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61ST CONGRBSSI

2d Session

)

CTTIMATI?

/DOCUMENT

biiJNAlh,

No. 508

NATIONAL MONETARY COMMISSION

Miscellaneous Articles
on

German Banking

Washington : Government Printing Office : 1910

NATIONAL MONETARY COMMISSION.
NELSON W. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chatrman.
J U L I U S C. BURROWS, Michigan.
E U G E N E H A L E , Maine.
PHILANDER C. K N O X , Pennsylvania.
THEODORE E . BURTON, Ohio.
J O H N W. D A N I E L , Virginia.
H E N R Y M. T E L L E R , Colorado.
HERNANDO D. MONEY, Mississippi.
J O S E P H W. BAILEY, Texas.

J E S S E OVERSTREET, Indiana.
J O H N W. W E E K S , Massachusetts.
ROBERT W. BONYNGE, Colorado.
SYLVESTER C. SMITH, California.
LEMUEL P . PADGETT, Tennessee.
GEORGE F . BURGESS, Texas.
ARSENE P . P U J O , Louisiana.
ARTHUR B . SHELTON, Secretary.

A. PIATT ANDREW, Special Assistant to Commission.

TABLE OF CONTENTS.
Page.
I. T H E STATISTICAL HISTORY OF THE GERMAN BANKING S Y S -

TEM, I888-1907. By Robert Franz, editor of Der Deutsche Oekonomist, Berlin:
1. General section—
(a) Introduction
.—
(b) General sketch of bank and credit organization in Germany
2. Statistical section—
(a) General remarks regarding the basis and the
scope of the statistical data
(b) The note-issuing banks
(c) The credit banks
(d) The land-mortgage banks
(e) The "Landschaften" (land credit associations)

7
13

45
50
69
102
112

I I . T H E ORGANIZATION OF CREDIT AND BANKING ARRANGEMENTS

IN GERMANY. By Geh. Oberfinanzrat Waldemar Mueller,
director of the Dresdner Bank, Berlin
III.

117

T H E METHOD OF PAYMENT BY MEANS OF BANK-ACCOUNT
TRANSFERS AND THE U S E OF CHECKS IN GERMANY.

Max Wittner and Siegfried Wolff:
1. The recent development of the mechanism of payments in the Empire
2. The giro system in Germany—
(a) The giro business of the Reichsbank
(b) The Reichsbank and the public treasuries
(c) Giro business of the private banks of issue
3. The German post-check system
4. Clearing houses in the German Empire
(a) Clearings in connection with mortgage banks _
(b) Bank des Berliner Kassenvereins
(c) The Frankfurter Bank
5. Industrial and agricultural cooperative societies
6. Public savings banks
7. Concerning the use of checks in Germany
(a) The use of checks in connection with the
public treasuries
(b) Giro union of the Saxon communes

171
177
198
206
213
227
231
232
237
238
244
247
266
270

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Page.

IV. DIRECTORS' F E E S I N GERMANY.

By Dr. Carl Melchior

V. T H E LAND MORTGAGE ASSOCIATIONS (LANDSCHAFTEN).

273
By

Dr. J. Hermes:
(a) Introduction
(6) Review of the existing Landschaften
(c) Legal nature and external organization of the Landschaften—Privileges
(d) Principles of agricultural credit, especially mortgages and their funding—General guaranty
(e) Amount and kind of security afforded, liability to
recall, amortization, etc
(/) Loans on peasant properties
(g) Subsidiary businesses of t h e Landschaft—Fire insurance and loan banks
(h) The Central Landschaft
(i) Results and further purposes
(/) The private land credit unions
VI.

AGRICULTURAL

IMPROVEMENT

RENTENBANKEN).

BANKS

291
295
300
305
306
307
309
322

(LANDESKULTUR-

By Dr. J. Hermes:

1. Principles of legislation
2. The organization of the Landeskultur-rentenbanken in
detail
3. Results and criticism of the Landeskultur-rentenbanken
VII.

287
290

T H E GERMAN SAVINGS BANKS.

325
329
335

By Dr. Seidel:

1. The origin and historical development of savings b a n k s .
2. The conception, purpose, and legal nature of savings
banks
3. The deposit of money of wards and minors (Mundelgeldern) in savings banks
4. Private savings banks
5. Economic and socio-political significance of savings
banks
6. Savings banks and insurance
7. Practical arrangements (Einrichtung) of savings banks
8. The legal nature of the savings-bank books and other
legal considerations in respect to the savings-bank
business
„
V I I I . T H E HISTORY OF SAVINGS BANKS

I N GERMANY.

341
349
359
364
367
369
378

391

Breslauer

405

I X . T H E STATE AND COMMUNAL SAVINGS B A N K LEGISLATION O F

R E C E N T TIMES.

By Dr. Robert Schachner

X. T H E PREUSSISCHE-CENTRAL-GENOSSENSCHAFTS-KASSE,

417
OR

PRUSSIAN CENTRAL B A N K FOR COOPERATIVE SOCIETIES.

By C. Heiligenstadt

429
4

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Banking
Page.

XI.

COOPERATIVE

CREDIT

SOCIETIES

(RAIFFEISENSCHE

DAR-

LEHNSKASSENVEREINE). By Hans Criiger:
(a) Definition
(b) History
(c) Purpose and object of the Raiffeisen banks
(d) Central banks and the formation of federations
(e) Secession from Neuwied
(/) Other Neuwied institutions
(g) First reforms
(h) Fusion with the Imperial Federation—Additional
reforms in the Neuwied Federation
(i) Crisis in the central loan bank
(/) The societies in relation to the Prussian Central
Bank for Cooperative Societies
(k) The clergy and the Neuwied banks
(/) Schulze-Delitzsch and Raiffeisen
XII.

SPECIAL LOAN BANKS (DARLEHNSKASSEN).

453
456
460
462
463

By W. Lotz:

(a) Object of the loan banks
(b) Establishment of loan banks in 1848, 1866, and 1870.
(c) Lessons for the future

441
443
447
447
449
450
451

467
468
475

THE STATISTICAL HISTORY OF THE
GERMAN BANKING SYSTEM:
1888-1907.
By Robert Franz, editor of Der Deutsche Oekonomist, Berlin.

(i) GENERAL SECTION.
(a) INTRODUCTION.

One of the characteristic features of the recent economic
development of the world is the leading part taken byGerman industry and trade. Products of German labor
are found nowadays on all the leading highways of world
commerce. But even the younger German generation
finds it difficult to realize that the present economic status
of Germany is for the greater part the result of a development which has taken place during the comparatively
short period of two decades. Except for temporary
depressions, such as are observed in the economic life of
all countries, the line of development during the period
mentioned has been a vigorously ascending one. This is
true particularly of the last decade, during which German
economic activity has made extraordinary strides on the
road of progressive development.
A detailed account of the causes and results of this
progress would exceed the compass of the present study.
But the growth of German banking is so closely and
organically interwoven with the general economic development of the nation at large that a brief sketch of this
general development, made somewhat more plastic by the
presentation of certain characteristic statistical data,
would seem to be in place.

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Monetary

Commission

The war of 1870-71 had at last brought to Germany the
political and economic union for which she had longed and
labored for decades. The German name had all at once
become honored and respected among the nations of the
world. This change may be said to have given the first
powerful impetus to German enterprise. The new movement was favored by the act of June 10, 1870, which
abrogated the former obligation of obtaining a state concession for the forming of stock companies and limited
liability corporations. The new law greatly facilitated
the consolidation of capital. The flower which it brought
forth was, however, short-lived. The period of splendor,
known in the pages of German economic history as " Granderjahre n (bubble era), ended finally in a severe crisis
and a long-continued depression.
The manifestations of unbridled enterprise and excesses
of speculation were followed by a period of utmost depression and loss of all spirit of enterprise. The psychological
factor of confidence, which must always be present in order
to put economic forces into action, was missing. Such
forces existed, on the one hand, in the natural resources of
the country (treasures of the soil, etc.), and, on the other,
in the living force of a rapidly increasing population.
Particularly for the latter, however, there was little employment, and every year—as will be seen from the emigration statistics—Germany yielded of its best stock to the
growing economic regions abroad, and particularly large
numbers to North America.
German transoceanic emigration during the years of
1872 to 1888 was as follows:

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Banking

Total.

1872

125,650
103,638

1873

To the
United
States.
119,780
96, 641
42,492

1874

45.112

1875

30,773

1876

28,368

1877

21,964

18,240

1878

20,373
30,808

1880

24,217
33.327
106,190

1881

210,547

103,115
206,189

1882

193.869

189.373

1883

166,119

1884

143,586

1885

107,238

159.894
139,339
102,224

1886

79.875
99.712

75.591
95.976

103.951

94.364

1879

1887

27.834
22,767

The large increase of emigration in 1880, almost all of
which was to North America, was probably for the greater
part due to the vigorous economic growth of the United
States, characteristic of those years, particularly to the
energetic extension of the railroad systems which caused
an increasing demand for workmen. This stimulation of
the spirit of enterprise spread from America over the
entire civilized world. In Germany the movement received a special impetus through the railroad nationalization started by Prussia. This raised hopes for a speedy
extension of the railroad system and a prospective larger
demand for the products of the mining and iron industries.
Another factor working in the same direction was the
revision of the customs tariff, undertaken in 1879 and
based upon financial and economic considerations. The
policy of free trade was abandoned and replaced by
industrial and agricultural protective duties. Important

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branches of industry expected that the change of tariff
would prove an effective protection against foreign competition, which had made itself more and more felt owing
to better and more extensive transportation facilities.
Memories of the "bubble era" and of the bad consequences of the excesses of that time were sufficiently vivid,
however, to restrain most people. And as at that time
Germany's participation in the world trade was not very
large, she was not greatly affected by the international
stock exchange crisis which had its origin in the so-called
"Bontoux failure" at the Paris Bourse. The general
economic improvement which had started in 1875 continued slowly until 1888, and it was only about that time
that increased activity became evident.
In the field of economic legislation, besides the new
customs tariff act of 1879, the act of 1884 concerning
stock shares should be mentioned. The impetus for this
legislative reform is to be found in the numerous abuses
and fraudulent practices connected with the system of
stock issues during the "Griinder" era.
While the necessity of reforms was generally conceded,
some apprehension was felt among numerous industrial
classes, that the new law for the regulation of stock issues
might completely stifle the spirit of enterprise in the country. This apprehension, however, proved entirely groundless. The act left sufficient scope for free and unfettered
combinations of individual enterprise and capital, in the
shape of stock companies. Thus it may be briefly mentioned that the number of stock companies annually
formed increased from 70 with a capital of 53,000,000
marks in 1885, to 113 with a capital of 103,000,000 in 1886,

Miscellaneous Articles on German

Banking

to 168 with acapital of 128,000,000 in 1887, to 184 with a
capital of 194,000,000 in 1888, and to 360 with a capital of
403,000,000 marks in 1889.
The year 1888 marks for Germany the beginning of a
vigorous development in all fields of industrial endeavor.
And it is for this reason that the present statistical study
of the development of German banking commences with
that year. Before entering upon the subject proper, a
brief review of the general economic development of Germany, as expressed in a few striking figures, taken from
official sources, may not be out of place.
The population in Germany increased from about
47,000,000 in 1888 to 63,000,000 in 1907.
Oversea emigration between the years 1888 to 1907
shows the following figures:
Total.

1890
1891
1892
1893
1894
189s
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907

103,951
96,070
97,103
120,089
u6,339
87,677
40,964
37,498
33,824
24,631
22,221

24,323
22,309
22,073
32,098
36,310
27.984
28,075
3I.074
31,096

To the
United
States.
94.364
84,424
89,765
113,046
i n , 806
78,249
35.902
32,503
29,007
20,346
18,563
19,805
19,703
19,912
29,211
33.646
26,085
26,005
29,226
30,431

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Monetary

Commission

The statistics of the various trade associations (created
by the Workmen's Insurance legislation) show a relatively
larger increase of the number of industrial wage-earners
than of the general population. The amount of horsepower represented by steam engines increased 128.3 P e r
cent between 1895 and 1907. To this total must be added
the amount represented by the other motive forces—gas,
electricity, and water—which have been developed considerably, particularly during the last ten years. The result
has been an important increase in the power of production. German foreign trade (special trade) amounted
in 1889 to 7,343,500,000 marks; in 1907 to 15,597,600,000
marks. The figures prior to 1889 are not fairly comparable
with those of the following years, as in 1888 Hamburg and
Bremen joined the German Customs Union.
The production of coal in the year 1888 was 63,390,000
tons, in 1907, 143,220,000 tons, the production of lignite
in the year 1888 was 16,570,000 tons, in 1907, 62,420,000
tons. The production of pig iron amounted in 1888 to
4,180,000 tons, in 1907 to 13,050,000 tons.
The consumption of coal per capita for 1888 was 1.24
tons, and for 1907, 2.21 tons; of lignite for 1888, 0.456
ton, and for 1907, 1.15 tons; of pig iron for 1888, 96.53
kilograms, and for 1907, 197 kilograms; of copper for 1889,
0.96 kilogram, and for 1907, 2.42 kilograms; of lead for
1889, 1.58 kilograms, and for 1907, 3.02 kilograms; of zinc
for 1889, 1.71 kilograms, and for 1907, 2.82 kilograms; of
tin for 1889, 0.18 kilogram, and for 1907, 0.25 kilogram.
The German railroad system expanded from approximately 40,000 kilometers of line in 1888 to approximately

Miscellaneous Articles on German

Banking

56,200 kilometers of line in 1907. The number of tons
of freight carried one kilometer on the German railroads
increased in the same period from 20 to 48 billions. The
tonnage of seagoing vessels arriving with cargo at German
ports increased from 10,430,000 to 23,570,000 tons. The
combined market value of securities, both domestic and
foreign, issued on German exchanges and placed in Germany, between the years 1888 and 1907, represents a total
of 37,323 million marks. It should be stated in this connection that the total value of foreign securities placed in
Germany is estimated approximately, the exact figures not
being available.
The few figures given above illustrate the tremendous
economic expansion of Germany during the twenty year
period 1888-1907. They demonstrate a considerable increase and extensive circulation of capital. This movement of capital naturally passes through the banks and is
brought about by them. As collectors and distributors of
capital, the banks are, so to speak, the focal point of
economic life. And if Hobson's saying, "The whole
industrial movement might be regarded from the financial
or monetary point of view" (Evolution of Modern Capitalism, p. 7), is correct in general, it is particularly so for
Germany, as will be seen from the subsequent discussion
of the German credit banks.
(6) GENERAL SKETCH OF BANK AND CREDIT ORGANIZATION
IN GERMANY.
The present study deals with three kinds of credit institutions—the note banks (banks of issue), the credit banks,
and the land credit institutions (mortgage banks and land

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Monetary

Commission

mortgage associations). This division gives at the same
time a general idea of the credit system in Germany.
The present organization of the note-bank system is
based on the bank act of March 14, 1875, and the supplement to this act of June 7, 1899. Even previous to the
founding of the German Empire the greater part of Germany had become united commercially through the formation of the Customs Union (Zollvereiri). Similar further
movements toward union, however, had met with but
little success in the domain of currency and with none
whatever in that of banking. In the newly founded German Empire seven different monetary systems were in
existence, and as all German States, with the exception of
the free city of Bremen, were on a silver basis, there was
above all a great want of a well regulated and adequate
circulation of gold coin. The prevalence of paper circulation was felt in the most annoying manner.
Thirty-two banks had the right to issue notes, and in
the absence of adequate legislation, it was found on
many occasions that the notes issued were not sufficiently secured.
The first step which the Government took to improve
these conditions was the act of December 4, 1871, concerning the coining of imperial gold pieces. The coinage act
of July 9,1873, which proclaimed the gold standard for the
Empire, formally completed the organization of the German currency system. It was recognized more and more
that, in order to give effect to the gold standard, which
for the time being existed merely on paper, and in order
to regulate and supervise the entire currency circula-

Miscellaneous Articles on German

Banking

tion, the establishment of a central bank was an absolute
necessity. This consideration finally led to the establishment of the German Reichsbank, which came into being on
January i, 1876, absorbing at the same time the Bank of
Prussia (note bank).
The bank act of March 14, 1875, realized the principle
of the central bank as far as it could be reconciled with
the rights of the existing 32 private note banks. For it
must constantly be borne in mind that the German
Empire is not a unitary state, but a mere federation of
states, and it is because of this federal character of the
Empire that every institution newly created by the
Imperial Government always had and still has to take
into account conditions and institutions as they exist in
the different federated states.
The predominance of the Reichsbank over the private
note banks was secured through its considerably larger
capital, further through the volume of its tax-free note
contingent, which exceeded considerably the amount of
all the other contingents, and which subsequently was
to increase still more through the accretion of the contingents of the note banks which might renounce their
rights of issue.
The note circulation is subject to the limitations of the
so-called indirect contingent. It must not exceed three
times the cash reserve (bullion and specie, imperial treasury notes). Within this limit the issue of notes is not
restricted. A note tax of 5 per cent per annum must,
however, be paid to the Imperial Treasury on that part
of the note circulation which exceeds the amount of cash

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Monetary

Commission

reserve (bullion and specie, imperial treasury notes, and
notes of other banks) plus the tax-free note contingent.
The tax-free note contingent of all the note banks
amounted at first to 385,000,000 marks, 250,000,000
marks of which was the share of the Reichsbank. The
tendency, which had existed from the beginning, to centralize the note issues more and more in the Reichsbank,
was furthered in a great measure by the provision which
authorized the Bank to establish branches all over the
Empire. This authority was implied by the fact that it
had absorbed the Bank of Prussia, with its branches. All
the Reichsbank had to do was to further extend the network of branches in proportion to the increasing volume of
business of the Bank and to the growing industrial development of the various parts of the country (the operations
of the Bank of Prussia had naturally been restricted to
Prussia).
As far as its legal organization is concerned, the Reichsbank is neither a government institution proper, nor a
mere private corporation. The capital, divided into
shares, has been furnished by private individuals, and the
shares are dealt in on the exchange; they circulate
indorsed in blank; the Reichsbank acknowledges only
those as share owners whose names are registered on its
books. The shareholders, however, have no influence
whatever on the management and administration of the
Reichsbank. The Reichsbank is under the supervision and
direction of the Imperial Government, which, however, is
not liable for its business results. The direction is exercised by the Imperial Chancellor and under him by the

Miscellaneous Articles on German

Banking

Reichsbank directorate. The governmental supervision is
exercised by a bank curatorium, composed of the Imperial
Chancellor and four other members, one of whom is
named by the Emperor and three by the federal council.
The Reichsbank directorate is the managing and executive
board, representing also the Reichsbank in dealings with
third parties. The president is the head of the directorate.
The president, the vice-president, and the members of
the directorate are appointed by the Emperor upon the
recommendation of the Federal Council. The shareholders are represented by the central committee, which is,
however, essentially an advisory rather than a decreeing
board. At the principal branches of the Reichsbank
advisory subcommittees have been formed, composed of
local shareholders. The Empire participates in the profits
of the Reichsbank.
In order to make possible amendments which might be
found advisable in the course of development, the bank
act of March 14,1875, had reserved to the Empire the privilege of either liquidating the Reichsbank—the first date
being January 1, 1891, and after that every ten years, with
one year's notice—or of acquiring the total issue of shares of
the Reichsbank at their nominal value plus their participation in half of the reserve fund.
At the expiration of the first period of fifteen years
the Empire deemed it sufficient to demand a larger share
in the net profits of the Reichsbank. January 1, 1901, was
the second term at which the privilege of the Reichsbank
might have been withdrawn. Neither at that time did the
Government deem it advisable to make fundamental
77267—10

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Monetary

Commission

changes in the charter of the Reichsbank. The combination of private capital and state management was found to
work so well that the Government offered decided opposition to all efforts toward nationalizing the Reichsbank
through the acquisition of the share capital by the Empire.
But in view of the experiences of the past decade and the
progressive economic development of the country it was
deemed advisable to strengthen the given structure by
increasing the operating funds of the Bank and to devise
means of rendering more effective its discount policy as
against that of the private banks of issue.
Accordingly the principal provisions of the supplemental
bank act of June 7, 1899, are as follows: The capital of
the Reichsbank is increased from 120,000,000 marks to
180,000,000 marks. Of the total profits 3% per cent
is first paid over to the shareholders; 20 per cent of the
remainder is then transferred to the reserve fund as long
as the latter has not reached the amount of 60,000,000
marks; of the remainder one-fourth goes to the shareholders and three-fourths to the Empire. In case the
profits do not amount to full 3 K per cent on the capital,
the deficit has to be made up out of the reserve fund. °
The tax-free note contingent of the Reichsbank, including the contingents of other note banks which had
a According to the act of 1875 a dividend of 4 K per cent was paid the
shareholders before any other allotment was made, then 20 per cent was
to be carried to the reserve fund so long as this fund was less than onefourth of the capital; of the remainder one-half went to the shareholders
and one-half to the Empire, so long as the total dividend of the shareholders
did not exceed 8 per cent; of the excess the shareholders received onefourth, the Empire three-fourths. The supplemental act of December 18,
1889, left the mode of distribution essentially unaltered, but simply changed
the above rate from 8 per cent to 6 per cent.

Miscellaneous Articles on German

Banking

meanwhile accrued to it, is increased to 450,000,000 marks,
while the total contingent of all the note banks then in
existence is raised to 541,600,000 marks. Beginning with
January 1, 1901, the Reichsbank must not discount below
its official rate whenever this rate has reached or exceeded
4 per cent.
Beginning with this date the private note banks are
not permitted to discount below the official rate of the
Reichsbank whenever the same has reached or exceeded
4 per cent. Moreover, their rate must not be more than
one-fourth of 1 per cent below that of the Reichsbank
whenever this rate is less than 4 per cent. In case the
Reichsbank discounts at a rate below its official rate, at
a so-called "private rate," the rates of the private note
banks must not be more than one-eighth of 1 per cent
below that rate. In case a private note bank acts contrary
to this provision, its privilege of issuing notes may be
withdrawn by judgment of the court. ,
These are the most important provisions of the supplemental bank act of 1899. As stated above, their main
purport is to increase the power of action of the Reichsbank and to strengthen its position as a central note bank,
especially in the field of discount operations and discount
policy.
With the year 1910 another decade is about to expire
and the questions of the renewal of the privilege and of
an eventual amendment of the bank act are again discussed and to be decided. Owing to the extraordinary
money stringency during 1907, which various circles
attributed directly to defects in the German monetary

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Monetary

Commission

system and bank organization, these questions aroused
great public interest. In view of this general interest the
Government on its part as early as the spring of 1908
instituted an extensive bank inquiry, which covered also
certain parts of the credit bank system.
The commission of inquiry, composed of 23 members,
heard experts from among the legislative bodies, industry
commerce, agriculture, and scientific specialists, and is to
digest and analyze the facts gathered during the inquiry.
It has recently terminated its labors, but has not yet formulated its conclusions. It is left to the Government
and the legislative bodies (Bundesrath and Reichstag) to
utilize the results of this inquiry.
The Government, however, emphasized from the start
that it would not indorse any radical changes of the German monetary and banking system, nor of the fundamental organization of the Reichsbank, an institution
which during its existence has rendered effective economic
service to the country. The new bank bill, which has
recently been presented to the Reichstag, is in accord
with this general idea. It appears, therefore, that, just as
in 1899, the task is one of perfecting the structure on its
old foundation, in order to maintain the maximum
standard of efficiency of the bank. For it goes without
saying that in order to keep up with the growing financial
and economic requirements, an institution of such preeminent economic importance as the Reichsbank must
continue to be capable of development and improvement.
The Reichsbank forms one of the principal supports of
the German credit system and of German economic life at

Miscellaneous Articles on German

Banking

large. In this capacity it has proved its value repeatedly,
especially in the period of great depression at the beginning
of the century. The collapse of a number of larger banks
which until then had enjoyed a good reputation caused a
profound shaking of confidence and threatened to precipitate a severe credit crisis. Such a crisis would have
involved disastrous consequences for the entire business
life of the country had not the Reichsbank at that time
supported the tottering confidence by a liberal though at
the same time prudent extension of credit.
According to the bank act the Reichsbank's primary
function is to regulate the money circulation throughout
the Empire, to facilitate settlements, and to provide for
the employment of available capital. In particular the
bank act defines the sphere of operation of the Reichsbank
as follows:
i. To purchase and sell gold and silver in bullion and
coins.
2. To discount, buy, and sell bills of exchange, running
for not more than three months and bearing as a rule three
signatures, but in no case less than two names of persons
of well-known solvency. Furthermore, to discount, buy,
and sell bonds of the Empire, of any German State or
German municipal corporation, maturing at their face
value within three months at the longest.
3. To grant interest-bearing loans for terms not longer
than three months on transferable security (Lombard
business), such as
(a) gold and silver, coined and uncoined; (b) interestbearing bonds and other certificates of indebtedness,

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made out to bearer by the Empire, German States, or
German municipal corporations,, and maturing within
a maximum term of one year; interest-bearing bonds
and other certificates of indebtedness made out to
bearer, on which interest is guaranteed by the Empire or
by any of the Fede&ted States; fully paid-up stocks,
common and preferred, and fir§t-mortgage bonds of German railway companies in actual operation; also mortgage
bonds'of provincial, municipal, and other German land
credit institutions subject to State control, or of German
land mortgage banks, to an amount not exceeding threefourths of their market value; bonds of said institutions or
banks made out to three bearers and issued by reason
of loans to German municipal corporations or against
acceptance of a guaranty by such corporations.
(c) Interest-bearing bonds made out to bearer by nonGerman States, as well as foreign railroad prior-lien bonds
guaranteed by the Government, in amounts not exceeding
50 per cent of their market value.
(d) Bills of exchange bearing the signatures of parties
of recognized solvency, after deducting at least 5 per cent
of their market value.
(e) On pledges of merchandise stored within the country,
in amounts not exceeding two-thirds of its value.
A. To buy and sell debentures of the kind designated
in section 3 (6); the business regulations for the Reichsbank directorate to prescribe to what extent the funds
of the Bank may be invested in such paper.
5. To undertake collections for the account of private
individuals, employees, and official bodies, and upon prior

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security to make payments and to issue drafts on or transfers to its branches or correspondents on their account.
6. To purchase for outside account securities of all kinds
and bullion, after proper security has been given, and to
sell the same again after delivery to the parties has been
effected.
7. To receive for deposit and on transfer account {im
Giro-Verkehr) moneys, which are or are not interest
bearing; the total amount of interest-bearing deposits
must not exceed that of the capital and surplus of the
Bank.
8. To accept valuables in account and trust.
With regard to the private note banks the bank act
ordains that they may use their funds only for the transactions mentioned in sections 1 to 4, and as regards transactions mentioned in section 4 only to an amount not
exceeding half the amount of their capital and surplus.
At the end of 1907 the Reichsbank had established in
the German Empire, outside of the central office in Berlin, a total of 497 branches (Reichsbank main branches,
Reichsbank branches, and Reichsbank sub-branches).
At the end of 1907 the books of the Reichsbank showed
18,616 shareholders. Of these 16,553 were German citizens, with 88,441 shares, and 2,063 foreigners, with 11,589
shares, in denominations of 3,000 marks each.
Legislation has not occupied itself much with the organization and field of operations of the credit banks, also
called security banks (Effektenbankeri), speculative banks
(Spekulationsbanken), or flotation banks (Emissionsbanken). Repeated efforts to obtain legislative regulation

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of the credit banks have caused some public discussion,
but so far have met with no success.
The close relation of the so-called regular banking business to that of the floating of enterprises, the trading in
and the issue of shares is typical of the organization of the
German credit-bank system.
It is not my purpose to present an analysis of the structure and functions of the German credit banks, nor does
space permit to attempt even a fairly complete sketch
of the history of their development. What I propose
is merely to indicate the general outlines of the credit
organization and to emphasize those points of view
which are necessary for the proper understanding of the
statistical part.
Although the above-mentioned combination of the
business of floating enterprises, the issuing of and trading in securities is a common feature of this type of
banks, and most pronounced in the case of the large
credit banks (the so-called "Grossbanken"), neither their
field of operations nor their business policy shows the same
uniform character as is shown by the banks of issue.
As a matter of fact, the various institutions show considerable variations in this regard, though it would be
altogether impossible to point out these differences in
detail in the present short sketch.
The business of industrial financing and stock issuing
had been made part of the program of the oldest Grossbanken, founded as early as the middle of the nineteenth
century. The model for these institutions was the Paris
Credit Mobilier, founded by Pereire Brothers, and it is

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with good reason that the German institutions founded
during those years are designated in banking literature as
creations of the credit mobilier system. These adaptations, however, can not be regarded as mere arbitrary transfers of the French system, but originated in answer to the
real demands of German economic development.
The development of the railroad system beginning
about the middle of last century, which caused a considerable demand for and circulation of capital, and the greater
extension of state credit, induced the banks to turn to the
flotation and issue business.
The period following the founding of the German Empire, as mentioned before, witnessed a vigorous development of German industry, especially of the mining and
(beginning with the nineties) of the electrical industries,
which required a continuous inflow of new capital. At
the same time German foreign commerce, particularly with
oversea countries, kept on steadily increasing. Under
such conditions the economic policy of the banks of placing the funds entrusted to them at the service of the
new development must be regarded as perfectly proper.
The banks furthered this development by forming stock
companies, granting long-term credit, assuming shares and
bonds, placing the new industrials on the stock market
and selling them to the public. There is no doubt that
but for their policy of furthering the industries, the economic development of Germany would have taken considerably longer than has been the case.
It is true that the larger part of the increase in capital
is the result of industrial production. But normally the

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fresh increments of capital can be turned into industrial
channels as reinvestments only through the medium of
the banks.
This is particularly so in case of a capitalistic organization of society, in which the joint-stock corporate form
of enterprise predominates.
The placing of capital in industrial investments proceeds as a rule as follows: The bank extends a certain
amount of credit to the industrial corporation, which is
used by the latter successively in proportion as its enterprise develops. Such " investment" credit, owing to its
very nature and purpose, can not be refunded within a
short time. It is granted from the start with a view to
being converted into capital of the industrial corporation
(through the increase of capital stock) or into long-term
amortization credit (through bond issues). In order to
repay its debt to the bank the industrial corporation issues
new stock or bonds. The bank must for the time being
take over the additional new securities by changing the
'' book-credit'' into'' issue-credit.'' This, however, enables
it to shift the risk, assumed by the granting of the original
credit, to the wider spheres of the investing public, and to
recover, above all, the invested capital. Only in this manner can the bank retain its power of action, and it must
be admitted that as a general rule the German banks have
operated in this regard with great skill and circumspection, so that they were able both to meet their own obligations and to satisfy the demands for short-term working credit.
In order to obtain the means for granting industrial
credit and to dispose of the enormous amounts of newly

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created industrial securities, it was and is necessary to
attract in as large a measure as possible the surplus funds
of the community available for capital investments.
For this purpose the joint-stock banks spread a network
of deposit branches, destined to serve as reservoirs for the
inflow of available funds, and at the same time as distributors for the industrial securities created. With the
same end in view the large Berlin banks, either through
the acquisition or exchange of stock (for permanent
investment), entered into friendly alliances with the provincial banks.
This latter development, representing a centralization
of capital, though not of operation, is to be regarded as
part of the general process of centralization applying to
industry as a whole. It was particularly strong during
the last decade, but seems to have abated somewhat
during the last years.
The banking industry more than any other possesses
the elements of concentration, since it operates practically without technical tools, is not bound to certain
localities, and does not require expensive plants.
The concentration in the German banking system, the
growth of the large joint-stock banks, and the extension
of their sphere of interest by means of branches and
deposit branches, and by their alliances with mediumsized and small banks in the provinces, was furthered
by certain extraneous circumstances.
One of these was the stock exchange act of June 22,
1896, which, by restricting trading in options, secured
considerable advantages to the strong, large banks at the

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expense of the weaker banks or private banking firms.
It is probable' that this development received its first
powerful impetus as early as 1891. At that time several
private banking houses failed and these failures revealed,
in a number of cases, the wrongful conversion of deposits.
This caused deep commotion among wide circles. Public
interest became aroused on the subject of bank deposits,
and the amendment of the existing civil, criminal, and
economic legislation was undertaken. The result was the
bank deposit act of July 5, 1896. This did not, however,
completely allay the suspicion once aroused, and the
disastrous experience with small private bankers helped to
no small extent to turn the confidence of the public more
and more to the large joint-stock banks, which offer a
much greater security for the money and securities
entrusted to them.
The most important factor, however, was the fact of the
simultaneous ca'pitalistic evolution of industry proper,
which necessitated a parallel development in the banking
field. It goes without saying that this evolution, considered in its entirety, can not be ascribed to chance or
the arbitrary action of individuals, but is largely the
result of economic forces.
Operation on a large scale is not only best fitted for
the so-called "heavy" industries (i. e., mining and the
production of partially manufactured materials from
the products of mines), but becomes a prerequisite for
the economical management of these industries. Careful
investigation has proved that in mining, for instance,
the tendency of diminishing returns is concomitant with

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increased cost of operation, since the increasing depth of
the shafts requires an increasingly large capital, and the
spread of mining in a region raises both prices of land
and wages of labor. But this tendency of diminishing
returns is counteracted and even turned into the opposite
direction by technical improvements made possible by
the progressive concentration of capital.
Technical and economic reasons were the cause which
in the first instance led to the amalgamation of coal and
iron works, particularly during the last years, and these
same factors tend more and more to bring about the
establishment of great consolidated works combining the
production of the raw material with that of the halffinished and manufactured articles. This development
would not be possible at all, or would meet with great
difficulties, without a corresponding organization of the
money and credit markets, i. e., without strong banks
which are in a position to carry through the necessary
financial transactions.
Developments of industry and banking showed the
same tendency and mutually influenced each other to a
large extent. It can not be said that the banks created
the industries, since the funds which are gathered by the
banks in increasing volume are mainly the result of the
increasing productivity of capital invested in industrial
undertakings. It is true however that the creative power
which in a comparatively short time placed German industry in its present commanding position took its origin
with the men who put to practical use and in the interest
of economic progress of the nation the achievements and
inventions in the domain of science and technique.

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It is the undisputed merit of the persons at the head
of the banks that they appreciated those endeavors and
supported them by advancing the requisite capital,
oftentimes incurring great risks for the banks. The
entire development was, moreover, vigorously furthered
by a commercial and tariff policy favorable to industry,
though it must be said that this policy was abandoned
to a certain extent with the new customs tariff of 1902,
the revision of the tariff and the renewal of our commercial treaties having been undertaken and carried out
under the motto " Greater tariff protection for agriculture."
It is almost self-evident that the banks, which in carrying out their policy of furthering industry had often to
assume considerable risks, have tried to secure, and in
a large measure have succeeded in securing, a lasting and
decisive control over industrial corporations.
This decisive influence of the banks on the industries
reaches further than the mere possession of shares of
industrial undertakings would warrant, as it is an easy
matter for the banks to procure for stock-holders' meetings proxies of the shares which their customers have
deposited with them. The result is that in many cases,
the banks appear to wield a controlling power over the
industrial corporations. The close relationship between
the banks and industries finds expression also in the
filling of places on the supervisory boards of directors.
As members of the boards of directors of industrial corporations the bank directors are at all times in a position
to guard the interests of the banks, particularly by super-

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Banking

vising the systematic and rational employment of the
credit granted by the bank to the corporation.
On the other hand, in order to create and maintain
friendly relations between the banks and industrial corporations, the directors of the latter are given places on
the supervisory boards of the banks.
Such a condition of affairs may not reveal itself statistically to outsiders, but there can be no doubt that the bond
between the bank and the industrial undertaking is thus
made closer than by the mere stock control of the bank,
which in most cases is not very large.
The progressive industrialization of Germany and the
large increase of its population caused on the one hand
increasing imports of industrial and auxiliary materials
as well as of foodstuffs, and on the other steadily growing
exports of industrial products. As a result Germany's
share in the world's commerce shows a rapid growth.
Until the seventies of the last century the financial regulation of German foreign oversea trade had been almost
exclusively in the hands of London banks. The establishment in 1870 of the Deutsche Bank at Berlin meant a
turning point in this regard. The Bank in its charter
adopted the following program: " I t is the purpose of
the corporation to do a general banking business, particularly to further and facilitate commercial relations
between Germany, the other European countries, and oversea markets." The founders of the Deutsche Bank had
recognized that there existed in the organization of the
German banking and credit system a gap which had to be
filled in order to render German foreign trade independent

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of the English intermediary, and to secure for German
commerce a firm position in the international market. It
was rather difficult to carry out this program during the
early years, the more so, because Germany at that time
had no gold standard and bills of exchange made out in
various kinds of currency were neither known nor liked in
the international market. The introduction of the gold
standard in Germany in 1873 did away with these difficulties, and by establishing branches at the central points
of German oversea trade (Bremen and Hamburg) and by
opening an agency in London the Deutsche Bank succeeded in vigorously furthering its program. Very much
later the other Berlin joint-stock banks, especially the
Disconto Gesellschaft and the Dresdner Bank, followed
the example of the Deutsche Bank, and during the last
years particularly the Berlin joint-stock banks have
shown great energy in extending the sphere of their
interests abroad.
As regards the organization of the oversea business,
the only foreign place where the banks have established
agencies (apart from the branches in the German export
cities, Bremen and Hamburg) is London. Agencies
which the Deutsche Bank had established in Shanghai and
Yokohama in the early seventies had soon to be liquidated
by reason of considerable losses in exchange due to the
depreciation of silver. For the express purpose of promoting foreign trade, the banks established subsidiary
banks with the main offices in Germany (Berlin and Hamburg); these banks in their turn established agencies in
oversea countries. The entire or almost the entire capital

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stock of these subsidiary banks is in the possession of the
parent banks. The Berlin joint-stock banks, moreover,
have become permanently interested in foreign banks and
banking houses; they have also founded transportation,
mining, and industrial enterprises whose sphere of activity
is mostly abroad, and in which they acquired a permanent
interest by taking over part of the capital stock.
The above account of the organization of the German
credit-bank system, though somewhat sketchy in character, demonstrates, however, with sufficient clearness that
the managers of the German credit banks, and particularly
of the leading Berlin banks, have made constant and
successful endeavors to place the banks in the service of
German trade and industry and to accommodate the
organization of the credit system to the variable and
growing demands of national economic development.
There can be no doubt that they have had a large share
in raising German commerce and industry to its present
world-wide commanding position.
It is thought that the above brief sketch of the organization and operations of the joint stock credit banks
has shown with sufficient clearness among which classes
of the population and in which vocations are found the
persons who apply for credit and whose demands for
credit are met by the above-named institutions. Among
the customers of the credit banks figure chiefly members
of the commercial and industrial classes, who obtain from
these banks both their long and short term credit, and
in the second place holders of medium-sized and large
agricultural property, who apply to them for short-term
77267—10

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"operation''
credit. The credit demands of the members of the small-farm class and of the small independent
producers are generally met by the cooperative credit
societies.
The development of the system of cooperative societies
has made great progress during the last decade. At the
end of 1906 there existed in Germany 15,602 cooperative credit societies (Kreditgenossenschaften), which
represented an extensive credit organization, with numerous unions and associative centers. These centers are:
Die Preussische Central-Genossenschaftskasse, in Berlin;
die Landwirtschaftliche Genossenschaftsbank, in Darmstadt; die Landwirtschaftliche Central-Darlehnskasse, in
Neuwied; and der Allgemeine Verband der SchultzeDelitz'schen Genossenschaften, for which the Dresdner
Bank, after absorption of the Deutsche Genossenschaftsbank, acts as central office. In order to illustrate
the volume of business and of credit operations transacted
through the cooperative societies, it may be mentioned
that the 5,685 cooperative societies which were allied
with the Prussian Central-Genossenschaftskasse had,
at the end of 1906, funds of their own to the amount
of 54,000,000 marks and deposits to the amount of
758,000,000 marks which were available for credit transactions, and that 1,016 Schultze-Delitzsch societies at
the close of 1906 had a membership of 598,314, a combined capital of 273,000,000 marks, and 983,000,000
marks of deposits; together 1,256,000,000 marks, of which
1,056,000,000 marks were loaned to members.
It is only through the medium of the central offices
mentioned that the classes of the population united in

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the societies are able to come into business contact with
the centers of the money and capital market. There
can be no doubt that the cooperative credit societies
have been of great benefit to these classes.
As regards the credit on landed property there is hardly
a country with an organization as perfect as Germany.
The beginning of this organization dates back about one
hundred and thirty years. The Prussian State had
emerged from the storms of the Seven Years' war (17561763) as a recognized European power, but the sacrifices
of the years of war had completely exhausted the country.
The indebtedness of the landed gentry in Prussia had
grown considerably, because payment of the old debts
had been deferred for years past and every landed proprietor had, under the pressure of conditions, used the
maximum of credit that it was possible for him to obtain.
The debt burden had become even more pressing by
reason of usurious exploitation of the plight of the
debtors.
As the landed nobility was then the principal support
of the State and was so regarded by the Government, it
became a matter of public interest to relieve the financial
distress of the landed proprietors by enabling them to
pay off systematically their mortgage debts.
The efforts in this direction, in which the Prussian
King, Frederick the Great, personally took an active
part, led to the creation of the land-mortgage associations
(Landschaften), which must be considered the first important step toward the organization of land credit.
The provincial (landschaftliche) and landed proprietors'
(ritterschaftliche) credit institutions, generally known by

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the short term "Landschaften," are associations endowed with the rights of a corporation and operating
under state control. Their boards of directors have the
attributes of official authority. They are autonomous
institutions within the limits set by the state supervision.
The general features of their organization are practically
identical.
As regards the basis of the land credit, it follows from
the very cooperative conception that each member of the
land-credit association is entitled to obtain credit within
the limits fixed by the charter. At first these associations were composed exclusively of members of the landed
nobility. In the beginning of the nineteenth century, however, when, among other numerous constitutional changes,
the feudal dependence of the peasantry was abolished
and they were enabled to acquire land in fee simple, the
"Landschaften" gradually extended their operations so
as to include the small peasant holdings or they organized
for this purpose separate credit institutions (so-called
"Neue Landschaften").
The Landschaften obtain the funds for the granting of
credit through the issue of letters of mortgage or mortgage
bonds—i. e., as a rule, the borrowers receive the loan in
the shape of mortgage bonds of the association, and it is
left to them to negotiate these bonds on the stock exchange. At first the letters of mortgage were made out
on a certain estate (estate debentures). But as the purchaser of such letters of mortgage was forced to keep
watch over the condition and management of the mortgaged estate—even though the association itself main-

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tained permanent control of the debtor—the sphere of
circulation and the ease with which these bonds could
be sold were naturally limited.
It was only when the issue of corporate mortgage bonds
was started, the security of which was guaranteed either
by the entire mortgage claims of the association or the
collective responsibility of their members, and when these
bonds were given a large market through their admission
to exchange transactions, that the highest degree of
mobilization was reached.
The mortgage bonds are secured in the first place by the
mortgage claims of the association, furthermore by the
association funds proper as well as the guaranty or reserve
funds, and the amortization funds or the equivalent book
credits in favor of the debtors. In the case of the older
associations the joint guarantee of the members is added,
whose estates are jointly liable for claims against the
association. In eastern and western Prussia, Silesia,
and Pomerania all estates on which association mortgages
may be obtained are jointly liable, no matter whether they
are mortgaged or not. In Silesia the joint liability extends, moreover, to the state domains, and in eastern Prussia to the state domains and forests. Wherever the joint
liability is not found, a substitute has been created through
the forming of special guaranty funds. At any rate the
land association mortgage bonds are considered first-class
investment securities, which finds expression in the fact
that they may be used for the investment of trust funds.
The land-mortgage associations deserve this public confidence. During a period of more than one hundred

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and thirty years the cooperative land-credit system has
rendered effective service under very difficult conditions,
proving of great benefit to the agricultural classes.
The progress of industrialism in Germany during the
last three decades of the last century caused a steadily
growing influx of population into the industrial centers.
Only the cities profited by the steady increase in population. The growing demand for dwellings was accompanied by a rapid rise in value of city grounds; hence the
necessary construction of dwellings required larger amounts
of capital than were at the disposal of the individual
builders.
It was mainly to meet the needs of credit on urban real
estate that mortgage banks (Hypothekenbanken) were
created, and thus a special organization of city real estate
credit was formed. The greater number of the mortgage
banks now in existence was founded during the decade
1862 to 1872; practically all the others were founded during
the building boom of 1894-1896. Most of the mortgage
banks cater exclusively to the demand for real estate
credit; some others combine this specialty with other lines
of banking.
While the land-mortgage associations are based on the
principle of cooperation and do not pursue a profit-making
policy, the mortgage banks have been founded as jointstock companies. The capital stock serves as working
capital as well as guaranty fund.
Bonds are issued against acquired mortgages and
secured by the latter. Almost all these banks issue their
bonds to bearer, a privilege granted them by the State;

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only two small institutions, which have not been granted
this privilege, issue bonds in the name of individuals
which are transferable by blank indorsement. The bonds
of the mortgage banks are known legally as " mortgage
bonds" {Hypothekenpfandbrieje), in contradistinction to
the bonds issued by the land-mortgage associations.
Inasmuch as the bonds are held in many cases by small
investors, the State, in order to protect the interests of
these bondholders, from the very beginning secured to
itself the right of control, limiting at the same time the
field of operation of these banks by certain legal enactments and regulations.
No fault can be found with this policy, as a matter of
principle. In the first decades, however, the development
of the mortgage banks (particularly in Prussia) was greatly
hampered by legal restrictions and was forced in a certain
direction with disastrous consequences which were to be
felt for a long time to come.
In order to illustrate these legal provisions, it may be
mentioned that until 1894 the Prussian mortgage banks,
in appraising a piece of ground upon which a loan was to
be granted, were bound to take as a basis the valuation for
the land tax. This valuation in turn was based on the
rentals during a period dating back ten to fifteen years,
being consequently much too low. On the other hand, in
the case erf new buildings, the valuation could be influenced
by the credit-seeking landlord through exaggerated statements regarding the rentals.
In the old quarters of a town, where values were stable,
the Prussian banks subject to restrictive state regulation

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could not, therefore, compete with other mortgage banks
not subject to such regulations, whereas their loans in the
outlying districts, where most of the new buildings were
going up, were of necessity too high.
In spite of every effort the mortgage banks subject to
the Prussian restrictive provisions were unable to develop
in the measure they might have without the fetters of
official loan limitations or as was expected by the shareholders, bondholders, and the credit-seeking property
owners. The defects of this system caused the failure of a
number of these institutions even as late at 1901.
Toward the end of 1893 the old restrictive provisions
were at last abolished and replaced by new ones. The
general effect of these new provisions was a much stricter
regulation of the operations of the mortgage banks and
a greater limitation of their field of activity. In spite
of all this, the new provisions were much to be preferred to the former, for they comply with the practical
results of mortgage-bank operations. The greatest improvement, however, over the older state of affairs was
that the regulations provide a rational basis for the main
function of the mortgage banks, i. e., that of ascertaining
the value of and securing loans on real estate, instead of
compelling them as formerly to use in a purely mechanical manner the oftentimes untrustworthy valuations of
the tax authorities.
As the increasing economic importance of the mortgage banks came to be recognized and appreciated, it was
found that most of the German Federal States had not
issued general enactments for the business operations of
banks of that type and that the only regulations were

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those contained in the charters of the individual banks.
The imperial mortgage bank act of July 13, 1899, created
accordingly a uniform legal basis for the business of the
mortgage banks. Only the supervision of the mortgage
banks was left to the various Federal States. In Prussia
the highest supervisory office is the Ministry of Agriculture, Domains, and Forestry, and the actual supervision
is exercised by bank inspectors, who continuously control
the business affairs of the Prussian mortgage banks and
report to the Minister of Agriculture. In the other German Federal States government control is exercised by a
government commissioner appointed for each bank.
These government commissioners, however, exercise their
control as a secondary office only, whereas the bank inspectors' chief function is that of bank control.
The imperial mortgage-bank act of July 13, 1899,
debars the ordinary commercial partnerships, limited
partnerships, limited liability companies, incorporated
cooperative societies, and individuals from doing a mortgage-bank business, or from issuing mortgage bonds.
Stock companies and limited joint-stock companies "en
commandite" may engage in this business only with the
sanction of the federal council. In case the charter of a
mortgage bank provides that mortgage loans shall be
granted only within the confines of the Federal State where
the bank is located, the granting of the charter is left to
the authorities of the respective Federal State. Besides
the granting of mortgage loans and the issue of mortgage
bonds the business of the mortgage banks is limited to
the following transactions:
1. The acquisition, transfer, and grant of mortgage loans.

