary operative account being ''current deposit
account." In London, "current accounts'' are operative
and bear no interest; "deposit accounts" are inoperative.
The deposits, which usually bear interest, may be payable
in whole or in part on demand, or on a certain number of
days' notice, or they may be made for fixed periods at fixed
rates of interest.
Q. What is the customary charge for acceptance of a
ninety-day bill?
A. Two shillings 6 pence per cent, if secured by a special
deposit of the amount; 5s. per cent if on other security.
Q. Your acceptance constitutes what is known in
London as a prime bill?
A. Yes.
Q. Is there discrimination in easy times between a
merchandise or trade bill and a finance bill?
A. Yes; the former is preferred and gets the benefit of
a lower discount rate.
Q. It is your practice to employ your surplus funds in
the purchase of prime bills through bill brokers?
A. To a certain extent, in London.
Q. Is it the general practice in Scotland to make
advances to very responsible people on a single name?

152

Interviews

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Scotland

A. Yes; to undoubted parties, and for a moderate
amount.
Q. Is it customary for you to receive as collateral for
loans any securities which are listed on the exchange?
A. Yes.
Q. Do you pay interest on both current accounts and
deposit accounts?
A. No interest is paid by the Scottish banks on current
accounts in Scotland or London. Deposit accounts in
London usually bear interest.
Q. How does the Bank rate affect the rate allowed by
you on deposit?
A. The interest allowed on deposit receipts is regulated
by the Bank of England minimum discount rate, and is
usually i y^ per cent under that rate.
Q. Were most of your branches organized by you .or
were most of them other institutions purchased by you?
A. Most of them were organized by ourselves.
Q. Have you in mind how many branches you had ten
years ago?
A. One hundred and twenty.
Q. The tendency is for the consolidation of banking in
Great Britain, is it not?
A. Yes.
Q. Would you say the Bank of England is in any way
a competitor of the other banks in Great Britain?
A. Yes, generally speaking; as the Bank of England
conducts the same classes of business as other banks, in
addition to performing special government and other
functions.
Q. What relations do the Scotch banks bear to the Bank
of England? Do they deal with it directly?

153

National

Monetary

Commission

A. In common with most of the other banks in London,
all the Scottish banks represented there keep accounts at
the Bank of England, on which operations are made as
required, a minimum balance being usually left in the
hands of the Bank of England to recoup them for trouble
in keeping the account. An arrangement exists between
the Bank of England and the Bank of Scotland for drawing
drafts on each other and collecting documents, and the
former act as clearing agents in London for the Bank of
Scotland.
Q. What would you say are the most important functions of the Bank of England?
A. The Bank of England is- the banker of the Government; is the largest issuers of notes, issuing its notes
when required in exchange for gold bullion and paying
notes in gold coin; and being the bankers' bank, the
weekly returns as to its position form the best possible
barometer of the state of trade and credit in the country.
The rate of discount announced by the Bank of England
from time to time serves as a guide to the other banks
throughout the country in fixing their rates for loans and
deposits.
Q. Does the Bank of England sometimes suggest the
policy the Scotch banks should follow, say, in not accepting finance bills?
A. No.
Q. Is the question of the amount of reserves, either in
specie or in bank, regarded as of importance by Scotch
bankers?
A. Yes.
Q. Do you regard your system of currency issue as
sufficiently elastic for your needs?

154

Interviews

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Scotland

A. Yes.
Q. In your statement of liabilities you show "cash in
hand and at the Bank of England." I assume it is not
your custom to publish the amount of cash in hand separately from the amount of cash in the Bank of England?
A. No.
Q. You regard your balance in the Bank of England the
same as cash?
A. Yes.
Q. Is it your practice to confine your investments in
other than government securities to a small figure?
A. A considerable amount is usually invested in other
stocks of a safe class.
Q. Do you ever buy any shares of railroad or industrial
companies ?
A. Yes; of the highest class.
Q. Do you ever own bank shares?
A. No.
Q. What does the form of obligation by the borrowers
upon collateral take?
A. The form of assignation, letter of pledge, and explanatory letter, etc., according to the nature of the security,
all giving power to the Bank to realize such at any time
and providing for retrocession on payment of loan.
Q. Have you any idea of the percentage of actual cash
or bank notes which is used in the transaction of business
in the Kingdom?
A. We have no information on this point.

i55

National

Monetary

Commission

A bstract balance-sheet of the Bank of Scotland as on February 27, IQOQ.
LIABILITIES.
I. To the public:
Note circulation, £1,118,838; drafts issued payable within
fourteen days, £415,640 14s.; deposits and credit balances, £17.637,830 10s. 2d.; acceptances—to banking
customers, £1,388,188 2s. id.; to other customers, £262,549 15s. 3d
_
I I . To the proprietors:
Paid-up capital, £1,325,000; reserve fund, £1,150,000;
half-yearly dividend, payable April 15, 1909, £112,625;
balance of profits carried forward, £12,261 14s. sd
Total liabilities
_

£
20,823,047

ASSETS.
Gold and silver coin, notes of other banks, cash balance
with the Bank of England, and checks in course of transmission, £1,547,782 3s. 9d.; British Government securities, and money in London at call or payable within
twenty days, £5,206,254 5s. 7d.; Indian and Colonial
Government securities, and other stocks and investments, £3,161,052 16s. sd
—
Bills discounted, cash accounts, and other advances, £11,163,664 os. gd.; bank premises at Edinburgh and
branches, £301,361 13s. n d . ; freehold property, Bishopsgate street, London, £196,430 12s. 9d.; heritable property yielding rent, £195,650 5s. sd.; liabilities of banking
and other customers for acceptances by the bank as per
contra, £1,650,737 17 s. 4d_

9,9iS.o89

Total assets

s. d.
1 6

2,599,886 14 5
23,422,933 15 11

13,507,844 10

23,422,933

15 n

P R O F I T AND LOSS ACCOUNT.
DR.

Applied in reduction of bank premises account
£5,000 o
Half-yearly dividend—October, 1908, £112,625; April, 1909,
£112,625
225,250 o
Balance on February 27, 1909, consisting of (1) reserve fund
from last year, £1,100,000; (2) addition now made, £50,000;
(3) undivided profits carried forward, £12,261 14s. sd
1,162.261 14
1,392,511 14

o
o
5
5

Balance at February 29, 1908, consisting of (1) reserve fund,
£1,100,000; (2) undivided profits brought forward,
CR.
£10,475 19s. iod
1,110,475 19 10
Gross profits for the year, after providing for bad and doubtful
debts, accrued interest, and rebate on bills discounted not
yet due, £480,886 4s. id.; less expenses of management at
the head office, London office, and 163 branches in Scotland,
including salaries, income-tax and all other charges,
£198,850 9s. 6d.; net profits for the year
282,035 *4 7

i.393,5ix *4

156

UNION BANK OF SCOTLAND (LIMITED).
Interview with Robert Blyth, General Manager.
Q. When was the Union Bank of Scotland (Limited)
founded?
A. In 1830.
Q. When does your present charter expire?
A. The Bank has no charter expiring at any specified
time. It is incorporated under the companies acts.
Q. What is the par value and present selling price of
your shares?
A. The par value is £10; and the present selling price
is £34 5s.
Q. How many stockholders have you?
A. About 3,000.
Q. Is the stock fully paid?
A. No; the shares are of £50 each, £10 paid.
Q. Have your shareholders any liabilities in addition
to the ownership of shares?
A. Their liability for the bank notes issued is unlimited.
Q. Is there any limit to the number of shares which
may be held by any one person, and is your approval
required before a transfer of your stock can be made?
A. There is no limit to the number of shares which may
be held by any shareholder, but no shareholder is entitled
to hold less than 10 shares. All shares require to be
offered to the directors in the first instance before
transfers are passed.
Q. How often do your shareholders meet?
A. Once every year, unless convened specially.
Q. Does every share have a vote at shareholders'
meetings?

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Monetary

Commission

A. One vote may be cast for every 10 shares; two
votes for every 50 shares; three votes for every 100
shares; and one vote for every 100 shares and over.
Q. What control have the shareholders over the management and conduct of the business?
A. They have no actual control, unless through the
directors, who are appointed by the shareholders.
Q. Has the Government any voice in the management
of the bank or any interest in it through the ownership of
shares?
A. No.
Q. Describe the organization and management of the
Bank, stating the number of officers and directors, with
their respective functions, and for what periods and by
whom are they elected?
A. The Bank is administered by a board consisting of
11 directors, 2 of whom retire annually. There is also a
general manager, a cashier, a secretary, an accountant,
and a superintendent of branches, who are appointed by
the directors. There are also 8 extraordinary directors,
chosen by the management from among the more influential shareholders. A chairman and deputy chairman
are elected yearly by the shareholders at the annual general meeting.
Q, Is it customary to re-elect directors at the expiration
of their terms?
A. It is.
Q. Is there any custom restricting the class from which
the directors may be selected?
A. No person who is engaged directly or indirectly in
the business of stock broking is eligible.
Q. How frequently do the directors meet?
A. They meet twice weekly by committees, and once
each month as a full board.

158

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Scotland

Q. How many branches have you?
A. One hundred and fifty-eight.
Q. How are your branches managed?
A. An agent is in charge of each branch.
Q. Who names the managers of branches?
A. All appointments are made by the directors.
Q. Have the managers of the branches full control of
the business in granting discounts, etc.; if not, what
discretion is usually given them?
A. Unless for moderate amounts applications for
advances are expected to be submitted for approval at
the head office.
Q. Have you any system of distribution of profits
among the managers of branches?
A. No.
Q. Are all your branches of the same class, or have
you main and subsidiary branches?
A. There are only a few sub-branches, the branches
being as a rule independent of one another.
Q. Is the business conducted at your branches of the
same class as at your office in London?
A. The business conducted in the provinces is altogether different both in volume and character from that
conducted at the Bank's London office.
Q. Do your branches have business relations with
merchants, farmers, and all classes of people in their
respective localities?
A. We have business relations with all classes of people.
Q. How frequently are you required by law to publish
statements of condition?
A. A statement of accounts is required to be published
half-yearly.
Q. How frequently is it your custom to publish them?

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A. Half-yearly, and also annually at the close of each
financial year.
Q. Is either your issue or your banking department at
any time examined by the Government, or in any way
under its supervision?
A. The Crown has the right to examine the gold coin
held to cover notes issued beyond the authorized circulation, but this right is never exercised. The Bank, however, is required to furnish the Government weekly with
returns of the notes in circulation and the quantity of
coin held.
Q. What local or general taxes are paid by the Bank?
A. All local and general taxes, and in addition the
license duty of £30 for each place subject to the provisions of 7 and 8 (Vict. C , 32).
Q. Is the Bank a member of the London clearing
house?
A. No; the clearing is made through the Bank of
England.
Q. What is the law governing your note issues, and
how are note issues limited and how secured?
A. The Bank is empowered by law to issue £454,346
without any security. It may also issue notes in excess
of that amount on holding gold or silver coin at its registered office in Edinburgh for an amount equal to such
excess. The silver coin must not exceed one-fourth
part of the gold coin. There is otherwise no restriction
as to the amount of notes which may be issued. The
circulation of notes is regulated by the act of 1845.
Q. To what extent are your notes legal tender in Great
Britain?
A. Bank notes issued by the Scotch banks are not legal
tender in Great Britain.

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Scotland

Q. What other banks have the right of issue in Scotland?
A. Bank of Scotland, Royal Bank, British Linen Bank,
Commercial Bank, National Bank, Clydesdale Bank, North
of Scotland and Town and County Bank.
Q. Are the notes of your issuing banks secured; and if
so, how?
A. No special security is held except for the circulation
in excess of the authorized issue in each case, but the
liability of the shareholders is specially reserved for the
whole of the notes in circulation.
Q. What is the total amount of their outstanding issues?
A. The total authorized circulation is £2,676,350; the
actual circulation was £7,226,000, as at the close of 1908.
Q. Do you pay the Government in the form of taxes, or
otherwise, either directly or indirectly, for your privilege
of note issue?
A. A composition of 8s. 4d. per cent per annum is payable to the Government in lieu of stamp duties, and there
is also the license duty of £30 per place, as already mentioned.
Q. Do other issuing banks pay at the same rate for the
privilege of note issue?
A. All the Scottish banks pay at the same rate, but in
England and Ireland the composition duty is 7s. per cent
per annum only. In Ireland license duty is payable for
four branches only.
Q. Have you acquired the right of issue from any other
bank, and upon what terms?
A. The authorized circulation in 1845 of the Union
Bank of Scotland was £327,223; add Perth Banking Company acquired, £38,656; and add Aberdeen Banking Company acquired, £88,467. These issues were acquired upon
the banks in question being absorbed by the Union Bank.
60481—10

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Monetary

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Q. To what do you attribute the weekly and seasonal
fluctuations in the amount of outstanding notes, and are
these fluctuations constant from year to year?
A. Fluctuations in note issues are due in great measure
to trade conditions, except at the half-yearly terms in May
and November, when investments are made, rents are collected, and general settlements take place. Apart from
the half-yearly terms the fluctuations in note issues are by
no means constant from year to year.
Q. Are you willing to inform us as to the expense of note
issue and the profits derived therefrom?
A. On the basis of figures submitted to a parliamentary
inquiry in 1875 the cost of maintaining the note issue in
Scotland was £1 5s. per cent per annum. There is no
direct profit now on the circulation, the actual result being
a loss. The right to issue notes is, however, of considerable indirect value, as will be explained later. The profit
on an authorized circulation of, say, £2,676,350 at 3 per
cent is £80,289. Against this there falls to be placed
expenses of maintaining the total amount of notes in
circulation, say, £7,226,000, at 1% per cent which would
be £90,325.
Q. Under what conditions or terms has your capital
been increased from time to time?
A. The capital stock of the Bank was formerly
£1,000,000 sterling in 10,000 shares of £100 each, having
£50 per share paid up. In 1862 the shares were converted
into stock, the amount of the capital remaining unaltered.
In 1882 the stock was converted into 100,000 shares of £10
each fully paid. In 1882 (one month later) the capital
was increased to £5,000,000 by the nominal amount of
each share of £10 being increased to £50, the increased

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Scotland

capital not being callable except in the event of the Bank
being wound up.
Q. Have the obligations of the Bank to the public or
to the Government been changed from time to time?
A. The liability of the shareholders was formerly
unlimited, but when the Bank became registered under
the companies act, 1879, the liability of the shareholders—
unless in respect of notes—was limited to the amount of
the uncalled capital.
Q. Are you required by law to invest your capital, or
any part of it, in any particular securities? If so, in what
class and to what amount?
A. The only regulations regarding investments are
those contained in the Bank's contract of copartnery.
Q. Does the law require that before full distribution of
profits you shall accumulate and maintain a certain
amount of rest (surplus), and are you required to invest
this in any particular way?
A. There are no legal provisions of this kind affecting
banks in Great Britain.
Q. Do you allow interest upon deposits?
A. Yes.
Q. Are they subject to considerable fluctuations, and
are these fluctuations regularly recurrent?
A. Deposits are subject to considerable fluctuations,
which are by no means regularly recurrent, unless possibly
at the half-yearly terms, as already mentioned.
Q. Are all deposits payable on demand?
A. Yes.
Q. Is it your custom to carry in your banking department a fixed amount in government securities?
A. A certain portion of the Bank's investments consists
of government securities, but no fixed amount is maintained.

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Q. Can you state approximately the average length
of time and the average size of bills discounted by you?
A. The bulk of the bills discounted do not exceed
three months' currency. It would not be practicable
to indicate the average size of bills discounted.
Q. Is the character of your discounts or loans regulated
or restricted by law or fixed by the statutes of the Bank?
A. No.
Q. Will you state (a) the class of bills usually discounted by you, giving the number of names required;
(6) the minimum size; and (c) the maximum length of
time to run?
A. The bulk of the bills discounted represent ordinary
mercantile transactions. In practically every case there
are at least two obligants.
Q. What classes of collateral are accepted by you for
loans?
A. Usually readily marketable, quoted, stock-exchange
securities and life-assurance policies. Security is at
times taken in the shape of goods or produce, iron warrants being in common use as a security in Glasgow.
Q. Will you state, approximately, the average length
of time and the average size of loans on collateral?
A. Such loans vary widely in amount, and it would
be of no real interest to indicate the average size of individual loans. Loans to stockbrokers are from account
to account, usually fourteen days, those to the public
being for thirty days and upward, but as a rule seldom
exceeding two to three months.
Q. Do you discount any but prime bills?
A. Any bills which appear to be suitable are discounted, including "prime" bills, which are known to
us here as "remittance'' bills or "bank paper."

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Scotland

Q. Do you discount to any considerable amount for
individuals and merchants?
A. Yes.
Q. Is it your custom to employ surplus funds in purchase of bills from discount houses?
A. This is done occasionally, but only when rates
are likely to fall and there is a scarcity of bills offered
for discount privately.
Q. Do you rediscount bills for other banks?
A. Yes; but only to a very limited extent.
Q. Is it your custom to discount any bills payable
in foreign countries?
A. Bills payable in foreign countries are discpunted
for the Bank's customers in the same way as other bills.
Q. To what extent does bank rate govern your discount and loan transactions?
A. Such transactions are necessarily affected by the
bank rate, both discounts and loans tending to diminish
when rates reach an exceptionally high level.
Q. Do you at times discount bills for parties having
no account with you?
A. Agents are enjoined not to discount bills for parties who are not customers otherwise.
Q. Are a considerable number of your loans on call ?
A. Except at our London office, loans are for fixed
periods. At that office there is usually a considerable
portion of money lent " a t call."
Q. Explain the phrase "cash credits," and upon what
conditions are they given.
A. A cash credit is simply a current account on which
the holder may draw to a fixed amount, interest being
calculated and paid on the daily balance. In security

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the applicant and his sureties, termed the "co-obligants,"
sign a formal bond under which they jointly and severally
guarantee to repay to the Bank when called upon the
amount of the debt and accrued interest.
Q. Is the Bank, through its branches, employed by
other banks to any considerable extent for the transfer
of funds from one city to another?
A. Yes; on towns where these banks are not themselves
represented.
Q. Is it the practice of the bank in times of stress to
discount bills of a satisfactory character for its customers
freely?
A. Yes.
Q. Is it the policy of the Bank to discriminate against
finance bills in times of financial crises?
A. Yes.
Q. Do you favor the issue of £ i notes? Why?
A. Yes; for their use at our branches enables us to
dispense with keeping large balances in actual coin.
Q. What effect has a marked increase in the commercial and industrial activities of Great Britain on the
volume of note issues?
A. It would necessarily tend to increase the amount of
notes in circulation.
Q. It is customary in England we find to distinguish
between current accounts and deposit accounts. Will
you describe the distinction you make?
A. In Scotland all moneys lodged which bear interest
are placed not on deposit account but on deposit receipt,
the receipt being delivered up when any sums are withdrawn.
Q. What is the customary charge for acceptance of a
ninety-day bill?

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Scotland

A. Acceptances secured by special deposit of the amount
are charged one-eighth of i per cent, irrespective of currency; if on other security, one-fourth of i per cent is
charged.
Q. Your acceptance constitutes what is known in
London as a "prime" bill?
A. It does.
Q. Is there discrimination in easy times between a
merchandise or trade bill and a finance bill?
A. In Scotland it is always customary to charge a
slightly higher rate of discount for finance bills as compared with ordinary mercantile bills.
Q. Is it your practice to employ your surplus funds in
the purchase of prime bills through bill brokers?
A. Yes; but only occasionally.
Q. Is it the general practice in Scotland to make
advances to very responsible people on a single name?
A. Overdrafts are at times granted without special
security where the Bank is satisfied as to the undoubted
sufficiency of the borrower, but the practice can not be
described as general.
Q. Is it customary for you to receive as collateral for
loans any securities which are listed on the exchange?
A. Yes.
Q. Do you pay interest on both current accounts and
deposit accounts?
A. No interest is paid on current accounts by the
Scotch banks.
Q. How does the bank rate affect the rate allowed by
you on deposit?
A. The deposit rate fluctuates with the published bank
rate and is usually \]/2 per cent under the minimum bank
rate.

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Q. Were most of your branches organized by you, or
were most of them other institutions purchased by you?
A. The branches of the two banks taken over by the
Union Bank numbered 33. Otherwise all the Bank's
branches were opened and organized by the Union Bank.
Q. Have you in mind how many branches you had ten
years ago?
A. One hundred and fory-three branches.
Q. The tendency is for the consolidation of banking in
Great Britain, is it not?
A. It is, but this tendency set in at a much earlier period
in Scotland than it has done in England.
Q. Do you believe that the customer of that bank gets
as fair consideration from you—that is, that you are in a
better position to judge fairly of his merits and his needs—
as the private bank?
A. Yes; as a matter of fact, private banking in Scotland ceased to exist prior to 1845.
Q. Would you say the Bank of England is in any way a
competitor of the other banks in Great Britain?
A. Yes.
Q. What relations do the Scotch banks bear to the
Bank of England? Do they deal with it directly?
A. With the exception of the North of Scotland and
Town and County Bank (limited) it is believed that all the
Scotch banks deal directly with the Bank of England,
and keep accounts with that institution.
Q. What would you say are the most important functions of the Bank of England?
A. Acting as agents for other banks and holding the
general gold reserves of the country. The issue department also performs the important function of conducting

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and managing the note circulation of England. The
Bank of England also acts as the banker for the Government and takes charge of any loans or funded debt, including the payment of interest thereon.
Q. Does the Bank of England sometimes suggest the
policy the Scotch banks should follow, say, in not accepting finance bills?
A. We are not aware of the practice of the Bank of
England in regard to acceptances, but no prudent banker
would accept finance bills unless ample cover in the way
of security had been deposited with him.
Q. Is the question of the amount of reserves, either in
specie or in bank, regarded as of importance by Scotch
bankers?
A. Yes; of great importance.
Q. Do you regard your system of currency issue as
sufficiently elastic for your needs?
A. Yes.
Q. In your statement of assets and liabilities you show
"Cash in hand and at the Bank of England.'' I assume
it is not your custom to publish the amount of cash in
hand separately from the amount of cash in the Bank of
England.
A. We do not publish the amount of cash in hand
separately from our balance at the Bank of England.
Q. You regard your balance in the Bank of England
the same as cash?
A. Yes.
Q. It is your practice to confine your investments in
other than government securities to a small figure?
A. No; this practice is not now general, owing to the
wide fluctuations within recent years, in the prices of

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government securities, and the somewhat inadequate
return yielded by them.
Q. Do you ever buy any shares of railroad or industrial
companies?
A. No.
Q. Do you ever own bank shares?
A. No.
Q. What does the form of obligation by the borrowers
upon collateral take?
A. The obligation is constituted by a simple cheque
from the borrower.
Q. Have you any idea of the percentage of actual cash
or bank notes which is used in the transaction of business
in the Kingdom?
A. The only information as to this is to be gained from
the cash kept by the various banks, as shown by their
published balance sheet. A comparative vidimus of nine
banks is subjoined.
Table showing, in the case of nine representative joint-stock banks, the
percentages of the various classes of assets, respectively, to the amount
of liabilities to the public.

Bank.

A.
B
C
D
E
F.
G
H
I.

Cash
and
bank
balance.

Call
and
short
money.

14.9

13-4

18 3

8 7
6 5
5 4
5 6

Investments.

Total
of
"liquid
assets."

Bills,
advances,
premises,
and
sundries.

20. 4
16.8

48.7

41.9

22. 0

30.3
26.6

46.8
49-5
46.8

66
59
68
66

8
6

16. 0

S6.0

17.1

54-5
54-6
43-6

8 7
16

3i-5
11. 0

Total
assets.

109
108
106
117
113
116
114
105

The averages of these percentages, respectively, are as 15.3, 12.6, 21.3, 49.2,
61.6, and i n .

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Scotland

Abstract of the state of affairs of the Union Bank of Scotland
on April 2, loop.

{Limited)

LIABILITIES.
Deposits and current accounts
Current drafts on London
Acceptances by the bank
Notes in circulation
Total liabilities to the public,
Capital, £5,000,000; reserve liability, £4,000,000—paid up,
£1,000,000; rest account, £1,000,000; profit and loss
account, £158,908 14s. id.; total liabilities to the shareholders
_

£12,477.369 14
118,821 o
151,252 18
876,405 o

4
5
3
0

13,623,84813

2,158,908 14
15,782,757

7,241,418 4
151,25218
241,506 11
107,008 13
76,052 n
1,143. 4°4 10
2,439,740 1
2,951,718 17

9
3
10
11
n
7
10
4

ASSETS.
Bills under discount, less rebate. £2,305,521 15s. 6d.; advances on cash credits and current accounts, £2,792,873
19s. id.; loans on stocks and other securities, £2,143,022
10s. 2d
Liability of customers for bank's acceptance, per contra
Bank offices, Glasgow, Edinburgh, and branches
Heritable property yielding rent
London property
Consols and other British Government securities
Other securities and investments
Money at call and short notice
Cash balance due by banking correspondents and cash
vouchers in transitu
Gold and silver coin, notes of other banks, and balances
at Bank of England

325,959

2 10

1,104,695 13 10
IS.782.757

£75,000 o
5,000 o
158,908 14

o
o
1

238,908 14

P R O F I T AND LOSS ACCOUNT.
DR.

Rest account
Bank premises account
Balance as above

Gross profits, after providing for depreciation of securirities, rebate of interest, and for all bad and doubtful
debts—
Deduct charges of management at head offices in Glasgow
and Edinburgh, at London office, and 153 branches in
Scotland
Net profit for year
Balance brought forward from April 2, 1908

CR.
359,882 12

160,376

4 11

199,506
39,402

7 5
6 8

238,908 14

171

COMMERCIAL BANK OF SCOTLAND (LIMITED).
Interview with Alexander Bogie, General Manager.
Q. When was the Commercial Bank of Scotland (Limited) founded?
A. In the year 1810.
Q. When does your present charter expire?
A. It is not limited in point of time.
Q. What is the par value and present selling price of
your shares?
A. The par value is £100, of which £20 is paid up.
The present market price is £91 per share.
Q. How many stockholders have you?
A. About 4,400.
Q. Is the stock fully paid?
A. No. There is £80 per share uncalled, which is
capable of being called up as follows: Forty pounds
sterling for business purposes; £40 in the event of liquidation.
Q. Have your shareholders any liabilities in addition
to the ownership of shares?
A. They are liable, in addition to the capital uncalled
upon the shares, for the note issue of the Bank.
Q. Is there any limit to the number of shares which
may be held by any one person, and is your approval
required before a transfer of your stock can be made?
A. There is no limit at present fixed as to the number
of shares which may be held by any one person. All
transfers of shares require to be submitted to the directors
of the Bank, and authorized by them before the transfer
can be made.

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Q. How often do your shareholders meet?
A. They meet quarterly, in accordance with the constitution, but three of the meetings are purely formal,
and only the annual general meeting is really attended
by the shareholders.
Q. Does every share have a vote at shareholders' meetings?
A. No; voting is as follows: The holder of 5 shares has
1 vote; of 10 shares has 2 votes; of 15 shares has 3 votes;
of 20 shares has 4 votes; of 25 shares has 5 votes; of 35
shares has 6 votes; of 45 shares has 7 votes; of 55 shares
has 8 votes; of 65 shares has 9 votes; of 80 shares has 10
votes; of 95 shares has 11 votes; of n o shares has 12
votes; of 130 shares has 13 votes; of 150 shares has 14
votes; of 175 shares has 15 votes; of 200 shares has 16
votes. The maximum number of votes for any one shareholder is 16.
Q. What control have the shareholders over the management and conduct of the business?
A. The directors are appointed by the shareholders in
general meeting, but that power and the powers belonging
to them under the companies acts constitute their (the
shareholders) control over the management. In the
actual conduct of the business they can take no part.
Q. Has the Government any voice in the management
of the bank or any interest in it through the ownership
of shares?
A. None.
Q. Describe the organization and management of the
bank, stating the number of officers and directors with
their respective functions, and for what periods and by
whom are they elected?

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A. The nine directors decide all special questions of
policy and the granting of advances (other than temporary), while the officials exercise general administrative
powers under the directors. The officials are general
manager, secretary, cashier, accountant, and superintendent of branches. There are besides the manager and
assistant manager, an accountant, in London, while the
other branches are managed by what in Scotland are called
'' agents/' The directors are appointed by the shareholders. There are extraordinary directors, variable in number, at present 12. They are practically honorary, without
fee, and only liable to be consulted on very special occasions. There are also a governor and deputy governor,
who attend the annual meetings of shareholders. The
governor presides.
Q. Is it customary to re-elect directors at the expiration
of their terms?
A. The senior director (being the director at the top of
the list for the year) retires at the end of the year and is
not eligible for re-election for one year.
Q. Is there any custom restricting the class from which
the directors may be selected?
A. They must not be directors of any other bank.
Q. How frequently do the directors meet?
A. The whole board meets weekly. A committee of
the directors (the individual members changing weekly)
meets four days a week. This is in addition to the weekly
board meeting.
Q. How many branches have you?
A. One hundred and sixty-five branches and twentysix sub-branches.
Q. How are your branches managed?

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A. By the agent of the branch, assisted by an accountant and clerical staff in accordance with the size of each
branch. In the larger branches one or more tellers deal
solely with the cash transactions over the counter.
Q. Who names the managers of branches?
A. Agents (managers) are appointed formally by the
directors, but the actual selection of the officers is made by
the general manager, who has the qualifications of candidates kept before him by the reports of the superintendent
of branches and the staff of inspectors.
Q. Have the managers of the branches full control of
the business in granting discounts, etc.; if not, what discretion is usually given them?
A. Agents have power to grant advances, but subject
to the approval of head office. In advances of considerable amount, an agent's duty is to get authority
from the head office before granting it. The discretion
allowed is dependent on the size of the branch and the
nature of the business and the class of customer, and
on the record of the agent. By our system of reports on
advances (weekly, monthly, and quarterly) we keep in
close touch with the advances and means of borrowers.
The London branch is, of course, on different lines, and
our manager there has greater powers than an agent at
a branch in Scotland.
Q. Have you any system of distribution of profits
among the managers of branches?
A. No.
Q. Are all your branches of the same class, or have you
main and subsidiary branches?
A. All our branches are of the same class, with the exception of the 26 sub-branches.

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Monetary

Commission

Q. Is the business conducted at your branches of the
same class as at your main office in Edinburgh?
A. Yes; very much the same. The head office has administrative work and supervision of branches, investment, etc., which does not, of course, arise elsewhere.
Q. Do your branches have business relations with merchants, farmers, and all classes of people in their respective localities?
A. Yes.
Q. How frequently are you required by law to publish
statements of condition?
A. Twice a year. This is in addition to the publication
and issue of the annual report and balance sheet.
Q. How frequently is it your custom to publish them?
A. Twice a year. In addition, the annual report and
balance sheet is filed with the registrar of joint stock
companies, in accordance with the companies acts.
Q. Is either your issue or your banking department at
any time examined by the Government, or in any way
under its supervision?
A. The answer to the first part of this query is "No."
The commissioners of stamps and taxes have the power to
inspect bankers' books for the purpose of ascertaining
the accuracy of returns of note issues, but that power has
never been exercised.
Q. What local or general taxes are paid by the Bank?
A. All local and imperial taxes exigible from an individual are payable, and are paid, by the Bank.
Q. Is the bank a member of the London clearing house?
A. No.
Q. What is the law governing your note issues, and
how are note issues limited and how secured?

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Scotland

A. "The issue of bank notes in Scotland," acts 8 and 9
(Vic, C. 38, 1845), regulates our note issue. By that act
our authorized limit is fixed at £374,880, and all issue in
excess of that sum must be covered by bullion lying in
the head office of the Bank in Edinburgh. One-fourth of
that bullion may be silver coin; the rest must be gold
coin. The notes are secured by the coin mentioned, the
general assets of the Bank, and the personal liability of
the shareholders—their liability in respect of note issue
being unlimited.
Q. To what extent are your notes legal tender in Great
Britain?
A. They are not le^gal tender. But they are more popular than legal tender, which is gold and Bank of England
notes and silver to a small amount.
Q. What other banks have the right of issue in Scotland?
A. Bank of Scotland, Royal Bank of Scotland, British
Linen Bank, Commercial Bank, National Bank of Scotland (Limited), Union Bank of Scotland (Limited), Clydesdale Bank (Limited), North of Scotland and Town and
County Bank (Limited).
Q. Are the notes of your issuing banks secured; and
if so, how?
A. The act of 1845 governs the notes of all the above
banks. For the security of these I am sorry I must refer
you to the respective banks.
Q. What is the total amount of their outstanding
issues?
A. Their average total circulation for the year 1908,
was £7,113,683.
Q. Do you pay the Government in the form of taxes,
or otherwise, either directly or indirectly, for your privilege
of note issue?
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A. The bank pays 8 shillings per cent per annum on
the average circulation taken weekly; a license duty of
£60 per annum for all places at which we issued notes
prior to 1845 and continue to issue, and of £30 per annum
for each place at which we issue notes, commencing subsequent to 1845.
Q. Do other issuing banks pay at the same rate for the
privilege of note issue?
A. Yes; all the other banks in Scotland.
Q. Have you acquired the right of issue from any other
bank, and upon what terms?
A. We have not acquired the right of issue from any
bank, since the act of 1845—which I have referred to—
restricted note issues.
Q. To what do you attribute the weekly and seasonal
fluctuations in the amount of outstanding notes, and are
these fluctuations constant from year to year?
A. The condition of trade regulates the note issue, but
comparison of year by year and consideration of trade
position enable experienced bankers to guess fairly approximately how they should regulate their gold stock.
Q. Are you willing to inform us as to the expense of
note issue and the profits derived therefrom?
A. This is a question we would rather not discuss in
a public paper. It is rather an intricate one and requires
much consideration, only approximate results being
possible after all.
Q. Under what conditions or terms has your capital
been increased from time to time?
A. In 1810, the subscribed capital was £3,000,000, of
which £600,000 was paid up. In 1859, the amount of
profits gathered £200,000, was added to the paid-up capital, making it £800,000. In 1864, another division of

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Scotland

profits raised the paid-up capital to £1,000,000. In 1880,
when the Bank was registered as limited, the capital
was fixed at £5,000,000, in 50,000 £ioo-shares, £20 paid
up on each.
Q. Have the obligations of the Bank to the public or to
the Government been changed from time to time?
A. To the public constantly, to the Government only
as regards collection of revenue.
Q. Are you required by law to invest your capital, or
any part of it, in any particular securities; if so, in what
class and to what amount?
A. There is no such restriction by law, but the Bank's
constitution and by-laws govern the investment of capital,
etc.
Q. Does the law require that before full distribution of
profits you shall accumulate and maintain a certain amount
of rest (surplus), and are "you required to invest this in any
particular way?
A. No.
Q. Do you allow interest upon deposits?
A. Yes.
Q. Are they subject to considerable fluctuations, and
are these fluctuations regularly recurrent?
A. No.
Q. Are all deposits payable on demand?
A. Yes.
Q. Is it your custom to carry in your banking department a fixed amount in government securities?
A. We like to hold a considerable amount of such securities, and the fluctuation in amount is not great.
Q. Can you state approximately the average length of
time and the average size of bills discounted by you?

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A. Two to three months' currency.
Q. Is the character of your discounts or loans regulated
or restricted by law or fixed by the statutes of the Bank?
A. No.
Q. Will you state (a) the class of bills usually discounted
by you, giving the number of names required; (b) the
minimum size; and (c) the maximum length of time to
run?
A. (a) Trade bills, with two names—the drawer and
acceptor; (6) no minimum; (c) six months is the maximum in general.
Q. What classes of collateral are accepted by you for
loans?
A. Good marketable securities, quoted officially in the
stock exchange, is the usual security. But to a limited
extent warrants for iron, etc., and for readily salable produce, are also taken, as well as shipping documents.
Q. Will you state approximately the average length of
time and the average size of loans on collateral?
A. Stockbrokers' loans are usually from settlement to
settlement (about a fortnight). Other loans are from one
month to three, the average being probably a little over
one month.
Q. Do you discount any but prime bills?
A. Our discounts are, generally speaking, trade bills of
the best type.
Q. Do you discount to any considerable amount for
individuals and merchants?
A. Yes; it would perhaps be well to point out that in
Scotland a large portion of the advances made to traders
are granted in <the form of overdrafts on current accounts.
The number and amount of bills in Scotland are less now

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Scotland

than in former years. Cash payments for the purpose of
obtaining discount are more frequent, and the number
of bills discounted by wholesale houses is reduced in
consequence.
Q. Is it your custom to employ surplus funds in purchase
of bills from discount houses?
A. Only occasionally, when rates suit.
Q. Do you rediscount bills for other banks?
A. It is not our practice to do so.
Q. Is it your custom to discount any bills payable in
foreign countries?
A. Not to any but a small extent, excepting bills payable in India and British colonies.
Q. To what extent does Bank rate govern your discount
and loan transactions?
A. In ordinary transactions, altogether. In all transactions the bank rate governs as regards the minimum.
Q. Do you at times discount bills for parties having no
account with you?
A. Our rule and practice is to the contrary, but in
special circumstances an exception may be made.
Q. Are a considerable number of your loans on call?
A. Theoretically all are on call, but practically there is
a small proportion fixed for a year and less.
Q. Explain the phrase "cash credits," and upon what
conditions are they given?
A. A cash credit account is an operative current account
in security of which the principal debtor and two or more
co-obligants have granted a personal bond in favor of the
Bank. The account is operated upon by the principal
debtor, but all the parties bound as principals and are
jointly and severally liable to the Bank.

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Q. Is the Bank, through its branches, employed by
other banks to any considerable extent for the transfer of
funds from one city to another?
A. We act as correspondents for the large English and
Irish banks and for colonial and foreign banks.
Q. Is it the practice of the Bank in times of stress to
discount bills of a satisfactory character for its customers
freely?
A. That is the only way to allay panic and bring back
normal conditions.
Q. Is it the policy of the Bank to discriminate against
finance bills in times of financial crises?
A. In such times great care is exercised in choosing our
paper.
Q. Do you favor the issue of £ i notes? Why?
A. Yes; under the Scottish system, as it enables the
banks to plant branches at little expense and so to open
up the trade of the country in all districts and directions.
Q. What, if any, artificial means are taken by you to
secure changes in the volume of currency (notes and coin)
to make it responsive to business demands?
A. None.
Q. What effect has a marked increase in the commercial
and industrial activities of Great Britain on the volume of
note issues?
A. It causes a corresponding expansion.
Q. It is customary in England, we find, to distinguish
between current accounts and deposit accounts. Will
you describe the distinction you make?
A. In Scotland the deposit account of England is
represented by deposit receipts. No interest on current
account is allowed in Scotland, whether the account be
inoperative or not.

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Scotland

Q. What is the customary charge for acceptance of a
ninety-day bill?
A. It depends on the security given; it ranges from
one-eighth to one-fourth of i per cent.
Q. Your acceptance constitutes what is known in London as a prime bill?
A. A bank acceptance of the highest class.
Q. Is there discrimination in easy times between a
merchandise or trade bill and a finance bill?
A. Yes; in favor of the trade bill.
Q. It is your practice to employ your surplus funds
in the purchase of prime bills through bill brokers?
A. We occasionally have such transactions.
Q. Is it the general practice in Scotland to make advances to very responsible people on a single name?
A. The general requirement is two good names; but
each case is dealt with on its merits, and there are many
instances where the full requirement is not insisted upon.
Q. Is it customary for you to receive as collateral for
loans any securities which are listed on the exchange?
A. Yes.
Q. Do you pay interest on both current accounts and
deposit accounts?
A. No interest is allowed on the creditor balances of
current accounts. Deposit accounts, as known in England, do not obtain in Scotland. Deposit receipts—on
which interest is allowed—take their place.
Q. How does the Bank rate affect the rate allowed by
you on deposit?
A. It governs the rate allowed by the banks in Scotland, which is usually \]/2 per cent below the bank rate.
Q. Were most of your branches organized by you, or
were most of them other institutions purchased by you?

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A. All of them were organized by ourselves.
Q. Have you in mind how many branches you had
ten years ago?
A. One hundred and thirty-seven.
Q. The tendency is for the consolidation of banking
in Great Britain, is it not?
A. Yes.
Q. Has the conversion of a private bank into a branch
of your bank generally met with favor in the community
where that bank is located?
A. Only two banks have been taken over by us—one
in 1825, the other in 1844—and both conversions were
looked upon locally with favor, if we may judge by
results. The lion's share of banking business in the
two districts remains with us yet.
Q. Do you believe that the community is as well or
better served through your bank than through the independent bank?
A. Better.
Q. Would you say the Bank of England is in any way
a competitor of the other banks in Great Britain?
A. Not of the Scotch banks. I do not know the
experience of our English friends.
Q. What relations do the Scotch banks bear to the
Bank of England? Do they deal with it directly?
A. This Bank does.
Q. Does the Bank of England sometimes suggest the
policy the Scotch banks should follow, say, in not accepting
finance bills?
A. No.
Q. Is the question of the amount of reserves, either in
specie or in bank, regarded as of importance by Scotch
bankers?

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Scotland

A. I should think so, though I only know positively
my own opinion.
Q. Do you regard your system of currency issue as
sufficiently elastic for your needs?
A. Yes.
Q. In your statement of liabilities you show "cash in
hand and at the Bank of England.'' I assume it is not your
custom to publish the amount of cash in hand separately
from the amount of cash in the Bank of England?
A. No.
Q. You regard your balance in the Bank of England
the same as cash?
A. Yes.
Q. It is your practice to confine your investments in
other than government securities to a small figure?
A. I must refer you to our balance sheet submitted
herewith. The amount does not vary very much.
Q. Do you ever buy any shares of railroad or industrial companies?
A. No industrial company shares and only giltedged railway stocks.
Q. Do you ever own bank shares?
A. No.
Q. What does the form of obligation by the borrowers
upon collateral take?
A. The form of a letter of agreement, containing wide
powers of sale, etc., and check drawn by the borrower upon
the Bank—generally bearing reference to "loan account/'
Q. Have you any idea of the percentage of actual cash
or bank notes which is used in the transaction of business
in the Kingdom?
A. No; the clearing-house figures in Scotland are not
made public.

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Commission

of the liabilities and assets of the Commercial
Scotland (Ltd.), on October 31, 1908.
LIABILITIES.

Bank of

Capital subscribed
Less uncalled

£5, 000, 000
4,000,000

o
o

Paid up
Rest
Officers'pension reserve fund
Deposits
Dividend payable January 2, 1908
Notes in circulation
Acceptances, indorsements, and marginal credits
Drafts, circular notes, and other liabilities
Profit and loss account

1,000,000 o
900,000 o
110,000 o
14,626,241 3
100,000 o
974.797 o
310,322 2
268, 096 12
40,212 6

o
o
o
11
o
o
7
9
4

18,329,669
ASSETS.
Specie at the head office and branches, and cash balances
with the Bank of England and other banks
960, 704
Notes of other banks and cash documents in hand and in
course of transmission
951.503
Money in London at call and short notice
2,902,771
British government securities
994.538
Indian and colonial government securities, Bank of England
stock, debenture stocks, and other investments
2, 298, 960
Short loans on securities
1.788,937
Bills discounted
3.036,477
Advances on accounts
4.563.095
Liability of customers for acceptances, indorsements, and
marginal credits
310,322
Heritable property in Scotland not occupied by the Bank___
175,234
Freehold property in Lombard street and Birchin lane,
London
100,000
Bank premises at the head office and branches
247,122
18,329,669
P R O F I T AND LOSS ACCOUNT.

11 5
12 9
8 11
15 8
9 8
n n
18 10
2 7
2 n
o
12
5

o
3
7

£100,000
100, 000
5, 000
25.000
40,212

o
o
o
o
6

o
o
o
o
4

270,212

29,901 13
240,310 12

7
9

270,212

DR.

Dividend for half year paid July 1. 1908
Dividend for half year payable January 2, 1909
Applied in reduction of the cost of Bank premises
And to credit of Bank's investments
Balance to next account

—-

Balance from last account
Profit of the year to October 31 1908
Thus:
Balance after paying interest and
income tax, and providing for
accrued interest, rebate on
bills current, and losses and
contingencies
£414,310 7 10
Charges at head office and branches, including licenses and
stamp duty on notes
173. 999 15 1

240,310 12

186

9
6

FRANCE

i87

BANK OF FRANCE.
Interview with M. Pallain, Governor of the Bank of France.
Q. When was the Bank of France founded?
A. Its business commenced the ist Ventose, year 8
(1800).

Q. For how long a period does your charter run?
A. The charter was renewed in 1897 and expires in 1920,
but under its provisions Parliament, by taking action in
1911, may terminate the charter one year later, in 1912.
Q. Is the Bank of France ever attacked in the controversies between political parties?
A. No charge has ever been made that the Bank favored
or aided any political party. There is never any claim
that politics enters in any degree into the management
of the Bank. Except for the renewal of the charter in
1897, no legislation affecting the Bank has been enacted
since 1857. There is no sentiment for any change in
banking methods nor for any new legislation. It should
be added that neither the Governor nor Deputy Governor
is permitted to be a member of either body of Parliament.
Q. The capital has been changed at different times?
A. It was at first 30,000,000 francs. It was successively
increased, and amounted in 1857 to 91,250,000 francs,
when it was doubled and finally fixed at 182,500,000
francs. The capital in reality only fills the office of a
pledge, very important no doubt, as was so well set forth
by Mollien, Minister of the Treasury, in his celebrated
note from Havre in 1806.

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Q. Has the Government any interest in the ownership
of the Bank? Does it own any shares?
A. No; the Bank is a private establishment.
Q. Then the capital is entirely private property?
A. Yes. All the shares are divided between 30,000
shareholders, of which about 10,000 have not more than
one share.
Q. How often do the shareholders meet?
A. Once a year; the last Thursday in January.
Q. What do the shareholders do at this meeting?
A. They are told about the business of the Bank during
the year and are called upon to elect or reelect the Regents
and Censors.
Q. How many Regents and Censors are there?
A. There are fifteen Regents and three Censors. Five
Regents and the three Censors must be chosen from
among the commercial and industrial classes, and three
Regents must be taken from among the tresoriers payeurs
generaux (general paying treasurers).
Q. When do the Regents meet?
A. Usually once a week.
Q. Do they decide upon the changes in the rate of discount?
A. Yes, that is one of their most important duties.
Q. Can the Governor change the rate without the
approval of the Regents?
A. No.
Q. Has each Regent a vote?
A. Yes.
Q. Are decisions taken by majority?
A. Yes; more often they are taken unanimously.
Q. What are the functions of the shareholders?

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A. They elect the Regents and Censors through whom
they exercise their right of control over all the management of the Bank.
Q. Do all the shareholders have the right to vote?
A. Only the 200 largest shareholders are allowed to
vote for the General Council of the Bank; that is, its
Regents and its Censors.
Q. How are the Governors and Deputy Governors appointed?
A. The Governor and the two subgovernors are named
by a decree of the President (Chef de VEtat) upon the
proposal of the Minister of Finance. Their terms of
service are not for any fixed period.
Q. How many branches have you?
A. One hundred and eighty-eight branches (comptoirs),
of which 127 are important (succursales) and the other 61
auxiliary. We also have 279 agencies.
Q. How are your branches managed?
A. Our branches are managed by a manager, assisted
by a local board of directors, selected from among the best
qualified commercial, industrial, and agricultural representatives in the region.
Q. Who names the managers?
A. The managers are named by decree of the Chief of
State on the report of the Minister of Finance, upon
the presentation made to him of three candidates by
the Governor of the Bank.
Q. Have the managers of the branches full control of
the business in granting discounts, etc. ?
A. The Bank of France makes it a rule to leave as much
initiative as possible to its managers for current business.
They are assisted in their task by the collaboration of

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members of the board, in whom they find authorized
and enlightened interpreters of the commercial needs of
the region. Their management is submitted to the control of a regular inspection, and for operations of exceptional importance they must refer specially to the Central
Bank, under whose supreme authority they always remain.
Q. We have found that certain banks have a system of
distribution of profits among the managers of branches.
Does anything of that kind exist at the Bank of France?
A. Our managers are remunerated by fixed salaries,
which does not, however, prevent the Bank of France
from letting all their staff participate in the results of
particularly productive years by general and exceptional
allowances. It should be added that there has existed at
the Bank of France, since its origin, a system of pensions
which is exceptionally advantageous; the pension guaranteed to each agent having a right thereto amounts to at
least one-half the annual salary after thirty years' service,
and the bank, in spite of the expense imposed upon it by
the maintenance of these particularly favorable regulations, continues to add to the pensions benevolent allowances, which it gives out of its general resources, and
which are fixed according to the services rendered and to
the personal condition of the employees.
Q. How are the auxiliary offices managed?
A. The auxiliary offices are subjected to the same regime
as the branches, except as concerns discount. The head
of the office who is not assisted by a special board of
directors refers all discounting operations to the manager and to the board of the branch to which he belongs.
Q. We should like to be informed as to the kind of business done in your branches. Is it the same as in Paris?

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France

A. The business done in the branches is exactly the
same as that done in Paris.
Q. Do the branches have business relations with the
merchants, farmers, and all classes of people of the
locality?
A. Yes, they are open to everybody.
Q. You have, I suppose, in the branches regular clients
who have an account with you?
A. Yes, and a considerable number of them.
Q. Do your branches do the same kind of business as
the branches of the Credit Lyonnais?
A. The Bank of France and its numerous branches do
all banking business consistent with the laws properly
regulating a bank of issue.
Q. You admit to discount certain classes of bills which
are also discounted by the other banks, and with whom
the Bank of France must therefore find itself in competition?
A. On certain points there may be competition, and it
is on account of this salutary competition that wherever
a branch of the Bank has been established the rate of discount has been perceptibly reduced, in the interest of
commerce.
Q. In addition to your capital you have several classes
of reserves (surplus) mentioned in your statement. Will
you kindly explain to us the different classifications and
if each of these classes of reserve (surplus) are required
by law?
A. All the reserves which are detailed in the statement are required by the laws which govern us and
constitute for us legal obligations. They are of four
kinds and comprise:
60481—10

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Commission

(i) Surplus or profits in addition to the capital accruing from raising the rate of discount above a certain fixed
rate and which, according to the terms of the law, can
not be distributed. It now amounts to 8,006,145 f. 84
(see the law of the 9th of June, 1857, a r t - 83, a n d the law
of the 17th November, 1897, art. 12).
(2) The surplus coming from different sources and
notably from profits accumulated before 1834; from the
surplus of departmental banks absorbed in 1848; from the
premium on the new shares issued at the time of the
doubling of the capital in 1857; amounting in all to
22,105,750 f. 14, viz:
(a) 10,000,000 f. by virtue of the law of the 17th May,
1834.
(b) 2,980,750 f. 14, coming from the departmental
banks which were united to the Bank of France (decree
of the 27th April, 1848, art. 5).
(c) 9,125,000 f. (law of the 9th June, 1857, art. 4).
(3) Real estate surplus, representing in the books the
value of the central bank building; 4,000,000 francs (law
of the 17th May, 1834).
(4) The special surplus constituted in order to insure
the relative stability of dividends.
Q. Does the law require that a portion of the capital
and surplus of the Bank shall be invested in government
funds?
A. In accordance with the statutes the Bank is obliged
to keep invested in French rentes more than one-half of
its capital and its legal reserve (surplus). We have
therefore one hundred millions of the capital and an
important part of the different classes of surplus invested
in French rentes. The remainder of the surplus is also
in a large degree invested in French funds, although there

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Interviews

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France

is no legal obligation to do so. Besides its legal surplus
the Bank reserves, on the advice of the General Council,
amounts set aside to meet exceptional needs, such as
reconstruction of buildings, sinking fund, pensions for
the staff, eventual losses on its loans and discounts, etc.
Q. What classes of bills are discounted by the Bank
of France?
A. The Bank of France discounts for everyone who
has obtained the opening of a current account, bills of
exchange, checks, bills to order, and commercial and agricultural warrants of fixed maturity, which have not more
than 3 months to run, and which bear the signatures of
three persons, tradesmen, agricultural syndicates, or others,
known to be solvent. The Bank and the branches accept
without distinction bills which are payable in any one of
the 467 towns where we undertake to collect bills.
Q. Do you require three names on all the bills you
discount?
A. The statutory rule is that bills must have three
signatures, but the Bank is also authorized to accept paper
bearing only two signatures when the third signature
is replaced by a deposit of securities belonging to one of
the classes of securities admitted for loans, or by a warrant for merchandise (warehouse receipt). When I
speak of bills bearing two signatures I mean French
signatures, and I mean to say that bills with three
signatures must have, among these three signatures, at
least two signatures given by parties domiciled in France.
Q. In other words, a client having satisfactory collateral is only obliged to supply one supplementary signature?
A. Just so, and that supplementary signature can
even be given once for all by means of what we call an
11
Aval par acte separe " (guaranty by separate deed).

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Commission

We inaugurated a few years ago a system called "mixed
accounts," for which the securities deposited serve alternately and according to the position of the account, to
guarantee advances made or discount granted to the
same customer. Although the securities which replace
a statutory signature must belong to one of the classes
admitted for loans, it sometimes happens exceptionally
that we take other securities, American securities, for
instance, as supplementary security for discounting bills
with three signatures, which gives to certain customers
the ability of obtaining larger credit than they would
obtain on personal guarantees.
Q. A bill drawn in New York on France, on a bank, for
instance, the Credit Lyonnais at Paris, and accepted by it,
would it be admissible?
A. Yes, if it bore, besides the signature of the French
establishment accepting it, at least one other French
signature; that of the person presenting it, for instance,
having a current account at the Bank of France. In a
word, under normal conditions the Bank confines the
privilege of discount to bills bearing the signatures of at
least two persons domiciled in France.
Q. Is it necessary that one of these signatures should be
that of a bank?
A. That is not necessary, the Bank of France being able
to be and in fact being in direct discounting relations
with commercial and industrial people.
Q. Nevertheless, a part of your portfolio comes from
rediscounting for banks.
A. Certainly, and it is an important part.
Q. If the Credit Lyonnais needed money and brought
you acceptable bills, you would discount them?
A. Certainly. We often do; and this possibility,
always open, according to circumstances, is an invaluable

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France

resource for credit societies. The eminent founder of the
Credit Lyonnais, M. Germain, a very competent man in
these matters, admitted frankly that if the Bank of France
did not exist he would close the Cr6dit Lyonnais—in times
of crisis, of course.
Q. Could you give us an estimate of the proportion of
bills which are discounted for banks and those discounted
for other customers?
A. No special statistics have been drawn up on this
point, as it would necessitate a long investigation in all
the offices of the Bank. I should estimate that about
70 per cent of the paper now held bears the signature of
some bank as one of the indorsers; but it is manifest to us
that the number of merchants and manufacturers who
appreciate the facilities given by the Bank for direct discounting and who profit by it increases perceptibly every day.
Q. Does your annual report show the average life of
your bills?
A. Yes; the last statement of operations indicates, like
the preceding statements, the average time of bills discounted, which was for the year 1907—26 days.
Q. The law fixes a maximum time? You can not discount bills having more than 90 days to run?
A. The law does not say 90 days, but 3 months. This
legal limit, which was fixed in order to always assure the
liquidity of the portfolio, does not take from the Bank the
capacity of renewal, which it can use without entering
in any engagement in that respect under certain circumstances, subject to the judgment of the council.
Q. Does the statement of your operations give information as to the average size of bills in your portfolio?
A. Yes. The average value of discounted bills in 1907
was 732 francs; in 1906 it was 683 francs. The minimum

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Commission

amount of bills admitted to discount was lowered in 1898
to 5 francs, and the number of small bills discounted by
the Bank has never ceased to increase since that time. In
1907 the number of bills below 100 francs was more than
3,500,000 in a total of 7,500,000. The percentage of
small bills discounted increases, besides, in a continuous
manner in proportion as the operations of the Bank become
popular; it has gone from 33 per cent in 1897 to 48 per cent
in 1907.
Q. Do you allow overdrafts or do you make advances
of the kind made by the Scotch banks, called "cash
credits ?"
A. The law does not permit any overdraft (tirage &
d6couvert), and we consider, moreover, that this operation is contrary to the principles which ought to govern
an issue bank.
Q. Scotch banks take security in the form of a guarantee.
A. We also sometimes accept guarantees, but only when
they apply to engagements for a fixed period, resulting
from discounting operations.
Q. Is the rate of discount at all times the same at the
Central Bank and at all the branches?
A. Yes.
Q. Is the rate the same at the Bank and the branches
for loans on securities?
A. Yes.
Q. Does the Bank of France make the same charge for
the discount of bills and for loans upon collateral?
A. The Bank usually charges somewhat more for loans
upon collateral than for the discount of bills. The rates
at present are 3 per cent and 4 per cent, respectively.

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Q. Do you think that it would perhaps be more advantageous for the Bank of France, considered simply as a
bank, to impose different rates under different circumstances and at different places?
A. As a banking establishment, if we thought it advisable to apply different rates, we could easily become the
masters of the market. But in our position of Bank of
France, organized to serve the interests of public credit in
a democratic country, we do not believe ourselves justified
to use this option.
Q. Are the advances on collateral which appear in your
balance sheet made on stock-exchange securities?
A. Yes.
Q. Are you restricted in the classes of securities on
which you may make advances?
A. Securities which may be admitted as collateral are
limited by the laws and decrees which govern the Bank
and include collateral of easy conversion into cash, such
as should at all times be required by a bank of issue.
These securities are generally guaranteed by the State,
the departments, municipalities, or French colonies.
Q. Can the same classes of securities be accepted by
your branches?
A. Yes. The classes of securities admitted by the laws
and decrees and the proportion of the loans fixed by the
general council, and which varies according to the character
of the securities from 60 per cent to 80 per cent, apply
alike to operations in Paris or the country. I will furnish
you the list of securities admitted now for loans, with the
proportion of the loan for each of them.
Q. In your balance sheets for December 24 the amount
of current accounts and deposits at Paris is stated at

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about 426,000,000 francs. Does this figure include the
deposits of other banks?
A. This figure, as a matter of fact, includes the current accounts and deposits of all the large banks, railway companies, insurance companies, and other private
accounts.
Q. Do these banks consider their deposits with the
Bank as cash?
A. These sums are available at sight and can be considered as cash.
Q. Do you publish a statement of the amount of the
deposits of the banks with the Bank of France?
A. The Bank of France does not publish any statistics
on this point. But information as to the amount of
cash and cash in bank may be found in the balance sheets
of each of the establishments in question.
Q. Could we obtain an estimate of the percentage of the
deposits of the other banks at the Bank of France in comparison with the whole of such deposits?
A. These figures are extremely variable; it would be
necessary, in order to obtain even an approximate idea
at any given moment, to make inquiries not only at the
Central Bank, but also at the branches. Permit me,
however, to ask you what interest you attach to this
question ?
Q. We should like to ascertain as accurately as possible
the nature and amount of the cash reserves of the French
banks other than the Bank of France. This is the reason
why we wished to know the balances of the different
credit establishments at the Bank of France.
A. As you must, with reason, continue your inquiries
in the large credit establishments of Paris, it seems to me

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preferable that you obtain from them this information
as to liquid assets, which, for that matter, appears in
their balance sheets.
Q. We thought of obtaining this information by a different method. The published balance sheets of the banks
do not state separately the amount in the Bank of France
and the amount in their own vaults.
A. In the credit establishments which you will visit
you will be able to establish the fact that the liquid cash
is, in comparison with their turnover, relatively very
small. In France we consider that the strength of a
bank consists more in the composition of its portfolio,
i. e., in the value of its commercial bills, rather than in
the importance of its cash reserve.
Q. In America the question of the proper relation
between cash in hand and liabilities is considered very
important.
A. It appears to us that for French private banks the
proportion of cash to liabilities is less significant on
account of the facilities offered by the organization of the
Bank of France for the rapid conversion—in a crisis—of
a good portfolio into ready money.
Q. We are trying to inform ourselves as to the usages
and customs of foreign banks. It is for this reason that
we seek to ascertain the percentage of cash which the
banks hold to their deposit liabilities.
A. I think I have already replied on this point. The
part which the Bank of France plays toward the private
establishments permits the latter, as has many a time
been proved, to reduce to a minimum their cash reserves,
and to devote, without exceptional risk, a larger part
perhaps than elsewhere to productive commercial operations.

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Q. That may be true, but we wanted to find out, if
possible, the percentage of the cash held by the banks of
Paris in their vaults to their deposit liabilities.
A. I think you pay more attention to the quantity
than to the quality.
Q. We may be agreed as to the quality, but I am trying
at this time to make an inquiry as to the quantity.
A. It is a question, as a matter of fact, of the measures
taken by each private bank to supply their cash requirements. The establishments which you will visit will be
able to inform you on this point much better than we
could.
Q. Are there any laws regulating the amount of the
balance which the other banks must keep at the Bank of
France ?
A. None at all.
Q. You pay a certain tax on your notes in general and
a certain other tax on the productive circulation. What
is meant by "productive circulation?"
A. Productive circulation is the average amount of the
portfolio and loans, and is subjected to an annual tax of
0.50 per 1,000 francs. The circulation in excess pays an
annual tax of 0.20 per 1,000 francs.
Q. Then productive circulation is not the same thing
as the notes issued in excess of specie held?
A. It is not exactly the same thing. The productive
circulation is composed, as I have said, of discount and
loans. The uncovered circulation comprises, besides the
productive circulation, divers other elements, and notably
the loans without interest which the Bank has made to
the State, up to an amount of 180,000,000 francs.
Q. Is the amount of all taxes paid by the Bank to the
State included in your report?

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A. Yes. The Bank is subjected to all the general taxes
imposed on private companies, and which, for the last
year's business, are divided up as follows:
Francs.
i°. Direct taxes (land t a x taxes on doors and windows,
licenses, on mortmain property, etc.)
824,800
2 0 . Tax of 4 per cent on dividends
1,330,700
3 0 . Stamp t a x on shares
55,ooo
4 0 . Tax of 4 per cent on the interest of loans granted to
companies
41,600
Total

2,252,100

Besides the general taxes the Bank pays special taxes
as follows:
Francs.
(1) The stamp tax on notes, as above explained, and which
amounted in 1907 to

1,473,000

(2) The royalty to the State, stipulated by article 5 of the
law of November 17, 1897, and calculated by multiplying the average amount of the productive circulation by one-eighth of the average rate of discount.
This amounted in 1907 to

7,357,ooo

Total

8,830,000

To sum up: The public charges of the Bank in 1907
were more than 11,000,000 francs, whereas the profits
distributed were 31,000,000 francs. They therefore
amounted, for the last year, to about a third of the net
product.
Q. Have you a system of transfers similar to that
used by the Reichsbank?
A. Yes, this system, in France, dates as far back as a
century or more.
Q. If I were not a client of the bank, and should ask
that 1,000 francs be transferred to Marseille, would you
charge for the transfer?

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A. The transfer would cost 25 centimes. It is gratuitous for the sums coming from bills discounted or
taken from loans advanced on security.
Q. Do you have a tariff of charges for transfers?
A. Yes. It is given in one of our publications.
Q. Suppose that I am a customer of the Bank of
France, having a deposit, and wish to transfer 1,000 francs
to Marseille. How would this be accomplished?
A. Nothing easier; and if you are a client of the Bank,
and the sum which you want transferred isT:he product
of discount or advances, no kind of commission is charged.
Q. Even if I wanted to transfer the sum to a person
who is not a client of the Bank?
A. In this case the Bank gives a letter of exchange (or
credit) payable at Marseille, and which is sent to the
interested person. The commission is the same as for
the virements (transfers).
Q. The Reichsbank has a list of all its clients in all its
branches and it transfers funds without charge when the
sender and the receiver are both its clients. Is there a
list in existence published by the Bank of France containing the names of its clients?
A. With us this list is a document for the use of the Bank
only, deposited in all our branches, and to which we refer
in order to reply to people asking for transfers.
Q. In Germany the transfer operations of the Reichsbank are considered as one of its most important functions. They transfer funds to all parts of the Empire,
either without commission or for a small one. Is this class
of operations an important one for the Bank of France?
A. Extremely important, since the transfers made between our clients in 1907 amounted to 180 milliards of
francs.

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Q. Does the Bank of France transfer funds for all the*
other banks, Credit Lyonnais, Soci6te" G6nerale, etc.?
A. Yes; it also transfers sums for the Public Treasury.
It is an expensive thing for us, but it constitutes one of
the obligations of our privilege.
Q. What is your method of transfer? If I wish to
transfer 500,000 francs to a firm in Lyon, and I deposit
the 500,000 francs at Paris, what steps do you take? In
Germany the Reichsbank simply notifies the branch in
question of the transfer, and the branch places the amount
to the credit of the beneficiary. Is that the method
employed here?
A. The system is the same in principle, and transfers
from place to place are also made by simple notification to
branches. Nevertheless the person who deposits the sum
to be transferred can obtain a receipt, in duplicate, if he
desires, so as to send one, as an identification paper, to
the beneficiary of the transfer. The beneficiary can use
this document in order to confirm his right to the sum to
be transferred to him, but he is not obliged to produce it.
Q. Are the other banks accustomed to use the Bank of
France in order to transfer their funds? If a credit establishment wants to transfer 100,000 francs from its branch
at Marseille to that at Havre, would it use the Bank of
France for that purpose?
A. Certainly; all the credit establishments use us for
this purpose to the largest extent.
Q. Instead of using their own machinery they use the
Bank of France?
A. The greater part of the banks use no other method.
Q. Would they use the transfer facilities of the Bank
of France to increase the cash in one of their branches in
a remote part of France?

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A. Certainly.
Q. Is there any agitation in France for more frequent
or fuller publication of reports by the banks?
A. People are generally agreed that the balance sheets
presented by private banks are too brief.
Q. Do the other banks publish any statements aside
from the annual statements required by law?
A. The big credit establishments publish monthly a
statement drawn up the last day of the month.
Q. There is no provision of law which requires banks to
publish a monthly statement, is there?
A. No.
Q. But the law does require an annual statement?
A. Yes. But only for banks organized under the law
of July 24, 1867. The Bank of France, subjected, on this
point, to a special law, is only obliged to publish quarterly
statements; but as it seeks for the greatest amount of
publicity, it has published for a long time past weekly
statements.
Q. Is the Bank of France subject to examination by
the Government?
A. There is no regular system of examination, but the
Minister of Finance has the right to ask for information
whenever he chooses.
Q. I suppose the relations of the Bank of France with
the other banks are cordial; there is no friction?
A. We have as a principle to be on good terms with
everybody, and better with certain persons.
Q. Do the banks rely implicitly on the Bank of France
to grant them credit when they require it?
A. They know very well that in times of difficulty
we are the supreme resource.