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2. The granting of loans without hypothecary security
to public corporations within the country, or to third
persons in cases where the loan is fully guaranteed by such
corporation; also the issue of bonds based on such claims.
3. The granting of loans to domestic railroad enterprises of local interest (Kleinbahnunternehmungen) against
hypothecation of the railroad, and the issue of bonds
based on the claims thus acquired.
4. The purchase and sale on commission of securities,
with the exception of "futures" (Zeitgeschdfte).
5. The acceptance for deposit of money or other objects,
with the provision, however, that the total amount of
the funds deposited must not exceed one-half of the
paid-in capital.
6. The collection of bills, drafts, and similar paper.
Those mortgage banks which, before the promulgation
of the bank act, had been engaged in other lines of banking were permitted to retain this privilege. The mortgage banks may issue mortgage bonds up to fifteen times
the combined amount of the paid-in capital and surplus.
The latter is to serve exclusively to secure losses shown
in the balance sheet or the claims of bondholders. Inasmuch as the issue of these bonds by the various banks
prior to the bank act had been based upon various other
principles, the actual ratio between capital stock and
mortgage-bond circulation differs for each bank.
The total amount of the circulating mortgage bonds
must always be secured up to its nominal value through
mortgages of at least equal amount and bearing at least an
equal rate of interest. Loans may be made only on prop-

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erties within the country and, as a rule, only in the shape
of first mortgages. Loans must not exceed three-fifths of
the value of the property.
For loaning purposes the carefully ascertained market
value of the property is taken. In ascertaining this
value only the lasting qualities of the property are to be
considered and the continuous revenue which the property is likely to yield to any owner under management of
ordinary care. As regards mortgages on building sites
and unfinished buildings which yield no revenue, it is
provided that their combined amount must not exceed
one-tenth of the total amount of mortgages on which
bonds have been issued nor one-half of the paid-in capital.
Moreover, mortgages on properties which do not yield a
permanent revenue, particularly on pits and quarries,
are excluded from being used as security for mortgage
bonds.
The mortgages destined as security for the mortgage
bonds must be separately recorded by the bank in a register. Every mortgage bank has a trustee. The trustee
(as a rule a higher government official) must see to it that
the prescribed security for mortgage debentures is always
on hand; but in so doing it is not his province to inquire
whether the accepted value conforms to the actual value
of the property, provided only that the value of the property offered for mortgage has been determined in the manner sanctioned by the supervising authorities. Every
mortgage bond when issued must bear his certificate that
it is properly secured and that the prescribed entry on the
register has been made of the underlying mortgage or

National

Monetary

Commission

mortgages. He has also the custody of the documents
pertaining to the registered mortgages. In certain cases
he may accept and register as additional security valuable
paper other than mortgages. In case of failure of a mortgage bank, the bondholders have a prior lien upon the
mortgages and other valuable paper recorded in the
register.
The mortgage-bank act of the year 1899 regulated
the mortgage-bank system in a way that may well be considered exemplary. While leaving sufficient freedom to
the mortgage banks in the discharge of their important
economic task of meeting the demand for real-estate
credit, it also affords adequate protection to the holders
of the mortgage bonds. The result has been that confidence in the security of the mortgage bonds has become
more general and deep-rooted, so that mortgage bonds
are generally considered first-class investment securities,
as may be seen from their exchange quotations.
The failure in 1901 of a few mortgage banks was in the
last instance due to defects which could be traced back to
the old Prussian restrictive provisions. The confidence of
the public in mortgage bonds has not been shaken thereby.
The organization of real-estate credit in Germany, on the
whole, may be considered completed. It litis proved its
value and has made possible the achievement of important
economic tasks. Next to the above-mentioned real-estate
credit institutions (mortgage banks and land-mortgage
associations) the savings banks and the insurance companies play an important role in the field of real-estate
credit; moreover, the loans on mortgages granted by pri-

Miscellaneous Articles on German

Banking

vate capitalists are by no means inconsiderable. The
latter alone are estimated at 20 to 25 billion marks.
The amounts in question are mostly entered as second
liens after the mortgages in favor of land-mortgage
associations, mortgage banks, savings banks, and insurance companies, since almost all of the institutions named
make it a condition to have a prior lien and do not, as a rule,
grant loans in excess of 60 per cent of the property value.
Among the assets of the insurance companies mortgages represent by far the larger share. About 80 per
cent of the premium reserves of these companies are
invested in mortgages.
(2) STATISTICAL SECTION.
(o) GENERAL REMARKS REGARDING THE BASIS AND THE
SCOPE OF THE STATISTICAL DATA.

The statistical tables a illustrating the development of
the German banks during the last twenty years are based
on the annual reports, as well as on the balance sheets
and the profit-and-loss accounts of the institutions in
question. With the exception of the land-mortgage
associations, whose legal constitution has been explained
above, the banks considered are with a few exceptions
stock corporations.
According to the provision of the Commercial Code the
board of directors of a stock company must, within three
months, submit to the supervisory council a balance
a The detailed tables referred to in the text are included in the volume
of "Statistics for Great Britain, Germany, and France" published by the
Commission. See especially "Statistics for Germany," Part II, Tables
13-22.

National

Monetary

Commission

sheet for the year past, also a statement of profits and
losses, and a report showing the conditions of the funds
and the general state of affairs of the institution. These
documents accompanied by the written remarks of the
council are then submitted at the stockholders' meeting
within the same period. The charter of the company
may state another term, but in no case must this term
exceed six months.
In the preparation of the balance sheet, the following
general provisions have to be observed: Securities and
merchandise having an exchange or market price must
not be listed above their exchange or market price prevailing at the time the balance sheet is made up; in case this
price exceeds the cost they must not be listed above this
cost.
Other assets may be valued at prices not higher than
the cost of purchase or manufacture. Plants and other
objects not destined for sale, but which are to be employed
permanently for the operation of the businesss of the
company, may be listed at cost of purchase or production
regardless of diminution in value, provided an equivalent
amount is deducted for depreciation or charged to the
renewal fund. A reserve fund must be created in order
to cover any possible losses shown in the balance sheet.
This reserve fund is made up of the following items:
i. An annual amount equal at least to one-twentieth
of the annual net profits as long as the reserve fund
does not exceed the tenth part of the capital or whatever
higher proportion has been provided in the charter of the
company.

Miscellaneous Articles on German

Banking

2. The premiums realized on the occasion of the foundation of the company or of the increase of its capital through
the issue of stock at a price or prices in excess of the combined nominal value of said stock and the expense involved
in such issue.
3. The amount of additional payments contributed by
shareholders without increasing the capital—for the
granting of preference rights to their shares, unless these
payments are to be used for extraordinary sinking funds
or to cover unusual losses.
After approval by the stockholders' meeting the balance sheet, as well as the statement of the profit-and-loss
account, must be published by the board in the periodicals
mentioned in the charter of the company. This duty of
publishing their reports devolves both on joint-stock
companies as well as on limited liability companies doing
a banking business. The limited liability companies, however, as well as the small joint-stock banks, fulfil these
duties very often in a very unsatisfactory manner, the
more so because the fines for the violation of the above
rule are but slight. They do not publish annual reports
proper, and very often even omit the required publication
in the prescribed newspapers of the balance sheets and the
profit-and-loss statements.
Although considerable effort has been made to make
the present study as complete as possible and every care
has been taken to procure the required material, it is
yet possible that, particularly for the more remote years,
some smaller institutions may have been omitted. These

National

Monetary

Commission

omissions hardly affect, however, the general outline, as
the institutions in question are but small and unimportant.
The corporate banks with a capital of 1,000,000 marks
and over have all been treated in the statistics for the
last twenty years, and beginning with 1895 all, even the
smallest, joint-stock banks are included. The statistics
for the issue banks, as well as for the mortgage banks,
are also complete for the full period. 0
The tables present a statistical view of the development during the last twenty years of German banking
in the form of joint-stock companies and limited liability
companies. The compilation covers a wider scope than
has ever before been attempted in Germany, although it
does not include data regarding the business of private
banking firms. The number of these firms for the country
as a whole is still considerable (about 6,000), notwithstanding their continuous absorption by the joint-stock
banks. There are only a few whose importance approximates that of a fair-sized joint-stock bank, and perhaps
only two old Berlin banking houses (Mendelsohn & Co.
and S. Bleichroeder & Co.) that have been able to retain
a large clientele and which may be placed alongside
the large joint-stock banks, particularly in the field
of large financial and issue operations. The public is
absolutely uninformed as to the amount of capital invested in these banking houses, as no reports have ever
a At this point I desire to acknowledge the valuable assistance rendered by the economic department of the Deutsche Bank, particularly
by its head, Doctor Fuchs, through the loan of voluminous older data,
which it would have been very difficult and in some cases impossible to
procure elsewhere. The detailed tabfes are to be found in the "Statistics
for Germany." See especially P a r t I I , Tables 13-22.

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Banking

been published by them. This general reference to the
existence of private banking houses and to their decreasing importance as compared with that of the joint-stock
banks must therefore suffice; a statistical presentation is
not possible.
Finally, it must be mentioned that there are in existence a few communal and government banking institutions which have not been included in these statistics.
The municipal and provincial banking institutions serve
primarily the credit needs of their respective public corporations by underwriting and issuing their loans; they
also devote themselves (as the Landesbank of the Rhine
Province and the I^andesbank of the Province of Westphalia) to land-credit operations in the interest of the
agricultural population of their territories.
More important is the so-called Royal Maritime Trading
Company (Konigliche Seehandlung), a state institution
with a capital of 100,000,000 marks. About 4,500,000
marks of its capital is invested in industrial establishments, flour mills, linen weaving, and a loan office. Its
principal activity, however, is in the field of underwriting,
notably of state, imperial, and communal loans. Its
special task is to regulate the exchange quotations of the
Prussian state loans and of the imperial loans. The
oftentimes considerable amounts entrusted to it by the
Prussian and imperial financial administrations as well
as by other public bodies are as a rule used by the Bank
for private discount business or for term-loan operations
(Reportgeschdft).

77267—10

National

Monetary

Commission

(b) THE NOTE-ISSUING BANKS.
As may be seen from the tables the number of the
German note-issuing banks decreased from seventeen to
five in the period from 1888 to 1905, since which date the
number remained unchanged. The centralization of the
note-issue system may be considered at present almost
completed. This is in accord with the tendency which
has been consistently pursued since the establishment of
the Reichsbank. Immediately after the promulgation of
the bank act twelve private note banks relinquished the
right to issue notes. The tax-free note contingent of
these banks amounted to a total of 21,589,000 marks.
Pursuant to the provisions of the bank act the taxfree note contingent of the Reichsbank was on January 1, 1876, increased by this amount from 250,000,000
to 271,589,000 marks. Through the surrender of the
issue privilege of thirteen more private note banks the
contingent of the Reichsbank increased to 293,400,000
marks by January 1, 1894. The supplementary bank
act of July 7, 1899, increased the contingent of the Reichsbank to 450,000,000 marks, and following the surrender of
the note issue privilege by three additional private note
banks the tax-free contingent of the Reichsbank increased to 472,829,000 marks by the end of 1905.
Besides the Reichsbank, there are at present the Bank
of Baden, the Note Bank of Bavaria, the Bank of Saxony,
and the Note Bank of Wtirttemberg, whose combined taxfree note contingents amount to a total of 68,771,000
marks. Only the Bank of Saxony and the Note Bank

Miscellaneous Articles on German

Banking

of Bavaria are of any importance, as they were able to
maintain an extensive sphere of activity in the varied
and intensive economic life of their regions. It is not
likely that these institutions will renounce the right of
note issue within the near future, or that at the pending
revision of the bank act the note privilege will be withdrawn from the private note banks still in existence.
The issuing of notes is the most important debit business of the note banks. As has been stated above, the
issue of notes is subject to the limitations of the so-called
"indirect contingent," i. e., the note circulation which
exceeds the tax-free note contingent is taxed at the
rate of 5 per cent per annum. At least one-third of the
amount of notes issued must be secured by current
German metallic money, imperial treasury notes, and
gold in bars or foreign coins. The purpose of these
provisions is to compel the banks to maintain a sound
ratio between cash reserves and note circulation, to prevent an excessive increase of unsecured notes and to
insure the redemption of the notes. This same purpose
is pursued by the provision that the part of the note
circulation which exceeds the cash reserve must be
secured by discounted bills maturing in not more than
three months and for which as a rule three, but not less
than two parties of known solvency stand sponsors.
As may be seen from the tables below, the note circulation of all note banks, particularly of the Reichsbank, has
steadily increased, while the cash reserves, and, as a
result, the proportion of the cash reserves to note circu-

National

Mon etary

Commission

lation, have been subject to large fluctuations. This
proportion for the last twenty years was as follows:
PROPORTION

O F CASH R E S E R V E S TO N O T E CIRCULATION, I888-1907.

Other note
banks.

Reichsbank.

Close of y e a r —

Per cent.
80. 1

1888.
1889.
1890.
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907

83 0
76

74 4

Per cent.
53- 2
55- 1
58.5
58.4
58.4
55-0

57- 1
56. 2
52. 6
55-6
58.4
53-5
52.8
56.0
56. 2
57.o
54-3
51.7
So. 6

4i . 2

53-5

This percentage, while fairly constant in the case of the
other note banks, shows a downward tendency for the
Reichsbank. For the latest years this ratio has been even
lower for the Reichsbank than for the other banks of
issue. This phenomenon is due to the fact that it is only
the Reichsbank which maintains an intimate connection
with the entire economic development of the nation by
meeting both the currency demands for domestic use as
well as the requirements for the settlement of international obligations.

Miscellaneous Articles on German

Banking

The metallic reserves, which represent the greater part
of the cash reserves, were composed as follows:
COMPOSITION

O P METALLIC R E S E R V E S

OP REICHSBANK,

I£

-1907.

[In thousands of marks.]

Silver, nickel, and
copper.

Gold.

Yearly
average.

1889
1890
1891
1892
1893
1894
189s
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906,
1907.

Yearly
average.

608,281
584.433
5i9,101
589,841
615.942
526,531
619,609
704.559
602,009
59i.6oi
583,288
572,826
57o,732
664,070
725,462
650,796
682,202
745.277
674, 734
633,831

67-3
67.1
64.8
66.0
65
62
66
69
67
67
68
69
69.8
72.9
73-9
71.9
73-9
76.6
75-7
75- 2

295,122
287,159
281,918
303,948
326, 132
315,192
314,719
307,204
289,979
279,849
267,650
252,654
246,405
247,341
256,740
254.151
244,467
227,682
210,231
209,509

32.7
32.9
35-2
34-o
34-6
37-4
33- 7
30.4
32.5
32.1
31.5
30.6
30. 2
27.1
26. 1
28. 1
26. 4
23-4
24.3
24.8

Per cent
share of
silver
thalers
alone in
the entire
metallic
reserves.

24.3
24. 6
26. 4
25-3
24.8
26. 9
23-7
2i-5
22. 9
22.8
22. 2
21. 1
20. 2
16. 4
13-4
18.4
16. o
9-6
6.7
2.3

The gold reserve proper, as well as the total cash reserves,
have naturally been subject to very large fluctuations, but
the proportion of gold to the entire metallic reserve has
increased. Until 1905 the metallic reserve (gold excluded)
consisted largely of silver thalers which were legal tender
to the same extent as gold. But beginning with September 30, 1908, these coins have been withdrawn from
circulation. Of late 3-mark silver pieces have been

National

Monetary

Commission

coined, which are, however, mere subsidiary coins, like
the other silver coins, and as such may be tendered in
payment only to the amount of 20 marks.
When the Reichsbank was established, not quite half
of the German money circulation consisted of gold, the
standard metal. Accordingly, the Bank had to assist
in the general reform of the German currency. Its principal aim had to be to attract from abroad and to put
into circulation the largest practicable quantities of gold.
It has always been the Reichsbank's policy to satiate
the channels of circulation with gold as much as possible,
with the result that the per capita gold circulation in
Germany is much larger than in any other country.
It should be mentioned, however, in this connection
that according to the findings of the bank commission a
large quantity of German gold coins is melted every year
for use in the arts. Only in recent years, owing in some
degree to the money stringency, the contrary tendency
has been noted. By issuing bank notes of small denominations (50 and 20 marks) the Reichsbank is endeavoring
to draw gold from domestic circulation into its treasury
in order to increase its efficiency, since, as mentioned
repeatedly, it may issue notes to an amount triple the
amount of its gold reserve.
Gold imports from abroad are regulated by the balance
of international payments and the prevailing exchange
rate as its expression. The most important and, in the
last instance, only efficient means which the Reichsbank
has of encouraging gold imports and discouraging gold
exports is its discount policy. Furthermore, it facili-

Miscellaneous Articles on German

Banking

tates gold imports by interest-free advances to gold
importers.
The notes which are not secured by cash form the elastic
portion of the currency circulation, and the changes and
fluctuations of that part of the note circulation which is
not secured by cash reflect best the fluctuating demands
of currency made upon the note banks. The following
table shows the change in the note circulation of the
Reichsbank which is not secured by cash:
UNCOVERED N O T E CIRCULATION OF R E I C H S B A N K , 1888-1907.
[In t h o u s a n d s of marks.]

Year.

Average
amounts.

1888 a
1889-.
1890..
1891-.
1892..
18931894-1895-.
1896..
1897-1898..
1899-.
i9oo_.
1901-.
1902..
1903-•
1904-•
1905..
i9o6_.
1907-•

1,025
85,760
152,084
46,107
8,672
108,815
30,639
5°>164
158,190
180,374
238,708
281,129
284,711
243.075
211,443
306,210
316,486
316,466
438,461
531,056

Maximum
amounts.

209,942
396,058
3 9 2 , 232
259,789
275.353
330,635
233,ii4
441,683
427,547
499,234
576,355
664,633
649.317
568,608
701,639
744,953
775,044
920,285
1,045,476
1,098,805

Difference
between
maximum
and minim u m amounts.

380,572
487,635
380,675
326,819
414,914
388,922
306,509
619,447
451,230
523,133
604,458
594,106
537,729
525,034
743,027
642,947
663,840
959,256
919,340
850,563

a I n 1888 t h e n o t e circulation w a s , on an average, m o r e t h a n sufficiently secured,
o w i n g t o large gold i m p o r t s from abroad.

It may be seen from the above table that the unsecured
note circulation of the Reichsbank has increased almost

National

Monetary

Commission

year by year. This increase has been continuous for the
last ten years and it may be said that the credit demands
made upon the Bank had to be met to an increasing extent by issues of unsecured notes and the fuller utilization
of its cash reserves; the maximum in this regard was
reached in 1907, when as the result of the general stringency in the international money market the circulation
issued by Reichsbank very nearly touched the one-third
cash limit fixed by law.
The above remarks on the note circulation and the
legal cash reserve do not give a correct picture of the
actual position of the note banks. The " daily maturing
liabilities" made up of non-interest-bearing commercial
deposits on transfer {giro) account considerably change the
picture. These constitute the bulk of deposits with the
note banks. The relative importance of the interestbearing deposits, which may be withdrawn only on preliminary notice, is of some account only in the case of a
few private note banks.
The ratio between cash on the one hand and notes and
deposits on the other developed as follows:
P E R C E N T AGE OF CASH TO N O T E S AND DEPOSITS, 1888-1907.

Close of year-

Reichsbank.

1888
1889
1890
1891
1892
1893-1894
189S
1896
1897

Per cent.
67.7
52.6
54.1
61.3
57-o
56.8
63. 2
49-9
48.6
43-O

Other note
banks.
Per cent.
41.7
45.o
48.1
48.6
48.1
45-9
45.5
45-3
43-1
45-1

Miscellaneous Articles on German

Banking

PERCENTAGE O F CASH TO N O T E S AND D E P O S I T S , I 888-1907—Continued.

Other note
banks.

Reichsbank

Close of year—

Per
1898.
1899-

cent.
43-5*|
39 1

1900.

1901.

44 0
39 4
37 9
43 6

1902.
1903.
1904.

1906.

35 9
29 6

1907.

1905.

Percent.
46. 2
41.7
39- 7
42. o
40. 2
41.7
39-4
38.2
38.8
39-7

Here again it must be stated that this ratio, while fairly
stationary for the private note banks, has shown a downward tendency as far as the Reichsbank is concerned.
For the more recent years particularly this ratio has been
lower for the Reichsbank than for the private note banks.
There is, of cour'se, the theoretical possibility of a simultaneous withdrawal of all giro deposits, but in practice
such a case may be considered out of question even in
case of war. In the latter case the need of the Reichsbank ,to business men would be larger than ever and the
latter are not likely to withdraw their deposits beyond
the stipulated minima, as this would be tantamount to
the closing of the transfer accounts. The combined
amount of these minimum deposits is unknown-, at all
events, it is much lower than the total daily demand
liabilities. The latter contain also the credit balances
of the financial administrations of the Empire and the
Federal States, which at times represent very large
amounts, and are estimated to constitute approximately
30 per cent of all the deposits.

National

Monetary

Commission

Statistical investigation demonstrates a considerable increase in the volume of transfer transactions within the
more recent years, accompanied by a larger use of the deposits on the part of the giro depositors. It appears particularly that the average of balances on giro account has
increased far less than the average volume of transfers
from and to these accounts. The Reichsbank, therefore,
during the fall of 1906 felt compelled to adopt new requirements for its minimum deposits. It was proven that
while the average amount of giro deposit had increased
34 per cent within the decade 1898-1907, the volume of
transfers on account of these deposits had grown 88 per
cent during the same period.
It is true that the Bank pays no interest on these
deposits, regarding the free use of the deposits as the
equivalent for the expense caused by the transfer operations on account of these deposits. But with the growth
in volume of these operations the expenses of the Bank
also increase, and the requirement of the Bank of an
adequate minimum limit of deposits seems therefore fully
justified. Another, though less important, reason which
made the change desirable was that by increasing these
minimum requirements the operating basis of the Bank
was strengthened, in the sense that an increase of giro
deposits was tantamount to a strengthening of its cash
reserves, which in turn enabled it to increase its note
circulation by the threefold amount of such increase.
It is but proper to mention in this connection that the
giro accounts need not be fully made in the form of
specie. As a matter of fact, these accounts quite often
are the result of credit operations, in case, for instance, the
values of discounted bills or of loans upon collateral are not

Miscellaneous Articles on German

Banking

paid in cash, but merely credited to the respective accounts.
The total volume of bank transfers (giro transactions) effected by the Reichsbank shows the following
development:
TRANSFER TRANSACTIONS OP REICHSBANK, I888-1907.
Marks.
63, 825,000,000
7 5 , 6 7 6 , 000, 000
7 9 , 7 5 0 , 000, 000
8 1 , 0 1 3 , 0 0 0 , 000
78, 215,000, 000
82,363,000, 000
84, 4 5 0 , 0 0 0 , 0 0 0
9 3 , 6 9 8 , 000, 000
105,603, 000, 000
115, 3 0 8 , 0 0 0 , 0 0 0
137,784,000, 000
155, 9 8 7 , 0 0 0 , 0 0 0
163, 632, 0 0 0 , 0 0 0
167,729,000, 000
169, 216, 000, 0 0 0
179, 118, 000, 0 0 0
194,548, 000,000
222, I 3 7 , OOO, OOO
245,622, 000, 000
260,657,000, 000

1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
I905
1906
1907

The various modes of settlement appear from the following table:

1889
1890
1891
1892
1893
1894
189s
1896
1897

Through
cash payments.

Through
balancing
of
accounts.

Through
local
transfer.

Through
transfer
from and
to other
cities.

Per cent.
28.0
26. 9
27.9
27.7
27. 0
19.4
19. 1
18.2
18. s
18. 1

Per cent.

Per cent.
35-5
38.1
37-7
37-9
37-3
25-3
26. 1
26. 9
26. 1
26. 4

Per cent.
Per cent.
29.3
72. o
28.0
73-1
26. 2
72. 1
26. 1
72.3
28.0
73-o
26.8
80.6
80.9
28.3
28.5
81.8
28. 2
81.S
29. 0 1
81.9

7.2
7.0
8.2
8.3
7-7

28. s
26. s
26. 4
27. 2
26. S

Total
without
cash payments.

N at ton a l

18991900.
1901.
1902.
19031904190519061907-

M on etary

Commission

Through
cash payments.

Through
balancing
of
accounts.

Through
local
transfer.

Through
transfer
from and
to other
cities.

Total
without
cash payments.

Per cent.
16.6
16.3
16.8
16.8
16.3
16. 9
16. 7
15.7
15.3
15.4

Per cent.
26.8

Per cent.
27.7
28.8

Per cent.
28.9
29. 2

29. 5
30.0
30.3
31.1
3i-3
32.4
32.7
33-4

30.7
31-3
31-9
31.0
30.9
30.5
29. 6
28.8

Per cent.
83..
83.:
83.=
83.:
83.:
83.3
83.;
84.;
84.:
84. t

25-7
23.0
21. 9
21.S
21. 0
21. 1
21. 6
22. 4
22. 4

It is also interesting to follow the development of the
average balances on giro account and of the average
volumes of transactions per account. In the following
table only individual (private) accounts are considered,
exclusive of accounts of public treasuries.
AVERAGE BALANCES AND AVERAGE TRANSACTIONS PER ACCOUNT,
1907.
Average
account.

Year.

Marks.
33,829
32,687
27,401
29,322
30,456
27,897
28,596
29,772
27,170
24,158
24,719
24,383
23,690
23,943
23,585
20,604
20,724
22, 067
20,761
20,707

1889.
189018911892.
1893189418951896.
18971898.
18991900 _
1901.
1902 _
1903190419051906.
1907-

1888-

Average
volume of
transactions
per account.
Marks.
7,995,112
8,817,001
8,788,792
8,5i9,59o
7,792,676
7,888,447
7,823,750
8,149,093
8,335,384
8,428,861
9,353,463
9.714,917
9,596,020
9,074,422
8,577,22o
8.545,782
8,872,641
9.781,051
10,251,642
10,693,695

Miscellaneous Articles on German

Banking

This table offers conclusive proof of the fact mentioned
above that while the average amount of deposits has
shown a tendency to decrease, the average volume of transactions per account has shown the opposite tendency.
The largest participant in the giro transactions of the
Reichsbank is the banking world. On March 31, 1908,
the distribution of the giro accounts of private concerns
was as follows: Industry and trade, 27 per cent; commerce, transportation, and insurance, 13.8 per cent;
money and credit (banks, private bankers, etc.) 52.6 per
cent (the per cent share of banking corporations alone
was 36.1 per cent); corporate bodies, foundations, private
individuals, etc., 6 per cent; agriculture and allied
industries, 0.8 per cent.
The total amount of deposits held by the private note
banks has changed but little during the twenty-year
period. At the close of 1907 this total amounted to but
55,500,000 marks. Of this amount 32,310,000 marks were
held by the Saechsische Bank, half of which were interescbearing deposits subject to notice of withdrawal.
As compared with deposit accounts the credit accounts
of the note banks are of secondary importance. The only
note banks which do an extensive current-account business with creditors are the note bank of Bavaria, and particularly the Bank of Saxony.

National

Monetary

Commission

As regards the credit transactions of the note banks, the
investments in bills of exchange and in loans on collateral
show the following development:
DISCOUNTS AND LOANS OP N O T E - I S S U B B A N K S , I888-1907.
[In millions of marks.]
Reichsbank.
Year.

Other note banks.

Total.

Bills of
exchange.

Loans on
collateral.

Bills of
exchange.

Loans on
collateral.

Bills of
exchange.

517.62

93-07
186.22
146.13
138.61
118.90
149.16
100.38
211.19
197.20
172. 66
186.07
141.68

251- 21
208.75
209.88
210.36
211.95
206.54
317.52
229.25
215.98
222.41
219.22
259.64
256.28
137-76
131. 22
14165
128.86
127.47
139.61
147-96

41.72
39.6i
36. 19
26.50
25-43
28. 22
23.81
29.45
28.44
24. 61
22. 48
23.39
25- 13
70. 72
59.82
49- 27
64. 17
50-54
64. 42
39-57

771.88
862.70

i888_
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899

I902__
1903 _
1904
1905
1907

653.94
6i3.77
572-13
606.16
604.28
602.85
769.13
771.06
768.93
865.52
1,080.80
1,089.19
999.28
1, 027. 08
1, 1 3 9 . 5 6
1,011.48
1,228.61
1,340.80
i, 495-8i

146.23
161.44
189.94
212.67
21505
204.34
284-52
364-30

823.66
782.76
818.09
810.82
820.37
998.38
1,007.03
991-34
1 . 0 9 4 . 75
1.335-18
1,545-47
i , 137. 04
1, 1 5 8 . 3 0
1, 281. 21
i, 140.34
1.356.08
1, 4 7 0 . 4 2
1 . 6 4 3 - 77

Loans on
collateral.
135-95
225.83
182. 32
165. n
144-32
177.38
124.19
240.63
225.65
197.28
. 208.55
165.07
175-35
232. 16
249.76
2 6 1 . 94
279.22
254.88
348.94
403.87

The holdings of bills form the principal basis for the
note circulation, since notes may not be issued against
loans on collateral, i. e., these loans must not be included
in reckoning the maximum note issue permitted by
law. The amount of circulating notes must be fully
secured by a reserve of gold, specie, and bills maturing
within a maximum term of three months.
At the close of 1907 the holdings of cash and bills of
exchange in all banks amounted to 2,507,180,000. marks,
while the note circulation amounted to only 2,052,500,000
marks. Thus, 454,680,000 marks of notes might have

Miscellaneous Articles on German

Banking

been issued in addition. Even then the cash security of
the note circulation would have been a little more than 34
per cent.
The chief credit business of the Reichsbank is that of
discounting bills; and in times of increased business activity, when larger amounts of currency are wanted, the
Reichsbank normally handles a larger percentage of the
total bill transactions than in times of economic depression,
when business is transacted more largely on a cash basis.
Thus the bills purchased (local bills, drafts on outside
places) amounted in 1902 to 7,437,540,000 marks, in 1905
to 8,946,710,000 marks, in 1906 to 10,213,760,000 marks,
and in 1907 to 11,882,300,000 marks. Of the total amount
of bills held by all the note banks at the close of 1907 only
147,960,000 marks fell to the share of the private note
banks, and of this amount 48,610,000 marks in turn was
the share of the Note Bank of Bavaria and 63,130,000
marks that of the Bank of Saxony.
The Reichsbank's average holdings of domestic bills
show the following distribution as regards the vocation
of the clients in favor of whom the bills were discounted:
CLASSIFICATION OF REICHSBANK CUSTOMERS.
[In millions of marks.]
1906.

1905.
Average
holdings.
Commerce, transportation,
and insurance
Money and banking
Industry and trade _ _
Agriculture and allied industries
_ _ __ _ _
Other applicants for credit.

Per
cent.

1907.

Average
holdings.

Per
cent.

Average
holdings.

Per
cent.

174.36
425.08
249.83

19. 91
48.54
28.53

180.42
465.76
272.25

19.07
49- 22
28.77

187.95
559.98
284.38

17.73
52.82
26.83

11.85
14. 61

i-3S
1. 67

12.35
15.42

i-3i
1. 63

11. 13
16.65

1.05
1-57

National

Monetary

Commission

The observations made above regarding the giro
transactions of the Reichsbank apply equally to its billbrokerage business; "money and banking" interests occupy the largest share, and their share in the total
discount business of the Reichsbank shows an upward
tendency. This, however, does not imply that the bills
presented to the Reichsbank for discounting by money
and banking circles had their origin in all cases in the
field of finance and banking. The general rule of the
Reichsbank is to discount only such bills of exchange
as are in fact genuine mercantile bills of exchange and
to exclude from its portfolio the so-called credit and
financial bills—that is, bills which are not based on
bona fide business transactions. There is a very good
reason for this. The bill based upon a real money claim
is in a measure a security in itself. It is secured ultimately by business capital already in existence, and
through being discounted it discharges the economic
function of liquidating the portion of the producer's
capital contained in the sold goods. By means of bills
the capital fixed in economic goods is released and
becomes available for fresh use, beginning with the time
when these goods are transferred from the producer to
the consumer or the manufacturer.
The difference between a "mercantile" and a "financial" bill of exchange is, however, not sufficiently patent
to preclude any mistake in individual cases. It was only
about a year ago that the Reichsbank began to make
special efforts to eliminate from its holdings all bills
which could not be properly classed under the first head.
For the rest, the large share of discounted bills credited

Miscellaneous Articles on German

Banking

to "finance and banking" is accounted for by the fact
that the great majority of bills are discounted by the
Reichsbank after having been handled first by the credit
banks.
The proportion of foreign bills of exchange to the total
bill holdings of the Reichsbank is shown in the following
table:
PROPORTION

OP F O R E I G N

B I L L S H E L D BY REICHSBANK,

I 888-1907.

[In thousands of marks.]

Year.

1888.
1889.
1890.
1891.
1892.
1893.
1894.
1895.
1896.
1897.
1898.
18991900.
19011902.
190319041905.
1906.
1907.

Average
h o l d i n g s of
foreign bills.

P e r c e n t of
t o t a l bills.

T o t a l foreign bills
purchased.

3,3i6
3,798
5,420

0.8

54,835

61,565

1.3

1 0

1. 2

5.306

1 0

4,715
4, 113
2,54o

63,97r
78,303
68,525

7
5

2,569
2,753
2, 411
4,934
19,045
26,753
26,946

5
4
4
7
2

3 3
3

22,733
24,068
22,212

2 9

33.093
43.244
44,46i

2 8
2 7
7

4 4
4 0

P e r c e n t of
all bills
purchased.

1.4

1.4
1.4

67,245
52,702
54,013

1. 2
1.1

54,42i
54,065

•9
.8
1.1

81,436
131,049

1.0

1.6

211,751
169,092
180,416

2.4

175,003
176,238
229,030
291,853
268,119

2.0

1.9
2.4

2.1
2-5
2.8

2. 2

The table shows that beginning with the year 1899 the
average investments of the Reichsbank in foreign bills of
exchange have experienced a rapid growth, particularly
in 1906. It was recognized, and correctly so, that adequate holdings of foreign bills are an excellent means for
the continuous regulation of the balance of payments with
77267—-10—.5

National

Monetary

Commission

foreign countries, and accordingly the Reichsbank, particularly since the early part of 1908, has given increased
attention to this class of business. Whenever the
rates of exchange are favorable the Bank increases as
much as possible its holdings of foreign bills. When, on
the contrary, the balance of international payments is
unfavorable, as shown by higher exchange rates, the
Reichsbank offers to sell foreign bills. It thus prevents
or delays a further increase in the rate of exchange and
actual gold exports. This policy forms an effective supplement to a rational discount policy and hitherto has
been pursued most successfully by the Austro-Hungarian
Bank and the National Bank of Belgium. It goes without saying that the foreign exchange business requires
a special organization and a careful choice of material,
as it is naturally more difficult to ascertain the solidity
of foreign than of domestic bills and losses are more
easily incurred in handling foreign bills. The average
profits which the investment in foreign bills yielded to
the Reichsbank are shown in the following table:
Per cent,
10.8
9.0
6. 7
4. 6
4.6
5.0
5.3
5.1
4.3
7.6
8.5
5.8
4.2
5.7

1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901

Miscellaneous Articles on German
1902
1903
1904
1905
1906
1907

Banking
Per cent.
5.3
5.7
4.0
3.8
5.2
6. 1

As against the above rates the average Reichsbank
rates of discount were as follows:
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907

Per cent.
_____
3-3
3.4
4.5
3.8
3.2
4. 1
3. 1
3.1
3.7
3.8
4.3
5.0
5.3
4. 1
3.3
3.8
4. 2
3.8
5. 2
6.0

When the supplementary bank act of 1899 compelled
the private note banks to fix their discount rates in accordance with the Reichsbank rates, they applied themselves more and more to the collateral loan business, as is
shown in the foregoing table. It is seen, however, that
the total loans on collateral at the end of 1907 show a considerable decrease as compared with the like total for the
end of 1906. This form of credit, based as it is upon the
combined share capital, reserves, and deposits, has under

National

Monetary

Commission

normal conditions only a limited extent and is liable to
give out soon in times of depression.
Both debit and credit accounts are of small importance
in the case of the note banks. The securities of the
Reichsbank consist of discounted treasury bills of the
Empire. The total holdings of these securities represent,
therefore, the extent of the credit demands made by the
financial administration of the Empire upon the Reichsbank. The imperial budget act stipulates each year the
amount up to which the imperial chancellor is empowered
to issue treasury bills for a temporary strengthening of
the currency reserves of the main treasury of the Empire.
The preliminary estimate for the fiscal year 1909 (April 1,
1909, to March 31, 1910), for instance, fixes this amount
at 600,000,000 marks. It is customary in such cases to
redeem these treasury bills out of the proceeds of the
subsequent funded loan of the Empire. Since the year
1901 the Reichsbank's holdings of discounted treasury
bills have been continuously quite large, and discussion
has been quite frequent whether it would not be better to
release the Reichsbank from these credit demands of the
Empire. This question was also debated during the
above-mentioned bank inquiry. The simplest remedy
would probably be to issue funded loans at earlier dates.
By an earlier appeal to the investment interests the money
market would be spared to a certain extent.
The profits of the note banks depend, in the main, on the
rates of discount charged. These profits are distributed
annually to their full amount. An accumulation for the
purpose of equalizing dividends, as is customary with other
banks, does not take place, and the dividends therefore

Miscellaneous Articles on German

Banking

fluctuate considerably (as may be seen from Tables 13,
14, and 15).
(c) THE CREDIT BANKS.
According to the general table a (Table 16), the number
of credit banks increased from 164 to 421 during the period
of 1888 to 1907, and the number of branches from 173 to
1,064. As it was most difficult to ascertain the number
of branches for the more remote years, because very often
exact data regarding them were missing in the annual
reports, it is possible that the number of branches for the
earlier years was really somewhat larger than stated.
The large increase since 1895 in the number of branches
is explained by the extension of the net work of branch
banks which were then beginning to be established by the
large and medium-sized banks. The deposit branches
and exchange offices (Depositenkassen and Wechselstuben) are not contained in the number of branches, neither
are the so-called agencies, of which several provincial
banks maintain a large number (up to 70 and 80).
The column "Number of banks" does not show a continuous unbroken increase, which is explained by the fact
that each year existing banks were liquidated and new
ones added. The decreases for several years were larger
than the additions, and in this respect it must be specially
borne in mind that since 1902 a large number of smaller
institutions disappeared through fusion, while the number
of establishments newly founded during this period was
not large. The process of concentration and absorption
mentioned in the first part of this study, which, beginning

a See "Statistics for Germany," Pt. I I .
69

National

Monetary

Commission

with the year 1902, became characteristic of the development of German banking, is mainly responsible for the
reduction in the number of banks.
The large increase in the number of banks during the
twenty-year period under consideration is due mainly to
the fact that numerous private banking firms assumed a
corporate form of existence during that period. The mere
growth in numbers, therefore, is but little indicative of
the real development of German banking during those
years.
This development can be traced much better by the
growth of the funds owned by the banks themselves and
entrusted to them by outsiders for use and management
{eigne und fremde Kapitalien).
In this respect the table
indicates a large and practically continuous growth, which
was interrupted only once on the occasion of the economic
crisis of the years of 1900 and 1901, which affected the
banks particularly and caused several of them to fail. In
analyzing the figures of the subsequent years one has to
bear in mind further, that in case of bank fusions the
absorbing banks as a rule increased their capital stock by
smaller nominal amounts than were represented by the
canceled amounts of the capital stock of the absorbed
banks. The higher market value of the stock of the
absorbing bank as compared with the value of the stock
of the bank to be absorbed served quite often as an inducement for the amalgamation, since the absorbing bank was
able in this manner to create or increase its silent reserves.
During the period 1888 to 1907 the paid-in capital of all
the banks considered increased from 846,720,000 marks

Miscellaneous Articles on German

Banking

to 2,873,300,000 marks, or 239 per cent, while their total
"own capital/' including capital stock and reserves,
increased from 971,910,000 marks to 3,517,230,000 marks,
or 265 per cent. During the same period the funds entrusted to these banks (transfer accounts, check deposit
accounts, and credit accounts) grew from 1,283,560,000
to 7,514,100,000 marks, or 485 per cent.
As was mentioned in the first part of this study, the
economic development of Germany proceeded with particular vigor during the most recent period, beginning with
the middle of the nineties of the last century, and this fact
finds expression also in the statistical data relating to the
development of German banking.
It appears that during the period from 1896 to 1907 the
total amount of funds owned by the banks (paid-in capital
and reserves) increased by 2,088,560,000 marks from
1,428,670,000 to 3,517,230,000 marks, or 146 per cent.
During the same period the funds of outsiders (transfer,
check, and credit deposits) increased by 5,466,000,000
marks, or 266 per cent. During the years 1888 to 1895,
on the other hand, the banks' own funds had increased
merely 46 per cent, against an increase in deposit funds of
59 per cent.
It is further worth mentioning that the proportion of the
reserves to the total funds owned by the banks has materially increased within the twenty-year period. At the
close of 1888 the ratio of reserves to capital stock was 14
per cent and at the close of 1907 22 per cent. Part of the
reserves is formed by allotments out of the annual net
profits; the greater part, however, results from the pre-

National

Monetary

Commission

miums realized from the issue of new shares, which, according to law, must be added to the reserve fund. The law
provides, furthermore, that a reserve fund must be created
for the purpose of covering any loss that might be shown
in the balance sheet; to this fund must be allotted the
twentieth part of the annual net profits, so long as the
reserve fund does not exceed the tenth part of the capital,
or whatever higher percentage is stipulated in the charter
of the company.
In addition to these obligatory reserve funds the banks
as well as all other corporations make it a regular practice
to accumulate other special reserve funds. These funds
are the first to be drawn on in case of business losses or in
years of decreased prosperity, in order to enable the corporations to distribute the customary dividends. In the
tabular statement the obligatory as well as the optional
reserves are found combined in the same column.
"Outsiders' funds" (fremde Kapitalien) besides the
transfer deposits, deposits on check account, and the socalled credit accounts include also "acceptances," i. e.,
commercial paper indorsed by the banks and placed at the
disposal of their customers. If these acceptances be
added to the sum of the above items, there appears an
increase in the total of " outsiders' funds " in charge of the
banks by 8,023,280,000 marks, or of 457 per cent for the
period of 1888-1907.
It is seen from the general table that the proportion
between the banks' " o w n " and the "outsiders'" funds
and the total liabilities tends to decrease. This tendency shows itself more clearly since 1899, and especially

Miscellaneous Articles on German

Banking

for the last three years. The proportion between the
banks' own funds and outsiders' funds varies for the different banks, as will be pointed out more particularly in
the subsequent discussion of the special table for the year
1907. In a general way it may be said that the banking
business is the more profitable for the stockholders the
larger the part of outside capital with which it is carried
on. This is in accord with the French saying, "Les
affaires sont l'argent des autres" (Business is outsiders'
money). Of the "outsiders' funds" the credit accounts
form by far the largest item, amounting to almost twice
the deposits proper. a
The credit accounts are formed primarily by the active
balances standing to the credit of the current accounts,
which may be regarded as the very basis of the regular
banking business. A customer having a current account
with the bank may be at times a creditor and at times a
debtor of the bank, since the latter attends to all his
money and credit transactions.
As a rule, the bank charges its current-account customers a commission on the business done for them, reckoned either upon their credit or debit, whichever side
happens to t>e larger. Moreover, the bank exacts interest
at a rate 1 per cent higher than the Reichsbank's discount
rate, and pays on credit balances interest at a rate 1 per
cent below the Reichsbank's discount rate.
The amounts appearing in the bank balance sheets
under the head of "credit accounts" also include credits
which are not the result of current-account business
proper, as, for instance, amounts credited to foreigners
aSee "Statistics for Germany," Part II, Table 16.