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France

Q. Does the amount and the character of credit granted
to other banks depend on the amount and the character of
their accounts at the Bank of France?
A. There is no fixed rule, and although the balance of
the account is not a matter of indifference, it is more especially the quality of the paper presented which fixes
the extent of the credit. In periods of crisis, in 1830,
in 1848, in 1870, in 1889, the general council of the Bank
did not hesitate to come to the assistance of establishments which were in difficulties, but which held assets
of unquestioned character and value, by extending to
them the largest possible credits.
Q. Then you would grant discount to a bank without
taking into consideration the importance of its balance
with you?
A. That is not exact. And the council, when it decides
discounts, has every day before it the statement of the
balances of all our clients, and this examination certainly
exercises an influence on the extent of the credit given.
But, I repeat, there is not a fixed rule in this respect;
it is a question of judgment.
Q. Let us suppose a bank at Marseille having no
account with you, and which never had one, applied for
credit, would you grant it?
A. Our discount is reserved for our current accounts,
but the bank in question could obtain the opening of a
current account on condition that the request it should
make must be accepted by the council.
Q. Is the Bank of France regarded as a bank for banks
or as a bank for the people?
A. The Bank of France remained for a long time,
indeed, the bank for banks, but since it has covered so
much territory with its numerous branches; since the

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minimum amount of all its operations has been lowered;
since it has opened deposit accounts to all; since it has
tried to simplify and minimize the formalities required
by its special charter, the industrial and commercial
world has come to use the Bank directly to a much larger
degree. At the same time its credit has come out stronger,
firmer, more popular from all the political and financial
crises, so much so that to-day one can reply without
hesitation that it is already and that it tends to become
more and more—as you ask—the bank of all the French
public.
Q. Nevertheless it does more business with banks than
with private individuals?
A. That is only true for discounting operations, but
for loans and all operations on securities its clientele is
composed, in great majority, of individuals. The number of small loans is specially important, and the number
of depositors of securities reaches almost 100,000.
Q. Is there any limitation in the size of the accounts
which will be taken at the Bank ?
A. Anyone can open an account who is known to the
Bank, the minimum being 500 francs. After an account
is once opened the depositor may discount paper as low
as 5 francs, provided it meets with all of the other requirements.
Q. What are the relations of the Bank to the State and
the Treasury?
A. At the time of the successive renewals of the privilege of the Bank the State asked for the concession of a
certain number of advantages besides the taxes I have
indicated. It is thus that the Bank granted to the
Treasury loans without interest amounting to 180,000,000
francs and reimbursable only at the end of the concession.

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France

In 1840 and in 1870-71 the Bank made to the State temporary loans of far greater importance. The Bank also acts,
without remuneration, as the Cashier of the Treasury, whose
accountants can all pay in or draw upon the account of
the Treasury in all the establishments of the Bank of
France; the latter making, without charge, the necessary
transfers in order to centralize all these operations for
the account of the Treasury in Paris. In 1897 the Bank
was obliged, in addition, to assume all the expenses of
transportation necessary to furnish the country with the
different kinds of coin, to furnish the necessary service
for the issue of treasury bills, and to pay the coupons of
public securities at the same time as the government
"caisses." All these services are rendered by the Bank
without remuneration.
Q. In your statement of December 24, 1907, you mention 258,000,000 francs as due from the Bank to the Treasury. Does that refer to deposits of the Public Treasury?
A. Yes; it is the balance of the current account of the
Treasury with the Bank.
Q. Does the Treasury have a deposit in any other banks
than the Bank of France?
A. No; in no other bank in ordinary times. There are,
however, certain relations existing between the Treasury
and the Caisse des Depots et Consignations, which is a
different public establishment and which holds in France
the money of the savings banks.
Q. Is the French public satisfied with the monopoly of
the note issue granted to the Bank of France?
A. We have every reason to believe so, and we do not
think that your inquiries elsewhere will meet with any
other reply on this point.
Q. Is there any agitation in any quarter for a change?
60481—10

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Commission

A. No, but they are always inclined to ask more from
the Bank of France; that is to say, to open new branches
and subbranches; to extend the benefit of its credit to a
larger number of places; to increase the facilities of every
kind that it offers to its customers. But, in principle,
one can say that the general opinion of commerce, industry, and agriculture is unanimously favorable to the
maintenance of a system which all comparisons lead us
to appreciate more and more. However that may be,
the best itself can always be improved, and we do not
forget it.
Q. Is there any contention in banking or economic
circles that it is necessary to restore or extend the right
of issue to banks, other than the Bank of France, to
enable them to increase their own profits or to afford
adequate facilities to borrowers or to meet legitimate
business demands?
A. The unity of issue was achieved in France in 1848,
and at no time since then has there been any question,
in responsible circles, of a possible return to plurality of
issue. The same tendency is leading, little by little, to an
absolute monopoly in England, Germany, and even in
Italy. I think that it would also be interesting for you
to examine the recent example of Switzerland, which had
its note-issue system founded, as in America, on the
plurality of banks and which has now substituted for
this system one single privileged bank. This transformation has received popular approval by referendum.
Q. We have in America a numerous class of people
who think that the discount banks could better serve the
interests of their customers if they had an additional right
of note issue based on commercial assets. What is your
opinion?

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France

A. My opinion is very clearly favorable to the principle
of the unity of issue. In normal times the available
funds arising from note issue should only be employed
with moderation so as to retain their efficacy in periods
of crisis, and it appears to me that this moderation would
be less well assured by the competition of a large number
of establishments than by the control of a sole responsible bank, which would become the supreme refuge of all
the others in times of peril.
Q. How is your note issue limited ?
A. The maximum note issue at present authorized is
5,800,000,000 francs. The actual note issue on August
24 was 4,600,000,000 francs.
Q. What effect does a marked increase in the commercial
or industrial activity of France have on the note issue?
A. The commercial development of France is accompanied by monetary needs which grow in proportion, which
explains that the note issue has risen unceasingly through
all the fluctuations of these last fifty years. In 1897,
when the privilege of the Bank of France was last renewed,
the limit of issue was fixed at 5 milliards of francs. Two
years ago it was necessary to increase it to 5,800 millions, but
the increase has been accompanied by an equal increase
in the metallic reserve of the Bank, and is not reflected in
any increase in productive operations, so that the increase
instead of being an additional source of profit has imposed
an appreciable expense upon the Bank. The needs which
exercise a permanent influence for a long period are more
monetary needs, due to the general development of commerce, rather than needs of credit due to passing fluctuations of its activity.
Q. In other words, the Bank seeks to regulate the
amount of its issue by the demands of business?

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A. By virtue of the statutory machinery, the emissions
of the Bank are essentially variable and are commanded
precisely by the discount or loan operations. It is therefore the bills presented for discount and the requests for
loans—that is to say, the requirements of business—which
fix the amount of the issue.
Q. Do crises in other countries like that of October and
November, last year, in America, have any effect on the
note issue of the Bank of France?
A. I can reply to you by figures. On October 21, the
date of the beginning of what was called the American
crisis, the circulation of the notes of the Bank of France
amounted to 4,843,000,000 francs. This circulation increased until the end of October, but on December 31 the
circulation had been reduced to 4,800,000,000. It is
therefore very apparent that a crisis of the kind of which
you speak has more effect on the portfolio and on the
gold reserve than on the circulation of notes. As a
matter of fact, in the case of a foreign crisis, the demand is
for exportation capital; that is to say, gold.
Q. Does the export of gold reduce the volume of notes?
A. Not necessarily. It may happen that among our
assets a certain fraction of the gold is replaced by an equal
amount of bills in our portfolio, and that without changing the total of notes in circulation.
Q. I see from your reports for a series of years that
there are similar fluctuations from time to time in each
year in the volume of your note issue. What are the
causes of these fluctuations?
A. It is the sun, or, it would perhaps be more correct
to say, the alternating seasons.
Q. Through what agencies do you feel a demand for
increased note issue? Does it come from the banks or
from your own customers?

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France

A. As I told you a moment ago, it is the bills presented
for discount and the requests for loans which regulate
automatically the movements of issue.
Q. Does this demand for increase come more largely
from the banks or from customers in general?
A. Both banks and other clients. The demands of the
banks are particularly important, as they centralize the
demands of their numerous clients.
Q. The fluctuations are more or less automatic? If
there is an excess of notes, it is, I assume, soon taken care
of by presentation for redemption?
A. The mechanism is quite automatic. When circumstances demand a reduction of issue the notes are
naturally presented for redemption, and it seems to us
that as long as this redemption is made without difficulty,
there can never be an excess of notes in circulation.
Q. There is nothing in the law requiring your notes to
be covered by a certain proportion of gold?
A. No regulation of this kind exists in our legislation.
Q. There is no provision that you should hold either
cash or bills of a certain character against the note issue?
A. As regards cash, we have no particular obligation.
The bills must simply have the maturity and the signatures
stipulated in the statutes, of which I have already spoken.
But the more latitude that is allowed us the more we feel
ourselves bound to insure by the character of our management and by the constitution of very strong reserves the
complete security of the bank note. It is a very remarkable historical fact that after the events of 1848, which
modified the economic conditions of Europe, the only
two banks which were not involved in considerable difficulties were the Bank of Prussia and the Bank of Piedmont. The Bank of Piedmont had a reserve (surplus) of
80,000,000 francs. By the word "reserve" we mean an

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Commission

accumulation of undistributed profits added to the capital,
and invested—like the capital—in government bonds, in
order to constitute a substantial pledge for the holders of
notes.
Q. Is there anything in the law requiring your notes
to be covered either by cash or bills?
A. The Bank of France can only issue notes as against
cash or against statutory discounts or loans. Every note
has therefore its counterpart, either in the metallic reserve
or in the portfolio of discounts or in loans. As these latter operations are subjected to special conditions of security, one can say that the French legislator—as I have
already pointed out to you—gave more thought to the
quality than to the quantity of securities offered to noteholders.
Q. What measures are taken by the Bank of France if it
wishes to increase its stock of gold or to stimulate the
importation of gold?
A. The importation of gold does not need to be stimulated in France. It takes place naturally under the
influence of the position of a creditor which France
always holds toward the principal foreign markets.
Certain intermediaries have sometimes asked us to facilitate their operations of arbitrage in precious metals by
advancing money without interest for the time required
in transportation. We have done so several times by
crediting the importers from the day of shipment, but
this operation, which has its limits in its own conditions,
can not be considered as a premium for importation.
Such premiums, we repeat, would be useless, in consideration of the current importation which normally overabundantly supplies the French market

214.

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France

Q. It is customary elsewhere to advance money without
interest to importers of gold for the time that it takes
in transportation, say, for instance, from New York or
Australia, the time required may reach fifty days; I
understand that you adopt the same policy?
A. It is a question of degree, and we would point out
this difference that inasmuch as our most distant arrivals
come from New York, the time of shipment can never
be nearly so long. However, these facilities are only
granted in periods of complete prostration of exchange.
During all the period of the American crisis the Bank
carefully abstained from granting them. I personally
would have thought it a discourteous act to facilitate,
during a difficult period, operations which might increase
the difficulties of the American market.
Q. Do you rely upon raising the rate of discount to
stimulate the importation and to prevent the exportation
of gold?
A. It is a principle consecrated by experience that the
supreme means of defense for an issue bank, to protect its
metallic reserve, is to raise the rate of discount, and we
never lose sight of this principle. However, the extent of
our reserves allows us to contemplate without emotion
important variations of our metallic stock, and we only
exceptionally have recourse to a measure which is always
painful for commerce and industry. The stability and the
moderation of the rate of discount are considered as precious advantages, which the French market owes to the
organization and traditional conduct of the Bank of
Prance.
Q. Would you like to express an opinion as to why the
Bank of France is able to hold its gold with a bank rate
of 4 per cent when the rates elsewhere are higher?

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Commission

A. The causes of this phenomenon are multiple. Theory
teaches us that capital goes where it can obtain the highest
remuneration, but in considering this remuneration account must be taken of risks; these are numerous and of
different kinds; I mean, of course, commercial risks; risk
of losing on exchange when the capital is brought back,
etc. This at once explains why it is possible in France
to maintain a rate of discount lower than elsewhere.
French capitalists might fear, perhaps, that the higher
interest obtainable outside might be offset or more than
offset by the risks incurred. Account must be taken,
secondly, of the situation always held by France as a
creditor nation, which I have already mentioned, and
which by the constant income of capital which it assures
to us certainly contributes to counterbalance the current
of exportation which might result from the lowering of the
rate of discount.
Q. You believe that the balance of payments in the
world is in favor of France?
A. The purely commercial balance is not always in our
favor, but the balance of payments most certainly is.
Q. In order to discourage the exportation of gold does
the Bank of France sometimes exercise the right it possesses to refuse payment in gold and to offer to pay
its notes in silver?
A. The Bank of France can not, of course, renounce its
right to redeem its notes in gold or in silver, since gold
pieces and silver coins of 5 francs are equally legal tender
in France. But it only uses this right with discretion and
to the extent that it appears necessary in order to prevent
an unjustifiable weakening of its reserves. In no case,
however, whatever may have been said, have we ever

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France

charged any premium on French gold in redemption of
notes.
Q. Does the Bank of France sometimes take steps to
maintain the bank rate by the purchase of bills in the
market or otherwise?
A. No, never. Such measures would appear to us to
be absolutely contrary to the mission of the Bank, which
is to moderate, as much as possible, the conditions of credit.
The accomplishment of what it considers as its own particular task would appear to it incomparably more
desirable than the profits which it might obtain by measures such as those to which you allude.
Q. The tradition and reputation of the Bank of France
make it important that it should held a larger reserve
than any other bank in the world?
A. It is true that France keeps locked up in its Bank a
proportionately larger amount of specie than any other
country, but this policy is not without important compensations. Suppose the French public, changing its
mind, should reduce by one-half its monetary reserve of
which the Bank is the guardian. It would gain thereafter
the interest on perhaps 2 milliards of francs released and
which would have become productive—that is to say, a
saving of from 80 to 100 millions of francs per year at
the maximum—but if one reflects that it would lose
the advantage of the reduced rates of discount which the
extent and character of our reserves enable us to maintain and from which all French production profits; that it
would lose, in addition, the sentiment of absolute security, of complete financial independence, which every crisis
has strengthened, one would be less tempted to conclude—
with certain critics—that the policy of maintaining heavy

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Commission

reserves, the natural expression of the country's instincts,
is an unwise policy from an economic and practical
standpoint.
Q. You have, I believe, no requirement of law by which
the Bank of France is obliged to purchase gold at a certain fixed price?
A. The bank buys gold according to the tariff of the
Mint, but it is not obliged to do so.
Q. Is the Bank of France, so to speak, an agent of the
French Mint to purchase gold and put it in circulation?
A. The Bank of France is more a customer, we may even
say the principal customer, of the Mint. Private individuals, instead of having their money coined for themselves,
find it more advantageous to sell their ingots to the Bank,
which has them coined when needed.
Q. Have you ever made any estimate of the amount of
specie in France?
A. No statistics have been made on this special point,
but every five years a census is made of the currency
at a given date in the state depositories, in the Bank of
France, and in all the large credit banks. This inquiry
allows one to form an idea of the proportion existing between the different instruments of payment circulating in
France, and one is able, by the ingenious use of statistics,
to deduce an approximate estimate of the French monetary
supply. It is generally estimated that the amount of
gold in France is from 5 to 6 milliards of francs (1,000 to
1,200 million dollars), an amount considerably smaller
than that which is generally attributed to the United
States. The Bank of France holds 3,225,000,000 francs
and the remainder is in the pockets of the people.

218

BANK OF FRANCE.
Btlan

de la Banque

de France et de ses succursales

ACTIF.

au 24 dicembre

1907.

PASSIF.

Numeraire et lingots a Paris et dans les succursales
Fr. 3,615,349, 735. 62
Effets echus hier a recevoir ce jour
49,104.05
Portefeuille de Paris
505,749.698.39
Portefeuille des succursales
710, 243,811.00
1.215.993.509.39
Avances sur lingots etmonnaies a Paris_
2,152,000.00
Avances sur lingots et monnaies dans les
succursales
2,152,000.00
Avances sur titres a Paris
188,352,284.24
Avances sur titres dans les succursales._ 389,515,131.00
577.867,415.24
Avances a l'^tat (lois des 9 juin 1857, 13 juin 1878, 17 novembre 1897)
180,000,000.00
Rentes de la reserve
12,980,750.14
99.626,950.08
Rentes disponibles
Rentes immobilisees (loi du 9 juin 1857)
100,000, 000. 00
H6tel et mobilier de la banque et immeubles des succle8_ _
33.290,992.07
Bmploi dela reserve sp£ciale
8,407,444. 16

Capital de la banque
Fr. 182,500,000.00
Benefices en addition au capital (art. 8, loi du 9 juin 1857).
8,002,313.54
Reserves mobilieres
22,105,750.14
Reserve immobiliere de la banque
4,000,000.00
Reserve speciale
8,407,444.16
Billets au porteur en circulation (banque et succursales)
4.800,581,450. 00
Arrerages de valeurs d£pos£es ou transferees
17.105,372.69
Billets a ordre et r6c£piss6s payables a Paris et dans les sle8_
5,032,828.20
Compte courant du tresor
258,036,285.40
Comptes courants et comptes de depots de
fonds Paris
426, 298, 229. 77
Comptes courants et comptes de depots de
fonds s lcs
62,677,837.00
488,976,066. 77
Dividendes a payer
1,528,263.34
R^escompte des effets escomptds non £chus
4,117,461.00
Solde de divers comptes
20,813,040.08
Profits et pertes:
Dividende brut: 93 fr. 750 (net 90 fr.). 17.109.375.00
Allocation exceptionnelle d'un douzieme
de traitement au personnel
990,000.00
Provision pour agrand i s s e m e n t de la
Banque Centrale
,000,000. 00
Dotation aux reserves. , 3 0 0 , 0 0 0 . 0 0
7, 290,000.00
Exc6dent de benefices non reparti
112, 250.46
24,511,625.46

5,845.717.900.75

Balance sheet of the Bank of France and its branches December 24, 1907.
ASSETS.

Coin and bullion at Paris and in the branches.
Bills receivable.
Discounts at Paris
$97, 609, 692
Discounts at the branches.
i37.o77.o55
Advances upon coin and bullion at Paris.
Advancesupon coin and bullion in the
branches
Advances upon securities at Paris
Advances upon securities in the branches -

$697, 762, 499
9. 477
234, 686, 747

415,336
415.336
36,351,991
75, 176, 420

Advances to the government (laws of June 9, 1857, June
13, 1878, November 17, 1897)
Government bonds for the surplus reserve
Disposable government bonds
Fixed government debt (law of June 9, 1857)
Real estate of the bank and branches
Employment of the special surplus (reserve speciale)

i n , 528, 411
34,
2,
19,
19,
6,
1,

740,
505,
228,
3oo,
425,
622,

000
285
001
000
161
638

LIABILITIES.

Capital of the bank
Profits in addition to capital (art. 8, law of June 9, 1857).Movable surplus
Fixed surplus
Special surplus
Outstanding circulation (bank and branches)
Interest collected on securities deposited or transferred
Outstanding checks payable at Paris and at branches
Current account of the treasury
Current accounts and deposit accounts at
Paris
_
$82, 275, 558
Current accounts and deposit accounts at
branches
12, 096, 823
Dividends unpaid
Unearned discount
Sundry accounts
Profit and loss:
Gross dividend: $18.08 (net $17.37).Special allotment of
one-twelfth of salary
to employees
$191,070
Provision for enlargement of central bank
building
965,000
Allotment to surplus. _
250, 900
Excess of profits not divided.

$35, 222, 500
1, 544, 447
4, 266, 410
772, 000
1, 622, 637
926, 512, 220
3,3oi,337
97L336
49, 801, 003

94,372,381
294, 955
794, 670
4, 016, 917
$3, 302,108

1, 406, 970
21, 664
4, 730, 742

1, 128, 223, 555

60481—10

(To face page 218.)

1,128, 223, 155

CREDIT LYONNAIS.
Interviews with Baron Brincard, administrateur delegu6 and
other officials of the Credit Lyonnais.
Q. What is the date of the organization of the Credit
Lyonnais?
A. July 6, 1863. It was organized on that date by M.
Henri Germain, who remained president of the conseil
d'administration (board of directors) up to his death in
1905.

Q. Under what law was it organized?
A. There is no special law; it is subject to the law for
joint stock companies. Our legislation has been changed
since it was first organized. The law which governs the
Credit Lyonnais now is the law of 1867 as amended. We
have no special concession; we are under the general law.
Q. Is it a banking law or a general companies law?
A. It is a general companies law, not particularly a
banking law.
Q. That is, it would cover an industrial company as well
as a bank?
A. Quite so.
Q. How many individuals must associate together to
start a joint stock bank?
A. At least seven. Not only every bank, but every corporation (societe anonyme), must have at least seven shareholders.
Q. What is the minimum amount of capital required?
A. There is no minimum, but at least one-fourth of the
capital is required by law to be actually paid in.

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Q. Is the entire capital usually paid in?
A. No; it depends on circumstances.
Q. Does the Government take any steps to see that at
least one-fourth of the capital is paid in?
A. Strict measures are prescribed by law for carrying out
these regulations.
Q. What is the liability of stockholders?
A. It is limited to the par value of the shares for which
they have subscribed.
Q. Does the Government give any further attention to
the management of the bank .besides requiring an annual
report?
A. No.
Q. How long does your charter run; is it perpetual?
A. The duration of our company, which may always be
extended by a vote of the shareholders, will expire in i960.
Q. How many shareholders have you?
A. Our capital is divided into 500,000 shares, but as
many of these shares are issued to " b e a r e r " we do not
know how many shareholders we have.
Q. What is the amount of a share?
A. Five hundred francs, and they are worth now 1,200
francs on the stock exchange.
Q. Briefly, what is your organization?
A. We have a council of administration composed of
at least 10 and not more than 15 members, one of whom
is president and two others are vice-presidents; we have at
the present time only 12 administrators.
Q. Are the administrators active in the conduct of
the business? Do they devote their entire time to it?
A. Our council of administration has a very direct and
a very active part in the management of the bank. There
are two kinds of administrators; there are t h e ' ' administra-

220

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France

teurs delegues" entrusted with the management of some
special department of the bank, and the administrators
who are not "dengues," and who are not entrusted with
the management of a particular department. It is not
forbidden for an administrator to be also administrator of
some other concern, but every administrator devotes the
largest part of his time to our bank.
Q. The active men are called administrateurs del6gu£s?
A. Yes; there are two of them engaged with the central
management, one with the department of financial studies,
another with the service of foreign branches, another with
the service of the departmental branches, and one of the
vice-presidents and two administrateurs (one of whom is
delegue) are at Lyon in charge of the home office and the
branches of that region. The Credit Lyonnais has a special
organization, because it was founded in Lyon, and Lyon
remains the home office. At first it was developed in the
southeastern part of France, and only later, in 1865, it
created a branch in Paris. Now Paris is the central office,
but we always have the home office in Lyon. Thus we
have, first, in Lyon, the home office of the company and
the management of the branches of the southeastern region; second, in Paris, the central office, with the management of the Paris local offices and the departmental
branches of the north, east, and west. The management of
our foreign branches also centers in Paris. The general
meetings are held in Lyon.
Q. You have, in fact, but one president and two vicepresidents and one council of administration?
A. Yes.
Q. Have you in addition to your council of administration any other board of directors?

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Commission

A. No; the administrators living in Paris meet here
every day.
Q. Is the council of administration composed of shareholders?
A. Each administrator must own at least 300 shares of
the company.
Q. What class of men do you have as members of the
council of administration?
A. The administrators are often old heads of departments. The President has been employed here ever since
the institution was founded. One of the vice-presidents has
been in the bank since 1878.
Q. How often are your elections held and for what period are the members of the council elected?
A. For five years, one-fifth of the total number of
administrators being elected every year; they may be
reelected at the expiration of their terms.
Q. Do your stockholders hold an annual meeting?
A. Yes.
Q. What is the purpose of that meeting?
A. They receive reports of the transactions of the
year, they fix the rate of the dividend, and they elect
one-fifth of the administrators every year.
Q. For what period are the president and vice-president elected?
A. Every year the council of administration select
from among their number a president, two vice-presidents,
a secretary, and the administrateurs delegues.
Q. Is there any restriction under law or under your
by-laws as to loans made to administrators or officers of
the bank?

222

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A. So far as the law is concerned, there is none; but,
as a matter of fact, no director or officer would ever
apply for a loan. They could, but they never do.
Q. How frequently do you publish your statements?
A. Every month.
Q. Are you required by law to do so ?
A. No; that is regulated by our own statutes.
Q. The law requires you to publish an annual statement?
A. Yes.
Q. In your statement of December 31, 1907, you show
cash on hand and in bank of approximately $29,000,000, a
portion of which is in cash in vault and a portion in the
Bank of France.
A. Yes, the proportion between cash in vault and in
the Bank of France is variable.
Q. But this item includes both?
A. Yes.
Q. Do you publish the amount of the cash in vault?
A. No.
Q. Is it customary for you to carry quite a large
amount of cash in your vault ?
A. Every day the amount of cash which is to be kept
here in our vaults is fixed according to the payments to be
made during the day. Sometimes our holdings are greatly
in excess of our forecast for disbursements. This happens
when we do not find ready use for amounts available.
Q. So that you are guided as to the amount of cash in
vault by the character of your daily business?
A. Yes.
Q. You would not carry a larger amount of cash in
vault than required by your daily needs in order that it
may serve as a part of your reserve?

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Commission

A. There is no legal requirement for a reserve in cash;
the bank is quite free to keep the amount of cash that it
judges necessary. It is the practical business experience
of many years which indicates how much cash is needed
for the day.
Q. So the cash in hand is merely carried for the necessities of business?
A. Yes; this is the point on which the French situation
is quite different from the American, because in France
bankers are free to have in their vaults any amount of
cash they like. In France we have the Bank of France
which regulates the currency of the whole country, and
any bank, if it has need for additional cash, may present for rediscount at the Bank of France the bills and
other commercial paper which it has in its vaults. The
amount we carry in the Bank of France may vary greatly
according to circumstances. It is not to our advantage
to have too large a sum at the Bank, because the Bank of
France does not allow any interest.
Q. What per cent of your deposits do you intend to
carry in cash either in your own vaults or in other banks?
A. Eight to 10 per cent on the average. The excess of
deposits is invested almost entirely in commercial paper
available for discount with the Bank of France at any
moment and in "reports'' (loans or securities from one
stock exchange settlement to another).
Q. You have nearly 10 per cent in this statement?
A. That is perhaps more than we need. It is a matter
of practical experience. There is no legal proportion.
Q. Will you describe the character of the items constituting your portfolio of bills discounted which amount to
about $211,000,000?

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France

A. The bills discounted are commercial or industrial
bills, representing normal transactions and bearing satisfactory signatures as drawers, drawees, and endorsers.
Q. With two names or more?
A. Always at least two, often three or four signatures;
but never only one.
Q. What is the size of your bills discounted?
A. It is very variable; the average is perhaps about 600
francs.
Q. While you do not accept a bill with one name, you
sometimes arrange with your customers to extend credit
to them without guarantee, or without collateral, and
that appears in your current accounts?
A. Yes; that is quite right. A small proportion of our
accounts current is granted without any special guaranty.
This is what we call "credits a decowvert."
Q. Can you give us an estimate as to the average life of
bills discounted?
A. The average maturity of the paper which we purchase daily is about 55 to 60 days. The average maturity
of the bills which we hold at a given moment is about 45
days. It must be borne in mind that our holdings comprise bills discounted three months ago as well as bills discounted yesterday.
Q. Does the Bank of France rediscount bills for the
other banks in France?
A. The Bank of France rediscounts all bills when the
person presenting the bill is admitted to discount and
when the bills have the necessary three signatures, have
less than three months to run, and are payable in cities
where the Bank has a branch. It is not legally obliged to
discount all bills presented, but, as a matter of fact,
nobody has ever complained of its way of proceeding.
60481—10

225

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Monetary

Commission

Q. If the Credit Lyonnais were to take bills to the Bank
of France for rediscount, would the Bank of France
scrutinize those bills beyond the number of signatures
and the time they have to run?
A. It would scrutinize the number of signatures and the
time. In every branch of the Bank of France there is a
committee called the discount committee, which is charged
to make inquiries as to the quality of the industrial and
business men of the region, and on their advice those persons are or are not admitted to discount. When once a
person is admitted to discount the question of his credit is
not raised every time that he presents a bill for discount;
but if he should offer too many bills the Bank would doubtless call his attention to the fact. In practice no one has
ever complained that the Bank of France would not discount a normal bill presented by a proper person.
Q. As a matter of fact, bills offered by the Credit
Lyonnais would not be investigated very carefully?
A. No.
Q. You regard that item of bills discounted as your
practical reserve because of your ability to rediscount the
bills at the Bank of France?
A. Yes; bills discounted and cash are, for an establishment such as ours, the most essential part of our liquid
assets.
Q. Does the Bank of France often discount for private
parties, or do most of their bills come from the credit
societies?
A. The Bank of France discounts both for individuals
and for credit societies; we do not know exactly in
what proportion. But, in either case, there must be three
commercial signatures—those of the drawer, the drawee,

226

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France

and the endorser. In place of one of those signatures,
however, stocks or bonds may be deposited as security.
Q. I^et us take up the question of discount rates. Do
your large banks follow the Bank of France rate?
A. We have two discount rates in France—that of the
Bank of France, which is the official one, and then the
rate outside of the Bank of France. At the present
moment our discount rate is i per cent, the official
rate being about 3 per cent.
Q. Does the Bank of France ever loan below its published rate?
A. No; it never does.
Q. In this item are there to be found only bills discountable at the Bank of France?
A. Yes, in the main; but some bills are drawn on places
"not bankable," and those we call "papier deplace."
Q. Included in this item are certain public securities.
Are these French rentes?
A. No; only treasury bills. They are like your New
York city revenue bonds.
Q. Have you actually in this very item any New York
revenue bonds?
A. Yes; they are temporary bonds in anticipation of
revenue, repayable in one or two months. Also, we have
treasury bills of foreign countries.
Q. How many New York City revenue bonds do you
carry?
A. Sometimes two or three million dollars.
Q. What proportion of your portfolio is commercial
paper?
A. It is almost entirely commercial paper. The proportion varies, but it is always very largely commercial
paper.

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Commission

Q. It is not, I believe, the policy of your bank to buy
public securities in large amounts?
A. No; our idea is to buy all the commercial paper that
we can get. That is our business. At present it is
almost impossible to get any commercial paper because
business is so slack; therefore, we are obliged to go outside
and buy treasury bills.
Q. Do not the French public own most of the French
rentes?
A. Yes.
Q. You show about $57,000,000 of loans on collateral.
What classes of securities are accepted for these loans?
A. Government bonds, railroad stocks, mining stocks
like the Transvaal stocks, etc., etc. We advance money on
every sort of security that is good, whereas the Bank of
France is restricted in this regard, only being able to lend
on French government securities, on French railroads, and
on certain securities issued by the departments, communes,
and municipalities. The main thing with us is the man or
institution to which we are lending. We pay at least as
much attention to that as to the security.
Q. How much margin do you require, say, on a railroad bond?
A. For a French railway bond about 20 per cent; in
general, 30 to 40 per cent; it depends upon the collateral,
upon the individual to whom the loan is made, and upon the
condition of the market. The better the individual and
the better his collateral, the less margin is asked; but we
always require at least 20 per cent. That is the margin
that is required by the Bank of France for the securities
upon which it is authorized to lend.
Q. Are these loans made mostly in Paris?

228

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France

A. An important part is made in Paris, but all of our
branches make such loans.
Q. Do you loan to stock brokers generally?
A. We use large sums on the Bourse for operations called
" reports/' and for which one of our guaranties is the
broker through whom the transaction is made. On the
Paris Bourse all brokers are responsible for each other.
Q. Will you please describe the transaction called
a "report?"
A. A "report" consists of a purchase of a security for
cash and a sale on account simultaneously through a
broker on the exchange. The difference between the
price of the purchase and the price of the sale for future
delivery covers the interest for carrying and the profit to
the bank. For certain securities which are not quoted on
the Bourse the purchase is made through the "coulisse"
(on the curb).
Q. How does the rate on loans compare with that on
bills?
A. It varies; it depends upon the condition of the Bourse
and upon the kind of stock or bond given as security.
Q. Take a first-class bill and a first-class loan of the
same maturity, what would be the difference in the rate?
A. Generally, at the Bank of France, the rate for loans
on collateral is one-half per cent above the discount rate,
but in the private banks there is no rule; they fix the rate
according to the condition of the market.
Q. But in practice it is customary to charge a little
higher rate than on prime bills?
A. Yes.
Q. Do you receive a good many collateral loans from
small customers?

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Monetary

Commission

A. Yes. Our loans are greatly distributed. They are
granted to a great many people. A single loan may be
made against assorted collateral.
Q. About what is the average time of these loans?
A. It varies. They never exceed three months, and
generally they are granted for a month.
Q. Accounts current, about $i 10,000,000; will you kindly
describe that item?
A. They are credits given to customers and to banks;
some are given with security and some without.
Q. When you say security do you refer to guarantors?
A. We mean either stocks or bonds, or merchandise and
occasionally guarantors.
Q. Are advances made to your customers on their own
credit?
A. If they have a credit open at the bank, when they
ask for a certain sum, they are debited for that sum in
their current account; this is quite a different operation
from the discounting of a bill. It is called "credit &
dicowvert"
Q. You have, for instance, a customer who wants to
borrow 100,000 francs; you have confidence in him and
believe he is good; you open an account with him and
credit his account with 100,000 francs, and that would go
in that item?
A. We would not have any book entry for the credit
of 100,000 francs; only as he gradually avails himself of
the accommodation the sums for which he draws will be
debited to him up to the 100,000 francs.
Q. Are these overdrafts?
A. Yes. They are overdrafts.
Q. Well, now to make this clear, I come here and
arrange to borrow 100,000 francs to be drawn upon as I

230

Interviews

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France

want. I draw the next day 10,000 francs; you would
then open an account with me and my account would
show a debit of 10,000 francs?
A. Yes.
Q. So that in fact they are what we would call overdrafts; they are funds advanced with or without security?
A. There would generally be security; it is only with
very good customers and exceptionally that securities are
not required.
Q. What is the distinction between your bills discounted and your current accounts?
A. The bills discounted can be rediscounted at the
Bank of France. They bear several signatures which
represent as many guarantees.
Q. What class of people are represented by the "comptes courants " and what by "avances sur garantieV
A. In a general way loans on securities are made to
individuals; comptes courants are opened to merchants
and manufacturers, but this distinction is by no means
absolute.
Q. Why should merchants borrow on demand?
A. This class of loans occurs only for a short time during
the busy season. Our theory is that every merchant
ought to have enough capital to go on by himself in normal
times, but there are times in the busy season—say three
or four months—when he will need more capital, and
then he comes to us and we lend him money under this
item.
Q. To what kinds of banks do you lend on collateral?
A. Mostly foreign banks; for instance, banks in New
Orleans during the cotton season. We do not lend to
banks in this country under this item, but to a great many
French merchants. It is not to our interest to lend to

231

National

Monetary

Commission

French banks. We lend money to foreign banks and
to French merchants, but never to foreign merchants or
to French banks. We never lend on real estate. That is
the business of the Credit Foncier.
Q. For how long can a credit be opened in account
current?
A. For three months at the most.
Q. Is there any relation between the accounts current
on the two sides of the balance sheet?
A. No.
Q. In your statement you show stocks and bonds
approximately $1,600,000. Will you kindly describe the
character of the securities included in this item?
A. About one-half of that item represents securities
deposited as a "pledge," for instance for our foreign
agencies; the remainder represents bonds which are to be
sold to the public who come to buy them, such as bonds
of the city of Paris, bonds of the Credit Foncier, and
generally premium bonds. We purchase new lots of these
securities, as we dispose of them in order to keep a supply
at the disposal of the public.
Q. Do you not usually carry a much larger amount of
securities than is shown by this statement?
A. No.
Q. Our information is that the Credit Lyonnais
always endeavor to have a certain class of securities
which they can recommend to their depositors, and
that their recommendation is practically equivalent to
a sale, and that they sell an enormous amount of securities and at times undertake large issues. Can you state
the largest issue that you have recently purchased?
A. There are two kinds of such operations; first, when
the Credit Lyonnais is alone interested in the operation;

232

Interviews

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France

and second, when others of the Paris bankers are interested
with us. The largest recent issue, in connection with
other bankers, was the 5 per cent Russian loan of 1906 of
1,200,000,000 francs ($240,000,000). What is very important in our way of floating a loan is that the sales are made
in small quantities; the transaction is completed in a very
few days, and each of our customers buys only the number
of bonds corresponding to his investment requirement.
Q. As a matter of fact, anything you recommend they
will buy?
A. Yes, and even with a very large issue; the bonds do
not remain long in the market, because in our country
savings are very extended. Everyone saves his money.
The small savings of France are the wealth of the country.
By examining the balances of the accounts of our customers
we can know whether they want to invest or not, and then
we endeavor to have stocks and bonds to offer to them as
they require them, but this is variable, and sometimes we
might have a large issue, 40 or 50 millions of francs, taken
by the public in four or five days.
Q. In America we have large distributing houses, who
sell bonds throughout the country. Our information is
that the banks here do practically all of that class of
business and that there are no bond houses; is that so?
A. In the United States and in France there are
establishments which make large issues, but in America
they do not sell stocks and bonds to the customers
direct; they have brokers who sell to their own
customers. In France these investments are made
through the agencies of large companies, such as the
Credit Lyonnais, which extend over the whole area of
France. This can be done because over the whole of
France there are savings. Everybody saves here.

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Commission

Q. Do you own all of the securities you sell, or do you
take orders and buy and sell them on commission?
A. The greater part of our transactions are made on
commission.
Q. Will you kindly name three or four of your most
recent offerings?
A. The Credit Foncier d'Egypte, the Metropolitain of
Paris, the Credit Foncier de France, and le Creusot. This
year they have been more especially French issues.
Q. Is the Metropolitan Railway guaranteed by the
city?
A. No; it is a private corporation not guaranteed by the
city.
Q. Might you offer the securities of a manufacturing
concern?
A. Yes; we have, for instance, recently made an issue
of bonds of the Coal Company of Dourges.
Q. You sold their bonds?
A. Yes; and the Creusot bonds—30,000,000 francs.
Q. Have you a fixed percentage of profit, or do you
buy them as you can and sell them at a price satisfactory
to yourselves?
A. Naturally the commission varies.
Q. Are you familiar with the requirements of the
Bourse as to the listing of securities?
A. There are two markets in France, the official or
brokers' market (the broker is an official named by the
Minister), and the coulisse market (the curb). We will
furnish you a copy of the rules which are imposed for
admission to the list in both markets. For admission to
the official quotation list, the stockbrokers must ask for
the authorization of the Government.

234

I n t e r v i e w s
Q. What

constitutes

—

France

your item "sundries''

about

$260,000?

A. These are expenses incurred up to December 31, but
concerning the following year.
Q. In your statement of liabilities you show deposits about $132,000,000, and current accounts about
$168,000,000. Will you kindly explain the difference
between these two accounts?
A. Deposits are sums of money deposited, especially
by private people. Accounts current represent the balances to the credit of business people.
Q. If I come here and open an account with you and
make a deposit and say I want to transact business with
you, borrowing money from time to time, and depositing
and drawing daily, would you put that account in your
" accounts current ?"
A. If you were not a merchant, you would have a deposit
account opened for your daily deposits and drawings. Your
account could never show a debit balance and the amounts
which you might borrow would have to be secured by deposit of securities and would be placed under the item
"loans on securities." If you were a merchant, an account current would be opened for the requirements of
your business, and this account could become debtor, as
explained above.
Q. Are most of your deposits received from your
branches?
A. Paris gives about one-third of the current accounts
and almost one-half of deposit accounts.
Q. Do you pay the same rate of interest on deposits and
current accounts?
A. No, on deposit accounts one-half per cent, and on
current accounts it depends on the rate of discount at the

235

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Monetary

Commission

Bank of France and in the open market; as an average, if
per cent under the rate of the Bank of France.
Q. What is the minimum amount for an account?
A. There is no minimum amount either for an account
current or for a deposit account.
Q. Some of the deposits are on time?
A. They are all on demand under this heading.
Q. You do not receive any deposits on time?
A. We receive deposits on time, we give a certificate
for them, they are not included in those figures, and
they are not classed as deposits.
Q. Deposits and current accounts are payable on demand?
A. Yes; on demand. Deposits are made up of sums
deposited by customers whose accounts are not active;
they are more in the nature of reserve deposits, whereas
current accounts represent deposits made by customers
mostly in active business.
Q. Do you allow the same interest on deposits in Paris
that you do in your branches in small country towns?
A. It is about the same; there are very few differences.
Local conditions may sometimes be taken into account,
but the difference is trifling.
Q. Do you pay interest on practically all of your deposits and current accounts?
A. Yes.
Q. What do your time certificates, $9,600,000, represent?
A. They are sums deposited with the establishment for
a certain time.
Q. What rate of interest do you usually allow upon these
deposit certificates?
A. It varies.

236

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France

Q. Are they ever sold in the market?
A. No.
Q. About what is the usual time?
A. Six months, one year, eighteen months, or two years;
generally six months.
Q. You receive money for a period at a higher rate of
interest?
A. The rate of interest paid on these certificates is higher
than for the deposits payable at sight.
Q. Would you charge a customer having a small
inactive balance for the stationery you furnish him—his
check book?
A. No; only for the stamps.
Q. Do your acceptances, $25,500,000, represent the bills
drawn upon you by your customers and accepted by you?
A. Yes.
Q. What is the commission for accepting bills?
A. That commission varies. It is about one-quarter of
1 per cent; sometimes three-sixteenths per cent.
Q. For a three-months' bill?
A. They are generally for three months.
Q. Is it customary for the banks to show in their
statements the amount of bills that they have rediscounted with the Bank of France?
A. No.
Q. What is included in the item of sundry accounts of
a b o u t $1,400,000?

A. Expenses incurred during that year but the payment
of which will only take place the following year, the rediscount on bills, etc.
Q. How many branches have you?
A. 266; 54 in Paris and 212 outside. In 1898 the total
number of branches, including Paris and outside, was 214.

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Q. Have most of these branches been organized by you
as new branches, or were they established banks which
were taken over by you?
A. They have been established by us.
Q. How are the managers of branches appointed and
what are their powers?
A. The managers of the branches are appointed by the
Council of Administration, and they are empowered to
transact all ordinary business, but, of course, they are
controlled by the management of the group of branches to
which they belong.
Q. Do you have branches and then subbranches from
them, or are all of your branches of like character?
A. Sometimes two or three branches are under the direction of a principal branch.
Q. What is the system of audit and examination practiced by the bank in these branches?
A. There is a special service of inspectors for each group
of branches, who visit every branch without warning, and
they examine all the accounts of the branches. These
examinations of accounts are very thoroughly made.
Moreover, the central office also sends inspectors who work
independently of the others.
Q. Have you branches in many places where branches
of the Bank of France are also located?
A. Yes; but our branches are not all in places where
the Bank of France has branches. The Bank of France
has been obliged by the law to open branches in the capitals
of each department, and these capitals are not now all of
them centers of industry, whereas we have established
branches wherever there is an industrial center. Thus
we may have branches where the Bank of France has
none, or vice versa.

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Q. Do you find that the Bank of France competes with
you in any way?
A. In no way.
Q. They receive accounts from individuals and small
tradesmen in the branches, do they not?
A. Yes; but they do not grant uncovered credits.
There is no competition between the Bank of France
and the other banks, because they do not do the same
kind of business. The Bank of France receives deposits,
but does not allow interest upon them; it only discounts
bills with three signatures; it is the bankers' bank; it acts
as the regulator of the money market.
Q. Do its branches receive deposits?
A. Yes; they receive deposits, without allowing any
interest. In times when money is cheap the rate of discount of the Bank of France is rarely below 3 per cent,
and in the Credit Lyonnais and other banks the rate may
be sensibly below that of the Bank of France.
Q. The rate of your branches is sometimes higher than
the rate of the Bank of France?
A. For discounts, rarely. At present it is much below.
There would be competition between the Bank of France
and the other banks if the Bank of France had a very low
rate of discount, but as a matter of fact it does not lower
its rate. For loans on collateral the Bank of France only
accepts certain classes of securities, and all other classes
of securities are left for the other banks.
Q. Why should the Bank of France have a branch in
a town where you have a branch?
A. The Bank of France is obliged by law to have
branches in certain places. In many towns there is a
branch of the Bank of France and also a branch of the

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Credit Lyonnais, but the services rendered by the ttwo
establishments are different.
Q. Can you tell us what proportion of the bills discounted by the Bank of France bear the signature of another bank?
A. We have no data permitting us to give you that
information.
Q. What is the proportion of "reports" to your advances?
A. It varies very much, according to the rates, money,
and the requirements of the stock exchange.
Q. Do you publish the number of the accounts you
have?
A. Yes; 458,353, according to our statement for 1907.
Q. Can you state the number of employees in the Credit
Lyonnais?
A. About 14,000. It varies according to the time of
year.
Q. I assume that there is a comparatively small number of country checks in circulation?
A. Yes; very small compared with yours in America.
Q. If you were to receive a check drawn on the Comptoir d'Escompte of Lyon, would you send it to your branch
in Lyon for collection, or would you send it to the Comptoir d'Escompte here in Paris?
A. It would be sent to Lyon.
Q. Do you use the Bank of France for transferring your
funds to any considerable extent? If you want to make
a payment in Rouen would you make it through your
branch or through the Bank of France?
A. We often avail ourselves of the Bank of France to
send funds to our branches; but payments within the city
are effected through our branches.

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France

Q. Are all of the important banks in the city of Paris
members of the clearing house?
A. Yes; about 13 of the most important.
Q. How frequently are the clearings made?
A. Three times a day. As a matter of fact, our clearing
house is not so important as yours in America.
Q. The clearing houses in the cities of France are in no
sense a factor; they are merely the machinery through
which the checks are cleared, are they not?
A. To our knowledge there is but one clearing house; it
is in Paris and is merely a mechanism for settling balances.
Q. Are there statistics showing the aggregate amount
of deposits and liabilities of banks that are members of
the clearing house?
A. No. It would be impossible to prepare them, because there are private banks that are members of the
clearing house who do not publish any balance sheet.
Q. Are you examined at any time and in any way by
the Government?
A. No. The control of the Government is limited to
the supervision for taxes, to which every company is
subject.
Q. What dividend do you pay?
A. Fifty-five francs for a share of 500 francs. The par
value of the stock is 500, so that the dividend is equal to
11 per cent.
Q. What is the market value of your stock to-day?
A. 1,206 francs, coupons detached.
Q. On about a 4 ^ per cent basis?
A. Yes; about that, from which taxes must be deducted
(except the stamp tax which is borne by the company,
unless there is an agreement to the contrary).
60481—10

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Commission

Q. The stockholder receives 11 per cent on the par value,
and from that he has to pay to the Government a tax?
A. Yes, there are three taxes: A stamp tax of 0.06 per
cent on the par value of the share; an income tax of 4 per
cent for a share paying 5 per cent—this would be 20 centimes per cent; and the transmission tax, which is a tax
collected on sales and purchases. It is paid when there is
a change of ownership in the registered shares, and its
amount is 0.75 per cent on the transfer price. It is collected
yearly on the ' 'bearer*' shares at the rate of 0.25 per cent
of the average market price during the preceding year. In
case of bonds issued below the par value there is a fourth
tax on the premium of reimbursement; that is, the difference between the issuing rate and the nominal rate, which
is paid once for all at the time of reimbursement. It is 4
per cent of the difference. All these taxes are collected
on foreign securities, issued by towns or companies, and
that is one reason why American securities are not easily
introduced in our markets, because they must pay all of
these taxes, and that makes it a large charge.
Q. A stockholder, owning one share of your stock, would
receive 55 francs at the end of the year; he would have to
pay to the Government approximately 5 francs?
A. The stamp duty is generally paid by the company;
the income tax is at the charge of the shareholder. The
dividend for 1907 was 55 francs, or for a bearer share net
50.47 francs, and net 52.80 for a registered share.
Q. Approximately, what taxes does the Credit Lyonnais
pay?
A. The tax on real estate (impot foncier); the tax on
windows and doors; the license tax {impdt sur patente);
the tax on its shares. The Credit Lyonnais, as well as

242

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France

any other company, pays in advances the taxes due by its
shareholders (for instance, the income tax on shares and
bonds), and deducts the same from the coupon, as all other
companies do.
Q. In New York a bank pays about i per cent on its
capital and undivided profits. Have you in mind the
percentage that the total taxes aggregate?
A. No; but the total of taxes paid by the Credit Lyonnais certainly represents a larger amount.
Q. Your relations with the Bank of France are very
intimate and cordial, are they not?
A. Yes.
Q. Is that true with all the banks in France?
A. The Bank of France is quite impartial; it gives no
preference to anyone; there is no favoritism.
Q. What would you say are the particular functions of
the Bank of France aside from the note issue?
A. It regulates the rate of discount and in the exercise
of its functions it automatically distributes the money in
the country where it is required, and this r61e is perhaps as
important as that of regulating the rate of discount. The
Bank of France discounts bills in every part of the country,
and it gives notes, gold, and silver in the proportions that
they are wanted in every part of the country. It is the
public itself which indicates the distribution of the money
in France by presenting bills for discount, and by asking the
Bank of France for the kind of money it needs, and turning
in the kinds it does not need. The Bank of France does
not assure the distribution of the small coins, and it often
happens that this small money is insufficient in different
parts of France, but this has never been the case for other
currency, viz, notes, gold, and silver.

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Commission

Q. Your fractional currency is issued by the Mint?
A. Yes; and is sent to the provinces by the Government, and it is sometimes difficult to know what amount
will be required.
Q. Which is the most important factor in taking care
of the business requirements of the interior of France,
the large Paris banks through their branches or the
private country banks?
A. In most towns the branches of the important Paris
banks are more important than the private banks. With
their whole network of branches they have equalized the
rate of discount for the whole territory.
Q. Is the banking system of France centralized in
Paris?
A. Yes, as far as the management of the great financial
institutions is concerned; but there are several important
banks in certain industrial centers.
Q. Have there been any suggestions of change in the
system of the Bank of France, or is it regarded as satisfactory?
A. We regard it as the best system in the world.
Q. What proportion of the business of France is done by
checks and what by actual money?
A. I do not know.
Q. I understand none of the farmers or peasants will use
checks?
A. The use is extremely rare.
Q. How about your tradesmen all through the small
towns, and the doctor and lawyer and professional man;
would they draw the money out and pay their bills in cash?
A. Certainly; most of them.
Q. How about the pay rolls of manufacturers?
A. Always in money.

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France

Q. How do you pay your own employees?
A. Always in money.
Q. When you establish a branch in a small town, you
generally find a local independent bank there. Can this
local bank compete with you?
A. There are certain places where the private banks
have kept on, but the tendency is for the private banker
to disappear. We take small sums and have numerous
branches. One great distinction is that the private
bank is always in the hands of a family. A man who
originally starts a private bank may be a good banker,
financier, and business man, but it does not always
follow that his son, who in all likelihood will inherit the
business, will be capable of running it. Our joint stock
banks do not go from father to son, but are always under
efficient management.
Q. What proportion of your own payments are made
in gold?
A. A very small proportion. The people prefer notes.
Q. Do the French people hoard money as much as
formerly?
A. No; it is becoming more the custom to put money
in the banks. Thirty years ago they kept the money at
home.
Q. Then people are hoarding money less as banks and
branches increase?
A. Yes.
Q. Have you ever had any runs on any of your branches
by depositors?
A. Several times, particularly when there was a panic
here many years ago, caused by the failure of the Union
G6nerale. In 1889, when the Comptoir d'Escompte

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Monetary

Commission

failed, the people drew out 80,000,000 francs from our
bank, but the next day they brought back 120,000,000
francs.
Q. Are there any small joint stock banks in the small
towns?
A. In the small towns there are very few.
Q. How about the larger cities, like Lyon?
A. There is one in Marseille and one in Lyon, but the
business is comparatively small and there are no branches.
Q. Do merchants and manufacturers in the small
towns favor the branch banks, or do they prefer the
local banks?
A. The field covered by the two is entirely different.
The private banks lend on anything—houses, furniture,
etc. We will not lend on anything that is not immediately realizable.
Q. Do you add new capital when you establish new
branches?
A. We have gradually enlarged our capital from 200
million to 250 million francs, and our reserves to 125
millions, in all 375 millions, but this was on account of
general business and not on account of the opening of new
branches.
Q. Are the managers of your branch banks usually
people from the immediate locality in which the branch
is situated, or do you send men from the central office as
managers?
A. We generally take our employees from some other
place than that in which the branch is located.
Q. Do the three great joint stock banks cooperate in
the matter of rates of discount or do they have any agreement or understanding about such matters?

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France

A. No; they never consult with each other in any way.
They are on very good terms, but they do not consult
together. There is no agreement on rates of discount.
The mere fact of competition compels each of them to
offer the most favorable terms possible.
Q. Would these joint stock banks like to have the right
of note issue restored to them?
A. They never had it and they consider that the system
of note issue by the Bank of France is by far the best for
this country.
Q. Is there any sentiment among the people for any
change in your banking system along any lines?
A. We feel that the public appreciate the present financial organization of their country and do not desire any
change. The joint stock banks were created for and have
accommodated themselves to the needs of the people of
France.
Q. Do you keep large amounts of money in your
branches, or is it your policy to bring the money from the
branches to Paris?
A. Our branches keep on hand sufficient cash for their
current daily requirements. In case of need, they may
ask us for remittances or rediscount some of the commercial paper they hold with the branch of the Bank of France.
We keep one-fourth of all our cash in Paris.
Q. To what extent do managers of the branches make
loans on their own responsibility?
A. Every one of our branches is a complete little bank
in itself with regulations of its own, and the managers do
not consult much with the main bank. They are completely equipped as banks on their own account.
Q. Do they keep their own deposits?

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Commission

A. In the country districts they keep an important part
of their deposits in cash and bankable bills, but in Paris
they send their money to the main bank.
Q. Are they able to loan all of their deposits in the
country?
A. There is no relation between their deposits and their
loans; these loans, that is, advances against collaterals,
or in account currents, are made almost exclusively with
our capital, our reserves and the time deposits: We distribute these funds to our agencies according to the requirements of their clients.
Q. The elasticity in your system is furnished by the
note issue of the Bank of France?
A. Yes; the Bank of France is the basis of our banking
system, and banks to rediscount, our organization presents
a maximum of safety.

248

CREDIT LYONNAIS.
Credit Lyonnais,

Risumi du Bilan giniral difinitif au 31 dicembre, 1907.

ACTIP.

PASSIP.

Especes en caisse et dans les banques
Portefeuille
Avances sur garanties et reports
Comptes courants
Portefeuille titres (actions, bons, obligations et rente)
Comptes d'ordre et divers
—
Immeubles

Total

-Pr.150,060, 798.98
1,094,966,467. 70
297,155,630.58
568,448,897. 90
8, 280, 206.97
1,342,578.84
35,000,000.00

2,155.254,580.97

Depots et bons a vue
_
Pr. 682,082,403.06
Comptes
«
. courants.
._
871,953,524.01
Acceptations
132,203,529.05
Bons a €cheance
__
50,115,293.43
Comptes d'ordre et divers,
7,319,983.81
Profits et pertes "b£n€fices de l'exercice 1907''
34,110,630.05
Solde du compte "profits et pertes" des exercices antdrieurs.
2,469,217.56
Reserves diverses
125,000,000.00
Capital entierement versd
250,000,000.00
Total .

2.155.254.580.97

Balance sheet of the Credit Lyonnais December 31, 190*7.
ASSETS.
Cash on hand and in the b a n k s .
Bills discounted
Loans upon collateral
Current accounts
Stocks, bonds, certificates, etc__
Sundry accounts
Real estate

Total-

60481—10.

LIABILITIES.
$28, O 6 T 7 3
2x1 328 528
57 35i 037
1 0 9 710, 637

1 598, 0 8 0 j
2 59, 1 1 8

6,755, 0 0 0
415. 964. 134 I

(To face page 248.)

Deposits and sight drafts
._
Current accounts
Acceptances
Time deposit certificates
Sundry accounts
Profit and loss (from operations of 1907)
Balance of profit and loss from earlier yearsSurplus
Capital paid in
Total-

$ 1 3 1 . 641, 904

168, 287, 030
515,281
25, 672, 252
9. 412, 757
1 , 583.351
6, 476, 559
125, 0 0 0
24, 250,
000
48,

4x5. 964.134

COMPTOIR D'ESCOMPTE.
Interview with M. Ullmann, Director of the Comptoir
d'Escompte.
Q. One of the things that we have in mind is to inquire
in regard to the character of the business done by your
branches. What kind of advances or loans do you make,
and to what class of people, and what is the general average rate which you charge them? Do you advance money
in your small agencies or branches to farmers?
A. To farmers? No.
Q. To small tradesmen?
A. Yes. We are especially a discount bank and our
customers are mostly commercial people engaged in commerce and industry, so that our principal business in our
branch offices consists in discounting commercial paper,
in making advances against securities, goods, or warehouse receipts, or sometimes giving blank credits to our
customers for commercial requirements.
Q. Do you require those to whom you make advances
to keep an account with you; i. e., to have a certain
amount on deposit?
A. They are customers who deposit with us all the
year round. It is not usual in France to keep a certain
amount on deposit without interest.
Q. Do you charge those customers for the turnover, as
they do in England?
A. We generally do not charge a commission for the
turnover. The terms of our advances are above the rate
of the Bank of France—i to 2 per cent above the bank rate;

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Commission

when the bank rate is 3 per cent, we would charge 4 to 5
per cent. I may mention that the Bank of France has
two different rates—the rate for discounting commercial
bills, which is now 3 per cent, and the rate for advances on
securities, which is now 4 per cent. The Bank of France
advances on government securities or railway bonds
guaranteed by the French Government. We are not limited, as the Bank of France is, and we advance as well on
foreign stocks. On the basis of that kind of security we
charge somewhat more than the Bank of France.
Q. Would you charge a small tradesman, say, in one
of your smaller branches a higher rate of discount than a
man to whom you were advancing a large sum in Paris?
A. There might be a small difference, but not much.
The Bank of France admits only for discount commercial
bills with three signatures—the drawer, drawee, and an
indorser; private banks like ours accept two names on
bills, only the drawer and drawee, and the bill is drawn
to our order, so that we have only two signatures when
the Bank of France requires three; we add the third signature if we discount the bill at the Bank of France, so in
addition to the Bank of France's discount rate we add a
commission of our own for the service we render in indorsing the bill.
Q. Take the account of a small tradesman who does
not borrow; his account is not a very large or very active
one; when you receive that account do you arrange that
he shall pay you a certain percentage on his turnover to
compensate you for carrying that account?
A. Generally we do not charge any commission on the
turnover of simple deposits in current account.
Q. But do you pay him any interest?
A. A very low interest.

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France

Q. How much?
A. Our rule is from one-half of i per cent to i per cent
or call money.
Q. That is, money payable on demand?
A. Yes.
Q. Is that the same in the country as in the city?
A. As a rule, yes; but in the provinces money is sometimes at a somewhat higher rate because the local private
banks generally pay somewhat higher rates, so in the
provinces we are sometimes obliged to follow the private
banks in paying a better rate of interest.
Q. Is it customary for you and for other banks in
France to charge your customers for the check books
that you give them?
A. No; only the stamp duty.
Q. The deposit account on your statement includes
two classes. We do not understand the difference
between them—"comptes de cheque'' and "comptes
d'escompte."
A. The comptes de cheques are what you have been
asking about, sums deposited at call, subject to check
from private people or commercial people who do not
discount with us. The comptes d'escompte are generally
the proceeds of discounted paper, but comptes de cheques
are simply deposits. They are put together because they
are both payable on demand. Comptes courants crediteurs are accounts with our customers in the provinces
and abroad.
Q. Subject to check?
A. Yes; they are the accounts of banks.
Q. Of French banks?
A. Yes.

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Q. But not of mercantile firms?
A. Yes; mercantile firms abroad, accounts of other
banks, and foreign firms.
Q. Are those deposits of foreign firms in your foreign
branches?
A. In Paris also.
Q. Is there any difference in the treatment of those two
items; are they both subject to payment on demand?
A. Yes; the accounts of our foreign correspondents are
ruled by special conditions; we have different terms for
New York firms for doing their business in Paris.
Q. You pay interest, I suppose, on some of these deposits?
A. Yes; as I told you, on simple deposits, which do not
yield any other sort of profit than the employment of the
funds, we give from one-half of i per cent to i per cent;
comptes d'escompte, which give another profit by the discounting of bills, are generally treated somewhat on more
advantageous terms.
Q. How much do you pay in the provinces?
A. The same, with some exceptions, as I told you,
where we are obliged to take into consideration the competition of the local bankers.
Q. If the Bank rate should be 4 per cent during the
whole year, would you probably have to pay more than
one-half of 1 per cent on deposits?
A. When the Bank of France rate goes as high as 4 per
cent the conditions of the market are somewhat abnormal;
we would be obliged to pay more interest on our deposits.
Q. Will you explain what is meant by "bons a 6ch6ance
fixe?"
A. Time deposits for one, two, or three years.

252

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Q. You pay something on them?
A. We pay up to 2 per cent for one year, 2\ per cent for
two years, and 3 per cent for three years.
Q. Have you any idea of the proportion of the small
accounts that you carry?
A. No.
Q. Does your general report state the number of accounts?
A. Including comptes de cheques, comptes d'escompte,
and comptes cr6diteurs there are about 100,000.
Q. Please explain comptes debiteurs par acceptation.
Are they bills drawn on you and accepted? Do you
usually require securities on those acceptances?
A. Yes, except for first-rate foreign banks.
Q. Do you charge your customers for accepting their
drafts?
A. Yes, a commission; the usual rate is one-fourth
per cent for three months.
Q. You loan your credit, you do not furnish them the
cash?
A. Our foreign correspondents prefer to draw on us,
taking our acceptances in place of cash. You see, the New
York banker who draws on us and pays us one-fourth
per cent when discounting here gets his money at about
3J per cent; we would not loan him money under 4J per
cent.
Q. Who passes on these securities and where are they
held?
A. Generally the securities are held here. We have
no branch in New York, but we have an agent there who
passes upon the character of the securities, and sometimes
they are deposited with New York trust companies.

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Commission

Q. These bills may be discounted here at the Bank of
France?
A. Yes; certainly.
Q. At some of the other banks also?
A. We discount acceptances of other banks and they discount bills of ours.
Q. They would not be likely to be discounted in New
York, Belgium, or London?
A. Yes; they might be discounted there.
Q. What percentage of these bills are of foreign
origin?
A. About 75 per cent of them are foreign.
Q. The first item in your statement of assets is especes
en caisse et en banque. Do you make a statement or
report showing the relative amount of cash in hand or in
bank?
A. No; we consider our balances in the Bank of France
as money. The Bank of France is obliged to give us
cash or Bank of France notes.
Q. What is included in the next item—portefeuille?
A. They are commercial bills of various classes.
Q. Is the average of bills in your portfolio larger in
amount than the bills taken by the Bank of France,
which we understand average 600 to 700 francs?
A. Our bills average about 500 francs. We get many
bills at small places in the provinces which the Bank of
France would not accept. The Bank of France has
something like 120 branches, but they are only in the
larger towns. Our customers discount bills with us in
the smaller places.
Q. How small bills do you discount?
A. For any amount.

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France

Q. For 5 francs?
A. Yes; not for discount, but for collection.
Q. For instance if a man brings you a 5-franc bill, you
charge him a certain rate and a commission for doing
his business?
A. For cashing the smallest bill in Paris we take 10
centimes (2 cents), and in the provinces somewhat
more—25 or 50 centimes, according to locality.
Q. Take a bill of 100 francs, what charge would you
make for that?
A. What sort of a bill do you mean?
Q. A small tradesman's bill in the country.
A. We have our regular tariff for that—a copy of which
I hand you. You will find that the charge varies according to the locality.
(NOTE.—The document referred to is a volume of 205 pages, entitled "Tarif de Recouvrements" and can be found in the files of
the Commission.)

Q. Please explain the next item, " Reports/'
A. Those are practically loans on stock exchange securities.
Q. What do you charge for these loans?
A. We charge what we can get; it depends on the
state of the market.
Q. Are they on call?
A. No; from month to month, according to settlement.
Q. When are settlements made in Paris?
A. Partly fortnightly, partly from month to month.
Q. Are the market rates for bills and for advances
quoted in your daily papers as they are in New York
or in London?

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Commission

A. The bank rate is officially quoted.
Q. You will find in London in all the leading papers
the market rates quoted, say on sixty-day bills. Do
the Paris papers quote the market rate in the same way?
A. There are financial newspapers which quote the
private rates.
Q. Are the "reports" amounts paid by you for securities
purchased by you for account of brokers the sums to be
repaid to you at settlement time?
A. Yes; we hold the title to the stock. We buy for
cash and we sell for delivery at a fortnight; the difference
represents our interest charge for carrying. The practical difference between the "reports" and the advances
is that in the first case we are allowed to return other
stocks than the identical ones that we have purchased,
while for advances it is quite the contrary. We are only
the depositaries for the stock, which we are obliged to
return at the maturity of the loan.
Q. What rate would you charge on a guaranteed advance to-day? Say, for a period of thirty days; on the
very highest class?
A. Four and one-half to 5 per cent.
Q. If I should come here to-day with a bill of 100,000
francs accepted by the Credit Lyonnais to run sixty days
and also French securities upon which I wanted to borrow
100,000 francs to run sixty days, what rate would you
charge me; would it be different on these two transactions?
A. There is a very great difference in our appreciation
of the two kinds of business. If you discount with us a
bill which in case of need we can rediscount and give to
the Bank of France, we charge the rate of the Bank of
France because we have the means of obtaining the
money which we advance to you by rediscounting, so the

256

Interviews

—

France

maximum of the charge is the official rate of the Bank of
France—3 per cent. But on the other kind of business,
when you want to get money against securities on the
condition that we must wait until the maturity of your
loan to be paid back we should charge at least 4 per cent.
Q. We should like to see some of the actual bills in your
portfolio—particularly the small ones. [After examining
the portfolio.] We find here a bill of 50 francs not accepted
by the person on whom it is drawn.
A. It is too small an amount. We do not, as a rule,
present bills for acceptance below 500 francs.
Q. Then that really is as yet but a one-name bill?
A. It may become a two-name bill, but as yet it is but
a one-name bill.
Q. Here is a bill for 10 francs running about two months.
Is the drawer a customer of yours?
A. Yes.
Q. At what rate of discount was that bill taken?
A. The minimum charge is 25 centimes.
Q. And this box only contains the Paris bills?
A. There are 150 boxes which contain bills, Paris and
country.
Q. You do not keep the bills of the branches here?
A. No; only for Paris.
Q. Do you buy bonds and stock for your customers
when they want them?
A. Yes; charging a very small commission.
Q. You have your representatives on the Bourse?
A. Yes; we transmit the orders of our customers to the
stockbrokers.
Q. We found that the Deutsche Bank, at Berlin, had
about 50 representatives on the Bourse.
A. We have only two or three.
60481—10

257

National

Monetary

Commission

Q. Effets h Tencaissement. What are these?
A. They are bills for collection; bills which we send for
collection to private bankers in the country; abroad, too.
Q. Is it your practice to charge to your correspondent
the bill when you send it or when it matures? When you
send a bill for collection to South America, on the day
that it matures do you then charge it to your correspondent and credit your bills discounted?
A. We charge our correspondents when the bill is posted
to them; we must take it out of our portfolio, so we have
a special division called ''Bills sent for collection," which
is included in the item "Comptes courants debiteur."
It is the contrary of what you have seen in comptes
courants crediteurs, who owe us money.
Q. The next item is "Rentes, obligations, et valeurs
diverses."
A. They are securities belonging to us.
Q. They are largely government securities, I suppose?
A. Chiefly; yes.
Q. Have you stock in other banks which you control?
A. We are interested in the Banque de l'lndo Chine,
which is an issue bank in the French colonies, but we do
not control it; we hold a certain amount of shares.
Q. Are there any other banks which you control?
A. No.
Q. You have not been in the habit of buying up other
banks?
A. No. The system here is to establish agencies of
our own; the Germans, on the contrary, control other
banks in order to arrive at the same result, viz, to get as
much influence as possible throughout the country. We
try to come to the same result by establishing our own
agencies.

258

Interviews

—

France

Q. Is that true of the Credit Lyonnais?
A. The Credit Lyonnais and the Societe Generale
have the same system.
Q. Please define the next item, "Participations financieres."
A. This is our interest in foreign loans which are not
yet wound up.
Q. Do you do any underwriting business?
A. Yes; for instance, we took an interest in the New
York and New Haven bonds and at the end of December
the business was not yet settled, so we still have an
interest in that business and the money invested in those
bonds is included in that item.
Q. That might include stocks also?
A. No; we only deal in bonds as a rule.
Q. You do not engage in industrial enterprises?
A. No.
Q. What is the item "Agences hors d'Europe?"
A. They are our foreign agencies; we have agencies in
Madagascar, Tunis, Belgium, England, Egypt, and Australia.
Q. Is it usual for large banks in Paris to confine their
underwriting operations to bond syndicates?
A. Yes; banks receiving deposits, such as the Credit
Lyonnais and the Societe Generale, do not usually participate in syndicate operations covering the shares of industrial concerns; other banks, such as the Banque de Paris
et des Pays-Bas, do so, but they are not deposit banks.
They have more liberty to engage their own capital in
any enterprise.
Q. You are not restricted by law in doing any business
you please?
A. No; it is only the custom and rules of our society.

259

National

Monetary

Commission

Q. These industrial and commercial companies whose
coupons you pay are not necessarily those whose bond
issues you sell?
A. No; they are customers of ours.
Q. Do you handle the bonds of industrial companies?
A. Yes.
Q. What institutions in Paris would take an interest,
for instance, in London Underground Railway enter
prises? What class of banks?
A. It is more in the line of the Banque de Paris et des
Pays-Bas or the Union Parisienne.
Q. What class of institution in Paris would subscribe to
the Brazilian coffee loans?
A. If it is a government loan which interests the credit
of Brazil it might be presented to any bank in France;
up to the present time the Rothschilds have been the leading firm for Brazilian bonds, and lately the Soci6te Generate and the Banque de Paris et des Pays-Bas have taken
an interest in them; but we have never dealt in Brazilian
loans.
Q. If there were a large industrial corporation in France
which wanted to develop its business and issue bonds upon
it, and if they were customers of yours of unquestioned
financial standing, would you take their bonds and sell
them?
A. Yes.
Q. But not their stocks?
A. If they were a well-known concern we would sell
their shares too; we have done so.
Q. Is there cooperation between the large banks?
A. We meet very often and often have common interests in business.

260

I n t e r v i e w s

—

France

Q. Do you, in a sense, divide the field? I suppose you
have a certain field in which you do business and other
banks do not; Turkey, for instance?
A. Turkey is reserved for the Banque Ottomane.
Q. Take the electrical business, for instance?
A. As far as we are concerned we are connected with
the Thomson-Houston; and it is natural if the ThomsonHouston and their friends any have business to do, that
they deal with us.
Q. Do you make a statement monthly?
A. Yes; monthly.
Q. Are you required by law to do so?
A. Not by law, but it is our custom.
Q. You have a commission of control. By whom are
they elected?
A. They are elected by the general meeting of shareholders.
Q. Some banks have examiners called "censors."
A. We have also something like that; we have the commissioners named by the shareholders, who verify the
accounts once a year, but as we found that was not
sufficient we have, instead of " censors/' what we call a
"Commission de controle," who meet every week and
examine our books; they are appointed by the general
meeting from year to year, and are paid by the bank.
Q. There is no government supervision of your bank?
A. No.
Q. There is nothing in the law which restricts you to
any class of investment?
A. No.
Q. And nothing that requires you to keep any reserve;
that is, any amount of cash as against your liabilities?
A. No.

261

National

Monetary

Commission

Q. How are the managers of the bank elected?
A. They are elected by the board; the board is elected
by the shareholders, and the board elects the managers,
who remain in office during the pleasure of the board.
Q. Are your shares fully paid up?
A. Yes.
Q. Have the shareholders any further liability?
A. No.
Q. What is the par value of your shares?
A. Five hundred francs.
Q. What is the character of the shares? Do you know
who your shareholders are?
A. We know a great many of them, but not all. We
have both registered shares and bearer shares.
Q. You know in a general way where the control is?
A. At the general meetings we know generally where
30 per cent or 40 per cent of our shares are. About 20
per cent are registered.
Q. Do the bearer shares have to be deposited for
voting in advance of the meeting?
A. Yes.
Q. How many shares give the right to one vote?
A. Every ten shares have one vote.
Q. Is the Bank of France your principal reliance in
case you need money? Do you think it necessary to
carry any additional reserve?
A. Under our French system we consider the commercial paper we keep in the portfolio a cash reserve, as we
can rediscount it at the Bank of France. We know the
Bank of France will discount these bills and thus enable
us to convert the bills instantly into cash; this is the basis
of the French banking system.

262

Interviews

—

France

Q. In case you want to transfer money, say from
Marseille to Lyon, would you do it through your own
branches or through the Bank of France?
A. Generally through our own branches. It might
happen that we would apply to the Bank of France if we
have a special payment to make at Marseille or Lyon
in order to avoid sending bank notes.
Q. But under ordinary conditions you make the transfer
yourselves?
A. Yes; of course the Bank of France can make the
transfer. The Bank of France does not receive money
here in order to pay in cash at Lyon; but if you bring to
the Bank of France bills to be discounted for a million of
francs the Bank of France is as willing to pay you at
Lyon as at Paris. If our agencies are not well supplied
with funds, we apply to the Bank of France to transfer.
Q. Are you familiar with the transfer business of the
Reichsbank?
A. The Bank of France does the same thing when the
proceeds of discounts of paper are to be transferred.
Q. The Reichsbank transfers for everybody.
A. The Bank of France does it for everybody who
discounts bills.
Q. But this method of transfer is not employed to the
same degree in France?
A. As the important business of France is transacted
in Paris, and as the principal houses have their accounts
there, transfers are not as frequent in France as in
Germany.
Q. Outside of Paris it happens that you have branches
at many of the same places as the Bank of France; is
there competition between the branches of the Bank of
France and your own branches?

263

National

Monetary

Commission

A. No; the Bank of France does more rediscounting
than discounting, and the Bank of France also has more
conservative rules than the other banks. We may lend
under the Bank of France rate, so our clients have an
interest in keeping their account with us.
Q. You do not consider the Bank of France as an
active competitor?
A. No; competition is greater with the Credit Lyonnais and with the other private banks than with the Bank
of France.
Q. Are there many independent private banks in the
country?
A. Yes.
Q. Take a private bank in Lyon, where do they carry
their cash in bank?
A. With the Bank of France.
Q. If it were not for the Bank of France, perhaps they
would keep their reserve with you?
A. Possibly. We are on good terms with the private
banks, but they do not like us to know who their customers are.
Q. Then the bank reserves of the banks in all parts of
France are carried with the Bank of France?
A. Yes.
Q. Do any banks have an account with you?
A. We have business relations with them. They send us
their bills for discount, but they do not leave the money
on deposit.
Q. You do considerable rediscounting of bills, I take it?
A. Yes.
Q. At a lower rate than the Bank of France?
A. Frequently.

264

Interviews

—

France

Q. Is the development of branches a matter of recent
times?
A. Yes; we began the system of establishing branches
about twenty years ago.
Q. You had, however, from the start a number of
branches?
- A. No; for a long time we had only two or three
branches, at Marseille, Lyon, and Nantes, and about
twenty years ago we saw that we must develop our system of branches.
Q. Are there any statistics in existence which show the
total amount of deposits in all the banks of France?
A. No; but you will find that some of the large banks
publish monthly statements.
Q. Are there any other institutions that you would call
government banks, except the Bank of France and the
Credit Fonder?
A. No. We have large private deposit banks, the Credit
Industriel, Credit Lyonnais, Societe Generate. TheBanque
de Paris et des Pays-Bas, and the Banque del'Union Parisienne are business banks; and there are country banks
such as the Credit du Nord and others.
Q. Are there clearing houses in France?
A. Yes; we have a clearing house between the banks
here.
Q. In various parts of France?
A. No.
Q. Is the Chambre de Compensation here connected
with the Bank of France?
A. No; the Bank of France is a member of the Chambre de Compensation, and every morning the members
meet and make exchanges.

265

National

Monetary

Commission

Q. Is there any agitation in France for a different system of note issue?
A. No.
Q. The people are contented?
A. Yes; they are satisfied with the monopoly of issue
in the Bank of France.
Q. Is there no disposition on the part of the other banks
to acquire a right to issue notes?
A. No.
Q. Your monopoly system is satisfactory to the people
of France and to the banks?
A. Yes.
Q. Are the relations between the Bank of France and
the other banks cordial?
A. Yes; very cordial.
Q. In case you rediscount bills at the Bank of France,
what entry do you make in your accounts?
A. It does not appear any more in our statements. We
do not publish any items which are no longer included in
our balance.
Q. What dividend do you pay?
A. Six per cent.
Q. What is the character of your surplus? You have
reserves, supplementary reserves, special reserves, etc.?
A. They are reserves accumulated from the earnings
and from the issue of shares. When we increase our
capital we generally ask the new shareholders to pay a
premium, and that premium is the special reserve fund.
Q. What is the statutory reserve?
A. We are obliged to put 5 per cent of the earnings
in the legal reserve, which can not be divided unless
there is a loss.

266

COMPTOIR D'ESCOMPTE.
Comptoir National d'Escompte de Paris.

Bilan au 31 dicembre J007.

ACTlF.
Especes en caisse et en banque
PortefetuUe
Reports
Correspondants "effets & l'encaissement"
Comptes courants debiteurs__
Rentes, obligations et valeurs diverses _ _
Participations financieres
Avances garanties
Comptes debiteurs par acceptations
Agences hors d'Europe
Comptes d'ordre et divers
Immeubles

Total

PASSIF.
Fr. 70, 784,748.06
633, 525,065.75
073.450.30
56, 450,075-33
83. 575,399.03
14, 152,791.43
io, 880,841.65
126, 323,386.85
142, 433,767.83
14. 600,549.04
14, 555,222.78
15. 841,544.00

1,224,196,842.05

Capital
Reserves:
Statutaire
Diverses
Speciale
Supplemental
Immobiliere

Fr. 150,000,000.00
Fr. 5,294, 749-55
6,875,000.00
5,000, 000.00
1,100,000.00
1, 796,449.15
20,066,198.70
507,640,021. 92
313,007,144.71
61,417,677. 70
142,034,779.54
19,613,187.01
378,549.86
10,039, 282.61

Comptes de cheques et comptes d'escompte
Comptes courants crediteurs
Bons a £cheance fixe
Acceptations
Comptes d'ordre et divers
Compte des actionnaires
Profits et pertes (exercice 1907)
Total

1,224,196,842.05

Balance sheet of the Comptoir National d'Escompte de Paris, December j r , 1907.
ASSETS.
Cash on hand and in bank
Bills discounted
Securities carried for customers for settlement on the Stock
Exchange
Bills for collection
Current accounts
Stocks, bonds, etc
Financial participations
Loans on collateral
Acceptances
Agencies outside of Europe
Sundry accounts
Real estate

7, 927, 176. 00
10, 894, 864. 00
16,130, 052. 00
2, 731, 489. 00
2, 100, 002. 00
24, 380, 414. 00
27, 489, 717. 00
2, 817, 906. 00
2, 809, 158. 00
3, 057, 418. 00

236, 269, 990. 00

Total.

60481—10.

LIABILITIES.
$13, 661, 456. 00
122, 270, 338. 00

(To face page 267.)

Capital
Surplus:
Legal
Diverse
Special
Supplementary
Real estate

$28, 950, 000. 00
$1,021, 887.00
1,326, 875-00
965, 000. 00
212, 300. 00
_.
346, 715. 00
3, 872, 777. 00
97, 974, 524. 00
60, 410,379. 06
11, 853, 612. 00
27, 412, 713. 00
3, 785, 345- 00
73, 060. 00
1, 937. 580. 00

Check and discount accounts
Credit current accounts
Time deposits
Acceptances
Sundry accounts
Stockholders' account
Profit and loss (operations of 1907)
Total

.."

236, 269, 990. 00

I n t e r v i e w s

—

France

Q. Do you include the bank buildings in the undivided
reserves?
A. No; we have put aside 1,700,000 francs in order to
reduce the book value of our buildings; it is a sort of
sinking fund.
Q. How many employees have you?
A. Including the country, something like 5,000.
Q. Have you a pension system for your employees?
A. Our clerks consent to a rebate of 5 per cent on their
salaries, and we duplicate this rebate by a voluntary contribution, in order to constitute a pension fund; it
amounts now to about 7,000,000 francs.
Q. If a new bank were to be organized here, would it
be admitted as a member of the clearing house?
A. Certainly.
Q. You have no new banks except the Union Parisienne?
A. There is also the Banque Franchise, managed by
Mr. Rouvier, who formerly was Premier.

267

BANQUE DE PARIS ET DES PAYS-BAS.
Interview with M. Moret, Manager of the Banque de Paris et des
Pays-Bas.
Q. We assume that your business is in many respects
quite unlike that of the other joint-stock banks?
A. Yes; in some respects.
Q. What is the difference?
A. The Soci6te Generate, Credit Lyonnais, etc., receive
deposits from the public; they invest these deposits and try
to make the most of them, paying a small rate of interest
on them; they also loan money on commercial paper which
can be rediscounted at the Bank of France. Here we are
more a business bank; we do not care for deposits from
the public; we work with our own money, with the money
which is the capital of the bank, and we are occasionally
assisted by the capital of the directors, the people who sit
around this table, who are all rich people and some of
them bankers. As a rule we do not receive deppsits from
the public.
Q. But you do receive some deposits?
A. We receive the deposits of big companies which we
have created or promoted or whose stock we have issued—
they are our customers—but we do not receive deposits
of small accounts from the public.
Q. What is your capital?
A. Our statement showed a capital of 75,000,000 francs
and a legal surplus of 6,250,000 francs on December 31,
1907. We have special reserves, 21,250,000 francs, and
provident or sinking funds of 36,300,000 francs.

268

I n t e r v i e w s

—

France

Q. So that in fact you have practically 150,000,000
francs ($30,000,000) capital and surplus? Are these reserves (surplus) earned from the profits of the business?
A. Yes, with the exception of 21,250,000 francs, which
is the premium paid on the new shares of the bank issued
lately.
Q. By whom are the acceptances mentioned in your
report drawn?
A. By big companies and big societies.
Q. You are organized under the same laws as the general joint stock companies in France?
A. Yes.
Q. Have you a special charter?
A. No; only state institutions have a special charter.
Q. You make an annual statement to the shareholders?
A. Yes.
Q. And you are not examined by the Government in
any way?
A. We are examined by people appointed by the stockholders, who are called commissaires.
Q. You have current accounts—190,000,000 francs?
A. They are current accounts from big societies or
governments.
Q. Can you give us an idea of these societies?
A. They are manufacturing concerns, railway companies, big organizations of any kind.
Q. You have no government deposits?
A. No; we have nothing from the Government.
Q. Is most of your business conducted in France?
A. Yes.
Q. But you have a considerable foreign business?
A. We have connections all over the world, and very
often we take an interest in business done abroad.

269

National

Monetary

Commission

Q. Do you operate more particularly in one part of the
world than in another?
A. No.
Q. The item "branches," 66,900,000 francs, what does
that mean?
A. We have branches—one in Brussels, one in Amsterdam, and one in Geneva. The amount named represents the capital assigned to these three branches and
deposits from customers.
Q. You have three branches?
A. Yes.
Q. Have you any subbranches in Paris?
A. No; we have no branches in Paris or in France.
Q. Among your assets you show cash in vault and at
the Bank of France, 17,000,000 francs. Do you show
the amount of cash in your vault and the amount of your
balance at the Bank of France? Do you separate these
items?
A. No; we have very little cash on hand in our vault;
all our cash is in the Bank of France; if we want money
we send to the Bank of France and we have it at once.
Q. Do you endeavor to carry any special amount at the
Bank of France? Or are you indifferent as to the amount
of balance you have there?
A. We always calculate what sum each day will be likely
to be withdrawn; besides which we always have a large
amount of commercial paper which we could rediscount
at the Bank of France at once. Therefore we keep just
enough cash in vault to meet any checks which may be
presented.
Q. If you were to carry but a very small balance at the
Bank of France and should go to them with a request
for a very large discount would they consider the balance

270

I n t e r v i e w s

—

France

that you had carried with them; that is, would they say,
"We can not extend to you this amount because you are
not entitled to i t ? "
A. No; they would not think of that; they would simply
look at the commercial paper which we brought to them;
that paper would always bear at least two signatures
besides our own signature.
Q. The Bank of France is practically indifferent as to
the amount of money you carry on deposit with them?
A. Entirely.
Q. We wanted to determine whether the Bank of
France cares for deposits from other banks; whether
their business is to accumulate deposits and to employ
them by discounting elsewhere and therefore make profits
for their stockholders.
A. No; that is not the policy of the Bank of France.
Q. Your portfolio shows commercial paper on Paris and
on France 46,000,000 francs and foreign bills 26,000,000.
Are those received from your customers or purchased by
you?
A. Both. They are received from customers and we
discount them. If we have too much money we buy
through brokers commercial bills, French or foreign.
Q. Among your assets, what is your comptes courant
correspondants, 198,000,000 francs?
A. That is money deposited by us with correspondents
in current accounts.
Q. You have these funds deposited elsewhere?
A. Yes, sometimes.
Q. Do you mean that in other banking institutions you
have deposits aggregating practically 200,000,000 francs?
A. In many places, yes. They are all call or time
loans or deposits in financial institutions,

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Monetary

Commission

Q. Why do you carry such a very large amount of
money in other institutions?
A. So as to obtain good interest on it.
Q. That may be in London, Berlin, New York?
A. Anywhere.
Q. Do you carry an account in New York?
A. We lend money to some people there, mostly against
securities of different kinds
Q. Are they necessarily loaned to bankers, only bankers,
or to corporations sometimes, or simply correspondents?
A. Most of them are loans to bankers. Different kinds
of loans, some are at sixty days or ninety days.
Q. So that really that item constitutes balances due you
from bankers, financial institutions, and large concerns?
A. Yes.
Q. Industrial corporations?
A. Not often.
Q. On securities?
A. Yes; most of them.
Q. You are not restricted in any way as to the character
of the undertakings you may make?
A. No; we can do as we like.
Q. Do you specialize in practice or do you consider
propositions of various kinds?
A. All sorts of propositions, railway building, harbors,
tramways, electrical enterprises, etc.
Q. Is it your practice to take entire issues of securities
and then offer them for sale?
A. Very often, more for provincial and government
loans.
Q. Is it your practice to handle securities listed on the
exchange or unlisted?
A. We handle them and often get them listed afterwards.

272

Interviews

—

France

Q. Do you usually sell by public offering or through
various agencies that you have?
A. We have no special agencies. We sell to the public
which applies to our offices or sometimes by public subscription; it depends on the nature of the business.
Q. Do you sometimes take an interest in business
such as placing Pennsylvania Railroad and Union Pacific
bonds?
A. Yes.
Q. Is it not a fact that you are one of the leading factors
in that class of business?
A. We have taken some interest in that class of business;
we have been associated with some of our friends to take
up such bonds and float them.
Q. You do not sell your securities as the Credit Lyonnais does; they have an enormous clientele through their
branches?
A. No; we have clients who apply here because they
know our name; we place our name on the prospectus and
the public comes to us, but we have no people to propose them as the other establishments have, and we
have not the very numerous branches that they have.
Q. You frequently act as managers of syndicates
which might include the other banks of France?
A. Very often we take the head of syndicates.
Q. You are the leading bank in that business in Prance?
A. They say so.
Q. Is there cordial cooperation between the banks of
Paris and of Prance, generally speaking?
A. Yes; business as a rule is done, when it is a big
business, with several of these big societies or banks,
and perhaps with all of them together.
60481—10

273

National

Monetary

Commission

Q. What agency is there in Paris that brings the bankers
together; is it through the clearing house or through the
business that develops?
A. There is a kind of clearing house for bankers, but
it does not amount to much. Checks are not all cleared
as they are in New York or London.
Q. Do the bankers meet occasionally to consider some
general banking situation or do you only meet as business develops?
A. As business develops, generally.
Q. There is no agency that brings you together?
A. Only if some occasion arises.
Q. In each of our important cities we have a clearing house, with a president, who is a banker, and who
would be the one to call the bankers together if there
was any important matter to be considered.
A. We have nothing corresponding to that.
Q. What influence has the rate of the Bank of France
upon your rates in the conduct of your business here?
A. Of course, it is not wholly immaterial to us, but it
is not of much importance.
Q. Your business is of a character which would not be
governed by that?
A. No; because we have no public deposits.
Q. Do you carry shares of industrial concerns in your
business, such as of our United States Steel Company?
A. Yes, sometimes.
Q. Are there particular corporations in which you have
a permanent interest?
A. Yes; so as to have some control in certain large
companies.

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France

Q. Do you own the shares of any other financial institution which gives you a control over them?
A. No.
Q. What other institutions of this sort are there?
A. The Union Parisienne, the Banque Francaise.
Q. You are quite an old institution?
A. It was created in 1872 by the union of the Bank of
Paris and of the Banque des Pays-Bas; the union of a
Dutch bank and of a Paris bank.
Q. The other two banks that you mention are of recent
development?
A. Yes; only a few years old. The Union Parisienne
was formerly called the Banque Parisienne, which was
reorganized and developed.
Q. What have you to say of the Bank of France?
A. We regard it as the first bank of the world. Its
organization, to my mind, is better and more suitable to
present requirements than the organization of any other
national bank.
Q. The management of the Bank of France since its
organization has been very wise; there has been wonderful sagacity shown, it has been conservatively managed, and therefore it is a great institution. There is
nothing, however, in the law that requires that it be
conducted on the lines upon which it has been conducted;
that is, with bad management your reserves of gold and
silver might be dissipated, and your note issues might not
have a coin reserve; the law does not require any kind of
reserve?
A. Any institution is to be judged by the way it is
managed. That is true of all human things. However
the Bank of France does not issue notes unless such notes

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have their counterpart either in a certain quantity of the
capital of the Bank, or in gold or silver deposited in the
Bank, or in commercial paper which represents goods, merchandise, going from one part of the world to another part;
therefore you can safely say that the Bank of France's
note has always its full representation, either in capital, gold,
silver, or goods which are in transportation, and secured
besides by at least two signatures, and with the double
standard I say that this Bank meets the requirements of
modern commerce better than any other bank. The Bank
of England has sometimes been obliged to borrow money
from the Bank of France. Our system is more elastic,
more up to date.
Q. What is the restriction on the coinage of silver?
A. It is the restriction which has been made by the
Latin Union, that the coinage of silver shall not exceed a
certain amount per capita.
Q. What do you think of the attitude of the Government toward the Bank of France? That is to say, are
they exacting more and more from it?
A. I do not think that they exact too much from it.
Q. They have a loan from the Bank of France of
180,000,000 francs without interest, and they have required the Bank of France to pay over to them 40,000,000
francs for the Credit Agricole.
A. Yes; but that is not too heavy for the Bank of
France.
Q. You do not criticise the attitude of the Government?
A. No; it was the price of the renewal of their privilege, and the shares of the Bank of France are always
very high in price; it has not hurt at all the Bank's
development.

276

BANQUE DE PARIS ET DES PAYS-BAS.
Banque de Paris et des Pays-Bast
Siege social.

ACTIF.

Succursales
a 1'Stranger.

Bilan GSntral au 31 dicembre, 1907.

Total.

Francs.
Francs.
Francs.
Especes en caisse et a la banque. IS. 33o, 161.03 1, 726,037.99] 17, 056,199. 02]
Portefeuille:
45,882,052.47
202, 823.321 46,084,875.79!
Paris et province
IS.657.486.25 11,207,527.46 26,865,013.71
E tranger
Fonds disponibles dans les
1,122, 444. 00]
279,482.10 1, 4 0 1 , 9 2 6 . i o |
banques a 1' etranger
Succursales:
8,000,000.00
Comptes fixes
•66,902, 796. 78
58,902,796.78
Comptes courants
Comptes courants des syndicats.| 1,318,184.65
83.193.70 1,401,378.3s
Correspondants et comptes courants
132,597.641-92 65,861,308.
198,458, 950.7S
Reports
33*702,675.88
8,958,501.
42,661, 177.63
Liquidation, 31 dicembre, 1907.
927.955.70]
927, 955-7o|
Coupons a encaisser
72,449.29
1,230.
73. 679.74
Avances sur garanties
809,809.05
283,409.
2,093, 218.55
Fonds d'etats
305,5258,058,405.48
8,363, 93L33
Actions et obligations
384,302.
58,862,545.52!
65, 246, 848.17
Participations diverses
419,296.
18,633, 169.92
26,052, 465.96
Comptes divers
639, n o .
1,404,961.22
3,044, 071.S5[
Immeubles de la socidte
687, i n .
7,264, 167.39
7,95i, 279.24
Total
_ 408, 546, 906. 55 106, 038, 861. 82 514,585,768.37

PASSIF.

Siege social.

Succursales
a 1'stranger.

Total.

Francs.
Francs.
Francs.
75,000,000.00
75, 000, 0 0 0 . ool
Capital social
6, 2 5 0 , 0 0 0 . 0 0
6, 250,000.00
Reserve legale
Appartenant aux actionnaires:
21, 2 5 0 , 0 0 0 . 0 0
Reserve extraordinaire
36,300,000.00
Fonds de prevoyance
Prevoyance appar60,733,102.63
tenant aux administrateurs en exer3,183,102.63
cice
Bffets a payer
70,964,755.86 1,472,288.43 72,437.044.29
Succursales:
8, 000,000.00
Comptes fixes
58,902, 796.78 |66,902, 796.78
Comptes courants
Correspondants et comptes
154,566, 206.65 35,607,880.86] 190,174,087.51
courants
81,307.291 15,315,394.03
Coupons a payer
15, 234,086.74
Comptes divers
7,359,3i8.S9| 1, 024, 859.16
Profits et pertes—Report de
8,384,177-75
l'exercice 1906
9,644,187.47
Profits et pertes—Exercice
9,644,187.47
8,795,248.61
1907
949,729.30
Total

9,744,977.91

408, 546,906.551106,038,861.82 514, 585, 768.37

Balance sheet of the Banque de Paris et des Pays-Basf December 31, 1907.
Central
office.

ASSETS.
Cash, on hand and at the bank. _
Discounts:
Paris and departments
Abroad

$ 2 , 958, 721

$333,125

8, 855, 236
3, 0 2 1 , 895
216, 632

39, 145
2, 163, 053
S3. 940

Branches:
Due from correspondents
Securities carried for customers
for settlement on the Stock
Coupons matured
Loans upon collateral
Sundry participations
Sundry accounts
Real estate
Total

60481—10.

Branches
abroad.

1, 544, 000
11, 368, 240
254, 410
25, 5 9 1 , 3 4 5

1, 728, 991

78, 849, 553

20, 465, 498

237
247, 698

58, 966
1, 232, 170
1,431,924
316,348
132,613

LIABILITIES.

Capital
Legal surplus
8 , 8 9 4 , 3 8 1 Extraordinary surplus
5, 184, 948 Providentfund of stockholders270, 572 Provident fund for administrators
12, 912, 240 Bills payable
Branches:

$3, 291,846

\
16, 056
12, 7 1 1 , 232

6, 504, 616
I79.09S
13, 983
156, 293
1,555,273
1 1 , 3 6 0 , 471
3, 596, 202
27LI57
1, 401. 984

(To face page 276.)

Total.

Central
office.
$14,
1,
4,
7,

475,
206,
101,
005,

Branches
abroad.
000
250
250
900

8, 233, 607
179,095
14, 220
403,99i
1,614,239
12, 592, 641
5, 028, 126
S87, SOS
1, 534, 597

99,3iS,o5i

of 1906

$ 1 4 , 475, 000
1, 206, 250

1
>

$ 2 8 4 , 151

13, 980, 3 4 9

29, 8 3 1 , 278
2 , 9 4 0 , 179
1, 420, 348

1, 544, 000
11, 368, 240 \
6, 8 7 2 , 3 2 1
15, 692
197,797

36, 703, 599
2,955,871
1, 618, 145

1,861,328

Total

12, 9 1 2 , 240

1,861,328

Profit and loss from operations
of 1907

11, 7 2 1 , 489

6i4,339
13. 696, 198

270, 466
3 8 , 3 0 2 , 577

Current accounts
Coupons payable
Sundry accounts
Profit and loss from operations

Total.

1, 697, 483

183,297

I, 880, 780

78, 849, 553

20, 465, 498

93,315,051

CREDIT FONCIER DE FRANCE.
Interview with M. Touchard, Secretary.
Q. Is the Credit Foncier a public institution?
A. Yes, it is a mixed institution; it is at the same time
a joint stock-company and a society under the control
of the Government by reason of privileges which the
Government has granted to it.
Q. Who are the shareholders?
A. Anyone; the shares are dealt in on the Bourse.
The firm capital is at present 200,000,000 francs; the
shares are issued at 500 francs.
Q. What dividend do you pay?
A. We now pay 6 per cent; for several years it was
only 5 per cent.
Q. Does the Government receive no income from it?
A. No; on the contrary, the Government began by
giving us a subsidy of 10,000,000 francs, which was paid
to the society in the proportion of one-twentieth of the
first 200,000,000 francs realized on loans. That was at
the beginning, in 1852, in order to help us make loans at
a rate advantageous for that time. This subsidy was not
renewed, and the State does not intervene now, except
occasionally to exercise its control.
Q. Does the company appoint the officers?
A. The Government appoints the governor and the
two subgovernors. There must also be three treasurersgeneral among the 23 members of the council of adminis-

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Commission

tration. These treasurers, as well as the other administrators, are named by the general assembly of stockholders;
but before presenting their names to this assembly, it is
customary to obtain the approval of the Minister of
Finance.
Q. Are the governors and subgovernors permanent
officers?
A. There is nothing in the statutes about that; they
usually remain a very long time, but it is possible to
remove them.
Q. You are the secretary-general. Are you a government official?
A. No.
Q. You are appointed by the board?
A. No; but by the governor, who, according to the
terms of article 21 of the statutes, appoints and dismisses
all the officials and attends to organizing the service. The
governor and subgovernors alone are named by the Government, though they are paid by the society.
Q. Do you pay the same taxes as the other banks?
A. Yes. We are treated like any ordinary bank. We
have the special privilege of issuing bonds secured by
mortgages. It is a very complicated system in France;
there are legal complications which would render it impossible for any corporation to undertake the business unless
it had special privileges.
Q. Are you confined by law to business with mortgages?
A. We have two principal kinds of operations—mortgage loans and communal loans. The total businessof the two branches of operations amounts at present to
about 4,000,000,000 francs. Operations on so large a scale
involve a considerable transfer of funds, and make neces-

278

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France

sary a treasury service requiring, of course, the use of
banking methods. Our statutes, therefore, recognize our
right to carry on ordinary banking operations, within
certain rather sharply defined limits.
Q. How is your banking business limited?
A. We are allowed to receive deposits up to a maximum
of 100,000,000 francs. At least a quarter of these deposits
must be used in payments in the form of accounts current
to the treasury or in deposits of securities approved by
the Minister of Finance. Bills of exchange or commercial
paper which we discount must not run longer than three
months, and must bear at least two signatures.
Loans on securities can not be made except on communal or land bonds, and on other securities accepted by
the Bank of France as collateral. Communal loans are
made without mortgage.
Q. Do you invest in securities other than mortgages?
A. We employ our deposit funds in discounting commercial bills on condition that they have two signatures
and can be presented to the Bank of France; that is to say,
they must not run over three months. We are obliged to
hold 50,000,000 francs of our funds in government bonds
or treasury bills. We have the privilege of investing our
surplus funds in securities guaranteed by the Government,
such as railroad bonds, etc., but as a matter of fact we do
not take much advantage of that privilege because we
consider it bad business, as there is always a possibility
that the price might fall when we needed to realize, and
we prefer to use our surplus funds in discounting bills,
although sometimes there might be a larger profit in
buying stocks and bonds.

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Commission

Q. But at the Bank of France commercial paper to
be discounted must have three signatures?
A. But we may take two; we can give our own signature as the third.
Q. You take mortgages on private estates?
A. Our mortgages may be on houses or on rural property.
Q. Are your bond issues limited?
A. The capital realized on bonds in circulation must not
exceed 20 times the total of the nominal capital in shares.
At present we have nearly reached the limit. As soon as
it is necessary we will increase our capital.
Q. Are you limited in percentage in making mortgage
loans as to the value of the property?
A. We can only loan to one-half the value of the property.
Q. And this is the same for town property, for farms,
etc.?
A. Except in the case of planted land, such as woods
and vineyards, which are perishable, where we only give
one-third.
Q. Who decides the value?
A. We have about 60 inspectors who examine property
offered for mortgage and make estimates. The reports
made by these inspectors are examined by a commission
and submitted to the council of administration, which
alone has the authority to decide on the amount to be
loaned.
Q. Are the 60 inspectors distributed over France?
A. Most of them live in Paris and travel from there all
over France. By exception, however, we have several

280

Interviews

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France

inspectors who live in the provinces, in regions where
property offers the greatest difficulties to appraisement.
Q. Have you branches?
A. The society is represented in the provinces (i) by
the General-Treasury Agents and Paying Tellers
(Tresoriers-Payeurs-Generaux) who are our financial agents
for receipts, payments, and treasury operations made in
the provinces on the account of the Credit Foncier (2) by
directors of branches, named by the governor (numbering
76), whose only duty is to solicit mortgage and communal
loans, and help realize on them.
Q. Are your rates uniform for all kinds of property?
A. For mortgages, yes, in a general way the rate is the
same, with several very rare exceptions. It is a question
whether this is a good policy; it might be better, perhaps,
to vary the rate slightly according to the risk and the
importance of the loan.
Q. What is the present rate?
A. Four and one-half per cent for mortgages. But this
rate is accidental, and it will return to 4.30 per cent as
soon as the conditions of the money market are improved.
Q. What is the rate for communal loans?
A. Three and eighty-five hundredths per cent, but for
large loans it has often gone down to 3.75 per cent.
Q. Just what are communes?
A. Towns, cities, municipalities. In the group of communal loans we include likewise the loans made to departments and public institutions, such as almshouses,
chambers of commerce, etc.

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Monetary

Commission

Q. Can all the property in the commune be held for
the loan?
A. The commune gives no security; our only security
is that resulting from the budget regularly voted and
approved by the proper authorities.
Q. In America all the property in the territory is liable.
A. The case has never arisen in France; no commune
has ever become bankrupt.
Q. Does the Government approve the loan before the
issue of the bond?
A. So far as communal loans are concerned, the sanction of the prefect, the government, or even the law may
be necessary, as the case may be, to give the commune the
right to borrow.
But in the matter of mortgage loans, the government
does not intervene; the notarial act which describes the
mortgage does not require any previous permission.
Q. But in Germany it is necessary to submit the question of the security and of the sum loaned to a special
officer of the Government.
A. We have entire liberty.
Q. Who decides whether mortgages shall be taken ? Can
the Governor decide without submitting the question to
the council of administration?
A. The council of administration decides.
Q. But in practice is it the Governor?
A. No; everything goes to the council; there is a meeting of the council once a week and a list of all loans is submitted to it.
Q. Who prepares the list?
A. This list is prepared by the bureaus of the central
board of administration, under the supervision of the

282

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—

France

governors, and according to the reports of the inspectors
who have appraised the property.
Q. What is the precise relationship of the stockholders
to the business of the company? Have they really a voice
in the administration?
A. The two hundred largest stockholders meet once a
year to ratify accounts, vote the dividend, and consider
the questions docketed for the day of the meeting. But
the Governor has the right to veto the decisions made.
The general assembly of stockholders influences the
management of the company more especially by its right
to elect the council of administration.
The Governor also has the right to oppose the carrying
out of a measure adopted by the council of administration, so that he is armed with very considerable power.
But, of course, he does not use this right of veto except
in very unusual circumstances, of which only a few
examples are on record.
Q. Is your stock fully paid up? How much is paid in?
A. It is fully paid and all registered; 500 francs.
Q. What are they quoted for now at the Bourse?
A. Seven hundred and thirty francs; they pay 6 per
cent dividends. It is an investment at about 4 per cent
now.
Q. What is the usual length of time for mortgages on
real estate?
A. Our statutes allow us to loan for seventy-five years
on ordinary rural or city property. In the case of summer
resorts and certain other property liable to depreciate
rapidly, for the sake of prudence we do not generally lend
for more than thirty years; besides, the borrowers always

283

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Monetary

Commission

have the right to repay at any time, and they often avail
themselves of this right, so that the average length of our
loans is much less—hardly exceeding fifteen or twenty
years.
Q. What is the cost for amortization in the long mortgages on property in the country, say, for seventy-five
years?
A. The amortization is spread over the whole duration
of the loan, so that the total of the interest paid and the
capital reimbursed forms a constant yearly annuity.
Under these conditions, the cost of amortization (in
addition to the annual interest) depends both on the
length of time of the loan and the rate of interest. At
the 4.5 per cent rate of interest, the annuity in seventyfive years is 4.666 per cent; the cost of amortization in
this case does not exceed 0.166 per cent; it would be 0.184
at the 4.3 per cent rate for the same time.
This seventy-five-year period is too long; the amortization is much too slow during the whole first period of the
loan.
Q. What is the actual practice?
A. Seventy-five years is the actual practice.
Q. What part of the charge is for rate and what part
for amortization?
A. Four and one-half per cent for rate and 40 centimes
for amortization, approximately.
Q. But is that the rate for shorter mortgages?
A. The amortization increases as the period decreases,
but the interest rate is the same.
Q. Is there provision for amortization in the case of
the communal loans?

284

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France

A. It is exactly the same, but communal loans are not
often for more than thirty years; with the interest rate at
3.85 per cent, the annuity is 5.65 per cent, so that the
cost of amortization is 1.80 per cent.
Q. What do you do with the amortization funds?
A. The principle of our institution is that the capital
realized by the issue of bonds shall never exceed the total
of loans on mortgages or communal loans made by the
society. We are therefore obliged to use the funds
accruing from the normal amortization or anticipated
payments, either to amortize or redeem bonds, or to make
new loans.
Q. So you employ your amortization funds to buy new
mortgages?
A. Yes; we lend again.
Q. But you have an account with the mortgagor, in
which the amount of the amortization appears?
A. Yes; every mortgagor has an account here in which
we credit him with sums paid on account of amortization,
etc.
Q. How long do your obligations run?
A. According to the statutes, our bonds are issued
without fixed time limit for reimbursing the capital, and
this provision is a necessary result of the principle that
the bonds in circulation must never exceed the capital
still due on loans.
In practice, when the issues are made, a maximum
time limit for reimbursement is mentioned in the prospectus (generally seventy to seventy-five years). Each
year or half year, at the time fixed in the prospectus, a
certain number of bonds of each issue are reimbursed by

285

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Monetary

Commission

lot. The bonds thus called in are repaid at par or with a
prize.
Q. What rate do they bear?
A. In general (for all recent loans) 3 per cent of the
nominal capital. In addition, when the bond is called in
by lot, the bearer has the right to a premium (the difference between par value and the price of the issue) and
possibly to a prize.
The total interest, premiums and prizes, promised to
the bearers of the same issue, represents for our recent
loans an annual cost of about 3.60 per cent of the paid-in
capital which may be used for loans. But previous issues,
made under less favorable conditions, bring the average
annual expense on the whole of the 3,500,000,000 francs
in circulation up to nearly 4 per cent at the present time.
Q. You pay 3 per cent interest on the bonds, which are
amortized in the same way as the mortgages are, so much
a year? And the average is 4 per cent?
A. Those we emit now only pay about 3.60 per cent
everything included, interest and amortization, but a few
years ago they had to be placed under very much less
favorable conditions and then their charge went up to
above 4 per cent.
Q. How do you sell those bonds?
A. Generally by public subscription. About every
three years we are obliged to make an issue of the number
of bonds necessary to form a capital of from 300,000,000 to
350,000,000 francs, payable in graduated instalments
every three or four months.
Q. The holder of your bond has no interest in the
amortization of the bond?

286

I n t e r v i e w s

—

France

A. Yes; if it is a question of an original subscriber,
since, when his bond comes out of the lottery, he is reimbursed either at par (that is to say, by paying him not only
the price of issue, but also the premium) or with a prize.
The case is different, of course, if the bearer bought his
bond at the Bourse above par.
Q. May you call your bonds at par? Are they payable
at par at your option?
A. In our recent issue we have put that clause in, viz,
that we can redeem our bonds at par. Generally we
only redeem a certain portion of them each year, which
are drawn by lottery.
Q. Are you obliged by the terms of issue to pay some
each year?
A. Generally, no. However, for several of our old
loans, the certificates bear a table of amortization that we
follow for drawing lots, reserving the right to apply the
statutory clause which authorizes us to repay a greater
number of bonds in case it is necessary for maintaining
the balance between loans and bonds issued.
Q. Is that required by law?
A. The law, or rather our statutes, merely require us
to maintain this balance.
Q. But they can be reimbursed by a prize?
A. A bond can be reimbursed either at par or by a
prize. The bearer of a bond may, if his bond is drawn,
receive either the par value of his bond, or a more or less
considerable sum in addition. In the drawing for last
January, for instance, there were 140 bonds repaid above
par; one received 150,000 francs, another one 30,000
francs, eight received 5,000 francs, and 130 received 1,000
francs.

287

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Commission

Q. How can the company afford to do that? From
what funds are they paid?
A. The average annual expense for the company, which,
as was stated above, is about 3.60 per cent for our recent
issues, and about 4 per cent for the total of our former and
recent issues, includes in addition to the interest (generally
3 per cent of the nominal capital) the amount necessary to
cover the premiums and prizes to be paid each year.
Q. Are we correct in understanding that the total cost
to you on your bonds, including the interest payment, the
expenses of issue, and the prizes awarded to the public, is
approximately 4 per cent and that the interest received
by you upon the mortgages which secure these bonds is
approximately ^% per cent?
A. Yes; about that; say 4.45. The difference between
the 3 per cent and the 4 is in the prizes, expenses of
issue, etc.
Q. What is the average size of your mortgages on
private estates?
A. It varies; perhaps 30,000 francs, but the average
would not tell you much, because along with a lot of very
small mortgages we have some very large ones.
Q. What is the minimum?
A. There is no minimum; but we do not care to make
very small loans because it costs too much to foreclose.
Q. What percentage of your total business is in the
country and what'in the city?
A. About one-half in Paris, and our best business is
in Paris.
Q. Has there been an appreciable change in that proportion during the fifty years?

283

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—

France

A. Not much; the urban mortgages cause us less difficulty, and the tendency is for the proportion of them to
increase.
Q. What amount of your obligations do you pay each
year and upon what principle do you decide to do so?
A. At the present moment we pay back about 30,000,000
francs a year, according to the table of amortization of
each issue. But, let me repeat, we have the right to
change the amount of redemptions if this becomes necessary in order to keep the balance between our bonds and
our loans.
Q. Who are the subscribers to these bonds, and what
are the usual sums subscribed? Are they small or large?
A. They are bought by small people, and generally
remain in the hands of persons of small capital. This is
one of the reasons why their quotations show so little
fluctuation.
Q. Do you lend on farms?
A. Yes. Up to one-half, except on forest land, vineyards, and the like, on which we lend only one-third.
We do not lend on mines. On factory buildings we lend
only on the value of the ground and of the building, independently of its industrial value.
Q. Is the amount which you lend on unimproved country real estate, such as forests, etc., important?
A. We lend as little.as possible on that class of ground.
So much additional inspection would be necessary, as the
value depends on the number of trees.
Q. What other institutions of this character are there
in France?
A. There are no others; we no longer have a legal
monopoly, but we very nearly have a practical monopoly.
60481—10

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Monetary

Commission

There are private individuals who make mortgage loans,
but no large company makes this the principal feature of
its business.
Q. The other mortgages are taken by private bankers?
A. By notaries; very seldom by private bankers.
Q. For individuals?
A. Yes; but the notary is responsible in that case;
he acts as a trustee.
Q. What is the Credit Fonder d'Algerie?
A. It is a stock company with headquarters in Algiers,
and its principal branch in Paris. It acts as our agent,
and makes in participation with us and under our control
our communal and mortgage loans for Algiers, for which
we furnish the funds.
Independently of the loans made in connection with us,
the Credit Foncier d'Algerie lends its own funds on property that does not fulfill the requirements of our statutes.
In addition to this it carries on banking operations.
Q. Have you an idea of the amount of mortgages in
France?
A. Fourteen billion francs, perhaps. The total value
of the property is estimated at about 120,000,000,000
francs.
Q. How long has it been the privilege of the Credit
Foncier to add lotteries to its loans?
A. It has done so from the beginning, although we are
obliged to ask the permission of the Minister, but it is on
that account that we have been able to place our bonds
so low.
Q. You have the monopoly of this privilege?
A. Yes; under these conditions, with the exception that
certain big cities, particularly Paris, get permission to
attach lotteries to their loans; in such cases a special law

290

CR&DIT FONCIER DE FRANCE.
Cridit Foncier de France,

Situation an 31 dicembre 1907,
ACTIF.

Especesen caisse et a la Banque de France
Effets et valeurs diverses
Trevor public
_Avances sur dep6ts de titres
Correspondants
Banque H y p o t h e c a t e en liquidation
Emprunteurs:
Pr£ts h y p o t h e c a t e s . _
Pr6ts communaux

Francs.
7,492,912. 72
182,079,740.06
20,869,362.36
37.252,985-38
9.630,259. 25
21,538,876.02

_
_

_
-

Francs.
2,103,895,406.84
1,788,514,067. 27

Pr£ts realises avec les fonds du Capital social et des Reserves
Semestres d'annuites echus
,
,

Francs.
3.892,409.474-11
57.657,502.35
29.804.580.88

Obligations retirees de la circulation, soit par tirages speciaux, soit par rachats en Bourse (articles
63 et 87 d e s S t a t u t s ) :
Obligations foncieres..
..
..
_
Obligations communales

—

133.098,648.57
49.605,383.10
182,704,031.67
14.039.858.93

Immeubles acquis par la Society a la suite d'expropriations
H6tels et mobilier:
Prix des hotels
Frais d'appropriation et mobilier
_
Divers
Interets acquis, mais non echus
Depenses d'administration
Total de l'actif

16,255, 216.85
236,996.68
--

PASSIF.

Capital social
Reserve obligatoire
Provisions pour ramortissement des emprunts:
Provision ordinaire
Provision extraordinaire

Francs.
102,962,837.71
102,151,503.64

—

Francs.
200,000,000.00
19,918,826. 70

4.388, 707.00
133,574.86
266,804.93
2,626,644. 23
5,800,000.00
7.754.556. 74

20,970,287.76
69,022,317.36
63,817,357-92
4,148,530.80

19.564.805.95
159.779.105.76

179.343.911-7i

Obligations foncieres:
Montant au pair—
Des obligations en circulation
Des obligations retirees de la circulation

Francs.
2,339,690,000.00
157,130,000.00

A deduire
Versements a recevoir des obligataires
Primes a amortir a recouvrer des e m p r u n t e u r s —

2,496,820,000.00

999,560.00
474,584,658.00

Obligations communales:
Montant au pair—
Des obligations en circulation
Des obligations retirees de la circulation

475,584.218.00

1, 709,073, 700.00
50,322,600.00

A deduire—
Versements a recevoir des obligataires
Primes a amortir a recouvrer des emprunteurs

Bons a lots en circulation
Obligations a rembourser et interets echus a payer
Semestres d'annuites recus par anticipation
Divers
_
Interets dus, mais non echus
Profits et pertes:
Reliquat de l'exercice 1906
Exercice 1907
Total du passif

16,492,213.53
27,754,059.58
55.143.822.03
4, 201,984.96
4.559.071.663.83

205,114.341-35

Reserves et provisions diverses:
Reserve pour l'amortissement des immeubles du siege social
Reserve speciale provenant de la Banque Hypothecaire
Reserve commune avec le Credit Foncier et Agricole d'Algerie
Reserves sans affectation
Provision pour faire face a l'excedent des creances hypothecates sur la valeur estimative des
immeubles acquis par la Societe
—
Provision pour creances douteuses
Depots en comptes courants
Correspondants
Sous-Comptoir des entrepreneurs
Versements differed:
Sur prets hypothecates
Sur pr£ts communaux

3.979.87I.557-34

2,021,235,782.00

1. 759.396,300.00

640,645.00
145,830,383.14

146,471,028.14

1,612,925, 271. 86

—

-117.164.93
16, 294, 297.45

., —

3,634,161,053.86
33.648,991. 73
22,454,453. 20
8,341,496.06
40,450,259-64
41,268,373.36

16,411,462.38
4,559,071.663.83

Balance sheet of the Credit Foncier de France December 31f 1907.
ASSETS.
Cash on hand and a t the Bank of France
Bills and various securities
Balance with treasury
Loans upon securities
Due from correspondents
Banque Hypothecaire in liquidation—
Loans:
Loans on mortgage
Communal l o a n s . .

—

$406, 051, 814
345.183, 215

Loans made from capital and surplus
Matured annuities
-

___

Obligations withdrawn from circulation by special drawing or by purchase in the market (Statutes,
sees. 63. 87):
Mortgage obligations
-.
Communal obligations
Real estate acquired b y foreclosure—
Real estate and furniture:
Cost of buildings
-Cost of furnishing
-

25,688,039
9. 573. 839
3,137, 257
45, 74o

•_.

$751,235,029
11,127, 898
5, 752, 284

Sundry accounts-_
Interest earned b u t not matured
Expense of administration

—

Total

Capital
Required surplus
Amortization funds:
Ordinary
Extraordinary

LIABILITIES.
-

—

768, u s , 211

35,261, 878
2, 709,693

3,182,997
5,356, 533
10, 642, 758
810, 984
879,900,831

$19,871,828
19, 7*5. 240

Surplus:
Surplus for amortization of real estate
Special surplus from the Banque Hypothecaire.
Surplus in conjunction with the Credit Foncier et Agricole d'Algerie
Unassigned surplus
__
_
_
Surplus to cover the excess of mortgages above the estimated value of real estate acquired-.
Surplus for doubtful loans
.

$ 1 , 446,132
35, *4*» 3 8 9
4.027, 787
7.189, 826
1,858,640
4.157.003

$38,600,000
3, 844, 334

39, 587,068

847, 020
25, 780
51. 494
506,943
1,119, 400
1, 496, 629
4, 047, 266

Current accounts
Due to correspondents
Due to subagencies
Deferred payments:
Upon mortgage loans
Upon communal loans

13, 321, 307
12, 316, 750
800, 666
3, 776,008
30, 837,367

Mortgage obligations:
Amount a t par—
Of the obligations in circulation
Of the obligations withdrawn from circulation

$451, 560,170
30,326,090
$481,886,260

To be deducted—
Payments due from borrowers
Amortization premiums to be recovered from borrowers..

192,915
91, 594.839
91,787.754

Communal obligations:
Amount a t par—
Of the obligations in circulation
Of the obligations withdrawn from circulation

339.563.486
123,644
28,145,264
28,268,908

.
. . , A.
Lottery premiums in circulation
Obligations and interest payable
Annuities received in anticipation
Sundry accounts
Interest due b u t not matured
Profit and loss:
Remaining from operations of 1906
Remaining from operations of 1907
AA

Total

60481—10.

(To face page 291.)

390,098, 506

329,851,224
9,712,262

T o be deducted—
Payments due from borrowers
Amortization premiums to be recovered from borrowers
_
T

34.6i3,375

__
_

_
_.

_
_

311,294,578

22, 613
3,144, 799

701,393.084
6, 494, 254
4.333.709
1,609,909
7,806,900
7, 964, 796

3,167, 412
879.900, 830

Interviews

—

France

must be passed giving this privilege. However, the direct
issue of bonds by towns is the exception; most of them
come to us or to the Caisse des Depots.
Q. And instead of selling their own bonds they sell the
bonds of the Credit Foncier?
A. No. The loans of the Credit Foncier are always
made in cash, and it attends to selling its own bonds in
order to procure the necessary money.
Q. Does the State own any of your stock?
A. No; the intervention of the State is limited to inspecting us.
Q. There is no system of government examination?
A. Inspection, when there is occasion for it, is confined
to the general inspection of finances. But in practice,
this auditing is quite accidental, and is made only with a
view to clearing up some particular question.
Q. Are your obligations offered in large blocks through
an anouncement?
A. Yes; usually. We always have a few here for sale,
but most of them are disposed of by public subscription.
This was the way we made our last issue of land certificates
November 24, 1903, amounting to 300,000,000 francs.
This issue was subscribed for twenty times over, and the
number of subscribers almost equaled the number of
bonds to be issued. Thus the certificates offered to the
public were nearly all taken up by small savers.
The number of subscribers amounted to 586,517, and
the number of bonds called for to 12,349,698. They
were distributed as follows: One bond to subscribers for
1 to 500 bonds; two bonds to subscribers for 501 to 1,000
bonds; and so on, at the rate of 2 per 1,000, and an additional bond for each fraction.

291

Interview with M. Sergent, Chef des Mouvements des Fonds,
Ministfere des Finances.
Q. Will you kindly define the duties of the Treasurers-General?
A. They are at the same time state officials and bankers. Their functions as bankers are now very limited;
they used t© be very important; at the beginning of the
nineteenth century they performed the double functions
of bankers and receivers of taxes, and important people
were chosen as treasurers-general. When the organization
of the financial system was changed,under Napoleon I, this
system was changed. To-day the treasurers-general are
still authorized to receive deposits from private people on
the condition that they place these funds at the disposal of
the Treasury; and also to receive stock-exchange orders
for all French stocks, but not for foreign stocks.
Q. How many treasurers-general are there?
A. There are 86 treasurers-general, one for each department, and in the early history they were very often
independent bankers; they were rich men to whom the
Government appealed for funds, but gradually, with the
development of the other banks, their functions were
reduced; they are no longer allowed to discount paper
or to make advances upon collateral; they are confined
in their banking operations to the receiving of money
from individuals and the purchase for individuals of
French securities. The deposits held by them to-day
amount only to about 30,000,000 francs.

292

I n t e r v i e w s

—

France

Q. Does the Government allow interest on these
deposits?
A. The Government allows i$i per cent to the treasurers-general, and the treasurers-general usually hold
back one-fourth of i per cent, sometimes one-half. The
treasurer-general pays - 1% per cent, retaining onefourth per cent for his commission. For the purchase of
stock he is entitled to charge a commission, the same
commission as a member of the stock exchange would
charge, except for the French "rente." The deposits are
withdrawable on demand.
Q. These 86 men are agents of the Government, and
represent the Government in their various functions, but
their banking functions are of comparatively small importance to-day?
A. Yes. I believe they are destined to disappear as
bankers; they will only be state officials.
Q. What is done with the deposits received by them?
A. The deposits are paid into the Bank of France for
the account of the Treasury, as is also whatever they
collect for taxes.
Q. Where are the funds of the Treasury of France kept?
A. All in the Bank of France. There is here in Paris
a "Caisse des Payeurs Centrals du Tr6sor" (central paying office of the Treasury), but they only make payments;
they have perhaps enough money for the next day or
two, perhaps 7,000,000 francs, but most of their payments are made by drafts on the Bank.
Q. Does the Treasury publish a statement showing the
amount of its deposits in the Bank of France?
A. Every week the official journal publishes the
amount of the Treasury account, because the Bank of
France publishes a balance sheet every week, and in

293

National

Monetary

Commission

their balance sheet there is the item "current account of
the Treasury/'
Q. Practically all the funds of the Government are carried in the Bank of France?
A. Yes.
Q. Is it the practice of the Government to carry any
gold as a reserve in any vault separate from the Bank of
France?
A. No; we have no War Treasury here as the Germans have, and when the Government's money is deposited
with the Bank of France it is mixed with all other moneys.
Q. Then, as a matter of fact, there is no gold reserve in
the country belonging to the Government?
A. No.
Q. The treasurers-general now receive the taxes of the
country?
A. One can say that practically all the receipts of the
Government pass to the Bank of France through the
intervention of the treasurers-general.
Q. What is the relation between this institution and
the Caisse des D6p6ts et Consignations?
A. The treasurers-general are the representatives of
the Caisse des Depots et Consignations. The treasurersgeneral are both bank officials and representatives of a
certain number of public corporations. They act as
agents for the Credit Foncier, in that they receive the
annuities paid by the different municipalities to the
Credit Foncier and deposit them in turn with the Bank
of France to the account of the Credit Foncier. They act
also as intermediaries between the savings banks and
the Caisse des Depots et Consignations, in that they will
receive the funds of the savings banks and deposit them
in the Bank of France to the account of the Caisse des

294

I n t e r v i e w s

—

France

Dep6ts et Consignations; they also act as intermediaries
for the city of Paris; they pay the coupons on other
municipal bonds.
Q. Does the Bank of France pay the coupons for the
French "rente?"
A. Yes; but the Bank of France, while performing
innumerable functions in handling the Government funds,
does not pay the coupons of any other bonds than the
French rente. The treasurers-general are not only receivers of taxes, but they are the dispensers of the funds
of the Government and they draw on the Bank of France.
Q. What are the public functions of notaries?
A. They are public officers, sworn agents, who have
power to give authenticity to deeds they receive. They are
authorized to receive funds from private people, which they
do not keep themselves, but place in the Caisse des D6p6ts
et Consignations. They receive ligitated sums on deposit.
Q. Do they perform any banking operations?
A. No; they do not do any banking business, but they
may be called upon to manage, for the time being, an
estate, to sell shares, etc.

295

CAISSE DES DfiPdTS ET CONSIGNATIONS.
Interview with M. Delatour, general director of the Caisse des
Depdts et Consignations.
Q. We should like to know the general character of the
business conducted by your institution.
A. The mission of the Caisse des D6p6ts et Consignations is to receive, hold, and repay all private funds intrusted to the State either voluntarily or under compulsion.
The Caisse was created to permit the segregation of the
private funds in question from the State's own resources
intended to meet public expenses, in order to avoid any
possible confusion between these two kinds of funds.
Originally the Caisse, as sole legal depositary, had the
exclusive charge of receiving sums in litigation (consignments), voluntary deposits of individuals or public institutions, and the pension funds of public offices. But the
legislature has gradually extended the powers of the Caisse
by intrusting it with the management of the funds of the
ordinary savings banks, of the national or postal savings
bank, and of the mutual benefit societies, the surety bonds
deposited by contractors for supplies and work undertaken
for account of the State, of departments and of municipalities, deposits of properties sequestered and other court
orders, of notaries, etc. In fine, the legislature has intrusted the Caisse des D6p6ts et Consignations with the
management of the national provident institutions from
the time of their foundation, the national old-age pension
fund (1850), and the national life and accident insurance
fund (1868), the latter being qualified, in 1899, to extend

296

Interviews

—

France

its operations in order to cover risk for accidents to employees while at work. All these powers are derived from
the same principle, since in all these cases private funds
are concerned.
Q. You say that you also do an insurance business.
What do you mean by that?
A. The insurance office, managed by the Caisse, issues
policies of life insurance, insurance payable after death
or in case of accident, like any private insurance company.
The national old-age pension office pays annuities from
the age of fifty to those who have paid the contracted
assessments. The death insurance office pays a certain
sum after the death of every insured person, in consideration of single or annual premiums, and the accident insurance office pays annuities to the insured persons who have
annual policies on the basis of a fixed premium. As
regards accidents to employees while at work, it insures
only against such accidents as cause death or permanent
total or partial incapacity for work.
Q. You do a regular insurance business?
A. A distinction should be made. The funds belonging
to the several insurance offices appear on accounts separate from those of the Caisse des Depots et Consignations
of which we have spoken. Each of these national offices
has a distinct entity, subject to special rules, but under
one general management.
Q. But does this company issue life insurance just as
any other insurance company would do?
A. Absolutely in the same way, but the object in view
is not the same. In creating its provident institutions, the
State especially aimed to favor the people's thrift by
facilitating payments down to the smallest installments.
Thus the national old age pension fund receives install-

297

National

Monetary

Commission

ments as low as i franc. On the other hand, the total
of installments during any one year by any one person
can not exceed 500 francs, and the maximum of annuities
purchasable must not exceed 1,200 francs.
In the same way, the life insurance office insures for a
sum not exceeding 3,000 francs, payable after death.
Moreover, owing to their philanthropic purpose, these
institutions no not seek profit, but provide insurance at
cost.
Q. Is this a corporation?
A. The Caisse des Dep6ts et Consignations is not a corporation. It is a state organism, but, while charging the
Caisse with the management of all private funds, which
may be turned over to it by the State under different headings, the legislature bestows upon it full autonomy, in
order to avoid even a semblance of possible confusion in
the handling of private moneys with the handling of public
moneys. Moreover, it has placed the Caisse under the
direct supervision and the guaranty of the legislative
powers. The result .thereof is quite a special organization.
At the head is a director-general appointed by the Government, who can not be removed, like other state officials,
except on the motion of the board of supervisors of the institution. That board consists of two senators, two deputies,
the governor of the Bank of France, two members of the
council of state, one of the presiding judges of the court
of accounts, the president or one member of the chamber
of commerce of Paris, and the director of the general
transfer of funds in the Ministry of Finance. That board
can appear in both chambers, to report upon the materia
and moral condition of the institution.
Q. What is done with the profits realized from the
business?

298

Interviews

—

France

A. As far as insurance is concerned, the national offices
do not seek to make profits. When there are profits they
are added to the reserves and thereby increase the guaranty for all insured.
Profits earned by the Caisse on deposits of the savings
banks are turned over to the reserve and guaranty fund of
savings banks. As regards the mutual benefit societies,
there are no profits, because the societies receive credit for
the same interest as earned. As to the profits earned by
the management of other deposits and consignments, they
belong to the Caisse; but since 1837 the Caisse turns
them into the treasury.
Q. What does the treasury do with them?
A. It books them under the heading of "sundry receipts" in the general budget.
Q. What is the amount of your deposits, independently
of the insurance department?
A. About 5,000,000,000 francs, without counting deposits of rentes and securities, among which should be
included the holdings of the national savings banks—
about 1,500,000,000 francs.
Q. Are some of these deposits on time and some on
demand?
A. We never pay positively on demand. This is owing to
the nature of the institution. It is not within its duties to
offer individuals the same facilities for payment as a bank.
Even if it receives voluntary deposits, and this is only
done in Paris, it is because the legislature thought that an
establishment, which was a national depositary for private funds, paid in to the estate under compulsion, should
also be prepared to keep funds of those who desire to
avail themselves of the security offered by such depositary.
But these deposits, which are not subject to check, can

299

National

Monetary

Commission

only be withdrawn at ten days' notice and yield only i
per cent interest per annum.
Q. What interest do you pay on trustee funds?
A. We have no deposits corresponding exactly to your
deposits of "trustees," but we have something similar in
"consignments"—that is to say, sums in dispute—which
are left on deposit with us during the entire period of litigation, until a final decision is rendered by the courts.
They amount to 310,000,000 francs.
Q. Do you pay the same interest?
A. On all sums thus deposited we allow interest at the
rate of 2 per cent from the sixty-first day of deposit up to
but not including the date of repayment. That rate has
been determined by law, enacted on July 26, 1893. But
concerning voluntary deposits of individuals as well as
public institutions, sums sequestered and other sundry
deposits, the director-general fixes the conditions and the
rate of interest by decisions, rendered with the consent of
the board of supervisors, and approved by the Minister
of Finance. In this way, the director-general may,
according to circumstances, and in order to maintain the
equilibrium of his finances, cause the terms to vary.
Q. What restrictions govern the investment of your
funds?
A. That depends on the source they come from.
There is no law regarding the manner in which funds
accruing from deposits and consignments are to be invested. As regards the savings banks, the mutual benefit
societies and insurance funds, the investments are made
in accordance with the provisions of the respective
laws.
Q. In what manner do you usually invest money received from those sources where you are not restricted?