National

Monetary

Commission

on account of foreign securities issued in Germany. The
proceeds of such issues are, as a rule, remitted abroad in
instalments only. Part of these proceeds is used for the
payment in Germany of debts due from foreigners for
imported German industrial products or on account of
freight charges; part is left with the German credit banks
for the payment of interest on securities placed in Germany. To this class belong also credit balances of foreign banks and large capitalists, which at times amount
to very large sums, though no exact data on the subject
are available. In many cases these amounts are investment funds placed at the disposal of leading Berlin banks
and private banking firms. The latter use these funds
mainly for short-term credit operations (discounting
and the so-called " Reportgeschaft"). Finally it may be
mentioned that a large number of corporations and private enterprises maintain continuously fairly large active
bank balances, though as a rule German industrial
undertakings use large amounts of bank credit in their
operations.
As mentioned before, the table for all the credit banks
combined indicates that the total "deposits" are but
one-half the total of " credit accounts." This proportion
varies considerably for the individual banks, as may be
seen from the figures.** In explanation of these variations it may be stated that the meaning of the term
"deposits" is conceived differently in the practice of
the various banks and that the term as used in the balance sheets of the banks in most cases has a meaning
a See "Statistics for Germany," P a r t II, Table 17.

Miscellaneous Articles on German

Banking

altogether different from that which is currently attached
to it in theoretical banking literature.
Among banks using almost identical business methods
some show "deposits" in their balance sheets, others do
not. Items which are included under "deposits" by
one bank may figure as part of "credit accounts" of
another, although in most cases the character of deposits
and "credit accounts" is essentially the same.
When the Berlin large banks began in the seventies to
establish their so-called "deposit branches" (Depositenkassen) in the various quarters of the city, their object
was probably, in the first place, to attract the small
funds, which until then in many cases had remained
outside the investment channels. The purpose was to
facilitate connections between the Bank and fundholders,
particularly the smaller tradespeople. At the same time
these branches were to take in a measure the place of the
rapidly disappearing private banking houses and were to
facilitate the placing of the securities issued by the parent
bank. At first the branches confined themselves to receiving deposits and dealing in securities on a commission
basis. But this did not meet the requirements of the
public; moreover, the expenses of maintaining these
branches ran quite high. In the course of time, therefore, the branches extended their field of operations so
as to include all classes of banking business. At present
these deposit branches are more or less complete banking
institutions, undertaking all classes of regular banking
business in no way differing from that of the parent or
central bank.

National

Monetary

Commission

The banks, as a general practice, are inclined to interpret the term "deposits'' in its broadest sense, since the
larger the deposits the greater the confidence the public
is likely to place in the bank. In order to provide for
greater security of the deposits it has been proposed to
place legal restrictions upon their investment by the
Bank. Against such proposals it may be said that if
such legal restrictions were to be adopted the banks
concerned would simply transfer in their next balance
sheets "deposits'' to the column "credit accounts" without in any way changing their true relations with
regard to these deposits.
As a matter of fact, the larger part of the "deposits"
entirely lack the character of " savings." It is only in
times of abnormal money stringency (as, for instance,
during 1907) that the banks by offering higher rates of
interest are enabled to attract savings funds. But even
then the total amounts attracted are rather limited.
There are also a few provincial banks which accept for
longer periods interest-bearing deposits from their wealthy,
mainly landowning, clientele.
As a general rule, the "deposits" of the banks are
composed mainly of the business community's available
cash resources (which therefore must be held ready for
daily withdrawal), of the proceeds of sold securities, of
paid mortgages, of interest payments or amounts paid on
coupons left at the bank in the liquid shape of cash until
reinvested; also of the quarterly salaries of officials who
withdraw them in the course of the quarter for living

Miscellaneous Articles on German

Banking

expenses. All such deposits must be held readily available for the use of the depositors. The rate of interest
paid thereon is therefore low. To a very small extent
only deposits of the banks represent savings funds proper.
This point is especially emphasized in view of the assertions frequently found in scientific banking literature
and the public press, that these deposits are ' savings '
and therefore call for separate management and greater
security. On the whole, the amounts withdrawn by
depositors are continuously replaced by fresh deposits.
The banks are thus able to reckon with a fairly definite
amount of available deposits and to shape their investment policy accordingly.
As has been stated, most banks make an arbitrary distinction between "credit accounts" and "deposits," and
there exists no uniformity in this regard. A few banks
mention under "deposits" all credit accounts held by
their deposit branches and exchange offices. Other banks,
including those which maintain a larger number of deposit
branches (for instance, the Nationalbank fur Deutschland,
the Commerz- und Disconto-Bank, the Mitteldeutsche
Creditbank), combine them with other "credit accounts"
and book them under the same head. Still other banks
are in the habit of designating as "deposits" merely
those accounts which are placed with them for a fixed
term or which may be withdrawn only after preliminary
notice, while classing with "credit accounts" only commercial deposits proper, i. e., those which may be withdrawn without notice.

National

Monetary

Commission

The various uses made by the banks of the total funds
at their disposal appear from the following table:

Cash and balances on giro account
Securities and syndicate participations
Bills receivable
.
Loans on collateral (lombard)
Debit accounts (overdrafts)__
_
Permanent participations

1888.

189S.

1900.

1907.

Per cent.
5-6

Per cent.
5-3
10. 4
22. 5
10.5
47-9

Per cent.

13-4
46.7

Per cent.
5-8
11.8
19.8
11:6
50.8

1. 1

1. 2

12.3
20. 9

3-4

4.
10.
22.
10.

49.
3-

It may be seen from the foregoing table that the policy
of the banks in the matter of placing their available funds
has on the whole continued the same during the twentyyear period under consideration.
The largest portion of the assets, 50 per cent on an
average, is given over to " debit accounts/' Those banks
which present a more specific classification of these accounts in their balance sheets or annual reports draw, as
a rule, the following distinctions: Balances with banks
and bankers, secured debit accounts, and unsecured debit
accounts. The latter item is made up almost entirely of
credits granted to first-class business houses of absolutely
undoubted solvency. By far the greater part of the debit
accounts is composed of "secured'' debit accounts. The
securities accepted consist mainly of listed securities,
hypothecary obligations (Kautionshypotheken) and sureties of third persons. Valuable paper deposited as bank
security is rated at a smaller amount than its market
value. The stipulated margin on the quotation of the
day differs according to the quality of the paper; it is

Miscellaneous Articles on German Banking
larger in the case of stock than of paper bearing a fixed
rate of interest. In case of a decline of prices the margin is maintained either by an increase of the deposit or
by a corresponding reduction of the credit balance.
These secured debit accounts originate not merely through
the extension of bank credit, which in turn is secured by
the deposit of securities and other valuable paper, but
more often through speculative transactions connected
with the issue and security brokerage business of the
banks.
The banks undertake for a commission the purchase of
securities for their clients, who pay down a certain cash
margin and are credited on the books with the balance
of the purchase price. The average margins on the market value ordinarily demanded run as follows:
In the case of—
German securities bearing a fixed rate of interest
Foreign securities bearing a fixed rate of interest
Domestic stock shares
Foreign stock shares

Per cent.
10
20
25-33^
25-50

As regards the balance the client becomes the debtor
of the bank, and these credits are booked in the balance
sheets as debit accounts, secured by valuable paper. It is
thus seen that a considerable proportion of the "debit
accounts " are mere speculative loans resulting from dealings in securities. It is true that these loans merely take
the place of former loans made to industrial enterprises
on the strength of stock shares and bonds taken over
by the banks. The latter subsequently sell them to the
public by crediting them with part.of the purchase price.
These speculative loans are a source of continuous
worry to the banks. In times of a " rising market"

National

Monetary

Commission

the general inclination of the public to engage in speculative dealings becomes so strong that it causes great inconvenience to the banks. Newly issued shares are taken
eagerly by the public at excessive prices, and with the
utmost exploitation of the bank credit. When the market
declines and the values of the newly bought securities
shrink, the banks for the sake of their own safety are
compelled to demand an additional margin. If the client
is unable to furnish it, the bank in order to secure itself
must sell part of his deposit. The banks are often
blamed for such measures, which are regarded as a reprehensible method of depriving their clients of their stock
holdings. As a matter of fact, however, the banks, in order
not to impair the success of their own future issues, show
the utmost possible leniency, even in cases where the
utter inadequacy of the security can no longer be doubted.
As a general rule, the ultimate recourse to selling the
security is avoided as long as possible, since this step
invariably involves a loss to the client. Moreover, the
banks regard it as their duty not to refuse financial assistance to their clients, particularly in times of financial
depression.
Apart from cash loans and the speculative loans just
described, the debit accounts include also loans granted
by the banks to their clients in the shape of acceptances. The client of the bank converts the acceptance
into cash by discounting it elsewhere. The drawer of the
bill is expected to meet payment thereon when it falls
due, and is also debited at the bank with the return of
the acceptance as per date of maturity.

Miscellaneous Articles on German

Banking

To the banks concerned, the granting of credit in the
shape of acceptances presents the advantage that it
requires no effective funds. By securing the bank acceptance the client is merely enabled to utilize the credit of
his bank. A special class of these acceptances are the
so-called "surety acceptances'' (Avalaccepte), which are
deposited with the fiscal authorities for securing credit
on account of due taxes and customs duties. The larger
portion of bank acceptances originates through domestic
and foreign trade transactions.
In dealing with a foreign house the purchaser of goods as
a rule advises the seller to draw the bill of exchange for
these goods (maturing after several months) not on himself, the purchaser, but on his bank. The reason for this is
that the seller is able to discount more advantageously the
acceptance of a well-known bank than that of a mercantile
firm. An increase in foreign trade results, therefore, as a
matter of course, in a larger circulation of acceptances of
those banks which take part in the financing of the mercantile transactions. Thus at certain periods the liabilities
of the Hamburg and Bremen branches of the Berlin leading banks on account of these acceptances are quite high,
though decreasing soon after. While during recent decades the German acceptances in terms of marks have
gained considerable popularity in the international market, in certain countries of South America, in Australia
and Asia, bills must even at present read in pounds sterling,
necessitating, therefore, the use of acceptances of the
London agencies of the Berlin leading banks. Domestic
mercantile transactions of all classes are likewise adjusted
to a large extent by means of bank acceptances.
77267—10

National

Monetary

Commission

Aside from the class of acceptances which serves the
legitimate needs of trade, there is another which serves
mere money-making ends. Traders and manufacturers
who wish to trade beyond their own means have a favorite
method of obtaining money by drawing upon their bank,
as a bank acceptance can at any time be converted cheaply
into cash at the so-called private discount rate (normally
i to i y2 per cent below the Reichsbank discount rate). At
maturity the bill is paid very often not out of the cash
funds of the drawer but with the proceeds of a fresh
acceptance.
It is of course impossible for an outsider to ascertain
how much of the entire acceptance circulation of the banks
is represented by acceptances of the latter kind.
At the close of 1888 the acceptances amounted to 36
per cent of the debit accounts, at the close of 1895 to 32
per cent, and at the close of 1907 to 35 per cent. The
proportion is thus rather stationary, and it follows that
approximately one-third of the total bank credit enumerated under the head of debit accounts has been continuously granted in the shape of bank acceptances.
As stated above, the individual bank needs no effective
funds for opening this kind of credit, provided the drawer
meets payment on the bill at maturity. But since these
bills are discounted, it is clear that ait least a portion of
the total amount represented by these acceptances must
be furnished by the banks in cash. The portion of these
bills found at any time among the holdings of the banks
will be found quite large.
At the close of 1888 the acceptances held by all banks
amounted to 81 per cent of all bills, at the close of 1895

Miscellaneous Articles on German

Banking

to 84 per cent, and at the close of 1907 to 78 per cent.
This percentage also shows great stability, and it is safe
to assume that approximately 80 per cent of the bill holdings of the banks are bank acceptances. It must also be
considered that a large share of the bank acceptances goes
to the Reichsbank in order to be discounted, and is therefore found among its holdings; these will mostly be the
bank acceptances based upon regular mercantile transactions, since the Reichsbank, as stated above, pursues the
principle of accepting for discount only mercantile bills
proper. Finally, it must be borne in mind that of the
bank acceptances resulting from international trade transactions a certain part is discounted not in Germany itself,
but abroad.
The other asset items mentioned in the general tables
hardly call for special explanation. ''Currency and balance on giro accounts with the Reichsbank" are mentioned as one item in almost all of the balance sheets.
Only a relatively small amount of the entire assets falls
under this head, but experience has taught that this small
portion is sufficient.
Next to cash and the balance at the Reichsbank, bills and
"collateral holdings" (Lombard-Bestdnde) are considered
the most liquid holdings. The quality of the bill holdings is, however, not the same in the various banks. Besides first-class mercantile bills, acceptances of other banks
(private discounts) and foreign bills of exchange payable in
gold—that is, besides bills which are as good as gold—the
bill portfolios contain also bills which have their origin in
pure credit transactions, and represent loans for longer or
shorter terms, as they have to be continuously extended

National

Monetary

Commission

upon maturity. Their realizability is not much greater
than that of debit accounts.
The item "Loans on collateral" {Lombards) includes,
besides advances on merchandise and securities, also the
so-called Reports. The total amount of the latter, however, is not large. This class of business has shrunk considerably, particularly under the effect of the late stock
exchange act (modified only in 1908), which seriously
restricted trading in options. The essential feature of
this class of business is that the bank buys speculative
securities at the price quoted on exchange on the date of
settlement and sells them to the client at the same price on
the subsequent date of settlement. As the interest rate
for "report" money as a rule is higher than on loans
proper, this class of business is very lucrative. Moreover,
it is regarded among the most solid credit transactions,
since it is done exclusively with houses of undoubted
standing and in such securities only which have a wide
market and can be sold at any time at a figure not too far
below the market price.
With regard to the item, "Securities owned and syndicate participations," it should be stated that the banks
are in the habit of holding a certain amount of valuable
paper, which is readily convertible into cash, i. e., firstclass securities paying a fixed rate of interest, such as
state and communal bonds, and mortgage bonds issued
by land-mortgage banks or associations. By far the
larger part of the securities owned are made up of industrial shares and bonds, real estate paper (Terrainwerte),
etc., either acquired for speculative purposes, or left over

Miscellaneous Articles on German

Banking

from emissions or after dissolution of underwriting syndicates. The banks endeavor to rid themselves of such
holdings as speedily as possible in order to release for
fresh uses the funds invested. The composition of the
item "syndicate participations" is practically the same as
that of "securities owned." In case the underwriting is
done by a syndicate of banks, the individual participations of each bank (to the amount of actual payments
made) are booked under the head of " syndicate accounts."
If the syndicate is dissolved before the underwritten securities are all sold, each of the participants takes over for
his own account the allotted portion. The corresponding
amount is then transferred from the "syndicate account"
to the "securities account." In case the bank is the sole
underwriter, the respective amount is booked from the
start on "securities account," there being no syndicate
participation.
The majority of the banks show "securities" and "syndicate participations" in one item, though the latter by
no means represent assets in the full and unlimited sense
as the item "securities owned." For in most cases these
participations still call for considerable payments on the
part of the banks, which, however, do not appear in the
liability column of the balance sheet.
It was mentioned that among their liquid resources
the banks carry a certain amount of securities bearing a
fixed rate of interest. Occasionally the banks will not
offer for sale, but reserve to themselves for permanent
holding a certain amount of stock underwritten by them.
This is done in order to secure some control over the

National

Monetary

Commission

corporation financed by them. It must be said though
that the available resources of the banks are in most cases
not large enough to secure a controlling interest in the
corporation, especially if the latter happens to be a large
one; but, as stated in the first part of the study, the
banks need not invest their own funds to achieve this
result, since they are always in a position to obtain the
proxies for the stock deposited with them for representation at the stockholders' meeting, in case they intend
to procure action through a majority vote of the stock.
As a general rule, the directors of the bank are members
of the supervising council of the allied corporation, and
in this capacity they are in a position to guard the interests of the bank quite effectively with less formality and
without involving the bank in troublesome extensive
stock engagements. To repeat, in this place, what was
said above, the bond uniting the banks and industrial
undertakings is revealed neither fully nor even in part
through the ownership of bank or industrial shares.
The item " permanent participations'' includes the
value of the stock of other banks acquired by the
banks under the community - of - interest plan, silent
partnership interests (Komniandit-Einlagen) in other
banks and banking houses; also permanent holdings of
stock in industrial enterprises founded by the bank.
Many banks do not have a special account of these
participations, but book them, likewise, under the general head of "securities.''
Table 17 contains the financial statistics for each bank
at the close of the year 1907. The banks will be found

Miscellaneous Articles on German

Banking

arranged according to the size of their capital. This
arrangement facilitates the review and may best serve
the purpose of a comparative study of the individual
institutions.
The most noticeable fact in this summary is that, of a
total of 421 banks mentioned, 197 banks have a capital
of less than 1,000,000 marks, while 224 banks have a
capital of 1,000,000 marks and over.
The importance of the 197 small banks to the financial
and business interests of the country is, of course, much
less than that of the 224 larger banks. Of the total paid-in
capital, amounting to 2,873,300,000 marks ($683,800,000),
2,828,770,000 marks ($672,200,000) fall to the share of the
224 banks having a capital of 1,000,000 marks ($238,000)
and over, and only 44,530,000 marks ($10,600,000) to the
share of the 197 banks with a capital of less than 1,000,000
marks ($238,000). Of the paid-in capital of the 224 larger
banks, amounting to 2,828,770,000 marks ($673,200,000),
as much as 1,114,000,000 marks ($265,100,000) is claimed
by 8 Berlin banks.
Distributing all the items of the table according to
these three groups and forming for the sake of comparison a separate group of banks with a capital of 30,000,000
to 80,000,000 marks ($7,140,000 to $19,040,000) (which
institutions may be designated as the " large banks "),we
obtain the following summary:

8 Berlin banks
with capital of
80,000 000 to
200,000,000
marks.
Number of branches
Total capital
marks..
Paid-in capital
do__.
Surplus
do_ _.
Paid-in capital and surplus
do__.
Deposits and checks.
d o . _.
Credit accounts
d o . _.
Acceptances
do—
Cash and balances on giro account
d o . _.
Ratio of cash and giro balances to deposits and credit accounts,
per cent
Securities owned and syndicate participations
marks..
Bills receivable
do—
Loans on collateral
d o . _.
Debit accounts
d o . _.
Permanent participations
d o . _.
Ratio of capital and surplus to deposits, credits accounts, and
acceptances
per centDividends, total
marks..
Dividends, rate of
,
per cent.

95
1,114,000,000
1,114.000,000
332,403,000
1,446,403,000
822,587,000
2,463,317.000
1,186,751,000

15 banks with
116 banks with
197 banks with
capital of
less than
capital of
1,000,000 marks
30,000,000 to
1,000,000 to
capital.
80,000,000 marks.
80,000,000 marks.

766

215

199

1, 8 5 2 , 6 3 7 , 0 0 0

52, 900, 000

749,180,000

1,714,765,000

44, 530,000

731,430,000

293,248,000

18,285,000

137, 9 0 7 . 0 0 0

2,008,013,000

62,815,000

869,437,000

1, 6 5 9 , 9 7 6 , 0 0 0

214,751,000

584, 361, 000

2,276,462,000

7.7, 0 0 7 , 0 0 0

880,944,000

1,071,949,000

4,189,000

594,59o,ooo

283,646,000

263,526,000

7,503,000

84,059,000

8.6

6.9
594,39i,ooo

2-5

5-7

642,237,000

49,935,000

231,471,000

1,395,058,000

1,442,637,000

57,609,000

588,391, 000

576,561,000

745, o n , 0 0 0

17,142,000

325,065,000

2,956,943,000

2,199,495.000

216,786,000

1,033,698,000

287,094,000

145,633,000

6,638,000

64,062,000

114,993.000

3,054,000

50,998,000

6.7

6.8

6.9

32.3
89,765,000

42. 1

40. o

^
S

Miscellaneous Articles on German

Banking

Of the total funds administered by the 421 banks,
amounting at the close of 1907 to 13,294,220,000 marks,
5,919,060,000 marks, or approximately 44 per cent, were
in the hands of the 8 Berlin banks (Deutsche Bank,
Dresdner Bank, Disconto-Gesellschaft, Bank fur Handel
und Industrie, A. Schaaffhausen'scher Bankverein, Berliner
Handels-Gesellschaft, Commerz- und Disconto-Bank, and
Disconto Bank und Nationalbank fur Deutschland). But
even these figures do not show the predominance and the
economic superiority of the large Berlin joint-stock banks.
As a matter of fact, a much larger portion of the entire
banking capital is subject to the control of the Berlin
joint-stock banks than is expressed in the sum total of
the capital directly managed by them.
The provincial banks which are connected with the
Berlin joint-stock banks through some form of community
of interest are formally independent institutions, but they
belong to one of the concerted groups of which one of the
Berlin joint-stock banks is the center. In reality their
relations to the latter do not differ much from those of the
branches to their Berlin Central Bank. This is evident
among others from the fact that at the regular meetings
called by the central board of directors the directors of the
affiliated provincial banks appear together with the directors of the branches. The establishment of friendly and
mutual relations by way of exchange of shares, or permanent acquisition of shares of the provincial banks by the
leading Berlin banks, was pursued by the latter in order " to
extend their spheres of interests/' and on the part of the
provincial institutions "in order to establish thereby
valuable connections with a leading Berlin bank."

National

Monetary

Commission

Of the 8 Berlin banks mentioned, the Berliner HandelsGesellschaft and the Nationalbank fiir Deutschland have
not at all participated in this group formation, and the
Commerz- und Disconto-Bank only to a limited extent.
At the close of 1907 the composition of and the total
capital controlled by these groups were as follows:
Marks.

Deutsche Bank
Deutsche Uebersee Bank
Bergisch-Maerkische Bank
Siegener Bank
Duisburg-Ruhrorter Bank
Essener Bankverein
Essener Kreditanstalt
Hannoversche Bank
Hildesheimer Bank
Osnabriicker Bank
Oldenburgische Spar-und-Leihbank
Rheinische Kreditbank
Schlesischer Bankverein
Siiddeutsche Bank
Deutsche Treuhand-Gesellschaft
Privatbank zu Gotha
1
Niederlausitzer Kredit-und Sparbank
Braunschweiger Privat Bank
Total

3, 601, 770,000

Disconto-Gesellschaft
Norddeutsche Bank
Barmer Bankverein
Rheinisch-Westfalische Disconto Gesellschaft
Diirener Bank
Siiddeutsche Disconto Gesellschaft
Bayerische Disconto & Wechselbank
Brasilianische Bank fiir Deutschland
Bank fiir Chile und Deutschland
Bank fiir Thiiringen vormals B. M. Strupp
Schlesische Handelsbank
Geestemiinder Bank
_
_
Magdeburger Bankverein
Total

1, 908, 160, 000
204, 940, 000
345, 540, 000
15, 320, 000
48, n o , 000
57, 540, 000
233, 450, 000
87, 620, 000
36, 430, 000
67, 020, 000
56, 710, 000
307, 380, 000
160, 380, 000
33, 550, 000
3, 690, 000
20, 750, 000
3, 650, 000
n , 530, 000

873, 230, 000
254, 270, 000
233, 300, 000
240, 770, 000
26, 400, 000
113, 980, 000
51, 970, 000
74, 580,000
44, 450,000
44, 730,000
12, 550,000
12, 990, 000
42, 470, 000
2,025, 690,000

Miscellaneous Articles on German
Dresdner Bank
.
A. Schaaffhausen'scher Bank-Verein
Rheinische B a n k .
Markische Bank
Westfalisch-Lippesche Vereins-Bank
Mittelrheinische Bank
Miilheimer Bank
Wurttembergische Landes-Bank
Pfalzische Bank
Oberschlesische Bank
Oldenburgische Landesbank
Mecklenburgische Bank
Schwarzburgische Landes-Bank
Deutsche Slid-Amerikanische Bank
Total

Banking
Marks.
1,021,900,000
593, 930, 000
82, 350,000
22, 990,000
21,570, 000
65, 790, 000
26, 380,000
21, 220, 000
184, 580, 000
9, 170, 000
42, 440, 000
19, 500, 000
11, 530, 000
47, 580, 000
2, 170,930,000

Bank fur Handel und Industrie
Breslauer Disconto Gesellschaft
Deutsche National-Bank
Ostbank f iir Handel und Gewerbe
Vereinsbank Wismar
Wurttembergische Bankanstalt
Total

599, 540, 000
93, 710, 000
109, 590, 000
91, 800, 000
16, 090, 000
24, 190, 000
934, 920,000

Commerz- und Disconto-Bank
Kredit- und Sparbank Leipzig

359, 010, 000
16, 310, 000

Total

375, 320, 000

The above groups represent a joint capital of 9,108,630,000 marks, and if to this be added that of the Berliner
Handelgesellschaft and of the Nationalbank fur Deutschland, the 8 leading Berlin banks, with their affiliated
banks, represent a controlled capital of 9,849,180,000
marks, or about 74 per cent of the entire capital controlled by all the 421 banks. This will show the dominant position which the leading Berlin banks actually
occupy in the banking system.

National

Monetary

Commission

In the interest of greater clearness it should be stated
that in the above summary of the entire capital of the
various groups the amounts of capital stock held by the
allied banks in the shape of permanent participations
are duplicated. The extent of these duplications can
not be ascertained, since the banks fail to make specific
statements regarding this point in their annual reports. It
is true that many banks carry in their reports the special
account " permanent participations/' but they fail to
give specific figures under that head. Of the Berlin
banks only the Disconto-Gesellschaft, besides giving the
total of its "permanent participations," states separately
among its holdings the entire capital of the Norddeutsche
Bank in Hamburg, 50,000,000 marks ($11,900,000).
But if it is intended merely to demonstrate the power
of the combined capital represented by the bank
groups—and this is after all the main purpose of
this study—it is really of secondary importance to ascertain the exact extent of the duplicated capital amounts.
For in actual practice each of the allied banks operates
with its full capital (capital and surplus) without regard
to the portion of stock interchanged on which their
community of interest is based.
Even aside from the increase in capital power which
accrued to the leading Berlin banks as the indirect result
of their alliances, the annual increments of capital since
1900, both absolute and relative, were larger year by
year in the case of the Berlin banks than in the case of
the provincial banks. A reversal in this regard occurred
in 1906. For that year the increase in capital controlled

Miscellaneous Articles on German

Banking

amounted in the case of the Berlin banks to 12.5 per cent
(1905,15.7 per cent); in the case of the provincial banks, on
the other hand, to 20.7 per cent (1905, 16.6 per cent).
The year 1907 brought even a stronger turn in favor of
the provincial banks. The latter noted an increase of
the capital employed of 14 per cent; the Berlin banks,
on the contrary, showed almost complete stagnation,
the increase amounting to only 0.13 per cent. This
movement during the years 1906 and 1907 must not,
however, be regarded as the beginning of retrogression;
it is to be attributed solely to the fact that as the
result of strained conditions in the money market a relatively larger portion of the funds of the industrial and
mercantile community which in former times was kept
with the Berlin banks was withdrawn, and, on the other
hand, that the amounts placed by these interests at the
disposal of the Berlin banks were smaller than the
amounts placed by them during that time at the disposal of the provincial banks. It must also be considered that in times of redundant money the provincial
banks often place considerable funds at the disposal of
the Berlin banks, which are withdrawn whenever the
credit demands of their own clientele increase.
By arranging the largest institutions, with a capital of
30,000,000 marks and upward, according to the amount
of capital controlled by them—which would express
their commercial importance—we obtain the following
table:

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Monetary

Commission

[In millions of marks.]
Total assets.

Capital.
1904.

1907.

1906.

1905.

1904.

Deutsche Bank
1, 908 1,813 i,557 1,367
Dresdner Bank
1,022 1,067
891
93i
Disconto-Gesellschaf t
707
873
783
863
Bank fur Handel und In600
dustrie
440
58S
594
A. S c h a a f f h a u s e n ' s c h e r
Bankverein
5i6
594
473
56s
B e r l i n e r Handelsgesellschaft
380
321
420
43i
Bergisch-Maerkische B a n k . _ 346
273
247
315
Commerz
und Disconto
Bank
230
352
384
324
Nationalbank f .Deutschland. 323
212
343
298
Rheinische Credit Bank
184
307
270
259
Norddeutsche Bank
298
254
220
219
B armer B ankverein
148
233
209
179
142
Essener Creditanstalt
_
215
233
175
161
Pfaelzische B ank
180
185
169
Rhein. Westfael. Disconto
Gesellschaft
205
241
119
165
Mitteldeutsche Creditbank. _ 169
170
158
141
Schlesischer Bankverein
160
139
125
Dortmund. Effekten - und
Wechselbank__
66
72
71
65
Vereinsbank in Hamburg
159
144
Sueddeutsche Disconto Gesellschaft
114

200

180

168

160

170

154

145

134

125

100

85
80
75
5o
60
60
50

85
80
70
5o
60
60
So

85
80
7o
So
50
So
50

80
54
30

66
54

60
54
30

30
30

1907.

1906.

1905.

60
50

So
46
40
50

The table demonstrates clearly the large predominance
of the Deutsche Bank. Among the banks with more than
30,000,000 marks capital three mortgage banks must be
mentioned which do also an extensive credit bank business: The Bayerische Hypotheken- u. Wechselbank with
a capital of 54,290,000 marks and 1,133,520,000 marks
capital controlled; the Bayerische Vereinsbank, with
37,500,000 and 484,440,000 marks, respectively; and the
Allgemeine Deutsche Kreditanstalt, at Leipzig, with
90,000,000 and 375,710,000 marks, respectively. In the

Miscellaneous Articles on German

Banking

case of the two Bavarian institutions, by far the larger portion of the total funds is represented by mortgage bonds or
mortgages. In the case of the Leipzig institution this
portion is not very large. The amount of total funds
administered constitutes the only exact standard by
which the relative importance of the banks may be measured. No attempt has been made to present comparative
figures of business done, since these figures may be made
up in various ways according to the various methods of
bookkeeping used.
Returning to the above classification of the banks,
another feature deserving mention is the ratio between
capital owned by the bank and funds of outsiders administered (eignes und fremdes Kapital).
For the first group—8 Berlin banks with over 8o,ooo,coo
to 200,000,000 marks capital—the ratio of capital owned
(capital and surplus) to the total funds of outsiders (deposits, credit accounts, and acceptances) amounts to 32.3
per cent; for the second group (116 banks with 1,000,000
to 80,000,000 marks capital) to 40 per cent; for the third
group (197 banks with less than 1,000,000 marks capital)
to 21.2 per cent; and for the fourth special group (15
banks with 30,000,000 to 80,000,000 marks capital) to
42.1 per cent.
It is seen that this percentage is lowest for the third
group—that is to say, the small and smallest banks employ outsiders' funds to a very much larger extent than
the medium size and large banks. A glance at a Table 17
shows various small institutions with exceedingly low
percentages between capital owned and outsiders' funds.
These are institutions which for the greater part have

a See "Statistics for Germany," Part II.
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their origin in cooperative banks and are of local importance only. They enjoy t h e confidence of t h e public
within their local district, a n d in most cases deserve it
fully by conservative local investments of t h e funds
intrusted t o their care.
Next t o t h e small banks t h e ratio between capital
owned and outside funds is lowest for t h e 8 Berlin leading
b a n k s a n d highest for t h e 15 b a n k s with 30,000,000 t o
80,000,000 marks capital—that is, for t h e " m e d i u m - s i z e ' '
banks. I n t h e Berlin banks t h e total outsiders' funds
(credit accounts and deposits, exclusive of acceptances)
constituted a t t h e end of 1895 51 per cent of t h e total
funds (capital, surplus, credit accounts, a n d deposits);
a t t h e end of 1905, 69.1 per cent; a t t h e end of 1906, 71.2
per cent, and a t t h e end of 1907, 70.9 per cent. Until
t h e close of 1906 a rising tendency of this percentage is
therefore evident. In 1907 a slight decrease occurred.
For t h e largest and for a number of medium-size institutions this ratio was as follows:
RATIO OF CAPITAL AND SURPLUS TO DEPOSITS AND CURRENT ACCOUNTS.
1907.

Deutsche Bank
Dresdner Bank
Disconto-Gesellschaf t
Bank fur Handel und Industrie
Berl. Hand.-Gesellschaft
Schaaffhaus. Bankverein
Nationalb fur Deutschland
Commerz- und Disconto Bank
Mitteldeutsche Kreditbank
Barmer Bankverein—
_
_.
Berg.-Maerk. Bank
Rhein.Westfael. Disconto Gesellschaft
Essener Kredit-Anstalt
Pfaelzische Bank
Rhein. Kreditbank
Schlesisch. Bankverein
Vereinsbank in Hamburg

1906.

Per cent. | Per cent.
80. 0
80.9
70. 0
74-o
64. 2
63.1
64. 9
63.4
62. 3

62. 2

58. 3
65. 8

61. 5
68.3
68.4

66. 0 I

1
1

40. 5

50.1

44- 0
62 8

49.6
59-8

49 6

51.0

59 9

56.1
55-7
55-1
69. 2
7i.3

56 5
56 8
73 2
73 4

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In the first group (8 Berlin banks) the deposits at the
close of 1907 represented 25 per cent of outsiders' funds
(deposits and credit accounts), in the second group (116
banks) 42 per cent, in the third group (197 banks) 73 per
cent, and in the fourth group (15 banks) 39 per cent.
With regard to the first group it must be remembered
that the Berliner Handels-Gesellschaft, the Nationalbank
fur Deutschland, and the Commerz- und Disconto- Bank
do not carry deposit accounts. It will be observed
again that the small banks, with less than 1,000,000 marks
capital, class as deposits by far the larger portion of outsiders' funds entrusted to their custody (73 per cent). A
considerable part of these funds probably represent
actual savings, though, as was explained above, this is
not true of the larger portion of the total bank deposits.
For the rest, reference should be made to previous explanations showing that the distinction between " credit
accounts" and "deposits" as made by the banks, is more
or less arbitrary and not based upon uniform principles.
The modes of employment of the available funds are
shown in the following table:
In—

Group I—8 Group I I —
Berlin banks. 116 banks.
Per cent.

Cash and giro balances
Securities and syndicates.. _
Bills receivable
Loans on collateral _ _
_
Debit accounts
Permanent participations. _

Group I I I — Group IV—
197 banks.
15 banks.

10.8

Per cent.
4-9
8.9

23-5

22. s

9-7
47.0

12. 6

5-7

48.6

4-9

2-5

60. 2
1.8

4. 1

Per cent.
2. 1

13-9

Per cent.
4.8
9-8

16.3
47. 0
2. 2

The differences in the mode of employment of the funds
for the various groups are not important enough to call
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for special remarks and conclusions. Group III (small
banks) again deviates from the average, showing a relatively smaller amount in cash and giro balances and a
relatively larger amount in debit accounts.
The proportion of acceptances to debit accounts amounts
for Group I to 40 per cent, for Group II to 33 per cent,
for Group III to 2 per cent, and for Group IV to 45 per cent.
Large differences exist between the various banks as
regards the ratio between acceptances and debit accounts.
For the following large and "medium-size" banks this
proportion is as follows:
Per cent.

Deutsche Bank
Disconto Gesellschaft
Dresdner Bank
Schaaffhausen'scher Bkv.
Bank fur Handel u. Industrie
Berlin. Handels-Gesellschaft
Nationalb. f. Deutschland
Barmer Bankverein
Bergisch-Maerkische Bank
Essener Creditanstalt
•
Rhein. Creditbank
Rhein. Westf. Disc. Gesellschaft
Sueddeutsche Disc. Gesellschaft
Vereinsbank in Hamburg
Allgem. Elsaess. Bank-Gesellschaft
Deutsche Nationalbank
Magdeburger Privatbank
Schles. Bankverein
Pfaelzische Bank

44
54
46
39
23
41
34
42
33
26
45
27
36
35
57
46
44
9
63

The tables for all banks combined show that the rates
of dividends distributed by the banks during the twentyyear period have on the whole been very stable. The
fluctuation between the average maximum rate of 7.8
per cent and the average minimum rate of 5.5 per cent
amounts to only 2.3 per cent. The lowest rates are

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given for the years 1891 and 1893, and subsequently for
the years 1901, 1902, and 1903. These were years of
general economic depression. The banks in particular
passed then through severe crises, during which several
failures, some of them quite important, were noted.
For the year 1907 the average dividends for each of the
above four groups show the following rates: The average
dividend rate for the first group (8 Berlin banks) was
8 per cent; for the second group (116 banks), 6.7 per cent;
for the third group (197 banks), 6.8 percent; and for the
fourth group (15 banks), 6.9 per cent. The Berlin leading banks are shown to hold first place in the matter of
dividends declared. It should be remembered, however,
that these banks have accumulated considerable surpluses
on which no interest need be earned, but which operate
in the business just like the capital, as there is no separate
investment of the surplus. The small banks have even
relatively larger surpluses than the Berlin banks. The
proportion of surplus to the banks' own total capital
(capital and surplus) was for the first group 23 per cent;
for the second group, 14 per cent; for the third group, 29
per cent; and for the fourth group, 16 per cent. For the
Deutsche Bank this proportion amounts to 33 per cent;
for the Dresdner Bank, to 22 per cent; for the DiscontoGesellschaft, to 25 per cent; for the Bank fur Handel und
Industrie, to 16 per cent; for the A. Schaaffhausen'scher
Bankverein, to 20 per cent; for the Berliner Handels Gesellschaft, to 23 per cent; for the Commerz- und DiscontoBank, to 13 per cent; and for the Nationalbank fiir
Deutschland, to 14 per cent.

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Brief mention should also be made of the fact that, aside
from the visible reserves shown in the balance sheets, the
Berlin banks carry also considerable silent reserves, made
up of the large amounts written off their valuable holdings of real estate and movable property and as the result of careful balancing of the asset items, more especially of securities and participations. In this respect,
too, the Deutsche Bank takes first rank.
Figures for the German over-sea banks are given both
in the general table, as well as in the special table, showing
the condition of the banks at the close of 1907. Summary figures for the same date are also given in the special Table 18. The central offices of these banks are in
Berlin and Hamburg, respectively, though the actual business is done by the agencies abroad. Until the present,
however, only the Deutsche Ueberseeische Bank, founded
by the Deutsche Bank, the Brasihanische Bank fiir
Deutschland, founded by the Disconto-Gesellschaft, and
the Bank fiir Chile und Deutschland have done any considerable business. The Disconto-Gesellschaft has also
affiliations with the Deutsche Afrika Bank and with the
Deutsche Palastina Bank. The Deutsch-Siidamerikanische Bank and the Deutsche Orient Bank have been
founded by the Dresdner Bank, the A. Schaaffhausen'scher
Bankverein, and the Nationalbank fiir Deutschland.
These institutions, as well as the America Bank, established by the Bank fiir Handel und Industrie, are foundations of recent years. The Deutsche Westafrikanische
Bank is closely affiliated with the Dresdner Bank.
When, a few years ago, the leading Berlin banks considered their organization and the extension of their do-

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mestic sphere of interests on the whole completed, they
undertook with increased energy the extension of their
over-sea connections. To these endeavors the Deutsche
Orient Bank, the Deutsche Sudamerikanische Bank, and
the America Bank particularly owe their origin. The
purpose of these banks is as much to aid German commerce
by carrying on a regular banking business in the countries in question as to further the large financial undertakings of the parent institutions (underwriting of foreign
loans). There is strong rivalry between the individual
Berlin banks, on the one hand, and between the latter and
foreign financial institutions, on the other, with regard to
business in the Near East, particularly in Turkey. As
regards the latter country the Deutsche Bank has been
instrumental for many years in placing considerable capital in various transportation enterprises, such as railroads
and harbor improvements. More recently the bank has
been trying to extend its sphere of interests by opening
a branch in Constantinople.
Competition between the leading Berlin banks is still
quite noticeable in the foreign business, as well as in the
regular banking business. In the field of large financial
transactions, especially the issuing of domestic industrial
securities, joint action on their part is becoming the rule
in an increasing manner.
The larger part of the stock of the older over-sea banks
and probably the entire stock of the newer banks of that
type are held by the Berlin parent institutions.
The Deutsche Ueberseeische Bank has found a profitable field of operation in South America. The same is

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true of the Brasilianische Bank fur Deutschland and of
the Bank fur Chile und Deutschland which have become
firmly rooted in their respective territories and on the
whole show satisfactory results. The activity of the
Deutsche Sudamerikanische Bank and the Deutsche Orient
Bank has not yet extended much beyond perfecting their
organization. Moreover, the financial crisis in Egypt in
1907 and the recent economic depression in South America
were bound to react unfavorably upon the development
of these young institutions. I^east satisfactory has been
the development of the America Bank, which was also
founded during the most recent period. Its special purpose was to issue and deal in American securities. This
bank started extensive financial operations with a relatively large capital, but owing to the general reaction
in the field of commerce, industry, and on the stock exchange the new bank has been unable to make much
headway. Its operations for the first years show a net
loss.
(d) THE LAND MORTGAGE BANKS.

The number of land mortgage banks increased from 28
to 41 between the years 1888 and 1907. As may be seen
from the special table, there has been no change in their
number for several years. These banks, as stated in the
earlier part of the study, require a franchise on the part
of the government authorities, who, it seems, do not find
that there is sufficient need for new institutions of this
kind. The number of their branches is relatively small
and far below that of the credit banks. Only a few nonPrussian mortgage banks have opened branches in Berlin.

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This was done partly in view of the extensive field of operations which this rapidly growing city offers to banks of
this type. It may be added that the establishments having branches in Berlin are all banks of the "mixed type,"
i. e., institutions which besides land mortgage business
proper (i. e., the granting of mortgage loans and the issue
of mortgage bonds), transact also an extensive credit-bank
business. It is mainly in the interest of the latter class
of business that they adopted the decentralized system of
the credit banks, i. e., the opening of branches. Chief
among them is the Allgemeine Credit Anstalt in Leipzig,
which is extending its credit business continuously at the
expense of all other classes of banking operations, and the
South German (Bavarian) institutions. The latter, during
recent years particularly, have largely extended their
branch system in South Germany by absorbing small
banks and private banking firms. This was done mainly
to counteract the effect of the concentration movement
started by the Berlin banks. When this movement
assumed serious proportions in South Germany, the land
mortgage banks of that section became alarmed not only
about their bank-credit business but even more so about
the possibility of losing the most valuable agencies for the
disposal of their mortgage bonds. For it was mainly the
small banks and private banking firms, absorbed by the
Berlin banks, which were instrumental in the sale of these
bonds to the public. In order, then, to save their bond
market, the South German banks during the years 19051907 showed an increased activity in establishing branches
of their own.

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Among mortgage banks of the mixed type are found the
Bayerische Hypotheken- und Wechselbank in Munich, die
Bayerische Vereinsbank in Munich, the Vereinsbank in
Nuremberg, the Bayerische Handelsbank in Munich, the
Aktien-Gesellschaft fur Boden-und-Kommunal-Kredit in
Elsass-Lothringen in Strassburg, the Wurttembergische
Vereinsbank in Stuttgart, the Mecklenburgische Hypotheken- und Wechselbank in Schwerin, the Allgemeine
Deutsche Credit Anstalt in Leipzig, the Anhalt Dessauische
Landesbank, the Landwirtschaftliche Kreditbank in Frankfurt am Main, and the Grundkreditbank in Konigsberg.
With the exception of the Landwirtschaftliche Kreditbank in Frankfurt am Main and the Grundkreditbank in
Konigsberg, which issue bonds made out to a specified
person and indorsable in blank, all of the mortgage banks
issue mortgage bonds made out to bearer. The two institutions further mentioned in the table, the Kommunalbank
des Konigreichs Sachsen and the Kreishypothekenbank
in Loerrach, are not mortgage banks in the sense of the
imperial mortgage-bank act, though their business methods
differ but little from those of the mortgage banks proper.
Practically all the mortgage banks have accumulated large
reserves, particularly so since the Imperial mortgage-bank
act (July 13, 1899) went into force. At the close of 1888
the ratio of their reserves to capital was 20.2 per cent; at
the close of 1895, 24.8 per cent; at the close of 1899, 29.5
per cent; and at the close of 1907, 40.8 per cent. In other
words, the reserves increased considerably faster than the
capital, particularly so since 1899. And it must be said
that the mortgage-bank act has had something to do with
this development.

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The issue of mortgage, communal, and local railway
bonds is restricted by the requirement that they must be
secured by claims of at least equal value and bearing
at least the same rate of interest. (Sec. 6, Par. I, of the
imperial mortgage-bank act.) The total amount of these
issues must not exceed a fixed proportion of the capital
including the legal and other reserves whose exclusive
destination is to make up losses shown in the balance
sheets or to secure the mortgage bonds.
Section 7 of the mortgage-bank act fixes the permissible maximum circulation of mortgage bonds at fifteen
times the combined amount of the original capital and
the reserve funds named. In case communal and local
railroad bonds are issued the total amount of the securities must not exceed by more than one-fifth the maximum
amount for mortgage bonds fixed by section 7. The
imperial mortgage-bank act of July 13, 1899, however,
guarded the vested rights of the then existing institutions
to some extent by providing in paragraph 48 that a mortgage bank, which at the time of the promulgation of the
law had the right to issue securities in excess of the
above-mentioned maximum, should retain this privilege,
provided, however, that the circulation of mortgage
bonds must not exceed twenty times and (including the
circulation of communal and local railroad bonds) twentyfour times the paid-in capital. The latter was to be considered in this connection only on condition that it
remained within the amount at which the capital of
the bank was found fixed by the charter under date

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of May i, 1898. Within these maximum legal limits the
banks enjoy, of course, full liberty of stipulating in their
own charters the limits of circulation, and thus almost
every bank has its own way of fixing its maximum bond
circulation.
According to the general table (Table 19) the ratio
of capital and surplus to bond circulation has not been
subject to large fluctuations during the twenty-year
period. The special table for the close of 1907, on the
other hand, shows considerable differences with respect
to this ratio for the individual institutions.
The lower this ratio the better for the dividend interests
of the shareholders. A low ratio may also benefit the
borrowers, i. e., the mortgagors, since with a relatively
large circulation of mortgage bonds the banks can afford
to be satisfied with smaller profits on each additional loan
transaction than with a relatively small bond circulation.
The reverse is true as far as the holders of the mortgage
bonds are concerned. What they are interested in is a
relatively small bond circulation and a relatively large
capital (capital and surplus) of the bank, inasmuch as the
security of the bonds is partly based on the bank's own
capital. Experience, however, has taught that the actual
security of the bonds is found primarily in the quality of
the mortgages, i. e., the value of the properties mortgaged.
The provisions of the imperial mortgage act are likewise
based upon this consideration. As stated in the first part
of this study, the methods of appraisal as well as the procedure in granting loans followed by the mortgage banks
have, on the whole, proved conservative and reliable.

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Occasional losses of capital and interest are unavoidable; at times it may even happen that the banks have to
take over the mortgaged properties at forced sales, in case
third purchasers are not on hand, or when the price offered
is not sufficient to satisfy the claim of the bank, or when
the sale does not come off.
In times of depression, when real estate values are low,
the acquisition of the property by the bank may prove
a profitable investment in the long run, since with the
passing of the temporary depression the property can be
easily disposed of at a higher price. The banks avoid,
however, as a matter of principle, such acquisitions.
They prefer to suffer small losses, which they cover out
of their surplus, rather than introduce any speculative
features into their business operations. This is, moreover, absolutely in conformity with the provisions of the
mortgage-bank act.
According to this act, the bank, for the purpose of
securing its bond circulation, may book the value of
the mortgage resting upon such a property not higher
than at half the amount at which it was booked before
the property was acquired. If this reduction causes a
deficiency below the legal minimum in the security of
the outstanding bonds and the shortage can not be
made up at once by new mortgages, the bank has to
make it up in the shape of debentures of the Empire or
those of a Federal State, or by cash. In a general way,
it may be said that the legal provisions regarding the
security of the mortgage bonds have been framed with
the view of meeting all emergencies and of protecting to

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the utmost the interests of the holders of the mortgage
bonds.
The combined amount of the " secured mortgages/'
the communal and local railroad bonds, represents, as
a rule, a total security considerably in excess of the
amount of circulating bonds. Whenever this security
proves insufficient, the amount short, as was stated
before, must be turned over to the trustee in the shape
of debentures of the Empire or of a Federal State. The
mortgage-bank act of 1899 prescribes the keeping of
separate accounts for ''secured mortgages'' and "unsecured mortgages." The latter are also acquired largely
for the purpose of serving as bond security. Their
effective use for that purpose is excluded either temporarily for purely formal reasons or else by the provisions
of the charters of the respective institutions which exclude
from bond security mortgages on building sites or uncompleted buildings. The mortgage-bank act permits the
use as bond security of mortgages on building sites and
on buildings in process of construction (and therefore
yielding no income) only to the extent that their total
does not exceed one-tenth of the total amount of all the
mortgages used in securing the bonds outstanding and
one-half of the paid-in capital.
As regards the term "building site," the imperial
supreme court (Reichsgericht) has held that a piece of
ground becomes a "building site" in the sense of the
law only in case it is situated on a street laid out for
building purposes in accordance with the respective
police regulations or, at least, when the building lines

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have been fixed by the authorities, and if in view of the
past and possible growth of the settlement the construction of the street can be surely expected within the
proximate future, and, finally, in case there are no legal
objections against the erection of a building thereon.
The mortgage banks are not permitted to grant loans
on pieces of ground which do not conform to the above
requirements or which are neither improved nor under
cultivation, and therefore yield no income—i. e., mortgages on such land can not serve as bond security.
By far the greater part of " secured mortgages" rest
upon improved urban property, chiefly property in the
large cities. A rural mortgage-loan business of some
importance is carried on by two banks only, the Preussische Central Boden Credit Aktien-Gesellschaft in Berlin and the Bayerische Hypotheken- und Wechselbank
in Munich. Mortgage loans granted by these institutions on rural property are repayable in annual instalments. The main result of the activity of the Preussische Central Boden Credit Aktien-Gesellschaft in this
field has been thus far the conversion of terminable
mortgage loans on rural property into loans redeemable by means of small periodic payments. The spread
of the new form of amortization credit has been undoubtedly a great boon to the agricultural classes, and part
of the credit for this commendable improvement belongs
to the above-named Prussian bank. The Bayerische
Hypotheken- und Wechselbank has been for years the
principal source of credit for the Bavarian rural landowning classes.

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The owners of urban property, as a rule, are not much
disposed to favor the above system of interminable
mortgages, and repayable in instalments only, for the
reason that encumbrances of this sort tend to restrict
the market for the property thus encumbered. Mortgages
on urban property in most cases, therefore, are of the
terminable class, running usually for a fixed term of ten
years. At the expiration of that term the mortgage is
either paid off or extended for another ten-year period.
An opportunity is thus offered to either side to change the
rate of interest in accordance with conditions prevailing
at the time in the loan market.
On the whole, interest rates on mortgage loans are
subject to but slight variations. It should be remarked,
however, that the borrower when obtaining a mortgage
loan has to pay a bonus the rate of which will be considerably higher in times when money is scarce than in
times when its supply is redundant.
The column "Outstanding interest" comprises the
interest payments on mortgages due at the end of the
year but remaining unpaid. The larger part of these
payments is made only during the first months of the
succeeding year. The arrears are for the current fiscal
year and in most cases only for the last quarter or part
thereof.
In times of a large increase in the supply of bonds
the mortgage banks may go into the market to buy
their own bonds. Such action prevents serious fluctuations in the quotations of these securities and fits them to
be objects of permanent as well as temporary investments,

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including the investment of funds which must be kept in
liquid shape.
The imperial mortgage-bank act permits such operations by the express provision that mortgage banks
may employ their available resources for the purchase
of their own bonds. These bonds, which are reissued
at the nearest favorable turn, are shown as assets in
the balance sheets and booked either separately or on
securities' account. In order to ascertain the true bond
circulation the amount shown under the head "Own
bonds'' must, therefore, be deducted from the total
bond circulation stated. But even that would not give
the exact amount, since the "Own bonds," being assets,
must by law be entered in the balance sheet at the price
purchased or quoted on exchange, while the outstanding
bonds, being liabilities, figure there at their nominal prices.
The item "Loans on collateral" (Lombards) is composed of mortgages and securities pledged. The other
items of the table require no further explanation.
The average rates of dividends paid by the mortgage
banks show great stability and are somewhat higher
than those paid by the credit banks. The greater part
of the dividends earned proceeds from mortgage and
mortgage-bond transactions. In the case of institutions
of the "mixed type" the profits from the other classes
of business also enter the total to a larger or smaller
extent.
The net proceeds from the mortgage and mortgage
bond business are made up of interest and bonuses
paid by the mortgagors less the interest on the mortgage

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bonds, the cost of preparing these bonds, and the commissions to banks and bankers on the sales of these bonds.
No separate account is kept of these commissions. The
profits and losses from the sale and repurchase of their
own bonds in open market, and due to the fluctuating
market quotations, in the long run neutralize each other.
Their mode of accounting is minutely prescribed by the
mortgage act. It may also be stated that the total
receipts from loans exceed on an average by about onehalf of one per cent the total interest payments on the
bonds (exclusive of the cost of preparing and placing the
bonds).
The two main items in the special table, "bonds" and
"mortgages," are shown to have increased fourfold during the period 1888 to 1907. The great importance of
the mortgage banks in the domain of real estate credit,
especially that on urban real estate, is clearly shown by
the growth and present magnitude of the figures.
00 THE LANDSCHAFTEN (LAND CREDIT ASSOCIATIONS).*

The nature and the organization of the Landschaften
have been described in the first section. A statistical summary of their development during a given period is rendered difficult, because as a rule they do not publish
annual reports and balance sheets in the form used by
most of the stock companies. Only within recent years
have a few of the newer Landschaften adopted a method
of accounting somewhat similar to that used by the corporations, while the old Landschaften still retain their
former method. Their conservatism in this regard is due
a See "Statistics for Germany," Part 11, Tables 21 and 22.

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partly to sentimental attachment to the past. This is
easily comprehended when it is considered that some of
the institutions have been in existence for over one hundred and fifty years. The old Landschaften comprise the
Schlesische Landschaft in Breslau (established July 15,
1770), the Kur-und Neumaerkisches Ritterschaftliches
Kreditinstitut in Berlin (established June 15, 1777), the
Pommersche Landschaft in Stettin (established March 13,
1781), the Westpreussische Landschaft in Marienwerder
(established April 19, 1787), and the Ostpreussische Landschaft in Konigsberg, Prussia (established February 16,
1788).
A summary statistical presentation of the development
of all these institutions can show only a few common items.
No account can be taken of the various classes of mortgage bonds issued by the same, or the different institutions. Brief mention of these differences has been made
in the first part in connection with the general description of the organization of the Landschaften. Moreover,
the business of these institutions is so strictly limited to
one particular field, that its general features can be characterized sufficiently even by a few items.
The amount of the bond circulation conforms to the
amount of the mortgage holdings. It must be remarked
in this connection that the Landschaften, like the mortgage banks, do not grant loans on the properties—in
this case, the estates—up to the full amount of the appraised value, but only to a certain percentage of that
value. This percentage is not the same with all Landschaften, and the various Landschaften have in turn
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issued various classes of bonds, according to the varying
loan limits applicable to the underlying mortgages. The
safety funds, sometimes called " Eigentumliche Fonds,"
together with the mortgages, serve to secure the bonds.
The same applies to the amortization fund, which is made
up by the debtors in the form of annual contributions.
This fund is used to extinguish loans by means of bond
redemptions. The cooperative character of these institutions implies, however, that under certain conditions
the amortization fund may be drawn upon for the satisfaction of the claims of the bondholders. In the case
of the older institutions an additional security is afforded
by the joint liability of all the members of the associations, although the value of this security can not be expressed in terms of exact figures. In the case of some of
these institutions only part of their bonds are thus doubly
secured. The bonds of the Silesian Landschaft are secured in addition by the state domains, while the bonds
of the East-Prussian Landschaft are secured in addition
by the state domains and forests.
There can be no doubt of the unexceptional safety and
security of the bonds issued by these institutions. During the early years of their existence they were able to
rescue the landowners from financial distress; in subsequent years they rendered extremely valuable service to
the rural landlord class, and that they have been performing a useful function in the credit economy of the
nation even during the most recent period can be plainly
seen from the increase of their loans and bond circulation
during the last twenty years.

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Aside from the Prussian Landschaften (the Landschaften in the proper sense of the term), a there exist in
the other German Federal States credit institutions modeled after the Prussian Landschaften and of a similar
character as regards their organization and operations.
There are five institutions of this type, viz, Mecklenburgischer Ritterschaftlicher Kreditverein in Rostock, Wurttembergischer Kreditverein in Stuttgart, Erblandischer
Ritterschaftlicher Kreditverein im Konigreich Sachsen in
Dresden, Landwirtschaftlicher Kreditverein fur das Herzogtum Braunschweig in Wolffenbuttel. Their bond circulation at the close of 1906 amounted to 495,000,000
marks.
a See " Statistics for Germany." P a r t 11, Tables 21, 22.

II
THE ORGANIZATION OF CREDIT AND BANKING ARRANGEMENTS IN GERMANY."
By Geh. Oberfinanzrat WALDBMAR MUELLER, Director of the Dresdner
Bank in Berlin.

Germany was poor in capital when she entered on
the era of steam engines and railways. Through the
devastation of the Thirty Years' war, she lagged behind
her western neighbors and England. The results of a
century's economy later on were also lost, especially in
northern Germany, through the French revolution and
the Napoleonic wars. The dearth of capital among landowners was the economic reason for the elaboration of
the legal statutes concerning mortgages by which demands for credit on landed property were met in Prussia,
and, later, throughout the whole of Germany, to an
extent unknown in western countries.
In the present day when complaints are urged against
the great indebtedness of country landowners, the fact
must not be lost sight of that the transition from extensive to intensive operations in agriculture could not
have been accomplished without a wide use of mortgage
credit, and that such development was necessary to feed
the rapidly increasing population of the country. Moreover, through this great growth in the population a basis
a The following essay is reproduced from lectures held during the spring
of 1908 in Berlin before the Vereinigung fur
staatswissenschaftliche
Fortbildung.

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was created for industrial activity on a large scale. The
political unification of Germany after the wars of 1866
and 1870, the removal of restrictions on settlement and
trade, and the liberation of the share law (Aktienreckt)
from all its shackles, laid the foundation of Germany
as an industrial State. The natural outcome was a
rapid increase in the population of towns and a colossal
increase in the building activity within them. Dearth
of capital in this instance, too, formed a constant obstacle, and extensive mortgage credit was resorted to
again. The tasks of the Prussian agricultural loan societies (Landschaften) were undertaken for town property
by mortgage banks, of which a great number were established. Some of these banks, namely, those situated
outside Prussia, extended the field of their operations
to the country. The result, as can be seen in the following figures, was the indebtedness of landed property
to the utmost admissible limits.
At the present time the following mortgage bonds are
in circulation:
Mortgages of the "Landschaften" and similar corporations_
Mortgages of mortgage banks, about

Marks.
4, 500, 000, 000
9, 000, 000,000
13, 500, ooo, 000

Prussian savings banks alone loaned on mortgage between 1905-6—
On town property
On property in the country

3, 217, 229, 268
1, 882,558,357
5,099,787,625

Amount loaned on mortgages by non-Prussian savings
banks, estimated in proportion to their other investments
Mortgages of the German insurance companies, according to official statistics
Total

2, 500,000,000
3,400, 000,000
24, 500, 000, 000

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To this sum must be added the amount of mortgages
in the hands of private persons, of which no official
statistics exist, but which is estimated at 20,000,000,000
to 25,000,000,000 marks, so that the total indebtedness
of German landowners may be placed at 45,000,000,000
to 50,000,000,000 marks.
The above total is, if anything, too low, as, according
to the official statistics, the Prussian public register of
landed property, the additional registrations (of new mortgages, less those redeemed) from 1893 to 1905 amounted
to 18,000,000,000 marks for Prussia alone.
Revenue and tax returns form, as a rule, reliable guides
in the well-regulated German States for determining the
limits of credit to be granted on landed property used for
agriculture or for dwelling houses. The tax assessments
of the "Iyandschaften" and the mortgage banks are, on
the whole, so reliable for this category of landed property
that no serious risk is incurred in lending amounts up
to six-tenths of the estimated value, without reference
to the personal solvency of the temporary proprietor, and
that the granting of credit can be controlled from a central point situated at some distance from the property
mortgaged.
This does not apply, however, to mortgages exceeding
the limits already defined—for instance, to the second or
third mortgages following those of the "Landschaft" or
mortgage bank, in which the security originally existing
may cease owing to devastation, accidents, irrational
management, etc. Credit of such nature ought only to
be granted where the character and financial status, etc.,
of the owner are well established, and where the manage-

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ment of his affairs can be constantly kept under observation.
This also does not apply to property used for such
special purposes that it does not guarantee uniform results
to its owners' successors—for instance, theaters, large
stores, factories, and other industrial establishments. For
this very reason most mortgage banks do not grant such
mortgages. The credit on real industrial property is
consequently limited—thus an unused factory can only
be regarded as a security up to the amount that the
housebreaker will give for it, and the value of its site
for building purposes. The issue of bonds (secured by
mortgage) of industrial companies also is only justifiable
in the case of works of repute the lucrativeness of which
is independent of changes in management. Loans on
building sites should only be granted by capitalists who
are prepared eventually to take over the sites and who
can afford to go without interest for some length of time
on the capital invested. Failing this, the lender should
at least realize that he is granting personal credit and not
credit on real property.
The real property creditor (Realcreditglaubiger) not only
possesses an immovable security that can not be exempted from seizure, but by the institution of the public
register of landed property (Grundbuch) he has a certain
"locus/' and can always ascertain whether real property
creditors are registered before and after him. On the
other hand, whoever grants personal credit has to reckon
with the facts that any real property possessed by his
debtor may be already encumbered with debts, or that
it may become burdened with debts later without his

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knowledge; that personal property is subject to all kinds
of sudden changes, and, above all, that in the event of insolvency he has to compete with creditors hitherto unknown to him, and with whom at the best he can only
share and share alike.
From a rational point of view, therefore, personal
credit can only be granted by a person in a position to
constantly gauge and observe the monetary circumstances, the methods of management, trustworthiness,
and solvency of the person seeking credit. The granting
of personal credit can not by its very nature be schematized according to symptoms controllable at a central
point, but requires decentralized organization. The
German Reichsbank forms only an apparent exception to this principle, as, according to its statutes, it
discounts bills that bear the signatures of three, or at
least two, persons known to be solvent, and it operates
throughout the whole of the Empire with its credit lists
according to a certain routine. For, firstly, this purpose
necessitates a decentralized network of about 500 branch
establishments, and, secondly, the bill credit is limited
to certain categories of the population possessing means
which are easily gauged, and in isolated cases to fractions
of the estimated means, these fractions diminishing the
lower these means are in the scale. Even the Reichsbank
is not able to include the " small man," peasant, or mechanic among those to whom it grants credit.
As a rule, the very nature of personal credit necessitates,
in contradistinction to credit on landed property, a short
term (Kurzfristigkeit). Not only the payment of interest
but also repayment should be assured by receipts of the

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debtor in the normal course of his business and within a
reasonable space of time. Whenever the credit is renewed a fresh examination of the state and management
of the debtor's affairs should take place. In cases in
which personal credit is requested from the outset for a
long space of time, satisfactory conditions and specal
confidence in the debtor are sine qua non; as, for instance,
when the working capital is advanced for a new undertaking until it proves profitable. Such credit forms an
exception and ought only to be sparingly granted by
credit institutions, especially those which manage the
money of other persons in addition to their own. A
creditor who granted the majority of his clients long-term
personal credits would most probably incur bad debts and
would have to exact usurious interest in order to obtain
compensation for his losses. The usual rate of interest
would not be an equivalent for the risk involved.
A compromise between credit on property and personal
credit consists in credit covered by bail-mortgages
{Kautionshypotheken) or by movable pledges. Pledges
consisting of securities, or wares that can be stored, may
be considered as equivalent to real estate as a basis of
credit. These different kinds of credit will be dealt
with under the branches of banking business. Other
pledges such as furniture and fittings, machines, utensils,
tools, raw materials in the process of manufacture, semimanufactured goods, and in particular everything that
must remain on the debtor's premises, e. g., the stock and
stores with the constant additions thereto and sales therefrom, are of less value and are frequently only illusory

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securities; the more so as it is very difficult to distrain on
such securities for debt.
It is evident from the above that the landowner, the
mechanic, or the middle-class tradesman can obtain personal credit only to a limited extent unless he possesses
available property in securities apart from his occupation.
Under normal circumstances the farmer ought only to
resort to such credit temporarily in order to strengthen
his working means during the tillage and harvest seasons,
for the purchase of lean stock, and for procuring materials
for industrial subsidiary works, and ought to repay the
amounts advanced in the autumn or winter. The same
applies to small tradesmen and mechanics during the
buying and selling seasons. In such cases the local banks
and trading firms that purchase the products, or supply
materials to the borrower, figure mainly as lenders, for
they are able to form an opinion of the borrower's position, can control the repayment of the loan, and can procure means for granting credit exceeding their own
capital from provincial and metropolitan banks. For
example, the Berlin banks supply, through the agency of
local bankers, the cattle-breeding districts of North Germany with several millions of marks annually during the
purchasing season for lean stock. In the eastern provinces of Prussia the banks and loan companies founded by
the "Landschaften" render good service to the farmers.
The greatest importance, however, must be attached to
the gratifying development of the cooperative system
(Genossenschaft) during the last few years. As early as
the end of 1906 there were 15,602 credit associations
(Kreditgenossenschajten) in Germany, representing a

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credit organization with numerous branches and central
offices scattered almost over the whole of the flat country.
The central offices that come chiefly under consideration are:
i. The "Preussische Central-Genossenschaftskasse."
2. The " Reichsverband der Deutschen landwirtschaftlichen Genossenschaften ,, at Darmstadt, and the Agricultural Cooperative Bank {Landwirtschaftliche Genossenschaftsbank) in that town.
3. The Agricultural Central Loan Fund {Landwirtschaftliche Central-Darleheskasse) at Neuwied.
4. The General Union of the Schulze-Delitzsch Cooperative Societies {Allgemeiner Verband der Schulze-Delitzsch'schen Genossenschaften), for which the Dresdner Bank
undertook the duties of a Central Bank after its fusion
with the Deutsche Genossenschaftsbank.
Only the following figures need be quoted here:
The 5,685 cooperative societies {Genossenschaften) publishing balance sheets and controlled by the " Preussische
Central-Genossenschaftskasse" possessed means of their
own totaling 54,000,000 marks; the other means at their
disposal amounted to 758,000,000 marks, making a grand
total of 812,000,000 marks available for granting credit
to their members.
The 1,016 Schulze-Delitzsch associations, working conjointly with the Dresdner Bank, numbered 598,314 members at the end of 1906 and possessed means of their own
amounting to 273,000,000 marks, 983,000,000 marks deposits intrusted to their care, making a grand total of
1,256,000,000 marks, of which 1,056,000,000 marks was
loaned out at the end of the year as credit advances.

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Thus through the association of small isolated capitals,
which in the aggregate made large amounts, an organization has been created perfectly capable of meeting the
legitimate requirements of agriculturists, craftsmen, and
tradesmen of moderate means. Through the agency of
these associations the resources of the Reichsbank and
the metropolitan money markets are placed indirectly at
the services of these classes of the community.
For the above-mentioned reasons the credit granted
on real estate (Immobiliarkredit) in trade and industry
is less extensive than that granted to the owners of land
used for agricultural purposes and of town dwelling
houses. On the other hand, the conditions governing
trade and industry are better adapted to the granting
of direct credit by the large provincial and metropolitan banks. In Germany the number of large firms in
question whose books are well kept and that draw up
proper balance sheets is not so great as to preclude control, more especially as an admirably organized "inquiry
system" exists which renders excellent service in this
respect. Every bank has its own department for taking and keeping account of inquiries regarding every important firm, especially regarding joint-stock companies,
mining companies, limited companies, etc. The information required is supplied in such a conscientious manner
by business friends that it is seldom that the professional
inquiry offices have to be called upon for assistance.
Accordingly, the financial position, the business, and the
average business profit can be gauged with some amount
of certainty by the granter of credit; this applies, naturally, in a far greater degree to companies publishing

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regular business reports, balance sheets, profit and loss
accounts. Wholesale trading firms, as a rule, only convert a small amount of their capital into real estate, as
the modern arrangements for transport and storage render warehouses necessary only in exceptional cases. The
capital belonging to the firm and that intrusted to it for
investment is kept disposable in the shape of wares and
claims; can be seized by the creditors, and, in the case of
insolvency, can be realized by the creditor in so far as
the wares are salable. This applies especially to the
so-called staple articles, i. e., articles used daily in
large quantities, chiefly raw materials, such as cotton,
wool, corn, maize, rice, petroleum, wood, copper and
other metals, ore, etc. These articles, whether warehoused or floating (and represented by bills of lading),
are regarded favorably as pledges, and money is lent upon
them within a certain margin of their market value. The
risk is less and the margin between loan and market
price smaller in proportion as the differences in quality
and fluctuations in price of the respective articles and
the danger incurred by storage or transport are reduced.
More money is lent on cotton than on coffee, more on corn
than on lard or American meat. A dealer thoroughly
conversant with his branch of trade and astute in selling
and purchasing can convert his business capital into wares
several times over without incurring risks exceeding his
capabilities. Provided that his wares are stock articles
that are always salable, he can by pledging them demand
credit to an amount of several times his capital. Sureties for other credit can be given by securities, bail-mortgage bonds (Kautionshypotheken) on landed property of the

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debtor, or on the security of relations or business friends.
Credit without the deposit of securities, i. e., " blank
credit," will have to be kept within the limits of the estimated or obvious property, and as a rule can only be
obtained from a lender who, on the basis of reliable
information, or previous business relations, is convinced
of the trustworthiness of the debtor and the lucrativeness
of his business. A banker granting this kind of credit
generally makes the stipulation that his shall be the sole
bank having relations with the debtor, so that the settlement of all transactions takes place with his knowledge
and approval. The regular advantages of trade credit
consist of the short period of the loan resulting from the
very nature of the business transacted, which as a rule is
settled within a few months, or within a season; whereby
an opportunity is presented to the lender of severing the
connection without loss should the position, or business
management, of his client cause apprehension.
These advantages do not apply in the same measure to
credit granted in industry. The prosperity of new enterprises is as much dependent on the state of the market
and conditions of competition as on the soundness and
excellence of the enterprise, and can hardly be estimated
in advance even by experts. Further, in the event of
the new enterprise flourishing, the profits can not be
utilized at once for the repayment of credit granted; as
a rule they hardly suffice for the necessary expansion and
improvement of the concern. Hence, the lender (Kreditgeber) who has once become involved in an industrial
enterprise is frequently compelled to increase the amount
of credit given to an extent not originally anticipated, or

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to share the credit granted with other lenders, whereby,
however, a comprehensive view of all the conditions prevailing is rendered more difficult. It is very difficult, for
example, to withdraw credit when business is decreasing
without imperiling the debtor's existence, and a certain
stigma always attaches itself to such a procedure. These
reasons necessitate an industrial enterprise being better
provided with capital of its own from the very beginning
than is required in a commercial business, and the lender
must possess sufficient means to be able to meet an
increased demand for credit later on. Corresponding to
the increased risk, the conditions under which the credit
is granted ought to be more profitable, and the capitalist
will frequently prefer participation through a share in the
profit of the enterprise to demanding interest which might
be regarded as usurious. Banks and bankers after much
experience have come to regard such participation with
suspicion, and are also loath to grant credit to new undertakings unless the participation of capitalists who have
proved their merit in other enterprises offers them special
guaranties. They prefer entertaining credit relations
with older concerns that have already become .regularly
profitable, especially with dividend-bearing joint-stock
companies whose publication of balance sheets invites
confidence. This is especially the case if the lender happens to be represented on the board of directors of the
company concerned, and is thereby cognizant of all
important occurrences. Limited companies as a rule do
not offer the same guaranties, and their credit depends on
the trustworthiness of the persons participating, and
eventually on the security of such persons.

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The amount of personal credit to be granted to an
industrial establishment must be gauged by the existing
liquidable assets—that is to say, the raw materials,
semi-manufactured wares, and finished goods, as well as
claims for goods sold (debtors). These are the assets
which, in case of insolvency and the winding up of the
concern, could be turned into money for the benefit of the
creditors.
A great distinction must be drawn, however, between
manufactured wares for wholesale public consumption and
goods that can be utilized only for special purposes, or
fancy articles. The more remote the possibility is of immediate realization without a drop in prices, the smaller
should be the amount of credit granted.
It is difficult to obtain credit on ladies' mantles, automobiles, and articles belonging to the trade in sporting
goods. In those branches of trade where it is customary
for the purchasers to pay for goods by bills, the manufacturer obtains discounting credit by negotiating the
same. Where this is not the case the outstanding claims
may justify "blank credit." In doubtful cases the
creditor has some of the claims assigned to him. The
amount of credit on landed property varies according to
the situation and condition of the factory site and works
and is obtained through mortgage loans, or, in the case
of joint-stock companies, by the issue of registered
debentures. Beyond this, security by mortgage or the
registration of bail mortgages (Kautions-Hypothekeri) is
of dubious value. A cautious lender regards such as only
a safeguard against distraint on the objects in question
by unknown personal creditors.
77267—10

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It may be asked here, How can the above views be
reconciled with the complaints frequent in the press
and in Parliament that the credit granted to industry
is too extensive, that money is advanced to industrials
by credit banks not only for their existing works but for
the extension of their works, and that an unhealthy expansion of industry is produced thereby? There is not
the slightest doubt that among industrial speculators,
especially among the inventors of new processes of
manufacture, there are optimists who overestimate the
chances of their projects and who through their powers
of persuasion are able to infect lenders with their enthusiasm. Banks and bankers, having learned much from
bitter experience, are more skeptical in this respect than
private capitalists.
Despite this fact, bank directors have occasionally become infatuated with enterprises and inventions and
burned their fingers. I need only recall to mind the seamless pipes of Mannesmann and the overestimate of the
lucrativeness of small-gauge railways and similar
episodes. Apart from such cases, however, the complaint urged is based on a false premise, by endowing the
lender with a kind of responsibility and guardianship
which borrowers would not submit to unless they were in
a very precarious position; that is, deserved no credit at
all. The usual run of the ordinary case is as follows:
The owner of some cotton mill, the real property value
of which with machines, etc., is booked at 1,000,000
marks, on which there is a mortgage of 400,000, lays his
balance sheet before the directors of a bank. According to
his balance sheet he has a property of 1,500,000 marks,

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raw materials and manufactured wares valued at 500,000
marks, outstanding claims for wares sold estimated at
700,000 marks; but on the other hand he owes creditors
300,000 marks for raw materials supplied. He applies
for a temporary banking credit of 400,000 marks, his
business profits, amounting to 700,000 during the last
year. The inquiries made are satisfactory, and there is
no objection to credit being granted without further
explanation, the liquidable assets exceeding twofold the
amount of the credit demanded. Now, should a bank
director conduct an inquisitorial inquiry as to what the
credit is required for, the spinner would be offended and
open up negotiations with some other bank. Further,
supposing we assume that he has already had accountcurrent transactions with the bank and he voluntarily
tells his friend the bank director that he intends
increasing the number of his spindles and must erect
new buildings for this purpose. Is it the duty of the
bank director to discourse adversely on the expansion
of the cotton-wool industry during the existing state
of the market and to advise the mill owner to wait
until he can cover the cost of the increased number of
spindles from the surpluses of his own profits? A lecture
of the above description would probably terminate the
friendship. An iron industrial would be still less inclined
to put up with such objections if he deemed it necessary
to reduce the cost of production by modernizing his
works, by laying down new rolling plant or electric installations; the same applies to coal mines requiring a
new shaft. In all such cases the lender's principal task
is to determine whether the liquidable assets of the debtor

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are sufficiently secure, even should the purpose for which
the borrowed money is to be used turn out a failure or
be unprofitable, and, secondly, whether the lender's own
business situation permits of his increasing the amount of
his loans. It is not incumbent on the lender to go beyond this and play the part of Providence. Consequently
it is an erroneous view to hold banks responsible, not only
for finding out whether they can grant credit safely, but
also for the use made of such credit by the borrower.
The credit system of the State and municipalities at
home and abroad still remains to be reviewed. This will
be done most suitably in connection with the branches of
banking business.
Various systems can be adopted in the banking profession for the transaction of business. The most lucrative
method, at all events the one in which the power of large
capital is most effectively turned to account, is that of the
Rothschild firms, whose example was followed by many
large private concerns at home and abroad. These firms
avoid troublesome current business, maintain only a few
connections, and concentrate their whole energies on
isolated but important ventures and undertakings in
which, owing to the large amount of means immediately
required, no competition worth mentioning existed before
the growth of capable joint-stock banks. Up to the middle
of last century these firms actually possessed a monopoly so
far as the loan issues of most European States were concerned, and they earned enormous profits according to present-day ideas. I read a short time ago in Minister von
Manteuffel's very interesting memoirs a description of the
difficulties encountered by Prussia in 1854 in raising a loan

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of 15,000,000 thalers without the assistance of the Rothschilds. The Rothschilds had offered a rate of 92, minus
2 for commission, for a 4 ^ per cent loan, and the Minister
of Finance at that time, Herr von Bodelschwingh, had great
trouble in breaking off the negotiations in question opened
up by the cabinet council (Niebuhr). In the course of the
last decades, however, this monopoly has been done away
with so far as European States are concerned and only
prevails to a limited extent in some foreign countries.
Since that time the Rothschilds have devoted themselves
to several large industrial enterprises, such as the Russian
naphtha industry, the Spanish copper and quicksilver
mines, etc. Their system had the advantage of lucid
arrangement which enabled principals to carry on business
with a small staff in small private offices—i. e., with a minimum of business expenses—and, further, with the advantage of constant readiness for gigantic transactions with
high profits whenever such transactions could be effected.
Even to-day it is a most profitable business to sell shares of
the Rio Tinto mines, which they control, at high rates during a boom and to purchase them after prices have fallen, an
event that happens every few years or so. On the other
hand, the system has the disadvantage that between the
opportunities for such transactions long pauses intervene in
which the enormous capital can only yield a small amount
of interest if it is to be kept liquidable, and that very large
means are required to bear the losses that may occur, and
which actually do occur, in such enormous business operations. Consequently the system can not be employed by
joint-stock banks paying regular dividends, quite apart
from the fact that constantly growing competition has

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very much lessened the opportunities of effecting single
business transactions to which a large profit is attached.
Another system consists in the division of work and specialization, customary in England, but which has been frequently abandoned of late. In England the issuing and
syndicate business is carried on by special houses which,
like Rothschild, do not call themselves bankers, but merchants. Brokers and jobbers carry on stock broking on
the stock exchange and in the open market, the former
(theoretically at least) on account of third persons and the
latter on their own account. It is the exclusive business
of other firms to place credit at the disposal of home and
foreign firms by giving acceptance to bills. These firms,
strange to say, are mostly of German origin (Fruhling &
Goschen, Frederik Huth & Co., Kleinwort & Sons, etc.),
and carry on business in such a reliable manner that they
are allowed to enter into bill obligations amounting to
more than five times their estimated means. The clearing
and deposit banks manage moneys on account of third
parties, investing them partly in securities and collateral
loans and partly in bill broking. They allow their customers to draw cheques on them but claim in return the
use of considerable deposits on which no interest is paid.
This latter is a compensation for the management of the
property concerned, so that some of the best known banks
pay no interest on a large portion (sometimes over half the
amount) of the money deposited with them. The provincial banks and London banks of recent origin do not conduct business through the clearing house; they do a deposit
business, but also grant discount and other credit—" blank
credit" as well as credit in the form of acceptances—to a

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considerable extent. The competition of these banks
caused the originally simple deposit banks to pay
higher rates of interest and to reduce their stipulations as
to the amount of capital on which no interest was paid, as
well as to deviate from their former strict principles regarding the investment of money intrusted to their care,
and to grant credit and bill acceptances against security,
and occasionally "blank credit." Moreover, both these
categories of banks place their means more and more at
the disposal of issue firms, as well as of brokers and jobbers, by advancing money on their stock.
The advantages of the English system are obvious to
German theorists who adhere to the strict principles of
division of labor, while ignoring the frequent breaches
of such principles. In practice, the system is disadvantageous to the business man in so far as he is compelled
to cover his business requirements by transactions with
several different firms and because commission rates and
terms in every branch of business are higher than in
Germany and consequently all banking transactions are
more expensive.
In addition to this it must be noted that the division
of labor and its operation are based on free business practice in England without any legal compulsion. Consequently, no opposition is offered in that country to the
different methods of carrying on business employed by
the so-called foreign banks, i. e., the numerous branches
of continental banks, including the branch offices of the
Deutsche Bank, the Dresdner Bank, and the Discontogesellschaft, despite the fact that their competition is
unpleasant for the English institutions. Fortunately the

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English, unlike our parliamentarians, are in nowise
inclined, to attack every supposed evil with legislative
machinery and to make every new idea the subject of
a parliamentary bill. In Germany, in consequence of
business requirements and also of the small amount of
capital in the country at the beginning of its modern
economic development, the peculiar system has developed
that credit banks combine all kinds of financial business
(generally with the sole exception of mortgage-credit
transactions), so that every customer can settle all his
financial affairs in one spot on comparatively the cheapest
terms possible.
Account-current transactions form the fundamental
branch of business. The bank undertakes all the financial
business of its client in return for a moderate commission
on the turnover calculated on that side of the account
which happens to be the greater, makes and receives payments, collects bills, checks, and other documents, and
pays, or charges, interest on the balance, generally at i
per cent below the Reichsbank discount rate for credit
balances and i per cent above the Reichsbank discount
rate for balances debited. The bank discounts the bills
received by its customers, special arrangements being
made as to the limit of the amount and terms, according
to, the quality of the bill, i. e., according to the trustworthiness of the other persons figuring on it. Should a
customer require foreign bills to settle his liabilities
abroad, i. e., checks or bills payable in the country concerned, the bank provides them from its own stock or
draws bills or* checks to the amount desired on its agents
or correspondents in the country in question.

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Should the debit balance not be a merely temporary
one, or one soon covered by fresh receipts, the granting
of special credit is necessary, and arrangements have to
be made as to the amount and conditions of the same.
Such credit is either covered or uncovered credit. The
cover consists principally of current securities with a
margin against the fluctuations according to the nature
of the security, and which is higher for shares than for
securities bearing a fixed rate of interest. In the event
of the quotations falling, the cover must be increased or
the credit reduced. Other cover given consists of bail
mortgages, which are valued as quoted, or of the bond
of a third person whose standing and solvency must be
investigated with the same amount of care as if he were
claiming credit for himself.
Uncovered credit is only granted in exceptional cases to
others than business men—as a rule only to first-class mercantile firms of repute, whose affairs are in strict order.
With prudent business management, the uncovered credit
granted by a bank should constitute the best credit,
especially as its withdrawal, if necessary, can be effected
with the least trouble and without imperiling the existence of the debtor.
Bankers and other firms with large cash transactions
keep a so-called "cheque" account at their bank in addition to the chief account (Conto Ordinario), in which no
debit balances may occur; no interest is paid on the amount
deposited, which is always kept in suitable proportion to
the payments made, but, on the other hand, no turnover
commission is charged.

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In the- cases where the turnover commission is adequate compensation for the trouble taken, deposits of
securities, often very considerable in amount, are frequently taken charge of gratis or at a very moderate
charge. The Dresdner Bank has charge of securities to
the value of almost 2,000,000,000 marks lying in its vaults,
not including those locked up in safes.
Further, the bank undertakes to purchase and sell securities for customers on commission, and if the price is
not covered by cash in hand advances money for their
purchase on the following scale:
The minimum average amount necessary, calculated on
the basis of the daily rates, is (1) 10 per cent in the case
of German securities bearing a fixed rate of interest; (2)
20 per cent in the case of foreign securities bearing a fixed
rate of interest; (3) 25 to 33K P e r c e n t in the case of
German shares; (4) 25 to 50 per cent in the case of foreign shares.
Full cover by another deposit is required as a rule for
particularly speculative securities, such as gold shares.
Naturally, these regulations have to be applied according to each individual case. Should the customer be well
known as a rich man, whose circumstances allow of his
being granted " blank credit," no amount need be paid in.
If the customer, however, is involved further than his circumstances admit, a stricter attitude must be adopted
and new commissions declined. Should the margins already mentioned decline in consequence of a fall in the
quotations, too rigorojus a procedure is out of place and
it is better to risk a small loss than to incur the stigma
of treating'customers inconsiderately. I can not refrain

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from noting here that the speculative inclination of
the general public to purchase securities beyond their
available means is a real difficulty for bank managers, and
forms a constant source of annoyance. The instructions
in force at money-changing offices and bourse departments are, to the best of my knowledge, fairly strict
everywhere, and at the Dresdner Bank it is forbidden,
on principle, to give the customer advice or to recommend any particular securities; only impartial actual
information in reply to questions concerning the conditions which fix the value of security is permissible.
The general public, however, bothers the employee with
"suggestive" questions and interprets the information
given, especially if the rates have fallen, as advice. Similarly, in spite of all restrictive regulations, cases may
occur where the answers and remarks of overzealous employees transgress prescribed limits. In account-current
transactions, which, in the case of a great bank, may consist of thousands of single accounts comprising all lines
of business and spread over the whole country (for instance, at the close of 1907 the Dresdner Bank had, in
addition to 67,212 accounts at its exchange offices, 31,631
account-current customers at its main offices), it frequently happens that the total amount of the ready
money advanced is almost equaled by the amount of
deposits of other account-current customers, i. e., that
an infinitesimal amount of the bank's own capital is employed on behalf of the account-current debtors. It follows that those customers are appreciated most who
claim credit during their buying seasons, but who not
only pay back the borrowed money during their selling

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season, b u t who have balances t o their credit. This is
t h e case with a great number of commercial firms a n d in
m a n y branches of industry, more especially in Berlin.
T h e seasons in different branches occurring a t different
times of t h e year, it follows t h a t a large bank, with
branches and connections in all industrial parts of Germ a n y , has the advantage of a suitable distribution of
accounts among all branches of trade, etc., and t h e best
possible adjustment of its debit and credit arrangements.
I n addition to this, t h e periodical repayment of advances
is a very reassuring factor, whereas in granting credit t h e
whole year round t h e greatest caution and constant observation have to be exercised.
T h e debtors in a b a n k ' s balance sheet comprise n o t only
those who have received advances of ready money b u t
also those to whom t h e b a n k has granted credit b y bill
acceptance; t h e bill drawn b y t h e debtor and accepted b y
t h e b a n k is discounted elsewhere. I t is t h e d u t y of t h e
drawer of t h e bill to cover it before it matures, a n d when
t h e bill is accepted he is booked simultaneously as debtor
t o t h e b a n k under t h e date of m a t u r i t y . T h e soundness
of this form of credit is conditional on its being granted
only t o first-class firms at home and abroad, and on its
being utilized only for genuine business transactions and
not solely for money-making purposes. International
clearance is effected as a rule b y foreign firms a n d b a n k s
drawing bills on German banks and vice versa. I n t h e
wholesale-goods t r a d e it is customary for t h e purchaser of
goods on several months credit to instruct t h e seller t o
draw t h e bill on his b a n k instead of on him, as t h e seller
can dispose of t h e bill of a well-known b a n k t o b e t t e r

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advantage and more easily than the acceptance of a trading firm. The special domain of large banks, especially of
those with branch offices at Hamburg, Bremen, and
London, is the financing of the transatlantic importation
of raw materials. This financing is effected throughout
the whole world by opening bill-credit accounts, and can
only be undertaken by banking firms whose bills are
known to be first rate and gladly dealt in to large amounts.
Our aim for decades, viz, to obtain for the mark bill the
same recognition as for the pound sterling bill, is being
gradually accomplished. Nevertheless, at the present
time it is still necessary in some countries of South America,
in Australia, and in Asia to open up reimbursing credit in
pounds sterling and to place the bill at the disposal of the
London agency. In order to explain the peculiarities
of this reimbursement of goods I will take as an example
the cotton-import trade via Bremen, in which goods to the
value of 500,000,000 marks are dealt in every season.
The bill-credit account is opened up for the Bremen
firm and the latter instructs its commission agent in North
America to allow the sellers of the cotton or their bankers
to draw to the amount of the purchase price on the Bremen firm's bank in Germany. The bill, together with
the dock warrants or bills of lading, passes from hand to
hand in America and is sent by its holder, after shipment,
to the bank in Germany for payment. The bank possesses,
therefore, at the time that it takes over the liability
arising from the bill a certain guaranty in the bills of
lading, which represent the property right to the floating
wares; in addition it also possesses a proof that a business
transaction corresponding to the statements of the import-

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ing firm has actually taken place. The goods arriving at
Bremen can not be unshipped without the consent of the
holder of the bills of lading. In discharging cargo, however, the bills of lading are handed to the captain of the
ship, and two eventualities are possible. Either the
cargo has not been resold, in which case it goes into the
warehouse and the bank receives the warrant as a fresh
surety, or (the normal and more desirable case) the
goods have been sold to a spinner, who either pays cash
down or, as is usual in cases where a term of credit is
agreed on, remits an accepted bill to the seller. In the
second of these cases the real security has ceased and the
goods are delivered "in trust" (zu treuen Handen) to the
importer for forwarding; in other words " blank credit" is
granted to him until the remittance has arrived from the
spinner, which, in general, does not take long. The bill
of the spinner is discounted at the bank which has granted
the acceptance credit, and the amount is credited to the
importer under the date of the bill's maturity, so that the
bank is covered in good time before the bill it has accepted
becomes due. The reimbursement transactions in importing sheep's wool from Australia, Cape Colony, and Argentina, corn from America and Russia, rice from eastern
Asia, copper from America, ore from Sweden and Spain,
totaling several milliards of marks annually, are conducted
in a similar manner. These transactions are devoid of
risk on two presuppositions, firstly, that the documents
are not forged, and secondly that, during the time the
goods are "in trust," the importer and the person purchasing from him do not become bankrupt simultaneously.
Certain precautionary measures, which can not be de-

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tailed here, may be taken to guard against such contingencies; nevertheless losses do occur, as was exemplified
by events during the last crisis at Hamburg.
The banking business is worth trouble and risk only
if it can be carried on more extensively than the capital
of the banker himself would permit; that is to say, with
the aid of the money of third persons. A French saying,
often quoted by the late Bank Director Herr von Siemens, runs as follows: u Les affaires c'est Pargent des
autres. ,, The Deutsche Bank operates with deposits
(fremde Gelder) to the extent of four times the amount
of its share capital and reserves, and the Dresdner Bank
to the extent of threefold its own capital. This money
may be divided into three categories:
i. The balances of customers in account-current transactions which, as mentioned above, are operated by the
banks as far as possible in such a manner that an equal
balance is kept between the amounts standing to the
credit of customers and the ready money advances
granted to others. During normal times this aim is generally attained, whereas in times of business depression
credit balances, and in times of brisk business debit balances, are largest. In account-current transactions it is
held that, in the absence of any special agreement, each
party has the right to terminate the arrangement without notice; that is to say, the customer can withdraw
his balance at any time he likes and must make good a
debit balance at any time that he is called upon to do so.
2. That of creditors other than those in account-current
transactions; this category includes principally foreign
States that intrust money at interest to large banks and

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several first-class private firms, partly after and in connection with the issue of loans, and partly for the maintenance of funds in gold. Independently of the money
regularly required for the payment of the coupons of
loans placed in Germany, the amounts referred to are
very large, and even at the present time, when for various
reasons they have been reduced to a minimum, amount to
several hundred million marks. Further, in the case of the
property of home and foreign municipalities and of companies which are the results of loans issued and which
bear interest until the period agreed on for their withdrawal, German States are in the habit of disposing immediately of the amounts realized by their loans. In addition to this, foreign banks and other institutions, inland
provincial banks, mortgage banks, insurance societies,
and private large capitalists are accustomed regularly to
tender Berlin banks and first-class firms large sums at
interest for fixed periods of time, generally terminating
at the end of the month; these sums are occasionally
offered without any instructions being given as to the
method of their utilization; at other times they are accompanied by the definite instructions that they are to
be employed in contango transactions whereby the rate
of interest is dependent of the contango rates quoted on
the exchange. Although, and not without just cause,
German manufacturers are credited with considerable indebtedness, yet there are numerous joint stock and private companies in Germany in which not only balances
destined for the payment of dividends accumulate, but
which have considerable amounts of ready cash on hand;
these are also put out at interest. For instance, in the

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balance sheets of the AUgemeine Elektrizitats-Gesellschaft
the bank assets always stand very high and totaled
27,000,000 marks in the last balance sheet published. At
the Dresdner Bank the creditors repayable at fixed
periods were 216,000,000 marks at the end of 1906
and 126,000,000 marks at the end of 1907. From this it
will be perceived that these credit items undergo comparatively great fluctuations.
3. The third category comprises the deposits, the
nature of which call for a detailed explanation in consequence of the false ideas prevailing in reference to the
same, not only among the general public, but also among
learned writers. In the seventies when some German
banks, following the example of Paris and London institutions, began to establish, in addition to branch offices
in other towns, exchange offices (Wechselsluben) in
various parts of Berlin, the main idea underlying the
undertaking was to enable the small capitalist to place
his spare capital out at interest, and to employ such
capital in banking transactions. These exchanges were
called deposit offices (Depositenkassen); the money received, deposits (Depositen); the books in which the
receipt for the same was noted for the convenience of
the general public, deposit receipt books (DepositenQuittungsbucher). The endeavors made to render the
institution popular and to make propaganda for its
development led to the deposits being quoted separately
in the business reports; efforts were also made to show
a constant increase in their amount. It soon transpired,
however, that the exchange office business, as long as it
only yielded commission on the sale and purchase of
77267—10

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securities and interest obtained on the deposit money,
was not profitable enough to cover the expenses, namely,
rent, salaries of staff, etc. On the other hand, this limitation of business did not correspond to the requirements of
the part of the town in which the deposit office concerned was situated, and the people of the district soon
found it more convenient to transact the whole of their
banking business at the exchange office instead of at
the central office, a long distance away; to pay their
cash into the deposit office at nighttime, instead of keeping it on their unguarded premises, and to withdraw it
the next morning; to transact payments through the
deposit offices, to discount their bills, conduct their
security business, and to apply for credit there, etc.
Consequently, the " exchange offices " of to-day are complete banking establishments with their own clientele,
transacting in some cases a large amount of business, the
debit and credit items of which are not essentially different
from those of the Central Bank; at the " exchange offices "
all kinds of business are transacted with the exception of
syndicate business, which is naturally reserved for the
central institution. They also accept savings at interest
from other than business people; but only a proportionately small amount of the so-called deposits bear
this character, especially as on an average the " exchange
offices" pay a considerably lower rate of interest than
the municipal savings banks. It is only in times of
abnormally high money rates, as during the last twp
years, that the "exchange offices" pay higher rates of
interest than the savings banks and attract savings.
The amounts temporarily in the hands of capitalists of

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all descriptions, who desire to place out at interest repaid
mortgage money, sums realized by the sale of securities,
etc., until another opportunity for investment presents
itself, do not bear the character of savings; neither do the
sums paid in by officials in the shape of salaries and
other receipts, which, although they are withdrawn during
the quarter to supply ordinary requirements, are intended
to yield a small amount of interest. The greater part
of the whole of the so-called deposits consists of the
temporary available working means of industrials, who
desire to transact all kinds of business with the " exchange
offices/' and who consequently would not be able to derive
any advantages from transactions with the plain " deposit
banks " which German theorists have in view.
The manner in which the banks deal with the " deposit"
item in their balance sheets varies widely; the Dresdner
Bank, for instance, includes under this heading all the
creditors at their deposit offices and exchange offices,
and adds to them those creditors who have made at
other offices payments that have been entered in the
deposit receipt books, or amounts paid in under the
express description of deposits. This same custom, I
believe, is adopted by the Deutsche Bank. Other banks,
including some that maintain a large number of
"deposit offices," class the depositors and the other
creditors together under one heading. It is asserted,
again, of other banks that they call credit items with
fixed periods for repayment "deposits," and understand
"other" creditors to signify those that have to be repaid at a moment's notice; this last system I consider
misleading.