300

Interviews

—

France

A. According to circumstances, and owing to the proportionate importance of the various elements constituting
our liabilities. As long-term investments, we make loans
to departments and municipalities, sometimes to the State;
we take government rentes, treasury securities, guaranteed
railroad bonds, etc. As short-term investments, we take
treasury bonds, bonds of the Monte de Pi6te* of Paris
(municipal pawn shop), etc. Finally, we keep large sums
in cash, either in our own vaults or to our credit in the
treasury and the Bank of France, which, for that purpose,
keep account currents on demand for us.
Q. What are some of the investments which may be
made for the other departments? The caisses d'epargne
(savings banks), for instance?
A. The above-mentioned investments also apply to the
different departments managed by the Caisse. Of course,
the proportion of each kind applied to the holdings of
each department depends upon the nature of its operations.
Thus, as regards the old-age pension fund, for instance,
which does not exactly require quick assets, the larger
part of the holdings, representing the standard reserves,
consists of bonds of departments and municipalities.
On the contrary, for savings funds we especially select
securities more easily convertible into cash, and in that
respect none are preferable to French rentes, because of
their large market. Moreover, it is difficult for us to buy
securities having but a narrow market, owing to the influence our operations would have on the price.
Q. In practice, then, you confine yourselves to government securities or securities guaranteed by the Government?
A. Almost entirely. For the investment of funds accruing from the deposits of ordinary savings banks, which

301

National

Monetary

Commission

exceed 3,500,000,000 francs (aside from the account of the
postal savings bank) about 3,000,000,000 are invested in
rentes, and the balance is represented by sundry securities,
treasury bonds, railroad bonds, and bonds of the Credit
Foncier de France. The moneys of the insurance office
are invested in loans to the departments and municipalities and in rentes.
The Caisse also grants loans to public institutions, and
makes advances on treasury bonds.
Q. You do not, as a rule, invest in mortgages?
A. No; owing to the difficulty in disposing of such
investments.
Q. You purchase no bills and do no commercial business
whatever?
A. No; that role is played by the Bank of France.
Sometimes we make advances on securities, but only on
treasury bonds.
Q. Have you any branches?
A. The Caisse has no branches. Its operations in the departments are effected by officials who are treasury agents.
Q. So that your business is done practically over the
entire country?
A. Yes; and even in Algeria and the colonies.
Q. Do you receive deposits at any other office than this?
A. Wherever there are treasury agents. The treasury
agents, acting as officials of the Caisse, effect our transactions in the provinces as if they were effected in Paris.
Their bookings are centralized in Paris and periodically
settled.
Q. How many of such agencies have you?
A. In each department in France there is a treasurer
paymaster-general (tresorier payeur general) who is responsible for all other treasury agents in the department. In

302

Interviews

—

France

each arrondissement, except in the capitals of departments where the office of the treasurer paymaster-general
is situated, there is a special financial receiver (receveur
des -finances) who is also our agent. Well, there are over
350 arrondissements. Moreover, for certain transactions
the tax collectors cooperate with us, either in a discretionary manner under the control of the financial
receiver or sometimes as our own agents.
Q. Do you receive the taxes paid in to the State?
A, No; we receive no public moneys. Our exclusive
mission is to receive the funds of individuals intrusted to
the State, which has taken special pains to keep separate
its own funds from those merely intrusted to it.
Q. Your organization is quite unique in the world, is
it not?
A. There is nothing like it in England or America, but
there are similar institutions in Belgium and Italy, for
instance. In France this institution is highly appreciated
by the lawmakers, who steadily increase its functions,
and the number of laws and regulations governing the
Caisse is ever growing.
Q. Would you receive the account of an individual as a
savings bank would?
A. Only in Paris we keep voluntary deposit accounts,
but these accounts can not be compared with those opened
by the savings banks to their customers. Moreover, they
are credited with but a low rate of interest (1 per cent);
their number is of very little consequence.
Q. It is customary in France for savings banks to carry
, their reserve with this establishment?
A. The savings banks are bound to turn over to us all
they receive from their depositors, except such sums as
may be required to meet immediate demands. As to

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their personal capital, built up by gifts and yearly profits,
they have the alternative of either depositing the sums in
the Caisse des Depots et Consignations or of investing them
themselves within the provisions determined by law. The
amount left with us in account current, of that personal
capital, may be estimated at upward of 80,000,000 out of
a total of 175,000,000.
Q. Do you mean that all of the deposits of all the
savings banks of France are deposited here by requirement of law?
A. Yes; each savings bank has an account current with
the Caisse, where it is legally bound to deposit the sums
received from its depositors, and where it draws the funds
necessary to meet withdrawals.
Q. Then, as a matter of fact, this is a central bank for
the savings banks of France?
A. Precisely.
Q. Does that apply to private savings banks and also to
the postal savings banks?
A. Yes; but with a different organization.
Q. And you pay how much on those deposits?
A. A distinction should be made. For the ordinary savings bank the rate of interest is fixed each year according
to the income from the investments. Just now that rate
is 3.25 per cent, and moreover it has not changed since the
savings-bank law of July 20, 1895.
In order to be able to allow that rate the investments
must yield at least 3.50 per cent, because, according to the
provisions of the law, a special reserve and guaranty fund
is established, which each year must receive an allowance,
not less than 0.25 per cent of the total of savings banks
funds, up to the time when it shall have reached 10 per
cent. That reserve fund now amounts to more than

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France

200,000,000 francs, and would be applied to reimburse the
Caisse for any losses resulting from the sale of its securities.
It should be noted in that regard, however, that the
investments have largely increased in value, a large part
of the rentes having been purchased in the neighborhood
of 85.
Q. What is the rate of interest allowed by you to the
savings banks? And what is the rate of interest allowed
by the savings banks to their depositors?
A. The savings banks themselves fix the interest they
are able to allow clients, within the limits prescribed by
law. Indeed, they must put aside for their managing expenses and the building up of a personal capital not less
than one-fourth per cent nor more than one-half per cent
of the total of the accounts of depositors. As the Caisse
allows to them, as we have just seen, 3X P e r cent, they
consequently allow to their clients 2 ^ to 3 percent interest.
The system of the postal savings bank is different. We do
not allow to it a fixed rate of interest, as we do to the other
savings banks. We merely hold for its account the securities purchased with its funds, which remain its property,
and the income of which we credit to it in full. Therefore
it constitutes its own reserve fund by means of a levy
equal to 0.60 per cent of the amount of deposits—a levy
which permits it to cover its own managing expenses.
The rate of interest allowed by the postal savings bank to
its depositors must always be 0.75 lower than the interest
allowed by the Caisse to the ordinary savings banks. At
the present time it is 2.50 per cent.
Q. Is the insurance part of your business very important?
60481—10

305

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Monetary

Commission

A. It is important as far as the old-age pensions are concerned, but not as regards the insurance against accidents
and death. For the service of annuities, the national oldage pension office receives every year a considerable number
of installments (about 5,000,000); the sum thus deposited
annually is near 100,000,000, and the present value of its
investments approaches 1,500,000,000. It pays 50,000,000
in annuities in round amounts.
Q. What is the character of insurance against old age?
A. The national old-age pension office undertakes to pay
old-age pensions to all who pay assessments. These
assessments may be kept up or suspended at the pleasure
of the interested parties. As each installment gives title
to an eventual annuity which augments the annuities
yielded by previous installments, anybody can take a
policy in order to secure a pension from the age of 50. The
annuities may be contracted for either by the beneficiaries
themselves or by a donor. The beneficiary must be at
least 3 years old. These annuities may amount to 1,200
francs.
Q. It is in the character of an annuity fund?
A. Nearly so, our life annuities being in reality annuities
for an uncertain period.
Q. Do you endeavor to build up this business? Do you
have solicitors, or does the business come to you?
A. We have no special agents; nevertheless, we solicit
business. We allow no commissions, except small allowances to our officials, but we place signs in the offices of
the treasury paymasters-general, the financial receivers, tax
collectors, and postmasters, who are acquainted with the
workings of the institution and are able to give the public
all the information they require.

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France

Q. Do you have an account with the Bank of France?
A. Yes.
Q. About how much?
A. This varies greatly, and the account has no limit. On
March 31, 1908, the total of our accounts with the Bank
and the treasury amounted to 423,000,000 francs.
Q. Do you hold cash in your vaults to any extent?
A. Not a great deal, but we keep here all our securities,
either those forming our investments or those merely deposited with us for safe-keeping or as consignment.
Q. If you were called upon to meet unexpected and
heavy withdrawals, how would you provide the cash with
which to meet them?
A. It is, as we mentioned before, a question of management of our treasury. We strive to be very careful and
we are rewarded for it. A few years ago there were demands made on us aggregating 400,000,000, of which nearly
200,000,000 were made within three months. The reimbursements were effected with ease, without even having
to sell any of our rentes on the Bourse, or asking the
Bank of France for advances on our securities.
Q. Is it customary for the Government to carry a cash
reserve in their own vaults?
A. That does not concern this office.
Q. In practice you do not endeavor to carry a certain
percentage of reserve in cash and in the Bank of France,
as I understand it?
A. We have no fixed rule on that score. That is a question of judgment, and the amount we keep is determined
by circumstances, and also by the proportionate importance of the sundry elements composing our liabilities.
Q. Can you state approximately the amount of deposits
in the savings banks of France?

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A. For the ordinary savings banks, a little more than
3,500,000,000 francs; for the postal savings bank, nearly
1,500,000,000, say a total of 5,000,000,000 in round figures,
although the maximum amount in account for each depositor has been reduced by the law of 1895 to 1,500 francs.
Before that law, savings banks books could be written up
to 2,000 francs. The reduction which was gradually
effected was finished in 1901.
Q. Are you referring to the postal savings banks or to
other savings banks?
A. To both. Not only is the total of individual deposits
limited to 1,500 francs, but no depositor is allowed to deposit more than 1,500 francs within a year, in order to
avoid his using a savings bank account as a bank account.
For instance, if a depositor pays in 1,500 francs in 1908,
and withdraws it during that year, he can make no further deposit until December 31. We do not endeavor
to encourage deposits from well-to-do people; savings banks
are established to promote saving.
Q. Of the total amount of 5,000,000,000 deposited in
the savings banks, how much is deposited in this institution?
A. The 3,500,000,000 which have been deposited with
us by the ordinary savings banks are represented by assets
of over 4,200,000,000, owing to the increased market value
of securities which compose it and of our reserve; the
funds of the national savings banks deposited with us
represent additionally a value of 1,500,000,000, making a
total of 5,700,000,000.

308

CAISSE DES DEPOTS ET CONSIGNATIONS.
Caisse des Depdts et Consignations, Bilan au 31 mars 1008 {execution de Varticle 112 de la loi du 28 avril 1816).
ACTlF.

Francs.
Numeraire et effets a recevoir
1, 222,034.15
Rentes sur l'Etat et valeurs diverses:
Depdts et consignations—
Rentes
179.275,672.10
Valeurs diverses
76,691,521.44
Exposition universelle de 1900—Rentes
,. .
3,383.511.58
Fonds provenant des socidtes de secours mutuels—
Rentes
__
226,721,352.85
Valeurs
29,621,899. 60
Fonds de reserve et de garantie des caisses d'epargne—
Rentes..
66,020,015. 31
Valeurs
_
...
79, 718,085.52
Caisses d'epargne ordinaires—
Rentes
3, n o , 906, 450. 60
Valeurs diverses
510,385,173-34
Prets aux d6partements, communes et £tablissements publics:
Depdts et consignations—
Francs.
i°0 Anterieurs a 1891
1, 204, 240.13
2 Posterieurs a 1890
91,924,876.40
93,129,116.53

Prets aux departements, communes, et chambres de commerce.—Soci£t6s de secours mutuels
Avances a divers:
Fonds de reserve et de garantie des caisses d'epargne
Comptes courants
Comptables preposes de la Caisse des depdts et consignations
'
Comptes d'ordre et divers
Profits et pertes
Services speciaux geres par la Caisse des depdts et consignations (Caisse d'assurances en cas de deccs)

Augmentation

PASSIF.
Consignations
Caisses d'epargne ordinaires
Soci£t6s de secours mutuels
Fonds de reserve et de garantie des caisses d'epargne
Depdts divers:
Depdts volontaires appartenant a des
Francs.
particuliers
1.772,253.95
Etablissements publics ou autres etablissements assimiles, L/C de depdts._ 37, 753,369. 58
Notaires, L/C de depdts
68,380, 893. 94
Pensions de retraites sur fonds speciaux _ 8,289,316.37
Produits du prelevement effectue sur
le pari mutuel—
i° En faveur des ceuvres locales
de bienfaisance
16,457, 410. 51
2 0 Pour subventions aux travaux
communaux d'adduction d'eau
potable
_
7,617,540.63
Sequestres ou autres mandataires de
justice, L/C de depdts
24,042,911.75
Autres depdts
_
_.
_ 16,912,091.95

13,710,768.98
4,309.562.62
423,921,103.85
50,854,283.20
4,967,049.53
4,962,847.94
1,298.00

4,879,801, 747.14

Mandats ordonnances
Services speciaux geres par la Caisse des depdts et consignations:
Divers
Caisse nationale d'epargne
Caisse nationale des retraites pour la vieillesse
Comptables preposes de la Caisse des depdts et consignations
Comptes d'ordre et divers
Comptes de reserve
B enefices realises pendant l'annee 1907
Profits et pertes
Produits et charges provenant de la gestion des caisses
d' 6pargne ordinaires
Produit de la decheance trentenaire. (Loi du 16 avril
1895)
Augmentation

Francs,
310,409,096.17
3,661,084,523.89
307.850,796.57
219,442,615.75

181,225,788.67
3,863,074.00
1,544,511-07
28,182,544.90
48,190, 230.02
53,254,018. 70
i,553,4n.8i
30,3591631.02
5,281,375.08
27,560,129.49

4,879,801, 747.14

Balance sheet of the Caisse des Dipdts et Consignations March 31, 1908.
ASSETS.
Cash and cash items
Government bonds and other securities:
Deposits and assignments—
Government bonds
Other securities
Universal exposition of 1900—Government bonds
Mutual aid society funds—
Government bonds
Other securities
Savings bank guarantee funds—
Government bonds
Other securities
Savings bank funds—
Government bonds
Other securities
Loans to departments, communes./before 1891..
$232,418)
and public institutions
\after 1890 - - 17,741,501/
Loans to communes and chambers of commerce, Mutual aid
societies
Surplus and guarantee funds of savings banks
iCurrent accounts
Amounts due from authorized agents
Sundry accounts
1
Profit and loss
Special services conducted by the Caisse (life insurance
funds)
^

TotaL.

60481—10.

LIABILITIES.
$235, 853
34, 600, 205
14, 801, 464
653,017
43,757,221
5,717,027
12,741,862
15.385,591
600, 404, 945
98,504,337
17.973,919
2,646,178
831,746
8I,8I6,773

9,814,877
958,641
957,830
251

94i,8oi,737

(To face page 308.)

Funds consigned by the courts
_•
_
Ordinary savings bank funds
Funds of mutual aid societies
Guarantee funds of the savings banks
Sundry deposits:
Voluntary deposits of individuals
Deposits of public institutions
Deposits of notaries
Special pension fund
Product of levies upon lotteries—
First. In favor of local philanthro.
pies
Second. For subsidy of water supply undertakings
Funds sequestered by the courts
Other deposits

$59, 908, 956
706,589,313
59, 415.204
42,352.425

$342,045
7, 286, 400
197. 5i3
599. 838

3,176,280
470,185
640,282
264,034

Bills payable __
Special services managed by the Caisse:
Sundry
National savings bank
National pension fund for old age
Amounts due to authorized agents
__
__
Sundry accounts
1
Surplus accounts
Profits earned during the year 1907
Profit and loss
Product from the management of the ordinary savings
banks
Balances unclaimed for 30 years (law of April 16,1895)
TotaL.

34,976,577
745.573

298,091
5.439.231
9,300,714
10, 278, 026
299. 809
5. 859. 409
1.019,304
5.3i9,io5
941.801,737

CREDIT AGRICOLE.
Interview with M. Decharme, chef du service du credit mutuel
et de la cooperation agricole at the Ministfcre de r Agriculture.
Q. What is the nature of the business of the Credit
Agricole and when was it instituted?
A. The first law was in 1899. The first bank was
opened in 1900. The Credit Agricole is based upon local
organizations. France is divided into 86 departments,
in each of which we are to have a regional bank (caisse
regionale); and we hope eventually to have a local office
(caisse locale) in each commune of each department. We
have 36,000 communes in France and as yet there are
only 2,500 of these banks open. Among these 36,000
communes there are many which are cities, which naturally would not have agricultural banks. There are only
2 out of the 86 departments in France which have not
already established a regional bank.
Q. Who furnishes the capital?
A. The basis, of the system is the local office of the
Credit Agricole in which each member—local farmers—
has one or many shares of 20 francs, but on which he has
only to pay 5 francs down. On payment of these 5 francs
he becomes a stockholder. When a local office has been
established it turns all of its capital over to the regional
office. Then comes the State which advances to the regional bank an amount four times the capital which has
been subscribed by the local banks. If there were in one
department 10 local offices which contributed 10,000
francs, that would be altogether 100,000 francs capital as

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a basis in the regional office; the Government would then
turn over 400,000 francs. The money given by the Government is not really given; it is lent without charge,
without interest.
Q. For what purposes can this capital be used?
A. The regional office does not lend directly to the
farmers; it lends to the local office, and the local office has
a board of directors which examines the demands of the
various members.
Q. How is that board of directors selected?
A. It is elected by the members of the local office.
The local offices now for the most part have limited
liabilities to the amount of the capital which has been
paid in. In general they pay in all the capital subscribed and a man is really liable for all of the subscribed
capital, but he is not obliged at the start to pay in more
than 5 francs on a 20-franc share. At the present time
the State has paid in to these regional banks 33,000,000
francs and the capital in round figures of the regional
banks is for all France 10,000,000 francs. The State has
not yet contributed quite four times that capital. If a
small regional bank is formed with a small capital, say
50,000 francs, the Government would at once hand over
200,000 francs; if, however, a regional bank is opened
with a large capital, say of 250,000 francs, the Government would not immediately hand over 1,000,000 francs,
but would wait until the need was felt. Thanks to the
10,000,000 francs of capital in the regional banks and
the 34,000,000 francs contributed by the Government,
the institutions have loaned in the course of their existence 360,000,000 francs.
Q. From where do these 33,000,000 francs come?

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France

A. From the Bank of France. When the charter of
the Bank of France was renewed in 1897 it was provided
that the Bank should furnish 40,000,000 francs to the
Government for the purpose of agriculture, without interest. This, it must be said, is a loan which the Bank makes
to the State which nominally the State must return to
the Bank. In addition, the Bank of France is obliged by
the law of 1897 to turn over to the State for the benefit
of agriculture an annual tax which amounts to oneeighth of the rate of discount on the productive circulation, and, thanks to the crisis in America last year, the
rate of discount was so high that they turned over
7,000,000 francs. All together the Bank of France has
turned over up to July 1, 1908, 92,000,000 francs in this
last decade for the Credit Agricole. The 58,000,000 francs
which are still available out of the total which the
Bank of France has turned over to the Government
and which are now in the Treasury have been the
subject of much discussion, and there have been a
great many projects for depositing them with the
Caisse des Dep6ts et Consignations, but the Minister of
Finance has steadily opposed that policy. This sum if
deposited with the Caisse des Depots et Consignations
would receive interest. There is a commission of 32
members appointed by the Minister of Agriculture, an
advisory commission. The Minister of Agriculture appoints
this commission of 32 members, including 4 Senators, 6
Deputies, the Governor of the Bank of France, and several
heads of regional offices, and they consult and meet four
times a year with the Minister of Agriculture and advise
him as to the amount of government money which he
shall turn over to the regional banks, and these 34,000,000

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Commission

francs which have already been turned over in the last
one or two years have been turned over in amounts of 2
or 3 millions at a time. There are still 52,000,000 francs
which have not been turned over; they are at the disposal
of the Minister of Agriculture. For instance, this year in
the region about Rheims, where vines are grown, the
frost killed the vines, and the manufacturers of champagne have very recently turned over to the regional office
in Rheims, which is the center of the champagne district,
1,000,000, francs in order that the Government will have
to turn over 4,000,000 francs for the benefit of the small
farmers in that region, and you will read in the papers
that the Minister of Finance has been drawn upon by the
Minister of Agriculture for 4,000,000 francs to be sent to
Rheims to be used for the owners of vineyards whose
vines have been killed by frost, and in that region these
manufacturers have given their joint guarantee for all
the loans of that regional office at this time.
Q. Under what conditions do they make loans to farmers,
and are their loans confined entirely to people engaged in
agriculture?
A. The State loans to the regional office without interest; the regional office loans to the local office at 3 per cent;
the local office loans to the farmers at between 3 ^ and 4
per cent; in the northern region at 3 ^ per cent; in the
southern at 4 per cent.
Q. Under what conditions?
A. The farmer who wants to borrow from the local office
draws a bill upon himself, takes it to the local office, and
the board of administration there considers it. If they
approve it, the president signs it—and it has then two
signatures—and then sends it to the regional office; if the

312

Interviews

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France

regional office has plenty of money they will lend the
money directly; if not, the president of the regional office
signs it—it has then three signatures and is bankable
paper—and it is taken to the Bank of France. During the
crisis in the south of France last year in the wine-growing
region at Montpellier, the center, the regional office had i
million capital; the Government then added 4; that made
5, but they lent at that office all together 16 millions, and
the difference was obtained from the Bank of France in
the way described by using paper with three signatures.
Before the founding of these agricultural societies it would
have been difficult for a farmer to obtain the three signatures necessary to borrow from the Bank of France, and
what happened last year in the south of France could not
have occurred before the organization of the Credit Agricole. It should be added there has never been one cent
lost by the Credit Agricole.
Q. Are all loans made to members?
A. Yes; exclusively to members.
Q. Who can become a member?
A. Farmers.
Q. Men who own the land themselves?
A. No; anyone working on the land, whether working
on his own account or for some one else.
Q. An ordinary laborer?
A. That needs some distinction.
Q. Anyone who works on the land, say for six months
or two months?
A. No; agricultural workmen are excluded. We do
not lend to people to support themselves for nourishment. We lend them money to increase the production
of the land.

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Commission

Q. Must a man have some share in the crops?
A. We lend money to buy a horse, a cow, or to buy
manure. The important distinction is that we will lend
to a man who rents a farm, but does not own it, to buy
machinery, cattle, etc., but we will not lend to a man who
wants to borrow the money for his own consumption;
we do not lend money for a man to buy a coat, for instance.
These local offices are in communities where everybody
knows everybody else, and they always ask what the man
wants to borrow for, and if he says he wants 400 francs
to buy a cow, they watch him, and if four or five days
afterwards he has no cbw, they know it. As the responsibility is without limit, the other members of the locality
would be responsible. At the beginning the farmers
were afraid of unlimited responsibility, and on that account
they had to make the responsibility limited, but now, in
all of the new offices, the responsibility is unlimited.
Q. You do not lend on the land itself?
A. No. We have different sorts of credit. The first
kind of credit is personal credit, bills renewable from
three months to three months, but never exceeding two
years, and after the first year, on the fourth renewal, onehalf of the note had to be paid. This is the most important
form of credit. Since 1906, however, there has been
another kind of credit—collective credit for a long term for
cooperative societies.
Q. What do you mean by cooperative societies?
A. They are societies for the production, preservation,
sale, or transformation of agricultural products. There
are cooperative agricultural societies in the wine-growing
regions which have their own wine cellar; there are cooperative dairy societies for making butter and cheese;
there are also cooperative societies which use water falls

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I n t e r v i e w s

—

France

and electricity; cooperative mills to grind corn; cooperative railways to bring beet roots to the sugar refinery;
cooperative distilleries and cooperative warehouses for
corn. To these cooperative societies we make loans for
twenty-five years. The Government loans without charge
to the regional office and the regional office lends to these
cooperative societies for twenty-five years at 2 per cent.
Q. What is the security?
A. The guarantee is the consolidated liability of all of
the members of these cooperative societies and also a
mortgage upon their real estate; their responsibility is
absolutely without limit.
Q. Are there many in France?
A. Three hundred and fifty now; it has just begun; the
law was only enacted two years ago. Very few of these
cooperative societies existed prior to that time.
Q. Have they any capital?
A. The advances made by the Government to these
cooperative societies are limited to twice the capital
furnished by themselves. These loans are made for longtime investments, and if a cooperative society wants a
capital of 150,000 francs they have to contribute 50,000
francs and regional societies will contribute 100,000 francs
of Government funds at 2 per cent.
Q. Who decides the amount of these loans?
A. The Minister, acting with the commission I have referred to. The request comes through a regional office. If
the regional office does not approve, the matter goes no
further; if it does approve, then the question as to whether
the Government shall make the loan comes to the commission, of which the Minister of Agriculture is the head.
Q. Does the law which creates these cooperative societies fix any requirements as to who shall be members?

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Monetary

Commission

A. Yes.
Q. Can you in a few words tell us what those requirements are?
A. The law says that the members must be liable without limit, and they all sign, when organizing, a document accepting the liability.
Q. Can anybody become a member without regard to
their financial responsibility or to their vocation?
A. They must be landowners, but a small landowner
would be accepted. A man to be a member of a cooperative society must own some land, but in cooperative societies the amount of shares which a man may have taken
depends upon circumstances. In a cooperative dairy a
member having 20 cows should have 20 shares, and a
man having 1 cow should have 1 share, but both are liable. These cooperative societies pay no dividends, as
such, but a stockholder may receive payments which can
not in any case exceed 4 per cent.
Q. From whom does he receive it?
A. It comes from the profits of the cooperative society.
At the end of the year when the balance sheet is reckoned
up the profits of this cooperative society are divided into
different parts. The first payment which must be made is
the 2 per cent to the regional office who makes the loan;
the second charge is for the sinking fund for the capital of
that loan; third, there is given to the shareholders this
interest, which can not exceed 4 per cent upon the capital
which they have paid in, and fourth, if anything remains
it is divided between members, not according to the capital
which they have, but according to the amount of business
they have done. The Government lends without any
charge to the regional office, but the regional societies loan
to the cooperative societies at a rate of 2 per cent.

316

Interviews

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France

Q. How do the cooperative societies who want to borrow
proceed? Do they address themselves first to the regional
office and the regional office apply to the Minister of Agriculture, and at the end is it the Minister of Agriculture,
with the Council of Administration, who makes the loan
through the regional office to the cooperative society?
A. Yes. It may seem strange that the Government
does not loan directly to these cooperative societies instead of through regional offices, but it is because in case
the cooperative society fails and the resources of all its
members are insufficient, and the guarantee which has
been taken upon its real estate fails, then the regional
office stands responsible to the Government for that loan,
and therefore the Government lends to the regional office
free of charge and the regional office charges 2 per cent for
its responsibility.
Q. If a request for a loan is accepted by the regional office
and the Government, does the regional office loan it from
its own capital or does it always go to the Government?
A. It always goes to the Government; the regional
office never acts on its own account except for short-time
loans, three months, that is to the local offices and through
the local offices to farmers, but in the case of the cooperative societies loans are for twenty-five years arid must
come from the Government. The amount of the loans is
limited by law. The act of 1906 definitely limited the
amount which could be loaned to cooperative societies;
it was fixed at one-third of the return which comes annually from the Bank of France. They can not touch, for
instance, the 42,000,000 francs paid over by the Bank
of France in 1897. If this year the Bank of France has
to pay a tax to the Government of 6,000,000 francs,
2,000,000 could be loaned to the cooperative societies.

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Q. So that in fact those loans come out of that fund of
52,000,000 francs?
A. Yes.
Q. The Credit Agricole makes no loans, but serves as
intermediary and receives 2 per cent for its services?
A. Yes; the theory is that if at the end of the twentyfive years a cooperative society went bankrupt, the regional office could reimburse the State practically out of
the commission of 2 per cent for twenty-five years, so that
at the end of the twenty-five years it would be able to
repay the State without having gained anything or lost
anything.
Q. Can these cooperative societies be formed for anything but for agriculture?
A. No; they are exclusively agricultural.
Q. The owner of a mill, can he borrow from the regional
office?
A. Yes- we might, for instance, have a cooperative
weaving society. The transformation of raw material in
the first degree as from the wool to the yarn is regarded
as agricultural, but when you go beyond that degree
it is no longer agricultural. A society which preserves
meat may get a loan on the condition that the pigs
or other animals to be preserved have been raised by
members of the agricultural association or cooperative
association, but they may not buy the meat outside, and
it is the same with wool. This rule is very rigidly adhered to. If a farmer, a member of one of these cooperative associations, had 2 pigs, he could take these 2 pigs to a
cooperative slaughterhouse or canning company, but he
could not go outside and buy other pigs and present
them This is very carefully stated in the law.

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Q. I suppose in the regional offices all of the members
of all of the local offices are responsible for the liabilities
of the regional offices?
A. Yes; in this sense, that the regional office has no
other business than that of the local offices. It is scarcely
conceivable that a local office should go bankrupt, when
it has perhaps 500 members and all of their property is
pledged, but if that should happen the regional office is
responsible; that is to say, all the other local offices
belonging to the regional office are each responsible.
Q. As I understand your organization, the members of
the local branch have their own council of administration
elected by their members. The regional office has also a
council of administration, elected by whom?
A. The council of administration of the regional office
is elected by the representatives of the local offices.
Q. And every member of any association is responsible
for all the debts of all the associations?
A. Practically, yes.
Q. In the region or in France?
A. It is incredible that it should go beyond a region.
Q. Is there a central office outside Paris?
A. No. The regional offices are under the control of
the vState and have inspectors who go once or twice a
year and examine them.
Q. Are the regional offices under the control either of
the Minister of Agriculture or of this office?
A. In two ways, yes. Every month they all send here
their balances and the minutes of the meetings of their
councils of administration; every regional office is inspected one or two times a year by the inspectors from the
Minister of Agriculture.

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Q. Can you, if you see fit, direct them as to their way
of doing business?
A. The law allows us, in case they have made loans
not according to the law or have violated the law, to
immediately demand a return of the money lent to the
regional office.
Q. Could you do this in the case simply of unwise
management?
A. We do two things: We make no further advances to
them until their affairs have been put into good condition, and we make them return part of the advances. If
that does not suffice, we would insist upon their returning
everything that we had lent.
Q. An individual member is responsible for all the
members of the association, and they are responsible for
all the obligations of the regional office; does their responsibility go beyond that? A member of the society in one
department, is he responsible for what happens in another
department?
A. No. His responsibility is limited * to the department in which his local office is. It should be said, however, that the 86 regional offices are now taking steps to
form a society of mutual insurance for the entire system.
Q. What becomes of the profits earned by the regional
offices?
A. They pay a dividend which can not exceed 4 per cent
to the local offices, and if there is anything over it goes to
their surplus funds. We hope that the advances which
have been made by the Government are only temporary;
that perhaps in twenty or thirty years the surplus accumulating in these regional offices will be sufficient to reimburse the Government for everything which it has

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advanced. We never hope to return what we get as a gift
from the Bank of France in the way of a tax.
Q. Who pays the expenses of the central office here?
A. It is taken out of the receipts from the Bank of
France.
Q. Do you receive deposits in your branches like other
banks?
A. Yes. We have the right to receive deposits, but
so far we have not taken much; it is a habit to be acquired.
Q. From members or from anyone?
A. No; only from members.
Q. Do you pay interest on them?
A. Yes; when they are on sight, 2 per cent; for one
year, 3 per cent.
Q. Do you compete at all with the branches of the
other banks or with the Bank of France?
A. No; we have an entirely different class of customers.
Q. Is there any other institution of this character in
France, or do you practically cover the field?
A. The members of these local offices are people who
up to the time these local offices were organized had never
had any banking connection at all. The only persons
with whom the local offices compete are individuals who
used to loan to farmers at very high rates of interest.
Q. How much have you loaned up to the present?
A. Since organization, a little more than 400,000,000
francs in the aggregate.
Q. Does that include the Cooperative Societies?
A. There is very little in them. They have only been
working a year. They do not exceed 6,000,000 francs.
Q. Is there any other organization of that character in
France?
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A. There is the "Caisse rurale et ouvriere," both for
the country and town. Its office is at Lyon, and it is a
private institution which refuses the aid of the State. It
is a religious institution and does little business. Its balance sheets run up to 314,000 francs for the whole of
France. It has existed for about eighteen years, but it is
managed mostly by priests in the little villages.
Q. You state there are 350 of these societies organized
within a year; that is an average of 1 for every day.
A. It is a movement which has increased rapidly; like
everything of that sort it grows very rapidly at the beginning and afterwards slows down. The law went into operation in 1900, but it was only in 1904 that this Bureau of
Agriculture was opened here in Paris.
Q. How many members are there in all of the societies?
A. About 150,000 members who can borrow; that is to
say, 60 members to a local office.
Q. What is the total amount of your existing loans?
A. Sixty-seven million francs, an average of from 450 to
500 francs per member.

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CREDIT AGRICOLE.
Credit Agricole

Mutual.

Dec. 31, 1907.
Number of local offices
Number of members
Capital subscribed
Capital paid in
New loans granted during the year
Loans not repaid at the end of the preceding year

2,168
96, 192
$8, 929, 634
5, 654. 291
45, 376, 309
25,332,147

Total
Repayments
Loans outstanding

70,708,456
40, 256, 186
30, 452, 270

H>y

SAVINGS BANKS.
Interview with M. Georges Paulet, Directeur de P Assurance
et de la Pr&voyance Sociales, au Ministfere du Travail.

Q. We should be glad to have you explain to us the
character of the business which you transact.
A. Since 1818 there have existed in France savings
banks which the law designates to-day "ordinary savings
banks," to differentiate them from the postal savings
bank. Up to 1835 these savings banks existed under
different forms, such as private institutions, joint stock
companies, etc., but since 1835 they have been under the
surveillance of the Government and have been considered
as institutions "of public utility. ,, There are 550 ordinary savings banks.
Q. Are the laws governing them practically the same?
A. It is rather a complicated matter, like all historical
institutions. The state laws are the same for all the banks,
and then each savings bank has its own statutes.
One can divide savings banks into three groups: First,
those which are quite independent of municipal authority,
and are subject only to the control of the state; second,
those which are more or less connected with the municipal
organization, in which the mayor is perhaps one of the
chief officers, and other officers can be designated by the
municipal council; third, those which are much more
closely connected with the municipalities, in which the
majority of the officers are legally appointed by the municipal council, but even these savings banks have an independent legal existence apart from the city. All three

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classes are practically organized in the same way. They
are governed by a board of directors which, according to
the three groups just mentioned, is self-electing or is
appointed altogether or in part by the municipal council.
Savings banks have two classes of funds to dispose of:
First, deposit funds, deposited by people and which have
to be placed in the Caisse des Depdts et Consignations
for investment according to the provisions of the law;
second, the accumulated earnings of the savings bank—that
is, the surplus accumulated out of the profits of its business.
The second class of funds can be invested in a less restricted
way, and one part of this fund, viz, one-fifth of the capital
and all the annual revenue, can be invested in workmen's
dwellings and social institutions of that sort. (Art. I, law
of 1895.) The funds deposited with the savings bank must
be handed over to the Caisse des Depots et Consignations,
which can invest them according to the law of 1895 in
French "rente," or in obligations guaranteed by the state,
such as railway, municipal, or departmental bonds.
Q. Do any or all of these banks have accounts in any
other banks? Do they carry any cash reserve?
A. They are not allowed to carry more cash than is
necessary to meet the probable demands of several
days by reason of the obvious risk in looking after such
cash. Savings banks can only have a current account
with the Caisse des Depots et Consignations (p. 59 of
the last "Rapport annuel des Caisses d'Epargne"
gives the various investments of the savings banks).
In order to have readily available funds to meet possible
withdrawals from the savings banks, they have an account
with the Treasury which yields a low rate of interest, and
an account with the Bank of France which pays no interest. The account with the Treasury is limited to

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100,000,000 francs. The law does not limit the account
with the Bank of France, but the total of the accounts at
the Treasury and at the Bank of France can not exceed a
tenth of the aggregate deposits. It is not the individual
savings banks which have these accounts with the Treasury
and the Bank of France, but the Caisse des Dep6ts et Consignations which has them and which may be considered
as being the central bank for all savings banks.
Q. Can you state approximately the amount of the
deposits in the savings banks?
A. On December 31, 1906, for the ordinary savings
banks alone we had 7,600,000 accounts, which represented
more than 3,400,000,000 francs.
Q. What rate of interest is paid upon these deposits?
A. The rate of interest paid to the savings banks is
fixed by the rates earned on the investments made by
the Caisse des D6p6ts et Consignations. The latter
withhold as a rule one-fourth of 1 per cent as a special
reserve from the total percentage earned by the Caisse
des Depots et Consignations upon their investments.
The rate paid by the Caisse des D£p6ts et Consignations to the savings banks is always one-fourth per
cent less than they earn; they earn, say, about 3% per
cent, and they pay to the savings banks 3 X P e r cent.
The savings banks in turn have expenses of management which vary from one-fourth to one-half of 1 per cent.
It follows, therefore, that the rate paid by the different
savings banks is not always uniform, and is less by onefourth or one-half per cent or some intermediary percentage than the rate paid by the central institution to
the savings banks; they pay to-day to their depositors
from 2% to 3 per cent upon their deposits.

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Q. Are these institutions mutual savings banks, controlled by individuals in the various localities in which
they are located, or are some of them stock companies?
A. Neither one nor the other. They are not private
associations and are not public corporations, but they
are what in France are called "establishments of public
utility."
Q. Are the deposits secured?
A. Not by law, but they have a triple guarantee, viz:
first, the funds deposited with the Caisse des Dep6ts et
Consignations; second, the property of the savings banks
themselves; third, the general funds which have been
provided and which accumulate in the Caisse des D£p6ts
et Consignations out of that one-fourth per cent which it
holds back from the income on its investments. This
central reserve already amounts to more than 200,000,000
francs.
Q. Is the disposition of funds you mention first a
guarantee?
A. They can not be wasted by the savings banks, as
they have to be immediately handed over to another institution which is responsible for them.
Q. In these various institutions is the board of management composed of merchants and professional men in
the community in which they are located?
A. It varies according to the conditions of the particular bank. Generally they select as officers men of influence in the community who are apt to be men of leisure,
very often men who have retired, or who are of independent means, but there are very frequently important business men on the board. In Paris, for instance, there are
several well-known bankers on the boards.
Q. Have any of these institutions branches?

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A. In many cases they have branches. Altogether
about i ,500 branches.
Q. So that in fact this system of the ordinary savings
banks, with its branches, very generally covers the entire
country of France?
A. Quite. I will give you a map of France showing their
distribution.
Q. What is your control over these banks; do they report to you as an officer of the Government?
A. The savings banks have been subject to the Ministry
of Labor from the beginning, but up to 1895 control was
limited to the examination here of their reports and documents. At that time, however, it was felt that some
system of inspection on the spot should also be devised
and this was furnished through the cooperation of the
Ministry of Finance. The treasurers-general in the different departments forward reports on the savings banks to
the Minister of Finance, who delegates his own inspectors
to examine them. These reports are then communicated
to the Ministry of Labor which examines them in turn and
then addresses to the banks the necessary comments.
Q. How often do you receive reports from the inspectors of the savings banks?
A. It is very variable. The treasurers-general ordinarily examine the conditions of the savings banks at least
once a year; the inspectors of finance make the round of
the country and examine each bank perhaps only once in
four or five years.
Q. In practice about how much money is carried in the
Bank of France by the central bank of the savings banks?
A. It was rather high a few years ago, but one can see
that the larger the amount kept at the Bank of France the
less would be the profits of the institution; so, especially at

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the instance of the advisory commission, the endeavor has
been made to reduce the sum continually, and in the last
report, December 31, 1906, it was only 100,000 francs. In
the Treasury there was at the same moment 88,000,000
francs.
Q. Those 88,000,000 francs were, however, in turn deposited in the Bank of France?
A. They went into the general funds of the Treasury and
were no longer distinguishable from them.
Q. All the deposits are, I assume, subject to check; the
depositors probably losing interest if drawn out within
the month?
A. According to the law depositors must give fifteen
days' notice; as a matter of fact, however, not more than
five or six days are necessary. The law provides, however,
that in case of a crisis the bank may postpone its payments
and pay out only fragmentary sums.
Q. When was the postal savings service inaugurated?
A. In 1881.
Q. What are the aggregate deposits of the postal savings
banks?
A. On December 31, 1906, we had 1,300,000,000 francs.
Q. Those deposits are redeposited in the same way?
A. If we leave details aside, the system is the same as
that of the ordinary savings banks, except, first, that
all the post-offices of the country act as its instruments
for the collection of funds; second, that the legislature of
1881, in order not to permit too great and disastrous
competition with the ordinary savings banks, decided that
the rate paid by the postal savings bank should always be
less by 50 centimes than the rate paid to the ordinary
savings banks by the Caisse des Depots et Consignations.
Q. Does that ratio prevail to-day?

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A. Yes. It should be added that to-day the postal
savings bank system is not connected with the Ministry of
Labor, but forms a part of the Ministry of Public Works,
which controls the post-office.
Q. I understood that the rate allowed by the ordinary
savings banks was fixed at the end of the year according
to the net result of the investments of the Caisse des Depots
et Consignations. Is that true of the postal savings bank
also?
A. The advisory commission of the Caisse des D6p6ts
et Consignations, and the advisory commission of the savings banks meet together in October and, if the rate is to
be changed, it is then changed for the coming year, but
that has nothing to do with the rate for the current year.
Q. Has the rate of the postal savings bank changed
according to the changes made in the ordinary savings
banks?
A. Yes; it is made at the same time, and in the same
manner.
Q. Are the general rules and regulations covering the
postal system the same as those covering the ordinary
savings bank system as to the period when interest is
allowed and the time of withdrawal and general conduct
of the business?
A. Absolutely the same, except for very small details.
Q. Is there the same limit for the sum which can be
deposited in the savings banks in the two systems?
A. Yes; more than 1,500 francs can not be deposited
during any one year, nor can anyone have more than 1,500
francs to his credit. If, for instance, a man has deposited
500 francs and then drawn out these 500 francs he can
not deposit more than 1,000 francs more during that same
year.

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Q. In which system is growth more noticeable—in the
postal or private savings banks?
A. Their growth is about parallel; the postal savings
bank is much less important.
Q. With 2,000 ordinary savings banks (including their
branches), what was the reason for inaugurating postal
savings banks?
A. It was not necessary, but it was useful because there
are post-offices in the very smallest villages, whereas ordinary savings banks and even their branches were only to
be found in towns, and because post-offices are open every
day and all day long while ordinary savings banks are
only open on certain days and during limited hours.
Q. Of the total deposit of nearly 5 milliards, approximately how much are invested in French rentes?
A. More than 4 milliards are invested in French rentes.
For details in regard to the ordinary savings banks see
page 59 of the Compte Rendu. Personally I think it
would be better not to make approximately all investments in French rentes, but that it would be better to
make a certain part in foreign securities that are listed on
the Bourse and in good industrial stocks as well.
Q. Why?
A. So as to earn a somewhat higher interest, to make
this accumulation of funds more useful to trade and industry, and to relieve the State of the responsibility for such
considerable sums. But this, of course, is only a personal
opinion.

331

GERMANY

333

THE REICHSBANK.
Interviews with Herr Dr. von Glasenapp, Vice-President, and
Herr Dr. von Lumm, Director, of the Reichsbank.
Q. By whom are the shares of the Reichsbank owned?
A. It is all private ownership. The shares are held
mostly in Germany and Holland, and distributed in small
lots. The Government owns no shares.
Q. Will you kindly describe the organization and management of the Reichsbank?
A. We have, so to speak, three boards: First, the Curatorium; second, the Direktorium (president and directors);
third, the Central Ausschuss.
i. The Curatorium is composed of five members. The
Chairman is the Chancellor of the Empire. The Emperor
appoints the second member, and it has been the custom to
appoint the Prussian Minister of Finance. The Bundesrath
appoints from among their own number three members,
which completes the board. It is not the law, but it is the
custom, that upon the expiration of the term of a member
of the Bundesrath who is a member of the Curatorium, or
upon his resignation, his connection with the Curatorium
also ceases. The board meets once in three months. It is
not the custom of the Chancellor to preside at this meeting
and the Emperor appoints a representative for him,
usually in the person of the imperial Minister of the
Interior.

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In the Chancellor lies supreme power, although he has
never exercised it but once in the history of the Bank
On that occasion he demanded that they should not receive Russian securities as collateral for loans. This
order has since been revoked.
2. The Direktorium (president and directors) is appointed
by the Emperor for life. It consists of 9 members, 7 of
whom are directors, and 2 of whom are the President and
Vice-President, respectively. The president and the other
members of the Direktorium are recommended by the
Bundesrath to the Emperor, who makes the appointment.
In the case of the directors the advice of the Central
Ausschuss is heard.
3. The third body, the Central Ausschuss, is composed
of 15 stockholders, who are elected at the annual meeting
of the stockholders, together with 15 alternates, who
serve in the absence of any of the members of the boardThis body meets once a month. From among their number they appoint a subcommittee, known as deputies of
the Central Ausschuss, of 3 members and 3 alternates.
The deputies meet weekly with the president and
directors. The Central Ausschuss are made familiar
with the transactions carried on by the Bank and give
their advice and recommendations to the Direktorium
in reference thereto. In practice, their advice is generally carefully considered and taken. In two points they
are given actual power: (1) They have the authority to
limit the amount of securities which may be purchased
by the Bank—not as to the character, but as to the
amount. (2) They have the power to veto any proposed
transactions with the Empire, or any State of the
Empire, if such transactions run counter to the general
conditions of business. The point of this is that the

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Chancellor might request of the Bank loans for the
Empire, or for States of the Empire, for the purpose of
carrying into effect certain plans, and the Central
Ausschuss have the power of vetoing any such action.
The management is so constituted that the Government
has actual and final control through the Curatorium.
The business of the Bank is transacted by the second
body, the Direktorium. In the fixing of the bank rate,
it is their custom to call a special meeting, if need be, of
the Central Ausschuss, who always confer in regard to
the advisability of a change in the bank rate. The final
power, however, lies with the directors, who usually
follow the advice of the Central Ausschuss, but who
have at times disregarded it.
Q. Is there no provision made for the retirement of
members of the Direktorium for inefficiency or for other
causes?
A. No; in the history of the Bank no such situation
has presented itself and it is not expected that any such
occasion will arise.
Q. In the experience of the Bank has there been any
lack of harmony between the Central Ausschuss and the
directors?
A. No; no lack of harmony. As stated before, there
have been exceptions when their advice was not followed.
Q. Is it customary to reelect the members of the
Central Ausschuss?
A. Yes.
Q. How do the directors vote?
A. Each director and the President and the VicePresident have one vote.
Q. How frequently are statements required by the
Government?
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A. The law prescribes that weekly statements be made
in the form of the one which I have furnished you.
Q. Have the shareholders any liability beyond the
amount invested in their shares?
A. No.
Q. How many branches has the Reich sbank?
A. Ninety-three head branches. There are 19 of the
Haupstellen and 74 of the Stellen, not counting subbranches. The Hauptstelle and the Stelle are essentially
the same. They practically differ only in size. There
are also about 400 Nebenstellen, or subbranches, which
report to their respective head branches.
Q. Have you a system of division of profits for the
directors of the Reichsbank or of the branches?
A. The President and Vice-President of the Reichsbank, as well as the other members of the Direktorium,
have no share in the profits. The heads (directors and
vice-directors) of more important branches receive a share
in profits from their respective branches. The percentage
diminishes the larger the profits become.
Q. There is a maximum amount to be received?
A. No.
Q. There is no other plan of division of profits and no
other parties interested?
A. No.
Q. Are the officers or directors of these branches paid a
fixed salary?
A. Yes. We have about 90 of these branches whose
directors and vice-directors share the profits. These
gentlemen never receive the amount of their share in
money; the amount is invested for their account in government securities; from these they receive the interest
on the capital. Only after they leave the Reichsbank do

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they receive the amount. After their death their heirs
receive it.
Q. Is this plan required by law?
A. No. It is by royal instruction. These gentlemen,
who share in the profits, are personally responsible for
any loss, if it is proved that they have not followed
instructions, not complied with the rules, or have made
inexcusable mistakes.
Q. What is the object in giving them a share in the
profits?
A. They have the responsibility of the head branches
and their subordinate subbranches. Therefore they receive a share in the profits, but they are held liable for
any losses they have improvidently incurred.
Q. You have in your statement bills discounted
$221,000,000. Will you kindly describe the class of bills
constituting that item?
A. The law prescribes exactly the kind of bills the
Reichsbank may take. They must not exceed three
months in time, and there must be on the bill the names
of at least two parties known to be solvent.
Q. Are the bills secured or unsecured?
A. They may be unsecured.
Q. Would the Bank discount a bill drawn by one
merchant and accepted by another?
A. Yes. The Reichsbank is not only a bank for
banks, but for the commercial and industrial enterprises
of the Empire.
Q. Do you loan money direct to merchants?
A. Yes.
Q. Have you in Germany what are known as prime
bills and also other classes?

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A. Yes, in practice, but not at the Reichsbank; i. e.,
there are on the market what are known as prime bills,
which sell at a lower rate than that of the Reichsbank and
are therefore taken by the banks.
Q. If one of our banking houses in America should
draw a bill upon, say, Bleichroeder at ninety days and it
was accepted by them, could a broker then sell it to the
Reichsbank?
A. Yes; there is no reason why the bank should not
discount the bill, because of its character.
Q. If a railroad finds it necessary to make improvements and wants to borrow money could they get money
at the Reichsbank?
A. Only on collateral acceptable by the Reichsbank. ,
The railroad would probably in such a case go to private
banks to be financed.
Q. Assume that there is a manufacturer in Bremen,
making well-known articles, which he ships to a merchant in Berlin and draws a bill against that merchant,
would it be a satisfactory bill to the Reichsbank?
A. Yes; but in that instance also the merchant would
probably go to the private bank, where he would get a
better rate of discount.
Q. If there were a severe money stringency, would he
still go to his bank?
A. Yes; that would probably be the case, and his bank
might afterwards take his bills to the Reichsbank.
Q. Do you show what percentage of bills discounted
are secured?
A. No. It is the exception to have collateral because
the bill is considered on its credit merits and accepted
accordingly.

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Germany

Q. Then a large percentage of those bills are unsecured?
A. Yes.
Q. Can you tell us what percentage of them are received by the Reichsbank from banks and bankers?
A. We have statistics showing that. In 1900 we had
62,000 clients, of which 2,300 were bankers, 24,800 merchants, 19,000 industrial societies, 8,000 farmers, and
7,000 miscellaneous. There were 900 cooperative societies. On September 1, 1906, there were 70,000 clients,
of which 2,500 were bankers, 26,000 merchants, 22,000 industrial societies, 9,500 farmers, 1,000 cooperative societies, and 9,000 miscellaneous.
In the year 1907 our bills amounted to $250,000,000. Of this amount, $140,000,000 were discounted for bankers, $48,000,000 for merchants, $3,000,000 for farmers,
and $4,000,000 for associations.
Q. Have you any statistics showing the proportion of
bills with two names and with three?
A. No.
Q. What is the smallest bill the Bank will discount?
A. We have no minimum. We discount bills as low as
10 marks.
Q. Upon what kind of a bill does the farmer secure an
advance from the Bank?
A. He sells his produce, draws a bill upon the purchaser,
and takes the bill to the Bank as any other man would do,
or a bill might be drawn upon a farmer and accepted by
him.
Q. When he borrows money in the spring with which
to buy seeds, how does he secure the cash?
A. He goes to his own bank for that. There are cooperative societies for this purpose, which are a great factor
in Germany.

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Q. Will the manager of a branch of the Reichsbank renew a farmer's three months' bill if desired?
A. Yes; an exception is made for the farmer. Other
bills are not renewed.
Q. Are farmers required to maintain a balance in order
to secure accommodation?
A. People who hand in bills for discount are required
to keep a satisfactory balance.
Q. The statement before us, dated December 31, 1907,
shows $356,000,000 bills discounted. Your rate is now
4 per cent, while the private rate is 2 ^ per cent to 3 per
cent. Why should anybody pay the Reichsbank 4 per
cent when he can borrow the money of other banks at a
lower rate?
A. Because not all bills would be taken at the private
rate of discount.
Q. The character of these bills is such that anybody
would take them, is it not?
A. Yes; they are of high character—they must be;
but they are not all what would be called prime bills,
these must be as a rule of 5,000 marks or more and
mature in from fifty-six to ninety days or less; only prime
bills command the private discount rate.
Q. In practice, does not the amount of bills discounted
at the Reichsbank materially decrease in times of easy
money?
A. Yes.
Q. The bank rate is 4 per cent. Does that mean 4 per
cent is charged on three months' bills?
A. Yes; and on all bills which the Reichsbank discounts.
Q. Would a customer in a little town in South Germany
get his bill discounted at 4 per cent to-day?

342

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—

Germany

A. Yes; and at every branch of the Reichsbank.
Q. Could anyone get a lower rate than 4 per cent?
A. No; the Reichsbank has only one rate of discount.
There was a time when the Reichsbank did a similar
business to that which the Bank of England does now,
i. e., that they would purchase in the market prime bills
at a more favorable rate, but in 1896 it was decided to
have but one rate for everybody.
Q. Please state the reason for the change of policy.
A. The most important reason was that it was thought
that a great central institution like the Reichsbank, with
its tasks and duties to the whole of the community, ought
not to make a distinction of any class, or make an exception in favor of anyone. It is the policy of the Bank to
serve all alike.
Q. Was there any question on the part of the other
banks as to the competition of the Reichsbank and was
this change of policy made because of any agitation?
A. No; there were no complaints by private banks. The
lowest Bank rate was still higher than the rate of the
other banks.
Q. Is the Reichsbank disposed to favor every application for discount or loans if the character of the offering
be satisfactory?
A. It is their duty to listen to everyone who comes for
accommodation, whether he has an account or not. The
principle of the Reichsbank is not to serve a part of
the community, but the whole. The Reichsbank is for
everybody.
Q. Private banks endeavor to take care of their customers, but they also have regard for the profits of their
stockholders.
A. Our stockholders have secondary consideration.

343

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Q. Will you describe theloans on collateral,'' Lombards/'
stating the character of the collateral you are permitted
to take?
A. i. Gold and silver. 2. Government and municipal
issues, and the shares, debentures, and bonds of railroads
of nearly every kind within the Empire. We do not take
real estate mortgages. 3. Securities of foreign governments, also railroad securities in foreign countries with
guarantee of their respective governments. 4. Bills
receivable that are of a character satisfactory for the
bank to discount. 5. Bonds of mortgage companies
(Pfandbrief), which may be secured by mortgages on
real estate, manufacturing plants, etc., the obligation
given being that of the company, with the bonds as
collateral. 6. Merchandise, when located within the
Empire.
Q. How do you secure control of the merchandise?
Do you accept warehouse receipts?
A. We do not have the system of warehouse receipts
in Germany. We take it under the lock of a third party,
or it is placed in possession of one of our branches.
Q. Is the rate on Lombards usually 1 per cent above
the discount rate?
A. Yes; as a rule. In times past exceptions have
been made on loans with government securities as collateral, but that practice has been given up.
Q. Are Lombards permissible as a cover for note issues?
A. No.
Q. What is the minimum deposit received by you?
A. The Reichsbank accepts any amount deposited,
even one mark.
Q. Are your deposits subject to check?

344

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Germany

A. The money is drawn against check. There are
two kinds of check—white and pink. The white is for
withdrawing cash over the counter, the pink for making
transfers.
Q. Have you different classes of deposits?
A. No.
Q. Do you pay interest on your deposits?
A. The Reichsbank does not pay interest on money
deposited with it. It receives money on deposit and for
transfer. Most large houses keep an account with the
Reichsbank. There is therefore always a certain amount
to their credit. The Reichsbank does a large transfer
business for them.
Q. Is it the custom for banks in Berlin and other
important centers to carry balances in the Reichsbank
as a part of their reserve?
A. It is the custom for the banks to keep a large part
of their cash with the Reichsbank. They only keep a
small amount of cash in their tills.
Q. Is that true of banks in other cities than Berlin?
A. Yes.
Q. Does the Reichsbank pay the same taxes that the
other banks do? For instance, income tax and other
taxes?
A. No; we are free from the government income tax,
and the license fees, but we must pay the real-estate tax.
Q. The transfer of funds from point to point in the
Empire for banks and for private individuals is an important part of your business, is it not?
A. Yes.
Q. If, having no account with the Bank, I ask you to
receive from me 10,000 marks and transfer it to Hamburg,
to one having an account, what would you charge?

345

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A. Ten thousand marks for transfer costs i mark, 3,000
marks transfer costs 0.30 mark, 4,000 marks cost 0.40
mark, and so on. Transfers between depositors with satisfactory accounts are made without charge. A man wishing to transfer 10,000 marks to another in Hamburg and
both having no account, the Reichsbank would charge a
higher rate than 0.10 per 1,000. They charge 0.50 mark
up to 2,500 marks and 0.20 mark for each additional 1,000.
Q. Is the charge for profit or to cover expense of
transfer?
A. Both.
Q. What is the relation between this bank and other
banks, such as the Deutsche and the Dresdner—that is,
as to the character of business transacted? Are you not
competitors?
A. It may be said that the Reichsbank is more restricted by law. At a private bank the rate of discount may be much cheaper than at the Reichsbank.
The private banker knows his clients, and he may be
willing to accept from them a bill that the Reichsbank
would not and could not accept.
Q. Then there is to some extent competition?
A. Yes; but that competition is not large. It is not
felt that the Reichsbank is a competitor of other banks,
but it is a public institution. The Reichsbank has its
official rate, which is higher than the private rate. A
bank will take bills on its own account running three
months or more and hold them, and in case of need will
take bills running ten days or less to the Reichsbank for
discount. The Reichsbank pays no interest and acts as
agent for transfer of currency and credit to all parts of
the Empire without charge.

346

Interviews

—

Germany

Q. Are you restricted by law in paying interest?
A. We are permitted to pay interest on deposits equal
to the amount of our capital and surplus, but it has
never been our custom to pay interest on any amount.
Q. Have branches of the Reichsbank been located
from time to time in various parts of the Empire, and
is the practice still continued?
A. Yes.
Q. Has there been any feeling that the branches were
supplanting the private local banks in small towns?
A. There may have been some instances where a
banker may have been dissatisfied at the Reichsbank
Opening a branch in his locality, but as a rule the banks
at such a place are quite pleased to have the Reichsbank
open a branch in order that they may have the benefits
of its facilities.
Q. What is the law in regard to the division of your
profits?
A. Shareholders receive 3J per cent dividends and
one-fourth of the excess, the Imperial Government receiving the other three-fourths. Upon that basis they
received dividends of 8.22 per cent in 1906, 9.89 per cent
in 1907, and 7.77 per cent in 1908. Two-thirds of the total
profits in 1907 went to the Government. The shareholders received $4,450,000. The Government received
$8,627,000.

Q.
A.
Q.
A.
Q.
A.

Do you own all the buildings of your branches?
No.
What is the value of the buildings?
About 55,000,000 marks. It might be a little more.
You carry them in the balance sheet at cost?
Yes.

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Commission

Q. Do you publish your losses?
A. Yes; in the annual report of the Reichsbank.
the year 1907 we show:

For

Dollars.

Losses on
Losses on
Losses on
Losses on

outstanding bills
counterfeit notes
selling bank property
securities sold

5, 500
82, 000
1, 800
1, 800

Q. You say that the Reichsbank has never purchased
any other securities than government securities?
A. The Reichsbank does not purchase any securities.
They have the right, but never have done so. As a rule
the department of open deposits has i}4 million marks of
government securities, or municipal securities, so as to
have a certain amount for the public, but only for trading
business. They do not carry railroad securities. They
do not invest except as stated.
Q. You stated that the Central Ausschuss had veto
power as to the amount of securities that the Reichsbank
might purchase for their own account. You also stated
that they have never purchased any securities?
A. Yes.
Q. You show about $28,000,000 of securities owned.
A. They are practically all government treasury bills;
they are not bonds, but notes of the Empire, having
on the average thirty days to run.
Q. Are they purchased for the return upon investment ?
A. Yes.
Q. In practice does the Government offer them here,
or are they purchased in the market?
A. Offered here. The Government deposits treasury
bills with us for safe-keeping. They also deposit funds
with us as a private firm or bank might do. If they withdraw or their credit runs low we usually purchase from

348

Interviews

—

Germany

them treasury bills, crediting their account with the
proceeds.
Q. What rate do they bear?
A. They do not bear a fixed rate, but are discounted
as any other bills.
Q. Is there an exception made in the rate to the Government?
A. No.
Q. To any other institution or person?
A. No.
Q. What are the relations of the German Government
to the Bank in the conduct of its business; what is
required of the Bank?
A. First, the Bank has to regulate the circulation of
money, and, second, it has to handle the Giro or transfer
business and to make payments for the Government as
well as to receive the sums due to the same, wherever
branches of the Reichsbank exist.
Q. Does the Government deposit in the different
branches of the Reichsbank?
A. Yes. Every department of the Government has
its own account and is treated the same as any other
customer. The Reichsbank is the fiscal agent for the
Imperial Government and they do everything that is
required without compensation. Without being obliged,
the Reichsbank might head a syndicate for taking over a
government loan.
Q. The government deposits are received and treated
exactly the same as the deposits of farmers?
A. Yes. The business for the Government and its
departments is handled the same as for others, and no
interest is paid on deposits. There is, however, one
exception; every private institution is required to keep

349

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Monetary

Commission

a minimum balance to its credit, but not so with the
departments of the Government. The Empire keeps in
the aggregate sufficient to compensate.
Q. Are there any securities or guarantees lodged with
the Government?
A. No; as we said, the funds of the Government are
received on the same basis as those from all other sources.
The Government keeps a minimum amount to its credit
and the Reichsbank does the business without any charge.
Q. Does the Prussian Government deposit in its own
bank or in the Reichsbank?
A. Mostly in its own bank, the Seehandlung; but also
in the Reichsbank.
Q. Does the Imperial Government deposit all its funds
with the Reichsbank?
A. Mostly.
Q. Does the Government carry accounts in any other
banks than the Reichsbank?
A. They may.
Q. Does the Seehandlung have an account in the Reichsbank?
A. Yes; they must use the offices of the Reichsbank
for transfer.
Q. You have among your assets, Reichskassenscheine,
75,000,000 marks—$18,000,000. These are, we presume,
part of the 120,000,000 marks issue of government notes?
A. Yes. These notes are an obligation of the Government based on the general assets of the Government.
They are payable on demand to bearer. The law is very
strict about these notes issued on the credit of Government. They must be received by the Government in
payment for public dues. They are redeemable at the
Reichsbank in cash.

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Germany

Q. What are the denominations?
A. Five, ten, twenty, and fifty marks.
Q. Are these notes in general circulation?
A. Yes; in future they will be in 5 and 10 mark denominations; the 20 and 50 denominations will be retired.
Q. Why do you carry more than 50 per cent of the
issue?
A. Because of the fact that the 20 and 50 mark notes
are to be reissued in smaller denominations. The Reichsbank takes them and substitutes its own notes of like
denominations for the purpose of withdrawing from circulation the 20 and 50 mark government notes, and to
issue the smaller denominations therefor.
Q. Is the system of note issue with a monopoly granted
to the Reichsbank satisfactory to the German public?
A. Yes; absolutely.
Q. Is there any disposition to restore to other banks
the right of note issue?
A. None. Formerly, in the year 1876, when the Reichsbank was created, there were 33 private banks which had
the right to issue notes; now only 4 of them have issues.
Q. What notes of the Reichsbank are taxed?
A. Notes issued in excess of the aggregate of the following items: First, the amount of gold bullion and specie—
gold, silver, copper, and nickel—held by the Bank; second,
the amount of government notes (Reichskassenscheine)
so held; third, the amount of uncovered notes authorized
bylaw (the Kontingent), 472,000,000 marks; fourth, the
amount of notes of other banks held by the Reichsbank.
Q. Under what circumstances does the Bank issue the
taxed notes?
A. They are issued when there is a demand from the
country for additional circulation. There are a number

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Monetary

Commission

of reasons which bring about that demand. Some of
them recur nearly every year at the season of harvesting,
and again at the end of the year.
Q. Can you give us an idea of the additional amount
that is required for harvesting, for instance?
A. No; it is impossible to keep any figures for that.
Q. Do the bank reports show the weekly fluctuations?
A. Yes. There was a fluctuation from the highest to
the lowest of 600,000,000 marks in 1907.
Q. How was the amount of the Kontingent of
472,000,000 marks determined?
A. That is quite an arbitrary amount. It was fixed in
1876 at 250,000,000 marks in an arbitrary way, but, the
population and commerce having increased, this arbitrary
amount was increased at the time of the revision of the
bank law in 1899. I t has been enlarged from time to
time by the fact that a number of note-issuing banks
in Germany have renounced their charter rights and their
retired contingent has been added to the arbitrary amount
of the Reichsbank.
Q. Is there any agitation for an increase of the Kontingent?
A. Yes; the wish has been expressed in the financial
and industrial press.
Q. Is there any agitation for a change in the percentage
of gold reserve required?
A. No.
Q. Do you attribute the recent largely increased amount
of taxed issues to the enlargement of the business of the
Empire, or to monetary conditions; that is, unsatisfactory
financial conditions?

352

Interviews

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Germany

A. To both. It is partly the result of the industrial
activity in the different parts of the world and partly in
consequence of the crisis in America.
Q. Do you think that these conditions are likely to
result in a change in your system?
A. At the next session of the Legislature in December a
revision of the bank law will be discussed, and it is quite
possible that the Kontingent may be increased; there is
nothing certain about it. They will also consider a plan
for the increase of the untaxed note circulation at certain
periods of the year, when the greatest demand usually
occurs.
Q. Is there any agitation for a graded tax?
A. No.
Q. Do you always charge a higher rate of discount for
bills when you have a large amount of taxed notes outstanding?
A. No. On occasions the Reichsbank has not increased
its rate of discount above 5 per cent. At times we have
discounted even at 3 per cent, when we have had to pay
a tax of 5 per cent.
Q. It has been suggested to us as a matter of policy in
times of stress that it would be better for you to add the
5 per cent tax to the rate of discount.
A. The Reichsbank must be considered in the first
place as a public institution which has to take care of the
public interest, and that it is secondarily a money-making
institution.
Q. Is there any connection between the rate of discount
and the issue of taxed notes; in other words, could there
be a condition of affdirs where the rate was 6% per cent
and there were no taxed notes outstanding?
60481—10

353

National

Monetary

Commission

A. Yes. That has happened. The fact of the Reichsbank having to pay a tax at certain times does not in
itself influence the rate of discount. The directors decide
whether in their judgment the conditions warrant or
require the raising of the rate.
Q. Is there any limitation upon the amount of note
issue?
A. Yes. It must not be greater than three times the
amount of gold in coin and gold bullion, silver, copper,
and nickel, and government notes (Reichskassenscheine)
held by the Bank; and furthermore all notes issued in
excess of the gold coin and gold bullion, silver, copper,
and nickel, and government notes (Reichskassenscheine)
must be covered by bills discounted.
Q. Is there any restriction as to the percentage of silver?
A. No; but there is another law, the coinage act, by
which the amount of silver coined depends upon the population. They do not coin more than 20 marks per capita.
Q. Is there any distinction as to the character of the
bills that are permitted to be used as a basis for note
issues?
A. The Reichsbank may take any bills having three
months or less to run, bearing at least two good signatures.
Q. Can you use foreign bills for that purpose?
A. Yes. All the bills I have described can be taken
as a basis for circulation.
Q. Every bill you discount can be used? You would
not take any bills except those which could be so used
(except, of course, Lombards, which could not be used)?
A. No.
Q. According to your weekly statement you carry none
of your own notes as an asset?
A. No.