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If we turn to the question how a bank operating on
a large scale with money intrusted to its charge ought
to invest the same, it is clear that as against the liabilities
that the bank can be called on to pay daily there should
be a corresponding amount of easily and rapidly realizable assets, and that for the liabilities payable at certain
dates assets should be apportioned that are as far as
possible realizable at the same date. It would be just as
absurd to require a bank, which uses the funds intrusted
for the purpose of obtaining interest, to be always prepared to repay all its liabilities as to require the Reichsbank to be always prepared for the simultaneous presentation and redemption of all bank notes and for the simultaneous withdrawal of all account-current {Giro) balances. As is well known, the bank law only prescribes
that at least a third of the notes in circulation need be
covered by cash and does not require the account-current
balances to be guaranteed by any special cash cover.
The most "liquid" (immediately realizable) resources
that come after the amounts in cash, bank notes, bills, and
checks payable at sight, are supposed to be the so-called
"Nostro" assets of a bank at inland and foreign banks,
and at banking firms the contango and bill amounts in
hand.
The "Nostra" assets are deposited with absolutely
reliable debtors who are prepared for repayment at all
tinfes. The contango business consists in carrying over
stock bargains concluded for a certain period by the
bank buying the stock at its current market price on
settling day and selling it to the speculator again at the
same rate on the next settling day; during the period

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that elapses, the bank profits by the interest on the
amount in question. Business of this nature is only
transacted with reliable firms who stand ready to take
back the stock on the next settling day even if the market price has sunk considerably; further, only standard
stock of the exchange which can be sold in large amounts
at all times is dealt in. The money invested in this
manner, therefore, is recoverable within a month at the
latest. Even in the rare case of the customer becoming
insolvent the risk incurred by a fall in the market
price is a limited one when the nature of the stock is
taken into consideration. During the pericM that the
injurious bourse law and the prohibition of "future" or
option business in industrial and mining stock were
in force, the contango business in Germany, unfortunately, was very limited; at the present time under the
new law it is most probable that the contango business
will assume greater dimensions and contribute toward
the easiness of money conditions. Meantime the contango business abroad, especially that carried on in
London, was a desirable makeshift for the banks with
branches in London, for, as a rule, the transactions are
fortnightly ones there, per medio and per ultimo, and the
money is available again at the end of fourteen days.
The bill portfolio of the bank comprises the bills discounted for the clientele in account-current and other
transactions, and the bills purchased at home and abroad
at the private discount rates of the Bourse. Foreign bills
form a very valuable portion of the contents of the bill
portfolio as well as German first bills of exchange, realizable all over the world; being stock payable in gold cur-

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rency they are in request by foreign establishments and
companies, and more especially by foreign banks of issue.
With the exception of the Bank of England and the
Banque de France, which do not stand in need of it, the
banks of issue of most other European countries maintain
regular connection with the German Great Banks; the
possibility of discounting bills abroad without having
recourse to the German Reichsbank is of considerable
importance during critical periods. The bill department
is managed so that the dates of maturity (which never
exceed three months) are judiciously distributed over the
whole threfc months and that relatively large amounts
mature on the "heavy " settling days (quarter days).
In most of the German Great Banks that come into consideration the liquid resources already enumerated (apart
from securities and lombard advances made on goods) represent about two-thirds of the total sum of other people's
money (fremdes Geld) intrusted to the bank's charge; the
bill portfolio alone exceeds the total amount of deposits.
The principle is also adhered to of not allowing the total
amount of the tied-up assets, viz, the assets that are very
difficult to realize, such as bank sites, permanent participation in outside banks, the syndicate account, and the
account of the bank's own stock, to exceed the bank's own
capital, plus its reserves.
The syndicate transactions of the banks comprise, above
all, the floating of home and foreign government and municipal loans. Overproduction has been prevalent in German State loans during the last decades, and it has stood
in an inverse proportion to the inclination of the general
public to participate in loans. The first mistake made was

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Miquel's conversion of the 4 per cent State funded debt
(Staatsschuld), which displeased the general public and
which dislodged that particular stock from the firm position it had previously held. The German public regarded
the 3 per cent and the 3 ^ per cent loans with distrust even
at a time when their market rates were very low, and this
distaste was strengthened by the fact that each succeeding
annual issue was'placed on the market at a lower issue
price and led to further falls in the rates. Since the 4 per
cent type, which conforms more to the customary rate of
interest throughout the country, has been adopted, it is to
be hoped that the public will take a greater and permanent
interest in these loans. Such loans, however, can only be
wrell placed out, and the rates of interest can only develop
satisfactorily, provided the market is left undisturbed for
a certain length of time. These loan transactions have
for years been mostly a source of loss to the banks,
apart from the fact that the banks have always contributed a portion of their deposits toward the subscriptions.
The loan policy of the municipalities is also a ground
for serious misgivings. Every burgomaster believes that
he has mistaken his calling unless he borrows millions of
marks every few years for new abattoirs, drainage purposes, for erecting or acquiring electric works and tramways, and even for paving and schools; these loans have
to be met from current receipts. Any one who is
acquainted with the large provincial towns in France
and England, not to speak of other countries, must
admit that, so far as public institutions are concerned,
they are far behind German middle-sized towns. The
question arises, however, whether Germany is rich enough

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and whether the taxpayers are not too heavily burdened
to allow us to outdo foreign towns at the rapid pace hitherto maintained. In any case the market has been so
overrun with municipal loans that every new issue is regarded with apprehension, and the banks are compelled
to maintain the greatest reserve in this direction.
The participation of the German banking community in
foreign government and municipal loans is often regarded
in circles not connected with business as undesirable and
sometimes as dangerous to the national welfare, on the
ground that the German money market is thereby weakened and its capacity for absorbing home government stock
is prejudiced. Even German Ministers of Finance have
been inclined to view the question from this standpoint.
The Imperial Chancellor and the Minister of Foreign Affairs,
however, have always held a different opinion, and have
recognized that it is imperatively necessary for the international position of Germany, for German export trade,
and consequently for the development of Germany's merchant navy, to compete with England and France in lending money to foreign and transatlantic countries. The
foreign office has frequently stimulated the German banks
to enter into competition for Italian, Austro-Hungarian,
Turkish, Roumanian Servian, Chinese, Japanese, and
South American loans. Even when the banks are approached from other quarters the first move made is to
ask the consent of the foreign office for carrying on such
negotiations. If the consent is given, then ministers,
ambassadors, and consuls frequently support the representatives of the German banks by word and deed. The
campaign of Bismarck against Russian securities, some-

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times used as an argument against the banks, only proves
that in the political conjuncture existing at that time
Bismarck considered a move to hold Russia in check advisable. Moreover, Bismarck was the inaugurator of international policy in financial spheres, and at other times
he energetically promoted the participation of German
firms in Russian Government transactions.
I shall refer later on to the economic importance of a
strong German ownership of foreign securities (Werten),
and will only point out here that if Germany did not
grant credit to foreign states she would lose her export
business. For as, with the exception of kali, Germany
produces hardly anything which can not be supplied by
other countries, she has a hard fight to retain her export
trade.
Transactions with foreign countries and municipalities
are as a rule more lucrative, for, in contrast to home
business, a margin remains between the rate at which a
loan is taken over and the rate at which it is issued, which
stands in proper proportion to the trouble and risk incurred; in addition, other advantages are involved in the
issue of the loan, such as interest transactions, the negotiation of contracts, commission on coupons, etc. Naturally such business is limited by the inclination of
the German public to subscribe to loans. This again
depends on better terms of interest being offered than
it is possible to obtain on home securities. During
periods when the rate of interest is considerably higher in
Germany than in England and France, Germany can not
compete with those countries; consequently during the
last few years Germany has had to give way. All the

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same, several well guaranteed loans have been concluded
and subscribed for in Germany with various transatlantic
countries on the basis of about 5 per cent interest.
Other syndicate transactions (Konsortialgeschafte) include the taking over of shares, or bonds, of industrial
companies, either in connection with the formation of the
same or with an increase in capital. So far as newly
formed companies are concerned, the bad results experienced during a series of years have led the banks to
confine themselves as a rule to conversions of existing
prosperous private undertakings into joint-stock companies and to cooperate in fusions and in increasing the
capital of existing companies. They hold aloof, however,
as much as possible from investing money in perfectly
new undertakings and from financing new methods of
manufacture or inventions. It has also been recognized
that bank directors are fully occupied with the management of their respective banks and with guarding their
banks' interests in trusts and on the board of directors of
companies with which the banks are connected; this,
together with lack of time and expert knowledge, does
not allow of their simultaneously managing industrial
establishments. The advice and the cooperation of manufacturers, who, although successful in their own businesses, are also absorbed by them, do not offer sufficient
guaranty for the prosperity of other projects they recommend. The numerous prospectuses of inventors, financial agents, and manufacturers whose capital is low, who
can not find the necessary capital to carry out their
projects, and who appeal to us with flattering allusions to
the omnipotence and the industrial missions of banks,

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are scarcely read and find "buttoned-up pockets everywhere."
It is, however, scarcely possible to treat the various
kinds of syndicate businesses technically and in detail
within the limits of these remarks. They include all kinds
of business, such as land transactions, which are sometimes undertaken by a number of banks or bankers, conjointly, as well as sometimes with the cooperation of
private capitalists.
If a number of debentures, or an amount of stock, is
taken over by a single bank, the transaction forms a
" stock transaction" on its own account and not a "syndicate transaction," and must be entered in the stock
account. The bank sometimes acquires its own shares,
either to dispose of them at a profit as soon as possible,
or to invest at interest money that is temporarily available. The stock that remains on hand after issues, or
after the dissolution of syndicates, is generally an undesirable possession, to be gradually disposed of if possible.
At times the bank is interested in excluding a "lot" of
shares from sale when the issue is made, or in acquiring
a " l o t " voluntarily and independently of the issue, in
order to obtain influence over the company concerned,
or to insure a permanent connection with it. A bank
which has issued shares becomes morally responsible for
the future fate of the company concerned and is therefore compelled to attain a position in which it can exercise a certain control over the company. For the same
reason it can not shirk the duty of regulating the rates
for such stock. A bank, however, will only intervene in
exceptional cases, and then only to a limited degree, in

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order to avoid a heavy fall in the stock when demand
is small and the supply great. Further, the purely speculative purchase of stock on the bank's own account
must be confined to the. narrowest limits. On the
other hand, large turnovers take place for the purposes
of arbitrage, that is to say, for the purchase or sale on
one stock exchange, and simultaneous or nearly simultaneous resale or repurchase on another, of the same
amount in the same stocks or shares. As only fractions
of percentages are involved, such transactions are of
importance only if effected on a very large scale.
After having enumerated the various branches of the
banking business, it only remains to discuss the tasks that
devolve on a bank in view of all these transactions. It is
not sufficient for bank managements to limit themselves
to examining each single syndicate business, or each single
credit transaction, as to its safety and as to the correct proportion between risk and profit; they must also
decline good and desirable transactions if their own
liquidity becomes endangered thereby. Bank managers
have not only to provide adequately for the regularly
recurring "heavy" settling days, quarter days, and years'
ends, but they must constantly have in mind the possibilities of a political entanglement or a sudden crisis.
The manner of estimating liquidity pursued by newspapers and writers, already referred to, is based on the
assumption that all liabilities in the balance sheet, namely,
the bills accepted as well as the deposits and credits,
require a cover. However, if prudence is exercised in
granting bill credit, the bills are punctually met by the
person to whom credit has been granted; further, the

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simultaneous repayment of all moneys intrusted to the
charge of a bank is just as out of the question as the
simultaneous presentation of all bank notes to the
Reichsbank. The liquid means—namely, cash, " Nostro "
assets, bills, contango and lombard advances, as well as
half the stock—are compared with the cover required,
and the percentage is ascertained which the account current must contribute in order to cover about two-thirds
of the total liabilities by liquid means. According to
statistics, this requirement is fulfilled by all the German
Great Banks.
In practice the whole calculation is valueless, as it is
based on the assumption that the whole business is being
realized because it is being discontinued. We bank
directors reckon, similarly to the view taken in the Reichsbank law, that in case of a run of unprecedented dimensions, one-third of the whole money intrusted to the
banks might have to be repaid within a very short time,
and consider the chief question to be the manner in which
we are to keep the means for repayment ready without
embarrassing our credit customers by withdrawing their
credit. We must have means available to about the
extent mentioned, and as far as possible such means must
consist of stocK that can be realized all over the world
and contango and first bills of exchange. We can then
calmly await developments, having done everything that
lies within the range of human calculation.
The economic life of a nation necessitates, in addition
to an appropriate organization of credit and a sound
system of banking, suitable means for the adjustment of
home and international payments. Allowing for loss in

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melting down and dispatch abroad, there is in Germany
a gold currency amounting to 3,500,000,000 to 3,750,000,000 marks in coin and bars. There is the Reichsbank, to which is assigned the banking task of regulating
the circulation of money throughout the Empire and of
facilitating the adjustment of payments; the Reichsbank, however, possesses only a scanty amount of specie
in proportion to bank notes when the increased requirements for business transactions are taken into consideration. Despite the most excellent "Giro" and assignment systems, which render the transport of large amounts
of coin from place to place unnecessary, large amounts
of ready money are still indispensable in business transactions; thus, the endeavors of the Reichsbank to withdraw gold from inland circulation have met with but
small success hitherto. Whether the attempts recently
prosecuted with great vigor to substitute bank notes and
treasury bills (Reichskassenscheine) of small value for
some of the gold in circulation will be permanently successful remains to be seen. In my opinion these notes
ought to become popular, suitable purses ought to be
manufactured to carry them in, and they ought to be
used for paying wages. The check has become a-popular
institution in transactions between banks, bankers, and
business people, and the introduction of the check law
will be beneficial. Whether, however, the general public
will make an extensive use of checks is doubtful. In
England the conditions necessary for check transactions
exist, as everyone has a banking account, and all payments to be made or received are effected through the
banks. Every holder of an account keeps a balance to

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an amount corresponding to his requirements at the
bank, which sum either bears very low interest or none
at all; thereby, and through other turnovers subject to
commission fees, the bank is adequately recompensed for
the trouble and expense of keeping the accounts. To
Germans all this seems very strange; a large part of the
public can not keep a banking account, and when it is in
a position to do so either expects high rates of interest
or keeps no permanent balances and pays no commissions.
Under such circumstances there is no sense, from a
business point of view, in the shoemaker, who has no
banking account, accepting a check, which he has to cash,
instead of ready money; for the shoemaker has to take
an unprofitable walk, and the bank has to examine the
check, pay and book it, and in some cases notify by
letter the customer of its payment. The ingenuous idea
prevails that by some cabalistic method of procedure
the bank earns something by such transactions that in
reality only cause irksome work.
Another disadvantage with which Germany is saddled,
and which does not exist in other countries, is the enormous
accumulation of payments on quarter day. The craze
displayed after 1870 for uniformity did harm in abolishing
the multitudinous dates for the payment of rent and
interest and in substituting quarter day as the date of all
payments of coupons, salaries, mortgages, etc., instead
of the "Johannistag," "Martini," "Michaeli" customary
in numerous districts. The house owner who receives
his rents quarterly does not want to pay his mortgage
interests at any other date. The tenant who receives his
salary, etc., on quarter day does not want to pay his rent

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at any other date. Further, a change in the date for
the payment of coupons is open to objections. States
and municipalities, which have trouble enough in getting their loans subscribed for, have no desire to render
the issue of the same more difficult by fixing the dates
for payment of the coupons at times to which the general public is unaccustomed. Consequently on quarter
days untold millions in bank notes and ready money
for redeemed and newly raised mortgages, rents, and
other payments wander from hand to hand, only to
return after a few days, in a roundabout way, to the
same places where they have been made liquid (available). Such conditions are impossible in other countries, as mortgage debts do not exist to the same extent,
and, as for instance in England, living in rented houses
is not so prevalent. A slight remedy has been introduced in Germany, however, in the shape of a clearing
house for mortgage banks, which is under the supervision
of the Reichsbank.
As a result of the Bank Inquiry Commission, it was said
that a radical proposal was about to be made to the effect
that the Reichsbank should refuse to discount bills or
make lombard advances on quarter days beyond a certain amount corresponding to its existing position. By
doing so, however, the Reichsbank would abandon its
raison d'etre as well as the task devolving on it of facilitating the adjustment of payments. For a central noteissuing institution, with privileges such as are accorded to
the Reichsbank, is useless if it can grant credit and issue
notes only during periods when business is quiet; for
such purposes even the deficient note-issuing banking sys-

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tern of the United States would suffice. It is just at heavy
settling days and during crises that the Reichsbank must
prove itself capable of fulfilling its purposes. It is in the
latter sense that the Reichsbank has viewed its tasks, and
has fulfilled them amply. Germany's success in overcoming the serious crises of 1901 and 1907 without permanent
injury is principally due to the bold attitude maintained
by that institution.
Another reform proposal is also being made, namely, to
relieve the Reichsbank from keeping a gold reserve for
the whole country and to impose on the credit banks the
duty of keeping a sufficient reserve in ready money for
their business transactions. This would lead to a complete revolution in the existing Reichsbank policy and
would render the present situation considerably worse.
From the first it has been the chief aim of the Reichsbank to become the cashier for all money transactions,
not only of banks but also of commercial and industrial firms, of state and municipal funds, of railway and
military funds, for the post-office, etc. It has been the
constant cry for ages that all the above institutions ought
only to keep the necessary amount of ready money for
daily use in hand and to pass the balance of money
received on to the Reichsbank to fill its coffers, from
which each institution can cover its requirements as
needs may be. The government authorities have been
reproached in the most severe terms for the bureaucratic
business method of allowing gold and silver to remain
idle for weeks in the state coffers whilst the means of circulation are scarce in the country. Therefore, send all
the available money to the Reichsbank and only with77267—10

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draw it at the moment that it is required for payments
falling due. This is the method adopted by the banks
to-day. Every piece of gold that they receive as a deposit
or otherwise is directed toward the Reichsbank by the
most speedy route. The safes of the banks contain only
what is absolutely necessary for daily use, and their other
cash lies as account-current balances {Giroguthaben) in
amounts that considerably exceed the minimum balance
prescribed at the Reichsbank. All amounts forwarded
to the banks from abroad are transferred to the Reichsbank by means of "Girokontos," and the amounts for
bills discounted at the Reichsbank are not paid in cash,
but placed to the credit of the account-current balance
(Giroguthaben). Likewise, all payments that the banks
have to make are turned in, whenever possible, to the
account-current account of the receiver, so that payments
in ready money are reduced to a minimum. Banks only
withdraw amounts from their "Giro" account for payments that can not possibly be made in any other manner.
The aim is now to go further and extend check transactions to private circles. Hoarded money is to be
attracted out of purses, writing desks, and old stockings,
and directed toward the general gold reservoir at the
Reichsbank; and yet in the face of propaganda for this
development, the banks are now recommended to act
otherwise! They are to store up the money necessary
for future liabilities and keep it away from the Reichsbank. The amounts in gold which, despite the abovementioned efforts, are retained by the public in circulation, are kept out of reach of the credit banks. The
ready money placed in their safes over and above that

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required for daily use will have to be taken solely
from the Reichsbank; and if they were to keep the
reserve desired by the reformers in bank notes and not
in gold, they would only increase the bank-note circulation
of the Reichsbank prematurely and without advantage,
and in consequence prematurely impair the status of the
Reichsbank.
Another view of the matter leads to a similar result.
If every bank aims to keep an independent reserve so
that it has no need to fall back on the reservoir of the
Reichsbank in case of emergency, it has to take the
worst eventuality into consideration—namely, a sudden
run—and keep a very large reserve. In keeping the
reserves of all banks at the Reichsbank, a procedure
adopted since its establishment, the simultaneous occurrence of abnormal payment conditions, or errors in the
disposal of the resources of all the banks, is not anticipated. The money reserve it maintains, therefore, can
be much smaller than the total of the reserves maintained
by the single banks would have to be. On this fact,
which is part of the A, B, C of national economy, the
advantage of the existing system of payment is based,
namely, the greatest saving possible in currency—a point
which is of the most vital importance for all countries,
especially for Germany with its proportionately scanty
amount of gold.
The regulation of international payments is still more
difficult than of those at home. This must be done in
detail mainly by the credit banks, whereas the Reichsbank
has to control the same by means of its discount policy,
and if necessary to settle the same by furnishing " Devisen "

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(bills and checks payable abroad) or gold from its own
stock. A chief factor is the balance of trade for which
statistics, carefully prepared but not always free from
errors, are available. Germany has, for years, belonged
to the rich industrial countries, which, like England,
France, Belgium, and Holland, always possess a "debit*'
commercial balance, whereas the countries that principally export raw materials, like North America and
Russia, have a credit balance of trade. Austria-Hungary was a creditor nation up till the end of 1906, but in
1907 imported slightly more, so far as value was concerned, than she exported
The debit balance in Germany—that is to say, the
excess value of imports over exports—has grown rapidly
during the last few years, from 1,131,000,000 marks in
1904 to 1,728,000,000 marks in 1907, whereas in 1907
England's debit account was 2,609,000,000 marks and that
of France only 409,000,000 marks. In England, however, the debit account has decreased during the last few
years from 3,671,000,000 marks in 1904 to 2,609,000,000
marks in 1907.
In order to illustrate my remark that the balance of
trade statistics contain errors, I should like to point out
the following: From a statistical point of view all goods
sent across the German frontiers abroad are regarded as
exports, and it is assumed that the counter value for
these exported goods consists in payments to Germany
by foreign countries. Now, numerous undertakings have
been founded abroad with German money, and the machines, materials, and other wares exported for them
are not paid for by foreign countries. The Chantung

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Railway in China is constructed with German money and
of German materials. The export of the materials
figures as a •"credit" item in the statistics, whereas in
reality it is a "debit" item for Germany. The Deutsche
Ueberseeische Elektrizitats-Gesellschaft has constructed
various tramways and electric central stations in South
America with German money and of German materials.
I could adduce dozens of similar cases, whereas the contrary case, according to my observation, seldom occurs.
The times when English and French capitalists worked
mines and carried on gas works and waterworks in Germany are past. I conclude, therefore, that the German
trade balance sheet is very much more "debit" than
has been stated. The same probably applies to the
English one.
The question as to how Germany can pay to foreign
countries her liabilities resulting from the balance of
trade opens up the question of the balance of payment.
At this point statistics fail us and very complicated estimates begin, which are extremely difficult and which
only economic experts, perhaps the heads of banks standing in the center of international business, are competent
to form.
I will show, with the aid of an excellent essay by Professor Schaer, of Berlin, and by enumerating the conceivable "credit" and "debit" items of a trade balancesheet, how intricate the material is which comes under
consideration.
Among the " credit" items is the money paid by foreign
countries for carriage on German railways and for freightage on German merchant ships; for profits, commission,

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and brokers' fees to German commercial firms; the premium to German insurance companies, etc. " D e b i t "
items are similar payments made by Germany to foreign
countries. The balance of these items forms a considerable debit account for Germany in her relation to England, which, so far as other countries are concerned, is of
a credit nature; thus the total balance constitutes a
credit account. The results of German speculation on
foreign bourses may be either "credit" or "debit."
Owing to great losses on gold shares and American
securities the result during the last few years has probably
been a "debit" item which, calculated for a number of
years, probably exceeds a milliard marks. The speculations of foreigners on German bourses have been of no
importance of late years, so that no returns worth mentioning, not even for stamp duties or brokerage, have been
received.
It is evident that the receipts of persons living in Germany derived from foreign undertakings are greater than
the receipts of people living abroad from undertakings in
Germany. The domicile and nationality are of no consequence; the profits obtained by Germans living abroad
can only be of advantage to the German balance of payment if they are brought or sent to Germany.
The balance of the traffic (passenger) account is probably a " debit " one for Germany, as more Germans travel
abroad than foreigners travel in Germany, and they spend
abroad more than the foreigners do in Germany, for whom
the American millionaire can not pass as a sample.
The savings sent home by foreign engineers, clerks,
agents, and workmen residing temporarily in Germany

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constitute an important "debit" item which must exceed
the corresponding "credit" item. Inheritances abroad
devolving on Germans probably annually equal property
in Germany that foreigners inherit.
The most important item of the payment balance-sheet
is formed by the interest and dividends on foreign securities. Germany has in this respect a considerable " credit"
item in her favor, for Germans possess far more foreign
stock than foreigners possess German stock. Of the last
mentioned item probably 500,000,000 marks worth is in
French hands, partly in the shape of deposits kept in Germany; a far smaller amount is in English, Dutch, Austrian, and Swiss hands; all in all, the amount is not much
more than a milliard marks. During the last decade the
amount of foreign securities, etc., belonging to Germans
has decreased through an outflow of Italian, Austrian,
Hungarian, Scandinavian, and Turkish securities, but has
increased, on the other hand, by the acquirement of American and East Asian stock. The diminution in Russian
securities is almost compensated for by the participation
in the new Russian loans. The total value of foreign securities in German hands is estimated at about 12 to 13
milliard marks, so that the surplus interest and dividends
flowing into Germany above the interest and dividends
going out of the country may be estimated at about 600,000,000 marks. This is a considerable sum, but by no
means sufficient #to balance Germany's liabilities for imported goods.
The management of the issue of foreign shares and
debentures, or the participation in such, constitutes a nonrecurring "debit" item, since the results (Gegenwerte)

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from German resources have to be remitted abroad. As the
value received (Gegenwerte) in the case of foreign government loans is alldwed to remain in Germany for some time
while bearing interest, the settlement can be distributed
over a long period. The small extent to which foreigners
participate in German issues is in no way an equivalent
for the above. The non-recurring " debit" item, however, is the source of future interest receipts, which figure
in balances of payment later on as permanent "credit"
items.
Should the factors mentioned above lead to a "debit"
balance in the payment balance-sheet there are various remedies for the same. In such cases an unfavorable state of the bourse rates, accompanied by a marked
tension in the home money market, invariably occurs,
a circumstance which causes the Reichsbank to raise the
bank discount. The relatively higher rate of interest in
Germany, which even in normal times induces foreigners
to keep their means in German banks, offers then an increased inducement, and, as a rule, enables the banks to
attract more money from abroad. Matters, however, may
turn out differently. For instance, a money crisis appearing simultaneously in other countries will cause general lack of confidence; and then, as happened last autumn,
it not only is impossible, despite repeated raising of the discount rates, to attract money from abroad, but the old
deposits have to be repaid. There are in such cases only
two ways out of the dilemma. Either the capital is drawn
on and as much of the stock of foreign securities is sold as
is necessary to pay off the debts, or the debts abroad are
paid in gold, which, in so far as it is not taken from the

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money in circulation, is supplied by the Reichsbank from
its stock. The latter procedure was adopted in Germany
at the end of the year before last and about 200,000,000
marks was withdrawn; herein the banks were for the most
part successful in obtaining the greatest amount from the
money in circulation, the reserves of the Reichsbank not
being resorted to in any great measure. Had this gold
not been forthcoming, German currency would have been
compromised for some long time, German prestige abroad
injured severely, and unforeseen evils entailed.
It is evident from what has been said that it is both
useful and necessary for a country aspiring to a position
in international business to maintain permanently as large
a stock as possible of good international securities, to increase its foreign claims by developing its export trade.
This is still more important for Germany—which is compelled to pay several milliards annually for the importation of raw material to feed the nation and for industrial
production—than the further expansion and improvement
of its productive works, and than increasing its home consumption; for whoever increases his requirements without first paying his debts from receipts lives on his capital and must be economically ruined. This applies not
only to private domestic affairs but to the economics of
nations.

169

III.
M E T H O D O F PAYMENT BY MEANS O F BANKACCOUNT TRANSFERS AND T H E USE O F
CHECKS IN GERMANY.
By MAX WITTNER—Berlin, Barrister, Director of the Central Union of
German Banks and Bankers, and SIEGFRIED WOLFF—Tubingen.
I.
THE

RECENT

DEVELOPMENT

OF THE

MECHANISM

PAYMENTS IN THE EMPIRE.

The development of the system of payments without
the use of cash has been essentially different in Germany
from what it has been in other countries, both with respect
to time and to form. It has been different with respect to
time because there was no room in Germany for a vigorous development of the mechanism for effecting payments
until long after England and France had perfected theirs,
owing to the fact that the economic, as well as the political,
development of Germany prior to the founding of the
Empire was prevented by lack of unity, the scattering of
the nation's energies, and the general disorganization from
pursuing a systematic path, subordinated to considerations of a national character. It was different with respect
to its form and nature, because it was only with the growth
of movable capital, its rapid increase in the early years of
the Empire, and the flourishing stage to which German
banking could now for the first time attain that it was
possible for the sense of economic oneness and solidarity
to take shape and to manifest itself in such a manner as
the establishment of the Reichsbank, or Imperial Bank

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of Germany. This institution, with a creative and organizing spirit, laid the foundations of the system of payments
by means of transfers to, and deductions from, accounts
current that obtains in Germany, the so-called "giro"
system. It was in every way preordained for this creative work, for at the time of its foundation it was the
only financial institution whose activities extended over
the whole Empire, while in the territorially restricted and
immature banking system of those days the conditions
were lacking for the development either of a giro business
or of a system of payments by means of checks. The private banks had not yet grown to the status of great
organizations, with many branches, affiliated banks, etc.
Berlin was not yet by any means the great center of
financial operations. In the giro system, with its splendid
organization, the Reichsbank has created an institution
that has given the German system of payments its characteristic stamp, just as the apparatus of checks and
clearing houses has imparted a typical character to the
system of payments in other countries, like England and
the United States. The giro business in Germany is
far from having attained the dimensions that the use
of checks has in England and America. It ought,
therefore, with the economic development of the country,
to be fostered and continually extended by bringing more
and more places within the giro network. It should
be popularized by inducing an ever-increasing number
of those engaged in business to avail themselves of it,
and by getting the public authorities to appreciate its
advantages.

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The system of giro transfers has undeniably considerable advantages over other means of effecting payments
without the use of cash. It is the simplest from the technical standpoint, in that it involves merely the transfer of
a particular sum from one account to another on the books
of the Reichsbank and entails the least expense, trouble,
and loss of time, and because, by virtue of this latter
quality, it is especially adapted for effecting settlements
involving very small sums for which a payment by check
would not be so well suited. A necessary condition for a
monetary settlement by means of the giro is, of course—
and in this respect it is at a disadvantage as compared
with the check—that the payer and payee have an account
in the same bank or else, if their banking connections are
not the same, that their banks be connected with the same
giro institution or clearing house. The check at present
certainly possesses natural advantages, as, for example,
in the case of the local monetary intercourse in mediumsized cities and smaller places, where the total volume of
transactions is too small to warrant the establishment of a
giro office. This is especially true of international payments, as a central giro office for the purposes of international monetary intercourse can not so readily be
created and expanded to meet increasing needs as one
designed to serve merely a single country. Nevertheless,
we have already the beginnings—even if feeble ones—of
an international giro system.
The Austrian postal savings bank system, for example,
is connected with the Swiss, German, and Italian systems,

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the connection with that of the German Empire being
through the Deutsche Bank.
The check, the older and earlier developed method of
payment, has, consonantly with the natural and historical
course of events, become thoroughly installed in England,
a country which attained to a high stage of economic development at an early period, and has been transplanted
thence to America.
In Germany, where down to 1876 the most intricate
state of things prevailed with respect to the monetary
standard and the coinage, and where the business of banking was not systematically developed until a comparatively recent period, the conditions were lacking for the
general introduction of the method of payment by check.
Just at the right historical moment the Reichsbank proceeded to fill this gap in the system of monetary intercourse in Germany by the installation of its giro business,
and in this way it early deprived the check of a field in
which it might otherwise have asserted itself. In 1907,
under the pressure of a most burdensome financial stringency, a very active propaganda was instituted in the Empire in behalf of the popularization of the use of checks.
It seems to us, however, that in the heat of the discussion
an exaggerated importance was at times attached to the
check and our system of monetary intercourse made to
appear more defective than it is in reality. In any case
we have a right to be proud of the figures representing the
giro business of the Reichsbank. In judging of the conditions of monetary intercourse in Germany, we have an
important factor to deal with in the circumstance that the

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recent and rapid economic development of the country,
which did not merely keep pace with the creation of
capital but outstripped it, gave rise to an extensive system
of monetary traffic by means of bills of exchange, and, in
creating this mechanism of credit, put into circulation an
instrument of payment that competes with the check and
the giro transfer.
The operation of a bill of exchange is in general somewhat as follows: The merchant gives the dealer who
has sold him goods a bill of exchange, payable in three or
in six months, instead of paying cash for the goods. The
latter takes his customer's bill and makes use of it, in
his turn, in making payments to those to whom he is
indebted for merchandise, and so on until some recipient finally hands over the bill to a banking concern
with which he has connections. The bill of exchange,
therefore, before it gets to the bank usually performs a
series of monetary transfers, for the small dealer naturally prefers to pass on the bill, if possible, in making a
payment, instead of handing it over to his bank, which
would either deduct a certain percentage in the way of
discount or else accept the bill at its face value, crediting the customer with the amount on the date of maturity,
while business men (other than bankers) are in the habit
of taking bills of exchange as they would cash. In recent
years the numerous trusts and combines in Germany
have begun to manifest a hostility to the use of bills of
exchange. These unions, in specifying the conditions
with respect to the mode of payment that are to obtain
in the transactions between them and their customers,

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often prescribe that bills of exchange are not to be
accepted in payment.
The development of the use of bills of exchange in
Germany may be traced by a glance at the following table:
STATISTICS OF B I L L S OF EXCHANGE IN GERMANY.
Total
amount of
bills put in
circulation
in Germany
(million
marks).

Year.

1872.
1880.
1890.
18951900.
19051906.
1907.

12,865
II,558
14.020
15.241
23.304
25.507
28,062
30,765

Population
of the
German
Empire
(millions).

41. 23
45- 10
49- 24
52.00
55-82
60.31
61.18
62. 10

Average
amount of
bills put in
circulation
per capita
(marks).

312
256
285
293
417
423
459
495

Special prominence will be given, of course, in what
follows to the German giro system. It is not possible,
on the other hand, to present a numerical exhibit of the
monetary intercourse by means of checks, inasmuch as
this is carried on through joint-stock banks and bankers,
who do not publish any reports regarding the volume of
check transactions.

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2.
T H E GIRO SYSTEM IN GERMANY.
[A mechanism of payments by means of transfers from one account current to another.]
(a) THE GIRO BUSINESS OF THE REICHSBANK.

The chief agent in the conduct of the giro business is the
Reichsbank. The first and most essential requisite for the
organization and development of such a comprehensive
transfer system of payments as that of the Reichsbank
was a system of branch offices embracing as many places
throughout Germany as possible. At its foundation, in
1876, the Reichsbank assumed control of 182 branches
of the Preussische Bank. At the present time the number
of its branches exceeds by nearly 500 that of any other
central bank in the world.
The giro business of the Preussische Bank amounted to
next to nothing and was confined in the main to Berlin.
Beyond this there was only the insignificant giro institution at Danzig. The Reichsbank, soon after its creation,
proceeded to transform its independent branches into giro
institutions and organized a system of transfers between
them, by which payments could be effected without any
charge to the customer. The number of Reichsbank estab77267—10—-12

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lishments at which the giro business has been introduced
has been at various dates as follows:
Out of total of—

Year.

Establishments with
giro connections.

01876
1886
1896

228
281

250

1907

479

456

122

a The statistics relating to the Reichsbank are taken from the regular reports of the
bank, the jubilee memorial, and the statistical tables submitted to the Bank Inquiry
Commission in 1908.

The system of long-distance (as opposed to local) giro
transfers was the new feature in monetary intercourse that
the Reichsbank brought into being, something for which no
model hitherto existed. It has itself served as a pattern
for the creations of foreign countries, in particular, Austria,
which has closely imitated the giro arrangements of the
Reichsbank.
In making a comparison with England, what is especially to be noted is that there it is the provincial banks
that have organized about themselves an extensive system
of branches, while the Bank of England possesses only 9
branches, so that a giro business carried on by the central
bank of issue could not be developed there. In this country, on the contrary, the Reichsbank soon far outstripped
all the other banks in the number of its branches. It was
consequently enabled to rise to the position of a sort of
liquidating establishment for the German Empire, which
undertook to effect settlements for its customers by means
of the system of transfers to and deductions from accounts current—the giro system.