354

I n t e r v i e w s

—

Germany

Q. They are merely held here and in your branches in
store and only regarded as issued when paid out?
A. Yes; they are considered as issued only when out of
our possession.
Q. But a note in the hands of the Deutsche Bank would
be an issued note?
A. Yes.
Q. What is the system of bookkeeping, if a man deposits
to-day a Reichsbank note of ioo marks?
A. The Reichsbank would credit the man ioo marks
and deduct ioo marks from circulation.
Q. The item, " Issues of other banks," are those the
notes of the four other banks of issue?
A. Yes.
Q. What is the total outstanding circulation of the
four other issue banks?
A. The notes of the four other issue banks at the end
of 1907 were 141,000,000 marks.
Q. Are these notes carried as reserve?
A. No.
Q. What effect has the holding by you of the notes of
other banks upon your privilege of issue?
A. The amount we are allowed to issue without tax
may be increased by the amount of the notes of other
banks held by us.
Q. Is that true of 75,000,000 marks of government notes ?
A. Yes, and these are also a basis for issue.
Q. You mean as any other bills discounted?
A. No; as coin, for they are as good as gold to us.
Q. Then as these notes come in, you like to hold them?
A. Yes; as we hold gold.
Q. You say this amount is large now because of the
plan of changing from higher to lower denominations?

355

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Monetary

Commission

A. Yes; otherwise it might be smaller. It usually
averages about 25,000,000 marks.
Q. Are the notes issued by other banks received everywhere? Are they current all over the Empire?
A. Yes.
Q. Are the notes of the Reichsbank redeemable in gold
at all your branches?
A. Only as far as the provision of gold is sufficient at
the time.
Q. That is, they can pay in gold or not, as they see fit.
A. Yes; but, in fact, they have never been refused.
Q. The notes are redeemable here in Berlin?
A. We are obliged to redeem all notes presented here at
the Reichsbank.
Q. You had on December 31 780,000,000 marks in
gold, silver, and imperial notes, and 626,000,000 marks of
taxed notes outstanding?
A. Yes.
Q. Your cash reserve was very close to the line of )7our
limitation?
A. It was about 41.3 per cent.
Q. Was that exceptional, or had it at any time been
lower?
A. That is a very great exception indeed. It has only
been lower at one time, namely, the end of 1906, when it
was 40.3 per cent.
Q. What would happen in case it went to 32 per cent?
A. We should have to go on discounting bills. We
should simply have to do it. We could not stop it. If
we did it would bring about the greatest panic that we
ever experienced.
Q. What steps do you take to increase your gold reserve
or to protect it?

356

I n t e r v i e w s

—

Germany

A. We always have a large amount of bills of exchange
payable in foreign countries, payable in gold.
Q. What amount of foreign bills did you have on
December 31?
A. It was very small at the end of the year, but before
it was much greater.
Q. You must have taken some steps to add to your
gold at that time. What steps did you take?
A. We increased the rate of discount. We consider that
this measure is the only effective one.
Q. How high was the rate at that time?
A. Seven and one-half per cent.
Q. If this increase had not been sufficient, you would
have further increased the rate?
A. Yes.
Q. Do you also loan money without interest to people
who are importing gold?
A. Yes, that is done. We make advances without interest to importers for the time the gold is in transit; we
do that even in times when the ordinary gold import point
is not reached.
Q. Are there any other steps taken to increase the import?
A. Well, besides granting loans without interest on
gold imports, we may raise at such times our tariff for
the purchase of foreign gold coins, as the Bank of Engand does.
Q. Pay a higher price?
A. Yes; but this is not important. The real remedy
is to raise the rate of discount, besides selling a certain
amount of foreign bills.
Q. How long do you allow for the import of the gold?

357

National

Monetary

Commission

A. About the time the gold takes in transit, say from
New York ten days, fifty days from Australia. The longest time is fifty days.
Q. Do you take any steps to prevent exports of gold?
We have been told that it is the habit of the Reichsbank,
in case of large exports of gold from Germany, to suggest
to the other banks that it is not agreeable to have the
gold exported.
A. It has never been the case and never will be the case
that any such suggestion has been made by the Reichsbank
to anybody. If it happened during the last crisis that
some of the banks refused to export gold, that was
done for wrongly understood patriotic reasons. The
Reichsbank is not in favor of such measures and it is very
sure that such a thing will not happen again. We consider this measure absolutely wrong. It was done in spite
of the Reichsbank. After it happened the Reichsbank
approached the other banks, expressing the wish that it
should not happen again.

358

THE REICHSBANK.
Bilanz der Reichsbank am 31. Dezember 1907.
AKTIVA.
Mark.

1. Der Bestand a n Gold in Barren oder auslandischen Miinzen, das Kilogram fein zu M. 2,784 gerechnet
2. Der Kassenbestand, und zwar an:
Mark.
Gold in deutschen Miinzen
401,293,580.00
Talern
25,448,865.00
Scheidemiinzen
_
_
181,181,336.76

{

(b) Reichskassenscheinen
\c) eigenen Banknoten:
zu 1,000 Mark
zu 100 Mark
ZU50 Mark
zu 20 Mark

(d) Noten anderer Banken

(b)

Versandwechsel auf deutsche Platze
innerhalb der nachsten 15 Tage fallig
in langerer Sicht

(c)

Wechsel auf ausserdeutsche Platze

607,923,781.76
75,442,280.00

1,002,798,000.00
1,068,760,000.00
169,063,250.00
52,762,220.00
-2,293,383,470.00
7»499>90°.oo

3. Der Bestand an Silber in Barren und Sorten
4. Die Wechselbestande, ausschliesslich der unter Ziffer 8 bezeichneten, und zwar:
(a) Platzwechsel
innerhalb der nachsten 15 Tage fallig
in langerer Sicht

268,331,100.00
620,390,192.73

581,304,706.17
"25,780,536.65

5. Der Betrag der Lombardforderungen, und zwar:
(a) auf Gold oder Silber
__
8,800.00
(b) auf Wertpapiere (einschliesslich Wechsel) der in § 13 Ziffer 3 Buchstaben b. c. d. des Baukgesetzes bezeichneten Art
_
358,802,350.00
(c) auf andere Wertpapiere
_
_
_
(d) auf Waren
_
_
5,486,400.00
6. Der Bestand an Wertpapieren:
(a) an gekauften Schatzanweisungen und anderen Wertpapieren
(b) a n eigenen Wertpapieren
(c) a n Wertpapieren des Reservefonds
7.
8.
9.
10.

2,984,249,431.76

888,721,292.73

266,710,700.00
314,594,006.17
_

Mark.
96,407,327.19

120,684,526.68
1,112,482.07
_

Das Guthaben der Bank im Kontokorrentverkehr bei ihi en Korrespondenten
Der Betrag der falligen, aber unbezahlt gebliebenen Wechself orderungen
Der Wert der der Bank gehorigen Grundstucke
Verschiedene Aktiva:
(a) Vorschtisse auf zur Diskontierung genehmigte Wechsel
lb) Vorausbezahlte Gehalter an die Beamten
_
_
ic) Bauvorschiisse
_
._
(d) Zum Umlauf nicht xnehr geeignete und deshalb von den Kassenbestanden abgesetzte Banknoten
(e) Verschiedene Forderungen
( / ) Noch nicht verrechnete Kostenfur Anfertigung von Banknoten
.

1,495,806,535.55

364.297,550.00

121,797,008.75
10,070,898.75
4,231, 298.60
54,787,400.00

719,957-28
3,50°, 167.77
24,555,870.00
27,034,952.17
55,8io,947-22
5,187,458,397.82

PASSIVA.
1. Das Grundkapital
2. Der Reservefonds
3. Der Reservefonds fur zweifelhafte Forderungen:
derselbe b e t r u g a m 31. Dezember 1906
Hiervon s i n d i m Jahre 1907 abgeschrieben

Mark.
582,200.00
22,948.43
559,251.57
2,706,72,706,748.43

F u r das Jahr 1907 neu reservirt
4. Der Gesamtbetrag der in Betrieb gegebenen Banknoten:
zu 1,000 Mark
zu 100 Mark
zu 50 Mark
zu 20 Mark
5.
6.
7.
8.

1,346,044,000.00
2,345,307,400.00
— 308,449,450.00
204,059,520.00

Das Guthaben der Giro-und Kontokorrentglaubiger
Der Betrag der Depositen (unverzinslich)
Der Betrag der nach §§ 9/10 des Bankgesetzes an die Reichskasse abzuf uhrenden Notensteuer
Verschiedene Passiva:
(a) Betrag der noch nicht abgehobenen Anweisungen
{b) Betrag der noch nicht ausgezahlten Auftragswechsel
(c) Die dem Jahre 1908 zufallenden Zinsen und Ertrage von Wechseln, I^ombardforderungen und
Grundstiicken
(d) Noch nichtabgehobene Dividenden
(e) Verschiedene Buchschulden -

3,266,000.00

4,203,860,370.00
660,967,285.93
811,401.59
5,600,697.72

194,547.34
445,166.47
10,239,284.86
1,028,495.20
4,209,875.41
16,117,369.28

9. Der Betrag des Reingewinnes fur das J a h r 1907:
(a) fiir das Reich
(b)

Mark.
180,000,000.00
64,813,723.75

fiir die Bankanteilsinhaber
hierzu treten die 1906 unverteilt gebliebenen

Mark.
11,503,412.96
7,897.72

„

34,510,238.87

11,511,310.68

46,021,549.55
5,187,458,397-82

Balance sheet of the Reichsbank December 31, iooy
ASSETS.
1. Gold bullion and foreign coins
2. Cash:
German gold coins

_
_

{

$22,944,944

$95, 507, 872

Silver thalers
Subsidiary coin

6,056,830
43,121,158

(6) Imperial treasury notes
(c) Reichsbank notes—
1,000 marks
100 marks
50 marks
20 marks
(d) Notes
of other banks

^
238, 665, 924
254.364. 880
40, 237,054
12, 557, 408

3. Silver bullion
4. Bills discounted, except those described in section 8:
(a) Local bills—
Due within the next 15 days
For longer periods

$144. 685. 860
17. 955, 263

545. 825, 266
r, 784, 976

710,251,365

63,862,802
147, 652, 866

211,515,668

(b) Remitted bills on places in Germany—
Due within the next 15 days
For longer periods

63, 477,147
74, 873,373
138,350.520

(c) Foreign bills
Loans on collateral:
(a) On gold or silver
(b) On securities (including bills) according to Bank law, section 13, No. 3, (b), (c), and (</)(c) On other securities
(d) On merchandise
__

2,094
85, 394, 959

Securities:
(a) Treasury bills and other securities
(b) Securities owned
(c) Surplus fund securities

28, 722, 918
264, 770
_

Balances with correspondents
Overdue, b u t unpaid bills
Real estate (bank premises)
Sundry assets:
(a) Advances upon bills passed for discount
(6) Salaries advanced
(c) Building expenses
(d) Bank notes unfit for circulation
(e) Diverse claims
(/) Unaccounted expenses in preparation of bank notes

6,135,767

1,305, 763

356,001,955

86,702,816

28,987,688
2,396, 874
1,007, 049
13. 039, 402

171,350
833,040
5, 844, 297
6, 434,319
13,283,006
1,234,615,099

LIABILITIES.
1. Capital
2. Surplus
3. Surplus for doubtful claims:
The amount on December 31, 1906
Amount written off in 1907

42,840,000
15,425,666
138, 564
5, 462
133.102
644,206

Amount newly reserved for 1907
4. Bank-note circulation:
1,000 marks
100 marks
_
50 marks
20 marks
_
5.
6.
7.
8.

777.3o8

Current and transfer accounts
Deposits (not bearing interest)
Taxes due to treasury upon note issue (Bank law, sees. 9 and 10)
Sundry liabilities:
(a) Unpaid claims
(b) Bills collected to be remitted
(c) Interest and profits on bills, loans and property belonging to year 1908
(d) Unclaimed dividends
(e) Sundry debts

9. Net profits for 1907:
(a) For the Government
(b) For the shareholders
Undivided profits for 1906

320,358,472
558,183,161
73,410,969
48,566,166

1,000,518,768
158, 738, 214
193,114
1,332,966

46, 302
105,950
2,436,950
244, 782
1,001,950
3.835,934
2, 737, 812
1,880

8, 213, 437
2,739,692
10,953.129

Cash and bullion reserve on note issues and deposits, 57 per cent.
Cash and bullion reserve on note issues, 87 per cent.

60481—10.

(To face page 358.)

1,234,615,099

KONIGLICHE SEEHANDLUNG.
Interview with Herr Gen. Oberfinanzrat Lottner, Director of the
Royal Seehandlung, Prussian State Bank.
Q. When was this bank organized?
A. 1772.
Q. What is the capital of the bank?
A. One hundred million marks.
Q. By whom are the shares owned?
A. There are no shares; the capital is owned by the bank,
which may be regarded as a juristic person, an independent
legal subject.
Q. You mean that the bank is owned by the State?
A. I mean that you must think of the Seehandlung as a
person who owns its capital.
Q. Who invested the money?
A. The money was originally invested by stockholders
in the time of Frederick II, but afterwards the shareholders gave up their stock, for which they were paid.
The shares were mostly owned by the King and by his
associates, and they handed them over to the bank, so
the capital is really owned by the bank itself. Including
the value of its buildings and industrial establishments
(mills in Bromberg, spinneries in Landeshut in Silesia, the
Royal Loan Office, etc.), the capital really amounted to
about 34,400,000 marks in 1904, and in that year it was
increased by about 65,000,000 marks, which the Prussian
Government contributed. The Prussian State simply
transferred to us 65,000,000 marks of their obligations in
order to make this increase in the capital.

359

National

Monetary

Commission

Q. These securities were practically donated?
A. Yes.
Q. Are dividends paid and, if so, to whom?
A. There is no one to receive dividends, because there
is no one who owns the stock, but the proceeds in excess of
all the expenses are paid to the Prussian State.
Q. So, in fact, the Prussian State receives all the net
profits from the business?
A. Yes.
Q. Then the bank is really owned by the State?
A. That question is not absolutely clear, but it is practically as if the State owned it. Although the bank owns
its own capital, it is subject to the instructions and control
of the minister of finance like a public institution. I t
works in the interest of the State and would not be permitted to undertake business in any way contrary to the
interests of the State. If we want to give special gratuities we can do so, but our net profits have to be handed
over to the State.
Q. Have you a president?
A. Mr. Havenstein was the president. He is now President of the Reichsbank. His successor has not yet been
appointed.
Q. Have you a vice-president?
A. No; but the oldest member of the board of directors
represents the president.
Q. Who is responsible for the conduct of the business?
A. The president.
Q. Has he associated with him directors?
A. No; he is personally responsible.
Q. To whom does the president report?
A. To the Prussian Landtag and to the Oberrechnungskammer.

360

I n t e r v i e w s

—

Germany

Q. What is the Oberrechnungskammer?
A. That is a special institution of Prussia. It is a committee directly subject to the King, but independent of
the ministry, which examines the accounts of public
income and expenditure, the increases and decreases in
public property, and the management of the public debt.
It naturally audits the accounts of all government institutions, like the state railways. It has the right to supervise and to examine all the statements published by these
companies, even to the smallest details. The reports of
the Oberrechnungskammer are handed over to the Prussian Landtag, who have the right to examine them.
Q. By whom is the president appointed?
A. By the King of Prussia for life.
Q. What are the particular functions of the bank?
A. In the first place, it is an organization to help the
State of Prussia. The principal part of the business is
to finance the loans of the State. It may undertake the
loans alone, but as a rule it heads a syndicate of the large
banks.
Q. That is, you associate with yourselves the Deutsche
Bank, the Disconto-Gesellschaft, and others for the purpose of bringing out a state loan?
A. Yes.
Q. Is the Seehandlung the depository of the Prussian
Government?
A. Yes. Whatever money the Prussian Government
has at its disposal is handed over to the Seehandlung
for short periods.
Q. The Prussian Government then does not have any
funds elsewhere. They are all deposited here?
A. They have the Prussian Generalstaatskasse, state
treasury.

361

National

Monetary

Commission

Q. What proportion of the funds of the Prussian Government are kept with the Seehandlung and what with
the Generalstaatskasse?
A. We can not tell, because we do not know. The
Minister of Finance would have statistics about that, but
he probably would not show them.
Q. In what form is this money kept by the Government in their Generalstaatskasse?
A. They have as little cash as possible; it is mostly
paid over to the Reichsbank, to be drawn upon at any
time. The amount of money which they have in gold,
silver, and paper money or Reichsbank notes is small.
Q. The Prussian Government keeps part of its balance
with the Seehandlung, but also keeps some with the
Reichsbank?
A. Yes; they carry a Giro or transfer account there.
Q. When the State of Prussia pays a bill by a check,
would that check be drawn upon either the Seehandlung
or the Reichsbank?
A. The State would draw that check on the Reichsbank. All of the income of the State is paid into the
general state treasury from the various provincial treasuries in so far as the latter do not require money for immediate expenditure. These payments, however, for the
most part, are not made in cash, but by transfers through
the agency of the Reichsbank, with which the general
state treasury and the provincial treasuries keep accounts.
The general state treasury keeps only comparatively small
amounts of specie, paper money, and bank notes. It can
obtain such at any time at the Reichsbank on its balance.
Whatever money the Minister of Finance, to which department the general state treasury belongs, does not actually

362

I n t e r v i e w s

—

Germany

need, is transferred by him again through the agency of
the Reichsbank to the Seehandlung, which invests the
same for the account of the Finance Minister or of the
State in loans and discounts running comparatively short
periods, say from one to three months. The interest upon
these loans and discounts reverts to the State, the Seehandlung being paid a commission for its trouble. The State
draws no checks upon the Seehandlung, as the balance
which it keeps with that institution is invested, if only for
a comparatively short period.
Q. Would the Imperial Government draw a check on
the Reichsbank in payment of an obligation, or upon a
department of the Government?
A. They do not draw on any other than banks. They
draw on the Reichsbank.
Q. What are the other principal functions of this bank?
A. We assist the State in all its financial transactions.
Q. Have you any other particular functions?
A. We do a general business, like the Reichsbank, with
banks and individuals. We receive deposits from private sources, merchants, corporations, manufacturing concerns, banks, etc., under conditions specified in this pamphlet entitled Bedingungen filr den Geschdftsverkehr bei
der Koniglichen Seehandlung.
Q. Do you compete for deposits with the Deutsche
Bank or the Dresdner Bank?
A. Yes, to some extent. It is not our intention to do
so, but of course we practically compete in some ways.
Our rates on deposits are less favorable than those of these
banks.
Q. About what rate do you pay on deposits?
A. It depends upon the market.

363

National

Monetary

Commission

Q. The Deutsche Bank and the Disconto Bank to-day
are paying on deposits i£ to 2 per cent in Berlin. What
are you paying to-day?
A. For daily deposits i^ per cent. For daily deposits
the Seehandlung ordinarily pays 2 per cent under the current discount rate of the Reichsbank, but not more than
3 per cent per year. For time deposits requiring thirty
days' notice we pay 1J per cent under the Reichsbank
discount rate, but not more than 3 \ per cent per year.
Q. That applies to the government deposits as well as
to the other?
A. No. The Government has no interest-bearing deposits at the Seehandlung.
Q. Are you restricted as to the character of loans you
may make, or the bills you discount?
A. Yes, there are certain restrictions. We can only
take bills with three good signatures. The Reichsbank
requires at least two.
Q. You also do a Lombard business similar to the
Reichsbank?
A. Yes.
Q. Are these Lombard loans—140,000,000 marks—on
call?
A. No; they average at least one month.
Q. Do you take real estate mortgages?
A. No.
Q. Do you purchase securities for investment?
A. Yes; but only securities yielding a fixed rate of
interest, such as state and municipal bonds, the mortgage
bonds of Landschaf ten and like institutions.
Q. Has the State of Prussia the right to request you
to purchase their securities?

364

I n t e r v i e w s

—

Germany

A. Yes; the Minister of Finance can require the Seehandlung to buy or sell government loans.
Q. How frequently are statements made to the Government?
A. Once a year. The statement is submitted to and
approved by the Prussian Landtag.
Q. The capital was increased in 1904 from about
34,000,000 to about 100,000,000 marks by the gift from
the Prussian Government of their securities to the amount
of 65,000,000 marks. What was the nature of those
securities? Were they long-time bonds or exchequer bills?
A. That was left to the Minister of Finance by the law;
they were partly in short exchequer bills and partly in
long-time bonds.
Q. What was the reason for increasing the capital?
A. Because of the general development of Germany
and the Prussian State, especially to make us better able
to support Prussian ventures. It was quite impossible to
handle the government business properly without a larger
capital.
Q. What dividends are paid to the Government?
A. The Seehandlung does not pay dividends, but it
turns over its surplus earnings to the Government—in
i9°3> 3-5 8 per cent; in 1904, 6.55 per cent; in 1905, 5.18
per cent of the capital invested.
Q. You really do a very small amount of commercial
business in the way of loans. You do not finance commercial enterprises to any large extent, yet you are known
as the sea-trade (Seehandlung) society. Why is that?
A. Frederick the Great founded the Seehandlung to
promote Prussian trade, especially the over-sea trade. His
first intention was to help the Silesian linen and other

365

National

Monetary

Commission

industries, and in connection with their various enterprises
the shipping fleet was largely built up and its importance
increased. At one time this company had a salt monopoly
and a wax monopoly.
Q. Do you mean a monopoly in the way of ownership
by the Seehandlung?
A. Yes. The salt which came into the different ports
of Prussia and the wax which came from Poland were
bought up by the Seehandlung. At one time the Seehandlung also had mills, spinning and weaving plants, iron
foundries, and river steamers.
Q. Is this bank now engaged in operations of that
character?
A. We still own two industrial establishments, the flour
mills in Bromberg and a linen spinnery in Landeshut in
Silesia.
Q. Are you interested in any other projects of this
nature?
A. No. During the last century the Seehandlung has
loaned the Government a great deal of money for road
building, drainage, forestry, and the like, but it has not
managed these undertakings.
Q. Did the manufacturing propositions originate with
the bank, or did the bank join with others?
A. No; the bank did that independently, at the instance
of the Government.
Q. To-day, if you thought wise, could you erect a large
manufacturing plant and engage in business?
A. No; since 1850 no new commercial enterprise can be
undertaken by the Seehandlung.
Q. At what value do you carry the enterprises now
owned ?
A. Less than a million marks.

366

Interviews

—

Germany

Q. Are they carried at cost, or less than cost?
A. The full value is much higher.
Q. Did they cost as much as that?
A. We can not say, but they appear at a much lower
figure than they would cost at the present time. These
were undertaken by the bank prior to 1850.
Q. Is there any requirement that you shall dispose of
these properties? May you keep them as long as you
please?
A. The Landtag wishes us to dispose of the spinnery,
but not of the mills, because there are special government
matters connected with them.
Q. Is the Kingdom of Prussia responsible for the deposits in this bank?
A. The State is responsible for all the transactions.
That was regulated by an order of the Cabinet of the King
on January 17, 1820. The State is responsible for all
transactions of the Seehandlung.
Q. Can you state whether that is true of other state
institutions such as the Central-Genossenschafts-Kasse?
A. No. In the case of the Central-GenossenschaftsKasse the government is only responsible to the amount
of the capital which it has contributed.
Q. A large per cent of your funds are loaned on the
stock exchange?
A. Yes.
Q. You make loans only on securities which are listed
upon the stock exchange?
A. No. We can make loans on any securities of commercial and industrial companies that we §ee fit. It is
left to the judgment of the Seehandlung.
Q. Are your loans on the stock exchange on call, or
for a fortnight?

367

National

Monetary

Commission

A. They are generally for from one to three months.
Q. But most of your loans are on the stock exchange?
A. Yes.
Q. And your discount business is comparatively insignificant?
A. Not insignificant, but small compared with our loans
on the stock exchange.
Q. Do you carry a balance with the Reichsbank?
A. Yes; for transfer purposes.
Q. Do you carry that balance as your reserve, or do
you endeavor to maintain an independent cash reserve?
A. It is only for the practical purpose of being able
to make the transfers through the Reichsbank. We do
not need reserves because we have the State behind us.
Q. You do not carry a cash reserve of any importance
as against your deposit liability?
A. No; because the State is responsible for it.
Q. Is this bank a member of the Clearing House?
A. Yes; at the Reichsbank, but not at the Kassenverein.
Q. If a draft were presented to this bank through the
Clearing House larger than your balance in the Reichsbank,
how would that draft be met?
A. We should simply send cash over to the Reichsbank.
Q. But you said you do not carry any appreciable
amount of cash.
A. In practice it would rarely happen. We would
either go to the State for money or to the Reichsbank.
Q. Do you include in your item 5,600,000 marks, cash,
your balance with the Reichsbank?
A. Yes.
•
Q. Do you receive promissory notes from customers?
A. No.

368

I n t e r v i e w s

—

Germany

Q. Do you transact business of any other character
than that heretofore mentioned?
A. We have a branch known as the Royal Loan Office,
which lends money in small amounts upon the pledge of
different kinds of goods as security. This was established
in 1834.
Q. That means that you take as security for advances
various articles of wearing apparel, jewelry, etc. ?
A. Yes; in 1906 we made 99,000 loans, at an average of
31 marks per loan, divided as follows:
Loans upon gold and silver articles (average 27 marks each). 47,000
Loans upon watches
16,000
Loans upon articles of clothing, skins, and so on
28,000
Loans upon jewels
8,000

Q. Is this business conducted here in the bank?
A. No; we have three separate offices located in
Berlin.
Q. What class of people patronize them?
A. Two-thirds of the borrowers are laborers; last year
about 16 per cent were widows and spinsters, also a few
were mechanics—occasionally professional men—artists,
actors, and the like.
Q. What is the usual charge made for advances of this
character?
A. Our rate is very low, 12 per cent for the year, which
is low compared with the ordinary pawn shops. The Loan
Office has to meet its own expenses and pay the Seehandlung 4 per cent interest on the capital which it has contributed. Any additional profit earned is not turned over
to the Seehandlung, but is paid into a pension fund for the
daughters of officers and clerks.
Q. What is the minimum loan you make?
60481—10—24

369

National

Monetary

Commission

A. Some loans are made as low as 2 marks; some have
been made as high as 20,000 or 30,000 marks; and even
higher loans might be made.
Q. Are there any other banking institutions doing a
similar business, or is it conducted through offices similar
to those in America, where they are known as pawnbrokers?
A. No; no other banks conduct a business of this
class. There are numerous small offices conducted by
private individuals, the same as with you. All of this
business is more or less under the supervision of the
state authorities.

370

KONIGLICHE SEEHANDLUNG.
Hauptabschluss des Koniglichen Seehandlungs-Instituts Ende Mdrz 1907.
AKTIVA.
I. Grundbesitz
II. Betriebskapitalien des
Etablissements
I I I . Kassenbestande
IV. Effekten

Mark.
5,456,720.21

Leihamts und der gewerblichen
_
Mark.
2,846,364.83
27,341,810.80

V. (tf)Wechsel
(b) Schatzanweisungen
VI. Lonibard-Darlehen
VII. I n - u n d auslandische Schuldner:
(a) Verzinsliche Anlagen fur Rechnung des
Koniglichen Finanzministeriums (vgl.
Passiva Nr. I V a )
(b) Vorschusse und Darlehen an Behorden
und Institute usw
(c) Vorschusse auf laufende Rechnungen
id) Vorschusse, betreffend die Errichtung
von Rentengutern
(e) Vorschusse, betreffend die Einlosung von
Kupons zu 3prozentigen Preussischen
Konsols im Auslande (vgl. Passiva Nr.
I V e ) .___
(/) Handlungshauser
(g) Diverse Konten

—

3,441,825.91
5,634,431.31
72,314,000.93

PASSIVA.
I.
II.
III.
IV.

30,188,175.63
140,947,701.95

2,658,904.73
22,953,623.39
13,101,016.91

158,968.85
84,877.70
63,465,556.64

Schuld auf Seehandlungs-Obligationen
Schuld auf Grundbesitz
Tratten.
_
In- und auslandische Glaubiger:
(a) Konigliches Finanzmmisterium (vgl.
Mark.
Aktiva Nr. VII a)
25,005,625.00
(b) Guthaben von Behorden und Instituten
usw
14.555,344.53
(c) Guthaben auf laufende Rechnungen
177,957,536.06
(d) Guthaben, betreffend die Errichtung von
Rentengutern
84,070.08
(e) Guthaben, betreffend die Einlosung von
Kupons zu 3 prozentigen Preussischen
Konsols i m Auslande (vgl. Aktiva Nr.
VII e)
161,800.20
(/) Handlungshauser
_
(g) Diverse Konten
36,696,651.84

V. Kapitalkonto
_
VI. Remgewinn der Seehandlung in 1906

Mark.
198,148.87
432,450.00
2,902,154.75

254,461,027.71
99,402,515.41
3,009,507.42

102,422,948.22
360,405,804.16

,60,405,804.16

Balance sheet of the Royal Seehandlung (Prussian State Bank) March 31, 190J.
LIABILITIES.

ASSETS.
1. Real estate
*
2. Capital invested in the loan office and in industrial
institutions
3. Cash
4. Securities
5. (a) Bills discounted.
_
(6) Treasury bills
6. Loans on collateral
7. Domestic and foreign credits:
(a) Interest-paying investments for the account of the ministry of finance
(6) Loans and advances to communities, institutions, etc
(c) Loans upon current account.
{d) Loans to establish landed properties
(e) Loans for redemption of coupons of Prussian consols abroad
(/) Commercial houses
(g) Sundry accounts
._
Total

60481—10.

$ 1 , 298, 699

$677,435
6,507,351

819,155
1,340, 995
17,210,732
7> l 8 4 > 7 86

33, 545, 553

632, 819
5, 462, 962
3,118, 042
37,835
20, 201
15, 104, 803

Bonded debt
Debt upon real estate
Drafts outstanding
Obligations, domestic and foreign:
(a) Ministry of finance (compare ass
No.7a)
_.__-_____-_-.._
(b) Balances due communities, institutions,
etc
(c) Balances in current account
(d) Balances relating t o establishment of
landed properties
(e) Balances relating to the redemption of
coupons of Prussian consols abroad (compare assets No. 7 e)
(/) Commercial houses
(0) Sundry accounts

5. Capital
6. Net profits in 1906

$47, 159
102, 923
690, 713
$5,95i,339
3, 464, 172
42, 353, 894
20, 009
38,508
8,733,803
__

59, 561, 725
24', 657, 799
716, 263

24, 376, 662
85,776 582

(To face page 370.)

1.
2.
3.
4.

Total

85, 776, 582

DEUTSCHE BANK.
Interviews with Herr Paul Mankiewitz, Director, and Herr A.
Blinzig, Alternate, of the Deutsche Bank.
Q. When was your bank organized?
A. In the year 1870.
Q. Under what law?
A. Under the Prussian law.
Q. Are you organized under a special charter?
A. No. Under the general companies act.
Q. Will you kindly inform us as to the management of
the bank, as to how it is organized?
A. Our stockholders meet annually and elect from
among their number a board known as the Aufsichtsrat,
or board of supervisors, serving four years, one-quarter
of its members retiring each year. From among their
number they appoint a committee consisting of from 3
to 7 members, who meet monthly, the board as a whole
meeting about four times a year, or more, as special occasions require. The president and vice-president of the
bank are elected by the board and selected from the
members of the board. The Direktion, or directors of
the bank, who are appointed by the board, conduct the
business of the bank. It is customary for several of
the directors to be present at the monthly meetings of
the committee, at which the president presides. At the
monthly meetings the committee review the transactions
of the bank. The directors also report to the full board
at its meetings. In this way the board are kept informed
as to the transactions of the bank.

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Q. How is your stock owned?
A. By a large number of shareholders. Our shareholders are principally in Germany, but also in England,
France, Austria, and elsewhere. The larger number own
from i to 3 shares, others have up to 1,000 shares. I
think there are very few who own as many as 5,000 shares.
Q. What is your stockholders' liability?
A. They have no liability beyond the amount of their
investments in the stock.
Q. Is your stock fully paid up?
A. With us practically all stock is fully paid. There
can be no transactions on the stock exchange in the
stock of any bank that is not fully paid.
Q. Might it not be possible for parties to quietly buy up
control of your bank without your knowledge?
A. No; we are not afraid of this. Any activity in our
stock would be reflected in its price in the stock exchange.
Q. What dividends do you pay?
A. We pay 12 per cent dividends.
Q. At what price is your stock selling?
A. About 240, which is on about a 5 per cent basis.
Q. Does a share of your stock of 1,200 marks par value
have one or two votes at your annual election?
A. It has two votes.
Q. Are your shares registered or made to bearer?
A. They are made to bearer. We have no means of
knowing who our stockholders are.
Q. How do your stockholders receive their dividends?
A. At the end of each year, when we make up our
annual statement, we declare a dividend for the year and
announce it in the public press. It is our custom, when
issuing a certificate of our stock, to issue with it a dividend sheet containing eight annual coupons, calling for

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such dividend as may be declared for eight successive
years. At the end of the eight years the stockholder
returns to us the stub of the sheet from which the coupons
have been detached, upon which is printed an order for a
sheet of coupons for the following eight years. It is the
custom of the shareholder to send in his coupon for his
dividend as soon as the amount of dividend has been
announced.
Q. You show by your statement of assets about
$20,500,000 in cash. Is this in your vault?
A. No; a percentage of it is in our vault and the balance of it in the Reichsbank, the Kassenverein, and
in other banks in cities where we have branches.
Q. Will you kindly explain the next item, "foreign
coin, etc.?"
A. We also regard this as cash, as it is foreign coin of
cash value and coupons due and in process of collection.
Q. Do you consider the item of "Balances with banks
and bankers" as part of your reserve?
A. Yes.
Q. From your statement we see that with cash in vault
and at the Reichsbank, matured coupons, and balances
with banks and bankers you have what you consider as
reserves amounting to about $40,000,000. This would be
about 13 per cent upon your deposits. Do you publish
the amount of cash in vault?
A. No; we do not publish the amount of cash in vault,
although we will tell you that on December 31, 1907,
we had about $4,000,000 cash in vault, $14,000,000
at the Reichsbank, and the rest in other banks, such
as about $500,000 in Dresden, $3,000,000 in London,
the balance in Leipzig and in the Bank of the Berliner
Kassenverein in Berlin, where we carry a balance of about

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$500,000. This bank is used for the purpose of settling
all balances on the stock exchange, and it is the custom
for banks in Berlin to carry balances there.
Q. This would then show you an immediate available
cash balance of about $20,000,000 in bank and vault,
$6,000,000 in foreign coin and matured coupons, which
would make a reserve of about $26,000,000, not counting
the approximate amount of $14,000,000 due from other
banks in all parts of the world.
A. Yes; this is so, except that we have an item in our
assets of $150,000,000 which consists of bank and commercial bills of the very first class and of treasury notes
which have not more than three months to run. The average maturity of these items is from sixty to seventy-five
days, and we consider these a strong reserve, a very liquid
asset.
The great strength of our financial system in Germany
is the Reichsbank. Under that system the question of
our own cash reserve is of secondary importance, as we
can at all times convert our holdings of commercial paper
into cash at the Reichsbank. I may mention that of the
prime commercial bills we are carrying from $1,500,000
to $2,000,000 fall due each day; for these we get cash or
credit at the Reichsbank at maturity. It is our usual
practice to keep in vaults and banks a considerable
amount of cash, often more than 10 per cent, and sometimes less, perhaps 8 per cent.
Q. Would you have any anxiety if your cash were to
be reduced from $40,000,000 to $10,000,000?
A. No; not for a moment; but this will not occur, as
we have always the confidence of the people. When, in
spite of the stringency of the money market, we had to

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export 200,000,000 marks of gold last fall, not for a moment was public confidence shaken in the bank.
Q. I understand it is customary for all the banks in
Berlin and in the country generally to carry with the
Reichsbank balances which they count as their reserve.
A. Not only as reserves, but for transfer and current
business.
Q. You do not show by your figures the amount of
deposits that you have from bankers?
A. No.
Q. Take an independent bank in Stuttgart. Would
they carry a balance with you or with the Reichsbank
as reserve?
A. There is no general rule.
Q. Have you any idea how much gold there is in all the
banks, including the Reichsbank, against the total amount
of deposits?
A. No.
Q. We have estimates showing a total gold reserve
against deposits in England of about 6 per cent. What,
in your opinion, is the reserve in Germany?
A. We have different conditions here. The private
banks, especially in the interior, do not carry large
amounts of bank notes. They always have money in the
Reichsbank, and the Reichsbank shows this in its publications and in its reports every week. It is not possible
for us to say how much real money there is in the vaults
of the banks, but we have so much money and gold in
circulation and in the pockets of our people that there is
no concern over the small cash holdings in the banks, as
the public has the money in- its pockets. Our strength
is in our Reichsbank. It has at present about 87 per

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Commission

cent gold and money against its circulation of bank
notes. In the vaults of other private banks there is not
much money.
Q. Your requirements for gold are so much less because
you can go to the Reichsbank?
A. Yes.
Q. Do you make any loans on real estate mortgages?
A. Never; although occasionally, pending the completion
of transactions, we loan to a man who has erected a
building or purchased a piece of property and is taking
out mortgages.
Q. Are you required by law to carry any securities?
A. No. We use our own discretion in this matter.
Among our securities of $16,000,000 there are $11,000,000
of German Government securities. The balance is made
up of bonds of German mortgage banks, railroad bonds,
railroad, bank, and industrial shares, amounting to
$3,000,000, bonds of industrial enterprises, amounting to
$425,000.
Q. What does the item "Shares in other banks,"
$19,000,000, represent?
A. This represents the purchase by us of practically
the controlling interest in 13 independent banks in the
Empire. We are represented upon each board and we
are kept closely informed of the business. Our return is
in the dividends.
Q. Do you not have the reserves of these banks?
A. No; they are altogether independent and may carry
them wherever they desire.
Q. Is it not a fact that they do carrv them with you?
A. No; only partially.
Q. Do you find these investments satisfactory and
profitable?

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A. Yes; our principal reason is that it enables us to
reach certain sections of the country through other institutions, where we ourselves would not care to have an
institution in our own name.
Q. Are any of these banks in Berlin?
A. No; they are all in other parts of the German
Empire, although many of them have important branches
in other countries. They are all organized under the German law.
Q. What is the character of the " Loans on collateral/'
$36,000,000?

A. These are loans made to members of the stock
exchange upon satisfactory collateral, and usually for one
month, as our settlements are made monthly. We have
no fixed rate. It depends upon the situation of the
money market, but, generally speaking, current business
is done below the bank rate.
Q. Do you have a system of cash credits or overdrafts?
A. Yes.
Q. What evidences of indebtedness do you take?
A. Bills of exchange. We have no promissory notes.
Q. Do you buy stock exchange securities for your own
account?
A. We are not restricted by law in this regard and
make such purchases for investment as we think best,
but never for speculation. As you know, we frequently
bring out issues of a high character and find it necessary
to temporarily protect the market.
Q. Is the stock exchange regarded as an important factor in the financial situation in Berlin?
A. Yes; quite so.

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Commission

Q. Are the members of it engaged in the brokerage
business quite exclusively, as in New York, or are they also
engaged in other branches of finance?
A. No; it is quite different with us from what it is in
New York. Most of the stock exchange business is done
here through banks and bankers. Our banking corporations have a large number of customers throughout the
Empire. We execute orders not only for government securities but for railroad bonds and shares and industrial
bonds and shares. Generally our securities are not held
in large blocks in anything like the proportion in which
they are held in your country. It is the custom here for
a person desiring to purchase securities to communicate
with his banker, soliciting his advice, and he has his orders
executed through the bank.
Q. Then a large percentage of the business is really
handled through the incorporated banks, is it not?
A. Yes. We ourselves have fifty members on the stock
exchange.
Q. You mean that the Deutsche Bank has fifty men,
members of the stock exchange, who trade there on the
floor?
A. Yes. There is quite a difference, however, in our
method of handling the business from that followed in
New York. We do not have the margin system. Most
of our customers who do not pay in full pay at least for
half the amount involved in the purchase. In addition to
the price quoted, there is to be paid accrued interest at
the fixed rate of 4 per cent on shares and the respective
rate on bonds. This custom is not very satisfactory for
shares, but has been followed for many years.

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Q. In your liabilities we notice the items "Current
accounts" and "Deposits," $301,000,000. What is the
distinction between current accounts and deposits?
A. There is practically no distinction. For instance,
all moneys at our city branches are called deposits, as
are the moneys received at the subbranches of our main
branches. You may therefore for all practical purposes
regard this as one item. A portion, however, is payable on demand; another portion on time. Of the total
amount there is about $125,000,000 on time with an average perhaps of six months. We have time deposits from
governments, corporations, and individuals ranging from
one month to five years. The balance of the account is
on demand subject to check.
Q. Will you kindly explain the item of "Acceptances,"
$62,000,000?

A. This item is made up of acceptances of bills drawn
upon us by our customers and others to whom we extend
credits. You will notice in our assets the item "Loans
in current account, $34,800,000." This includes part of
the amount of our acceptances on the liability side, which
are not secured, but which are what we call "bianco"
credits. In other words, they are credits opened by our
office and our main branches for the handling of cotton,
copper, and merchandise generally, the credits being
extended upon the responsibility of the house to whom
the credit is extended. The balance of the account of
"Acceptances," $62,000,000, is found on the other side in
the item "Advances secured by collateral."
We have a large commercial and credit business.
We have a large business from America for cotton, for
copper, and corn, etc., and against this class of shipments the German banks give credits to America,

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Monetary

Commission

Austria, India, etc.; against these shipments long drafts
will be drawn on us. Russia has credits with us covered by bonds and merchandise. Large industrial houses
have money to their credit and shippers draw on us
against shipments. Bremen does the largest cotton
business. We have had, for instance, about $15,000,000
drawn on us from there for cotton. Then we have about
$20,000,000 to $25,000,000 from London, drawn on us
from all parts of the world, chiefly against shipments of
merchandise.
When we advance credit under what we call current
accounts, we arrange with our customer to have him draw
upon us and charge a minimum of one-fourth of 1 per
cent for the acceptance, and he then disposes of the bill,
or, if we prefer, we arrange to furnish him with the cash,
charging him perhaps 1 per cent above the bank rate for
the credit given, or we may take from our customer a bill
which has been drawn by him for merchandise and
accepted by the party upon whom it is drawn.
Q. Will you kindly explain the item, "Doctor Von
Siemens pension fund ?"
A. That item is an amount arbitrarily set aside by us
for the benefit of our employees. We have no fixed rule
and allow such pensions as we think wise.. There has
been considerable agitation in this country for a fixed
system of pensions, based upon the pension system of
our Government. The probabilities are that this agitation will lead to the adoption of that system by the
banks in general. At the present time the Reichsbank
has the governmental system. It is a matter of considerable importance to us, as we have at present about
5,000 men in our employ. The next item, " Sundries/'

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Germany

represents unsettled accounts and items between our
branches.
Q. Are you required by law to publish any statement?
A. Yes; the law requires us to issue and publish a statement at the end of each fiscal year. It is our custom to
issue a statement for our own private use every ten days,
but of this the public is not informed. There has been
considerable agitation in the press demanding that a commission be appointed by the Government to audit the
banks of the Empire and to require them to publish their
statements more frequently.*1
Q. What has caused this agitation? Does it come
from the people?
A. No; not from the people, more from the landowners, or what are known as the agrarian class. The
immobile capital is envious of the mobile, thinking that
they make too much money upon their investments. It
is thought that this commission will probably be appointed next year.
Q. You state that it is not prompted by any dissatisfaction in commercial or trade circles?
A. No.
Q. Your bank is not at any time examined by the
Government?
A. No.
Q. Are the clearing-house associations important factors
in the cities in Germany?
A. No.
a Within a few months after this interview all of the large Berlin
banks, with one exception, of their own volition, and not in consequence of any requirement of law, agreed to publish their balance
sheet six times a year, namely, on the last days of February, April,
June, August, October, and December.

38i

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Monetary

Commission

Q. Are they merely pieces of machinery through which
checks are cleared and not associations of importance
or power?
A. Yes; nothing but machinery.
Q. How many members are there in the Berlin Clearing
House?
A. There are 19, the Reichsbank not included.
Q. Are there any important banks which are not
members of the Clearing House?
A. No.
Q. Can any new bank become a member:
A. Yes; if the new bank is in a state to be received.
Q. Each bank is represented by an officer?
A. Yes. All large banking houses are also members of
the Clearing House.
Q. You all go to the Reichsbank to clear?
A. Yes; once a day. There are 14 clearing houses and
160 members in the Empire.
Q. Have you any statistics which would show the
amount of deposits and loans of members?
A. No.
Q. What percentage of your deposits is received in
Berlin? Do you show this?
A. No. Up to seven years ago we made two statements—
a balance sheet of the whole bank and a balance sheet of
the Deutsche Bank in Berlin. Last time we made it was
in 1902. Since that time our statements are for the
Deutsche Bank as a whole.
Q. Then you could not state the total volume of deposits
in Berlin? Are there no figures showing this?
A. No. In addition to the banks, we have a large number of city saving institutions and institutions of the
State, such as the Seehandlung, the Central Genossen-

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Germany

schafts Kasse, and various Sparkassen for Teltow, Stralau, and so on; there are no statistical compilations available for all the different institutions, and it is not possible
to say how large the total amount of deposits is in Berlin.
Q. What taxes do you have to pay?
A. We pay to the State 4 per cent on our income
remaining after deduction of 3^ per cent of our share
capital which is exempt and to the city of Berlin 4 per
cent on our income.
Q. You have to pay the same taxes as the Dresdner
Bank?
A. Yes; all banks pay on the same basis.
Q. Are you partners in banking firms?
A. We have two firms in which we have participations—Rosenfeld in Vienna and Heidemann in Bautzen.
We are silent partners in these houses, which do a banking business. The matter, however, is of small importance.
Q. How many branches have you?
A. We have important branches at Bremen, Dresden,
Frankfort, Hamburg, Leipzig, London, Munich, Nuremburg, and one or two other places. We have perhaps
three dozen branches of the office in Berlin alone.
Q. How are your branches managed?
A. In our important branches we have two or three
directors or vice-directors. In Hamburg there are three
directors; they are only directors of the Hamburg branch
and not directors of the Deutsche Bank. They have
power only for the Hamburg branch. They are appointed by the Berlin directors. Each branch has its
own director. The directors of the Deutsche Bank in
Berlin nominate them to the supervisors and the board
of supervisors appoints them. In Hamburg we have

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Monetary

Commission

three directors and ten procurists, who only sign jointly
with a director and only for the branch.
Q. Has your Hamburg branch many subbranches?
A. They have in their town five or six.
Q. Have they any in the country outside of Hamburg?
A. No; only in the town and immediate suburbs.
Q. You confine your business to the large centers of
the Empire?
A. Yes.
Q. You do not endeavor to reach the smaller towns
of the Empire, as is done by the London joint stock
banks?
A. No.
Q. Do the banks in which you are shareholders have
many branches in the small country towns?
A. Yes.
Q. It is in this way that you reach the interior?
A. Yes—to an unimportant extent.
Q. What discretion do you give your directors having
charge of the branches?
A. The directors have the right to buy bills and make
advances against collateral, but for credits which are not
covered by first-rate securities they must ask the central
office for permission.
Q. Is there a limit to the amount of discretion given to
the directors on first-class bills?
A. Each of the main branches has a fixed capital arbitrarily set aside by the Deutsche Bank. They have a sum
according to the importance of the branch, and they must
do business according to it. The Hamburg branch has a
large transfer business (Giro Konto). They buy first-class
bills and make advances on first-class stock exchange

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securities. When they give credits to clients they come
and inquire if we agree.
Q. What amount of capital has the Hamburg branch?
A. We do not speak about that.
Q. Is it your practice at the end of the year to say
"Hamburg shall have so much capital?"
A. No; not every year. It depends upon the volume
of business at the branch.
Q„ Do the subbranches report to their main office, or
directly to you?
A. No; the subbranches report to the branch and the
branch reports to us.
Q. Have the farmers and tradesmen throughout the
Empire good banking facilities?
A. Yes; through banks, but more particularly through
cooperative associations.
Q. We were told that the Reichsbank had about 10,000
farmers' accounts to whom they extend a credit.
A. Yes; that may be true, but that forms a very small
percentage of the farming community.
Q. What would you say are the particular functions of
the Reichsbank?
A. First, the control of the money supply of the Empire,
its management of and influence over the gold supply;
second, its agency for the development of commerce and
trade; third, its agency to facilitate the transfer of funds
from one section of the Empire to another for the benefit
of the banks, the merchants, and the individuals.
Q. The system of transferring is an important one to
banks and also to the public?
A. Yes.
Q. Is it your practice to ship currency back and forth
between your branches as needed?
60481—10

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Monetary

Commission

A. No. The shipping of currency is obviated by the
transfer department (Giro Konto) of the Reichsbank.
This is one of the principal functions of the Reichsbank.
All of our branches keep a general account and a transfer account with the Reichsbank; from and to the latter
account transfers are made, according to the needs of the
respective branch.
Q. The Reichsbank has branches everywhere?
A. Yes; in every place where there is sufficient business. It has about 500 branches. We transferred
through the Reichsbank last year 21,000,000,000 marks,
(5,200,000,000 dollars). It is better than circulation by
check. Our strength is the Reichsbank. The Reichsbank has a large number of branches to and from which
the funds needed are transferred. Our branch in Bremen, for instance, wants money when cotton shipments
start, and the money is transferred to them. The importers in Bremen sell the cotton to the large manufacturers.
When they get the money the money comes back to us.
The Reichsbank, in the transfer of funds, merely acts as
intermediary for the other banks who do the business.
Q. Are country checks cleared through the Clearing
House here at Berlin—i. e., if a check on the Hamburg
branch of the Deutsche Bank be received at the Dresdner Bank, would it be sent through the Clearing House
here to you?
A. No; it is sent by them to Hamburg direct.
Q. Does the Reichsbank ever pay interest on balances
to banks?
A. No.
Q. Is it customary for you and other banks to pay
interest on deposits?
A. Yes; we always pay interest.

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Q. In London the joint stock banks usually pay interest
at about i\ per cent below the bank rate. In the country they have to pay more. What is the custom here?
A. There is no strict rule. The bank rate is now 4 per
cent and we allow i£ per cent on call money. In the
interior our branches allow a little more. It is the same
as in England.
Q. Does the bank rate influence your rate for discounts?
A. Yes; we are influenced. The bank rate is now 4 per
cent and our private discount rate is 2\ per cent.
Q. For what period?
A. Three months.
Q. If I ask to borrow money of you on first-class
securities on demand, what interest would you charge
me to-day ?
A. We have no fixed terms. The rate would be 4 or
5 per cent. We have loaned large amounts at 3 per
cent to the stock exchange firms. At this rate we loan
money to the end of this month. In September we shall
charge 4 per cent and more, as then there will be a strong
demand.
Q. If a mercantile customer came with a four months'
bill satisfactory in character, what would be the rate to
him?
A. We have no fixed rate. It depends upon the man
and the bill.
Q. We have observed that the bank rate is usually
higher than the stock exchange rate.
A. The majority of that class of business is transacted
in Germany at from 1 per cent to 1 \ per cent below the
bank rate.
Q. What do you mean by a 'bianco credit?"
A. We have no collateral for it. It is upon the credit
of the person.

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Commission

Q. How do you invest your surplus funds when you
have no demand from customers?
A. We buy bills in the open market, or accept offerings
made to us from houses desiring to borrow.
Q. If the Reichsbank should lower the rate from 4 to
3J per cent, would it affect your rate?
A. We are, of course, governed more or less by the
Reichsbank rate, although not absolutely so.
Q. What is your system of audit?
A. We have 40 to 50 men or more, I think, in our audit
department who travel from branch to branch. They
thoroughly examine the main and sub branches and our
institution here.
Q. How many banks have outstanding note issues?
A. There are four note-issuing banks, independent of
the Reichsbank, i. e., the Banks of Bavaria, Saxony, Baden,
and Wurttemberg.
Q. Have you an idea of the total amount to their outstanding issues?
A. Yes; we will give you the figures.
The following figures show the note circulation of the
banks of issue in the Empire on June 30,1908:

Note banks.

Reichsbank
Bayerische Notenbank
Saechsische Bank
Wuerttembergische Noten-

Total

"Kontingent."
The tax-exempt issue
of notes (in Note circulation
addition to
June 30, 1908.
notes fully
covered by
cash) is fixed
at—
Marks.
472,829,000
32, ooo, 000
16,771,000

Cash on hand
June 30, 1908.

Marks.
Marks.
i,792,623,000 1.103,994,000.00
61,545.000
33,850,000.00
28, 517,144. 00
42,709,600

10,000,000
10,000,000

21,510,700
16,637,500

9,537.327.44
6,662,913.09

541,600,000

i.935.o 2 S.8oo

1, 182,561,384. 53

388

Interviews

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Germany

Q. How are they secured?
A. Our bank law requires that at least one-third of the
issue of all bank notes be covered by gold coin and bullion
and legal tenders, the balance to be covered by prime
commercial paper.
Q. Does the same apply to all issuing banks?
A. Yes; they also have a 'Contingent." The Reichsbank has a 'Contingent" of 472,000,000 marks. It has
to pay a tax of 5 per cent on notes issued beyond its
holdings of gold coin, bullion, and legal tender, plus its
'Contingent," but in no case can it issue notes unless
covered, as stated before, to the extent of at least onethird their face value by specie.
Q. Are the issue banks, other than the Reichsbank,
private institutions?
A. Yes; they are private institutions, as is the Reichsbank, and yet they have special charters and might properly be known as state banks.
Q. Is their issue of notes increasing or decreasing?
A. It is decreasing. They have seriously considered
giving up the issue of notes, because of the severe restrictions put upon them in other ways. The Reichsbank
has a * Contingent" of 472,000,000 marks, and the others
an aggregate of about 70,000,000 marks. As the amount
of the 'Contingent" of the other banks is decreased, it is
correspondingly increased in the Reichsbank.
Q. Do these banks find it difficult to keep their notes
outstanding?
A. No; the banks will take them, but perhaps not
the public at large, as the Reichsbank notes only are in
general circulation.
Q. Is it your observation that the note issue of the
Reichsbank increases in corresponding ratio with the

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Monetary

Commission

increase* of commercial activity, and decreases in like
ratio with the decrease of commercial activity?
A. Yes; it must be so.
Q. Is your note issue considered sufficiently elastic?
A. Yes, quite so.
Q. It is your opinion that the Reichsbank is as perfectly organized for the needs of Germany as a central
bank could be?
A. I was a member of the commission appointed to consider the renewal of the charter of this Bank,which expires
in 1910, and from my observation, practical experience,
and investigations I am convinced that the Reichsbank
serves the needs of Germany as well as could be hoped for.
A different system might, perhaps, do as well, but I for
one should not favor making any change for the hope of
improving upon it.
Q. Are there many people who have an account with
the Reichsbank who have no other accounts?
A. Yes, there are many who use it for their own business, or for the purpose of making transfers.
Q. Is the public advised when the Reichsbank is issuing notes under the 5 per cent tax?
A. Yes. It is the custom of the Reichsbank to publish
a weekly statement showing the amount of notes outstanding under the tax.
Q. Does the fact that the bank is issuing notes under
the 5 per cent tax provision cause any uneasiness?
A. No, generally speaking, it does not. Of course
there was considerable uneasiness last fall; but, as a rule,
whenever it is necessary to increase the issue to an amount
upon which the tax is to be paid, it does not cause uneasiness.

390

DEUTSCHE BANK.
Bilanz der Deutschen Bank am 31. Dezember 1907.
AKTIVA.
Sorten, Coupons und zur Riickzahlung
gekiindigte Effekten-Guthaben bei Banken und Bankiers
Wechsel und kurzfristige Reichsschatzanweisungen
Report und Lombard-Vorschusse

Mark.
86,228,076.94

PASSIVA.
Mark.

26,401,420.11
56,959, 955. 45

112,629,497. 05

631, 461,993. 96
154,933, 210. 28

Bigene Effekten laut Jahresbericht
Eigene Beteiligungen an KonsortialGeschaften
Kommandi ten
Dauernde Beteiligungen bei fremden
Unternehmungen
Debitoren in laufender Rechnung:
Gedeckte
__
Ungedeckte

843,355.159 . 6 9
68,600,081.
53,427.886.
660,000.
81,572,191.85
471,534,510.89
146,455,114.0)

Ausserdem Biirgschaft-Debitoren: M.
78,388,055.59.
Vorschusse auf Waren und RemboursKonto (Berlin)
Anlagen des Dr. Georg von Siemens'schen
Pension- und Unterstiitzung-Fonds
Immobilien
Mobilien

Aktien-Kapital
Reserven:
Ordentliche Reserve A
Ordentliche Reserve B
Kontokorrent-Reserve

Mark.
Mark.
66,388,031.30
26.595.316.42
7,016,652. 28

Depositen-Gelder
Kreditoren in laufender Rechnung
Erlos nicht eingetauschter Aktien II. Serie
Akzepte im Umlauf
Ausserdem Biirgschaften: M. 78,388,055.59.
Dividende, unerhoben
Dr. Georg von Siemens'scher Pension- und UnterstiitzungFonds
Uebergangposten der Zentrale und der Filialen untereinander
Gewinn- und Verlust-Konto

200,000,000.00

100,000,000.00

476,104,009.86
788,301,712.04
2,414.10
263,537.867.27
36,138.00
5.320,794.00
8,109,741.98
30.319,176.64

617,989,624.96

68,862,695.38

4,090,250.
20,544, 062.
405.
1,871,731.853.89

1,871,731,853.89

Balance sheet of the Deutsche Bank December 311 190*7.
ASSETS.
Cash
__
Foreign coin, coupons, and matured bonds _
Balances with banks and bankers
Bills discounted and short time Treasury
bills
Loans on collateral

$20, 522,282

Bonds and stocks
Syndicate participations
Special partnership interests
Shares and participation in other banks.
Loans in current account secured
Loans in current account unsecured
'.
Aside from surety guarantees, $18, 656, 357.
Advances upon merchandise__.
Investments of the Siemens pension fund
Bank premises
Furniture
Total.

60481—10.

6, 283, 538

$26, 805, 820

13, 556, 469
150,287,955
36, 874, 104

200, 718, 528

16, 326, 819
715.837
157, 080

112, 225, 214

34,856,317

19, 4 1 4 , 1 8 2
147, 0 8 1 , 531

$47, 600, 000

23, 800, 0 0 0
1 1 3 , 3 1 2 , 754

187, 615, 807
575
6 2 , 722, 012

8, 601
1, 266,349
1, 930, 119
7.215,964

16,,389,321
973, 480
4,, 889, 487
96
445, 472, i8r

(To face page 391.)

LIABILITIES.
Capital
Surplus:
Ordinary surplus A
.
$15, 800,352
Ordinary surplus B
6, 329, 685
Current account surplus
1, 669, 963
Deposits
Current accounts
Outstanding shares, second series
Acceptances
Aside from surety obligations, $18, 656, 357.
Unpaid dividends
Siemens pension fund
Unsettled accounts of the central office and branches with
each other
Profit and loss account._

TotaL-

445, 472, 181

Interviews

—

Germany

Q. The notes are all of the same form, so that a holder
does not know, by reason of the character of the note,
whether or not it is issued under 5 per cent tax?
A. They are all the same form, and the holder does not
know.
Q. What action does the Reichsbank take to increase
its gold stock aside from advancing the bank rate?
A. If the bank desires gold, or thinks it advisable to
import it, it will facilitate the importation by advancing
the money to cover the amount to be imported, without
interest, during the period in which the gold is in transit.
Q. If, for instance, you wanted to import gold, you
would express your desire to the Reichsbank, who would
probably facilitate the transaction in the way stated.
A. Yes.
Q. The Reichsbank have very materially increased
their gold holdings of late. Is this due to a new policy?
A. No, not particularly. It is due to favorable balance
of trade.
Q. The balance of trade was not in your favor in 1907?
A. No; but is largely so this year.
Q. What was the lowest percentage of coin reserve to
note issues in the Reichsbank in 1907?
A. From 37 to 38 per cent.

39i

DRESDNER BANK.
Interviews with Herr Schuster and Herr Nathan, Directors of
the Dresdner Bank.
Q. What is the date of your organization?
A. 1872.
Q. Under what laws?
A. Under the general companies act.
Q. You have no special charter?
A. No; under that law any bank may be organized without a special charter.
Q. How is your stock owned?
A. It is distributed throughout the Empire—the ownership of the majority of shares is quite unknown.
Q. You do not know where the control lies?
A. No.
Q. Will you kindly state the plan of organization
as to the directors, officers, and managers?
A. Our stockholders meet annually. Our shares are
in certificates of 600 and 1,200 marks. Each 600 marks
has one vote. At that meeting they elect from among
their number a board, the Aufsichtsrat, which may be called
a board of supervisors, of 36 in number. It is customary
at the first election for the members so elected to draw lots,
dividing themselves into classes, serving for one, two,
three, and four years, respectively, and at subsequent
annual meetings to elect successors for those whose terms
expire. It is the practice to reelect the same members
of the board when retiring. The board of supervisors
elect from among their number a president and vice-

392

Interviews

—

Germany

president. They also appoint as directors suitable men,
experienced in finance, to conduct the active affairs of
the company.
Q. For what terms are they appointed?
A. It varies; in some instances no time is specified, or
it may be for three, four, or five years. In the case of
our senior no time was specified. It is usual at the
expiration of the term, if the time be specified, to reappoint for one year. In practice the director holds his
position during the pleasure of the board, as in your
country. The board of supervisors also appoints from
among their number a subcommittee of 12, who meet
monthly and who keep themselves in active touch with
the transactions of the bank. The president is ex officio
a member of this committee and presides at their meetings.
Q. Is it a fact that the board of supervisors practically
control the affairs of the bank?
A. Yes, that is so, when transactions above a certain
amount are undertaken.
Q. Is it the custom of the subcommittee to report in
detail to the full board of supervisors the transactions
made during the intervening period?
A. Yes, in that way they are kept fully informed.
Q. The board of supervisors is, then, an important
factor in the management of the bank?
A. Yes.
Q. What is the par value of your stock?
A. The par of our stock is 600 marks and 1,200 marks—
originally it was 600 marks—but under a law passed in
1881 the par was increased to 1,200 marks. That law
was to the effect that no companies, industrial societies,
banks, or others incorporated under the law should have

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Monetary

Commission

an issue of stock with a par value under i ,000 marks.
We made the par value of our stock 1,200 marks,
double the original, and at our stockholders' meeting
a share of 1,200 marks has two votes.
Q. What prompted the enactment of this law?
A. The purpose of the law was to confine investments
in stocks of companies, organized under the general law,
to people of means and responsibility, and not to attract
small investors. There is no such law in England, where
they may have issues of £1 shares.
Q. Has this law had any appreciable effect upon the
character of investors in stocks of these companies?
A. Yes, to some extent.
Q. How often do you publish your statements?
A. Once a year.
Q. Is this required by law?
A. Yes.
Q. Do you, in fact, publish them more frequently?
A. No.
[Since the beginning of 1909 the large banks of Berlin
have agreed to publish a statement every two months.]
Q. Do you have them prepared more frequently for your
own use?
A. Yes; once a month, when we present them to the subcommittee of our board at their meetings.
Q, How frequently do the directors meet?
A. We meet every day, in fact. In German we are
called "directors," but we are what you call "managers"
in English. The subcommittee of the board of supervisors
meets each month, and the board of supervisors, which
corresponds to what you call the board of directors,
meets four times a year, unless called for some special purpose. These meetings are attended by the "directors."

394

Interviews

—

Germany

Q. In your statements you show among your assets,
cash, $11,765,470. Will you kindly inform us how that
item is constituted?
A. That item represents cash in vault, balance due
from the Reichsbank, and the balance due our London
branch from their clearing house bank.
Q. It would not include balances in other banks?
A. No.
Q. Is it your custom and the custom generally to carry
a comparatively small amount of cash in vault?
A. Yes.
Q. Have you any idea of the amount of cash carried
by banks in Berlin, not including their balance in the
Reichsbank?
A. No; but it is very insignificant.
Q. As a matter of fact, you do not pay much attention
to the amount of cash in vault?
A. No; except that we do not desire to carry much on
hand, and if it accumulates we deposit it in the Reichsbank, as we much prefer not to have it in our vaults.
Q. Do you endeavor to maintain a certain percentage
of cash on hand and in the Reichsbank to your deposit
and acceptance liabilities?
A. No; we are practically indifferent to the percentage,
as long as we know that we have on hand a sufficient
amount of prime bills.
Q. Then, in practice, you and all other banks endeavor
to fully employ all available funds?
A. Yes; we only carry in the Reichsbank and other
banks sufficient for the conduct of business. Of course
we do an important business in various parts of the world,
and it is profitable for us to have balances in various centers in order that we may make transfers for the accom-

395

National.

Monetary

Commission

modation of our customers. If we should have a debit
in the clearing house of more than our cash in the Reichsbank we would immediately send over bills with our
indorsements and establish a credit sufficient to pay the
amount of our debit.
Q. According to your statement you show in cash and
in the Reichsbank and in other banks a reserve of about
18 per cent of your deposit liabilities?
A. Yes.
Q. You carry that amount entirely for the purpose of
meeting your business requirements?
A. Only because it is necessary for the transaction of
our business. It is not necessary as reserve. You might
almost say there is no cash reserve.
Q. For instance, in your case you would have perhaps
only 2 per cent of cash in vault?
A. Yes. The amount carried in other banks remains
at about the present figure because of the character of
the business transacted. Our method of figuring reserve
is as follows: Our statement shows deposits and acceptance liabilities of about $180,000,000. Our cash on hand
and in banks, our prime bills, our short loans, and choice
securities amount to $110,000,000, or about 55 per cent.
In addition we have 10 or 15 per cent of our deposit liabilities in short current accounts.
Q. You receive no interest from the Reichsbank?
A. No.
Q. You receive interest on the balances carried in other
banks?
A. Yes.
Q. Are there any figures showing the amount of deposits in the banks in Berlin?
A. No.