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The network of the Reichsbank system is organized as
follows: The territory of the Empire is divided into socalled bank districts, which differ greatly in area. In each
bank district there is a main branch establishment of the
Reichsbank (Stelle or Hauptstelle), with which are connected many subbranches (Nebenstellen). The number of
these subbranches varies greatly, some districts having
many more than others. In Berlin is the central office
for all the Reichsbank establishments, which is under the
management of the Reichsbank Direktorium. The subbranches are not autonomous establishments, being entirely dependent in the conduct of their business on the
main branches to which they are subordinated. The
entire bookkeeping of a subbranch is done over again in
the establishment of which it is a dependency. The subbranch is bound to send in all the vouchers in their original
form to the main branch. As a means of supervising still
further those subbranches which are in charge of a single
official only, they are required to send in the books of their
customers every six months to the establishment under
whose control they are placed. Here all the entries are
gone over and verified and the books are then returned.
The giro business is in no manner restricted at the main
district banks, but in this respect the subbranches are
divided into two classes, those with unrestricted giro business and those with restricted giro business. The former
includes all subbranches that require at least two officials
to run them. The giro business is restricted in the
case of those subbranches which require only a single
employee to attend to their general business and the

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volume of whose giro transactions would not warrant the
employment of an additional official. The restriction
imposed upon- the subbranch of the latter class is as
follows:
If the sum which the customer desires to have placed
to the account of a person at another branch (ordinary
transfer by means of the so-called "red check") is between 1,000 and 50,000 marks, the^ transfer is made
direct to the place of destination without the intermediary of the main branch on which the subbranch is
dependent, but if the payment is one of a sum in excess
of 50,000 marks, such direct transfer will be made only
in case the transaction is offset by business in the way
of discounts or loans on which the Reichsbank can realize
a profit amounting to ten days' interest on the sum
transferred. If the sum to be paid is less than 1,000
marks, the customer can have the transfer made direct
to the place of destination only on payment of a fee of
30 pfennigs for each transaction. This restriction entails
upon the public the loss of one day's interest in every
case where a transfer is made through the intermediary
of a main district branch. As far as the Reichsbank
itself is concerned the conduct of its business at the subbranch is simplified and rendered more economical inasmuch as the superior establishment, which in this way concentrates within itself the small transfers of the dependent establishments and effects them in conjunction with
its own long-distance transfers, is enabled to execute the
bulk of the transfers in its district at the places of destination in a lump. In the case, therefore, of the chief

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commercial centers a number of giro transfers may in
this way be effected by means of a single letter of advice.
From Karlsruhe to Mannheim, for example, there are
on ordinary days usually between 40 and 50 transfers,
which can thus be dispatched collectively.
We may as well state that formerly this giro business
of the subbranches was subjected to much greater
restrictions than it is at present, especially at the time
when many of these branches were still run by agents.
It is not many years since only sums in excess of 3,000
marks were transferred directly, while all transfers of
sums below 3,000 marks had to be effected through the
intermediary of the superior establishment. Through
successive repeals of restrictive regulations, into the
details regarding which we need not enter here, the giro
business has been extended in particular with respect
to the smaller places. The existing restrictive provisions, therefore, which we have just described represent
a series of changes in the direction of a more expansive
policy.
In order to facilitate its giro business and reduce the
friction to a minimum, the Reichsbank has special
printed forms prepared for the various kinds of transactions, the use of which is made compulsory on the
public. For a simple transfer of money from one customer to another, whether they be in the same town
or in different places, the "red check" is employed,
which is filled out by the party making the transfer and
handed in to the bank. It is not a check in the proper
sense of the term, but is so called because the printed

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forms resemble checks and are put up in books in the
same way as checks. The word "check" does not
occur in the printed matter of the blank; neither is the
instrument transferable. When a number of payments
are made simultaneously the party making the transfers
is furnished with a blanket form on which the names of
the individual firms and the various sums are entered
and which has to be accompanied by a red check covering the aggregate amount. For the so-called "great
banks " of Berlin, some of which have a volume of transfer transactions between them (these belonging, therefore, to the class of local transfers) amounting to as
much as one hundred transfers for each bank per diem,
there are blanket forms which are of a different color
for each bank. When cash is wanted the so-called
"white check" is employed. This is a legally constituted
check. There are special printed forms for the use of
those who have no account with the Reichsbank.
Every depositor at the Reichsbank receives a passbook, in which all amounts paid in and paid out (not
only giro transfers) are entered and which, in regard to
giro transfers in particular, does away with the necessity
of any further receipt, confirmation, or notification and
renders any correspondence or statement of account current superfluous.
In order to accustom the public to a close observance
of the regulations and injunctions that obtain in the giro
business, without which the rapid and safe operation of
such a comprehensive system of monetary intercourse is
not conceivable, the Reichsbank has instituted some special

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Banking

/
fees for certain services, the requisition of which on the part
of the customer is calculated to interfere with the smooth
running of the bank's machinery. As the regular hours
of the giro service are only till 4 p. m., a charge of 50
pfennigs is made for each transfer between 4 and 4.30 p. m.
and of 1 mark for each transfer after 4.30 p. m. For the
revocation of a red check there is a fee of 1 mark. If a
transfer is to be made immediately, there is a charge of
1 mark plus the postage.
The Reichsbank does not, as a rule, charge its customers
anything for transfers of money effected during the regular
business hours. But that it must have a remuneration
for its trouble is a matter of course. This compensation
is provided in that the firm or person having an account
with the bank must maintain a minimum cash balance, on
which no interest is paid, the aggregate of the balances
enabling the Reichsbank to do a sufficient volume of
business yielding a profit, especially in the way of discounts and loans. The question of the amount of the
minimum balance is usually settled before the opening
of the account. In the case of most accounts the sum is
1,000 marks. This is the minimum amount in the way
of a balance that is regularly demanded in the case of
business accounts. Occasionally persons not engaged
in business who deposit their money in the Reichsbank
with the intention of letting it remain there are allowed
to go below this minimum of 1,000 marks. In the case of
business accounts, however, the minimum is strictly adhered to. An addition may be made by the Reichsbank
to this indispensable sum in case the volume of transac-

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tions effected for the customer is too large relatively
to the profit ^which the Reichsbank derives from the account. Down to 1906 the Reichsbank was rather free
and easy in the matter of adding to the minimum sum.
In case there was not enough profit the managers had
means which it is not necessary to discuss here of
straightening out matters with their customers in the way
that suited the Bank. The ways and means were left to
the discretion of the individual officials. In the year
1906, however, a uniform gauge was prescribed by the
Reichsbank Direktorium at Berlin for the determining of
the minimum balance to be demanded. The officials at
the main district branches were allowed only this much
latitude that in the determination of the volume of transactions in the case of any individual account they might,
in making up the figures, select any period of not less than
three months down to the close of 1907. The gauge employed in calculating the minimum balance was, indeed,
kept secret, but information regarding it appeared in the
Frankfurter Zeitung of November 26, 1906, which we may
take to be reliable. According to this statement the
reckoning of the Reichsbank is based entirely on the
volume of transactions in long-distance—that is to say,
not local—transfers, the sums transferred to the account
of the customer being reckoned as well as the sums transferred by him to others. From the annual total of such
transactions one thousand times the amount realized by
the Reichsbank in the course of a year from discount and
loan transactions in connection with the account of the
customer is deducted. The quotient obtained by dividing

184

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Banking

the remainder by the number of days in the year (300) will
be the minimum balance which the depositor in the
Reichsbank will be required to maintain.
By the application of this gauge it was found that in
the case of the great majority of accounts the proper
relation was not maintained and that it was therefore
necessary to establish the desired ratio. In the year
1907 the amount of the minimum balance was consequently raised in a great many cases, which action subjected the Reichsbank management to much criticism
and to attacks on the part of the business world. We
shall give a few data to show at what a high figure these
minimum balances may be fixed. The permanent balances (as dictated by the Reichsbank) of the " great
banks" in Berlin run up into the millions, and yet the
provincial branches of these banks are obliged to keep
minimum balances in proportion to the extent to which
they have giro transactions with the Reichsbank. In
the case of Hamburg, where the giro business is on the
most extensive scale, the minimum balances of the five
giro banks fluctuate between 5,000,000 and 10,000,000
marks. By exacting too much from its customers—
and by some persons the raises of 1906-7 were considered excessive—the Reichsbank would expose itself
to the danger of losing part of its giro business. It has
frequently been asserted that in its network of branch
offices the Reichsbank possesses a monopoly of the monetary intercourse in the German Empire. This view may
in a measure have been justified previous to the development of the colossal institutions which in German banking

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parlance are known as the " great banks." But now that
the great banks can avail themselves of an extensive network of branches, affiliated banks, and other establishments with which they have close relations, besides the
connections of these affiliated institutions, these giant
concerns, which stretch their arms over the whole of Germany, are in a position to serve as giro institutions for a
large body of customers, and, by offering inducements in
the matter of rates and in other ways, to take away customers and business from the Reichsbank, so that they
threaten ultimately to deprive it of the controlling position
which it enjoys with respect to the monetary intercourse
of the country.
The growth of the giro business of the Reichsbank is
shown in the following table:
Million
marks.

1876
1877
1880
1885
1890
1895
1900
1905
1906
1907

,
_
,

16, 711
27,022
35,234
53,847
79,749
93,698
163, 632
222, 136
245, 622
260, 656

This exhibits a constant increase up to the colossal
sum of 260,000,000,000 marks in 1907. The showing, it
must be said, however, is larger on its face than the reality.
In order to make these figures more intelligible, it is necessary to observe that they represent not merely the giro
transfers pure and simple—that is to say, payments by

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means of transfers on the books. Every transaction
which a giro customer has with the bank, as, for example,
in the way of discounts or loans, is entered on the books
in the giro manner, even though payment be made to him
or by him immediately. Owing to this inclusion of the
transactions belonging to the Reichsbank's personal
business, which have nothing whatever to do with the
giro transfers, the total volume of the giro business is
made to appear much larger than it is. We must, therefore, extract from the total that part which represents
the volume of giro transfers effected by the Reichsbank
on account of third parties. This transfer business, pure
and simple, consists in the local transfers—that is to say,
transfers on the books between two depositors residing
in one and the same bank district (not necessarily in the
same place), and long-distance transfers—that is to say,
giro transfers between two customers doing business in
different bank districts. In looking at the figures, we
have to bear in mind that each transfer of a sum from
one account to another is entered twice, the charging and
crediting figuring as separate transactions. In the case,
however, of such long-distance transfers in which the payment is made by a person not having an account to a
depositor there is but a single entry, that placing the
amount to the credit of the depositor at the receiving
institution.
It is interesting to note that the total giro business is
about equally distributed between local and long-distance
transfers.

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LOCAL AND L O N G - D I S T A N C E

G I R O B U S I N E S S OP T H E

Local transfers. 0
Year.
Transactions.

1876
1880
1885
1890
1895
1900
1905
1906
1907..

__.

93L952
886,224
1,280,703
1,690,114
3,991,912
5.073,678
5.499.335
6,064,299

Amount
(million
marks).
6, 159
10,907
20,002
30,067
25.195
48,319
72,054
80,398
87.i97

Commission
REICHSBANK.

Long-distance transfers. 6

Percentage
of total Transactions.
business.
36.9
3i-o
37- 1
37-7
26. 9
29-5
32.4
32.7
33-4

1,010,680
1,742,816
2,968,368
4,624,048
7,446,611
10,584,229
11,690,768
12,544,670

Amount
(million
marks).
3.948
11,215
I4,5i9
20,953
26,722
50,186
67.714
72,745
74.93o

Percentage
of total
business.
23. 6
31.8
27.0
26. 2
28.5
30.7
30.5
29.6
28.8

"These figures include transfers between depositors in one and the same place and
transfers between depositors doing business in one and the same bank district. Down
to 1890 clearing transactions are also in part included.
b These figures represent transfers between depositors not located in one and the same
bank district (transfers by red check). They include also payments made by persons
not having an account with the Reichsbank to depositors in another district, the respective amounts in such cases being entered but once, instead of figuring twice.

It will be seen that the number of long-distance transfers
is about double that of the locals. This is as it should be,
as it is mainly in the matter of long-distance transfers that
the giro system has the advantage over the method of payment by check. In the matter of local transfers, on the
other hand—not reckoning the vast giro business of Hamburg—giro and check are probably about on a level with
respect to the number of transactions.
The fact that the long-distance transfers constitute the
major part of the giro business of the Reichsbank (reckoning the number of transactions) is due mainly to the way
in which the institution is organized, with its network of
branches. It is natural, too, that payments without the
use of cash should be made in larger measure in connection
with places remote from one another than in local monetary

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intercourse, where personal contact is apt to lead to cash
payments, and where other methods of payment, especially
the check, as we have seen, compete with the system of giro
transfers. Anyone who is familiar with German ways in
the matter of payments will have to admit that in this
country, both as regards local and long-distance payments,
the people and the public authorities are still very far from
living up to the economic principle of the avoidance of the
use of cash in monetary transfers.
If we wish to get a precise idea of the extent to which the
giro business enables us to dispense with the use of cash,
we must halve the absolute figures of the total of the transfer transactions. The accuracy of the mode of entry employed is borne out by the following table of long-distance
transfers, which presents the amounts transferred merely
with reference to the office from which the transfers were
made, no account being taken of the credit entries (credits
to depositors) in the offices to which the transfers were
made:
V O L U M E OF L O N G - D I S T A N C E

Transfers b e t w e e n depositors in
different places.

TRANSFERS.

P a i d in b y officials a n d persons h a v i n g n o a c c o u n t w i t h
t h e R e i c h s b a n k for a c c o u n t
of depositors.

Year.
Transactions.

1885
1890
1895
1900

1907

Average
(marks).

Transactions.

Amount
(million
marks).

13,903
9,988
8, 182
6,414
7,456
6,806
6,581
6.315

267,702
380,442
550,709
651.725
699,117
752,813
764.374
782,343

i34
1, 169
1,104
1,882
2,577
1.546
1, 722
1.795
I.72S

1, 921

1876
1880

1905
1906

Amount
(million
marks).

366,697
681,727
1,211,050
L975.748
3,261,716
4 , 8 5 0 , 146
5.389.346
5.796,537

5,098
6,809
9,909
12,672
24,320
33,009
35,469
36,606

189

Total
(million
marks).

Average
(marks).

4,366
2,903
3,4i8
3,954
2, 211
2,287
2.349
2,205

2.055
6, 267
7.914
11,791
15,249
25,866
34,731
37,264
38,331

National

Monetary

Commission

If now we refer again to our first table and compare the
total of the cash transactions, as given below, with the
total of all transactions, we shall arrive at some very interesting figures, which exhibit the way in which cash payments have been displaced by the method of payments by
means of transfers not involving the use of cash.
TOTAL VOLUME OF CASH

PAYMENTS.

Transactions.

1876.
188018851890.
18951900.
19051906.
1907-

784,900
1,366, 580
2,058,299
i.S99,82i
2,062,875
2,260,4IO
2,450,049
2,609, 777

Amount
(million
marks).

Percentage
of total
transactions.

6,603
13. i n
19.325
22,191
17.023
27.444
34.367
37.533
40,054

The above figures would, however, be misleading
without some remarks by way of commentary. The
percentage of cash payments has not been reduced, as
would appear from the table, from 39.5 to 15.4—that
is to say, by 24 per cent. The actual diminution was
in reality much less. This discrepancy is due to the
changes introduced by the Reichsbank in its bookkeeping in the course of years. Since 1893 o n l y strictly
cash transactions and bills collected for account of
depositors have been entered as cash transactions.
Before that time the rule was to include under this head,
for example, paid-up loans and "white checks" which
were neither cashed nor used in local transfers. Prior

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to 1885, moreover, the sums credited in connection with
discounts, as well as the amounts of domiciled bills
paid by the bank for its depositors, were included.
It is very interesting to observe in what an increasing
measure the public has been utilizing its balances at the
Reichsbank, as is clearly evinced by the following figures:
Average
amount
of
balance
(marks).

Average
aggregate of
transactions
per account
(marks).

21,148

5,149,844

27,114

6,5io,395
8,050,160
8,788,792

28,469
27,401
29,772
23,690
22,067

8,149,093
9.596,020

20,761

9,781,051
10,251,642

20,707

10,693,695

In 1876 the average amount of transactions per mark
of balance was 237 marks; in 1895, 274 marks; in 1900,
405 marks; in 1905, 443 marks; in 1906, 494 marks; in
1907, 516 marks.
In 1876 the sums paid in by depositors remained in
the bank on an average 3.03 days; in 1895, 2.23; in 1900,
1.33; in 1905, 1.19; in 1906, 1.03; in 1907, 0.99 (less
than one-third of the average time in 1876).
The foregoing figures show plainly that the proportion
of cash transactions in the operations of the Reichsbank
is diminishing from year to year. It would, of course,
be impossible to express numerically just how large a
saving in cash is effected in the annually increasing
circulation of monetary capital, but this much may be

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predicated, that if this capital had to be in the form of
metallic currency, such an enormous amount of coin
would be required that the monetary intercourse which
we have to-day in this country could not be conceived of.
As a result of the more intensive utilization of the
deposits, the deviations upward and downward from the
average balance become relatively greater. We find,
for example, that this deviation, taking all the accounts
together (excluding, however, government accounts,
imperial and state) increased—not at a uniform rate—
in the period 1900-1907 from 31 per cent to 49 per cent.
These fluctuations, just as those in the bank-note circulation, make it necessary for the Reichsbank to keep a
larger supply of cash.
The relative extent to which the various classes of the
community participate in the giro business of the Reichsbank is shown in the following table, the statement being
for March 31, 1908:
Deposits.
Depositors according to classes (government authorities excluded).

Agriculture and allied industries
Manufactures, mining, etc
Trade, transportation, and insurance
Financial (banks, bankers, brokers, etc.)
Joint-stock banks
Others
Corporations, endowed institutions, private individuals, etc
Others

Average
balPer
ance
cent. I (marks).

Number.

Per
cent.

Amount
(marks).

369
7,763
6,366

1.9
40. o
32.8

70,106, 27.2
35,952,439

5.809
9,031
5,648

936
2,311

4-8
11.9

93,838,276
40,496,856

90,578
17,524

1,138
533

5-9
2.7

15,634,507
2,136,250

13,739
4,008

260,308,259

13,338

19,416

192

2, 143,659

Miscellaneous Articles on German

Banking

Leaving the public offices out of account, the banks and
bankers, of course, come first with respect to the extent
of business, their deposits constituting 51.6 per cent, or
more than one-half, of the total deposits (their accounts
being only 16.7 per cent of the total number), while manufactures, mining, etc. (with 40 per cent of the accounts),
have 27 per cent and trade, transportation, and insurance
(with 32.8 per cent of the accounts) 13.8 per cent.
A comparison of these groups with respect to the amount
of business could not yield any significant results, inasmuch as the banks have naturally to effect the payments
for industry and trade and in a great measure for persons
engaged in other fields of human activity.
The giro arrangements of the Reichsbank are at the
service not merely of depositors. Persons and institutions having no account at the bank can have money
transferred by the giro system to depositors, and payments
may in like manner be made to nondepositors by those
having an account at the bank. In the years 1876-1884,
indeed, nondepositors were allowed to make payments by
giro to depositors without charge. This proved to be an
abuse, however, as many persons availed themselves of
the privilege and instead of opening an account at the
bank, exploited its giro arrangements at the expense of
the depositors, who were required to maintain a minimum
balance. In order to induce those who might in a general
way be presumed to be interested in having a share in the
giro to join the ranks of the depositors, the Reichsbank in
1884 instituted a charge in the case of those not having

77267-—10

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Commission

an account, and this charge was afterward repeatedly
increased.
The regulations at present in force in regard to payments effected for nondepositors are as follows:
Marks.

(a) Cash a t the office; for each transfer u p to 3,000 marks
o. 50
For each additional 1,000 marks or fraction thereof
.10
(b) Remittance b y mail (irrespective of whether the sum is intended for a local depositor or for one living in another bank
district)
One-fiftieth of 1 per cent.
Minimum for each sum transferred
.50
(c) Cash transactions admitting of a profit of a t least ten days'
interest
No charge.
(d) Sums paid in to the " department of securities" for the purchase
of securities or as interest on mortgages for account of party
making the payment
No charge.
E x t r a fee for each payment:
Between 12.30 a n d 1 p. m., or in the afternoon hours until 4 p . m_ . 50
After 4 p. m
1.00
Sight transactions admitting of a profit of a t least ten days' interest
No charge.

The following table shows the extent of the giro business in connection with persons having no account at the
Reichsbank:
PAYMENTS BY GOVERNMENT
ACCOUNT

OFFICIALS

AT T H E REICHSBANK

AND O T H E R

Transactions.

1876i88o_
1890189518971900.
19051906.
1907-

P E R S O N S HAVING NO

FOR ACCOUNT OF

267,702
55o,709
651,725
733,805
699, H 7
752,813
764.374
782,343

194

DEPOSITORS.

Total
amount
(million
marks).

134
1, 169
1,882
2,577
3,047
1.546
1, 722

1,795
1,725

Average
amount
(marks).

4,366
3,4i8
3,954
4, 152
2, 211

2, 287
2,349
2, 205

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The decrease since 1897 is likely due to the circumstance
that the public treasuries, which had previously been
availing themselves of the services of the Reichsbank
without having an account there, proceeded at that time
in large numbers to open an account and were soon nearlyall included in the giro network of the Reichsbank.
This branch of the bank's business, with respect to the
total volume of transactions, is, of course, insignificant
by the side of the regular giro business. It may even so,
however, be regarded as a valuable adjunct to it.
One or two other cash-saving adjuncts to the giro
system, arrangements that are of considerable benefit to
the customers of the Reichsbank, may be briefly adverted
to here. They will serve to show how the giro system
may be brought in correlation with other parts of the
mechanism of exchange in this country.
The postal-order system offers a mode of payment which
is very popular with us Germans. The post-office sells
franked postal-order slips, which the person making the
remittance fills out and hands in with the money. At the
place of destination the letter carrier hands to the payee
the sum entered on the slip. Every post-office is a postalorder office. In order to avoid as far as possible the use
of cash in such transactions, the imperial post has entered
into an arrangement with the Reichsbank by which the
amount of the remittance is placed to the account of the
payee—that is to say, if he is a depositor in the Reichsbank—instead of being paid in cash. The depositor
merely gets the counterfoil, which is to serve as a voucher
for the sum placed to his credit at the bank. In like

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manner a depositor at the Reichsbank who has had a bill
of exchange or other draft collected for him by the postoffice or a parcel delivered by mail " collect on delivery "
can have the sum placed to his account. As the transmission of money through the post-office in these three
ways is on a pretty large scale in Germany, the aggregate
of payments thus'effected without the use of cash is a
very respectable amount.
It is unfortunate that this kind of clearing business has
to be confined to the customers of the Reichsbank, only
about 24,000 in number, and that in the case of the great
bulk of the postal orders, etc., the payment must still be
effected by means of cash. But little use is made as yet
of the following arrangement, which ought to make
it possible to dispense still further with the use of cash
in the operation of the postal-order system. Persons or
firms having no account with the Reichsbank are in reality
enabled to participate in the operation of effecting postalorder payments through the channel of giro transfers by
having the amount of the postal order placed to the credit
of some person or firm having an account with the bank.
The crediting is done so speedily that the money is available on the very same day. By means of this combination a single giro account may be made to serve a number
of individuals in the matter of postal payments. The giro
account of banks, with their immense clientele, is particularly adapted for a transfer center for payments of the
kind in question. As the post-offices have a giro account
with the Reichsbank, they are not obliged to transfer the
amount of the postal orders to the bank which acts as a

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transfer center in cash, but instead hand the bank a local
transfer check for the aggregate amount payable at the
time, which amount is charged to their account. As they
hand in such checks each day, they are obliged every little
while to strengthen their account. This is done either
through a cash payment or through a transfer from the
general post-office or else by means of a so-called "yellow
check" drawn on the imperial treasury.
The Reichsbank has another way of promoting monetary settlements without the use of cash by making it
a condition that all bills drawn upon its depositors shall
be made payable (domiciled) at the bank. While in England bills of exchange are, as a regular thing, payable at
a bank, in this country when a bill matures payment is to a
great extent made in cash. The employees of our banks
are consequently kept busy collecting large quantities
of bills (large as to number and aggregate amount).
The many small bills occasion much labor, trouble, and
loss of time. The Reichsbank has been influenceed in part
by other considerations—especially by the desire to keep
an eye on the engagements of its customers in the matter
of bills—in imposing the domiciliary regulation upon its
depositors; but at all events this regulation has the effect
of promoting monetary settlements without the use of
cash. An exception with respect to this obligation is made
in the case of those cities which have a clearing house.
In such places bills may be made payable at banking houses
having daily clearings with the Reichsbank.
Bills drawn upon firms or individuals not having an
account at the Reichsbank may likewise be made payable

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at one of the offices of the bank for account of a depositor,
the words "Payable at the Reichsbank, amount to be
charged to the account current of X," being written across
the face of the instrument. In this way the giro accounts,
particularly those of banks, are made to do service for third
parties, persons having no connections with the Reichsbank.
(b) T H E REICHSBANK AND T H E PUBLIC T R E A S U R I E S . "

In a comparison of the transactions between the Reichsbank and the public treasuries with the corresponding
monetary intercourse in other countries the essential distinguishing factor has to be borne in mind that the character and scope of the functions of the central bank of issue
are very different in different countries and that consequently the relations between the public treasuries and
the central bank will be closer or looser and, above all,
that the modes and means of payment employed by the
public authorities will be much more advanced in one
country than in another.
In England and Belgium, for example, the connection
is the closest, inasmuch as the central bank of issue in these
countries is the actual disbursing and receiving office for
government funds, which makes it unnecessary for the
administrative officers to keep on hand a supply of public
money. The national bank of issue is there a common
reservoir in which all public funds are ultimately collected.
In Germany, on the other hand, the administrative apparatus is provided with numerous treasuries, which, be they
a Compare C. Kimmich, "Die finanziellen Leistungen
fur den Staat" 1909. Verlag T. Guttentag, Berlin.

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der

Notenbanken

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governmental or municipal, are obliged to keep a greater
or smaller stock of cash, whereas in England everything
has to be done by means of bank accounts, a settlement
being ultimately made with the Bank of England without
the necessity of a resort to cash payments. In Germany
the functions of the Reichsbank are confined in the main
to the giro business. The public treasuries avail themselves almost exclusively of these giro services for the purposes of their mutual monetary transactions.
The Reichsbank is not called upon to make payments
releasing the Imperial Government from its legal obligations. With us the imperial treasuries are the agencies
charged with such payments, and the Reichsbank serves
only as a vehicle for the purpose of transferring funds
from one office to another. Owing to the existence of
these imperial treasuries as actual pay offices, the whole
mechanism of payments in connection with public needs
has unfortunately not undergone a development in this
country conformable to modern banking principles such
as we have seen in other countries, for the officials who
handle our public funds are averse to modern banking
methods in the matter of payments. There is also a good
deal of red tape working in the same direction.
And last, but not least, the habits of our people, who
have no particular sense for the whole matter of monetary
settlements without the use of cash and who in a great
measure have no bank account, are still rather backward
in this respect. Payments by individuals are generally
made in cash, and our officials, as we have seen, have not
been the pioneers for the public in the introduction of
modern means of payment, as the giro and the check. And

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so the services rendered by the Reichsbank to the imperial
and state governments are only in the way of placing its
giro machinery at their disposal in just the same manner
as it serves private individuals. A few deviations and peculiarities in their mutual intercourse may be pointed out
here.
The central treasury of the Empire, the Reichshauptkasse, at Berlin,0 transacts the business growing out of the
receipts in behalf of the Government and the disbursements at the other treasuries. It is linked with the Reichsbank, or rather it has been brought into existence by the
Reichsbank in order to perform certain functions provided
for in the bank laws and statutes. The statutes relating
to the Reichsbank impose upon it the obligation of taking
charge of the funds that the Imperial Government has on
hand without compensation and to keep account of the
moneys paid into it or disbursed by it for the account of
the Imperial Government. The imperial treasury is therefore merely an accounting treasury office and as such
neither makes nor receives cash payments. The cash of the
Imperial Government is deposited in the treasury of the
Reichsbank, with which institution the imperial treasury
has the same relations as a depositor (giro client). The
imperial funds are administered by the Reichsbank—that
is to say, to the extent that these funds are concentrated
in Berlin. Outside of Berlin the imperial funds are distributed among the main treasuries in Prussia and the
treasuries of the individual states. From time to time these
treasuries send their superfluous money to the main office
a Compare Kimmich, Bedeutung und Organisation der
Bank Archiv, 1909.

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Reichshauptkasse.

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of the Reichsbank for account of the central imperial
treasury, transferring the funds through private banks
or through the Reichsbank.
The individual states of the German Empire possess no
such institution as that of the Imperial Government
which we have just described. All they have is a giro
connection with the Reichsbank. The extent to which
the state treasuries avail themselves of the arrangements
of the Reichsbank depends upon the particular form
which the treasury system and the system of monetary
intercourse in them has assumed and varies greatly in the
different states. Bavaria, for instance, is still rather
backward in the matter of monetary intercourse, although
the system of transfers between the individual treasuries
(into which the agency of the Reichsbank enters) has
made considerable progress in recent years. In Prussia
the monetary intercourse between the government offices
in nearly all departments of the administration is now
regularly carried on (as far as there is a branch of the
Reichsbank established at the place where the office is
located) exclusively by means of the Reichsbank.
The public treasuries enjoy certain favors at the hands
of the Reichsbank as compared with private customers.
Thus the main offices and subbranches of the Reichsbank
are obliged to transact payments made by anyone into the
imperial treasury free of charge; that is to say, they have
to render this service in the case of persons not having an
account with the bank, who otherwise are made to pay
a fee. Such payments, as a matter of fact, are very
infrequent, as the Imperial Government derives its main

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revenues from the quotas of the states, customs, and
indirect taxes.
The public giro clients of the Reichsbank, moreover,
are not obliged to maintain a minimum balance. Whenever they are in need of funds they are allowed to draw
checks on the central treasury of the imperial treasury
system ("yellow checks" for the post-offices, "blue
checks" for the railway offices, "green checks" for the
treasuries having direct connection with the imperial treasury a) and to present them at the local branch of the
Reichsbank, whereupon the amount drawn for is at once
placed at their disposal. In this manner many of the provincial treasuries obtain their giro balances, and likewise,
indirectly, their cash in hand. The central treasuries
alone are obliged to maintain a minimum balance. The
central treasury of the Empire and that of the Prussian
Kingdom, as well as the general post-office, have to keep
a minimum balance of 10,000,000 marks. The aggregate
of the minimum balances arranged at present for all the
public treasuries is 35,800,000 marks, while the total for
private accounts is 113,800,000 marks. From 1896 on the
offices which receive and disburse public funds joined the
ranks of the giro depositors of the Reichsbank in increasing
numbers, and this movement reached such proportions
that by the end of March, 1908, 4,659 governmental and
municipal offices were enrolled. The accessions continue
at an undiminished rate. From May 20 to the end of
a These are the thirty-six main public treasuries (the Prussian intermediate treasuries) and the main treasuries of the Federated States, into which
are paid the imperial customs and taxes, and which make disbursements
for account of the Empire.

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November, 1908, for example, out of 900 newly opened
accounts about 250 were public accounts. We have
reached the stage now where most of the public treasuries
have accounts with the Reichsbank. The question is
whether the giro system of the Reichsbank could not be
utilized on a very much larger scale by the public authorities. At all events, the ground has been prepared for such
extended exploitation, and it is now for the authorities to
avail themselves of the exceptionally liberal terms accorded
them by the Reichsbank in the matter of giro transfers,
and that not merely in the way in which they have hitherto
done in their mutual transactions, but for the purposes of
monetary intercourse with third parties.
Through the accession of so many public offices to the
giro system of the Reichsbank and the privilege of making
out various kinds of checks for the purpose of strengthening the available resources a great saving in metallic currency has been effected; for, while formerly the public treasuries had to be prepared to meet all demands that might be
made upon them and a large amount of metallic cash was
consequently locked up in their coffers, it is now only the
central treasuries that are obliged to keep the necessary
stock of cash. The cash of the provincial treasuries can
be sent to the Reichsbank, and in this way may be made to
contribute to the extension of the system of monetary settlements without the use of cash.
Unfortunately we have no statistics regarding the volume of giro transactions, pure and simple, between the
Reichsbank and the imperial and state treasuries, as
the Reichsbank publishes merely the figures of the total

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business done with it.

Commission

These figures include, of course,

cash payments also, so t h a t we are unable to tell whether
t h e ratio of cash p a y m e n t s to giro transactions has diminished.

The total volume of business done by the Imperial

Government and t h e state governments with t h e Reichsb a n k has increased a t a very rapid rate, as is shown b y t h e
following table:
PAYMENTS (RECEIPTS AND DISBURSEMENTS) FOR ACCOUNT OF THE EMPIRE
AND THE FEDERATED STATES.
1876
1880
1885
1890
1895
1896
1897
1900
1905
1906
1907
1908

Marks.
2, 071,000, OOO
i, 372, 000, 000
2, 807,000, OOO
4,055, 000, 000
4,233, 000, 000
11, 558, 000, 000
15,155,000,000
28, 479, 000, 000
43,578, 000, 000
51, 205, 000, 000
53, 489, 000, 000
59>778, 000, 000

The utilization of t h e balances a t t h e Reichsbank on t h e
p a r t of t h e imperial and state treasuries, although it is
still considerably less intensive t h a n in t h e case of other
accounts, has been increasing a t a more rapid rate.

1900 t h e figures representing t h e total business transacted
per m a r k of average balance were 159.50 marks for t h e
public treasuries and 404.40 marks for other accounts.
I n 1903 t h e respective figures were 177.40 a n d 413.10; in
1905, 240 and 442.30; in 1896, 284 and 491.70; in 1907,
302.50 and 514.70.®

T h e disadvantage on t h e side of t h e

public treasuries is diminishing rapidly from year to year,

Kimmich, L c.
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owing in great measure to the numerous accessions of
such treasuries in the last few years to the ranks of the
giro clients of the Reichsbank. As the monetary intercourse between them is in the main of a mutual character,
it is possible to transact a much larger volume of payments
by means of giro transfers than formerly. The figures
will therefore have to keep on growing as long as the
public treasuries will continue at such a rate to open
accounts at the Reichsbank.
The following table exhibits the annual deviations in
the amount of total deposits in the case of the public
treasuries as compared with other accounts:
DEVIATIONS IN T H E TOTAL AMOUNT OF D E P O S I T S FROM T H E AVERAGE
TOTAL I N PERCENTAGE OF T H E LATTER.**
Imperial
and state
treasuries.

Year.

1900
1901
1902
1903
1904
1905
1906
1907

102

105

3i
39
35

123

113

120

Other
accounts.

Kimmich, I. c.

In the fluctuations in the case of the public treasuries
there is a certain uniformity in the undulatory movement.
The deposits accumulate regularly at the quarterly
periods and at the close of the periods great changes suddenly ensue, as the Government has at those times to
effect its large payments (interest on loans, contracts,
etc.). In the case of private accounts, on the other hand,

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there is a great regularity in the movement, inasmuch
as, owing to the great diversity in the character of the
accounts, one set of depositors will be low in funds at the
same time that another set will have a superabundance,
so that a strong compensatory movement is established.
(c) GIRO BUSINESS OF THE PRIVATE BANKS OF ISSUE.

Banks of issue were formerly very numerous in Germany. In 1875 there were 38 of them. Gradually,
however, nearly all of them renounced the privilege of
issue, as the laws relating to banking made their existence
as banks of issue more and more difficult. At the present
time there are only 4 such banks a by the side of the
Reichsbank, viz: the Bayerische Notenbank, the Wurttembergische Notenbank, the Sachsische Bank, and the
Badische Bank. These banks of issue have never had any
great importance as regards the giro business, and even
at the present day the volume of their transactions is
relatively insignificant. Their activity in this direction
is restricted by the fact that it is confined within the
bounds of the individual states in which they are located,
and even of the necessarily limited monetary intercourse
of the inhabitants only a fraction comes within the actual
range of their business. To those persons and concerns
whose business extends beyond the border these state
banks of issue are unable to afford the facilities of the giro
a If there are those who are in favor of the continued existence of the
private banks of issue, it is exclusively on the ground of considerations in
regard to the matter of credit. With respect to the granting of credit
these institutions, with their restricted territorial range, have special
qualifications owing to their greater ability of knowing just how to manage,
based upon their knowledge of local conditions.

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transfer. What is imperatively required here is a Reichsbank giro, and the need has been adequately met by the
Reichsbank. To prevent themselves from being ruined
by the competition of the Reichsbank, the private banks
of issue have been obliged to offer various inducements to
their customers in the matter of the giro business. They
make no demands in regard to a minimum balance, pay
interest on deposits, do not oblige their customers to
domicile bills drawn on them at the bank, and exact no
charge from persons having no account with them who
desire to have sums placed to the account of depositors
(to some extent also making cash payments free to third
parties who are nondepositors for account of depositors).
The private banks of issue sustained a severe blow in 1900
on the occasion of the renewal of the bank laws through
the provision prohibiting them from discounting bills at a
lower rate than the Reichsbank whenever its rate reaches
4 per cent and not allowing them to go more than onefourth of 1 per cent below the official rate and oneeighth of 1 per cent below whatever private rate the
Reichsbank may have whenever the bank rate is below
4 per cent. These trammels imposed upon the principal
business of the banks was bound to affect their giro business injuriously in spite of the efforts made to counteract
the mischief by the establishment (especially in Wurttemberg) of many new branches and agencies. The following
table exhibits the extent of the giro business of the German
private banks of issue. The figures for the Reichsbank
are inserted for the sake of comparison.

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G I R O AND CHECK TRANSACTIONS OF T H E GERMAN BANKS OF I S S U E .
[In millions of marks.]

Reichsbank _ _ _ _ _
._.._._.
Sachsische Bank
Bayerische Notenbank- _ _ _ . _
_ ..
Badische Bank
______
Wiirttembergische Notenbank _

__
__ __
__
__

1901.

1905.

167,729
1. 291
787
109
156

222,136
1,372
894
418
261

1908.
269,946
1,813
882
576
725

These figures embrace, as may be seen from the following tables, not merely the giro business, but also the
check transactions in these institutions.
Sachsische Bank.—This has, besides its main office, only
eight branches, with which, in addition, a few neighboring
localities are connected. The Reichsbank has also established offices at the places where these branches are
located. In the extent of the giro and check business,
which it introduced in 1888, it is foremost among the
private banks of issue. The following are the figures for
1898 and 1908. The figures for the business transacted
by the Reichsbank at the same places are also inserted.
Per cent of total.
Sachsische
Bank
(Marks).

Year.

1898
1908

Reichsbank
(Marks).

1,103,298,300
1,813,397,000 1 12.2*0.874.100

Sachsische
Bank.
12.4
12.8

Reichsbank.
87. S
87.1

Bayerische Notenbank.—In Bavaria, before the Reichsbank entered the field, the giro business could hardly be
said to exist. It was not until the Bayerische Notenbank
saw its business dwindling steadily and that of the Reichsbank increasing (the annual business of the former having

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declined between 1876 and 1882 from 178,000,000 to
158,000,000 marks and that of the latter having increased
from 457,000,000 to 1,161,000,000 marks) that it proceeded
to introduce the giro system, which had hitherto been
confined to the more important local concerns in Munich,
at its branches and soon afterward at its agencies. It
increased the number of its giro places from 48 in 1883 to
80 in 1908, while those of the Reichsbank in Bavaria
increased in number from 11 in 1876 to 39 in 1908. There
are 36 places at which both banks are represented. The
following table gives the figures for a series of years:
Per cent of total.
Bayerische
Notenbank.
Marks.

Year.

178,240,000
401,904,000
723,142,000
913,791,000

1876.
1886
1896
1907.

Reichsbank.^
Marks.

457,652,000
1 , 9 1 1 , 1 0 2 , 000
3.956,272,000
10,999,249,800

Bayerische
Notenbank.
28.03
17-3
15.4
7- 7

Reichsbank.
71.97
82.7
84.6
92.3

o These figures are not exactly those for the total giro business of the Reichsbank in
the Bavarian places, as the giro transactions of a number of subbranches are included
in the business of non-Bavarian main branches to which they are subordinated, the
figures for Memmingen, for example, being included in those for Ulm (Wiirttemberg).

Konigliche Bayrische Bank.—This is no bank of issue,
but, as the field of its activity, territorially considered,
coincides with that of the Bayerische Notenbank, reference
is made to it here. It is a government bank and has
20 offices, at all of which, with the exception of one,
the Reichsbank is also represented. Many officials have
an account with the Konigliche Bayrische Bank, and there
is even a special kind of check (red, with brown border),
which they are to use in making payments to persons or
firms having an account at another bank.
77267—10

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In 1907 the bank introduced a giro and check transfer
system on a small scale, with free service and a minimum
deposit of 100 marks.
A special postal giro business carried on by the Konigliche Bank and the Reichsbank within Bavaria deserves
mention here. Such persons only are allowed to avail
themselves of the advantages that it offers as have an
account at one of the branches of the Konigliche Bank or
at any of the private banks having connections with it,
or else at a branch of the Reichsbank located in the same
place with a branch of the Konigliche Bank. All the
accounting is done by the Konigliche Bank without charge.
The only fee that is exacted is when a postal order is
delivered to the sender to serve as a receipt, a charge of
two pfennigs being made in such cases. The remuneration which the Konigliche Bank gets for its services is in
not having to pay interest on the balance of the postoffice, which is not to be permitted to fall below the sum
of 100,000 marks. (Proebst, "Die Grundlagen unseres
Depositen und Scheckwesens," 1908.)
Wilrttembergische Notenbank.—The giro business in
Wurttemberg at various dates has been as follows:
Per cent of total.
Year.

1876
1886
1896
1907

Wiirttembergische Notenbank.
Marks.

Reichsbank.
Marks.

245,566,500
1.085,594,500
1,761,102,600
4,900,816,600

43.104,900
i6,359,9oo
30,550,800
433,449,8oo

2IO

Wiirttembergische
Notenbank.
14.5
i-5
i-7
8.1

Reichsbank.
85.5
98.5
98.3
91.9

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The check transactions of the Wiirttembergische Notenbank are included in the above figures.
Previous to 1901 this bank had no branches. At the beginning of 1901 it established all at once 24 agencies, and
the number was increased to 68 by 1908. By far the greater
part of the agencies are in very small places. There was
a considerable increase in the amount of deposits after
1901, when the policy of allowing interest on deposits was
inaugurated. The agencies at the numerous small places
in Wurttemberg were not established for the purpose of
extending the giro business. What the bank sought to
accomplish, in reality, was to counteract the unfavorable
effect of the bank laws of 1901, and it deemed it could do
this most effectually by replenishing its stock of bills
through accessions from within the class of small business
people in the little towns. The practical way to achieve
this was not by instituting branches with regular employees, but by installing agencies which were run by
small local bankers. As these bankers receive a very
fair commission for the bills sent in (one-fourth of 1 per
cent), they gladly turn over to the Wiirttembergische
Notenbank everything in the way of bills that comes in
to them.
Badische Bank.—This was founded in 1870 and has
only two offices, one at Mannheim and one at Karlsruhe.
It can have no giro business, of course, but it has a
system of payments by check, which has assumed considerable proportions since 1903. In that year the
aggregate sum represented by the checks drawn by its
depositors was 128,000,000 marks, as compared with

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70,000,000 marks in 1902, and in 1908 the amount was
287,000,000 marks.
The importance of the giro business of the private
banks of issue, it will be seen, is slight. Their arrangements, however, by making the giro network of the
Reichsbank closer, supplement to some extent the giro
system of that institution. But inasmuch as the Reichsbank is in many instances represented at the same places
as the private banks of issue, it would be preferable,
looking to the perfection of the giro system, if the entire
giro business in any one place were in the hands of a
single institution and the Reichsbank were relieved of
this extra trouble in the control of the monetary intercourse of the Empire.

212

3T H E GERMAN POST-CHECK SYSTEM.

The post-check system would more appropriately be
termed the post giro system. For at bottom its purpose
is to become a giro system, a system of monetary transfers by means of assignments to, and deductions from,
accounts current. What it is aiming at is to make it
unnecessary for German letter carriers to be lugging
around millions in cash every day. The money sent
through the German post-office in 1907 amounted to no
less than 1 3 ^ billion marks. The post-check system
has this in common with the giro system of the Reichsbank that it extends over the whole length and breadth
of the German Empire, while the activity of all other
institutions carrying on a system of giro, as well as
check, payments, with the exception of the union of
the Schulze-Delitzsch credit associations, is territorially
or locally restricted. The giro network and that of the
post-check system are connected with each other—
although till now not as closely as they should be—by
certain channels that render it possible for payments to
travel unhindered from the one system over to the other
without the intervention of cash. Every establishment of
the Reichsbank located where there is a post-check
office has a post-check account. In Berlin the imperial
treasury and the bureau of securities have a post-check

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account. This connection is supplemented by the relation that has existed for years between the imperial
post and the Reichsbank in the system of postal orders.
The public is enabled to avail itself of the post-check
accounts of the Reichsbank in such a way that anyone
desiring to have a sum placed to an account current
(giro account) in the Reichsbank, whether he have a
post-check account or not, can either pay in the money
at a post-office (using a Zahlkarte or paying-in slip) or
have the amount charged to his postal account and thus
have a transfer effected to the postal account of the
Reichsbank. The giro account in the Reichsbank, which
is to be credited with the amount, is indicated on the
required postal blank (paying-in slip, red transfer blank,
or giro post slip). In this way a person who has a postcheck account and is also a depositor in the Reichsbank
can have such sums as are placed to his post-check
account transferred to his giro account.
In order to facilitate the transfer of a sum from a
post-check account to a giro account in the Reichsbank,
the following procedure may also be resorted to. The
person having the post-check account makes out a
check for the amount to be transferred and obtains
from the post-check office, in place of cash, a " red check "
(Reichsbank check) drawn by the post-check office on
its giro account at the Reichsbank. This check can at
once be passed on to the Reichsbank, which will place
the amount to the giro account of the drawer of the
post check. Arrangements have been made for rendering t h e intercourse between the post-check office and

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the Reichsbank as expeditious as possible in order to
minimize the loss of time and interest on the part of the
public. Checks received at the post-check office before
noon are sent in to the Reichsbank by 3 or 3.30 p. m.,
so that they may be taken in hand before the close of
the day.
The post-check system supplements in a most effective
manner the giro system of the Reichsbank in that it
brings in connection with the five hundred establishments (more or less) of the Reichsbank about 39,000
post-offices and post agencies. As all the post stations
are included in the post-check system, the Reichsbank's
network of branches is spread out uniformly in a compact manner over the whole Empire. Thus not merely
are an immense number of places embraced within the
range of this peculiar imperial clearing service for small
payments, but those classes of the people who handle
only small sums of money are enabled to participate in
the operation of monetary settlements without the use
of cash. For the giro system of the Reichsbank still
bears a rather plutocratic character. It serves especially
individuals and firms who have to deal with large sums
and frequent payments and who are depositors in the
Reichsbank. The petty giro service is therefore reserved
for the post-office.
The post-check service in Germany is altogether a new
creation, having come into existence as late as January 1,
1909. It is modeled partly on the Austrian pattern. The
main difference with respect to Austria, as also with respect
to England, consists in the fact that in those countries

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there are postal savings banks, in which the public is invited to place capital on interest, while the balances in the
German post-office do not draw interest, so that those
having accounts, as a rule, will not deposit more than what
they consider absolutely necessary.
We regard our system, which does not aim to be anything more than a giro service, as decidedly superior to the
other type, that of the postal savings bank, for it would
be of no advantage for the credit system of the country if,
by means of such a centralized institution as that of the
postal savings banks, money and capital were to be systematically withdrawn from the provinces in order, as is
the case in England and France, merely to send up the
price of government securities, while the provinces are
suffering from a dearth of credit. In England and France,
as it is, there are numerous complaints regarding the concentration of capital in the metropolis to the prejudice of
every other part of the country. A well-organized credit
system, however, at bottom means much more for a country than a more or less advanced mechanism for effecting
payments, for credit is a vital condition for industry, trade,
and agriculture. With us, likewise, the deposits in the
post-office are naturally concentrated,, the law providing
that they be transferred to the Reichsbank, which is to
take special charge of them. They therefore serve indirectly, by increasing the stock of cash, to strengthen the
central bank of issue. Such an accumulation of money in
the general reservoir of the country and its utilization
solely in the interest of an advantageous policy in the matter of the rate of interest and for the purpose of effecting a
saving in the use of metallic currency can not be regarded

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otherwise than as representing the wisest disposition that
could be made of these funds—a much better disposition
than if the money were immobilized, as is done in other
countries, for the sake of driving up the price of government
securities.®
Within the imperial postal territory—that is to say, the
Empire exclusive of Bavaria and Wiirttemberg—nine postcheck offices (central post-check bureaus) have been installed. Bavaria and Wiirttemberg, which still maintain
their own postal administration, have joined voluntarily
with three offices and a single office, respectively. Anyone
is permitted to open a post-check account. The post-office
can refuse no one. The only condition is the maintenance
of a minimum balance of ioo marks, which, as has been
said, draws no interest. The accounting is not done at the
individual post-offices, but at the post-check offices or
bureaus. The installation of no more than nine such postcheck offices did not meet with the approval of the public,
which complained that this centralization, with the resultant formalities of one kind or another, would prevent
the service from being a rapid one and entail much loss
of time. This complaint is not wholly groundless. Suppose, for example, that I am a resident of Schweidnitz,
having a post-check account, and that I desire to make
a remittance to a creditor, let us say, at Iyindau. I
have, first of all, to transmit the post check to the postcheck office with which the Schweidnitz post-office is
in connection—the one at Breslau. Here the sum in
question is charged to my account. The post-check office
oCompare: Dr. Kimmich, Die Ursachen des niedrigen
deiUscher Staatsanleihen, Stuttgart, 1907, Verlag von Cotta.