396

Interviews

—

Germany

Q. Will you kindly describe the item "Bills discounted/'
$51,000,000?

A. The bills constituting this item are what we call
prime and merchants' bills, running to ninety days, with
an average maturity of from fifty to sixty days, and
bear at least two good names.
Q. They may be bank bills or merchants' bills?
A. Yes; either.
Q. Are these bills secured or unsecured?
A. They are unsecured. Some of our bank correspondents may send to us bills for discount which are
secured to them. We take them, however, on their credit
merit and not with collateral.
Q. Are most of these bills commercial bills?
A. Many of them are commercial bills. There is a
difference between commercial bills and credit bills. An
industrial company may have a credit with their bank
and draw upon the bank for an advance. If we took
that bill, we would class it as a credit bill, as it is made
upon the credit of the industrial company.
Q. Yesterday, in looking over the statement of the
Reichsbank, we noticed that they have discounted
$221,000,000 of bills at 4 per cent, having three months
or less to run. Why should they have such a large volume of discounts at this rate when the market rate on
high-class bills is 2% per cent?
A. We only take prime bills at that rate. Much of
our business is done at 4 per cent. The private rate in
Berlin applies to prime bills in such cases. We can not
class in this account, for instance, a bill drawn by a good
merchant upon a commercial house for a small amount.
The bill may be good, but if it be for less than 3,000
marks it would not come within the class, and therefore

397

National

Monetary

Commission

it would bear a higher rate. Many bills are offered to the
Reichsbank in order that merchants and bankers may
have funds with them for transfer, or to meet clearinghouse debits. It is usual for the banks, when going to
the Reichsbank, to take the very shortest paper possible,
endeavoring to keep it within five to ten days' maturity.
Q. You regard your item "Bills discounted" as one of
practical reserve?
A. Yes; it is immediately convertible into cash at the
Reichsbank.
Q. We understand that your system here is such that
when a merchant wants to borrow money for a legitimate purpose he arranges with some bank to accept
his bill, thus creating a prime bill which is discounted
by another bank and which may be sold at any moment
or converted into cash through the Reichsbank.
A. Yes.
Q. Is it the policy of the Reichsbank and of your own
bank, in times of stress, to extend credit liberally to
people who are entitled to it?
A. I think the Reichsbank extends credits liberally,
as long as it possibly can.
Q. We found that policy was adopted by the best
banks in England.
A. We had a very serious crisis here in 1901. It was
a money crisis, and at that time the Reichsbank was very
liberal in extending credits. The Reichsbank feels that
it has a patriotic duty to preserve the credit of the Empire.
It is a state institution.
Q. Your statement shows about $13,000,000 loans on
collateral.
A. These are loans made to stock-exchange houses
secured by collateral.

398

Interviews

—

Germany

Q. Usually for one month?
A. Yes; as a rule.
Q. Is the rate on loans of this character the same as
on a prime bill of the same maturity?
A. No; it is regulated by market conditions, like time
money in New York. It generally rules higher, however, than the rate on our prime bills. Loans on collateral
are not as salable and are only accepted at the Reichsbank at i per cent above the discount rate.
Q. Why is this so?
A. Because the Reichsbank will only take a limited
amount of collateral loans, as under the law loans are
not acceptable as a cover for their issues.
Q. Referring to the item " Shares in other banks,"
$6,662,753, do you control all banks in which you have
any interest?
A. Yes; practically. We probably have not the majority of the stock in any bank, but our holdings are sufficiently large to give us control.
Q. Are all these banks located within the Empire?
A. No; we control a bank in Switzerland, one in South
America, and one in the Orient.
Q. Have these particular banks many branches?
A. No.
Q. Are most of the banks in which you are interested
located in the Empire and their business confined to it?
A. Yes.
Q. You are represented on their boards?
A. Yes; by one or more.
Q. You really dominate them?
A. Yes; they undertake nothing of importance without
our approval.

399

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Monetary

Commission

Q. Is this system of control of smaller banks by larger
banks through ownership of the stocks popular in Germany?
A. Yes; in most cases it is hardly known, and when
known is popular, because it is to the advantage of the
other stockholders and also to the community in which
the bank is located because of the better facilities offered.
Q. What benefits accrue to you in the investments
besides the dividends received?
A. As a rule we have the entire business of the banks.
Q. You mean they carry their balances with you?
A. Yes; they also send to us their stock exchange business and their funds for investment.
Q. Is your investment account in bank shares increasing?
A. Yes; gradually.
Q. Is the tendency toward bank consolidation? Are
the smaller banks becoming more closely affiliated with
the larger banks?
A. Yes; because it serves a mutual advantage. The
smaller bank needs better facilities to take care of the increasing business. If a bank wants to increase its capital,
and the shareholders do not care to subscribe for the
increase, the new shares are frequently offered to us. We
look out for the business of these banks in the centers
and give them participations in some of our important
undertakings.
Q. Is the same tendency toward closer affiliation noticed
in your relations with correspondent banks in whom you
have no stock interest?
A. Yes.

400

Interviews

—

Germany

Q. Is it usual for the small independent banks or
those in whom you have a stock interest to hold as an
investment some of the stock of your bank?
A. That might be so to a small degree.
Q. In Great Britain we found that banking interests
were practically controlled by from 15 to 20 large banks.
Does that condition prevail in Germany?
A. No; but the tendency is in that direction. One
difference between the banks of England and Germany is
this—in England the primary purpose of the banks
seems to be to secure large earnings for their shareholders.
In Germany our banks are largely responsible for the development in the Empire, having fostered and built up
its industries. It is from 1871 that our real development dates, and it is since that year our great banks
have been organized. To them more than any other
agency may be credited the splendid results thus far
realized.
Q. The securities, of about $13,000,000, which you hold
are your investments?
A. Yes; that item includes our investments in government and railroad securities and also shares of industrial
and other companies which have been transferred from
our syndicate account, the syndicates having been closed.
Q. Will you kindly describe the class of securities you
purchase and hold?
A. We purchase securities of the Empire and also of
the various States and municipalities. We deem it wise
to hold about the amount we now have, as they are
quick assets.
Q. If you were to take these to the Reichsbank for a
loan, would you not have to pay a higher rate than the
bank rate?
60481—10

401

National

Monetary

Commission

A. Yes; i per cent higher. If we send bills to the
Reichsbank for discount, we have to pay interest until the
maturity of the bills. It might suit us better to make a
loan for one day at 5 per cent than to discount bills having five days to run at 4 per cent.
Q. Would it be any reflection upon a bank if it should
go to the Reichsbank for discounts or loans in easy times?
A. No; we seldom go in easy times, however, because
there is no need of our doing so.
Q. Does it not frequently occur that you have heavy
drafts made upon you through the clearing, in which
event you would have to sell some of your bills to the
Reichsbank?
A. Under such conditions we would sell our bills in
the market or go to a neighbor where we could get money
at a lower rate.
Q. When you sell bills to the Reichsbank, they are
with your indorsement?
A. Yes.
Q. Then your statement would not show that you had
sold bills with your indorsement?
A. No.
Q. You carry other bonds and shares?
A. Yes. The bonds of municipalities, of railroads, and
shares of industrial companies which we have financed in
whole or in part, such as electrical and tramway companies, etc.
Q. You hold these securities for investment?
A. Yes.
Q. You are restricted in no way as to the character of
investments you may make?
A. No; our by-laws permit any investments we wish
to make.

402

I n t e r v i e w s

—

Germany

Q. Will you give us an idea of one of your syndicate
operations?
A. We have just entered upon one. A company
has been formed to build a cable line from German
West Africa to Brazil. The company manufacturing
the cable is required to raise a large amount of money
in order to supply the cable. They have come to us and
asked us to finance the proposition. We have consented
to do so and are forming a syndicate consisting of nine
or ten other banks and bankers, each participant having
an equal interest. Frequently syndicates are formed to
finance an operation the result of which may be an issue
of bonds and shares. These bonds and shares are taken
by the participants in exchange for the sums advanced by
them. It is the custom of the banks to limit their risks in
such enterprises by inviting other banks or bankers to
share with them, the number invited depending, of course,
upon the character of the transaction and the amount of
money involved. While it is not the law, it is the universal practice to issue bonds and shares to represent only
the actual cash value of the property represented. We
have no system of issuing bonus stock as is done in some
other countries.
Q. In syndicate operations you may become syndicate
managers; and if so, do you receive commission as
managers?
A. We may become the syndicate managers, but it is
not generally the custom to receive commission for such
services. The profits accruing are always divided ratably
among the participants.
Q. If a proposition be made to you from a responsible
man to aid him in building an electric plant, he having
first invested, say, 100,000 marks and asking you to

403

National

Monetary

Commission

furnish further capital for the completion of the plant,
would you be inclined, conditions being favorable, to join
him?
A. We might, but the probabilities are we would not.
We do not advance funds on propositions of this character,
except in cases where the plant has been established and
is earning upon the investment.
Q. Assume that the plant is established and earning
upon the investment, but that the manufacturer desires
to enlarge his plant, would you then advance him money
for that purpose, taking bonds as security?
A. We might.
Q. Is it not your custom to frequently have securities
listed?
A. Yes. We seldom handle securities which are not
or may not be listed.
Q. Do you publish the amount of profits received on
your syndicate investments?
A. No.
Q. Is there strong competition between the important
banks of Berlin or do they work more or less together?
A. Of course there is strong competition between the
large, important banks, but there is no lack of harmony,
and they very frequently work together in syndicate
operations as described. While it is the desire and endeavor of each bank to build up its business, it must be
recognized that each institution has more or less its own
field of operation, which is in a measure respected by the
other banks. As, for instance, the Deutsche Bank has
done a very large volume of business with Turkey, and
business emanating from that source is expected to and
naturally does go to the Deutsche Bank, while another
institution may have been largely identified with Rou-

404

I n t e r v i e w s

—

Germany

mania, or another with some large local interest. We
ourselves are recognized as representing the Krupp
interest and have just recently formed a syndicate to
finance one of their operations.
Q. Is the syndicate business which the banks take
confined to Germany?
A. No; it covers all parts of the world.
Q. Berlin is the center in Germany for such operations,
is it not?
A. Yes.
Q. In syndicate transactions the practical management for the bank is divided among the directors, is it
not?
A. Yes.
Q. If a syndicate operation of the character described
should prove unprofitable to the investors, would it not
reflect upon the credit of the bank which organized the
syndicate?
A. This occurs very rarely, and, when it does, does not
appreciably reflect upon the standing of the issuing bank.
Q. Is this due to the training of the public?
A. It may be. It is the custom of banks in Berlin to
do business of this character, and it can not all result
satisfactorily, though it does to a very large degree.
Q. In your statement of assets you show "Current
accounts," $108,247,559?
A. Yes. These are advances made by us to customers;
$78,000,000 of these are secured.
Q. Is this not an unusually large percentage to be
secured?
A. We would not say so.
Q. Have you a system of pensions for your employees?
A. No.
4°5

National

Monetary

Commiss ion

Q. Your statement shows about $603,000 in pension
funds?
A. Yes; but we have no settled system. That fund is
at the disposition of the directors and may be placed as
we see fit. We think, however, there will soon be a law,
as the subject has been agitated, and we believe a bill
will soon be passed adopting a system similar to that of
the Government.
Q. In your'' liabilities " you show'' Current accounts and
deposits" of about $130,000,000. Will you kindly state
the distinction between deposits and current accounts?
A. Deposit accounts are funds received by the branches
here in Berlin and elsewhere and are not, generally speaking, accounts to which credit is granted.
Q. Are some of these on time?
A. Yes; but we can not at the moment tell you the
percentage.
Q. Do you pay interest on all these balances?
A. Yes; practically on all of them. We pay from i j
to 2 per cent in Berlin and somewhat higher rates at the
outside branches.
Q. In your statement you show "Acceptances against
credits and securities" of about $50,000,000?
A. Yes. Part of these are secured and part are based
upon the credit of the drawer.
Q. Our understanding is that a merchant, a customer
of yours, may arrange with you for a credit of, say, 100,000
marks, which may or may not be secured, and may draw
a ninety-day bill upon you for that amount. He may
send that bill to the Deutsche Bank for discount. If the
Deutsche Bank will discount it, they present it to you and
you accept it. Will you kindly state why this custom
prevails?

406

Interviews

—

Germany

A. One reason is that it makes a bill which is acceptable
at the Reichsbank and is a prime bill. We receive onefourth of i per cent, or more, for our acceptance, and the
Deutsche Bank or any other bank discounting invests
its money at a rate for the period. It might be that we
would prefer to give our customers a cash credit rather
than to accept his bill, in which event we would so arrange
Q. Then this practically enables you to sell your
credit without using your cash?
A. Yes.
Q. We understand this is the usual custom in Germany.
A. Yes.
Q. Is it not a fact that in the last analysis the customer
who uses the money usually pays more than the bank
rate—that is, would it not cost him, in such a transaction
to-day, say 5 or 6 per cent, while the bank rate is 4 per
cent?
A. Yes.
Q. How many branches have you?
A. Dresden, Berlin, London, Frankfort, Bremen, Nuremburg, Fuerth, Hanover, Biickeburg, Detmold, Mannheim, Chemnitz, Lubeck, Altona, Zwickau, Plauen, Emden, Munich, Augsburg, Freiburg i/Br., Heidelberg, Bautzen, Greiz, and Meissen.
Q. Have these branches subbranches in the cities in
which they are located?
A. Six of them.
Q. Are those subbranches many in number?
A. No; perhaps five or six to each branch.
Q. Is it your endeavor to reach the small country towns?
A. No.

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Monetary

Commission

Q. Neither through these branches nor through the
banks whose stock you control?
A. No; we do not care for that class of business. It is
not the practice or endeavor of the other important banks
of Berlin to reach, through their branches, the interior
towns, as is the custom of the joint stocks banks of London.
Q. How are the managers of your branches appointed?
A. By the directors, with the consent of the board of
supervisors.
Q. The business of these branches is of a character quite
like that of the business conducted by you here, except the
syndicate operations?
A. Dresden and Frankfort are the only other branches
which handle syndicate operations; the other branches
conduct a regular banking business.
Q. What is your system of audit?
A. We have a force of men whose duty it is to examine
each branch and the main offices and report to the board.
Q. Do you handle country checks by sending them to
the cities and towns upon which drawn, or through the
main bank, if it be in Berlin?
A. We send them direct for collection.
Q. Is the volume of country checks an important item
with you?
A. Yes; but not as you would consider it in America.
Q. Is the use of checks increasing in Germany?
A. Yes; but the Reichsbank is an important factor in
the transferring of credits, thus diminishing the number of
checks which would otherwise be required.
Q. In the United States we have brokers who handle
commercial paper, and many of the banks purchase it to
employ their surplus funds. In London we found discount
houses whose sole business was to handle paper for sale to

408

Interviews

—

Germany

banks to employ their surplus funds. What corresponds
to that agency in Berlin?
A. In Berlin there are two brokers who handle prime
bills, but they are not an important factor.
Q. How do you employ your surplus funds?
A. We buy bills in the market or through these brokers.
Q. In employing your surplus funds do you buy any
other bills than those which the Reichsbank would accept?
A. No.
Q. If the Reichsbank were to reduce its rate from 4 to
3i per cent, what effect would that have upon your rate
allowed for deposits?
A. We would reduce our rate correspondingly.
Q. Would you also reduce your rate to borrowers?
A. Yes.
Q. What dividends do you pay upon your stock?
A. We are now paying 7 per cent.
Q. Is your stock dealt in on the Berlin Stock Exchange?
A. Yes. It is selling now at 145, which is on about a
5 per cent basis.
Q. You have stated that you do not know where your
stock is held. Will you kindly explain that?
A. Our stock certificates are payable to bearer with
coupons attached. At the end of each year we publish
our dividend, after which the stockholders send to us a
coupon for the amount due. Each certificate is registered
as to the amount of shares and the coupon must correspond.
Q. How is your stock represented at your meetings?
A. The certificates must be deposited three days prior
to election date.
Q. You are not examined at any time by the Government?
A. No.

409

National

Monetary

Commission

Q. What taxes do you pay?
A. Last year our taxes were 1,400,000 marks ($350,000).
We are obliged to pay to the Prussian Government 4 per
cent of our profits, after allowing for a dividend of 3^ per
cent. We also pay to the municipality 4 per cent of our
profits, making a total tax of 8 per cent of our net
profits. Every State exacts a tax on about this basis.
Q. The tax paid by you is about six-tenths of 1 per
cent upon your capital and surplus. In New York banks
are obliged to pay 1 per cent. Does the stockholder
have to pay a tax?
A. Yes; the stockholder also has to pay an income tax,
which is equivalent to about 8 per cent of the amount
received on the shares.
Q. Have there been any suggestions from responsible
quarters for a change in the policy of note issues in the
Empire?
A. No; I think not. We had an inquiry here some
months ago, but the commission for the preparation of
the new law have not yet reported. As the Reichsbank
privilege expires in 1911, the Government will probably
have a bill passed in the Reichstag during the coming
winter session extending the charter of the Bank. It may
be that there will be some changes in the charter. For
instance, there are many people who advocate an increase
of the capital of the Reichsbank, which is now 180,000,000
marks, but this is all as yet uncertain.
Q. Is there any suggestion of giving to any other bank
except the Reichsbank the right of note issue?
A. No; on the contrary, the remaining banks of issue
will from time to time relinquish that right, as many banks
have already done.

410

I n t e r v i e w s

—

Germany

Q. Why should they contemplate increasing the capital
of the Reichsbank? What would give rise to that suggestion?
A. That question arose last year during the time of
high discount rates. Our agrarian party considered it
very desirable to increase the capital, because they
thought that it was only by an increase of capital that
the discount rate could be reduced. Of course that was
a mistake, as in the meantime discount rates have fallen
without any such measure. I think, therefore, that perhaps they will leave the capital as it stands now. They
desired the increase of capital because they thought that
the Reichsbank was not able to meet the necessities of the
Empire, and was therefore obliged to raise the discount
rate. As a matter of fact, the discount rate was high
because the industries of the country were running so
actively.
Q. Has there been any evidence of uneasiness because
of the increasing use of taxed notes?
A. No; they issued taxed notes twenty-five times during the past year; the amount was at one time as high as
650,000,000 marks, but I hardly think there is much importance to be attached to that fact.
Q. Does it not create more or less of a feeling of uneasiness in business circles?
A. I do not think it does. The notes must always be
covered by at least one-third in gold and coin. I think
it would be much better to do away with the Kontingent
feature altogether and to provide that if the reserve goes
down to 40 or 45 per cent the amount of notes issued
above that should be taxed. The tax is only a fiscal matter, nothing else.

411

National

Monetary

Commission

Q. Would you consider the issue of taxed notes in a
sense an evidence of an abnormal condition.
A. No; on the contrary, it is quite normal. Last year
it happened twenty-five times.
Q. Is attention paid to the percentage which the cash
reserve bears to the deposits of the Reichsbank as well as
its relation to the note issue?
A. Yes; of course we follow that very closely here, but
I think the public only considers the relation of the
reserve to the note issue.
Q. What is the Berliner Kassenverein?
A. It is a bank for the clearing of stock exchange
securities and also for the checks of banks which are not
members of the Clearing House.
Q. I believe there are six or seven different kinds of
banks outside of the usual commercial banks?
A. There are several different kinds of Genossenschaften
or cooperative banks. Then every province of the Prussian State has a bank, which lends on mortgage, etc., and
issues debentures. These debentures rank among those
admitted as first-class securities at the stock exchange.
There are also a number of what we call communal savings
banks {Kreis Sparkassen). Then there are the municipal
savings banks (Stodt Sparkassen). There are also a number of private savings banks.
Q. Are the savings banks restricted by law as to the
character of investments they may make?
A. Yes; very severely restricted by law. By the
state law they are only allowed to take such mortgages
as are legal investments for trustees, and that law is
defined by the provinces or by the State. Cooperative
banks do a business which is not large enough for the other
banks. They are not always called banks, but cooperative societies.

412

I n t e r v i e w s

—

Germany

Q. Where are the principal ones located?
A. The headquarters of some of them are here in Berlin,
but there are some in other provinces of Prussia.
Q. Wbat are the particular functions of those banks?
Upon what theory are they organized?
A. The theory is that by pledging the credit of the
members they can do a business which will serve a mutual
advantage and with small cash capital.
Q. They are not dependent one upon another?
A. Each association is entirely independent, but the
various associations form an organization which is for the
purpose of control. There is one large society in the
Province of Silesia, with headquarters at Breslau, and
all the corporations in that Province are controlled from
that point. We have a number of such organizations.
Q. Is there any legal restriction as to the character of
investments made by these banks or societies ?
A. They may buy what they want. The Preussische
Central-Genossenschafts-Kasse is a state bank, which is
established to look after the business of the agrarian cooperative societies. The Prussian Government furnishes
to this institution the capital which is required by it.
Q. Do you think it desirable to have a graduated tax
on note issues, as in our recent legislation in America?
A. I think this is hardly necessary. In America you
have to deal with so many banks. Here we have practically to deal with but one. The theory of the Reichsbank is that it will maintain conditions and rates with as
little fluctuation as possible.
Q. In times of trouble do the large banks, like your
own, the Deutsche Bank, and Disconto, cooperate with
the Reichsbank in an endeavor to prevent the exportation
of gold?

413

National

Monetary

Commission

A. Yes. Opinions are divided as to whether it is for
the good of our country to do so or not. Last year, for
instance, many people asked for gold. It was refused
at first in some quarters; later we shipped freely.
Q. Do the banks handle a large percentage^ of the gold
imported and exported?
A. Yes; we handle a large percentage of the gold moved.
Q. Is it easy to obtain statistics showing the exports
and imports of gold?
„ A. I think you can get statistics, but I doubt their
accuracy. Our people carry a great deal of gold in their
pockets, and large amounts are imported and exported
over the frontier in this manner and no record made.
Q. Would not the exports about balance the imports
of this sort?
A. Perhaps.
Q. We should like to learn the amount of notes and coin
in actual circulation among the people in Germany.
A. It is very difficult to arrive at that figure. It is
quite impossible to know how much gold and silver has
been used for industrial purposes. We should regard the
cash in the banks as insignificant, inasmuch as we only
carry cash for the day-to-day needs of the public.
Q. We should like to know how much is in the pockets
of the people.
A. The bank only has what the public leaves from day
to day—taken in from them and given out to them. The
balance, exclusive of the holdings of the Reichsbank, is
with the people.
Q. Do you do a transfer business?
A. Yes.
Q. What is meant by Giro business?

414

Interviews

—

Germany

A. A transfer which is sent to anybody in Germany
through the Reichsbank.
Q. What do you call a transfer from your main office
to one of your branches?
A. There is no special term for that. What we call Giro
comprises the transfer transactions and also paying money
out—that is all Giro.
Q. This does not alone refer to the Reichsbank?
A. It is not confined to the Reichsbank. For instance,
some of our customers term their accounts Giro Konto or
Scheck Konto.
Q. Have you a general idea of the total amount of deposit liabilities in Germany?
A. We estimate the deposit liabilities of the Berlin
banks, not including savings banks or cooperative banks, at
about 3,000,000,000 to 3,500,000,000 marks—$800,000,000.
In all Germany it is about 8,000,000,000 marks—
$2,000,000,000.

Q. That is a surprising statement. In the city of
New York alone the deposits in the banks, exclusive of
savings banks, amount to more than 10,000,000,000 marks.
A. New York is quite a place. Our people invest a
larger proportion of their funds in securities and keep
less money on deposit in banks.
Q. Are the savings banks deposits subject to immediate withdrawal?
A. Certainly.
Q. Why should not those deposits be included? If you
are estimating the total deposit liabilities, why should
you not include these?
A. If you want to get at the aggregate of sight deposits
in Germany you should include them. The great ad-

415

National

Monetary

Commission

vantage of our system is that it affords so many ways of
investing money with absolute security.
Q. Has there been any other banking crisis in Germany since 1875 except that of 1901?
A. Yes; there was in the year 1890; but I do not
think any crisis was as severe as 1901.
Q. You had no serious crisis in 1893?
A. No.
Q. Was there not a bank run about a week ago on one
of the Genossenschaften?
A. This was one of the Schulze-Delitsch which banks
with us. We helped them, as we absorbed their central
bank and now serve them as such.
Q. What do you mean by serving them as their central
bank?
A. That simply means that we are their Berlin correspondent. The various banks of this organization know
that by doing their regular business with us they may receive assistance from us in case of need. At the time the
run started on that bank they had a credit balance with us
of 500,000 marks.
Q. Is the stock exchange an important factor with the
banks in Berlin?
A. Yes, for our stock business.
Q. Do you transact a large stock business?
A. Yes. We have no brokerage houses like yours in
America.
Q. If I should come in and ask you to purchase for me
a certain amount of shares would you do so?
A. Certainly.
Q. What margin would you require?
A. We have customers for whom we buy on small margin. If a man who is known to us to be good for a cer-

416

Interviews

—

Germany

tain amount desires to purchase for speculation, he may
give us an order without having any margin at all. But
usually we expect a margin of 25 to 40 per cent.
Q. What have you as an evidence of his obligation?
A. He must confirm the transaction. Stock transactions are conducted quite differently here from what they
are in America; in a majority of cases we have only
one quotation a day. The price may fluctuate as it does
in New York for securities dealt in for future delivery,
but for all bonds and most mining and industrial shares
there is only one official quotation each day. At a certain
hour people go to the official broker, who determines the
price of the securities for the day, and they are settled for
on the basis of that price. It should be added that on
demand the Government may allow the stock of all mining
and industrial stock companies having a fully paid up share
capital of at least 20,000,000 marks to be dealt in for future
delivery, i. e., for the end of the month, and such stock has
not merely one quotation a day, but is dealt in during the
sessions of the stock exchange at fluctuating prices.
Q. Are you members of the stock exchange?
A. All banks and bankers are members of the stock
exchange.
Q. By virtue of their being banks?
A. Yes; they have to pay a tax for the exchange.
Q. Are the seats expensive?
A. No. You do not buy a seat. There is no limit to
the number of people admitted.
Q. Do you have more than one man go to the stock
exchange?
A. Yes. We have from twenty to thirty people go to
execute our orders.
Q. How is the stock exchange governed?
60481—10

417

National

Monetary

Commission

A. We have certain government supervision over the
stock exchange. Formerly the exchange was a private
corporation, but the new law created a board of managers
which is responsible to the Government.
Q. What is the makler verein?
A. That is a stock company. It is for brokers who
can not do business under their own name, who have no
credit. This organization clears their transactions for
them.
Q. Is the banking field in Berlin so monopolized that a
new institution with ample, capital would find difficulty in
establishing itself?
A. It would depend upon the management. We see
no reason why a bank would not have a fair chance.
Q. Does the Imperial or Prussian Government carry
any cash reserve independently of the banks?
A. No; except that the Imperial Government has a fund
of 120,000,000 marks in gold, which is known as the war
fund, and which has been carried in a vault in Spandau
since the payment of the French indemnity.

418

DRESDNER BANK.
Dresdner Bank, Bilanz jihr 31. Dezember 1907.
AKTIVA
Kassa-Konto: Bestand an Bar, Coupons und Sorten
Wechsel-Konto: Bestand abzuglich Zinsen
Konto-Korrent-Konto: Verfiigbare Guthaben bei Banken
und B ankiers
Effekten-Report-Konto
Waren-Report-Konto
Lombard-Konto
Vorschiisse auf Waren und Waren-Verschiffungen
Dauernde Beteiligungen bei fremden Banken
Effekten-Konto
_
Konto-Korrent-Konto. Debitoren:
(a) Banken und Bankiers durch EffekMarks.
tengedeckt
55.232,015.50
(6) sonstige Debitoren, durch Effekten
und andere Sicherheiten gedeckt
272, 867,957. 95
(c) ungedeckte Debitoren
126, 721, 699. 75
ausserdem Aval-Debitoren M. 32,361,155.90.
Konsortial-Konto
Immobilien-Konto:
Bankgebaude Dresden, Berlin, Frankfurt a. M., Hamburg, Bremen,
Niirnberg, Ftirth, Hannover, Biickeburg, Mannheim, Detmold, Plauen i.
V.. Chemnitz, Emden, Freiburg
i. Br
14,685,000.00
Neubau-Konto Berlin,
Hannover,
Miinchen, etc
4,475.623.50
Diverse Grundstiicke
1,409,640. 70
Pensions-Fonds-Effekten-Konto
K6nig-Eriedrich-August -Stiftung-Effekten-Konto .

Mark.
49,436,849.55
217,645,918.00
31,837,022. 00
42,513,853.50
7,807,654.15
14,096,377.45
38,274,214.05
27,994,759.30
56,153,442.20

PASSIVA.
Aktien-Kapital-Konto
Reserve-Eonds-Konto
Reserve-Fonds-Konto B
Verzinsliche Depositen
Konto-Korrent-Konto. Kreditoren
Akzept- und Scheck-Konto (ausserdem AvalVerpflichtungen
in Hohe von M. 32,361,155.90)
Dividenden-Konto: Unerhobene Dividenden
Pensions-Eonds-Konto__
K6nig-Eriedrich-August-Stif tung
Uebergangsposten der Zentrale und der Eilialen untereinander
Reingewinn

Mark.
180,000,000.00
41,800,000. 00
9, 700,000. 00
224,845,411.30
323,699,114.40
209,491, 706.15
29,361.00
2,478,121.35
100,290.90
413, 704. 60
19*505,929.30

454,821,673. 20
48,376,813.50

20,570,264.20
2,437,860. 40
96,937-50
1,012,063, 639.00

x, 012,063, 639.00

Balance sheet of the Dresdner Bank December J J , igoy
LIABILITIES.

ASSETS.
Cash, including coupons and foreign coin
—
Bills discounted (with interest deducted)
Balances with banks and bankers
Securities carried for settlement on the stock exchange for
customers
Commodities carried for settlement on the produce exchange
for customers
Loans on collateral
..
Advances upon commodities
Shares and participations in other banks
Securities
Loans in current account:
(a) To banks and bankers, covered
by securities
$13, i45. 220
(b) To others, covered by securities.
64, 942, 574
(c) Uncovered loans (in addition to
surety guarantees, $7, 701, 955)30, 159, 765
Syndicate accounts
Real estate:
Bank buildings
Building account
Other real estate

3, 495, 030
1, 065, 199
335, 495

Pension fund securities
King Frederic Augustus foundation securities .
TocaL
-.

60481—10.

(To face page 418.)

$11,765,970
51. 799.728
7, 577,211
10,118, 297
1,858, 222
3.354,938
9,109. 263
6,662, 753
13.364, 5i9

Capital
..
Surplus A
Surplus B
Interest-bearing deposits
Current accounts
Acceptances and drafts (in addition to surety obligations,
$7, 7oi, 955)
Unpaid dividends
Pension fund
King Frederic Augustus foundation
Unsettled account of central office and branches with each
other
Net profits

$42, 840, 000
9, 948, 400
2,308,600
53, 513, 208
77, 040, 389
49, 859, 026
6, 988
589, 793
23, 869
98, 462
4, 642, 413

108, 247, 559
11*513, 682

4, 895, 724
580, 211
23,071
240, 871, 149

Total-.

240, 871,148

BISCONTO-GESELLSCHAFT.
Interview with Doctor Salomonsohn, Director of the DiscontoGesellschaft.
Doctor Salomonsohn stated that the character of the
business of the Disconto-Gesellschaft is strictly the same
as that of the Deutsche, Dresdner, and other joint stock
banks. It differs only in this particular, that it is arranged
on the commandite principle. The directors, five in number, are partners in the business. They manage it and are
responsible to the creditors for the obligations of the
bank. They receive no salaries, but share to the extent
of 20 per cent in the profits, after a dividend of 4 per cent
has been paid to the stockholders.
The law requires them to carry to their surplus fund a
certain percentage until that fund shall have reached 10
per cent of the capital. They can not divide their entire
profits until the surplus funds shall have reached one-third
of their capital, which they have now done. I t is not
their practice, however, to divide the entire profits among
their stockholders, as they prefer to increase their surplus
fund. If the bank were to be liquidated, the partners
would be entitled to one-fifth of the capital and surplus.
In speaking of the gold reserve of the country, Doctor
Salomonsohn stated that it has been carefully estimated that the gold reserve in the pockets of the people
of the Empire amounts to about 4,000,000,000 marks
($1,000,000,000) and that it is more satisfactory to have a
reserve carried by the people than by the banks. I t
might properly be considered as a war-fund reserve; that
is, in case of trouble it could be relied upon. He stated

419

National

Monetary

Commission

that there had been no reliable estimate made as to the
percentage of gold reserve in the banks to their deposit
liabilities, the Reichsbank being the only institution
making a statement covering that figure.
When asked if the use of bank checks was increasing in
Germany, he stated that it was, somewhat. It is not yet
the custom, however, for people to use checks in settlement of their personal accounts, as is the practice in England and America. Last year a law was passed specifying
in more precise terms than had before been done the legal
status of the check, the intent of which was to increase
the use of the deposit and check systems. He, however,
does not approve of the check system as compared with
the transfer system, now in vogue in Hamburg.
When asked if he viewed with any concern the very
large mortgage debt on the real estate in the Empire, he
replied that he thought it was large—possibly too large.
In addition to the loans made by institutions, and estimated at 24,000,000,000 marks ($6,000,000,000), there were
many mortgages of large aggregate held by individuals,
the total of which can not be estimated. He expressed
absolute confidence in and approval of the Reichsbank
system, stating that he thought it would be well to increase the Kontingent, but that the increasing volume of
notes issued by them gave no concern, and that bankers
generally regarded the beginning of the issue of taxed
notes as something of a warning, but with no alarm.
In regard to the postal savings bank system he stated
that a law had been passed inaugurating a postal check
system, which he believed would be of great advantage.
At present it is the custom to use the postal service for the
remittance of small sums to and from the small country towns. It has been estimated that the postmen of

420

DISCONTO-GESELLSCHAFT.
Disconto-Gesellschaft, Bilanz am 31. Dezember 1007.
AKTIVA.

Mark.
Kasse, Couponsundfremde Goldmiinzen
35,181,575.15
Wechsel
154, 295,689.30
Guthaben bei Banken und Bankiers
17,301,141.15
Reports und Darlehen
49,554,644.47
Eigene Wertpapiere
34,084,520.05
Konsortial-Beteiligungen
59,911,416.37
Beteiligung bei der Norddeutschen Bank in Hamburg
50,000, 000.00
Andere dauernde Beteiligungen bei Bank-Instituten nebst
Kommandit-Beteiligungen
,
54,040,129.93
Debitoren in laufendenRechnungen
38c, 998,135. 31
Ausserdem Aval-Debitoren
M. 46,369,881.88__
Bffekten-Depot der Pensionskasse, des Unterstiitzungsfonds
und der besonderen Stiftungsfonds
4, 779,130. 50
Mobilien nach Abschreibung
244,109. 85
Bankgebaude in—
Mark.
Berlin
6,000,000.00
London
1,118,824.20
Bremen
325,300.00
Frankfurt a. M
3,000,000.00
10,444,124.20

PASSIVA.
Eingezahlte Kommandit-Anteile
Allgemeine (gesetzliche) Reserve
Besondere Reserve
Deposit-Rechnungen mit Kiindigung
Kredi toren in laufenden Rechnungen
Accepte (ausserdem Aval-Verpflichtungen M.. 46,369,881.88)..
David Hansemannsche Pensionskasse nach Uberweisung von
M. 150,000 aus 1907
Adolph von Hansemann-Stiftung
Unterstiitzungsfonds und besondere Stiftungsfonds fur die
Angestellten der Gesellschaft
Sparkassen-Konto fiir die Angestellten der Gesellschaft
Nocht nicht abgehobene Dividenden der friiheren Jahre
9% Dividende auf. M. 170,000,000 Kommandit-Anteile
Tantieme des Aufsichtsrats
Gewinn-Beteiligung der Geschaf tsinhaber
Ubertrag auf neue Rechnung

850,834,616.28

60481—10.

LIABILITIES.
$8,373, 215
36, 722, 374
4, 117, 672
11, 794,oo5
8, 112, 116
14, 258,917
11, 900, 000
12, 861, 551
90,677, 556
1, i37, 433
58, 098

Capital
Legal surplus
Special surplus
Deposits subject t o notice
Current deposits
Acceptances (in addition to surety obligations, $n,o36,o32) .
David Hansemann Pension Fund
Adolph von Hansemann foundation
Other pension funds
Savings account for bank personnel
Unpaid dividends for earlier years
9% dividend upon capital
Amount of profit due directors
Profits of partners •Balance for new account

$40, 460, oco
9, 066, 041
4, 641, 000
34,334, 009
61, 055, 220
46, 195, 75*
1, 042, 742
117. 7i5
64,079
1, o39, 681
5,862
3, 641, 400
106, 474
425,895
3o2, 769

2, 485, 702
202, 498, 639

(To face page 421.)

269,240.50
4,368,409.46
24,628.50
15 300,000.00
447,368.42
789,473.69
272,139.05

December 31, 1907.

ASSETS.

Total.

4,381, 267.64
494,601.65

850,834,616.28

Balance sheet of the Disconto-Gesellschaft
Cash, coupons, and foreign coins
Bills discounted
Balances with banks and bankers
Loans on collateral
Securities
Syndicate participations
Participation in the Norddeutsche Bank in Hamburg
Shares and participations in other banks
Loans in current accounts (in addition to surety guarantees,
$n,o36,o32)
Securities for pensions and other foundations
Furnishings
Bank buildings in—
Berlin
$1, 428, 000
London
266, 280
Bremen
77, 422
Frankfurt a. Main
714, 000

Mark.
170,000,000.00
38,092,611.39
19,500,000.00
144,260,541.89
256,534,537.07
194,099, 797.02

Total.

202, 498, 639

Interviews

—

Germany

the Empire carry daily in cash an amount averaging
25,000,000 marks, this being the amount of cash paid out
by the postmen. They are not allowed to receive cash.
That must be deposited in the post-office. The system
proposed will enable anyone to open an account with the
Post-Office Department. A deposit may be made against
which a check may be drawn, thereby avoiding the
trouble and risk of daily payments to the department in
cash. As the custom of using the post-office is very general, especially in remitting to those having no account
with the Reichsbank, it is believed that the postal check
system will serve a splendid purpose and become popular.
When asked if the postal savings bank system would be
adopted, he stated that the postal check system might
develop into the establishment of a postal savings bank
system. He thought that there would be much opposition to this, he himself being opposed to it, but there
were some who confidently believed that the move would
eventuate into the establishment of the bank system. It
seems that the question of interest to be allowed by the
department has not been settled. They may decline to
allow interest on sums deposited with them.
When asked as to the character of the deposits in his
bank, and also in the other banks in Berlin, he stated that
they were very stable—that is, that they fluctuate very
little—but in his own institution they had gradually increased from year to year, due of course in part to the
development of business. He expressed the opinion that
the deposits in the banks of Berlin were less liable to
fluctuations than those in other financial centers.

421

BERLINER HANDELS-GESELLSCHAFT.
Interview with Doctor Mosler, Director of the Berliner HandelsGesellschaft.
Doctor Mosler stated that the business of the Berliner
Gesellschaft was practically of the same class as that
of the other private or joint stock banks. His bank
was established about 1850 under special charter and
is organized upon the commandite principle, i. e., the
directors are partners, being responsible for the liabilities of the bank and sharing in 20 per cent of
the profits, after allowing for a dividend of 4 per cent.
This is the only important bank in Berlin having no
branches in other cities, or in the city of Berlin itself,
the entire business being confined to one office. When
asked why they had purchased no other banks to be used
as branches, or established branches in no other city, he
stated that they did not deem it advisable to conduct
their business through branches. He argued that in fair
weather they might serve an advantage, but that in times
of stress he felt quite content to have their business under
the immediate supervision of the directors located in
Berlin. He felt that the experiences of the latter part of
1907 vindicated his judgment in this regard, as he was
in much better shape to handle the business, concentrated as it was, than were other important institutions
with such diversified interests and so widely scattered.
This view, he stated, is not entertained, however, by
banks having branches. The system of important
branches has only been in vogue for a few years, and he
feels that its advantages are not yet thoroughly demonstrated. It has been the custom of the joint stock banks

422

BERLINER HANDELS-GESELLSCHAFT.
Bilanz der Berliner Handels-Gesellschaft vom 31. Dezemher 1007.
HABEN.

SOLL.

Mark.
Kassa-Konto
22,559,037.5s
Effekten-Konto___
24,456,409-45
Effekten-Report-Konto: Reports und Lombardvorschiisse auf
51,015,697.40
Effekten
___
Wechsel-Konto
89,850,878.55
Grundstiicks-Konto
1,365,280.30
B ankgebaude
5,106,178.70
Konsortial-Konto
54,3i8,773-6o
Kontokorrent-Konto: Debitoren
179,810,414 95
Pensions-Kasse der Angestellten der Berliner Handels-Gesellschaft: Effekten-Bestande
2,502,278.80
Stiftungen fiir die Angestellten der Berliner Handels-Gesellschaft: Effekten-Bestande
213,442.50

Kommandit-Kapital-Konto_-.
...
Reservefonds
Tratten-Konto
_
Kontokorrent-Konto: Kreditoren
Gewinnanteil-Konto: R iickstandige Gewinnanteile
Pensions-Kasse der Angestellten der Berliner HandelsGesellschaft: Vermogensstand
Stiftungen fiir die Angestellten der Berliner Handels-Gesellschaft: Vermogensstand
Gewinn- und Verlust-Konto: Reingewinn

Mark.
100,000,000.00
30,000,000.00

74,051,150.45
212,882,979. 70
10,603.35
2,530,548.20
217,199.40
11,505.910. 70

43i» 198,391-80

431,198,391.80

Balance sheet of the Berliner Handels-Gesellschaft December 31, 1907
ASSETS.
Cash on hand and at Reichsbank
Bonds and stocks
Loans upon collateral
Bills discounted
Bank land
Bank building
Syndicate account
Due from customers and correspondents
Pension-fund securities for bank officials
Endowment funds for bank officials
Total _

60481—10.

I!
$5,369,051.00
5. 820, 625. 00
12,141, 736. 00
21, 384, 509. 00
324, 937. 00
1,215,270. 00
12, 927, 868. 00
42, 794, 879. 00
595, 542. 00
50, 799. 00
102, 6 2 5 , 216. 00

(To face page 423.)

LIABILITIES.
Capital
Surplus
Acceptances
Current accounts
Unpaid dividends
Pension-fund account
Endowment-fund account _
Profit and loss

Total

$23,800,000.
7, 140, 0 0 0 .
17, 6 2 4 , 174.
5 0 , 6 6 6 , 1492, 524.
6 0 2 , 270.
51, 6 9 3 .
2, 738, 406.

00
00
00
00
00
00
00
00

102,625, 216. 00

Interviews

—

Germany

to purchase the shares of banks in other cities and
convert them into branches.
When asked his opinion of the organization, character, and strength of the Reichsbank, he stated that
he believed there was no better banking institution
in the world; that he believed it could not be improved
upon, and was not in favor of any change unless it be
that of an increase in the Kontingent. He admitted
that there had been some criticism of the Bank, largely
emanating from the agrarian party (principally the large
landowners in East Prussia), who felt that the Bank was
organized more for the benefit of commercial and industrial
enterprises than for the agricultural. Their contention,
he believed, was not well founded, as the Government
renders through other channels great assistance to the
agricultural classes, and it would be impracticable to
organize a central bank which could meet their demands.

423

PREUSSISCHE PFANDBRIEF-BANK.
Interview with Herr geh. Kommerzienrat Dannenbaum, Director of
the Pfandbrief-Bank.
Q. When was this bank organized?
A. In 1862. It is the oldest of the mortgage banks
in Prussia.
Q. Are you organized under special charter?
A. Yes; a charter of the Prussian state.
Q. What are the particular functions of this bank?
A. The bank makes a specialty of lending on real
estate, holding the mortgages as collateral security for
bonds which are issued by the bank and sold to the public. We may also loan on communal securities and upon
railroad securities.
Q. What do you mean by communal securities?
A. The securities are those issued by corporations
which are practically controlled either by the State or
a municipality and which are authorized to levy taxes.
They may be provinces, counties, cities, church societies, and other enterprises of a like character. We do
not receive from corporations of this kind a mortgage,
but merely an obligation to pay, and for the payment of
which the corporation is liable with its taxes.
Q. Are you privileged to make loans on any other class
and hold them as security for your bonds?
A. Yes; our charter permits us to loan to railroads,
taking their obligation as evidence of the debt. The volume of this business is, however, small. We mostly confine our loans to city real estate. From our statement
you will notice that our bonds secured by real estate mortgages amount to about $65,000,000; those secured by

424

Interviews

—

Germany

communal obligations to about $8,000,000; those secured
by railroad obligations to about $1,500,000.
Q. Will you kindly inform us as to the method of
appraisement on real estate loans?
A. We have in our employ appraisers who estimate
the value of the property. They make their estimate
not only upon the cost of the property but upon its present
market value, and also upon the income from it; i. e.,
according to the rents coming in. This appraisement is
submitted to the board who act upon it, and if they
approve fix its amount in the presence of the managing
director. When several loans have been made the mortgages are deposited with the State Controller, who
approves them and then authorizes us to issue our bonds
against them. It is customary for us to have a margin,
that is, we may but never do issue bonds to the full
amount of the mortgages held by us, as we have sufficient capital, so that it is not necessary for us to borrow
the full amount loaned.
Q. Are all real estate mortgages held as security pro
rata for any and every bond issued by you?
A. Yes, and all communal loans for the communal
obligations, and all railroad loans for the railroad
obligations.
Q. For what time are your bonds issued?
A. They may be called by us only after ten years from
their date of issue.
Q. For what time are the mortgages on real estate
made?
A. They usually are made for a period of ten years—
i. e., as to city real estate. The mortgages made on country real estate and communal railroad obligations are
usually on the amortization plan at the rate of one-half

425

National

Monetary

Commission

per cent, which would make the length of the mortgage
56J years; if at 1 per cent, it would run 44 years.
Q. About what is the difference between the rate received on mortgages made by you and the rate paid on
bonds issued by you?
A. We receive about one-fourth of 1 per cent and oneeighth more than we pay. Our percentage of profit is
small, but the volume of our business is so large that it
gives us a large return. The law does not permit us to
issue the bond at a lower rate than we receive upon the
mortgage.
Q. Are you limited as to the amount of bonds you may
issue?
A. By our charter the total amount of bonds secured by
real estate mortgages or railroad obligations must not exceed fifteen times our capital and surplus. We may also
in addition issue communal bonds secured by communal
obligations to the amount of one-fifth of total real estate
and railroad bonds issued.
Q. What was the cause of the mortgage bank failures
in 1901?

A. There were two banks affected. They were controlled by the same interest and the management was bad.
The public became concerned about their bonds and
threw them on the market. The banks were unable to
protect them and trouble resulted. Both banks have
been reorganized and are now under reliable management.
Q. Is it the custom of mortgage banks to protect their
bonds in the market by purchasing them?
A. Yes; that is the practice.
Q. How many mortgage banks of this character are
there in the Empire?
A. There are 39.

426

Interviews

—

Germany

Q. Have you an idea of the aggregate amount of bonds
issued by these banks?
A. About 9,000,000,000 marks—$2,200,000,000.
Q. Is their field of operation confined to Germany?
A. Yes.
Q. May any of them receive deposits?
A. Yes. We may receive deposits to the amount of
one-half our capital. These are especially deposits of
clients who have taken advances and who leave their
money here for some time. We may also buy and sell
securities on stock exchange, but only for cash, not for
account.
Q. May you also buy bills?
A. We may buy bills on the same basis as the Reichsbank.
Q. What else may you do?
A. We may make advances on securities (Lombard) on
the same basis as the Reichsbank. We make a list of
the securities which we want to give credit upon, and the
Government decides whether we may make advances on
these securities or not.
Q. What class of securities?
A. We make advances on all kinds of securities named
by us in this list, and which are permitted by the
Government. Among these are some foreign stocks,
upon which we advance up to 80 per cent of their value.
Of course the margin is higher with stocks than with
bonds. On English and French consols we loan up to 80
per cent.
Q. Is that margin regulated by the law or by the management of the bank?
A. No; the law only says that a list of securities must
be handed to the Government, but does not stipulate the

427

National

Monetary

Commission

margin; local securities never form collateral for the bonds
of the bank. The Lombard business is only a measure of
employing the capital of the bank.
Q. As a rule are the bills purchased in the open
market or taken from clients?
A. Chiefly we take these bills from the clients who buy
our bonds.
Q. You state that you are permitted to receive deposits
to the amount of half your capital. May you also include
your surplus?
A. No; we can receive deposits up to the amount of
half our capital only.
Q. As a matter of fact, if you desired you could conduct
a banking business?
A. The limit to such business is fixed by the rule that
we may only hold deposits to the amount of the capital.
Q. Your capital is 18,000,000 marks?
A. Yes.
Q. Your surplus 7,000,000 marks?
A. Yes.
Q. What is the amount of outstanding bonds of the
bank?
A. 310,000,000 marks.
Q. What is the difference between the mortgage bond
and a mortgage certificate?
A. Before the new law was passed they were called
certificates and were based on specifically-named mortgages.
Q. Are your bonds always sold at par or better?
A. That depends upon the money market. The 4 per
cent bonds are 98.
Q. I mean when the bank sells the bonds. It may sell
them below par?

428

Interviews

—

Germany

A. They are sold on the open market, at whatever price
they will bring.
Q. Have you any branches?
A. We are connected with many of the banks throughout the Empire, which act as agents for selling bonds to
the public, and get a commission, of course. We also
have agents for granting advances in all the larger cities.
Q. Has the State or the Imperial Government any
interest at all in the stock?
A. No. In some of the German States the Government receives a share in the profit, but not of this bank,
not in Prussia; they do in some of the smaller States.
Q. Your bonds are acceptable by the Reichsbank?
A. Yes.
Q. And the bonds are also purchased by other banks,
such as the Dresdner Bank and the Deutsche Bank, as
investments?
A. This is not their business, as of course you understand, but they may buy and sell them on commission.
Q. But they trade in them?
A. Yes. Some of the newer mortgage banks to be sure
do sell larger amounts of their bonds to such institutions
which sell them for their own account, but this bank
does not need any such business; we deal directly or by
commissioners.
Q. Where is the market generally for these bonds?
A. It is very scattered; about fifty thousand marks a
day are sold here on the stock exchange, but of course
we sell also from our office.
Q. They are bought by private investors?
A. Yes. The larger percentage of them is held in that
way—absolutely for investment.

429

National

Monetary

Commission

Q. What dividends do you pay ?
A. Seven and one-half per cent in recent years. It
differs. As the business of the bank grows the dividend
also becomes higher.
Q. What is your stock selling for now?
A. 137.

Q. This bank has a special charter. The other banks
.have practically the same privileges in the way of buying
bills?
A. Yes.
Q. Is your charter permanent?
A. Yes.
Q. In practice do the other banks conduct their business
on about the same lines as this?
A. Absolutely, except that they do not do railway
business. Of course, the business of every bank is different from the other. For instance, this bank does not
make advances on hotels, mining companies, theaters,
factories, mills, building lots, etc.
Q. What do you mean by mining companies?
A. Mining property.
Q. Are these banks ever regarded as competitors of
commercial banks?
A. Oh, no. Our chief business is always a mortgage
business.
Q. Do you lend mostly in the city or mostly to agricultural interests?
A. One bank makes advances on agricultural and one
chiefly on city real estate. This bank has only in a
few cases made advances on agricultural property.
Q. Do the mortgage banks in general lend mostly on the
city or urban real estate or on agricultural property?

430

PREUSSISCHE PFANDBRIEF-BANK.
Bilanz der Preussischen Pfandbrief-Barik pro 31. Dezember 1007.
AKTIVA.
Mark.

Mark.
A n G e w a h r t e Darlehne, abztiglich d e r amortisierten Betrage:
H y p o t h e k e n z u r D e c k u n g fiir H y p o t h e k e n Pfandbriefe
H y p o t h e k e n z u r D e c k u n g fiir H y p o t h e k e n Certifikate
Freie Hypotheken
K o m m u n a l - D a r l e h n e z u r D e c k u n g fiir K o m munal-Obligationen
K l e i n b a h n e n D a r l e h n e z u r D e c k u n g fiir
Kleinbahnen-Obligationen
An Bestand eigener Emissionspapiere im Nominalbetrage von
Abztiglich Differenz z w i s c h e n Bilanz- u n d N e n n wert

268,822,388.65
4,801,400.00
3,57i, 7 0 0 - °o
35,904,074.69
6,654,781.15
• 319,754,344.49
2,545,300.00
180,804.50
2,364,495.50

A n Kassen-Bestand einschliesslich desjenigen bei der R e i c h s b a n k
u n d der Berliner Kassenverein
A n W e c h s e l - B e s t a n d ( d a v o n M . 2,515,500 W e c h s e l e r s t e r B a n k hauser)
An. B e s t a n d a n v e r l o s t e n Effekten, K u p o n s u n d S o r t e n
An Anlage in inlandischen Staats-Anleihen
An G u t h a b e n bei B a n k e n u n d Bankhausern gegen kurshabende
Effekten mit vorschriftsmassiger Ueberdeckung
An G u t h a b e n bei B a n k e n g e m a s s \ 5 des Reichshypothekenbankgesetzes
_.
An Debitoren:
Gegen kurshabende Effekten mit satzungsmassiger Ueberdeckung
_
1,742,375.61
Guthaben bei B a n k h a u s e r n zur Einlosung
eigener Zinsscheine, usw
54,925.71
Inzwischen beglichene Forderungen
aus
Pfandbrief-Verkauf en, u s w
270,459.02
Noch nicht fallige Provisionen a u s Darlehnsgeschaften
52,125.55
Kleine Konten-Salden^
13,277.13

2,850,226.34
2,675,332.90
150,573.30
1,173.236.60
8,185,500.00
2,000,000.00

2,133,163.02
An Zinsen u n d Hypotheken,- Kommunal-, und
Kleinbahnen-Darlehne:
P o s t n u m e r a n d o f a l l i g a m 2. J a n u a r 1908 n a c h
Abzug bereits gezahlter PranumerandoZinsen
R t i c k s t a n d i g a u s d e m J a h r e 1907

2,889,094.60
26,627.64
2,915,722.24
11,201.46
1,500,000.00
100.00

A n V e r w a l t u n g s k o s t e n - B e i t r a g e f a l l i g a m 2. J a n u a r 1908
An Bankgebaude-Vossstrasse 1
Anlnventar

PASSIVA.
Mark.
Per Aktien-Kapital
18,000,000.00
Mark.
Per Verausgabte Emissionspapiere:
H y p o t h e k e n - P f a n d b r i e f e z u m Zinsfusse v o n
174,061,000.00
4%
-.
H y p o t h e k e n - P f a n d b r i e f e z u m Zinsfusse v o n
32,171,800.00
3%%
—
H y p o t h e k e n - P f a n d b r i e f e z u m Zinsfusse von
57,333,700.00
Z%%
Hypotheken-Certifikate z u m Zinsfusse von
1,333,7oo. 00
4%
—
Hypotheken-Certifikate z u m Zinsfusse von
3,467,700.00
Z%%
-----r
T ~ K o m m u n a l - O b h g a t i o n e n z u m Zinsfusse von
10,105,000.00
4%--5,425,000.00
K o m m u n a l - O b l i g a t i o n e n z u m Zinsfusse von
ZVA%
20,093,500.00
K o m m u n a l - O b h g a t i o n e n z u m Zinsfusse von
3»%5,668,500.00
K l e i n b a h n e n - O b l i g a t i o n e n z u m Zinsfusse
von 4 %
___
355,500.00
K l e i n b a h n e n - O b l i g a t i o n e n z u m Zinsfusse
310,015,400.00
von 3% %
Per Gekiindigte noch einzulosende Emissionspapiere.
121,500.00
Per Zinsen auf verausgabte Emissionspapiere:
R e s e r v i e r t fiir r i i c k s t a n d i g e Z i n s s c h e i n e
472,178.92
A m 2. J a n u a r 1908 f a l l i g e Z i n s s c h e i n e
1,139.856.53
A n t e i l p r o 1907 a m Z i n s s c h e i n e p e r 1. A p r i l
1908
1,597,334-33
3,209,369.83
Per Riickstandige Dividendenscheine
i,537.5o
Per Kreditoren
,
3,396,334.95
Per Depositen
1,377,802.49
P e r H v p o t h e k a u f d e m B a n k g e b a u d e V o s s s t r a s s e 1, n i c h t r t i c k z a h l b a r v o r 31. D e z e m b e r 1911
750,000.00
P e r Kapital-Reserve—Statutenmassiger Betrag ist iiberschritten.
2,000,000.00
P e r Ausserordentliche Reserve exkl. der diesjahrigen Zuweisung
v o n M . 100,000
1,300,000.00
P e r Pensions-Reserve e x k l . d e r diesjahrigen Z u w e i s u n g von M.
50,000.
39°, 504.20
P e r A g i o - R e s e r v e e x k l . d e r d i e s j a h r i g e n Z u w e i s u n g v o n M.
380.019.10
786,048.72
Per Disagio-Reserve
1,235,954.14
Per Provisions-Reserve e x k l . d e r diesjahrigen Zuweisung von M.
113,122.50
_
_
415,695.00
P e r R e s e r v e fiir b e s o n d e r e B e d i i r f n i s s e _
_
353,777.51
Per Reingewinn
2,359,97i.5i

345,7i3,895-85

345,713,895.85

Balance sheet of the Preussische Pfandbrief-Bankt
ASSETS.
Loans:
Mortgages t o cover mortgage bonds
Mortgages to cover mortgage certificates.Free mortgages
C o m m u n a l loans t o cover c o m m u n a l b o n d s .
Small railway loans t o cover small railway
bonds
Own bonds, par value
L e s s difference b e t w e e n f a c e v a l u e a n d b a l a n c e
value

LIABILITIES.
$63,979,729
1,142,733
850,065
8, 5 4 5 , 170
1, 583, 838
6 0 5 , 781

Total

S62, 75o
678, 3 5 4
636, 729
35, 836
279, 230
.948, 149

507,692

687,605
6,337

Matured but unredeemed bonds
Interest upon outstanding bonds:
R e s e r v e d for d e l a y e d c o u p o n s
_
C o u p o n s d u e J a n . 2, 1908
S h a r e for 1907 of c o u p o n s for A p r . 1 , 1 9 0 8 . _
Unpaid dividend coupons
Credit accounts
Deposit accounts
Mortgage upon the b a n k building
Legal surplus
Extraordinary surplus
Pension surplus
Premium surplus
Discount surplus
Provision surplus
S u r p l u s for s p e c i a l n e e d s
Profits

$4,284,000
$ 4 1 , 4 2 6 , 518
7,656,888
1 3 , 6 4 5 , 421
3 1 7 , 421
825,313
2 , 4 0 4 , 990
1,291,150
4, 7 8 2 , 2 53
1,349,103
84,609
73.783,666
28,917
112,379
271,286
380,165
763.830
366
808, 328
327,917
178, 500
476,000
309,400
92, 940
187,080
294,157
98, 925
84,199
561,672

693. 942
2, 666
357. 0 0 0

24
82, 279,907

(To face page 431.)

Capital Stock
O u t s t a n d i n g issues:
4 per cent mortgage bonds
3 l per cent mortgage bonds
3 ! per cent mortgage bonds
4 per c e n t m o r t g a g e certificates
3 \ per c e n t m o r t g a g e certificates
4 per cent communal bonds
3f per cent c o m m u n a l b o n d s
3 i per cent communal bonds
4 per cent small railway bonds
z\ p e r c e n t s m a l l r a i l w a y b o n d s

476, 0 0 0

small

E x p e n s e of m a n a g e m e n t
Real estate
Inventory

60481—10.

$ 7 6 , 1 0 1 , S3 5

4 3 , 031

Cash on h a n d a t the Reichsbank and a t the Kassen-Verein
B i l l s d i s c o u n t e d (of w h i c h $ 5 9 8 , 6 8 9 p r i m e b a n k bills)
M a t u r e d b o n d s , c o u p o n s , a n d foreign c o i n
Government loans
B a l a n c e with b a n k s a n d b a n k houses covered b y securities
B a l a n c e w i t h b a n k s a c c o r d i n g t o s e c t i o n 5 of t h e m o r t g a g e b a n k
law.
Loans:
414,685
Against stock exchange collateral
B a l a n c e s w i t h b a n k s for r e d e m p t i o n of c o u pons
13.072
B a l a n c e s d u e o n b o n d sales
64,369
U n m a t u r e d payments on loans
12,406
Small accounts
3» 160
Interest upon mortgage, communal, and
railway loans:
I n t e r e s t d u e o n J a n . 2, 1908
I n t e r e s t d u e for y e a r 1907

December 31, 1007.

Total

82,279,907

Interviews

—

Germany

A. Mostly on city real estate. The percentage of
credits granted on agriculture is small. There are other
institutions for agricultural mortgage credit—the Landschaften. You will see that in 1907 we lent only 208,500
marks on agricultural property and 227,404,147 marks
on urban land—a thousand times as much on urban
property as on agricultural.
Q. Do the Hypotheken Banken compete with the
L,andschaften?
A. Not very much, because they chiefly make advances
on city real estate. The Landschaften are not authorized
to make advances on city real estate.
Q. What percentage do you advance on real estate?
A. Up to 60 per cent of the value.
Q. That applies to a dwelling house?
A. Yes, a tenement house, to everything—60 per cent
of the appraised valuation, which appraisement is made
by the bank. But the Commissioner of the State looks
into it whether the valuation of the bank is right or not.
Q. Do you know what percentage of the amount of
mortgages in number are made upon residences?
A. I should say this bank rarely makes advances on
private residences.
Q. Assume that a man owns a private house that cost
100,000 marks and wants to get a mortgage of 20,000
marks upon it, what then?
A. We would lend upon it if it were in the Tiergartenstrasse—that is to say, in a good location.

431

PREUSSISCHE CENTRAL-BODENCREDITACTIEN-GESELLSCHAFT.
Interview with Gen. Regierungsrat von Klitzing, President.
Q. When was your company organized?
A. In 1870.
Q. Have you branches?
A. No.
Q. Do you transact business throughout the Empire?
A. Yes. We have agencies—in all, 408.
Q. By whom are your shares owned?
A. It is very hard to answer that. We have paid dividends of 9 per cent for fourteen years, and, of course,
that makes the shares very sure, and for that reason they
are in the hands of many people who consider them a
very good investment. Some of the large banks own a
large number of shares.
Q. The State has no interest in the stock?
A. The State has no direct interest. They formerly
had. The Prussian Seehandlung had a direct interest in
the capital, but that has been paid back.
Q. Was the company organized under the auspices of
the State?
A. It is still under the supervision of the State.
Q. What is the general nature of your business?
A. We are what is known as a mortgage bank.
Q. Will you kindly inform us of the modus operandi of
placing a mortgage in Germany? Assume that a man
comes here to procure a loan on a piece of real estate, who
appraises the value of his property?

432

Interviews

—

Germany

A. We have in the bank special appraisers who attend
to that business.
Q. When the appraisers have fixed the value, how do
you arrange to make a loan on the property?
A. We have two different bureaus, one of which, after
the appraisement has been made, passes upon it. One of
the bureaus is for the city and one for the country. After
the proper bureau has examined it very carefully and
found it correct it is handed to the directors, who then,
together with the president decide whether or not to make
the loan.
Q. Then, if accepted, what steps are taken?
A. We then give cash for the loan.
Q. What does the owner of the property give in exchange for the money received?
A. A mortgage.
Q. What is done with the mortgage?
A. After a number of mortgages have been made, we
turn them over to the State Controller or Commissioner,
who has special revisers for this class of business, and if
they approve the Controller authorizes us to issue the
bonds. We are not permitted to make the issue without
his official approval.
Q. Is the property then reappraised by the State Controller?
A. Well, as a rule, the property is not reappraised.
He only examines the general character and is usually
satisfied with it. The Controller has the right to have a
reappraisement made by a special commission, but that
very seldom happens.
Q. Are the officials you refer to all connected with
the Prussian Government?
60481—10

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Monetary

Commission

A. Yes, and not the Imperial Government. The examination is only supervised by the Prussian State.
Q. What is done in the case of mortgages taken by you
in South Germany, say in Bavaria? Are they also examined by the Prussian State and not by the Bavarian government?
A. No, only by the Prussian State.
Q. On what basis is the appraisement made? What is
the usual method?
A. We may estimate value from three standpoints
when appraising property, what would be paid for the
property if it were sold, or how much is produced from
it every year or how much it would return if rented.
Q. What percentage of the loans are on city property?
A. About 62 per cent on city, 24 per cent on country,
and 14 per cent on communal obligations.
Q. What percentage of value do you advance in making
loans?
A. Sixty per cent for city and 66 per cent for agricultural property.
Q. Is exactly the same method used in placing a mortgage on agricultural property as on city property?
A. There is no difference. Only the percentage is
different. Mortgages on agricultural property are usually
made with amortization, y2 per cent being customary,
while on city property they are usually for 10 years.
Q. Does the State Controller determine the amount of
the loan which may be issued on the collateral?
A. No; he has nothing to do with that. He can absolutely refuse to accept mortgages, but he can not fix the
amounts to be advanced upon them.

434

Interviews

—

Germany

Q. The bonds issued by the bank are usually of a less
amount than the mortgages held as collateral. What is
the margin?
A. As a rule we have a great many millions more in
mortgages than bonds issued (at present about 30,000,000
marks) because we use our capital and surplus.
Q. You state that the usual length of time of mortgages
on improved city real estate is 10 years?
A. Yes; but they may be extended for a longer period.
Q. What is the usual time on agricultural mortgage?
A. That depends upon the plan of amortization. For
one-half per cent it is 56^ years; 1 per cent would be 44
years.
Q. I have, if you please, a property costing 100,000
marks. I wish to mortgage it for 20,000 marks. I might
not want it for 56 years, or for 44 years, but for a shorter
period, say for 10 years. What arrangement could be
made as to the length of the mortgage?
A. For 10 years on that 20,000 marks you would have
to pay 4 per cent interest per annum and 7 per cent for the
amortization. That is altogether 11 per cent a year. You
have to take into consideration that the amount of capital
will be reduced every year by the amortization you pay.
Q. What in fact is about the average length of time of
the country mortgages?
A. Most people take an amortization of one-half per
cent, so the length of time is as a rule 56^ years.
Q. If there is no default on the interest, or the amortization, that mortgage can not be foreclosed before 56J
years from its date?
A. If the interest is duly paid, we can not give notice.
But after 10 years the mortgagor can give notice that he
wants to pay.

435

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Monetary

Commission

Q. Are the city mortgages and the country mortgages
on farm lands all held as collateral to cover the bonds of
the bank?
A. Yes.
Q. For what period are your bonds issued?
A. They do not mature, but we can call them after
10 years.
Q. If the rate of interest should decline for a series of
years you would call in the bonds and issue others at a
lower rate?
A. Yes. We did that in 1897.
Q. You can call your bonds only at par after 10 years?
A. Only at par.
Q. What would be the rate to-day on an improved
piece of city real estate?
A. The rate on improved city real estate would be perhaps 4i per cent. At present the rate for agricultural
property is 4J per cent. In addition, the farmer pays
3 per cent commission for the first year for general expenses.
Q. Is there any other class of mortgages held by this
bank as security for their bonds—any other than the real
' estate and farm mortgages?
A. Yes; there are communal loans against which communal bonds are issued.
Q. Would you make a loan to a corporation of the
character of Krupp's?
A. No, no. He could get mortgages, but he could not
get a communal obligation.
Q. In what sense do you use the word "corporation"?
A. It is a public company over which the Government
exercises control.