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at Breslau passes on the remittance the same day to the
post-check office with which the post-office of the recipient
(at Lindau) is in connection—the one at Munich. There
the sum is placed to the account of my creditor at Lindau,
who is then duly notified. In this case, therefore, four
days, or, if a Sunday intervenes, five days, must elapse before the transaction is completed and my creditor actually
is in possession of the money. This means a loss of three
days' interest as compared with the transmission by means
of a postal order. In comparing the fees in the case of the
postal orders with the charges for the post-check service,
account has to be taken of this loss of interest. If my
creditor at Lindau purposes to dispose of the money immediately, then an additional day must elapse (making six
days in all), as the post-check office at Munich has, first of
all, to be notified in regard to the disposition that is to be
made of the sum. The intercourse between cities at which
post-check offices are located is of course much more expeditious, which amounts to a discrimination in favor of the
residents of such places. Under existing arrangements, in
any case, the post check does not afford a suitable means
of transmitting large sums, as the loss of interest is considerable and the clearing process is too slow to permit a
speedy disposition to be made of the money. Looking
merely to the smooth working of the postal administration,
this concentration of the post-check traffic at thirteen
centers is of course more practical than a decentralized
system, with thousands of establishments. In Austria
there is but a single post-check bureau, where all the
accounts for the entire country are kept.

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Lists of persons having a post-check account are published and are for sale. All mail from the post-check offices
and post-offices addressed to persons having an account, as
well as mail between the various check offices and between
these and the post-offices, is forwarded free. Mail from
persons having check accounts addressed to post-offices
and check offices has, however, to pay postage.
The regulations governing the post-check service are as
follows:
For transfers (assignments) from one account to another
two kinds of blank forms are employed, identical with
respect to their wording—the one an assignment form
(Ueberweisungsformular) for inclosure in a letter, the other
a postal card to be forwarded without a cover. In the
case of the latter it is provided that the amount shall not
exceed i ,000 marks, while the former may contain a number
of assignments or transfers without any restriction of the
total amount.
For remittances where the money is to be paid to the
recipient in cash a check is employed whose maximum
amount is fixed at 10,000 marks. In regard to this cash
check there are certain restrictive regulations:
1. It must be an indorsed check.
2. If the name of the payee is on the check, the check
office will not pay the amount directly to the recipient,
but will deliver it through the post-office at his place of
residence. For the purposes of identification, the precautions employed are the same as those to which recourse
is usually had in the case of the delivery of registered
letters.

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3. If the check is made payable in cash at the check
office itself, the name of the payee is not to appear on it.
This relieves the post-office of the necessity of identification.
4. Cash checks in favor of persons having a post-check
account are cashed only when the payee expressly requests
payment in cash. Otherwise the amount is placed to the
account of the payee.
5. The maximum sum which the post-office undertakes
to deliver at the payee's residence is 3,000 marks within
an urban delivery district and 800 marks in a rural delivery
district. In the case of larger sums it is necessary to go
to the post-office for the money.
Payments by telegraph in pursuance of a cash check
can not exceed the sum of 800 marks.
A person may make a cash payment at any post-office
up to the sum of 10,000 marks and have the amount
placed to the credit of some one having a post-check
account. For such a transaction a blue paying-in slip is
used. Such a paying-in slip may be handed in by persons
having no post-check account as well as by those who have
one. A single check of this kind may serve for making
payments to several persons, in which case a list of the
names of the recipients must be attached to it. The cash
may be paid in, of course, by means of a postal order. Business firms can have the amounts of postal orders in favor
of their branch offices placed by the post-offices to the
account of their main office.

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Sums collected by the post-office (cashing of drafts,
delivery of c. o. d. parcels) may in like manner be directly
transferred to a person's account.
The fees in the post-check service are as follows:
Pfennigs.

i. Money paid in and placed to the credit of a person having a postcheck account, for each 500 marks or fraction thereof
2. Money paid out in cash at a post-check office or through a post-office:
A fixed fee of _ _ =
A supercharge of one-hundredth of 1 per cent of the sum to be
paid out.
3. For each transfer from one post-check account to another
In the case of payments coming under the first category the fee is
paid by the person to whose post-check account the money is assigned.
I n the case of the second and third categories it is paid by the person
from whose post-check account the money is transferred.
4. If the transactions in connection with a post-check account involve
more than 600 entries in the course of a year, there is an extra fee
(over and above the regular charge) for each additional entry of_

5
5

The savings effected are illustrated by the following
examples, extracted from a lecture delivered by Postrat
Stroh in Kassel on February 11, 1909.
A remittance of 200 marks by postal order costs 30
pfennigs; through the post-check service, according to
whether it is made by simple transfer [as under (3)], payslip [as under (1)], or check [as under (2)], 3, 5, or 7
pfennigs. The saving in the case of a single remittance
is therefore 27, 25, or 23 pfennigs.
A remittance of 800 marks by postal order costs 60
pfennigs; through the post-check service only 3, 10, or 13
pfennigs. Saving, 57, 50, 47 pfennigs.
A remittance of 3,000 marks by registered letter a costs
70 or 90 pfennigs, according to the distance; through the
a

The maximum amount of a postal order is 800 marks.

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post-check service, 3, 30, 35 pfennigs. Saving, 67, 40, 35
pfennigs in the case of places in the first zone, and 87, 60, 55
pfennigs in the case of places farther apart.
Let us suppose that five different parties desire to
pay in 100 marks each, the sums to be placed to one and
the same post-check account, and that the total amount,
500 marks, is paid out in cash by the person who has
the account in two sums of 200 and 300 marks, respectively, in order to settle claims against him. The fees
will be as follows: Five cash imbursements, 25 pfennigs;
two cash disbursements, 15 pfennigs (10 pfennigs+ 5 pfennigs additional); total, 40 pfennigs. If the transactions
were effected by postal order, the fees would amount to
1 mark for the imbursements and 70 pfennigs for the
disbursements, or to 1.70 marks in all. Total savings,
1.30 marks. If the person having the post-check account
should have the two amounts placed to the accounts
of his creditors, then the total fees would amount to only
31 pfennigs, so that the total saving would amount to
1.39 marks. If he should desire to take out the whole
of the 500 marks in cash, he will make out a check payable to himself and send it in to the post-check office,
which will transmit the amount to him by means of a
payment order. The fee for this disbursement will be
10 pfennigs, so that the total amount of the fees for the
five imbursements and one disbursement will be 35
pfennigs. This would, therefore, be 65 pfennigs less
than if the five persons had made their individual remittances by means of a postal order.

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If five imbursements of 200 marks each are made to
the credit of one and the same account and the recipient
desires to have the whole amount, 1,000 marks, placed
to the account of his bank, the fees will be: For five
cash imbursements, 25 pfennigs; for the' transfer from
one account to another, 3 pfennigs; total, 28 pfennigs.
If the payments were made by postal orders, the six
remittances would cost 1.50 marks. Total saving, 1.22
marks.
The saving in the matter of charges is somewhat diminished in the case of accounts calling for more than
600 entries annually by the extra fee of 7 pfennigs for
each entry over and above that number. This additional charge has already had the effect of causing the
association of Berlin banks and bankers—the so-called
<
'Stempelvereinigung,M to which the large banking institutions of Berlin belong—to resolve to exact from
their customers a fee of 15 pfennigs for each post-check
payment.
The system of fees and, above all, the feature of nonpayment of interest on post-check balances were introduced in order to afford the post-office some compensation
for its services and to keep out the great flood of deposits,
which it was feared would be to the prejudice of the
savings banks and the agricultural credit associations.
But there is no doubt that this policy, based partly upon
considerations of a fiscal character and partly upon a
disposition to cater to the interests of the middle classes,
is more or less of a hindrance to monetary intercourse,
especially as the fees are not simple, but of a rather

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complicated kind, and are more especially burdensome to
those who exploit the post-check arrangements most
intensively.
The dimensions which it was calculated before the
introduction of the post-check service that the business
of the first three months would reach—84,000,000 marks
and 10,000 accounts—were already far exceeded within
the first few weeks. The accessions were numerous from
every quarter. The subjoined figures (taken from newspaper reports) show the unexpectedly rapid development. At the nine post-check offices of the imperial
postal territory (Bavaria and Wurttemberg being thus
excluded) the total amounts with which post-check
accounts were credited in the first five months of 1909
were as follows:
[In millions of marks.]

Sums paid
in by
means of
pay slips.

Month.

January._
February
April

_
-- - -

__ __
- _
- . - -_

TotaL

Transfers
from other
post-check
accounts.

Aggregate of
sums placed
to post-check
accounts,
inclusive of
some items
not included
under the
preceding
heads.

IOI

168

153
205

148

355

219

220

441

259

1,303

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The total amounts charged to post-check accounts
were as follows:
[In millions of marks.]

| Sums paid
out in cash
by the
post-check
offices.

Month.

January. _
FebruaryMarch
April
May

Sums paid
out in cash
by the
post-offices.

Aggregate
Withdrawals withdrawals,
by assigninclusive of
ment to
some items
another
not included
post-check
under the
account.
preceding
heads.

160

79
99
115

105
148
218

34i
436

102

255

Total.

The three Bavarian post-check offices, the statistical
figures for which, as far as they have come to us, extend
only to the close of April, 1909, had at that time 3,026
accounts, with aggregate balances of 3,870,000 marks.
The post-check office in Wurttemberg had at the same
date 1,759 accounts, with aggregate balances of 2,760,000
marks.
The total volume of transactions in the whole Empire
increased from 1,225,113,000 marks in the first quarter
of 1909 to 2,889,910,000 marks in the second quarter,
or at the rate of 135.9 per cent. The number of accounts
increased from 28,571 at the close of March to 34,897
at the close of June, or at the rate of 22.1 per cent, and
the total amount of deposits increased during the same
period from 36,797,000 marks to 56,929,000 marks, or
at the rate of 54.7 per cent. Of the total amount charged
to post-check accounts in the first quarter, 40.3 per cent
77267—10

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was transferred from one account to another without the
use of cash, and in the second quarter the percentage
was 44.7. The significance of these figures will be appreciated by reference to the fact that the total volume of
transactions in the German postal-order service, which
was inaugurated in its present form on January 1, 1865,
or 44K years ago, amounted in the calendar year 1907,
in round numbers, to 12% billions.
The proportion of cash transactions remains, nevertheless, very considerable. In April, 1909, for example, 29
per cent of the aggregate of sums charged was entered as
cash payments. This consisted, however, in part of red
checks drawn on the Reichsbank, which figure as cash
payments on the books of the post-check offices, although
they represent in reality merely transfers from one account
to another.
If we have sought to present a detailed account of the
post-check service it is not by reason of the importance
which it actually has at the present day. The institution
is still too young to possess already a telling quantitative
significance in our monetary intercourse; but it will without doubt exercise a revolutionizing influence upon the
habits of large sections of our population in the matter of
payments and upon the entire mechanism of monetary
intercourse in the country. This can only be a matter of
time.

226

4CLEARING HOUSES IN THE GERMAN EMPIRE.

The German clearing houses are arrangements instituted
for the control and simplification of local monetary settlements. Only a part of the transactions, however, that
may be set off one against another at any particular place
are cleared by these institutions, and even in this the scope
of their activity varies in different places. The operations of the clearing house extend merely to bills, checks,
drafts, vouchers, etc., and at some places to stocks also.
At Frankfort the handing in of parcels of stock is optional
with the members. Local payments, in so far as they
represent transactions between persons having an account
current with the Reichsbank are disposed of by the Reichsbank by means of the method of crediting and debiting
accounts current. There is an exception to this in the
case of Hamburg, where the total giro business, local as
well as interlocal, passes through the clearing house, having been concentrated before reaching it in no more than
five participating banks. In Berlin, too, the local monetary intercourse of those having giro accounts with the
Reichsbank is not reserved for the Reichsbank alone, for
here the regular clearing house (Abrechnungsstelle) has
a rival institution in the Bank des Berliner Kassenvereins,
which appropriates a large fraction of the business in
which no instruments of payment are involved, and also
some of the business into which such instruments enter,

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especially bills and checks. The Berlin Clearing House
comprises only 18 members (not reckoning the Reichsbank)
and includes the great local banks, while the Kassenverein
embraces all the banks, including many small concerns,
altogether about 150 institutions at present. In Frankfort
a part of the clearing business is done at the Frankfurter
Bank. In Hamburg stocks are cleared by the Wechsler
Bank.
The relation of the clearing houses to the Reichsbank is
as follows: The balances of the individual members at the
clearing houses that are found daily in the clearing of bills
and checks (at some places stocks also) are charged or
placed, as the case may be, to their account current at
the Reichsbank in the same manner as with all other local
giro transfers. The function of the Reichsbank in this connection is merely that of directing the operations of the
clearing houses, which represent a perfectly independent
organism and are not a part of that of the Reichsbank,
even though their activity supplements that of the Reichsbank and their operations in the last analysis are merged
in those of the bank. The Reichsbank, however, does not
merely direct. It is itself an active and passive participant in the clearing business, just as the other members.
It makes deliveries for other members and lets other members make deliveries to it. In Berlin the Reichsbank far
surpasses all other members in the volume of its deliveries
at the Clearing House. The premises of the Clearing House
are provided gratuitously by the Reichsbank. The other
expenses are borne equally by the members. Membership is confined to banks. The Reichsbank makes agree-

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ments with the banks for the regulation of the clearing
business. In nearly all these arrangements the obligation
is imposed upon the members to hand in for clearing all
their paper in the way of bills, checks, and drafts. In
Berlin, out of consideration for the Kassenverein, which
was active long before the establishment of the clearing
house (ever since 1823), the members are at liberty to hand
in only such bills as they desire to have cleared. There
were seventeen clearing houses in the German Empire at
the close of 1908, viz, those at Berlin (opened 1883), Brunswick (1907), Bremen (1884), Breslau (1884), Chemnitz
(1902), Cologne (1883), Dortmund (1905), Dresden (1883),
Elberfeld (1893), Frankfort (1883), Hamburg (1883),
Hanover (1908), Leipsic (1883), Mannheim (1908), Munich
(1906), Nuremberg (1906), Stuttgart (1883).
DEVELOPMENT OF THE CLEARING B U S I N E S S IN GERMANY.^
[In thousands of marks.]

Year.

1883
1884
1890
1900
1905
1908

Items.

Total
amount.

i49,55o
it979,012
2,825,314
5,186,237
7,341,995
io,53i,271

887,547
12,130,196
17,991,301
2 9 , 4 7 2 , 744
37,602,991
45,960,854

Average.

59
6.1
6.4
5-7
5- i
4.4

Ratio of
clearings
Placed to to total Mem- Number
of
giro ac- items ex- bers. clearing
pressed
counts.
houses.
in per
cent.

3,121,843
4,162,441
6,533,468
8,543,437
9,869,551

74-3
76.9
77-8
77-3
78.5

85
112
116
126
137
198

7
9
9
10
12
17

a " T h e German Clearing Houses in the Year 1908," compiled in the statistical department of the Reichsbank.

The place that leads in the volume of business is, of
course, Hamburg, where the local giro business was highly

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developed at an early period and where the development of
the clearing business has taken a peculiar course, unlike
what has been witnessed in other places.
In comparing these figures with the aggregates of
clearing operations in other countries, as England and
the United States, an important factor must be borne in
mind without which the view obtained from the statistical
columns would be a distorted one. In England and the
United States the volume of check transactions is much
greater than with us, while in Germany the giro transfer
has assumed the functions that the check performs in
those countries. Now, inasmuch as in England and the
United States the checks are cleared in the clearing
houses, while the giro transactions of the Reichsbank do
not figure in the clearing-house statistics, an international comparison of the volume of monetary transactions
effected without the use of cash could be undertaken only
if we were to add to the aggregates of the German clearing
houses so much, at least, of the giro business of the Reichsbank as is effected by means of transfers to, and deductions from, accounts current, which constitutes by far the
greater part. All the same, the low figures of our clearinghouse statistics show how little the clearing business, as
regards bills and checks, has till now been developed in
this country. The figures, it is true, exhibit a rather considerable increase, but then unfortunately allowance has
to be made for the circumstance that the introduction of
the system of monetary settlements without the use of
cash was with us a rapid process. The clearing houses,
furthermore, encountered for a long time a rather inex-

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plicable opposition on the part of the participants themselves, which explains the fact that a number of important
commercial and industrial centers did not institute a
clearing house until very recently.
(a)

CIvEARINGS I N CONNECTION WITH MORTGAGE BANKS.

A field in which the system of monetary settlements
without the use of cash has thus far not succeeded in
taking firm root is that of transactions in connection with
mortgages. This is not strange under the circumstances.
Legislation has invested the mortgage business with
much red tape, thus throwing obstacles in the way of
that facility of transfer so essential to easy and rapid
monetary settlements. In spite of this, an attempt has
been made to open up this field also for the clearing system by the establishment on April i, 1909, of a mortgage clearing house, which, however, will still have to
show that it is able to exist. It is true, indeed, that
the organization of the mortgage business in Germany
appears much better adapted to clearing operations than
is the case in other countries, inasmuch as a great part
of this business is concentrated in about forty banks
and in the insurance companies, which invest their vast
funds above everything in mortgages. The insurance
companies are, however, decidedly opposed to mortgage
clearings and but few have become members of the mortgage clearing house. Mortgage instruments are such
a stubborn material for clearings that it seems doubtful
whether the anticipations of a successful development of
the system of mortgage clearings will be realized. The

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experts in connection with the bank inquiry commission
of 1908 declared that the system of mortgage clearings
was a stillborn product.
(b) BANK DES BERUNER KASSENVEREINS.
Berlin has two clearing houses—the Kassenverein and
the Clearing House, so-called Abrechnungsstelle. The Bank
des Berliner Kassenvereins was founded in 1850 as the
continuation of the Kassenverein, which had been in existence twenty-seven years, and is organized as an independent joint stock company. The Abrechnungsstelle
was not established until 1883. The two institutions have
developed very differently, as is natural from the difference
in their ages. The Kassenverein, the regular local giro
(transfer) institution for the Berlin banks, has in a measure
grown up with the business of the city. It is more closely
related to the banking world of Berlin and has more points
of contact with it than the Abrechnungsstelle. This is
evident from the respective memberships and the difference in the volume and character of their business. In the
middle of 1909 the Kassenverein had 147 members—banks
and bankers of Berlin and its vicinity—while the Clearing
House had only 19 members, inclusive of the Reichsbank.
The Kassenverein is not merely a clearing house, but is
also a cashing and collecting establishment, an institution
for stock clearings, etc. The two institutions thus operating side by side are, moreover, connected with each other.
The Kassenverein is a member of the Clearing House and
hands over to it such bills and checks for clearing which
it receives from its members and which are drawn upon
members of the Clearing House or are domiciled with

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_

them. The Kassenverein holds precisely the same position at the Clearing House as the other members of that
establishment. An interesting feature of the situation is,
therefore, that the activity of the Kassenverein, in spite of
its character as a local clearing establishment, merges ultimately in considerable part in that of the Reichsbank.
Its giro transactions in connection with the Reichsbank
amounted in 1908 to nearly 3,500,000,000 marks and at
the Clearing House to over 5,000,000,000 marks. The
large aggregate of 8,500,000,000 marks evinces plainly the
close connection between this institution and our central
bank of issue.
Out of consideration for the arrangements and business
of the Kassenverein, which has been in existence much
longer than the Clearing House, the Reichsbank, contrary
to its action in the matter of imposing conditions at other
places, has made the concession with respect to the Berlin
Clearing House that the clearing shall be restricted to such
bills and checks which the members may desire to have
cleared between them. In Berlin, therefore, the clearing
at the Clearing House is optional; there is no obligation
upon the members to hand in all their paper.
In spite of its having two clearing houses, Berlin is not
on a level with Hamburg in the matter of monetary settlements by means of transfers and clearings. The fault is
not with the clearing houses, but with the public. In
Hamburg all classes of the population have bank accounts
and are in the habit of making even the smallest payments
by means of current-account transfers in the bank, while
in Berlin this is not done so extensively.

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The following table shows the importance of the business of the Kassenverein and the extent to which its transactions are effected by means of transfers and clearings:
B U S I N E S S OF THE K A S S E N V E R E I N IN 1908 (RECKONING AMOUNTS
R E C E I V E D AND AMOUNTS P A I D O U T ) .
Marks.

Cashing and collecting bills, stocks, and accounts
14, 823, 843, 100
Of the above amount nearly 13,500,000,000 marks, or
90.9 per cent, was settled by transfer and 1,355,000,000
marks by means of cash payments.
Giro transactions (cash payments, transfers to accounts
current in connection with daily bookings, debits
in connection with checks, deductions from accounts
current)
19, 577, 664, 700
Giro transactions a t the Reichsbank
3, 459, 412, 700
Transactions at the clearing house in the Reichsbank
5, 087, 931, 500
Banking transactions
284, 008, 700
Total

43, 232,860, 700

The total of the deliveries at the Berlin Clearing House in
1908 amounted to 15,780,000,000 marks. Of this 61.1 per
cent was cleared and the remainder transferred on the
books of the Reichsbank.
The Kassenverein undertakes to collect or cash for those
having giro accounts with it bills, drafts, checks, stocks,
accounts, and vouchers, whatever is payable in Berlin, up
to any amount. In the case of bills and drafts the district
within which collections are made embraces the Berlin
postal district, while for the remaining kinds of instruments a special (inner) collection district has been instituted. In the case of the latter, however, by special arrangement, the larger district may be substituted for the
inner one.
By the side of the cashing and giro business the Kassenverein has had since 1882 the so-called "giro stock depos-

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itory," instituted for the purpose of expediting business at
the Bourse. In this department the members of the Kassenverein receive certain stocks for safe-keeping, the documents being at all times at the disposition of the customer.
If he wants to dispose of them, he is furnished with special
checks for the purpose. He makes use of a white check if
he wishes simply to take out his securities, of a red check
if he wishes to transfer his shares to another customer,
and of a green check if the stocks are to be used as collateral on a loan.
Pretty nearly all the stock-transfer transactions between
the Berlin banks are effected through the channels of the
Kassenverein. The bank which has to deliver the stocks
hands them in with the bill to the Kassenverein. There
the account of the recipient is charged with the amount
represented by the stocks and the documents are handed
out to him.
Inasmuch as the business of this general clearing house
is of such a manifold nature, a vast number of items can be
set off one against another. The so-called " great banks "
of Berlin have daily thousands of mutual stock and money
transactions to settle among themselves that admit of
being cleared at this common central bank by mere transfers to, or deductions from, their accounts. With an average aggregate credit balance of only 14,000,000 marks,
sums amounting to no less than 9,800,000,000 marks were
placed in 1908 to the credit of (and charged to) holders
of accounts.
The annual charges for cashing (collecting) and giro
services, fixed every year in advance, range from 100

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Commission

marks to 4,500 marks, according to the extent to which
the bank's services are brought into requisition.
The minimum credit balance (below which the deposit
is not permitted to drop) is fixed at 300 marks.
In the department of the giro stock depository each
member has to pay an initiation fee of 100 marks and an
annual contribution for current expenses (which is paid
in advance), which is fixed according to the amount of
business that is anticipated, and ranges between 100 marks
and 3,000 marks, the management reserving to itself the
right to alter the amount should the volume of the transactions call for a change.
The "great banks" in Berlin pay each annually the
sum of 4,500 marks for the use of the arrangements of
the Kassenverein, which seems a ridiculous amount when
we consider the immense advantages which every one of
these banks derives from the common institution. It
would be hard to calculate how many messengers the banks
can dispense with by reason of the services performed by
the Kassenverein. Nor can one easily overestimate the
benefit derived from the systematic conduct of the cashing
and collecting business of a great city by a single institution. We have seen in the table given above that in this
department nine-tenths of the total volume of transactions
is settled by transfer and only one-tenth by cash payments.
Thirty years ago the respective fractions were three-fourths
and one-fourth. This branch of the business of the Kassenverein has quadrupled since 1876. On some days the
total volume of cashing and collecting transactions exceeds the sum of 500,000,000 marks.

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(c)

THE FRANKFURTER

Banking

BANK.

Frankfort-on-the-Main, like Berlin, has two clearing
houses—the Frankfurter Bank and the Clearing House,
so-called (Abrechnungsstelle). The Frankfurter Bank is
not exclusively a clearing house. Until within a few
years it was a bank of issue, but in 1900 it surrendered its
privilege as such, and since then, in addition to its capacity
as a clearing house, it is simply a bank of deposit. It is
prohibited by its charter from engaging in any operations
involving risk (blank credits,flotation of securities, etc.).
Contrary to what takes place in Ber1in, the Clearing
House at Frankfort has the larger share of business.
The figures of the clearing business (outside of checks)
of the Frankfurter Bank for 1908 were as follows:
Accounts
119
Bills and drafts handed in
215, 799
Parcels of stock handed in
131, 944
Total sum placed to credit of holders of accounts, .marks_ _ 1, 833, 880, 000

The figures of the business of the clearing department
in connection with checks were as follows:
Checks handed in
Total amount
Total amount settled by cash payments
Amount settled by transfers on books

26, 973
marks, _ 1, 154, 199,000
do
259, 346, 000
do
894, 853, 000

The figures of the business of the Clearing House for
1908 were as follows:
Members
21
Instruments handed in
509, 013
Total amount
marks, _ 5, 324, 539, 000
Total amount transferred to the giro account of members
marks..
735, 014, 000
Ratio of amount cleared to total* amount
per cent- _
86. 2

Since 1905 the cashing and collecting business has been
exclusively in the hands of the Frankfurter Bank. Previous to that date the Reichsbank had a share in it.

237

5INDUSTRIAL AND AGRICULTURAL COOPERATIVE SOCIETIES.

There is no country in the world in which cooperative
societies have come into existence on such an extensive
scale as in Germany. At the beginning of 1908 Germany
had 26,851 such associations, with a total membership
of 4,105,594. Of these, 16,092 were credit societies. It
is with this class alone, whose participation in the monetary intercourse of the country is by far the most extended,
that we have to deal here. The savings and deposits in
these societies amounted in 1907 to about 2,500,000,000
marks, which is approximately equal to the total deposits in
the hands of the so-called "great banks" in Germany. The
classes of the community in which these societies are
active are the small tradespeople and manufacturers, artisans, husbandmen, etc. There are two groups of societies that merit consideration in connection with the
subject of monetary intercourse, the Schulze-Delitzsch
credit societies and the Raiffeisen loan societies.
The Schulze-Delitzsch societies, which include mainly
the small tradespeople and manufacturers throughout the
Empire, have for their central monetary and credit institution the department of cooperative societies in the Dresdner Bank at Berlin and Frankfort. This department is
the successor of the former Deutsche Genossenschaftsbank
of Soergel, Parrisius & Co., a joint-stock company, which

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Banking

in 1904 terminated its independent existence by being
incorporated in the Dresdner Bank. This Deutsche
Genossenschaftsbank was founded in Berlin in 1865. Soon
after its establishment it installed a union among the various societies for the purpose of effecting monetary settlements by means of book transfers (giro), with its central
office at Berlin. This was the first extensive German
clearing establishment. After the Franco-German war a
second central accounting office was established at Frankfort. This giro union at present undertakes for the credit
societies belonging to it (not for the individual members of these societies) the collection of bills free of
charge. Besides this it effects a constantly increasing
volume of transfer and other monetary transactions for
its members. The union is organized in such a manner
that the management of its business is centered both at
Berlin and at Frankfort, and the members are free to have
an account at one place or the other or at both places.
The entries are made on the books without charge and
interest is allowed on balances. All collections go to one
central office or the other and are there sorted out and the
respective amounts are then assigned to the members—that
is to say, the societies. This is an arrangement which
German joint stock banks and bankers had in contemplation not long ago with reference to their check transactions,
but failed to put into practice. The societies must be
given the credit of having got considerably ahead of the
banks in the matter of organization. In 1907 the giro
union had 703 giro members (562 credit societies and
141 joint stock companies), representing 666 localities.

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Commission

The number of giro and collection places was 1,787, which
makes a much closer network than that of the Reichsbank.
GROWTH OF THE B U S I N E S S OF THE G I R O U N I O N S

Year.

Giro and
collection
places.

270
629

188419001905.
1907-

1.093
1,627
1.787

Bills
handed in.

67,256
210,266
476,853
615,27s
688,580

Total amount Total volume
of bills
of giro
handed in
transactions
(million
(million
marks).
marks).

53
IS©
221
270

34
82
260
415
650

a Jahrbuch des Allegemeinen Verbandes der auf Selbsthilfe beruhenden deutschen
Erwerbs- und Wirtschaftsgenossenschaften fiir 1907, published by Dr. H. Criiger.

In 1899 the Genossenschaftsbank announced its readiness to cash or collect checks drawn on its members without charge. This action was followed by the establishment of a check association on the part of a number of
credit societies, every member of which was bound to
take checks drawn on any other member and cash or
collect them without charging anything for the service.
At the present time the checks of the members of the
union are payable without charge at the offices of the
Dresdner Bank in Berlin, Frankfort, Hamburg, and
Nuremberg. The total sum represented by the checks
thus disposed of without charge at the Berlin and Frankfort offices increased, in round numbers, from 11,000,000
marks (22,000 checks) in 1899 to 19,000,000 (41,000
checks) in 1901, 32,000,000 (60,000 checks) in 1904,
and 49,000,000 (104,000 checks in 1907)^
a

Blatter fiir Genossenschaftsweseny

240

1908, No. 20,

Miscellaneous Articles on German

Banking

It is not possible to present more than a partial view of
the aggregate of the check transactions of the credit societies, as many of them do not furnish reports. The
following tables ° give the data as far as the statistics are
available:
CHECK TRANSACTIONS OF THE CREDIT SOCIETIES.

Year.

Societies
having a
check
business.

Societies
publishing
reports of
check
business.

Checking
accounts.

338
389

243
327

32,513
44,657

19041907-

Total amount
paid in by
holders of
checking accounts (million marks).

CHECK TRANSACTIONS OF THE CREDIT SOCIETIES.
WITHDRAWALS.

Total amount paid out
in cash.
Year.
Amount
(million
marks).

Checks.

358
533

1904
1907

Local checks handed
in for transfer of
amount to credit of
another holder of an
account.
Amount
(million
marks).

396,091
582,541

14
28

Checks.

15.803
15,536

423
637

Total amount
withdrawn
by holders of
checking accounts (million marks).
410
618

STATISTICS OF

Checks sent in from
other places for
transfer of amount
to credit of another
holder of an account.
Amount
(million
marks).
38
5i

Checks.

53.444
101,629

The Raiffeisen loan societies are also organized into
a check union, having two clearing houses: For Prussia,
the Preussische Centralgenossenschaftskasse (Prussian
Central Bank for cooperative societies), with its seat at
Berlin; for the remainder of Germany, the Landwirtschaftliche Reichsgenossenschaftsbank (Agricultural Cooperative Societies' Bank), a joint stock company, with
its seat at Darmstadt.
a

77267—10-

-16

Cruger, Jahrbuch
241

National

Monetary

Commission

We have no complete statistics regarding the check
transactions of the Raiffeisen societies. We may say,
however, that, as far as it is concentrated in the two
clearing houses, it is manifestly on a relatively smaller
scale than the check business of the Schulze-Delitzsch
societies. This is explained by the fact that the
Raiffeisen societies are agricultural associations, the
volume of business transactions being always much
smaller in the case of agriculture than in that of manufacturing industry or commerce.
The Preussische Centralgenossenschaftskasse is a state
bank. The following institutions were connected with it
in 1908: Industrial and agricultural cooperative societies
included in the Association's Register, 53; loan associations of the landed gentry, 8; institutions organized by
associations of communes, 6; public savings and communal
banks, 591; individual associations, firms, private persons,
etc., 505; various public treasuries, guardians, etc., 170.
CHECK TRANSACTIONS OF T H E PREUSSISCHE
SKASSE.
[In marks.]

Year.

1895-96
1899-1900
1907-8

Checks
drawn by
depositors.

7,000,725
26,987,329
45.788.590

CENTRALGENOSSENSCHAFT-

Paid in cash
by thePreuss- Placed to the
ische
account of deCentralgepositors.
nossenschaftskasse.

4,812,447
10,132,930
10,672,524

Not reported.
Not reported.
738.114

Cleared
through the
Collections
clearing
through the house at the
Reichsbank
Prussian
(or at the
treasury.
Kassenverein).
943.607
10,357,086
13.163.992

1,244.671
6,497.312
21,213,958

Checks drawn upon the Preussische Centralgenossenschaftskasse will be received at the various offices of the
Reichsbank and at the royal treasuries in Prussia (local

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Banking

as well as main treasuries) and may be presented at the
offices of the administration of indirect taxes in payment
of customs and taxes. Payments may be made at all the
Prussian main and local treasuries, including those located
at places having a branch of the Reichsbank, by means of
checks drawn on the Genossenschaftskasse, without regard
to the nature of the drawer. They may be used, for
example, by communes in turning over direct taxes to the
royal treasury. The Genossenschaftskasse defrays all
costs of collection. The Reichsbank makes no charge for
collecting the checks. The royal treasuries exact a small
fee, deducting 20 pfennigs for postage. The volume of
check transactions at the Darmstadt Bank, which effects
the clearings for the Raiffeisen societies outside of
Prussia, is insignificant. The total of the credits in the
year 1905-6 was only 1,172,000 marks. a
It is evident from this sketch that the credit societies have not much to do with the Reichsbank, as they
have established their own transfer offices. For this
reason, out of the total number of cooperative societies
(not merely the credit societies which we have here
mentioned) there were on March 31, 1908, only 629 that
had a giro account with the Reichsbank. The total of
their balances was only 6,474,000 marks, the average
balance being 10,293 marks.
a
Buff: Der gegenwartige Stand und die Zuknufit
Deutschland, 1907.

243

des Scheckverkehrs

6.
PUBLIC SAVINGS BANKS.

Of all financial institutions, the savings banks concern
themselves least with the matter of monetary intercourse
without the use of cash. They have practically no check
or giro transactions with their customers. At the present time, it is true, most savings banks have an account
current with the Reichsbank if there is a branch of that
institution at the place where they are located. This
giro account is, however, made use of only in the mutual
dealings of the savings banks or in transactions between
them and the public treasuries. There is nothing whatever in the way of a giro system in connection with the
depositors in the savings institutions. Everything is settled in cash. This is due to inherent causes. Our savings institutions are not banks in the proper sense of the
term, but public institutions run more for the benefit of
the community than for profit and having the communes
as guarantors. They are managed, furthermore, not by
individuals who have gone through a regular training
in the principles and practice of banking, but by administrative officials. The savings institutions offer to
take care of petty savings and pay interest on them,
and therefore lend their services mainly to the little
people of small incomes. It is estimated that about 70
per cent of the deposits is made up of sums averaging

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Banking

no more than 600 marks. This class of the population
has no monetary intercourse worth mentioning, the
savings representing money that has been laid aside
because it was not absolutely needed for the regular
household expenses. In addition, there is that slowness
inherent in the antiquated methods that obtain in the
savings-bank business. All sums placed to the account
of a depositor or withdrawn by him have to be entered
in a pass book, which he is permitted to keep, so that
the transfer of a sum from one account to another can
not in reality be effected without some sort of a technical formality. a The post-check system inaugurated
at the beginning of 1909 has rendered the services of
the savings banks in connection with monetary intercourse practically unnecessary. The savings institutions
are not empowered to allow checks to be drawn on them
except under certain conditions imposed by the ministers of the individual states of the Empire. The conditions hitherto laid down, particularly in Prussia, are not
of such a nature as to induce these institutions to make
efforts to popularize the use of checks or the system of
payments by assignments from one account to another
among the classes having most to do with savings banks.
In Saxony only have some notable results in this direction been achieved in recent years. A Bremen institution, the Bremer Sparkasse, occupies an exceptional
position. This savings bank is a member of the Bremen
0 Quite recently some slight innovation has been made tending in the
direction of rendering it possible to introduce a system of checks and giro
transfers.

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Monetary

Commission

clearing house. From a report, published in 1907, giving the results of an inquiry concerning the use of checks
in Germany, it appears that at that time only a single
savings bank, the Lippische Landessparkasse, permitted
checks to be drawn upon it. A few savings institutions
have entered into connection with the post-check service.
In the whole of the German Empire, exclusive of
Brunswick, there were, at the close of 1905, 2,843 savings institutions, with 6,284 branches.
Their deposits
amounted to over 12,500,000,000 marks, distributed
among about 18,000,000 accounts. The deposits are increasing at the rate of about half a billion marks annually. The enormous sum of money that is deposited
and withdrawn every year necessitates the use of an
immense amount of cash.
Even among themselves the savings institutions have
not reached the point thus far of creating an organization for their mutual monetary intercourse within the
narrow bounds of the single states, not to speak of the
whole Empire. All they have done is to come in touch
with one another to some extent in what concerns their
general and individual interests.
Some progress in the right direction has been made,
indeed, by the entry of so many of these institutions
into relations with the Reichsbank and the consequent
transfer to it of considerable sums of cash that were
hitherto tied up in their coffers. The strengthening of
the stock of cash in the Reichsbank from this source is
at any rate that much gain.

246

7CONCERNING THE USE OF CHECKS IN GERMANY.

The great development of the system of payments by
means of deposits and assignments from one account to
another (the system of giro transfers) has had the effect,
as we have before pointed out, of preventing the use of
checks from becoming as general in Germany as it is in
England and America. As long as people in general are
not in the habit of having bank accounts, there can be
no such thing as a widespread use of checks in making
payments. An active propaganda in this direction has
indeed been instituted in recent years in various quarters, but the imperfect arrangements existing in Germany in the matter of payments by check are not capable of being developed very rapidly, and still less easy
is it to change the habits of the people as they assert
themselves in monetary transactions.
Some of the factors acting against the extension of the
use of checks in Germany have, at least partially, been
removed in recent years. The laws relating to checks,
whose enactment was so loudly demanded, went into
effect on April i, 1908. The opposition of the government authorities to every method of effecting payments
without the use of cash, if it has not been overcome,
has at least lessened. They, too, are beginning to show
a greater appreciation of modern arrangements in the
matter of payments.

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National

Monetary

Commission

The movement in favor of the legislative regulation
of everything pertaining to the use of checks may be
said to have been started about thirty years ago. As
far back as the eighties of the nineteenth century the
management of the Reichsbank prepared a scheme of a
body of laws relating to checks, which, however, was not
legislated upon. The president of the bank, Doctor
Koch, especially, labored with untiring zeal in his efforts
to impress upon the public the necessity of enacting
regulations regarding checks. The demand became more
and more emphatic as years went by until finally the
continuous monetary stringency of the 1905-1907 period
made legislation in the way of a definitive code imperative. The rise in the rate of interest to 7 ^ per cent, in
particular, brought to the front the problem of devising
means of increasing the proportion of payments effected
without the use of cash. The Imperial Government
showed itself disposed to give effect to the agitation,
which was based both on theory and on practical experience, and published in the Reichsanzeiger of July 13,
1907, the text of a bill relating to checks, framed on
the whole in accordance with the wishes of the business
community. The laws were promulgated in their definitive form on March 14, 1908, and went into operation on
April 1.
The requirements which these laws lay down for checks
are contained in paragraph 1.
The check must contain an order from the drawer to
the drawee to pay a definite sum out of the money due
the drawer or placed at his disposition. The law requires

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that the words indicating the source whence the payment
is to be made be thus placed on the check (aus meinem
[unserem] Guthaben, i. e„, generally speaking, the balance
in one's favor). If the drawer, notwithstanding the words
relating to the balance in his favor, has in reality no
such balance on which he can draw, the validity of the
check will not be impaired thereby. What the law
understands by the term "Guthaben" is explained in
detail in paragraph 3. The statement reads as follows:
The balance {Guthaben) is to be taken to be the sum of
money up to which the drawee, according to the relations
which the law considers as existing between him and the
drawer, is bound to pay checks drawn on him. It is
not necessary, therefore, that a definite sum be deposited
with the drawee. A credit up to the amount of the check
will suffice, and likewise a balance resulting from discounted
bills, or one derived from a loan or from an imbursement
made by a third party, etc.
An important matter is the regulation of the right to
act as drawee. This right is restricted mainly to banks and
bankers. This limitation, which is in sharp contrast to
what obtains in Prance, where the right to act as drawee
is not restricted, is altogether as it should be with reference
to the efficiency, regularity, and simplicity of the mechanism of check payments. It constitutes a factor of especial
importance in relation to the matter of monetary settlements without the use of cash, for a check ought to be
liquidated not by means of a cash payment, but by the
transfer of the amount from one account to another, and
in order to promote this latter operation a certain con-

249

National

M o n et ar y

Commission

centration of the check traffic is necessary. Checks ought
to be set off, one against another, as far as practicable,
through the agency of the clearing house. Now the
members of the clearing houses are exclusively banks and
bankers. For this reason, the principle embodied in the
check laws with respect to the right to act as drawee
should be regarded as an efficacious one. The capability
of a check to pass from hand to hand has been enhanced
by the regulations in regard to the right of recourse.
The drawer and the indorsers of a check are liable to the
holder for the amount of the check. The holder of a
check, therefore, derives his claim in the matter of
the payment from the document itself and is not
obliged to establish it by going back to his legal rights in
connection with the transaction which gave birth to the
check.
In order to insure the regular and orderly working of
the mechanism of check payments, it is necessary that
the life of the check be limited. Legislation has had due
regard for this requirement. By a provision regarding the
time within which the instrument has to be presented for
payment the life of the check is restricted to ten days.
That is sufficient, for the check ought to be primarily an
instrument of payment and not a part of the circulating
medium, as whatever insecurity inheres in the system of
payment by check becomes greater the longer the checks
circulate. The limitation of the life of the check is effected
by the provision that after the expiration of the time
within which the check has to be presented for payment
the drawer has the right to revoke the check and the

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Banking

indorsers are released from their obligation in the matter
of payment.
A special provision has been enacted in order to avoid
placing obstacles in the way of the operations at the
clearing houses. As the handing in of a check at the
clearing house would often result in the impossibility of
presenting it for payment within the time limit, it is provided that legal evidence of the presentation of the check
for payment within such limit will be afforded by the
certification on the part of the clearing house that the
check had been sent in and not collected.
It is a matter of no little importance with respect to
the general diffusion of the use of checks, and especially
small checks, and the popularization of this instrument
of payment, that hitherto no tax has been imposed on
check circulation. Antedated checks only are subject to
a stamp tax, and likewise, naturally, such documents
which do not conform to the requirements for checks and
consequently are not checks. Foreign checks are valid
and not subject to stamp tax if they conform to the
requirements imposed by the law of the country in which
they are drawn. In recent years, however, the immunity
of the check from taxation has been threatened by the
necessity of instituting new taxes in order to meet the
needs of the imperial treasury.
The objections which have been advanced to the
general use of checks, based upon considerations with
respect to their undefined legal status, appear, therefore,
to have been set aside by the laws recently enacted in a
spirit so favorable to this instrument of payment. It

251

National

Monetary

Commission

would, of course, be a mistake to imagine that the framing of regulations with respect to checks will in itself lead
to a rapid development of the system of payment by
check. It may be said, however, that they have laid a
good and solid foundation for the development of this
form of monetary intercourse in Germany. We shall
have to await the results. "A law can not," as Georg
von Siemens has said, ''secure for us reliable bankers or
teach a public fond of speculation to be thrifty, or provide
all the arrangements that are indispensable for the
development of a system of payment by check. It can
not provide a clearing house for us. All this has to be
left to the organized activity of private individuals, and
the Reichsbank ought to place itself at the head of the
whole organization."
The policy of the Reichsbank has, as a matter of fact,
not conformed hitherto to the desires expressed by
Siemens. The bank has, indeed, done everything for the
system of payments by means of bills of exchange, but it
has not in like manner promoted the use of checks,
although the preponderance of the check by the side of the
bill of exchange would imply a much healthier state of the
country's business. For, to quote Siemens again, "the
man who sells a bill of exchange needs money and the man
who sells a check has money."
We may say a few words here regarding a peculiar
feature of the system of payment by check that has been
introduced in this country and with respect to which
provisions have been inserted in the check laws with the
object of promoting the efficiency of this form of monetary

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intercourse. It is provided that in connection with the
business of the Reichsbank and the clearing house a check
may be rendered nonpayable in cash by placing across
its face the words " Nur zur Verrechnung" (for account
only), which means that the liquidation of the check is
to be effected only by the transfer of the amount to
the account of the payee. Such transfer is a payment
according to the purport of the law. The prohibition
can not be revoked. Its violation renders the drawee
liable for any damage resulting from his act. A large
fraction of all the checks drawn are thus crossed. The
cost of transmitting such checks is diminished, as they
need not be mailed in a registered letter and may even be
transmitted in the form of a postal-card check, this form
having been introduced by the Bavarian branch of the
Deutsche Bank. Another advantage is that there is less
danger that the amount of the check will be appropriated
by some person having no right to it. The use of crossed
checks is, however, restricted by the circumstance that in
this country people are not so generally in the habit of having bank accounts, without which the holder of a crossed
check can not get hold of his money. All the same, the
crossed check is now very widely employed in Germany
and is recognized by the law, which ought to be regarded
as a good thing with reference to the furtherance of the
system of monetary settlements without the use of cash.
Certified checks, which are extensively used in other
countries, do not enter into the purview of our check
laws, or, more strictly speaking, our check laws have made
such checks impossible, as a certification would imply an

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acceptance of the check by the drawee, which would be in
contravention of paragraph 10 of the check laws. As a
matter of fact, certified checks were not used in this
country even prior to the promulgation of the laws.
The mechanism of check payments is operated by the
private banks, the main agents being the so-called " great
banks." a With some insignificant exceptions, banks and
bankers have the exclusive privilege of allowing checks to
be drawn upon them. This was practically the case even
prior to the promulgation of the check laws. At most,
here and there a few checks might be seen drawn upon
mercantile houses. With the concentration, however, of
our banking business, at the expense of the private bankers, greater trust is placed in the bank that is drawn upon.
The question of the standing of the bank is no longer such
an important factor in the taking of checks. It is the
rapid growth of the " great banks," the largest of which
extend their ramifications over the whole Empire, that
has paved the way for the use of checks on a large scale.
This is in spite of the fact that our great banks have very
few branches compared with the banks in other countries,
especially England and France. In the case of France,
however, we find that, although the great banking institutions have such a large network of branches, the use of
checks has not become so very extended, so that our great
banks with their few branches have relatively accoma

Among other institutions empowered to have checks drawn upon them
are the Reichsbank, Seehandlung, Konigliche Bayrische Bank, Preussische
Zentralgenossenschaftskasse, Preussische Rentenversicherungsanstalt, savings and credit institutions, other public banking institutions, agricultural
and other loan associations, registered provident associations, and offices of
the imperial post.