436

Interviews

—

Germany

Q. Your street railway in Berlin is owned by a private
company. Would it be regarded by you as a corporation?
A. No; there are some street railways which are owned
by the city, and in that event it would be a corporation,
but this is a stock company. It has nothing to do with
the State. The State has no direct control over it. It is
not a corporation in one sense of the word.
Q. The communal loans are made at more favorable
rates of interest?
A. Yes.
Q. Then the city real estate mortgages and the country
mortgages are mingled together and the bond of the bank
issued against them as a whole?
A. Yes, that is correct, but the bank issues a communal
bond only against communal securities.
Q. And communal bonds sell at a higher price?
A. Yes.
Q. Is there no limit to the amount you can lend to any
one community.
A. No, there is no such limit, but the whole amount
that we loan on real estate must not exceed 20 times
the capital stock of 36 millions and 15 times the capital
of 3.9 millions, and on communal bonds 24 times the
capital of 36 millions and 18 times 3.9 millions. We may
issue mortgages as follows: 20X36 = 720 millions, and
also 15X3.6 = 54 millions, i.e., total sum 774 millions; besides 4 X 3 6 = 144 millions and also 3 X 3 . 6 = 10.8 millions,
i., e. a total sum of 154.8 millions on communal bonds.
Q. You stated that the communal obligations were
regarded as better and were therefore more favored. The
law allows you to issue only eighteen times on communal,
whereas it allows you to issue twenty times on real estate.

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Monetary

Commission

A. But you have to look at the development of the
business. At first these banks were only real estate banks,
and afterwards it developed that communities came to
them for money. Then, in addition to the amount allowed
on real estate, the law allowed them to issue eighteen times
the capital on communal obligations. These communal
obligations are only a minor part of the business of these
banks. The large communities usually issue their own
bonds. The Government gives them a special charter and
a special concession to raise so much money, but for banks
like this the communal business is only a secondary
matter.
Q. Has this bank a special charter?
A. This bank has a special charter independent of
any other institution. I am appointed by the King as
president of the Preussische Central-Boden-Credit-ActienGesellschaft. This bank is permitted the highest percentage to capital of bonds issued. The bank was founded
under the auspices of and at the suggestion of Bismarck.
We therefore have a good many special privileges granted
to us, but at the same time we have more stringent rules
and closer supervision than the other banks. We are
examined especially by the State Commissioner, whereas
the Pfandbrief Bank and the others are examined only
by accountants (Treuhdndler). This bank has placed
nineteen-twentieths of the mortgages on agricultural
land in Prussia.
Q. You also take mortgages from all parts of the
Empire?
A. Yes. We may lend anywhere in the Empire, but
practically we do very little outside of Prussia.
Q. About what is the difference between the rate received on the mortgages and the rate paid on the bonds?

438

Interviews

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Germany

We were told by the Pfandbrief Bank that with them it
was a quarter of i per cent.
A. It is about the same with us. Last year it was
0.2498 per cent
Q. Does this bank compete at all with the Landschaften
in the country real estate loans?
A. There is no direct competition between us. We
work hand in hand as a rule, but the rates of the Landschaften are more favorable. They have no interest to
pay on their capital stock.
Q. There is a president, directors, and a board. We
would like to know just how the management is organized; that is, by whom elected or by whom appointed.
A. The president and the directors are appointed by
the King for ten years. Then comes the board of directors—that is, three directors and one legal adviser—who
are elected by the board of the company and confirmed
by the Government. Then there is a board of administration.
Q. How many are there on that board?
A. Eighteen.
Q. How are they elected?
A. By the general assembly of the shareholders each
year.
Q. Do you often foreclose a mortgage?
A. No; we have only done so once in the last ten
years on property in the country. We average one foreclosure to about 146 mortgages in the city. We do not
have to buy the property as a rule, but simply have to
take the steps and somebody buys it up. It should be
known that we take nothing but first mortgages.
Q. Is the bank limited in the amount of deposits it may
receive?

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Commission

A. No. There is no limit to the amount.
Q. You have a great amount of stocks and bonds?
A. That is explained by the fact that we often have to
buy our own bonds in order to keep the rate up in bad
times.
Q. Are you restricted as to the character of the securities you may purchase?
A. Yes. We may purchase only those permissible to
the Reichsbank.
Q. That applies to bills as well as securities?
A. Yes.
Q. How many mortgage banks of this general kind are
there in the Empire?
A. In Prussia 14, and in the rest of Germany 25.
That is, 39 of the same character.
Q. What is the total amount of the bond issues of these
banks?
A. Nine and one-half milliards—9,500,000,000 marks.

440

PREUSSISCHE CENTRAL-BODENCREDIT-ACTIEN-GESELLSCHAFT.
Preussische Central-Bodenkredit-Aktiengesellschaft.
ACTIVA.

Mark.

-•*
2,019,13S.98
Wechsel
2,189,353 -39
Lombard-Forderungen
_
5.591,899.40
Wertpapiere.
17,154,078.45
Guthaben bei Bankhausern
—
2,115,980.82
Hypothekarische Darlehnsforderungen
700,994, 415.15
Communal-Darlehnsforderungen
130, 076, 433. 55
Central-Pfandbriefe- u. Communal-Obligationenzinsen-Conto
M. 11,056,466. 75
Noch nicht abgehoben
335.070.85
10,721,395-90
Grundstiicks-Conto:
(a) Bankgebaude unter den Linden341, 400, 000. 00
(6) Bankgebaude u. d. Linden 33, u.
Charlottenstr. 37,38
1,800,000.00
3,200,000.00

Verscbiedene Activa

2,044,020.66

Status am 31. August 1908.
PASSIVA.

Eingezahltes Actienkapital _.
Reserven (incl. Reserve-Vortrag)
Pensionsfonds
Central-Pfandbriefe:
4%
zh%
Noch einzulosende, ausgeloste

Mark.

39,600,000.00
11,099,053. 72
1,319,976.87
M. 342,851,900. 00
329,354,300.00
1,545,450.00

Commtmal-Obligationen:
4%
_
3^%
Noch einzulosende, ausgeloste

___

41,475,700.00
82,560, 400.0c
489, 400. 00

Hypotheken - Communal - Darlehnszinsen
und Verwaltungsgebuhren-Conto
Depositen
Verschiedene Passiva
___

876,106,7x3.30

Balance sheet of the Preussische Central-Bodenkredit-Actiengesellschaft,

August 31, 1908.
LIABILITIES.

ASSETS.
$480, 554.00
521, 066. 00
1, 330, 872. 00
4, 082, 671. 00
503, 603. 00
166, 836, 671. 00
30, 958, 191. 00
2, 551, 692. 00
761, 600. 00
486, 478. 00

Paid-in capital
Surplus
Pension fund
Mortgage bonds:
(a) 4 per cent
(b) 3 i per cent
(c) Drawn bonds

60481—10.

208, 513, 398. 00

160,352,892.00

Communal bonds:
(a) 4 per cent
(&) 3 i per cent
(c) Drawn bonds

(To face page 440.)

Total

$9, 424, 800. 00
2,641, 575- 00
314, 155. 00

$81,598,752.00
78,386,323.00
367,817.00
_

9,871,217.00
19,649,375.00
116,477.00

Interest and expense account
Deposits
Sundry liabilities
Total

124,525,500.00
17,226, 704.18
7,028, 029.15
i,555, 799-38

876,106,713.30

Cash
Bills discounted
Loans on collateral
Securities
Balances with other banks
Mortgage loans
Communal loans
Bond interest account
Real estate
Sundry assets

673,751,650.00

29,637,069.00
4, 099, 956. 00
1, 672,671. 00
370, 280. 00
208, 513, 398. 00

PREUSSISCHECENTRAL-GENOSSENSCHAFTSKASSE.
Interview with Herr Geheimrat Dr. Hessberger and Others.
Q. When was this institution organized?
A. It was organized in October, 1895, under a special
charter. The State of Prussia organized the bank, subscribing a capital of 5,000,000 marks, which yvas later
increased to 20,000,000 marks and a few years later to
50,000,000 marks, which represents the investment of the
State. In 1906 the capital was increased by 2,400,000
marks, that sum being subscribed by the various unions
of the RaifTeisen system. You understand that the purpose of this institution is not to make money, but to help
the development of agriculture and the small industries,
aid being given to them through the cooperative societies
with which this bank deals. It was for this purpose that
the State subscribed the capital. It is believed that the
State contemplates a further subscription to the capital
in the near future. This institution is not conducted on
a strictly business basis, but in the interests of the people
generally. It is strictly a government institution, the
president being appointed by the King for life. There is
an advisory board, consisting of about 30 men, who are
appointed by the Minister of Commerce, the Minister of
Finance, and the Minister of Agriculture. The members
of this board are selected from among the scientific men
of the State and also from men who are interested in the
management of the unions within the State. It is not
the custom to include financial leaders among the
members of the board. The board meets once or twice a

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Commission

year. From among their number the Ministers appoint a
committee which meets three or four times a year. The
Ministers select and recommend the directors, four in
number, who are appointed by the King.
Q. Does the bank receive deposits from merchants and
carry commercial accounts?
A. The deposits are from the unions (Verbandskassen)
and from the savings banks (Sparkassen), and we have a
certain number of private accounts, but not much in
volume, #s this is a state bank. There are some corporations of an official character, like the savings banks,
church corporations, guardians, and so on, which deposit
with the bank because it is a state bank. Our depositors
last year included 54 cooperative society unions, 8 banks
of the Landschaften (agricultural loan companies), 6 provincial institutions with purposes similar to the Landschaften, 548 public savings banks, 422 individual
cooperative societies, firms, and persons, and 169 public
offices, persons, and the like.
Q. The bank does not in any sense do a commercial
business?
A. Not at all.
Q. Some of the deposits are on time and some on
demand?
A. Three-fifths are on time and two-fifths on demand.
Q. What rate of interest do you allow on deposits?
A. That depends upon the market, about \% per cent
now.
Q. Going back for a moment to the increase of capitalization of 2,400,000 marks, taken by the unions of the
cooperative societies, have they a voice in the management—can they vote that stock?

442

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Germany

A. Not at all. Some of the people are on the board,
but that is only voluntary.
Q. What interest is paid upon the stock?
A. The law forbids us to pay more than 3 per cent; the
unions of cooperative societies do not receive more than
3 per cent. In the last few years we have not paid 3
per cent, but only 1 to 2 per cent on the capital.
Q. If they have no voice in the management and are
limited to 3 per cent, why invest in the stock?
A. Only to get a theoretical interest in the whole thing.
The advantage of the unions which have invested here is
that they get long and cheap credit from the bank.
Q. How many unions are there in the State?
A. Sixty.
Q. And 54 of them bank here?
A. They carry balances here; yes.
Q. They send their funds here for investment?
A. Yes; they receive credits here.
Q. They use this as their central bank?
A. Yes, and of course they get more credit from the
bank than they deposit with the bank.
Q. What kind of collateral do they give? What is the
form of the loan made?
A. There is no collateral at all, because you see that
according to the organization of these unions the personal
obligation of all of the members of such unions serves as a
guarantee for the bank.
Q. Are we correct in understanding that the various
cooperative societies forming a union are severally and
jointly liable for all the obligations of any society belonging to that union?
A. Yes, but only to a limited amount.

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Commission

Q. How is that amount limited?
A. The limit of the obligation differs within the unions
as it does within the individual societies. There are
societies which stipulate a limited obligation for each
member, and there are other societies which do not stipulate a limited obligation, but in which the obligation of
each member is unlimited. The societies forming the
union may be classed similarly as societies with limited
and also unlimited liabilities.
Q. You have accounts with 54 cooperative society
unions. Are they all credit unions?
A. Yes.
Q. Are those mostly commercial or agricultural?
A. Mostly agricultural; 20 unions are urban, 34 belong
to the country.
Q. Do the latter deal with small farmers?
A. With small farmers chiefly or people of the middle
class. Most of the agricultural societies have unlimited
liability for their members; most of the urban associations have limited liability.
Q. This bank only deals with the unions within the
State of Prussia?
A. Yes, but some of these unions do business with societies outside of Prussia.
Q. There are Raiffeisen societies in all part of the
Empire?
A. Yes, the agricultural interests are more important
in Prussian States than in the other States.
Q. In the other States, in Bavaria or Saxony, are there
Central Genossenschaft banks like this?
A. No, this is the only institution of that character.
In other States where there is no Central Genossenschaft
the unions do their business with any kind of bank they

444

Interviews

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Germany

like. But the societies are formed into unions as in
Prussia.
Q. Do the unions receive deposits from the societies?
A. Yes.
Q. So that in fact the union is the central bank of the
cooperative societies, and this bank is the central bank
of the unions?
A. That is right. Now, in other States the unions deal
with whomsoever they like. They have no central bank.
Of the cooperative societies there are the Raiffeisen system, the Schulze-Delitsch system, and the Darmstadt system, organized by a man called Haas.
Q. There are three systems. Are there other such
credit societies formed within the Empire not belonging
to any particular system?
A. There are no others. These are the only three systems. These three systems are not as different as they
were in former times, and they tend to become more and
more alike.
Q. They work along the same line?
A. Yes.
Q. Is the tendency toward one of consolidation?
A. No, but the general principles of business are becoming the same in these three systems. Of course, the rules
differ in towns or in agricultural districts.
Q. We understand that there are in the Empire 27,000
cooperative societies?
A. Yes.
Q. Sixteen thousand of which are credit societies, and
as such are practically commercial banks?
A. Yes. But the others are cooperative societies which
do not receive deposits or make loans, and have no financial transactions at all. They are for buying raw material,

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Monetary

Commission

and so on. The Schulze-Delitsch systems are more in
the towns, and the Raiffeisen more in the agricultural
districts.
Q. Can you give us an idea of the character of the obligation given by the farmer who goes to the society for
credit?
A. Credit is only given to the members of the society,
and there is no collateral or security required. The committee of the society decides whether and how much credit
shall be given to any member.
Q. Does he give a promissory note?
A. Yes; if the security given is in the form of a guarantee by another man, then he writes out a form and signs
it. The obligation is for three years or five years and
stipulates that he pay certain rates.
Q. Will these societies extend credit to a member without guarantee or collateral?
A. In the agricultural districts they will accept a
Schuldschein, or promissory note, for small amounts,
but in the cities they usually discount a bill. Bills are
also used in the agricultural districts, and the tendency
is to discontinue the use of the Schuldschein.
Q. About what is the average number of members
belonging to the Raiffeisen societies?
A. Between fifty and a hundred in agricultural districts,
and in towns several hundreds.
Q. Is the par value of the stock the same in each
society?
A. It differs. In agricultural districts the par of each
share is from 10 marks upward; in towns about 300 marks.
In societies Vxth unlimited obligation the share of each
member is the same, and in societies with limited obli-

446

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Germany

gation the nominal amount of the share is also the same,
but each member is allowed to have more than one share.
Q. That is, members may own but one share in unlimited
societies and more in limited?
A. Yes. Every man becoming a member has to subscribe for a certain amount of stock.
Q. Is the stock in the form of a certificate?
A. Yes; on the certificate is stated how much he has
paid.
Q. The stockholders of these societies meet once a year?
A. At least once; frequently twice a year.
Q. And at the annual meeting they elect the management for the ensuing year?
A. Yes.
Q. We understand the management of each society in
the Raiffeisen system consists of a president, cashier, and
three other members who serve without compensation.
A. The cashiers receive a salary because they devote
all their time to the business; the others do not. This is
not the plan of the Schulze-Delitsch system.
Q. What class of men would be selected in an agricultural district to be president and directors?
A. They are selected from among the members and
generally are, of courss, the more important men of the
township—the best men they can find.
Q. You mean, for instance, they would take a practical
farmer?
A. Yes; or mechanics, teachers, or preachers.
Q. Does the business occupy the entire time of the
president?
A. Not generally all his time. That also depends upon,
the amount of business they do. In larger societies one
or two men devote all their time.

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Q. Will you explain why an important farmer in a
community would accept the position of president, the
duties of which might require his entire time, and this
without compensation?
A. As with a teacher and preacher, there is an ideal
feeling, a social feeling. We frequently do things for
which we are not paid.
Q. He is prompted by philanthropic motives?
A. Yes. Something which will be difficult for you
Americans to understand.
Q. Your statement shows three kinds of deposits—
deposits of banks and bankers, current accounts, and
deposits strictly so called. How do these items differ?
A. The first are loans received from banks and bankers, taken in the open market, generally call money,
and at the rate of interest for call money. The next is
current accounts. These are moneys received from
unions, upon which interest is paid dependent on the
bank rate. The maximum rate for them is 3 per cent.
The third kind, deposits strictly so called, are received
from individuals, savings banks, guardians, church corporations, municipalities, and so on.
Q. About how many associations form a union?
A. At least seven; sometimes several thousand. It
depends upon circumstances. We are doing business
with 54 unions, and these 54 are formed by 15,000
societies. The whole number of members of these 15,000
societies doing business with the bank is one and onehalf millions.
Q. What amount of credit is given by the societies?
A. The societies doing business with this bank have
received deposits from their members to the amount of
one milliard marks—$250,000,000. From this one mil-

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Germany

Hard they have given credits to their members to the
extent of 600,000,000 marks in the same localities where
the deposits were received, and the rest they have deposited with the unions, which have given credits from
these 400,000,000 marks to other societies where more
credit is needed.
Q. Our understanding is that this bank deals directly
with the unions?
A. Yes; and not with the associations.
Q. And the advances made by it are made to the unions?
A. Yes; without collateral.
Q. To what extent will you advance loans to a union?
A. This bank will not advance to a union an amount
exceeding j \ per cent of the estimated worth of the individual members of the societies comprising the union.
Q. To what extent may a union advance credit to the
societies?
A. The amount of credit which a union can lend to a
society is only fixed by the limit drawn by the general
meeting of the union, according to § 35 of the Genossenschaft law. This is an amount ordinarily far less than
the aggregated liability of the members.
Q. What is the maximum amount of credit which may
be granted by a society to one of its members?
A. It is not limited.
Q. I thought you said it was limited by the value of
his estate.
A. Yes, generally, but they may give credit to a man
who has no fortune at all.
Q. The amount of accommodation extended to a member is usually predicated upon the amount of his fortune?
A. It might be three times his fortune.
Q. How is the union organized?
60481—10

449

National

Monetary

Commission

A. The management is the same as with the society.
A president, cashier, and a board of supervision. The
president of each society is a representative from that
society to the union. The members of the union are the
societies. Each society sends representatives to the annual
meeting, and these representatives select and choose the
managers of the union.
Q. And also the board of supervisors?
A. Yes.
Q. Do the officers of the union work without salary?
A. Yes, just as those of the society; but in every union
bureau of any importance at least one of the managers
is paid.
Q. And the amount of capital of these various unions
differ?
A. Yes.
Q. The capital is subscribed in cash by the different
societies, who own and vote the stock?
A. Each society has one vote, and they own the stock.
Q. About what is the average amount of capital of the
unions?
A. Several hundred thousand marks. The tendency
is to increase. Some have a million marks.
Q. The bills which you hold to the extent of 36,000,000
marks are rediscounted for the unions?
A. Yes.
Q. In addition you have purchased bills in the open
market of 18,000,000 marks?
A. Yes.
Q. You also show 49,000,000 marks of securities;
nearly one-third of your assets?

450

PREUSSISCHE CENTRAL - GENOSSENSCHAFTS - KASSE.
Bilanz der Preussischen Central-Genossenschafts-Kasse
AKTIVA.
Barbestand sowie Guthaben bei der Reichshauptbank und der
Bank des Berliner Kassen-Vereins
Fallige Zinsscheine
Wechsel:
Mark.
(a) von Verbandskassen erworbene
36,366,027.79
(b) an der Borse und von sonstigen
Kunden gekaufte Wechsel
18,172,822.02
(c) zum Inkasso
_.
469,818.25
(d) auslandische (Devisen)
_
6,130.30
abziiglich der dem Geschaftsjahr 1908.
zufallenden Spesen und Zinsen
Wertpapiere:
(a) Schatzscheine
(b) Mtindelsichere Staats- und
munalpapiere

Kom-

55.014.798.36
416,745.80

SS7.979.64
28,966.15

54.598,052.56

14,656,000.00
35,137,199. 95

Guthaben (bei Banken, Bankiers usw. gegen Unterpfand borsengangiger Wertpapiere)
Lombard-Forderungen:
(a) an Verbandskassen
6,461,391.65
(b) an landschaftliche und provinzielle
Institute
460,142.00
(c) an andere Kunden
1,174,785.11
(d) an Spar- und Komtnunalkassen
12, 257,638. 86
Forderungen in "Laufender Rechnung":
(a) an Verbandskassen (Gesetzvom 31.
Juli 1895 § 2 Ziffer 1 a)
(b) an landschaftliche Darlehnskassen
und ahnliche Institute (Gesetz vom
31. Juli 1895 § 2 Ziffer 1 b und 1 c)__

Mark.

49.793.199.95
9,172, 240.89

vom 31. Marz 1008.

PASSIVA.
Grundkapital:
(a) Einlage des Staates (Gesetz vom
31. Juli 1895 § 3, Gesetz vom 8. Juni
1896 § 1, Gesetz vom 20. April 1898
§ 1)
(b) Emlagen von Verbandskassen (Gesetz vom 31. Juli 1895 §5)

Mark.

50,000,000.00
2,400,000.00

Rucklagen (Gesetz vom 31. Juli 1895 § 6 Ziffer 1, Gesetz vom
8. Juni 1896 § 2)_
Darlehne (von Banken und Bankiers usw.)
Guthaben in "Laufender Rechnung":
(a) der Verbandskassen (Gesetz vom
31. Juli 1895 § 2 Ziffer 1 a)
3.322, 743. 65
(6) der landschaftlichen Darlehnskassen und ahnlicher Institute (Gesetz
vom 31. Juli 1895 § 2 Ziffer 1 b und
1 c)
^ 263,156.54
Depositen:
(a) taglich fallige
(6) an Kiindigung gebundene

3,585,900.19

Avale und Akzepte
Zurtickgestellte Betrage fur schwebende Geschafte (Abnahme
gekaufter Wertpapiere usw.)
Geschaftsgewinn_
._
20,353.957.62

475.994.38
,108,879.54
164,296,149. 51

60481—10.

$132, 799
6,894

13.093. 523
99, 186
12,994.337
3, 488, 128
8, 362, 654

11, 850, 782
2, 182, 993

r, 537.8ii
109, 5i4
279, 599
2, 917, 318
4, 844. 242

Capital:
(a) Contributed by the State (law of
July 31, 1895, sec. 3; law of June 8,
1896, sec. 1; law of Apr. 20, 1898,
sec. 1)
(b) Contributed by the Unions (law of
July 31. 1895, sec. s ) - _ .

$11,900,000
571,200

Surplus (law of July 31, 1895, sec. 6, No. 1; law of June 8,
1896, sec. 2)
Loans from banks and bankers
Balances in current account:
(a) Of the Unions (law of July 31, 1895,
sec. 2, No. la)
$790,813
(6) Of agricultural loan offices and
similar institutions (law of July 31,
1895, sec. 2, 16 and ic)
62,631
Deposits:
(a) Demand
(b) Subject t o notice.
Acceptances
Amounts reserved for pending accounts Profit and loss

$12,471,200
1,080, 656
11,976,065

853.444
4.956,547
7,170,801
,127.348
315.920
45.671
232,180

5, 911,545
485. 772
6,397.317
315.920
113.287
263,913
39,102,484

(To face page 451.)

March 31, igo8.
LIABILITIES.

Acceptances
Securities sold but not yet delivered.andother unsettled accountsOffice buildings
•- Total-

191,893.55
975.545.03

26,879,483. 23
1,327.395.55

ASSETS.
Cash and balance with Reichsbank and with Kassen-Verein
Coupons
Bills discounted:
(a) From the Unions
$8,655,115
(6) From the stock exchange and other
customers
4, 325, 132
(c) For collection
111,817
(d) Foreign bills
1, 459

Loans in current account:
(a) To the Unions (law of July 31, 1895,
sec. 2, No. ia)__.
(b) To agricultural loan offices and similar institutions (law of July 31, 1895,
sec. 2, ib and ic)

50,955.244.52
1,327,395-55

2,041,057.73

Balance sheet of the Preussischen Central Genossenschafts-Kasse

Balances with banks, bankers, etc. (secured
by stock exchange collateral)
Loans on collateral:
(a) To the Unions
(b) To agricultural institutes
(c) To other customers
id) To savings banks

4.540,570.67
50,319.600.00

20,825,826.47
30,129, 418.05

164,296,149-51

Securities:
(a) Treasury bills
(6) State and communal paper.

52, 400,000.00

24,838,425.50

Aval- und Akzept-Kredite
F u r fremde Rechnung verkaufte, noch nicht zur Ablieferung
gelangte Wertpapiere und sonstige schwebende Abrechnungen
D ienstgebaude
._
-_
i»

Deducting expenses and interest for year
1908

Mark.

Total.

39,102,484

I n t e r v i e w s

—

Germany

A. We invest our capital in securities which we can use
as collateral for credit with the Reichsbank. The sum is
about equal to our.capital.
Q. Is this bank restricted in any way as to the character
of investments it may make?
A. We do not buy securities which would not be accepted by the Reichsbank. We are not restricted as to
the bills which we take from the unions.

45i

The Schulze-Delitzsch Cooperative Credit Societies; Interview
with Herr Kleemann, Director at the Dresdner Bank.
Q. When were the first of your cooperative societies
organized?
A. In 1848. They were organized on a voluntary
basis and for philanthropic purposes. It was five years
later that Doctor Schulze took charge and brought them
together into one common organization; that is to say,
each of the cooperative societies remained independent,
but they together formed a union. The principle upon
which the Schulze-Delitzsch institutions were founded was
that the small tradesmen could buy more advantageously
if they formed an association to buy together. Artisans
in the same line would buy raw material jointly. That
was one advantage of forming such a society, and the
other advantage was that by forming a society in which
every member was liable for the entire indebtedness of
the association each member could better secure the
necessary credit for his business than if he stood alone.
Q. When they were organized was it in one community—in one small town?
A. Of course they started in one place. They were first
organized in a town called Delitzsch; the name of SchulzeDelitzsch comes from this town and the organizer of the
common society, Doctor Schulze, who was afterwards
known as Schulze-Delitzsch.
Q. And then from this first organization others developed in other localities?
A. Yes; they developed very rapidly. The first cooperative society in Delitzsch was founded for the purpose of

452

Interviews

—

Germany

purchasing merchandise. Afterwards they formed other
societies not only for purchase, but for production and
for sale. The first form which developed was for the purchase of means of subsistence, such as sugar, coffee, grain,
wine, cigars, etc. Then they bought agricultural machinery, threshing machines, etc., which they would rent
to small farmers in the country who could not purchase
such machinery. They also formed societies to build
houses for peasants and working people.
Q. Were these several different societies?
A. All different societies. Each society had a special
scope, but all founded on the basis of Schulze-Delitzsch
that each member should be liable for all the liabilities of
the society, which gave the societies a high standing
and credit.
Q. Are we to understand that there might be six or
seven societies in one town?
A. There might be six or seven with different purposes.
Later on Schulze-Delitzsch came to the conclusion that it
would serve working people and small tradesmen to have
cooperative societies founded simply for the purpose of
extending credit to them. That was the last development
in the system. The system was the same—all members
were liable. Originally each share was for 500 marks and
everyone who wanted to become a member had to buy
a share. Originally there was no law for such societies,
but later on a law was passed to the effect that the society
could not be formed by less than seven members. The
people who established these societies to extend credit to
working people often did not want credit themselves, but
paid in their 500 marks out of local patriotism or
enthusiasm for the idea, but of course anyone subscrib-

453

National

Monetary

Commission

ing 500 marks became a member of the society and
became liable for every penny he possessed.
Q. Did all societies located in the same town have the
same capitalization, and was each member required to
pay in the 500 marks, although he belonged to three or
four of the societies?
A. It did not very often happen that the same person
belonged to more than one society. There might have
been several such cooperative societies in one town, but
not usually, because these cooperative societies were,
first of all, founded in the smaller places, and it was
frequently the case that the business of a town would be
confined to one industry. So it very seldom happened
that more than one such association was necessary. The
important principle of the Schulze-Delitzsch organization
was the unlimited liability of its members, because it
induced people of these localities, like physicians or
professors, schoolmasters, and so on, who did not want
any credit, to bring in their savings. The unlimited
liability of the members gave them a proper guarantee, and in that way the society found the necessary
means for giving credit, although its capital was very
limited.
Q. They were organized on a principle similar to some of
the Lloyds of to-day?
A. Yes; upon that principle. It was only after many
years that Schulze-Delitzsch societies succeeded in getting a legal foundation. He started in the middle of the
fifties, and it was only in the seventies that he succeeded
in getting a federal law for such societies.
Q. Have the organizations a special charter?
A. No; they are organized under the federal law; it is
part of our general commercial code.

454

Interviews

—

Germany

Q. That law applies not only to the Schulze-Delitzsch
societies but also to the other cooperative societies?
A. It applies to all. The unlimited liability plan was
the original plan, but later on they founded societies with
limited liability.
Q. Can you state when?
A. In 1889. The liability was not limited to the amount
of capital shares. It is the same plan as of the Canadian
banks or of your national banks. For instance, in Canada
each man owning $100 worth of stock is liable for another
hundred dollars. It was something like that system, not
exactly the same. It differed in each society. In one
society the share would be 100 marks, and the liability
would be fixed at 100 marks, or it might be 700 or 1,000.
Of course the introduction of cooperative societies with
limited liability gave the members a great advantage and
they would more readily invest in such a society. Under
the unlimited liability one man can own only one share,
but under the limited liability one man could own many
shares. Mr. Raiffeisen was the next man to organize
cooperative societies, but on a somewhat different plan.
His idea was to have the State a participant.
Q. When did he appear on the scene?
A. About the end of the fifties. Schulze-Delitzsch was
opposed to the Raiffeisen idea because he feared that the
members of the society might lose control. It was
evident to him that a state which supplies money might
secure control and use the society for purposes of its
own. His idea was that the society could only be founded
on a basis of self-control and self-responsibility; personally
I agree with him. He endeavored to get people of different professions and occupations in a locality into the same

455

National

Monetary

Commission

society, thinking in that way to minimize the risk. By
covering various occupations the society was stronger and
not as susceptible to unfavorable conditions in any particular line. Raiffeisen wanted small societies organized in
every small community, which often meant that only one
occupation was represented in the society, and here
there was no division of risks. His organization sometimes included no more than 15 or 20 members. Schulze
favored larger societies. Another difference was that
Schulze wanted to have all of the capital paid in at once.
Raiffeisen had the idea of payments in easy installments.
The officers of Schulze's societies were paid; Raiffeisen
wanted them to serve from motives of patriotism. Schulze
wanted loans to be extended for short periods only (say
three months or so); Raiffeisen was willing to have credit
granted for a number of years.
Q. For what periods would the Schulze-Delitzsch societies loan money?
A. Usually three months. Of course they could renew
the loans, but the idea was that they should always keep
close watch over their credits. In that way a great many of
these cooperative societies developed into what are called
"popular banks." You will find, for instance, in Switzerland a great many societies that were founded on the cooperative society's plan are now called banks. They also
have branches.
Q. Is that also true here in Germany?
A. Yes.
Q. Do these banks receive deposits from anybody?
A. They may receive deposits from anybody. They
may also do business with people other than their members, but are only allowed to extend credit to their members.
The organization of these different companies into one

456

Interviews

—

Germany

great society was prompted by the belief that there should
be an interchange of views, giving to each the benefit of the
experience of the others, and therefore was instituted
the plan for a general meeting every year of the heads
of the different institutions for the purpose of keeping in
touch with each other. When the central society became
too large the different provinces formed different main societies, and each main society had a manager with the title
of director.
The directors of all the provincial main societies formed
a board who elected a president of the whole organization.
The first president was Schulze-Delitzsch. Doctor Criiger
is president now.
As the number of Schulze-Delitzsch societies increased
the volume of business interchanged between them became
more and more important. They always endeavored to
cooperate and work together to facilitate the large exchange
and transfer of business. In consequence the idea finally
resulted of establishing a central bank which would act as
an agent and clearing house for the various societies and
facilitate their business, and the Deutsche Genossenschaftsbank was therefore organized and located first in Frankfort and then in Berlin. You understand that all this
happened before the establishment of the Reichsbank.
The various societies became correspondents of the
Deutsche Genossenschaftsbank, deposited funds with it,
and invested a large part of their surplus funds through
it. Though a large part of the stock was owned by the
different societies, it was also owned by other institutions
and individuals who were not members of the SchulzeDelitzsch societies. The bank was incorporated under
our general companies law, the shareholders having no
liability beyond the amount invested in the shares. The

457

National

Monetary

Commission

capital of the bank was 36,000,000 marks—$9,000,000.
In 1904 this bank was absorbed by the Dresdner Bank,
which gave its own stock in exchange for the stock of the
Deutsche Genossenschaf tsbank. The Dresdner Bank now
acts as the agent and clearing house in Berlin of the various
Schulze-Delitzsch societies.
It was a principle of the Deutsche Genossenschaftsbank and is now a principle of the Dresdner Bank to deal
directly with each .of the Schulze-Delitzsch societies.
Under the Raiffeisen system the various societies in
each province of Prussia have organized a main or head
society, with which they correspond and through which
they clear their business. The head societies in the various provinces transact their business through the Preussische Central-Genossenschafts-Kasse in Berlin, which
does not deal directly with the individual societies throughout the State. Under this system each society is liable
for all the liabilities of every society located within the
Province, so that in dealing with the head societies the
Preussische Central-Genossenschafts-Kasse has the joint
guarantee of all the societies located within the province.
We think that the Schulze-Delitzsch plan gives greater
security to the central institution, for it induces the central institution to look with greater care to the conduct
of each society with which it deals.
Q. How many different kinds of cooperative societies
are there in Germany?
A. It is very difficult to classify them. The Raiffeisen
Genossenschaf ten are confined to Prussia. There are other
organizations in Saxony, Bavaria, and different States
in Germany. They are not always known as Genossenschaf ten. Some of them are called banks, Volksbanken,
Kredit-Vereine, Vorschuss-Vereine, but under our law

458

Interviews

—

Germany

they are required to print below their firm name the
words " Eingetragene Genossnschaft." It may be in small
letters in the corner, but it must be added.
Q. How do you account for the run which occurred on
the Friedrichsberg Bank the other day?
A. This institution received deposits from the public
generally. Some of the depositors, for some reasons,
became concerned, and as a result a run was started. As
a matter of fact, that society had 2,000 members, each of
whom was liable for the entire liabilities of the bank, which
made the institution secure beyond question, but this fact
was not appreciated when the run was started. There
was not and could not have been a loss to the depositors.
Q. These societies are located all over Germany, in
large cities, small towns—towns of three or four hundred
inhabitants?
A. Yes.
Q. Are they independently governed or are they governed by a main association?
A. There is no special organization for supervision of
these societies. They are quite independent. The Verband or union is only formed to give them counsel relative to business, but it has no executive power.
Q. The stockholders meet and elect officers and managers, as they do in any other banking corporation?
A. Yes.
Q. Will you kindly inform us as to the kind of business
they do?
A. The general purpose is to make loans to the members
of the society.
Q. They, in fact, do a regular banking business?
A. Yes; most of them.
Q. Do any of them loan to others than members?

459

National

Monetary

Commission

A. No; they only lend to members. They give credits
only to members.
Q. What class of paper do they take in making advances?
A. They make loans in the form of cash advances, or
in the form of discounting bills of exchange.
Q. By cash advances you mean cash credits?
A. Yes; they give cash against the obligation of their
members.
Q. Is it similar to the Scotch system?
A. Yes; somewhat. You must not forget that in
most cases the amounts involved are small. For instance,
a member may want to borrow 500 marks. He wants it
all immediately. He goes to the society and draws the
500 marks in cash. Usually if the society gives a credit
of 10,000 marks to one of its members the money will
be drawn as needed.
Q. How are these advances secured?
A. Mostly either by a guarantee of another member of
responsibility, or by indorsement, or by a mortgage as
collateral.
Q. They will take two-named paper?
A. Yes. They may buy single-name paper, or extend
cash credits against single-named obligation, with security
of mortgage.
Q. You now refer only to the Schulze-Delitzschsocieties?
A. Yes.
Q. Are these societies under government supervision?
A. The law required that these societies should be
examined every two years by the auditors of the various
States in which they are located. The Schulze-Delitsch
societies had a system of audit which was made independently of that required by law and which was so satisfactorily conducted that the State accepted their audit

460

In t e r v i e w s

G e r m a ny

and abandoned its own. Whenever a society applies
for credit it always sends a copy of the auditor's last
report. A report of these societies is now being prepared
and will be ready within a few days.
Q. Does this report cover all societies, or only the
Schulze-Delitzsch ?
A. It covers them all.
Q. Can you give us some recent statistics?
A. At the end of the year 1906 there were in the Empire a total of 15,000 of these societies. Of this number,
1,000 were Schulze-Delitzsch. The membership was
1,800,000, of which 600,000 belonged to the SchulzeDelitzsch societies. The paid-in capital amounted to
233,000,000 marks, of which the Schulze-Delitzsch societies have 180,000,000 marks. The surplus funds of the
societies are 116,000,000 marks, of which the SchulzeDelitzsch have 72,000,000 marks. The total deposits
were 2,335,000,000 marks, of which the Schulze-Delitzsch
had 950,000,000 marks. You will notice that the SchulzeDelitzsch had 66 per cent of all the societies, 33 per cent
of the members, 75 per cent of the capital, 62 per cent of
the surplus, and 40 per cent of the deposits.
STATEMENT.
Marks.
Capital
Surplus
Deposits
Bills and accounts.
Discount c r e d i t s Open credits
Mortgages

33i000,000
116,000,000
.335.000,000
, 0 0 0 , 0 0 0 , 000
970,000,000
140,000,000
36,000,000

Dollars.
58,250,000
29,000,000
584,000, 000
250,ooo,000
242,000,000
35,000,000
9,000,000

Q. You show 1,000,000,000 marks classed as singlename and credit accounts?
A. Yes. Of that amount, 800,000,000 marks are constituted of advances made on paper, some of which may
461

National

Monetary

Commission

be single name, but all of which are secured or guaranteed;
200,000,000 marks are composed of open credits and in
form not negotiable; 800,000,000 marks are negotiable
but not of a character which are usually sold or borrowed
upon.
Q. You show 970,000,000 marks which are classed as
discount credits. Will you kindly describe their character?
A. That item is made up of negotiable paper of at least
two and usually three good names, and of such a class as
would be accepted by the Reichsbank, and is of higher
class than the other paper mentioned. In the great
majority of cases they are drawn against merchandise
in the course of regular business, and are therefore called
"bills of exchange."
Q. Will you kindly describe the item open credits and
accounts current (Konto-Korrent), 140,000,000 marks?
A. These do not differ materially in character from the
item 200,000,000 marks, except that it is in the form of an
open credit advance for no fixed term.
Q. Do these societies purchase securities?
A. Yes; both for investments on their own account and
for their members.
Q. Are they represented on the stock exchange?
A. No; they are represented through the Dresdner Bank,
which executes orders for them amounting each year to an
aggregate of 80,000,000 marks.
Q. About what would be the average size of the advances
made by the Schulze-Delitzsch societies?
A. We can not give you an average. They discount
amounts as low as 20 marks and as high as, perhaps,
200,000 marks.

462

Interviews

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Germany

Q. Have you statistics showing the total liability of the
hareholders?
A. No.
Q. Have you any figures showing the number of customers?
A. About corresponding to the number of members, because the member at the same time is a customer.
Q. But there are many customers who are not members?
A. There are not many.
Q. Deposits are received from other than customers,
but no advances are made?
A. Credits are only extended to members.
Q. Do the societies transfer and make exchanges between themselves, or is that business now done through
the Dresdner Bank?
A. I think the bulk of that business is done through
the Dresdner Bank. They also correspond with each
other, of course; for instance, a society with surplus funds
will sometimes discount bills for another society in need
of funds. The Schulze-Delitzsch societies are not obliged
to deal with the Dresdner Bank, while, on the other
hand, the Central-Genossenschafts-Kasse makes it a condition that the societies of their system deal exclusively
with them. The Dresdner Bank do not so require, but
we of course prefer to have them deal directly with it and
not purchase bills from each other.
Q. What are the relations between the SchulzeDelitzsch societies and the Reichsbank?
A. The societies have a direct account with the
Reichsbank.
Q. The attitude of the Reichsbank is the same toward
them as toward any other bank?

463

National

Monetary

Commission

A. Yes; and their bills are frequently offered and
taken by the Reichsbank the same as from other institutions.
Q. Have you figures showing the cash reserve of the
associations?
A. No; there are no figures showing that.
Q. Do they carry their reserve with the Reichsbank or
with the Dresdner Bank?
A. Principally with the Dresdner Bank, because they
get interest upon it.
Q. Have you any idea of the amount of cash on hand?
A. No.
Q. It is probably a very small figure?
A. As a normal figure we may state that the societies
all together have with the Dresdner Bank a credit balance
of about io to 12 million marks, but that is their main cash
reserve.
Q. You state that they carry balances at the Reichsbank.
A. I think these would not prove very important.
The Reichsbank does not allow interest.
Q. Then they figure their first-class bills as a part of
their reserve; at least they so regard it.
A. They have first-class bills, but their amount also is
not important.
Q. Here is a society with 2,335,000,000 marks deposits
and with perhaps 12,000,000 marks of cash reserve in the
Dresdner Bank. They must either have some other reserve or a reasonably fair percentage of liquid assets.
A. The Dresdner Bank allows a credit to some of the
societies of 200,000 or 300,000 marks. That is to say,
when they want it they can send to the Dresdner Bank
200,000 or 300,000 marks of their bills against cash, and

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Germany

besides the credit with the Dresdner Bank they have also
credit with the Reichsbank.
Q. Do they pay interest on deposits?
A. Yes.
Q. About what rate?
A. They pay an average of 4 per cent, which may be
considered as an almost permanent rate. The money they
get is in most cases money for a long period. They have to
compete with the savings banks.
Q. Do they distinguish between time deposits and current accounts?
A. Yes, they do; but most of them have time deposits.
Perhaps 60 per cent on time.
Q. What rates are charged on the advances made? Are
they governed by the bank rate or are they quite independent of that?
A. As the purpose of these societies is not to make
money, but to benefit their members, they make advances
at a comparatively low rate, in small places usually at
the bank rate, but in larger places they sometimes take 1
per cent over the bank rate, even more, but you may
take it as a whole that all these advances are given at a
rather low rate.
Q. But if they pay 4 per cent on their deposits and loan
their money at a comparatively low rate, they would lose
in the way of the expense of operation.
A. They charge some of their customers a percentage on
the turnover or a fixed sum for the transaction of their
business.
Q. What dividends are paid?
A. Small dividends. On the average^ percent on the
capital. Of course in some societies they would pay more
60481—10

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Commission

and in others less. As these societies are managed independently and separately, one may have an advantage
which the other will not have.
Q. In the city they discount at higher rates than in the
country?
A. In large places they discount at higher rates. They
loan for considerably less in the smaller towns than they
do in the large cities. The loans against collateral may
be at lower rates than those given by the Reichsbank, but
in the city their rate would be higher than the Reichsbank.
Q. Here in Berlin?
A. Yes.
Q. Are the small societies at all in competition with the
Reichsbank, where they have a branch?
A. No. There is no competition. They do a business
which the Reichsbank would not do. They give credit to
people who would not suit the Reichsbank, because they
could not give the guarantee.
Q. Are they restricted in any degree as to the character
of loans they may make?
A. The members fix at their meeting the highest sum of
credit which may be allowed to any other member.
Q. How many directors are there in each board?
A. They must have at least two managers. They have
also a board of supervision, which is not restricted in
number, perhaps five or six. They try to have as many
as possible.
Q. They are elected by the stockholders for one year?
A. For four or five years. There is no special stipulation in the law. In small places they elect men of the
best judgment and information about the solvency and
trustworthiness of the members who want credit. In the

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Germany

larger places they sometimes form corporations more for
the purpose of making money.
Q. We understand that they handle a smaller class of
business than the banks generally, and that it is not of as
high character.
A. Yes; the expenses are higher and the bills are not
quite as good.
Q. There are 150 cooperative societies of all classes in
Berlin alone?
A. Yes; there are some very good and of high standing,
and some which have no standing at all.
Q. These societies are more of a factor in the country
than in the city, are they not?
A. Yes; because the possibility of getting credit is not
so great in the country as in large communities. There
are societies in places of 200 or 300 inhabitants.
Q. You state that in the country they lend for comparatively lower rates, compared with the Reichsbank
or with whom?
A. Compared with societies in larger places.
Q. You would state that these cooperative credit institutions are not a factor in the city?
A. No; not in important cities.
Q. What taxes do they have to pay?
A. The income tax is levied on the same basis as for the
banks. The commercial tax is not to be paid by societies when they only receive deposits from members, but
as soon as their circle of clients includes other than members they have to pay the tax. It is not very high compared with the income tax.
Q. Do you mean they keep a certain account of those
with whom they deal, who are not members, and make a
return on that business to the Government?
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Commission

A. No. As far as they restrict their business absolutely to members they do not have to pay that tax, but
as soon as they do business with others they have to pay
that tax for the entire business.
Q. But they do pay the income tax?
A. Yes.
Q. Have they a pension system?
A. They have pensions for widows and orphans. As I
told you, we are probably going to have a law about the
pension funds.
Q. In what respect does the character of the business
done by the association differ from that of any other
commercial bank in Germany?
A. There is no difference at all.
Q. Are there many private banks in the smaller cities
of fifteen or twenty thousand inhabitants, or would these
societies handle all the business?
A. That depends upon the character. In the smaller
towns more of the business will be done by these societies.
Q. You have 15,000 of these credit societies. Do
they cover the entire field of banking in the country?
A. A very large part of it.

468

KUR- UND NEUMARKISCHES RITTERSCHAFTLICHESKREDIT INSTITUT, BRANDENBURGER
KREDIT INSTITUT, CENTRAL LANDSCHAFT,
KUR- UND NEUMARKISCHE RITTERSCHAFTLICHE DARLEHNS KASSE.
Interview with Herr Geheimrat Heintze, President.
The Kur- und Neumarkisches Kredit I n s t i t u t has three
departments, the first, the RitterschaftHche, which is for
the large land

proprietors only and was founded

Frederick the Great in 1777.

T h e second, the Branden-

burger, or peasants' d e p a r t m e n t , which was founded in
i860.

The third, the RitterschaftHche Darlehns Kasse,-

which does a regular banking business.

All these insti-

tutions are affiliated with the Central Landschaft, which
is their head.

The Central Landschaft was founded for

the purpose of issuing bonds which are covered by mortgages taken by the first and second d e p a r t m e n t s and also
by some other issuing Landschaften.
Q. Where is the Central Landschaft located?
A. In this building.

I t is under our management.

Q. W e will consider the corporation which comprises a
d e p a r t m e n t for loans to large landowners.

W h a t is the

capital stock of this company?
A. Seven million marks.

They received 20,000 thalers

rom Frederick the Great, which was the first capital.
The present capital represents t h a t sum with profits, there
having been no additional a m o u n t s paid in.
not include our real estate.
German

cities, the

This does

W e have offices in various

value of

which

aggregates

about

4,000,000 marks, making 11,000,000 m a r k s altogether.

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Commission

Q. Who owns this company?
A. It is an association of landowners.
Q. How many members are there?
A. About a thousand.
Q. Each member has a specified monetary interest in
the corporation?
A. These one thousand persons have not a direct
interest, they are really in possession of the company,
but in case it should be dissolved the question would
arise whether or not they are entitled to the capital.
You must make a difference between the companies
which are actually owned and those controlled by the
State. This one is controlled by the State, which control may be exercised by the President of the Province of
Brandenburg—that is, this Province—and by the Prussian Minister of Agriculture, who presides at the meetings
of this company.
Q. What becomes of the profits realized in the business?
A. They are added to the capital of the company.
Q. What benefit does a man receive in becoming a
member of this association?
A. The first benefit is that he gets from us very cheap
money. We give him bonds at 3, 3^, or 4 per cent, depending upon the money market. We do not charge
the landowner for our service but only for the money.
We can not call the loan that we make to him. That is
another advantage he has. He can choose whether he
wants to pay 3, 3^, or 4 per cent.
Q. How does the landowner obtain money through
this institution?
A. Well, it is somewhat similar to the course followed
by the Preussische-Central-Bodenkredit-Gesellschaft. The
landed proprietor comes and asks for a loan, then the

470

Interviews

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Germany

appraisement is made, and then we give him bonds for
two-thirds of the actual value, receiving from him the
mortgage on his property which is held as collateral for
the bond.
Q. And he then sells the bond in the market?
A. Yes; or through the Darlehns Kasse. The difference between the Hypotheken Bank and the Ritterschaft
is that the Ritterschaft gives him its bond in exchange
for the mortgage and lets him market it himself, while
the Hypotheken Bank gives him cash and issues and
markets its own bonds independently.
Q. Will you tell me why a man should elect to take a
bond bearing a rate of less than 4 per cent when he can
get a 4 per cent bond? The company itself has to pay
the interest on that bond?
A. Yes; the company pays the interest on the bond,
but the borrower pays on his mortgage the same rate
which the bond bears; it is therefore simply a question of
amortization.
Q. About what rate does he pay?
A. Say he pays 3 per cent on the bonds, he also has to
pay one-half per cent for the amortization, but this onehalf per cent does not go to the company; it goes to a
credit which is placed for him in the books of the company
which is used for the amortization.
Q. Is the amortization always one-half per cent?
A. The one-half per cent is for all those proprietors who
have not taken a mortgage for the full two-thirds value,
but only one-half. In case they wish a full two-thirds
mortgage they have to pay an additional 1 per cent
amortization for the amount in excess of the one-half
value.
Q. Has a member no other advantages?

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A. If the Darlehns Kasse—that is, the cash department
of the institution—has large profits, the company has the
option to say, for instance, that they will give 300,000
marks to the 1,000 persons who are interested in the institution, said sum being prorated and added to the amortization balances of the members.
Q. Is that the maximum amount which may be divided ?
A. No; that is only an arbitrary amount. It depends
upon the prosperity of the company. Since the founding
of the company 3,000,000 marks have been used for that
purpose.
Qr If I understand it correctly, it amounts to this: If
the company has had a prosperous year they may set aside
from their profits such an amount as they see fit for the
benefit of their members, crediting their amortization balances.
A. Yes.
Q. How does the company make a profit?
A. We make no profit whatsoever in this department.
The only profit is the interest on our capital.
Q. How do you provide for operating expenses, salaries,
and the like?
A. The interest of the capital, 7,000,000 marks.
Q. Does an individual, becoming a member, have to pay
any fee?
A. No.
Q. Anybody can become a member by borrowing from
the institution?
A. Yes.
Q. Are there any members of this institution who are
not borrowers?
A. No; if the people do not borrow they do not become
members.

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Germany

Q. If a man becomes a member of this institution he
has some claim upon the assets of the association. If he
pays off his obligation, does he then cease to be a member?
A. At once.
Q. If a landowner wants to borrow money he comes here
and makes an application. If his application is granted
that transaction constitutes him a member of this association?
A. Yes; absolutely. When he has paid the obligation
everything ceases.
Q. Does the borrower have no expenses whatever to
pay?
A. To the man who appraises his property he has to pay
the traveling expenses and a small fee for appraising the
property.
Q. Are there any other expenses besides appraising the
estate?
A. Yes; for the document which is drawn up he has to
pay 3 marks. That is all.
Q. You made the statement that the original amount
invested in this company was 20,000 thalers, and that it
had accumulated from profits to 7,000,000 marks. How
do you reconcile that with the statement that there is no
profit?
A. Well, there is no profit to the credit institution. All
the profit comes from the Darlehns Kasse, which does a
regular banking business. They, for instance, issue letters
of credit and do a foreign exchange business.
Q. I understand the corporation of which we have been
speaking is merely a corporation for the purpose of making
mortgages on large land estates and issuing their bond
therefor, and is in no other sense a financial corporation.
A. Yes; that is correct.

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Monetary

Commission

Q. What are the liabilities of the members of the association?
A. They have no liabilities beyond those mentioned,
viz, payment of money borrowed, interest, and amortization.
Q. In other words, the member has no liability beyond
the repayment of the money he borrows.
A. None whatsoever.
Q. Why should not everyone desiring to borrow money
become a member of this institution?
A. Many go to other institutions for the reason that
they can not get enough from us.
Q. How much money is now loaned by this company
on farm lands?
A. 191,000,000 marks, on December 31, 1907.
Q. The amount of bonds issued by this company corresponds exactly with the amount of mortgages held by
them?
A. Yes.
Q. According to the statement, the amount advanced
to each borrower would average 190,000 marks. Is that
about the average?
A. Yes; that would be about the average.
Q. How small an amount would you loan?
A. It is not fixed, but practically about 50,000 marks
for the Ritterschaften.
Q. About what is the maximum?
A. About 1,000,000 marks.
Q. And these loans are confined entirely to landed estates?
A. Yes; only great land estates.
Q. Is there any limit to the total amount you may loan?
A. No limit whatever.

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Germany

Q. Are all the mortgages held as collateral for any and
all of the bonds issued by the bank?
A. Yes.
Q. These mortgages are not deposited with the State
Controller as in the case of the Pfandbrief Bank?
A. No; they are held here. The State has nothing to
do with it.
Q. You state that all the directors must be interested
in the company. Do they have any financial liability?
A. No, they are only chosen from land proprietors.
Q. Is there any significance in the difference you make
between the different kinds of Pfandbriefe? There are old
Pfandbriefe, new Pfandbriefe, and central Pfandbriefe.
A. The old Pfandbriefe are issued on a particular property, and bear its name. For instance, a mortgage is
given, say, upon the estate of Mr. von Billow, the name of
which is Bulow Grounds. The bonds issued against this
mortgage would be called Bulow Grounds bonds.
Q. The old bonds were issued on the mortgage of special
property; how long did that practice continue?
A. Until 1858.
Q. What were the new ones?
A. Before 1858 the debt was simply inscribed in the
official book, and against this debt the bonds were
issued, naming the individual property. And after 1858
the bonds were issued against the aggregate amount of
mortgages in this institution.
Q. What are the Central bonds?
A. The Central bonds are issued by the Central Landschaft, an institution of which this company is a member,
and whose head office is here. All the bonds to-day are
issued by the Central Landschaft for all the different Landschaften and Ritterschaften. In 1873 we gave up the

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Monetary

Commission

Kur- und Neumarkische Pfandbrief because the market
was rather limited, and all the similar institutions were
combined in this Central Landschaft, and now only
these bonds are issued. That was because there was a
large foreign market for these bonds. Many are sold in
Holland and elsewhere abroad.
Q. Are all the Landschaften of Prussia members of the
Central Landschaft?
A. With the exception of Silesia, East Prussia, and
Posen all the Landschaften are members.
Q. Are all the Landschaften which belong to the
Central Landschaft jointly responsible for all bonds issued
by that institution?
A. Yes, they are all held responsible.
Q. How many Landschaften form the Central Landschaft?
A. Eight.
Q. Are the bonds of which we have been speaking as
being issued by this company issued by the Central
Landschaft or by this company? Do they bear the name
of this company or the Central Landschaft?
A. Practically only Central Landschaft Pfandbriefe are
issued, but there are a few people who prefer our own
issues out of tradition. To-day there are outstanding
about 3,000,000 marks of the old bonds, 15,000,000
marks of the new Kur- und Neumarkische bonds, and
171,000,000 marks of the Central Landschaft bonds. In
all, 190,000,000 marks.
Q. Can you state the amount of bonds issued by the
Central Landschaft?
A. 426,000,000 marks.
Q. Then this company has issued nearly half of the
total amount?

476

Interviews

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Germany

A. Yes; that is right.
Q. Are these bonds traded in on the market as freely
as the bonds issued by the mortgage banks?
A. Yes.
Q. Take bonds with the same maturity and bearing
the same rate of interest, how would yours compare in
price with theirs?
A. Ours rule about i per cent higher than those of the
other mortgage banks, but our bonds generally rule
about i per cent below Imperial and Prussian issues of
the same rate.
Q. Do you find it necessary to make many foreclosures
or take over property?
A. It is the principle not to sell property in arrears,
but to conserve it for the family of the landed proprietor;
sometimes we keep it for them for twenty-five years.
Last year we foreclosed on five estates amounting to
about 2,000,000 marks. These covered all in arrears, and,
as before stated, we had carried one of them for twentyfive years.
Q. What is the cost of properties now held by the company taken under foreclosure?
A. 2,000,000 marks.
Q. Thus far we have touched only upon the mortgages
on large estates.
A. Yes.
Q. Are the peasant mortgages made by this company,
or is that a separate company?
A. As stated, there are two branches—one the Ritterschaftliches, the land estate institute, and the other the
Brandenburger Institute, which handles the small loans.

477

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Monetary

Commission

Q. Are the statements of this department made separately?
A. Yes.
Q. Is it an association?
A. Yes.
Q. Would a member of this association also be a member of the Ritterschaft?
A. No.
Q. To what territory are the loams of the Ritterschaft
confined? Are they made in all parts of Germany, or
only in the State of Prussia?
A. The mortgages made by this company are confined to Brandenburg.
Q. Who controls and appoints the management of
this company?
A. The members of the associations elect a general
assembly, which consists of thirty-two members, and this
general assembly serve as a board of supervisors. The
board elects the officers, consisting of a president and
vice-president, and two directors.
Q. Are they elected for a limited time?
A. For six years.
Q. How frequently do the members have a meeting?
A. Once a year.
Q. And they elect the board for one year?
A. No, for six years.
Q. Has the company a special charter?
A. Yes, we have a special charter.
Q. Is the Brandenburger Kredit Institut organized on
practically the same lines as the Kur- und Neumarkische?
A. Yes; the only difference between the two institutions is that the farmer who wants to take out bonds
against the mortgage has to pay one-tenth per cent

478

Interviews

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Germany

commission on the nominal amount of his mortgage in
excess of the amortization, and this one-tenth is to cover
the expense of the Ritterschaftliche Institut, which at
the same time governs this Brandenburger Institut.
Q. Then the peasants pay the expense of the Ritterschaftliches Institut?
A. Yes, to some extent.
Q. How many members are there in the Brandenburger institution?
A. 10,013.

Q. To what territory are the loans confined?
A. To Brandenburg, together with Pomerania, Silesia,
and Saxony. Both institutions cover the same territory.
The only exception is that large estates of the Lausitz do
their business with the Brandenburger instead of the
Ritterschaftliches.
Q. The form of organization, the relationship of the
member to the organization, and the method of handling
the business are exactly the same in the Brandenburger
as in the Ritterschaftliches?
A. The only difference is the additional advantage of
the Kur- und Neumarkische Ritterschaftliches, that they
occasionally receive a certain amount of the profits from
the Darlehns Kasse. That would be impossible for the
Brandenburger.
Q. How much money has been loaned by the Brandenburger Kredit Institut?
A. 141,000,000 marks.
Q. What is the minimum size of loans made?
A. One thousand marks.
Q. And the maximum?
A. Two hundred thousand is as much as they ordinarily
would reach.

479

National

Monetary

Commission

Q. This is the main office of the Kredit Institut. Have
they other offices or branches?
A. Yes, they have several branches. They have one
in Frankfort on the Oder and one in Perleberg, one in
Prenzlau, and one near Berlin.
Q. Has the Ritterschaftliches more than one office?
A. Yes, they have the same offices as the Brandenburger.
Q. Are we correct in understanding that the Brandenburger Institut, lending to peasants, is organized on
exactly the same lines as the Ritterschaftliches Institut,
except that the members of the Brandenburger are
required to pay a commission on the mortgages made,
and do not have any interest in the profits which may be
realized by the company?
A. With only these two exceptions the business is conducted in exactly the same manner. The peasants receive bonds for the mortgage made, which they can market througli the Darlehns Kasse or elsewhere, as they
choose, and these bonds are all issued through Central
Landschaften, as is the case with the Ritterschaften.
Q. Is the organization of the Brandenburger as to the
official management the same as the Ritterschaftliches?
A. The directors and officers who take care of the business are the same persons. The personnel is the same
in each, only the general assembly is different. The 32
members of the general assembly of the Ritterschaften
are different from those of the Brandenburger.
Q. How can you be sure that the same officers are
going to be elected by two different boards?
A. The Brandenburger has nothing to do with the
selection of officials, because the management is in the
hands of the Ritterschaften. If the Brandenburger

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Germany

should disagree with the others, they have the right to
leave the business, and then they would have to fix up
new offices and elect new officials.
Q. It is to their advantage to remain?
A. Yes.
Q. Are the other Landschaften divided in much the
same way into Ritterschaften and small credit institutions?
A. Yes, as a rule the other Landschaften are organized
in the same manner.
Q. Is this business growing?
A. Yes, it increases from year to year.
Q. The appraisements are made by the officials of this
company >
A. Yes.
Q. And thev are not approved by any government
official?
A. No.
Q. Are the bonds issued only upon the approval of the
board?
A. Yes; the board examines the mortgages and then
issues the bond.
Q. The usual percentage of advance is from 50 to 66
per cent?
A. Yes.
Q. The usual length of time is 55^ years?
A. Yes.
Q. Can a borrower anticipate payment of his mortgage?
A. A borrower can pay his mortgage at any time, but
the company can not call it until it matures.
Q. For what length of time are the bonds of the company issued?
A. Without any limit.
Q. They have no maturity?
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Monetary

Commission

A. No.
Q. When can they be presented by the holder for
payment?
A. They can not be presented for payment.
Q. You do not mean they are irredeemable?
A. They have no maturity.
Q. What is the practice when mortgages are voluntarily
paid?
A. We call in and retire a like amount of our bonds.
Q. Suppose I hold some of these bonds, and they do
not call them and I want the money?
A. You can sell the bond on the market.
Q. But suppose I can not find anybody to buy?
A. You go to the company and they buy them.
Q. But you are not obligated to buy them at any time?
A. No; the company is not obliged to do so. In
practice these bonds are constantly being purchased by
the company out of the amortization fund. The company usually avails itself of the opportunity to purchase
when the bonds are offered below par. We have always
the right of calling the bonds in at par.
Q. Besides the two departments there is also a third,
which is a banking department?
A. Yes; the Darlehns Kasse. It is a part of the organization or institution which is under the Ritterschaften, and the capital employed in that department
belongs to the institution. The only significance of
that department is that it is the financial department
of this business.
Q. Does it transact a regular banking business?
A. Yes; similar to that of the Reichsbank.
Q. They receive deposits?
A. Yes; they have 33,000.000 marks.

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Germany

Q. The profits realized in this business are not paid out,
but may be prorated among the members of the Ritterschaftliche Institut?
A. Yes.
Q. Do you receive deposits from merchants and individuals?
A. Yes; from corporations, from individuals, from merchants, from private people.
Q. Are any of the funds received on deposit invested in
the mortgages through one of the other branches?
A. No; they are kept entirely separate.
Q. How are the deposits invested? That is, what is the
character of bills purchased and loans made?
A. We loan money on call and buy prime bankers' bills,
and do a regular banking business.
Q. Are you restricted as to the character of business you
may do?
A. No; we also have safe-deposit vaults.
Q. Does this department purchase and carry the bonds
of the other two departments?
A. Yes. In case the Pfandbriefe go below a certain rate
we would buy them at the exchange.
Q. You also issue communal bonds or lend to communities?
A. Yes.
Q. That is the same business which the Hypotheken
Banks do?
A. Yes; it is the main business of the institution.
Q. What is the usual size of loans made to communities?
A. There are some communities which take as much as
10,000,000 marks. The community of Schonerberg recently decided to build a railroad for 18,000,000 marks, and
of course they came here to get it.

483

National

Monetary

Commission

Q. The Darlehns Kasse issues a bond which is sold on
the general market?
A. Yes.
Q. Are these bonds issued through the Central Landschaften?
A. No, the Darlehns Kasse is entirely separate. Its
own banking department issues bonds known as "communal bonds/' secured by communal obligations. These
bonds are exactly of the same character as those issued
by the Hypotheken Banken.
Q. Are these bonds secured by municipal obligations, or
may they be of other public corporations?
A. Yes, but communal corporations.
Q. And these bonds may be called at par?
A. Yes.
Q. By whom is this institution comprising these three
branches owned?
A. It is owned by itself. It has no ownership
Q. Does the State exercise or have authority to exercise
any particular power of control over it?
A. No, the State has nothing to do with it.
Q. Has the Empire?
A. No.
Q. How frequently are statements required?
A. Once a year.
Q. Are reports made to the members of the association?
A. The members of the association and the Prussian
Government receive one copy of the report
Q. Am I correct in understanding that whatever
profits the Darlehns Kasse earns above the expenses of its
management are paid to the credit institution, to the
Ritterschaften?

484

KUR- UND NEUMARKISCHES RITTERSCHAFTLICHES KREDIT INSTITUT, BRANDENBURGER
KREDIT INSTITUT, CENTRAL LANDSCHAFT, KUR- UND NEUMARKISCHE RITTERSCHAFTLICHE DARLEHNS KASSE.
Bilanz-Konto

der Kur- und Neumarktschen
ACTIVA.

Kassa-Konto
Effekten-Konto
Zinsschein-Konto
Wechsel-Konto
Debitores:
In KontoKurrent-Sachen
In Pfandbriefsbeleihungs-Sachen
In Hypotheken-Krediten _

Ritterschaftlichen

Mark.
1,712,546.94
15,071,209.75
253,942.22
206,959.70
Mark.
18,511,524.40
1, 435,472.51
17,104.40

*9, 964,101.31
Hypotheken-Konto Hotensleben
1,000,000.00
12,996.58
Inventar-Konto
Gewahrte Darlehne zur Deckung von KommunalSchuldverschreibungen
84,958,950.00
no, 114.60
Gewahrte Conimunal-Zuschuss-Darlehne
Effekten fur Spezial-Reserve-Konto II (KommunalSchuldverschreibungen)
38,785.95
Effekten fur Tilgungsfonds fur Kommunal-Darlehne___ 2,960,869.85

Darlehns-Kasse

am JI. Dezember Z906.
PASSIVA.

Kapital-Konto
Spezial-Reserve-Konto I
Spezial - Reserve - Konto II (Kommunal - Schuldverschreibungen)
Kreditores:
Mark.
In Konto-Kurrent-Sachen
19,164,704.71
In Depositen-Sachen
14,395,535.92
In Pfandbriefsbeleihungs-Sachen
4,000.31
Pensionsfonds fur die Beamten der Ritterschaftlichen
Darlehns-Kasse
Kommunal-Schuldverschreibungs-Umlauf:
£ 3 Prozent
_
234,800.00
A3% Prozent
84,724,150.00
Guthaben der Kommunal-Verbande am
Tilgungsfonds:
In Bar
_
In Wertpapieren

Mark.
4,144,740.04
543,238.25
54,877.32

33,564,240.94
63,489.28

84,958,950-00
71.22
2,960,869.85

126,290,476.90 J

2,960,941.07
126,290,476.90

Balance sheet of the Kur- und Neumarkische Ritterschaftliche Darlehns-Kasse, December 31, 1906.
LIABILITIES.

ASSETS.
Cash
Securities
Interest account
Bills discounted
Loans:
In current account-.
On mortgages
On mortgage credit-

$407, 586
3, 586, 948
60, 438
49,256
$4, 40S, 743

341.643
4,071

Hotensleben mortgage
Inventory
Loans to cover communal bonds
Supplemental communal loans
Securities for special reserve
Securities for sinking fund for communal loans _

4,751. 457
238. 0 0 0
3,093
20, 220, 2 3 0
26, 2 0 7
9, 231
704, 688

Capital
Special surplus No. 1
Special surplus No. 2
Deposits:
Current accounts
Deposit accounts
Mortgage loan accountsPension fund
Communal bonds:
At 3 per cent _.
At 3^ per cent _

$986, 449
129, 290
13. 061

$4, 561,199
3, 426, 137
953

, 988, 289
15, n o

55. 882
20, 164, 349
2 0 , 2 2 0 , 231

B alances of communes for redemption fund:
In cash
In securities

17
704, 687
704, 704

30,057, 134

—

191,463,060

$45, 568, 208

Old Kur- und Neumarkische bonds bearing the name of the property
New Kur- und Neumarkische bonds
Central-Landschaft bonds

2,933, 060
15, 846,000
171, 759,900

698, 070
3, 771, 348
40, 878, 856

190,538.960

45,348,274

Total.

30,057,

134 1

Total

Kur- und Neumdrkisches Ritterschajtliches Kredit-lnstitut,

December J J , 1906.
Marks.

Loans

Neues Brandenburgisches Kredit-lnstitut,

Marks.

Mortgage loans

60481—10.

December 51, 1906.

141, 8 4 8 , 9 0 0

(To face page 485.)

33, 760, 038

Interviews

—

Germany

A. No, they are not paid to the Ritterschaften. They
are added to the capital of the credit institution.
Q. How many Landschaft institutions or associations
are there in the Empire?
A. About fifteen; one for each province.
Q. Eight of them are centralized here in the Central
Landschaft?
A. Yes.
Q. Are there other Central I^andschaften in the Empire?
A. No; this is the only Central Landschaft.

485

BANK DES BERLINER KASSEN-VEREINS.
Berliner Kassen Verein, Interview with Herr Hoppenstedt.
Q. When was this bank organized?
A. In 1823, under the general companies act.
Q. What are its particular functions?
A. This bank might be called strictly a clearing bank.
It clears transactions made on the stock exchange and
also checks on banks which do not clear through the
Reichsbank Clearing House. As you know, our banks do
a large stock exchange business. It is their custom to
send to us all securities sold to others clearing through us
with a list of the purchasers. We charge the purchasers
the amounts due from them and credit the amounts
received from them, balancing every night. The securities are delivered to the various purchasers. Some
settlements are made daily and others monthly. A large
volume of checks and bills are also cleared. This is simply a clearing business.
Q. You show loans and discounts in your statement.
What is the character of these?
A. We invest our funds in first-class loans and prime
bills. Nothing else.
Q. Is this bank owned by the other banks?
A. It is partly owned by other banks. There is also a
commission of shareholders of the bank, among whom are
the first banks of our city. These are members of our
board.

486

BANK DES BERLINER KASSEN-VEREINS.
Bilanz der am 31. Dezember 1907,
AKTIVA.

Wechsel-Bestande:
(a) Wechsel auf Berlin
(b) Wechsel auf Reichsbankplaize
Bestand an diskontierten Effekten
Bestand a n Effekten fiir den Beamten-UnterstiitzitugsFonds
Darlehnegegen Unterpfand._
Debitoren zur Verrechnung auf Giro-Konto p p
Am 2. Januar 1908 zahlbare Wechsel und Effekten _.
Kassen-Bestande einschliesslich Giro-Guthaben bei der
Reichsbank
Grundstiicks-Konto Oberwallstrasse 3
Grundstticks-Konto H i n t e r d e r Katholischen Kirche 2_-

Mark.
8,568,337.55
7,i32,387-33
i3,395.oo
1,222,673.95
4,189,300.00
1,908,453.99
282,295.80

PASSIVA.
Aktien-Kapital
Reserve-Fonds
Kreditoren im Giro- und Bankverkehr
Beamten-Unterstiitzungs-Fonds
Dem Jahre 1908 zufallende Zinsen von Wechseln und
Effekten
Baureserve-Konto
Noch zu berichtigende Unkosten pro 1907
Reingewinn

3,110,422.15
330,000.00
1,500,000.00

Mark.
9,000,000.00
1,350,000.00

15,563,774.80
1,251,343.14
99,545-00
100,000.00

114,447.70
778,155.13

28,257,265.77

28,257,265.77 I

Balance sheet 0} the Berliner Kassen-Verein, December 31, 1907.
LIABILITIES.

ASSETS.
Bills discounted:
(a) Payable a t Berlin
(6) Payable a t towns with Reichsbank branches
Securities
Securities for bank officials' pension fund
Loans on collateral
Unsettled clearing accounts
Bills and notes due January 2, 1908
Cash, including balance a t the Reichsbank
Real e s t a t e ^ ] - - - " - - - - - - - " ^ - 2 - - - " " ^ : : : : " " " "
Total.

60481—10.

$2, 039, 266
i, 697. 508
3,188
290, 996
997. 053
454, 212
67, 186
740, 280
78, 540
357, 000
6, 725, 229

(To face page 487.)

Capital
Surplus
Deposit accounts
Bank officials' pension fund
Interest upon bills and securities due in 1908 .
Building surplus account
Unpaid bills for 1907
Profits
__
_

Total-

$2,

142, 0 0 0
321, 300
704, 178
297, 820
23,692
23, 800
27,239
185, 200

6, 725, 229

Interviews

—

Germany

Q. Is it the custom for all banks which clear through
you to have a balance in order to facilitate the payment
of debits through clearing?
A. Yes.
Q. What dividends do you pay?
A. Eight per cent last year.
Q. What is your stock selling for?
A. 130.

487

Berliner Sparkasse; Interview with Herr Stadtrat Emil
Gehricke, President.
Q. Is the business of this bank confined to the city
of Berlin?
A. Yes.
Q. Have you more than one office?
A. We have several in Berlin, but as the city of Berlin is
responsible for all the deposits made with the Sparkasse, it
is only allowed to do business within the city.
Q. Is the bank organized under a special charter?
A. We have a special concession from the Prussian
Government.
Q. Is it different from the other city savings banks?
A. No; it is the same. There is a special law governing all the city savings banks within the State of Prussia.
We have eight branch offices, which pay and receive and
conduct business as at the main office, and in addition
we have 200 Annahmestelle—i. e., places where money
can be deposited. They are mostly in grocery shops.
Q. Are there any banks of a similar character in the
city of Berlin?
A. Not one. This is the only city of Berlin savings
bank.
Q. What other classes of savings banks are there in
Berlin or in the State?
A. In Prussia there are also district savings banks,
Kreis Sparkassen.
All large cities like Charlottenburg
have their own city savings bank, but the district savings
banks are more for the country parts of the State. For

488

Interviews

—

Germany

instance, there are Kreis Sparkassen in Copenick and
some of the small suburbs in Berlin.
Q. May they do business in any of the cities?
A. Yes, they are allowed to. We will not receive
deposits outside of the city of Berlin, because as long as
the city of Berlin is responsible for our deposits our
business must be confined to the city.
Q. Is there a district savings bank in the city of Berlin?
A. Only a branch office.
Q. What is the distinction between the district and the
city savings bank?
A. There is hardly any difference, because they are all
governed by a statute prepared for them by the Prussian
Government. The Kreis or district is responsible for the
deposits of the Kreis Bank.
Q. Do the Kreis savings banks confine their business
to the town in which they are located?
A. No. One has offices here.
Q. Is the city in which the main office is located
responsible for the deposits of the institution including
the deposits in the branch here?
A. Yes. The other savings banks are located in various
cities within the State, but may have branches in towns
and even in other cities. The principal difference is that
the City Savings Bank of Berlin does not receive deposits
from anybody outside of Berlin, while the other city and
district banks do receive deposits outside.
Q. Is it customary for the district savings banks to
have many places where deposits may be received, as in
shops?
A. Yes, that is customary all over Germany.
Q. Does the system as it prevails in Prussia prevail
generally throughout the other States of the Empire?

489

National

Monetary

Commission

A. Yes, in the other States it is similar.
Q. Then there is practically only one character of savings bank in the German Empire?
A. There are in Hamburg private savings banks.
Q. Are they an important factor compared with the
district savings banks?
A. No, they are hardly Known.
Q. Are the restrictions which govern this bank practically those which govern the savings banks of the Empire?
A. Yes, the restrictions are about the same for all the
Sparkassen all over Germany.
Q. How small an amount is received on deposit?
A. From i mark up.
Q. What is the maximum amount?
A. Under the old statute the maximum amount is i ,000
marks, but application has been made for a new statute
fixing the maximum amount at 3,000 marks. They are
allowed to receive institutional and trustee funds to any
amount.
Q. What is the amount of the deposits of this institution?
A. About 350,000,000 marks.
Q. What rate of interest is paid on deposits?
A. Always 3 per cent.
Q. Has that rate changed during the last twenty years?
A. No, it has never been changed. Interest is only
allowed from the first of each month and on sums not
withdrawn during the month.
Q. What is the surplus of the bank?
A. 29,000,000 marks.
Q. How many depositors has the bank?
A. At the end of 1906 we had about 826,000.

490

Interviews

—

Germany

Q. What is done with the profits accumulated beyond
the interest paid to depositors?
A. Our net profits are added to the reserve fund.
Q. Has there ever been any distribution of profits
since the organization of the bank?
A. No, they are added to the reserve funds.
Q. When was this institution organized?
A. 1822.
Q. The reserve fund to-day shows the aggregate profits
of the bank since its organization?
A. No. In the year 1853, 150,000 marks were used to
build an orphan asylum and between 1881 and 1885,
887,306 marks were used to build schools. Further,
2,000,000 marks will be used now to buy the place of the
former botanical garden for the city.
Q. As far as you know, has there ever been a division
of profits in any savings bank?
A. The other city and district savings banks as a rule
carry a portion of profits to their reserve fund, and also
pay certain amounts to benevolent societies, hospitals,
schools, and churches.
Q. Is there any question as to whom the surplus belongs?
A. No, there is no question about it. The statute provides that they may distribute their surplus funds among
city benevolent institutions. They can use it, according
to their judgment, for the good of the community or the
city or the State. It must, however, go for the public
purposes, or for payment of public debts.
Q. It belongs, then, to the city?
A. Certainly, or to the community.
Q. Is 3 per cent the usual rate throughout the Empire?
A. Yes.

491

National

Monetary

Commission

Q. Has there been any agitation on the part of the
depositors for an increase of rate on the theory that they
are entitled to some of that reserve?
A. No; there is the competition of the large banks,
where higher rates are sometimes paid.
Q. What are the restrictions in regard to its investment? How may the funds of the bank be invested?
A. Only in trustee securities; that is, securities that
are permitted by law, such as German and Prussian
state loans, city bonds, and mortgage bonds.
Q. By mortgage bonds you mean bonds issued by
mortgage banks?
A. Yes; Pfandbriefe. We may purchase bills with
three good signatures, prime bills. We may make loans
to the city of Berlin for certain improvements. Of course
we own our real estate.
Q. Are you restricted as to the amount of money you
may invest in prime bills?
A. Yes; there is a restriction. We can take about
20,000,000 marks of bills; strangely just now we have
not any.
Q. Are you losing deposits?
A. Yes; we are paying out large sums.
Q. Are the other savings banks also losing?
A. Yes; and they are obliged to sell some of their stock,
bonds, and securities to meet the withdrawals. We are
not obliged to do this, because we can at any time get
money from the Stadt Hauptkasse.
Q. Is this a recent movement, or has it been gradually
going on for months?
A. For months.
Q. Is the money being withdrawn to pay current expenses, or for investment, or to be deposited elsewhere?

492

I n t e r v i e w s

—

Germany

A. To pay current expenses.
Q. Do you carry a cash reserve?
A. We always have a cash reserve to meet demands,
usually about one-quarter of a million marks.
Q. Do you carry an account with the Reichsbank or
the Seehandlung?
A. No.
Q. Is there any law requiring a savings bank to carry
a reserve in cash or in bank?
A. No; they are not allowed to deposit any money with
the private banks, such as the Deutsche Bank.
Q. May you deposit with the Reichsbank or Seehandlung?
A. We may, but do not.
Q. What do you do with the cash received?
A. We buy securities.
Q. Do you not carry an account in some bank upon
which you may draw?
A. No; we do not. We clear our purchases and sales
through the Kassen Verein.
Q. Then you really carry an account with the Kassen
Verein?
A. No; only clear through them.
Q. How do you secure cash with which to meet withdrawals?
A. From the Stadt Hauptkasse.
Q. That is the city treasury?
A. Yes; we borrow money from the city treasury.

493

Interview with Herr Von Mendelssohn, Mendelssohn & Co.
In conference with Mr. Von Mendelssohn we learned
that he entertains a very high regard for the Reichsbank.
A reasonable increase in the Kontingent is the only change
that he would favor. He is not in sympathy with the
criticisms made by the agrarian party. He states that a
moderate increase in the bank rate is not viewed with any
concern, and that it is a very effective means for controlling gold movements, citing the comparatively recent
increase in the gold reserve as evidence of the effectiveness
of the measure. He expressed the opinion that the
financial field of Germany would be thoroughly covered
by making inquiries concerning the Reichsbank, the private or joint stock banks, the mortgage banks, the Landschaften, the Kassen Verein, the credit associations
(Schulze-Delitsch and Raiffeisen systems), the state
banks (Central-Genossenschafts-Kasse and the Seehandlung).
The Seehandlung in its functions may be taken as
typical of the state banks of other States in the Empire,
such as the Royal Bank in Nuremburg, which is the
state bank of Bavaria.
There are several Renten-Banken and Landes-KulturRenten-Banken located within the various States in the
Empire. These, however, are not banks, in that they do
not receive deposits, purchase bills, or perform the usual
function of a bank, confining their business entirely to
the lending of money upon real estate, taking mortgages
against which they issue their bonds. These bonds are
guaranteed by the States in which the institutions

494

Interviews

—

Germany

are located. The companies have no capital stock,
and according to the latest figures show accumulated
profits of $4,000,000. The total amount of tlieir bonds
outstanding in April, 1908, was 270,000,000 mark,
($67,500,000).
He added that there are some international banks
located in Germany whose business is, however, largely
in other countries, and therefore not a factor of importance
in the finances of the Empire. Some of these important
international banks are partially owned or controlled by
some of the important private banks of Germany, and
through them invest funds in foreign countries.

495

S. Bleichroeder; Interview with Doctor Von Schwabach.
In a conference with Doctor Von Schwabach he
expressed his absolute confidence in the Reichsbank,
regarding it as perfectly adapted to the needs of Germany,
adding that in his judgment the organization or system
could not be materially improved. He would favor an
increase in the Kontingent, but beyond that believes that
no change could be made for the better. When asked
if an increase in the bank rate was received with any concern he replied that it was merely regarded as a warning.
He stated that an increase in the rate does attract gold to
Germany, but that it could not be raised sufficiently to
prevent gold exports if gold were needed elsewhere.
Referring to the experiences in the autumn of 1907
he stated that he expressed to Doctor Koch, then President of the Reichsbank, the belief that it would be wise
for the Imperial Bank of St. Petersburg, the Reichsbank,
the Bank of France, and the Bank of England to cooperate
and voluntarily offer to the United States (probably to
the Secretary of the Treasury) an immediate shipment
of gold, believing that that very act would relieve
conditions in the United States and allay apprehension
in this country.
He stated that he views with no concern the issue of
taxed notes by the Reichsbank. When asked if there
were other criticisms from respected sources as to any of
the regulations or practices of the Reichsbank he said that
there were some who thought the discrimination of 1
per cent in the rate on Lombards was a little severe;
that many thought that one-half of 1 per cent would be

496

Interviews

—

Germany

quite sufficient. He added that there had been criticisms from the agrarian party emanating largely from
the large landowners, members of the nobility, who feel
that the Reichsbank is not organized to render to them
as great advantages as to commercial and industrial
enterprises. While this party is powerful, he does not
feel that there will be any change as a result of their
criticisms. He does not agree with their views. When
asked as to an estimate of the amount of gold in the
pockets of the people, he replied that he could name no
figure, that it undoubtedly was a very large amount.
Referring to the law enacted last year establishing a legal
status for checks for the purpose of increasing their use,
he expressed the opinion that checks would be more generally used than heretofore; that at present they are a
very small factor in the transaction of business within the
Empire, it being almost entirely confined to the transfer
system. In explaining he said that almost all bills of
large size were paid by the debtor by means of an order
upon his bank to transfer to the bank of the creditor the
amount due, this order being in the way of a letter of
instruction, but that in the case of small individual and
personal bills cash was generally used in settlement. In
Hamburg it is the practice to use the transfer system
almost entirely even in small transactions—that is, a bill
of the tailor would be paid by an order to the bank of
the debtor to transfer to the account of the tailor in his
bank the amount due, it being the practice there for each
merchant to have on his letter heads and billheads the
name of his bank.
In reply to an inquiry as to the volume of business done
by the Genossenschaften, he stated that it was very important and of very large volume. He regarded the sys60481—10

497

National

Monetary

Commission

tern generally with favor, although he criticised the principle of the Preussische Central-Genossenschafts-Kasse; that
institution,having no shareholders but being owned by the
State, is in a position to make advances to its customers
at rates with which other financial institutions can not
compete, the net result of which may be a loss to the State
and therefore to the taxpayer. He stated that last fall
the Central-Genossenschafts-Kasse borrowed money in
the street on Lombards, of his house among others,
paying interest at 7 per cent, and lending the sums thus
borrowed to their customers at 4 per cent. He argued
that this was bad in practice and should not be permitted.

498

SWITZERLAND

499

SWITZERLAND.
Statement of Mr. Leon Rueff, Managing Director of the London
Branch of the Swiss Bankverein.
Mr. RUKFF. We have in Switzerland 22 Cantons, which
are in fact separate States. They are all autonomous, and
have their own special arrangements, and nearly all have
cantonal banks. The capital of part of these banks has
been supplied by the Canton, in the form either of cash or
securities, or through the issue of cantonal bonds.
The Canton of Zurich, for instance, has a cantonal
bank, which received its initial capital through the State
issuing a fixed loan and handing over the proceeds to
the bank.
According to law these banks could issue a certain
ratio of notes, which, however, had to be covered by 40
per cent in gold or legal tender (5-franc pieces, etc.).
The other 60 per cent had to be covered by liquid assets.
Those assets, used by the cantonal banks as cover for
their notes, included bills with two well-known signatures, either Swiss or foreign, cash in hand, and advances
made on Swiss federal and cantonal securities.
Agitation has been going on for twenty years to grant
a monopoly of note issue to the Federal Government.
We have in Switzerland the system of referendum, and
in the course of the eighties a popular vote was asked for
in respect of the introduction into the constitution of an
article giving the exclusive right of issuing notes to the

501

National

Monetary

Commission

Federal Government, which could hand it over to a bank.
This was at first rejected by popular vote. In 1891,
however, the article was adopted, but remained a dead
letter, as the Legislature was unable to decide whether
they would have a state bank or an absolutely private
bank, the shares being held by the public, the right of
control, however, being in the hands of the Government,
as in the case of the banks of France and of Germany.
Three years ago a law was passed, and accepted by
referendum on October 6, 1905. The law was published
on October 11, 1905. An opposition was yet raised
against it, which, however, did not succeed in getting
together the necessary 30,000 signatures for reconsideration, and it finally went into effect on January 9, 1906,
at the end of the legal period of three months, reserved
for the referendum.
This law provides (art. 1) that the Confederation shall
give the exclusive right to issue notes to a central issuing
institution, created in conformity with the provisions of
this law, under the name of Swiss National Bank. This
Bank has all the rights of a private individual, but is administered under the supervision of the Confederation.
The National Bank has for its principal objects to reguate the money market of the country, and to facilitate
payments and transfers of money. It undertakes without
cost the service of exchequer of the Confederation, so far
as the latter will delegate it to the Bank.
It has a capital of 50,000,000 francs in 100,000 shares of
500 francs each. Two-fifths of this amount was subscribed by the Cantons, one-fifth by the existing banks of
issue, and two-fifths by the public. Only Swiss citizens
or corporations domiciled in Switzerland can be shareholders.

502

Interviews

—

Switzerland

The operations of the Bank are strictly limited to—
i. The issue of notes.
2. The discounting of bills maturing three months later and
bearing two signatures at least.
3. The sale or purchase of foreign bills or checks payable in specie,
4. Advances for three months on obligations (bonds), but not on
shares.
5. Transfers and money orders.
6. Purchases for its own account, but only as temporary investment of money, of the bonds of the Federal or Cantonal Governments or of foreign states, provided that they are bearer securities
and of easy realization.
7. Purchase and sale of gold and silver specie and bullion and
advances upon the same.
8. Issuing of gold and silver certificates.

The bank may receive on deposit gold or silver bars or
foreign coin at a certain ratio and issue its notes against
them. Coins should be delivered in 2 X-kilogram lots or
pieces of the same denomination. Advances are made on
the basis of 3,000 francs on the kilogram of gold nine-tenths
fine. [Reading:]
9. Opening of interest-bearing and noninterest-bearing deposit
accounts.

They can not allow interest to anybody but the Confederation. This is to prevent the National Bank from
competing with other banks. [Reading:]
10. The safe-keeping of securities and objects of value.
11. Subscriptions on commission of a third party to federal and
cantonal loan issues, but without participating on its own account
for same.

They can not take part in any underwriting syndicate,
[Reading:]
The Bank will publish its loan and discount rates at regular
intervals and will issue bank notes of the denomination of 50, 100,500,
and 1,000 francs. I t s note issue will have to be balanced to its full

503

National

Monetary

Commission

amount by a 40 per cent specie reserve and 60 per cent bills acquired
a t home or abroad. I t will also be obliged to hold a reserve to
balance all of its short-term engagements—all those which will
terminate in ten days.
The distribution of profits is minutely provided for. Ten per
cent of the profits go to the reserve fund. After this a dividend
up to 4 per cent maximum of the fully paid-up share capital has
to be paid. Out of the remainder the indemnities will be paid to
the Cantons upon a special scheme and the surplus will be distributed
as to one-third to the Confederation and two-thirds to the Cantons.
The Swiss National Bank has no tax to pay upon its issue, while
the private banks had to pay taxes.
All Cantons in general will receive for the first fifteen years an
indemnity of 30 centimes per capita, while Cantons, which draw
profits from their cantonal banks, will receive a special distribution.
After the first fifteen years every Canton will receive 80 centimes
per capita, and in case the surplus in any financial year is insufficient
to meet these payments the federal treasury will advance the sums
necessary to pay the indemnities.

This is to take the place of the amounts formerly received by the Cantons from the taxes on the issue of the
private banks. The Federal Government has the customs duties with which to pay these amounts, if the
Bank should not make sufficient profit. The Federal
Government has no right to direct taxation, but it has
some monopolies, the surplus of which is applied partly
to the service of the federal loans and partly goes to the
Cantons as compensation for their having given up the
taxes formerly levied by them on the articles now subjected to federal monopoly.
By federal law of October 15, 1897, the Confederation
was authorized to acquire the railroads, and the transaction should be completed in 1909. But the railroads
are an absolute separate institution; the revenue does

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Switzerland

not go into the general fund of the State. Out of the
surplus they have to provide, first, for interest and amortisation of their loans, and for the payment of all debts
outstanding, while any surplus remains as a reserve fund.
I will now give you some of the principal regulations
governing the conduct of the Bank:
The shares are only transferable by indorsement, and
this transfer must be approved by the committee of the
Bank.
The National Bank is the custodian of the public funds,
for which it does not allow any interest; it makes all payments for the Federation without charge. It also receives for safe-keeping all securities which belong to the
Federal Government and all its different funds, like pension funds, etc.
The Bank is obliged to publish a statement every week.
All statements are published in two languages—French
and German—but the bank notes are printed in the three
national languages—French, German, and Italian.
The Bank has no right to discount bills at a lower rate
than the official rate. The Bank can have no private rate
of discount. Therefore they find it sometimes difficult to
buy bills, because they have the competition of all the
other banks. The bank rate at present is 3 ^ per cent,
while the market rate is but 3 ^ per cent.
The principal purpose of the Bank is to regulate the
Swiss monetary system, not to make dividends and to issue
notes.
Of the profits 10 per cent is taken for a reserve fund,
but there can not be more than 500,000 francs in one year
taken for this purpose, and only until the reserve fund has
attained 30 per cent of the paid-up capital. This is to

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prevent the Bank from accumulating big reserves, so that
the Cantons would receive less. Afterwards 4 per cent
maximum dividend may be declared to the shareholders.
The payment which has to be made by the National
Bank to the Confederation, and which is given up by the
Confederation to the Cantons, is composed of the following items: Fifty centimes per 100 francs of the authorized
issue on December 31, 1904, of each Canton, 30 centimes
per capita in each Canton of the population as given by
the last federal census.
Q. How many branches has the Central Bank?
A. Eleven.
Q. How is the Bank managed ?
A. There is a bank council composed of 40 members
named for four years; 15 are designated by the meeting
of the shareholders and 25 by the federal council. They
must be Swiss citizens and representatives of finance,
commerce, industry, agriculture, etc.
The nomination of these 40 members is made in the
following way: The federal council nominates in the first
instance, the president and the vice-president. After
that the general meeting of shareholders nominates 15
members, and gives notice to the federal council of the
nominations which they have made. The federal council,
after receiving these nominations, proceeds to the nomination of 23 other members, of which not more than 5
can be members of the federal chambers and not more
than 5 be members of the governments of the Cantons.
In the choice of these 23 members an equitable representation is assured to the leading banking centers and
the principal centers of commerce and industry. The
members of the council do not have to deposit shares as
qualification for membership.

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Q. How long does the president act as president after
being designated by the federal council ?
A. Four years.
This legislation was a compromise between the radicals,
who wanted a pure state bank and the conservatives, who
wanted a federal bank. The Federal Government guarantees the Cantons a certain income for having taken
away the income from their banks, but there is no guarantee of the 4 per cent dividend.
Q. Was there much discussion in your Parliament?
A. A great deal; it has taken twenty years' fighting to
accomplish this result.
Q. It seems they were all in favor of some centralized
authority of one kind or another. What were the conditions of the country, which led everybody to desire the
centralization of their note issues and banking power?
A. For instance, we had no facilities of exchange between say Berne and Zurich and other places, and it was
often difficult to transfer money from one place to another.
The banks conducting these operations were private
undertakings, which looked for profits and not so much
for the interest of the community. At certain times,
such as crop-moving periods, it was very difficult to get
notes and money transferred. There was also fear that
some of these institutions might not be sound.
Q. Was there any distrust of banks in one Canton by
the people of other Cantons?
A. There was a very rigid supervision by a federal
comptroller. Therefore, as regards the bank notes, there
was no distrust, but as regards the management of certain
banks and their other business there was some distrust.
To prevent these difficulties, in the seventies or eighties, a
concordat was concluded by the different issuing banks,

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and that association gave as many facilities as possible
for the transfers. There was a kind of clearing house in
Zurich. The banks did not want a central institution,
and so they cooperated with the view of rendering the
creation of a central bank unnecessary. This was about
twenty-five years ago.
The concordat was composed of issuing banks and its
power amounted to 50 per cent of the banking strength of
Switzerland. It is not now in existence, but the cantonal
banks have started a new association to defend their
interests. Their bank lotes will be gradually withdrawn,
but they now have a defensive organization so as to discuss between themselves the steps they shall take to continue in business and how they will go on after all this
has been settled.
We are making an active propaganda in Switzerland
for the use of checks. The postal savings bank and
postal-check transfer system have been started. Individual debts are paid mostly in bank notes or coin, but
efforts are now made to avoid transfers of actual money
and to increase the use of checks.

508

ITALY

5°9

ITALY.
Interview with Comm. Tito Canovai, Chief General
Secretary of the Banco D'ltalia.
Q. How many different kinds of banks are there in
Italy?
A. There are the three issue banks, viz, the Banca
d'Italia, the Banco di Napoli, the Banco di Sicilia; then
there are a number of commercial banks, without the
right of emission. There are about 830 popular banks
and cooperative credit societies.
Q. Are there any postal savings banks?
A. Yes; and there are private savings banks, too.
Q. At the beginning of the United Kingdom of Italy in
1870, how many issue banks were there?
A. Six. They were the banks of the different states
and three were later fused into the Bank of Italy.
Q. When was this fusion effected?
A. In 1893, at the time of the failure of the Banca
Romana.
Q. Who was the minister of finance at the time when
the change was effected?
A. The project was presented to the Parliament by
Signor Lacava, minister of the commerce, and Signor
Grimaldi, minister of the treasury, and was vigorously
defended before the Chamber by the president of the
council, Signor Giolitti, and of course by the ministers of

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finance and of commerce also. There were some political questions connected with the failure of the Banco,
Romana, and it unchained many political passions. A
commission of inquiry of seven persons was appointed
which made a report to the Parliament.
Q. What, in a general way, were the circumstances
which led to the fusion of these banks?
A. The immediate circumstance was the failure of the
Roman Bank. The newly organized Bank of Italy
became charged with the liquidation of the Roman Bank,
and was successively obliged by the law to set aside
2,000,000 a year to cover the losses which will amount to
more than 60,000,000 liras, although the Roman Bank had
only a capital of 15,000,000. The liquidation of the
Roman Bank will have to be accomplished at the end of
1913Q. Did this fusion of the three banks take place at the
time of the failure of the Roman Bank or before that
failure?
A. At the time of the failure.
Q. What were the banks which were fused into the
Bank of Italy?
A. The National Bank of the Kingdom (Banca Nazionale nel Regno), the Tuscan National Bank (Banca Nazionale
Toscana), and a small Tuscan bank of credit (Banca Toscana di Credito), which also had the right of issue.
Q. Will you explain why the failure of the Banca
Romana led to this fusion?
A. The failure merely presented an opportunity to
modify a villainous banking system, and to improve the
deplorable conditions of the banks. Negotiations for the
fusion of the three banks had already been entered upon

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before the failure of the Roman Bank. But there were
political elements involved, and regional antagonism had
impeded all attempts at fusion up to that point. The
failure of 1893 made it clear that the banking system was
in a very bad condition and the necessity of establishing
one big bank was felt. Up to that time it had not been
possible to do so because the people of the different regions
wanted their own regional banks. The failure of the
Banca Romana was seized upon as a pretext for the fusion
of the three banks.
Q. Why were not the banks of Naples and Sicily
included in the fusion ?
A. They were maintained because the people of the
south of Italy were jealous for their ancient institutions.
Q. At that time Italy had suspended payment in coin,
had she not, in 1893? Paper money was at a discount?
A. Yes; the notes of the banks were legal tender and
they were practically irredeemable; in 1881 the "cours
force'* was legally abolished and the "cours legal" subsisted. In 1881 the influx of gold caused by the loan of
644,000,000 made by England, through the minister of
finance (Magliani), brought the notes down to par. This
operation was much criticised in Italy.
Q. But at the time of this fusion of the banks in 1893
there was again "cours force,'' was there not?
A. No; only the "cours legal" existed; but after all
it is little more than a play upon words, the notes were
practically not redeemable, although some provisions of
the banking act provided for their redemption in different
cities.
Q. How much of the time between 1881 and 1893 were
the notes maintained at par?
60481—10

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A. Some years, as it appears by the following prices of
the exchange:
Prices

of the Italian

Year.

exchange.
Maximum.

Minimum.

1881.

101,55

98.72

1882.

104.22

1883.

101. 25

9932
98.75
99-77
100.14

1884.

100.40

1885.

101

1886.
1887.

100.45
101.76

1890.

I02.21

100. 40
100.10

1893.

H5-95

103.97

99.84

Q. Why did it require an act of Parliament to effect the
fusion of those banks?
A. Because they were issuing banks whose existence
and privileges came from the law.
Q. Did each of these banks have a separate charter
with separate rights and distinct privileges?
A. As far as the issue of notes is concerned, no; there
had been a uniform law for all bank-note issue after
1874. Originally the banks were subject to the laws of
the particular states, but they were at that time all
subjected to the law of the Kingdom of Italy.
Q. Then the note-issue privileges of all the banks
were the same after 1874?
A. Yes.
Q. Are the banks of Naples and Sicily quite similar
to the Bank of Italy in their organization and functions?
A. The Banco di Napoli and the Banco di Sicilia were
institutions which had a patrimony rather than a subscribed capital, and they are also different in having a
pawnbroking branch, a savings-bank branch, and in

I n t e r v i e w s

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I t a l y

conducting, to a small extent, a land-credit business.
They have no shareholders, and their' capital has been
obtained by money left them and accumulated from
profits. They are the oldest banks in Italy, but they
did not originally have the privilege of note issue.
Q. To whom do these banks belong?
A. To themselves; there are no shareholders.
Q. Do they not practically belong to the Government?
A. No; they belong to themselves; they were formerly
regarded in a sense as charitable institutions.
Q. Who receive the dividends?
A. No one; the capital accumulates.
Q. By whom are the officers appointed?
A. Under the Kingdom of Naples and Sicily, and also
under the Kingdom of Italy, the general manager, the
general secretary, and the director of the branch offices
were appointed by the Government; but the relative
regulations were often modified. At present the Government appoints the general manager, the general secretary, and two members of the board of directors (Consiglio di Amministrazione). Besides the board of directors
there is a general board of directors (Consiglio Generale)
composed of members elected by the provincial, municipal, and commercial communities of the cities specially
interested in the two banks. The general manager and
the under general manager of the Bank of Italy are
selected by the superior council, but they must be
approved by the Government. The directors of the
branch offices are named by the council of the bank on
the proposal of the general manager.
Q. Does the local government now have anything to
do with the government of the bank?

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A. In an economic sense, and as far as the business of
the Italian banks are concerned, the local government
has nothing to do; but the banks are absolutely under
the strict superintendence of the Government.
Q. When did the banks of Naples and Sicily obtain
the right of issuing notes?
A. In 1874. Before that year they issued special
titles called "fede di credito" and polizze, like "bons de
caisse," payable to bearer, which circulated as money
in the Kingdom of Naples and Sicily; the two banks
were at that time authorized to issue notes for a small
amount. The law of 1874 was intended especially to
regulate the monetary situation in Italy because everybody was issuing "notes/' even individuals and commercial firms; the country was overrun with little notes
of 50, 25, and 20 centimes issued by everyone who liked
to do so. The same law had for another principal purpose the constitution of a banking consortium which had
to furnish to the Government one thousand million lira
of notes, against interest payments of 0.50 per cent a
year for the first four years and of 0.40 per cent after.
These notes were at cours force.
Q. But after 1874 the emission was governed by the
general law?
A. Yes.
Q. And it was limited to the six banks?
A. Yes, except the Monte dei Paschi di Siena. In the
Province of Siena there is an ancient institution that
issued some notes—agrarian notes—which circulate only
in that province; they still continue.
Q. How was the emission of notes limited in those six
banks after 1874?

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A. The limit of the issue was three times the amount of
the capital or three times the patrimony for the banks
which had no capital, but there had to be a cash reserve
of one-third.
Q. The law of 1874 required that?
A. Yes.
Q. But was there at that time any metallic stock?
A. Yes; there was a metallic stock, but it was always
kept in the bank, it was never touched; very much as
gold is kept in Spain to-day.
Q. The banks of Naples and Sicily are still issuing notes
under the act of 1874?
A. Now they are issuing notes under the new law.
Q. There has been no change in the law of 1874?
A. The law of 1874 has been modified principally in
1881, when the "cours force" was abolished, and in 1893.
Q. Was it changed as regards the amount of metallic
stock?
A. The law of 1893 fixed the metallic stock at 40 per
cent, but in practice the Italian banks have surpassed
that proportion; the Bank of Italy sometimes goes so
far as to hold yy per cent. One of the conditions of the
Italian law is that the banks have the right to issue notes
up to a certain fixed sum with a cash stock of 40 per cent,
but above that the notes must be entirely covered by
cash, like the gold certificates in America. The normal
maximum for the Bank of Italy is 660,000,000 liras, for
the Bank of Naples 200,000,000 liras, for the Bank of Sicily
48,000,000 liras. The provisions for note issue in the
Russian Bank most closely resemble those of the Italian
banks in this regard. The Bank of France can only issue
to a certain fixed amount, even with a covering of cash,

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and in order to exceed this amount it must have the
approval of Parliament.
Q. Is there any provision that the other 60 per cent must
be covered by bills of exchange, etc., like the Reichsbank?
A. Yes, naturally it must be covered by bills, not
exceeding four months to run, with two solvent signatures, such as tradespeople or banks, or by loans upon
securities of the state or guaranteed by it.
Q. Is there any provision in the law governing note
issue which would allow the banks to issue notes in excess
of the maximum without an equivalent covering of cash,
or below the maximum without the 40 per cent covering?
Will you explain these provisions in detail?
A. The three banks are authorized to issue notes in
excess of the maximum, and as far as—
The Bank of Italy
The Bank of Naples
The Bank of Sicily

50,000,000
_ 15, 000, 000
4, 000, 000

provided that the notes have a covering of cash of 40 per
cent, and on the condition of paying a tax of one-third
of the current rate of discount.
The banks may also issue an equal amount of notes—
always covered by cash in the above-mentioned proportion—on the condition of paying a tax equal to twothirds of the rate of discount. For further issue until the
issues reach—
For the Bank of Italy
150, 000,000
For the Bank of Naples
45, 000,000
For the Bank of Sicily
12,000, 000
a tax equal to the whole rate of discount is charged.
Every issue beyond the above-mentioned limits, or every
issue of notes not covered by metallic reserve, is subject
to a penalty of 7.50 per cent.

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Q. Do the notes of the Bank of Sicily circulate outside
of Sicily?
A. They have legal tender power in all the provinces
where the Bank of Sicily is represented. The principle is
that the notes of the three banks are legal tender in the
provinces where they have a branch or a correspondent.
Q. Would you find a note of the Bank of Sicily, for
instance, in Milan or Venice?
A. Yes; because the bank of Sicily is represented there.
There exist also arrangements between the three banks
to receive notes where they are not legal tender; they are
then centralized in the Bank of Italy or in the two other
banks, each of which keeps them and sends them to the
nearest establishment for redemption. Although we have
a system of plurality of banks of issue, the agreement is
so complete between them that it is not perceived that
there is a plurality of banks. The inconveniences of the
system are not noticed.
Q. Does the Bank of Italy, in fact, control the whole?
A. Yes; in principle I have never approved the plurality of issuing banks. I published in 1888 a volume
against a plurality of banks. A single bank forms the
strength of a country. I hope the United States will
soon have a unity of issuing banks.
Q. As a matter of fact, do the notes of the Bank of
Sicily circulate far outside of Sicily, and do the notes of
the Bank of Naples circulate outside of Naples?
A. Yes; practically in all Italy. But ev.ery ten days
the exchange is made between the three banks, through a
regular system of mutual redemption.
Q. Is it a provision of the law that such an exchange
must be made every ten days?

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A. Yes; it is a system which resembles that employed
in the Scotch banks. The Bank of Italy has, for example,
a certain number of notes of the Bank of Sicily; the Bank
of Sicily has a certain number of notes of the Bank of
Italy; on every tenth day they exchange notes.
Q. Can the Bank of Italy pay out over its counter the
notes of the Bank of Naples or Sicily, or is it obliged to
present those notes for redemption?
A. It can pay them out. There are arrangements by
which each bank pays out the notes of the others; so that
the mutual redemption is made only for the notes remaining in the cash at the end of ten days.
Q. Does this clearing of the notes take place at the central office of the banks, or in every city is there a separate
clearing?
A. In every city where there is a branch or a correspondent.
Q. Does the Government deposit its funds in the Bank
of Naples and in the Bank of Sicily with the same freedom
that it would in the Bank of Italy?
A. It only deposits its funds in the Bank of Italy, which
conducts the business of the treasury of the state.
Q. Then the Bank of Italy has virtually become in a
peculiar sense the bank of the Government?
A. It is the treasury of the Government, like the Bank
of England.
Q. It helps in the issue of government loans?
A. Yes. <
Q. Does the Bank of Sicily or the Bank of Naples also
assist?
A. They are always associated.
Q. Does the Bank of Italy pay interest upon the deposits of the Government?

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Italy

A. Yes; the Bank of Italy is obliged to pay interest
on deposits exceeding 40,000,000.
Q. Is this interest fixed or variable?
A. It is 1 y2 per cent.
Q. For a deposit in excess of 40,000,000 francs?
A. Yes.
Q. Does that rate of interest change?
A. No; it is fixed by contract.
Q. Is the contract renewed from time to time?
A. No; it has remained since 1895.
Q. It is a contract, not a law?
A. Yes; it is an agreement approved by the law.
Q. Does the bank receive any compensation from the
Government for doing its business?
A. The Bank of England receives half a million pounds
sterling. The Bank of Italy receives nothing.
Q. On the other hand, do the banks of Naples and
Sicily or the Bank of Italy have to pay anything to the
Government for such privileges of emission as they enjoy?
A. Yes; naturally—all three banks. Formerly it was
only a tax on the circulation of notes.
Q. What is that tax?
A. One per cent formerly.
Q. On the entire emission?
A. On the productive circulation; that which is not
covered by cash. Notes covered by cash are not taxed.
In 1874 the tax on the circulation was 1 per cent; afterwards it was 1.48 per cent; in 1893 it was again 1 per cent,
and in 1897 the law prescribed that if the three banks reduced the amount of the "immobilizations'' before the
time prescribed by the law, the tax should be reduced from
1 per cent to one-half and afterwards to one-fourth per
cent, and that when the liquidation should be completed

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the tax should be reduced to one-tenth of one per cent.
But from the time the tax on the circulation had been
reduced to one-tenth of one per cent the banks were to
begin to pay their profits to the Government.
Q. In what proportion?
A. One-third of the profits for the state after the 5 per
cent and until 6 per cent are paid to the capital, and onehalf to the state over 6 per cent dividend.
Q. That applies to all the banks?
A. The 5 per cent applies only to the capital of the Bank
of Italy and to the capital and reserve of the banks of
Naples and Sicily. It is an advantageous concession that
was made for the banks of Sicily and Naples because they
have no shareholders.
Q. What is included as cash in speaking of the covering
of the notes?
A. Not less than three-quarters must be in gold. The
banks may include, for the remaining, silver money and
foreign bills payable in gold, treasury bonds of governments having a sound monetary currency, and also certificates of sums deposited in foreign banks of issue, and
banker correspondents of the Italian treasury, up to the
amount of—
11 per cent of the notes of the Bank of Italy, within the normal
limit.
15 per cent for the Bank of Naples, within the normal limit.
15 per cent for the Bank of Sicily, within the normal limit.

Q. Do the banks receive exemption from the circulation
tax for amounts lent to the Government?
A. Yes.
Q. Does the Bank of Italy have a fixed rate of discount
for discounting bills?
A. In Italy there is a special system about that.
Generally, in other countries there is a rate of discount

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fixed for all operations, and in Italy we have a rate of
discount called "official," which is now 5 per cent, and
which is the same for all the banks. It is approved by
the Government and can not be changed without the
approval of the minister of the treasury. We have the
right to discount for intermediary popular banks and
others bills at 1 per cent below the official rate. Then
we have the right to discount first-class bills, at three
months, with two signatures, at a minimum rate of 3 per
cent.
Q. That applies to the three banks?
A. Yes.
Q. Are the rates the same in the banks, say, for prime
bills?
A. Yes; there is a variable scale between the minimum
and the maximum; they can not go below 3 per cent.
Q. But for the same kind of bill, would the rate be the
same in the three banks?
A. Yes.
Q. Is that regulated by agreement?
A. Yes; they agree and communicate with the
minister of the treasury.
Q. They must agree before modifying?
A. Yes.
Q. If the Bank of Italy has a rate to-day for prime bills,
would they let the banks of Sicily and Naples know, in
the same place, of the rate they were charging for those
prime bills?
A. They always agree as to the minimum. They say,
for instance, to-day we will discount for no less than 3 ^
per cent. The minimum is decided by an understanding.
Q. Practically, you only have one bank as regards
discount?

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A. Yes. The regulations of the law are the same for
the three banks and, as I have already said, the cordial
relations existing between them have practically eliminated all the disadvantages arising from a plurality of
banks. As the Bank of Italy is very much larger than
the other two, it is in a position virtually to control the
market.
Q. Does the Bank of Italy often change its rate of
discount ?
A. No, as far as the official rate is concerned, but
often in the case of the reduced rate.
Q. There is a great difference between the Bank of
England and the Bank of France in this respect; does
the Bank of Italy resemble the Bank of France or the
Bank of England.
A. It is between the two. We do not need to follow
strictly a policy of influencing the market as our metallic
reserve is not exposed to exportation as is the case in
England, but we must of course pay attention to the interior conditions of the country, and to the conditions of
the market here and abroad, because the bank according
to its capacity must arrange so as not to find itself in
difficulties and to exercise a moderating influence on the
currency and on the market.
Q. What are the rates for loans on collateral—are
they the same in all the banks?
A. Yes.
Q. Are they higher than the rate of discount?
A. Lower sometimes. In most countries the rate for
loans is higher than the rate for discount, in order to
check speculation; in Italy we have generally the same
rate for discount and loans up to a certain point. Sometimes it is one-half per cent lower for loans, but there is

524

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no risk, as stock operations are very limited in Italy
and are confined to the credit banks and bankers, and
also as the issue banks lend money only on state securities.
In times of stress the rate would of course be suddenly
raised.
Q. Do you pay interest on deposits and does the rate
depend upon whether the accounts are on demand or
on time?
A. Deposits are all practically at sight. We have also
a quite special system of deposits in Italy. Our banks
issue certificates (bons de caisse) good throughout all
Italy and even abroad in making payments; they can
be indorsed like a check. They do not bear interest.
Q. And you have current accounts?
A. They are current accounts on sight, but really
there are no time deposits, practically they are all demand deposits.
Q. Do you have time deposit certificates * (bons a
£cheance fixe) ?
A. No, only in a very limited way. We have a system
of bank management by which the cashier can not enter
the vault without the intervention of a member of the
local council, who is not always there. Every morning
are drawn from the vault the sums necessary for the
usual business of the day. If, for instance, a client in
a small town should come and ask for a comparatively
large sum, if the board were all absent, he would only
get it the next morning.
Q. Does the bank pay any interest upon such deposits?
A. Yes, but not on the "bons de caisse." The bank
pays an interest of one-half per cent on the deposits.
The new law has changed that, about six months ago.
Formerly, the interest was proportionate to one-third of

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the official current rate of discount. The law above
mentioned has established that the rate of interest should
be proportionate to two-thirds of the rate of interest
paid by the postal savings banks; and may amount to
2 per cent.
Q. Who fixes the interest rate of the postal savings
banks?
A. The Government.
Q. Bylaw?
A. By order of the minister of the treasury.
Q. Is it changed sometimes?
A. Yes. The new law, which has proportioned the interest on the banking current accounts to two-thirds of
the interest paid by the postal savings banks, was inspired by the fact that in times of crisis you have a phenomenon that the public never understands—that money
is lacking. The money, however, has not been destroyed;
more money is required for business, but a large quantity
of money is hidden. Therefore issue banks have been
allowed to pay a higher rate of interest in order to draw
in the money from the people who hoarded it, and put it
at the disposal of the market.
Q. The law therefore says now that banks can pay for
deposits a rate of interest which may equal 2 per cent,
but practically the rate of interest paid is not more than
one-half of 1 per cent?
A. Yes.
Q. How much would the bank of Italy pay on deposits
of other banks? Does it pay them a higher interest?
A. No; the same. There are some few exceptions in
favor of charitable institutions. Private banks do not
keep their reserve with the Bank of Italy.

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Q. Private banks, then, keep their own stock of money?
A. Yes; generally.
Q. Does the Bank of Italy rediscount bills of the other
banks?
A. Yes; but that depends upon the conditions prevailing
at the time on the market. It is only when the resources
of the private banks are exhausted and they need money
that they go to the issue banks.
Q. What proportion of its liabilities does the Bank of
Italy hold in cash?
A. There is no law.
Q. But in practice?
A. More than 70 per cent of reserve as compared with
the notes.
Q. Who regulates the amount of notes issued by the
banks of Naples and Sicily? Is there any conference as to
the extent of the issue?
A. No; there are the legal limits of which I have spoken.
Q. In almost every country there is a considerable
fluctuation in the course of every year, which repeats
itself year after year, in the amount of the notes issued.
Is that true of the bank of Italy?
A. Yes. There are very interesting diagrams on this
subject, which I will furnish you, bringing them up to date.
Q. What is the percentage of fluctuation?
A. As the proportion of the cash to the notes increases,
the fluctuation between the minimum and maximum
diminishes, because the paper currency, which is represented by cash, has been gradually growing during the
last years. It is only the currency covered by 40 per
cent of cash which fluctuates in accordance with the
fluctuations of the discounts and loans operations.

527

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Commission

Q. What is the amount of fluctuation to-day?
A. It was once between 400,000,000 and 500,000,000
liras, but now it is less.
Q. How much is it now, approximately?
A. Between 200,000,000 and 250,000,000. In the year
1908 it was only 183,000,000 liras.
Q. That is, about an eighth of the outstanding amount.
A. Yes; about.
Q. About 13 or 14 per cent?
A. Yes; about.
Q. Does anybody in Italy pay bills by checks as in
England or America?
A. This use was very limited, but it is developing,
especially in northern Italy, where the banking institutions are more numerous.
Q. Do you ever pay any of your ordinary bills—market
men, tailor, or grocer—by a check?
A. It is quite unknown. In Italy we sometimes use
the "bons de caisse" (certificates of deposit).
Q. Are they payable to bearer or to order?
A. To order.
Q. But are they made out to a certain name?
A. Yes; and they must be indorsed.
Q. Are they for a fixed sum?
A. For any sum.
Q. Can one deposit money in the bank and get deposit
certificates for different sums?
A. Yes; he can go to the bank and deposit a certain
sum and get deposit certificates of different denominations.
Q. In ordinary transactions would you be likely to
take out deposit certificates from the bank of different
denominations?

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A. Yes.
Q. A manufacturer, for instance, who wanted to pay
his workmen would go to the bank with a list of the
amounts and receive and pay out the certificates instead
of cash?
A. He would do that; but in practice that would be
exceptional. These deposit certificates may also be
used for transmitting money from one place to another.
They are received by other banks of issue and go through
the same clearance system after ten days as checks.
Q. When a business man goes to bank and presents
a bill for discount, what would he receive for that bill?
A. Bank notes.
Q. If he has a current account he could have his current account credited?
A. Yes.
Q. Does he receive sometimes "bons de caissef
A. If he asks for them.
Q. The 40 per cent regulation is also for the "bons
de caisse," as well as for the bank notes?
A. Yes; they are considered as notes.
Q. In practice, how would a man get these "bons de
caisse•?" If he had discounted paper at the bank and
had an account at the bank and had salaries to pay,
he could make out a list, take it to the bank, and get
"bons de caisse" for any denomination that he wanted;
not necessarily decimal amounts, but for 53 francs, for
instance, or 87?
A. He asks for what certificates he likes; any amount,
any kind of certificate. The dividends on the shares
of the bank are paid with "bons de caisse"
Q. Would you use them to pay your tailor?
A. Yes.
60481—10

529

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Monetary

Commission

Q. In practice would you pay your tailor or your grocer
with them?
A. Yes; but the use in such a way is very limited.
These "bons de caisse" are a guaranty against theft or
loss, because'payment can be stopped at the bank.
Q. They are payable to order in the first instance, but
suppose a man gives one to his tailor, does lie indorse it
to the order of his tailor, or does it afterwards become
payable to bearer?
A. Each receiver of the certificate indorses it.
Q. Every man through whose hands it passes signs it,
and when it finally comes into the hands of the bank it
has the indorsements of all. Is that so?
A. Yes.
Q. Is it signed in the first instance by an officer of the
bank?
A. By the manager and the cashier.
Q. Does the Bank of Italy lend money on overdrafts?
A. No.
Q. You have nothing like what they call in Scotland
the "cash credit system?"
A. No.
Q. Is the Bank of Italy a private joint stock bank?
A. Yes.
Q. The state has no interest in it?
A. No.
Q. Does the state appoint any of the officers?
A. No. The general manager and the under general
manager are elected by the board, but must be approved
by the State.
Q. What is the capital of the Bank of Italy?
A. Nominally 240,000,000 liras, of which 180,000,000
liras are paid in. We have an ordinary legal surplus

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I t a l y

which now amounts to 48,000,000 liras, and an extraordinary surplus of 10,000,000 liras.
Q. Have the shareholders of the company any liability
beyond the capital they have paid in?
A. Each share is of 800 liras nominal and 600 paid up.
Q. What class of people own these shares?
A. All classes.
Q. Is there any limitation as to the amount they may
hold?
A. No.
Q. Does every share have a vote in the election of the
managers?
A. No; every shareholder must have 20 shares in order
to have one vote.
Q. And each 20 shares after that equal one vote?
A. Yes, but there is a limit; no one shareholder may
have more than 50 votes.
Q. Are there any large shareholders?
A. Yes; 2,000, 3,000, and 4,000 shares; some credit
establishments possess a large number of shares.
Q. Is there any limitation put upon the transfer of
shares from one person to another? Must it be done with
the consent of the management?
A. No. Only, in cases of dispute, of heritage, the
tribunal must consent to the transfer.
Q. Can you state briefly the form of organization of
the bank?
A. The English and American system have a president
as supreme manager; in Italy it is the general manager
Q. What is the term of his service?
A. There is no term. There is also an under general
manager.
Q. How often are the elections held?

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Commission

A. Only in case of vacancy?
Q. How are the directors elected?
A. The Bank of Italy has n principal branches (sedi),
69 branches (succursali), and 22 agencies. The supeiior
council (board of directors) is composed of 22 members,
18 of which are elected by the local board of each principal
branch among the members elected by the triennial
meeting of the shareholders held in the said principal
branches and four elected by the general annual meeting
of the shareholders held in Rome.
Q. Does the Government exercise any supervision over
or make any examination into the business of the bank.
A. There is a central bureau of inspection at the
ministry of the treasury.
Q. Do they inspect all the banks?
A. All the issue banks.
Q. And how often do they make that inspection?
A. Every three years they make a general inspection;
and now and then they make an inspection of the assets.
And there is also a permanent commission of supervision
of the banks which is composed of senators and deputies
and is like a tribunal. This meets from time to time.
When questions arise between the banks and the treasury,
a report is made and the commission sends this report
to the ministry of the treasury.
Q. Are the banks required by law or practice to make
regular reports of their operations?
A. Every ten days a statement of their condition must
be published. The model of the articles to be mentioned
is given by the Government. Every year the banks make
a report.
Q. For all banks?

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I t a l y

A. For all issue banks.
Q. When does the privilege of the Bank of Italy expire?
A. According to the law it will expire in the year 1923.
Q. That is to say, the bank has a privilege of how many
years?
A. Thirty years.
Q. It is renewed every thirty years?
A. Not as a system. The law of 1893 granted the privilege till 1913; but a later provision of law arranged that
if the bank should have accomplished all the obligations
of the law, especially those regarding the liquidation of
their old immobilization affairs, its privilege will be renewed for another period until 1923, which has just happened. The law of 1907 and of last year have made several
modifications, and this new text I will send you.
Q. In France when the privilege is renewed the Government generally imposes a higher tax, or royalty, and
in Germany similarly the Government exacts more from
the bank at each renewal; is this true of the Bank of
Italy?
A. I must tell you that in principle I prefer the system
of the participation of the state in the profits of the bank
rather than a tax on the circulation of notes. A tax on
the circulation of notes strikes them at the moment when
they leave the bank, and strikes them just as much when
a loss ensues as when the business is profitable. It strikes
the instrument of the work, not the result of the work.
You lend 50,000 francs to a man who does not repay you;
you lose your capital, plus the tax on the notes; this*is
antieconomic and antifiscal. On the contrary, the participation of the state in the profits is more economic, more
honest. In Italy we have the double system; the tax on

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Commission

the circulation now reduced to one-tenth of i per cent
and the participation in the profits.
Q. The Bank of France has been obliged to give 40,000,000 francs to the Credit Agricole. Has anything like
that been exacted from the Bank of Italy?
A. No. The Bank of Italy is obliged to make advances
to the treasury—statutory advances—up to 115,000,000
liras, and the Bank of Sicily up to 10,000,000 liras; but
that only operates when the treasury is in want of money.
As the budget of the state to-day shows a surplus there
is no need for advances from the bank. The advances
to the state bring interest of \% per cent.
Q. There is no permanent debt on the part of the state
to the bank?
A. No; but Italian banks are obliged to have a fixed
amount of state securities "fondi di scorta."
Q. Then the Bank of Italy has never been obliged to
contribute to any other institut on?
A. No, but the bank has contributed with 15,000,000
of its surplus to the constitution of the "Institute italiano
di Credito Fondiario." You will see in the report that I
shall send you why the bank created its own credit fonder,
which is now in liquidation. In prinicple, issue banks
should only discount commercial bills, and not even industrial bills. But sometimes it is found convenient in
practice to discount bills for landowners, but it is always
for four months, not for two, four or five years, etc.
Q. Who in general are the customers of the Bank of
Italy?
A. The customers are of many sorts. They include, for
instance, credit institutions, banks, people's banks, and

534

I n t e r v i e w s

—

Italy

cooperative credit societies, to which we are obliged to
give reduced rate of discount. Any kind of institution
may come to the Bank of Italy to discount its bills.
Q. Has the Bank of Italy any branches in the small
towns?
A. Yes. In all the chief provincial towns. The Bank
of Italy being the financial representative of the state in
the provinces, is obliged to have a branch in order to work
as the treasury. We have branches in the other towns.
We have agencies in many small towns.
Q. What do these agencies do?
A. The agencies can not undertake discounting operations directly, because in the statutes of the bank it is
declared that no commercial bill can be discounted without
the authorization of the discount committee, who decide
by the majority. An agent can not, therefore, have
powers which even the manager of the bank does not
possess. But it was perceived that this hindered the
development of business in some towns, and quite recently
the superior council of the bank approved some modifications by which there will be named "first-class agencies*'
who will have a small discounting committee, which will
be able to undertake discounting operations directly
within certain limits.
Q. In the agencies and small towns, are the customers
composed of small tradespeople, sometimes of peasants?
A. Of industrial people, small tradespeople.
Q. Sometimes even farmers?
A. Yes; agricultural owners.
Q. Very rarely peasants?
A. No; for the bank, under its new system, always tries
to give the preference to commercial bills.

535

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Commission

Q. What is the relation of the Bank of Italy to the
clearing houses?
A. The Bank of Italy conducts the clearing houses in
Rome, Florence, Genoa, and Milan. The Bank of Italy,
by delegation of the chambers of commerce of Rome,
Genoa, Florence, and Milan, has the direction of the
clearing houses.
Q. Is the clearing house in the building of the bank, as
it is in the Reichsbank at Berlin?
A. Yes. In Rome, it is in an agency quite near the
stock exchange; in Milan, it is in the bank building; in
Florence and Genoa also. It happens that every day
institutions want to borrow money for their balance
sheets, etc., for one day, two days, three days, or for the
settlement, and the bank lends for this purpose, specially
on bonds. It would be well for me to add that we have
just tried a system of "stock current accounts" and
stock clearings. Customers who have securities, such as
bankers, brokers, etc., deposit them at the bank at a
special counter called the "dossiers,'' then with an order
they transfer the shares and securities. In settling
accounts, shares are thus transferred from deposit of one
person to that of another.
Q. It is perhaps rather like the Kassenverein of Berlin.
Can you describe for us a little more specifically the
system of "compte courant de litres" (share current
accounts) and the method of clearing stocks at the bank?
A. The Bank of Italy created three years ago this
special service called "service des dossiers," or "stock
current accounts.'' This service is attached to and
works as an addition to the clearing houses of Rome,
Milan, and Genoa, where it is not yet fully organized.

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These three, with the Florence branch, form the four
clearing houses, managed by the Bank of Italy by delegation from the chambers of commerce of the said towns.
All shares quoted at the stock exchange are received in
the portfolio of each customer and the transfer from one
portfolio to another is done by order (check). This
system has not been largely developed in Italy, on
account of the undeveloped condition of the Italian stock
market; but I think it would be very useful, especially
in a country where there is much movement in shares,
such as the United States.
Q. Did the bank have much to do with the ending
of the "cours force" and the reestablishment of the
exchange at par?
A. I will write of that in the report I am to send you.
You will find many remarkable things in that report.
In 1893 we had a circulation of notes of 650 million
liras of the Bank of Italy, and exchange reached the
maximum of 16 per cent; whereas now we have
1,300,000,000 in circulation and exchange at par. That
means that the qualitative theory has triumphed over the
quantitative theory. We have now a larger as well as
a healthier currency.
Q. We should also like to have some information
regarding banks in general in Italy. Are there credit
establishments with numerous branches?
A. There are 160 credit societies, the larger of which
are the following:
Liras.

Banca Commerciale Italiana, paid-up capital
Credito Italiano, paid-up capital
Banco di Roma, paid-up capital
Societa Bancaria Italiana, paid-up capital

537

105,000,000
75,000,000
70, 000,000
40,000,000

National

Monetary

Commission

Q. Do they have many branches?
A. The Banca Commerciale has 31 branches; the
Credito Italiano, 17; The Banco di Roma, 25, of which
5 are in foreign countries; the Societa Bancaria, 11.
Q. Is their business like that of the Credit Lyonnais?
Do they discount bills, make advances, etc. ?
A. They discount bills, arid they also make loans
and contango operations; they interest themselves in
industrial matters, somewhat as the German banks do.
In 1907 the relative merits of the French and German
systems were discussed; the French banks conduct
many financial operations for the state, the provinces,
etc., but they have fewer industrial operations. I t
was discussed whether banks receiving deposits should
take part in industrial financing.
Q. Your Italian banks are more like the German banks?
A. Yes. In 1905 some of the banks pushed their
participation in industrial affairs perhaps too far, but
since the crisis they have considerably reduced that
sort of business and now the situation of these banks is
very satisfactory.
Q. Were there serious failures at the time of the crisis?
A. There was a serious panic. As regards bankruptcies, the Societa Bancaria was in great difficulty; but
Mr. Stringher, the general manager of the Bank of Italy,
used his personal influence and his great authority, and
he succeeded in having the bank reconstructed and
new capital paid in, and now the Societa Bancaria is in
excellent condition.
Q. Does the credit foncier still exist?
A. The credit foncier of the banks of issue was put
into liquidation by the law of 1893.

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Q. Naturally it takes a long time for a mortgage bank
to terminate its affairs?
A. Yes.
Q. Are there no banks to-day which lend on mortgage?
A. Yes; private banks, and private savings banks,
and also other institutions, as the "Opere pie di 5. Paolo/'
11
Monte dei Paschi di Siena.11
Q. But no joint stock companies?
A. There is the Credit Fondiario Italiano, with a paidup capital of 40,000,000 liras.
Q. Does it do its business in the country or in town?
A. In town and in country.
Q. But in the country what banks have you?
A. Agricultural credit has not yet been organically
developed; there are small institutions which give agricultural credit, such as the Monte dei Paschi, and the
Bank of Sicily, which does agricultural credit business,
but there are no big institutions for agricultural credit.
There are more than 1,300 small cooperative societies
which are interesting themselves in agricultural credit.
Q. The popular banks are different, are they not?
A. Yes, in principle, but some of them also extend
credit to agriculture. There are some very big popular
banks, for instance, the popular banks of Milan and of
Cremona, which have become great institutions.
Q. Have they branches?
A. Yes, in some cases. The Popular Bank of Cremona
has 7 branches.
Q. When was your postal savings bank system organized?
A. It was created by the law of May 27, 1875.
Q. How are the deposits of the postal savings bank
invested?

539

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Monetary

Commission

A. The deposits are paid into the state bureau of
deposits and loans, Cassa dei depositi e prestiti, and are
invested for one half in state securities, and for the
other in loans to the provinces and municipalities in accordance with the law.
Q. What is the amount of these deposits? And the
number of depositors?
A. The amount up to date is nearly 1,500,000,000
liras, and the number of depositors is more than 5,000,000.
Q. Has the system worked satisfactorily?
A. Yes.

54®

Abstract of the balance sheet of the Bank of Italy for October JI, ioog.
[Nominal capital, 240,000,000 lire; paid-in capital, 180,000 lire.]
ASSETS.
Gold
_
Silver
Various cash items

Total cash
Domestic bills of exchange
Foreign bills of exchange
Loans
Deposits in Italian banks
Deposits in foreign banks
Due from shareholders
Real estate
Funds set apart for the liquidation of the Banca
Romana
Permanent fund of the Credito Fondinario
Advances to the Association for the Improvement of the Health of Naples
Debts of banks, firms, and individuals
Miscellaneous items
Total

Liras.

LIABILITIES.

Capital stock
1
Surplus
Extraordinary surplus fund
Notes in circulation:
W i t h a reserve of 40 per
1.059,487,514.64
cent lire
651,504,895.43
447,910,091.38 j
69,507,253.89 i
With metaiic reserve u p
103,954,092.86
to the full amount
825,5 75,104. 5 7
947.059,879.58
1 0 2 , 5 1 1 , 1 4 0 . 50
9,916,49456

170,349,041.65
26,647,476.00
32,985,48563
60, 000, 000. 00
21,699,925.19 j
8 0 , 4 5 1 , 5 1 2 . 02
3 0 , 0 0 0 , 0 0 0 . 00

Demand liabilities .
_ _ _ „ . . . ^ JJ .
Ordinary deposits
Interest-bearing deposits __ __
Sums held for account of the State and of the
provinclai governments
Miscellaneous items

Liras.
2 4 0 , 0 0 0 , 0 0 0 . 00
48,000,000.00
10,000,000.00

1, 4 7 7 , 0 8 0 , 0 0 0 . 0 0
1 2 4 , 1 1 7 , 0 9 4 . 29
6 0 , 8 5 1 , 4 8 1 . 28
6,661,835.36
203,349,270.63
54,187.36991

38,442,706.12
46,447,135.05
36,364,817.04
2,224, 247,051.47

Jfi

Total

2, 2 2 4 , 2 4 7 , 0 5 1 . 47

Full text of Interviews on the Banking and Currency Systems of England, Scotland, France, Germany, Switzerland, and Italy

FRASER