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plished much in laying a broad foundation for this system of payments. There are unfortunately factors that
operate to prevent the existing arrangements from being
exploited as they should be. It is a peculiar fact that the
concentration of the banking business in this country has
not been effected by the establishment of numerous branch
banks, but by the linking of the provincial banks with the
great banks. Pretty nearly every one of the provincial
banks is included at the present day in the system of one
or another of the great banks, being linked to it by community of interests or permanent participation of the great
bank in the business of the provincial bank, or else by reciprocal holdings of each other's shares, or perhaps connected
with it merely by agreements or friendly relations. These
points of contact, the connections existing between the
banks, sufficed in an eminent degree to provide the necessary conditions for the development of the system of payment by check. For in this country—and this is a further
peculiarity of the development of our banking system—
the establishment of branch banks has been undertaken
in the main by the intermediate provincial banks. These
have spread a great network of branches over their
geographically circumscribed field of operations, so that
in a great many cases they have more brariches than
any single Berlin " great bank," although in the end
they are embraced within the sphere of activity of some
one of these great banks. Among the institutions that
have an especially large number of branches are the
Pfalzische Bank (Bank of the Palatinate), the Rheinische Kreditbank, the Magdeburger Privatbank, and the
Bergisch-Markische Bank, not to speak of many others.

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These provincial banks, as we have seen, enter into
close connection with the great banks whose seat is in
Berlin. The organizations formed in this way are the
product of the last few years, a fact of great significance with reference to the history of the development
of our system of payment by check. Such organizations (Konzerne) are the Deutsche Bank, Dresdner Bank,
A. SchaafFhausenscher Bankverein, Darmstadter Bank,
and the Diskonto-Gesellschaft. These institutions, in
the manner in which they have developed this system
of monetary intercourse, have in one respect gone even
beyond the English model. Checks drawn upon them
are made payable at all the principal cities, and in some
cases even at the medium-sized and small places, especially where there are banks with which they have
friendly relations, no charge being made for this privilege. In addition to the institutions belonging to such
an organization, many banks and bankers who are good
customers of the great bank or are otherwise in close
touch with it are willing to have the checks made payable at their offices. We must bear in mind that the
great banks will make use only of such provincial banking institutions for the performance of this service as
they consider absolutely sound, so that, in addition to
the advantage which the provincial banker derives from
the fact that his checks are in this way rendered a universally accepted instrument of payment, his standing
is raised through his formal connection with the great
bank. His checks, being payable at the great bank, are
accepted without hesitation by the public. The individual

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great banks have organizations extending over the whole
of Germany. The checks of the Deutsche Bank, for
example, are payable at 134 places, no fee being exacted
at any of them. Quite recently, when a vigorous propaganda was carried on by the banks in behalf of the use of
checks, the number of provincial towns at which checks
might be made payable was greatly increased.
In 1907 the question of the establishment of a national clearing house was actively discussed by the Berlin banks. It was proposed that the membership of the
national clearing house should comprise only the members of the Berlin clearing house. Every provincial
banking house was to appoint one or more members of
the Berlin clearing house as its agents and to transmit
to them every day the checks that had come into its
hands, which checks were then to be handed in to the
national clearing house. Such an institution would have
been an ideal arrangement for increasing the volume of
payments effected without the use of cash, but the
times were not yet ripe for the realization of the scheme.
It fell through on account of the opposition of the South
German banks. The dominant position occupied by
Berlin in the domain of banking would be further
strengthened by the concentration at that place of such
an important part of the monetary intercourse of the
country, and the provincial * banks, which had already
been deprived in a large measure of their importance,
refused to lend a hand to something that would promote this tendency.

77267—10

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The German banks, as we have seen, have progressed
beyond the English banks in that provincial checks
drawn on Berlin are payable also at a number of provincial establishments, while in England checks drawn
on London are, as a general thing, payable only in London. The English way has, of course, a decided advantage as regards the matter of clearing. It is necessary
to add, with reference to this system in which checks
are made payable at various places, that what we said
above regarding the nonpayment of fees applies, as a
regular thing, only to checks that are presented for
payment over the counter. When the amount of the
check is to be transferred by a nondepositor to an
individual or firm by Reichsbank giro the banks in
many cases make a charge. The reason assigned is that
a giro transfer involves considerably more trouble than
a cash payment by reason of the larger number of entries, the writing out of the Reichsbank check, and the
sending of a letter of advice, and that the transaction
with the Reichsbank is by no means without some expense to the banks themselves (an increase in the number of transactions necessitating an increase in the minimum balance at the Reichsbank). People who are in
the habit of handing in checks to the banks in this way
are apt to complain of the trouble accompanying the
use of checks. This would not happen if everybody
would open a checking account and have the amount of
the check he hands in transferred to his account without
charge, as is done in the case of such accounts. It would
then be immaterial whether the check was drawn on the

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same place or any other town in Germany ever so remote. Naturally, when a check is handed in at one of
these provincial banks it is not paid immediately on
presentation, but only after inquiry has been made at
the bank drawn upon to make sure that there is nothing
wrong about it. This usually takes two or three days.
To this extent, therefore, the check is not an altogether
perfect instrument of payment, inasmuch as during this
interval the liberty of disposing of the amount is lacking
(in so far as the person who hands in the check has no
bank account), and the payee virtually gives the drawer
a credit up to the amount of the check for the time that
elapses until it is paid. Moreover, the check is made
payable at the place where the debtor resides, whereas in
most business transactions the money is wanted at the
place where the person who has delivered the goods has
his business. In addition, the cost of collecting and other
expenses render this means of payment not altogether
popular.
The Reichsbank has also placed its machinery at the
service of the system of payment by means of checks,
offering to collect them at all its branches. Its charges,
however, are such as rather to throw an obstacle in the
way of the extension of this method of payment. The
charge in the case of its own "white checks" sent in
through the post is one-fiftieth of i per cent, the minimum being 30 pfennigs for each check. Its white checks
presented for payment at any branch, when drawn on
another branch, pay a like amount. Checks on private banks not members of a clearing house pay one-

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tenth of i per cent if they come from the same bank
district, the minimum charge being 50 pfennigs, and as
much as one-fifth of 1 per cent if they come from a different district (minimum charge likewise, 50 pfennigs).
These fees are virtually prohibitive, the small checks
especially, on account of the minimum charge, not being
able to stand them. To add to this, six or seven days
may elapse before one gets possession of the amount of
the check. Suppose I hand in at Bruchsal a check on
Bonn for 25 marks. The subbranch (Nebenstelle) at
Bruchsal sends the check to the main branch {Reichsbankstelle) to which it is subordinated, which is at Karlsruhe. The latter transmits it to Berlin, whither all the
bills and checks that come in each day are mailed. When
these have been sorted out the check is mailed to the
main branch at Cologne, and thence it is forwarded to
the subbranch at Bonn. The latter collects the check
and advises Bruchsal of the fact. It is not until then
that I get my cash, with the loss of about a week's interest and a deduction of 50 pfennigs. In the case of larger
checks (the line appears to be drawn at 3,000 marks)
the instrument is sent direct to the place where it is
payable. When a check is presented through the Reichsbank at a banking establishment connected with one of
the so-called "great banks," the operation is likewise a
slow one on account of the necessity of making inquiry
regarding the soundness of the check. As a regular
thing, there is an interval of a week in the case of small
checks before the cash can be obtained at the Reichsbank or the sum transferred by giro to an account current.

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On the occasion of the renewal of the bank laws the
question was discussed as to whether the Reichsbank
ought not to undertake the business of buying up checks.
The terms contemplated are such, however, that this
branch of business, as it would have to be carried on by
the bank, could certainly not attain to any importance.
For a sum equivalent to five days' interest was to be deducted from the amount of the check, and checks were
to be bought only from persons having an account
current in the Reichsbank. But the Reichsbank has
only 24,000 such customers, and among them there are
thousands of private individuals and officials who would
not count for anything in this matter of the purchase of
checks. Large manufacturing and commercial houses
would likewise contribute nothing to this business, as
they can dispose of their checks to greater advantage
in some other way than by turning them over to the
Reichsbank on its unaccommodating terms. This would
be still more true of the banks.
Having discussed the arrangements which the banks
have instituted for the promotion of the method of
payment by check, we must say a word regarding the
means which the banks offer the public for availing itself
of the facilities thus afforded. The foundation for the
whole apparatus is furnished by the deposit business
carried on by the banks. The extraordinary development of the use of checks which is such a prominent
feature of the monetary intercourse in England is bound
up with a system of banking that is at bottom a deposit
business.

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The banks open for everyone who desires it, free of
expense, a checking, or deposit, account. A minimum
balance, as a general thing, is not required and interest
is allowed on the deposits. The "great banks" of Berlin
allow a uniform rate of interest, which is fixed from
time to time by the so-called " Stenipelvereinigung," an
association to which they all belong. In July, 1909,
when the bank rate of discount was 3 ^ per cent,
interest was allowed on deposit, or checking, accounts at
the rate of 1 yi per cent.
The depositor is provided with a check book. When
a check is made out payable to a person residing in the
same city with the drawer no letter of advice is required.
If the payee is in a different city a letter of advice is
usually sent. In this case the account of the depositor
is charged with the amount immediately on receipt of
the notification. The time that elapses till the check
is paid enables the bank to make a slight profit. As a
minimum balance is not required, or if it is required
according to the letter of the agreement, the clause
regarding it is often not enforced; and as, moreover,
there is no charge for carrying on the account, the profit
for the bank from such accounts, especially when the
transactions of the individual depositors are very numerous, is not a large one, and often, indeed, the net result
is a loss. The management of the Deutsche Bank
asserted not long ago that there was no profit in the
deposit business on account of the great cost of conducting it. This declaration has, however, to be taken with
some allowance, as the Deutsche Bank did not state

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just how it squared off its accounts with its branch
deposit establishments, and as it is not easy to calculate
the indirect profit derived from an immense number of
depositors in connection with the flotation of securities
and the like. The number of accounts in this, the largest
of the German banks (in the main, checking and deposit
accounts), amounted at the close of 1907 to 212,214,
of which 158,657 belonged to the main office and the
branch offices in Berlin. The total deposits amounted
to 476,000,000 marks. In spite of the fact that the socalled ''great banks" offer every inducement for the use
of checks, the public has nevertheless not yet learned
to use them on an adequate scale with reference to the
desirability of avoiding the use of cash in payments.
Although the check does not play the same role in the
upper strata of business as in England and the United
States, for the reason that in this country the system
of payments by means of transfers (the giro system)
has taken its place, there are great possibilities in the
way of the more extended use of the instrument in the
more modest spheres of business. The check can not,
however, become thoroughly popularized until the custom of having a bank account becomes universal. Not
until then shall we be enabled, by reducing the amount
of actual money required in effecting payments, to dispense with millions in hard cash every year (the possible
annual saving being estimated by Apt a at 800,000,000
marks) and place a much larger amount of capital at the
disposal of industry. It would mean that individuals

" Scheckgesetz," Berlin, 1908.
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would be much more in the habit than hitherto of intrusting the keeping of their cash accounts to the hands
of those especially qualified to manage such business,
just as is done in England, as a matter of course, by merchants, manufacturers, and private persons. If, however, the holder of a check has no bank account and
simply goes and has it cashed, then the check, which
has only changed hands once, has not discharged its
actual function. All that has taken place is that the
holder of the check has obtained the amount somewhat
later than would have been the case if the drawer had
paid it in cash. But if the check had passed through
several hands—an operation of which the method of
giro transfers does not admit—it would have rendered
a corresponding number of cash payments superfluous.
As yet this is a rare occurrence with us relatively to
the number of times that checks pass only once from
one hand to another. Persons who have no bank account
are not likely to have a sufficient volume of monetary
transactions to be able to dispose of a check (which is
made out for a definite amount and is indivisible) quickly
enough with reference to its presentation for payment
before the expiration of the ten days' limit. Moreover,
a check is not intended to be currency; it is supposed
to be merely an instrument for effecting a payment.
It would lose its character if it were to serve as currency.
Our public, as we have already said, does not sufficiently
appreciate the advantage of this method of monetary
settlement without the use of cash, else, with the inducements offered by our great banks and the vast number of

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their customers, the use of checks in this country would
be much more extensive than it is. But that in the middle
and lower business strata the check can be advantageously employed is evidenced by the showing made by
the Oldenburgische Landesbank and the Oldenburgische
Spar- und Leihbank (savings and loan bank), which for
a number of years past have been spreading the use of
checks among their customers, doing this with success in
a field restricted both territorially and as regards the
scale on which business is conducted. The same may be
said of the Mecklenburgische Hypotheken- und Wechselbank (mortgage and discount bank).
It is unfortunately impossible to furnish statistics of the
volume of check transactions of the German banks. Out
of 464 inquiries addressed to joint stock banks, answers
were returned in the case of little more than one-third.
These came almost exclusively from provincial banks,
not a single one of the so-called "great banks" of Berlin
being represented.
In our monetary intercourse with foreign countries
there is as yet hardly anything in the way of a mechanism
of payments by means of transfers from one account to
another (giro system). Here the check is superior to the
giro and is consequently largely utilized, especially by
banks, manufacturers, and merchants. It is cheaper to
send a check than a registered letter or a postal order,
and for this reason the check is more popular. There
was formerly an obstacle to the very extensive use of
modern sight paper in international payments in the
lack of check quotations at the Berlin Bourse. Checks

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on Paris and London, for example, could often only be
procured at a price considerably above what would
correspond to the quotations for bills at eight days'
sight. In like manner the sale of checks would at times
bring a smaller return than the figure calculated from
bill quotations. This evil led to the installation of regular
check quotations at the Berlin Bourse. While foreign
bills are quoted only three times a week (there are only
three so-called "bill days" at the exchange each week),
the rate of Paris and London exchange for sight paper
(that is to say, the rate governing checks) is quoted
daily. This means a considerable step in advance in the
matter of international payments.
(a) THE USE OF CHECKS IN CONNECTION WITH THE PUBLIC
TREASURIES. 0

In the matter of checks government authorities have to
play the role both of drawer and payee. Although there
has been some improvement in recent years in the methods
of payment employed by the state and communal authorities, any kind of payment other than that in which actual
cash is the vehicle is still regarded in the light of a concession. The present generation of cashiers and paymasters will have to be superseded by officials of a very
different way of thinking before a gradual modernization
of the antiquated monetary intercourse of our public
treasuries can be effected. Throughout almost the whole
of Germany the salaries of officials are paid directly
from the public treasuries in cash. An immense sum of
° S e e S. Buff: Der gegenwartige Stand und die Zukunft
in Deutschland, 1907.

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money has consequently to be kept in readiness at these
offices. It has been calculated a that in the salaries of
federal and Prussian officials alone there is expended
annually as much as 888,000,000 marks, which means to
say that every three months (federal and Prussian employees are paid every quarter) 222,000,000 marks must
be in readiness at the various government disbursing
offices three days before the calendar quarter day. Quite
recently a step in advance has been made. The imperial
treasury transfers in a lump sum to the Berlin banks
(nearly all the " great banks " taking part in the operation)
the amount of the salaries of the federal officials as
determined from the accounts handed in to the treasury
by the various offices. The imperial offices transmit to
the respective banks their salary lists, from which the
banks can ascertain which salaries are to be paid by placing
the amount to the account current of the official. This
system has been adopted on a correspondingly larger scale
by the Prussian treasury, which is instructed by the minister of finance to transfer to the banks by means of the
Reichsbank giro the quarterly amounts of the salaries of
the officials. Since October 1, 1908, the Saxon ministry
has likewise employed this method of payment, by which
a large amount of cash may be dispensed with at the
quarter days. If government employees were generally
accustomed to having bank accounts, immense sums
might in this manner find their way to the main offices of
the great banks and to the Reichsbank. Our savings
institutions would be especially fitted to do good service

° S e e Apt, Scheckgesetz, 1909.
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in this direction if they had a system by which government
officials would be permitted to have checking accounts.
In the case of other kinds of payments also, as in the
payment of taxes, sounder notions are beginning to prevail. The fact remains, however, that although as a general thing checks are accepted in Germany for payment of
taxes, the rule is still to pay in cash. In Prussia, in the
case of taxes that are due and of credits in connection with
customs duties, only checks drawn on the Seehandlung and
the Preussische Zentralgenossenschaftskasse (both state
institutions) are accepted, to the exclusion of the Reichsbank and other banks. Payments made by one public
treasury to another, in so far as the method of payment is
not prescribed by the main treasury, are, with scarcely any
exception, effected by means of giro transfers at the Reichsbank. There is great diversity with respect to these
matters in the various states of the Empire. Some cities
make payment by check only on request or when their
supply of cash happens to be exhausted. Checks are now,
as a general thing, taken in payment by the communes.
Many of the cities have recently opened an account at the
Reichsbank. In Bavaria the authorities make it a point to
accommodate the public, and no objection whatever is
made to checks provided they are drawn on reliable
houses. In April, 1909, there were only 41 cities in which
payments into the municipal treasury might be made by
means of checks. In nearly every case it is provided that
the check has to be drawn on a local banking house. In
most cities the use of checks in connection with public
business is still very limited. It may be mentioned in this

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connection that the city of Berlin is a member of the
Kassenverein.
Through the intermediary of the commercial organizations an agreement was effected by which all the communal treasuries of Greater Berlin (Berlin and the adjacent
communes, with a total population of about 3,000,000)
have the benefit of a uniform system of payments by
means of giro transfers and checks, which is of great
importance to the city. The main features are as follows:
Persons to whom money is due from the public treasury,
if it appears from their bill or otherwise that they have a
bank account, in the absence of an explicit request for cash,
are paid with checks as soon as the voucher is received.
The check is made out in favor of the bank account of the
recipient, and as a rule it has the words " Nur zur Verrechnung" ("for account only") written across it. Persons not known to have a bank account may likewise
demand payment by check. Persons having to make
payments into the public treasury may in like manner
make use of checks. Only checks drawn on a Berlin
banking house will be accepted, and they must bear
the words " Nur zur Verrechnung." Indorsed checks will
not be accepted. Checks may be presented in payment
at the offices themselves, as well as given to the officials
charged with collecting taxes and other dues. The treasuries are obliged to transmit the checks they receive at
once to the central municipal treasury, which has to proceed without delay to have them collected, and, in case of
any trouble with a check, must give detailed information
about the matter to the office whence it was forwarded.

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If within three week days from the date of the transmission of the check no unfavorable report concerning it has
been received, it is to be considered paid, and a receipt may
be given for the amount if requested. Instead of making
out a check, everyone is at liberty, as heretofore, to pay
in cash. It is permitted also to ask for payment in cash.
The taxpayer likewise retains the privilege of having the
amount of the tax paid by a Berlin banking house through
the intermediary of the Kassenverein. Gas, water, and
sewerage bills may be paid in this way as well as taxes.
(b)

GIRO UNION OF THE SAXON COMMUNES.

The Kingdom of Saxony possesses an interesting institution, among whose functions is that of promoting payments without the use of cash. This is the so-called " giro
union" (Giroverband) of the communes, which has only
recently come into existence. Organized in January,
1909, it comprised in May a membership of 150, consisting
of communes having savings banks, for the most part
small communes without any giro facilities. Each commune has instituted a sort of clearing establishment,
enabling the citizens to make payments into the communal treasury or to effect settlements with one another
by the method of transfers to, and deductions from,
accounts current. The communal treasuries, together
with five branch offices of the Sachsische Bank, serve as
giro offices. The transactions between the communes are
cleared at the main office of the Sachsische Bank in Dresden. Through this institution connection is established
with the giro system of the Reichsbank. In the giro business of the union there are no fees or other charges, the

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work done by it being looked upon in the light of a public
service. The minimum balance required is only 10 marks.
This very small minimum balance is in accordance with
the task which the union has set for itself—that of installing a giro system for the lower stratum of the business
community and linking this system to the giro system of
the Reichsbank. It is proposed in this way to afford to
persons carrying on an independent business on a small
scale, with whom banks and bankers do not find it sufficiently profitable to deal, the advantages of a mechanism
for effecting payments without the use of cash. It is worth
mentioning that the funds that accumulate in the hands of
the union in the course of its business are placed at the disposal of its customers at a low rate of interest.

271

IV.
DIRECTORS' FEES IN GERMANY.
By Dr. CARL MELCHIOR.

The executive organs of corporations established under
German law are the manager or the board of managers
{V or stand) and the board of supervision (Aufsichtsrath)
besides the general stockholders' meeting. The board of
supervision is appointed by the general stockholders'
meeting, the managers by the board of supervision or by
the general meeting, the managers of important corporations being, as a rule, appointed by the board of supervision.
The managers represent; the corporation in and out of
court in dealings with the public, and their right to represent the company before third parties is unrestricted,
but in most cases they are bound to follow the board's
instructions. Hence the principle of German law, that the
board of supervision, being the superior organ, controls
the managers' conduct of the corporation's affairs, while
the managers themselves are intrusted with the actual
duties of management. This division of functions precludes a member of the board of managers or a clerk of
the corporation from being a member of the board of
supervision.
The law is not very specific concerning the remuneration of the managers and staff employed by corporations. The only legal provision dealing with the subject
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refers to the managers' participations in the annual
profits and will be found in paragraph 237 of the Commercial Code of the 10th of May, 1897, which reads as
follows:
"The participations of managers who are entitled to a
share of the annual profits shall be calculated on the net
profits which remain after the appropriations for depreciation and reserve funds shall have been made. ,,
It must be borne in mind that this paragraph refers
only to members of the board of managers and not to
clerks in the employ of corporations, and to participations
in the profits and not to fixed bonuses and other remunerations. I t is therefore left entirely to the discretion of
corporations what remunerations they shall allot to their
managers besides the participations in the profits. So far
as the clerks are concerned, the corporations have absolutely a free hand, even in the matter of bonuses. I t will
be observed that paragraph 237 refers to participations
in the profits, without describing them as the net profits,
thus establishing the rule that, no matter whether the
managers have been promised a share of the gross profits,
only the net profits which remain after deductions for
reserve funds and depreciation shall be the basis for calculating the managers' share of profits. The provisions
of paragraph 237 are obligatory and can not be changed
by corporate statute. The bonuses paid to the managers
and clerks are often not disclosed in the reports of corporations. The quota of profits which members of the board
of managers are to receive is generally settled by contract,
though sometimes by corporate statute. The bonuses to
the clerks are without exception fixed by contract.

274

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Banking

In the statutes of older corporations the bonuses to
the members of the board of supervision are generally
established in such a way that these members are allowed
a participation in the net profits after dividends of 4, 5,
or 6 per cent have been paid to the shareholders; of the
remaining net profits the members of the board of supervision generally receive from 4 to 10 per cent. Until the
Commercial Code was amended on the 10th of May, 1897
(paragraph 245, section 1), no legal regulations existed as
to what share of the net profits should be turned over to
the members of the board of supervision. Sections 2
and 3 of this paragraph 245, which were already contained in the old Commercial Code, may be quoted here,
too, as they deal also with remunerations of board members. Paragraph 245 reads now as follows:
" SECTION I . Whenever the members of the board of
supervision are compensated for their services by a participation in the annual profits, their share must be
calculated on the net profits which remain after all
appropriations for depreciation and reserve funds have
been made and after a sum, representing at least 4 per
cent on the paid-up capital, has been set aside for distribution among stockholders.
"SECTION 2. Whenever the statutes of a corporation
contain any provision as to the remuneration to the members of the board of supervision, the general meeting may
by simple majority of votes change the statute with a
view to reducing the amount of such remuneration.
" SECTION 3. The members of the first board of supervision shall not receive any compensation for their services
except by resolution of the general meeting. This reso-

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lution can only be taken in a general meeting convened
upon the date when the term of office of the first board of
supervision expires."
The regulations of paragraph 245 are as compulsory as
those of paragraph 237, and for that reason they can not
be changed by corporate statute. The range of section 1,
which provides that the board of supervision shall be
entitled to a share in the profits only after deductions for
reserve and depreciation have been made and dividends
of not less than 4 per cent been paid, is not far reaching
enough for the reason that, like paragraph 237, it refers
only to participation in the profits and disregards altogether fixed bonuses. We have at present no law dealing
with and regulating the amount of such fixed bonuses.
The fact that the law is silent on this point is of considerable practical importance. As a rule the statutes of
younger corporations, particularly those which have been
established since the Commercial Code was amended, provide fixed bonuses for the members of the board of supervision in addition to a participation in the profits which
in one way or another is generally reserved besides. To
quote one specific instance, the statutes of the youngest
and at the same time most powerful industrial corporation in Germany, the "Friedrich Krupp Corporation/'
stipulate that members of the board of supervision shall
receive a remuneration of 4 per cent of the surplus which
remains after appropriations for depreciation and reserve
funds and 4 per cent dividend on the capital stock have been
set aside, but no member shall receive less than 15,000
marks and not more than 30,000 marks, and the chairman

276

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Banking

of the board not less than 30,000 marks and not more
than 60,000 marks.
An important legal distinction exists between members
of the board of supervision who receive only a participation in the profits, and members who, besides this participation or exclusively, are entitled to a fixed bonus, in
that the former may resign their position at any time,
whilst the latter can only do so for important reasons.
This rule is not stated expressly in the Commercial Code,
but is in accordance with the prevailing interpretation
of the general principles of the Civil Code, which does not
permit an individual who is permanently engaged at a
fixed remuneration and holds a responsible position to
resign unless important reasons are given. However, the
right to resign at any time may be reserved by statute
for members of the board of supervision who receive fixed
bonuses. Many of the more recent statutes of corporations do contain this provision.
The profit participations are generally distributed in
equal shares among the members of the board of supervision. The chairman, however, often receives two
shares. An extra remuneration is sometimes given to
members who have been intrusted with functions requiring special knowledge or extra time.
Besides the stock corporations, " companies with partnerships limited by shares" are also compelled by law
to have a board of supervision. Such a company with partnerships limited by shares exists if at least one stockholder
(partner) is personally liable to an unlimited extent for
all the obligations of the company, whilst the other stockholders (partners) are liable only to the extent of their

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subscriptions to the capital stock. This form of incorporation is very much less frequent than that of the stock
corporation, although some of the big banks are organized as companies with partnerships limited by shares.
Among the latter are the Disconto Gesellschaft and Berliner Handelsgesellschaft in Berlin and the Norddeutsche
Bank in Hamburg. The board of supervision of companies with partnerships limited by shares is, in the
matter of remunerations, subject to the provisions ruling
the board of supervision of stock companies (paragraph
320, section 3, of the Commercial Code).
"Cooperativesocieties" are likewise compelled to maintain a board of supervision; they are generally of little
more than local or rural importance. According to paragraph 36, section 2, of the law ruling the cooperative
societies, the members of the board of supervision of these
societies are not permitted to receive any share of the
profits.
"Limited liability companies'' are not compelled to
have a board of supervision. This form of incorporation
is steadily gaining in importance among financial and industrial interests. They differ from stock corporations in
that they are organized on a more simple principle, while
on the other hand they require a formal transfer for the
cession of capital shares. They are subject to the abovementioned provisions of the Commercial Code with respect
to remunerations to their board members, but while stock
corporations are compelled to fulfill the legal requirements, limited liability companies can alter the legal provisions by statute. The importance of the latter class of

278

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Banking

companies being still comparatively small, we shall now
deal only with stock corporations and companies with
partnerships limited by shares.
The statutes drawn up in former years had been based
on the then prevailing comparatively small volume of trade
and secured but moderate incomes for the board members.
But while these fees have remained unchanged as to
percentage, Germany's trade has expanded so rapidly
and the prosperity of many of the German corporations
has increased so steadily that the statutory fees paid to
the board members have grown into large amounts during
recent years. The annual reports of the large corporations
as a rule indicate the sums which went to the board
members as their share in the profits, the exact figures being
given, for instance, in the annual reports of all the big
banks. Some industrial corporations, however, prefer—
quite wrongly—not to publish the amounts paid by them
to their board members.
The following table of the big German bank, industrial,
steamship, and insurance companies also contains those
corporations which do not render an account of such payments. Railroad companies are not included in the table,
as railways of any importance are no longer in the hands
of private owners in Germany. To avoid misapprehension,
attention is called to the fact that the statements with
respect to the share in the profits allotted to the members
of the boards of supervision and the managers give no
adequate idea of the actual amounts received by them,
for the reason that many of the board members and all the
managers received besides fixed remunerations, and that

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the managers furthermore often derive a separate income
from their directorships in other corporations.
As will be seen from the foregoing table, the annual fees
of the members of the boards of supervision of the great
corporations fluctuate between 15,000 marks and 35,000
marks per annum, but it should be borne in mind that the
business years referred to have been very unfavorable ones
for industrial and steamship concerns and that the board
members of some of the corporations had been drawing
considerably higher emoluments in past years of prosperity. The board members of the Hamburg-American
Line, for instance, received a few years ago about 75,000
marks each, while the share of the president of the board
amounted to about 150,000 marks.
To determine whether the German system of distributing profit participations is efficient or not, one
should not be content with the discovery of abuses
which have come to light here and there—the best system
like the best law is liable to miscarry sometimes—but
one should go straight to the point whether our system
in its typical working is satisfactory. Before the question can be answered whether the fees of the board
members are as a rule an adequate remuneration for their
services, it is necessary to consider the class from which
the members of the boards of supervision are selected.
The boards of supervision of large corporations, which
naturally are the only ones paying large rewards, are
composed as a rule of the following elements:
1. The leading men of allied banks, banking firms,
and industrial establishments.

280

Bonuses t o Name of company.

Period ending.

Share capital.

Reserves.

Marks.
Deutsche Bank_

Dec.

Dresdner Bank_

31, 1907

Marks.
100,000,000.00

200,000,000

_do_

150,000,000

do_

.do.

Net profits.

Marks.
3 0 , 3 1 9 , 176. 64

51,500,000.00

19,505,929-30

170,000,000

57. 5 9 2 , 6 n . 00

1 8 , 9 5 8 , 9 8 1 . 16

154,000,000

29,500,000.00

9,800,580.46

A. Schaaffhausenscher Bankverein .

145,000,000

34, 1 5 6 , 3 7 0 . 00

1 4 , 5 6 6 , 749- 29

Berliner Handels-Gesellschaft, C. G. a. A_

100,000,000

30, 000, 000. 00

11. 505,910. 70

18, 589,051. 99

Disconto-Gesellschaft, C. G. a. A

Bank fiir Handel und Industrie (Darmstadter
Bank).

concerning distribution of bonuses to members of the
Dividends .| Statutory provisions
board of supervision, managers, and clerks.

Number
of board
members.

Per cent.
5 per cent of net profits to ordinary reserve fund (is exceeded); 6 per cent
dividend and further reserves and other expenses; of the remaining profits,
7 per cent to the board members (besides 3 local board members).
5 per cent of the net profits to ordinary reserve fund (is exceeded); 4 per cent
dividend; of the remainder, 7K percent to the board members (besides 10
local board members).
5 to 10 per cent of the net profits to ordinary reserve fund (is exceeded) and
special reserves; 4 per cent dividend; of the remainder, 16 percent to the
personally liable partners and 4 per cent to the board members.
Minimum of 5 per cent of the net profits to ordinary reserve fund (reached),
extraordinary reserves; 4 per cent dividend; of the remainder, 7 per cent to
the board members.
Minimum of 5 per cent of the net profits to ordinary reserve fund (reached);
extraordinary reserves and 4 per cent dividend; of the remainder, bonuses
to managers as fixed by contract and 7XAper cent to board members (besides
7 local board members).
4 per cent dividend of the net profits; 5 per cent to ordinary reserves (is exceeded) ; contractual participation in profits of the personally liable partners up to 15 per cent; of the remainder, 6 per cent to the board members.

Board
members.

Managers
and clerks.

Marks.

903,225.81

713, 568.00

447,368.42

2,254,564

(°)

215,600.00

432, 404.83

407,327.90

<»>

INDUSTRIAL, CORPORATIONS.

T?riedr. Krupp, A.-G

June

30,1908

180,000,000

14. 677, 908. 00

Gelsenkirchner Bergwerks, A.-G

Dec.

3 1, 1907

130,000,000

28, 318, 610. 00

Phoenix, A. G., fiir Bergbau and Hiittenbetrieb _ _ June

30,1908

100,000,000

16,138,238.00

80,000,000

28,903,624.00

Harpener Bergbau, A. G

Union, A. G., fiir Bergbau Eisen and Stahl Industrie.

42,000,000

2,554,

284.00

Hohenlohe Werke, A. G__

Mar.

31, 1908

40,000,000

4,000,000.00

Vereinigte Konigs and Laurahiitte_

June

30,1908

36,000,000

9,34o,677- 15

Badische Anilin und Soda-Fabrik_

Dec.

31, 1907

36,000,000

21,OOO,OOO.OO

36,000,000

14.697,937- 22

Farbwerke vorm. Meister Lucius and Briining_

To personally liable partners, 1,789,473.69 marks.
T o personally liable board members, 857,085.90 marks; to clerks, 457,560 marks.

77267—10.

(To face page 280.)

No. 1.

210,000.00
5 per cent of the net profits to ordinary reserve fund; 4 per cent dividend;
special reserves, etc.; of the remainder, 4 per cent to the board members,
minimum 15,000 marks, maximum 30,000 marks for each member, twice
t h a t amount to the chairman of the board.
17, 272, 368. 42
5 per cent of the net profits to ordinary reserves (is reached); special reserves;
547,368.42
4 per cent dividend; of the remainder, 5 per cent to board members.
5 per cent of the net profits to ordinary reserves (reached); special reserves;
14,989,367.84
(c)
4 per cent dividend; of the remainder, depreciations, bonuses to managers,
and 6 per cent to the board of supervision.
5 per cent of net profits to ordinary reserve fund (is exceeded); special reserves;
3 2 2 , 8 5 2 . 75
8,685,607. 07
4 per cent dividend; of the remainder, 6 per cent to the board of supervision.
(d)
5 per cent of the net profits to ordinary reserves; up to and over 5 per cent to
Nothing.
1, 9 5 0 , 3 6 9 3 0
special reserve fund; 5 per cent to preferred and 4 per cent to common
stock; of the remainder, 5 per cent to board members, besides 1,500 marks
fixed fee for each member.
5 per cent of the net profits to ordinary reserve fund; 4 per cent dividends;
3,846,625.69
100,251.00
5 per cent to board of supervision (further remuneration permissible).
5 per cent of the net profits to ordinary reserve fund (is reached); then, after
4, 105,711.80
126,559. 75
appropriations for depreciations and reserve fund up to 5 per cent, to managers and clerks; of the remainder, 5 per cent to board of supervision.
5 per cent of the net profits, after appropriations, to prdinary reserve fund (is
13. I57.589- 73
(0
reached); special reserve; 4 per cent dividend; contractual dividend to
managers and clerks; 4 per cent to board of supervision.
5 per cent of the net profits to ordinary reserve fund (is reached); special ap30,872.15
11,098, 77o. 59
propriations and special reserve funds; contractual bonuses to managers;
4 per cent preferred dividend; of the remainder, 5 per cent to the board
of supervision.
c Board of supervision and managers, 1,392,067.59 marks.
«To managers and clerks, 199,536.59 marks.
d 5 per cent preferred; 2 per cent common.
/ Board of supervision, managers, and clerks, 1,355,672.01 marks.

(/)

Bonuses to—
Period ending.

Name of company.

EL,ECTRICAI, COMPANIES.

Share capital.

Reserves.

Marks.

Per cent.

11,839.909. 29

9,688, 263. 62

50,000,000

871,201.33

3,882,424.62

31, 1907

100,082,400

9,338,879.06

9,890,009.23

31, 1907

125,000,000

*6,753,155.00

7, 438, 860. 10

June

30,1908

100,000,000

Marks.
47, 732, 744-47

Siemens and Halske, A. G_

July

31, 1908

54,500,000

July

31,1908

Dec.

Blectricitats, A.-G.. vorm. Schuckert & Co

concerning distribution of bonuses to members of the
Dividends. Statutory provisions
board of supervision, managers, and clerks.

Marks.
S» 93 1 ,211.93

Allgemeine Blectricitats Gesellschaft

Net profits.

Number
of board
members.

Board
members.

Marks.
5 per cent of the net profits to ordinary reserve fund (is exceeded); further |
reserve appropriations; 4 per cent dividend; of the remainder, 5 per cent to
the board of supervision.
5 per cent of the net profits to ordinary reserve fund (is exceeded); 5 per cent
dividend; of the remainder, 7 per cent to the board members, 50,000 marks
minimum.
5 per cent of the net profits to ordinary reserve fund; 4 per cent dividend after
all appropriations and special reserve fund; 5 per cent to the board of
supervision; contractual bonuses to managers and clerks.

400,000.00

246,960.91

38,543.65

5 per cent of the net profits to ordinary reserve fund; 5 per cent bonus to
managers and clerks; 4 per cent dividend; of the remainder 5 per cent to
the board of supervision.

243,862.75

5 per cent of net profits after appropriations for reserve renewals and reserve
insurance fund to ordinary reserve fund (is reached); 4 per cent dividend;
of the remainder 1 per cent for each member and 2 per cent for the chairman of the board.
AVa 5 per cent of the net profits to ordinary reserve fund; 4 per cent dividend; 6 per
cent of the remainder to the board of supervision.
8
5 per cent of the net profits to ordinary reserve fund; 4 per cent dividend; 10
per cent of the remainder to the board of supervision.

88,860.10

41,043-55

i n , 2 0 1 . 90

Managers
and clerks.

Marks.

TRANSPORTATION COMPANIES.

Grosse Berliner Strassenbahn

493,363.95

STEAMSHIP COMPANIES.

Hamburg-Amerika Linie

Norddeutscher Lloyd

125,000,000

8,128,642.70

6, 034, 316. 40

Deutsche Dampfschiffahrts Gesellschaft Hansa

25,000,000

3,700,000.00

2, 192, 247. 22

9,000,000

6,400,000.00

3,315,246.25

28,220,840.22

INSURANCE COMPANIES.

Aachener and Miinchener Feuer-Vers.-Gesellschaft.
Victoria zu Berlin, Allg. Vers., A.-G. (principally
life insurance).
Germania, Lebens-Vers.,-A.-G. zu Stettin

a Total of all bonuses, 215,270.50 marks.

77267—10.

(To face page 280.)

Dec.

31, 1907
do

(6)

(c)

(d)

47,050,030.25

& Life policies written, 1,506,475,245 marks,

No. 2.

7.635,330.01

16M

Statutory reserve fund (is reached)—Of the net profits after appropriations
and 4 per cent dividend; 3 ^ per cent to board of supervision.
After appropriations for reserve and 4 per cent dividend, 5 per cent of the
net profits to the board of supervision.
No fees to the board of supervision; bonus to managers not exceeding
30,000 marks.

Premiums and interest income, 132,064,928 marks.

7
6

(«)
150, 0 0 0 . 00

(a)
474,626.17
3 0 , 000.00

dLife policies written, 780,112,770 marks; annuities, 2,964,704.61 marks.

Miscellaneous Articles on German

Banking

2. Officials of concerns which have been absorbed by
another corporation, notably former heads of private
banking firms or commercial establishments.
3. Former members of the board of managers who wish
to retire from the active conduct of affairs on account of
age or poor health, whose knowledge and experience,
however, acquired in the service of the corporation, the
latter desires to retain.
4. Prominent men with professional knowledge (legal
or technical) or general commercial or social influence.
It is admitted that the work of board members coming
from allied concerns is often not very extensive. But
it would be wrong to underestimate their services, viz,
the giving of expert advice; the opening up of new
business connections; the granting of financial protection; the maintaining of continued personal cooperation
between the two concerns thus brought together. Indeed
the mere evidence of such friendly accord between two
corporations is sometimes of sufficient value to make
quite high remunerations seem of comparatively small
importance in view of the advantages derived from
such a connection. This also applies to board members
of general prominence. As for board members taken from
their leading positions in smaller concerns when absorbed
by a larger corporation, it is in many cases expressly agreed
before the absorption is finally consummated that the
chief officers of the absorbed concerns be appointed
members of the board of supervision in the new corporation, which secures for them a permanent source of
income over and above the sums settled on them at that
time and, moreover, enables them to continue their

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accustomed activities. On the other hand it is of the
greatest advantage for the absorbing corporation to possess
in its administration a man who has an accurate knowledge of the conditions, the customers, etc., of the absorbed
concern, and who is thus able better than any one else
to render valuable services. Members of this description
will not be satisfied with trifling remuneration. A similar
state of things prevails in the case of former members
of the board of managers, who, by leaving the management in order to join the board of supervision, suffer, as
a rule, a considerable reduction of their income, and can
not, therefore, be cut off with a small bonus. Quite
apart from the fact that in such cases paltry fees
are out of the question, it must be considered that
capable men do not grow like weeds and can not be
retained for small salaries, the less so as the German law
relating to the liability of members of a board of supervision is rather severe. The German stock-corporation
laws were all enacted—a few subsequent amendments
excepted—before Germany had begun to start on her
great commercial and industrial progress. The law
(paragraph 246, Commercial Code) still shows traces of
certain patriarchal ideas according to which the members of the board of supervision are compelled to supervise all the details of business and methods of management
and keep well informed on the affairs of their corporation.
Such complete knowledge may have been possible while
German corporations were in their infancy. In the
gigantic and intricate economic enterprises into which
the leading corporations have developed within the
past twenty years, an all-controlling activity has become

282

Miscellaneous Articles on German

Banking

an impossibility, and the boards of supervision of the
great corporations have gradually assumed the character
of a body which in vital questions acts in an advisory
capacity and, through the personal influence of its members, promotes valuable business connections with other
important concerns, while the controlling or auditing
work proper lies in the hands of public accountants and
auditing companies. It follows that the members of the
board of supervision of the great corporations are in the
dangerous position of being unable, in fact, to perform
the obligations put upon them by the present law. Therefore, they are liable to be sued for criminal, often merely
neglectful, actions on the part of the employees of the
corporation, as the law (paragraph 249, Commercial
Code) holds them bound to exercise the caution which
is expected of a careful business man. The fact that
liability suits against members of boards of supervision
have not been handled in any large numbers by the German
courts is due less to the provisions of the law than to the
fact that the members of a board of supervision whose corporation has suffered damage through willful or accidental
negligence of its officers, frequently make up the deficiency
thus incurred, sometimes without even waiting to have
their liability conclusively proven. Through such sacrifices and efforts to conceal such occurrences from the public,
many a board of supervision has rendered invaluable services to its corporation. This circumstance and the extent
of the risk incurred by them must be kept in mind in
criticising the large profit participations. Men of high
standing would hardly be still willing to undertake
the burden and risk of a directorship if their incomes

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were curtailed to a considerable extent. This would entail evil consequences of a twofold kind. On the one
hand, vacancies on the board of a corporation would
have to be filled by men of lesser attainments and smallei
means, who would not mind running the risks connected
with such a position. With such directors at the head of
affairs corporations would soon learn by experience that
insignificant men who will fill a leading position for a
smaller remuneration prove far more expensive in the end
than able men who insist on large rewards for their
services. On the other hand, it is likely that in many
cases the control of the boards of supervision would
practically remain unchanged in that the present members would simply resign from the board officially and put
dummies in their places. Now it goes without saying
that nothing is more injurious to the development of a
corporation than to have men who, with their good name
and means, were responsible for a proper administration,
retire and pull the wires behind the scenes, thus shifting
onto their creatures the legal and moral responsibility
toward the public. Wherever such conditions exist they
tend to dull the sense of responsibility in the real leaders.
It can not be denied that in certain respects the present
conditions are in need of improvement. No man should
accept appointments as a director to such an extent as to
render it impossible for him even to exercise a general
supervision of the affairs of corporations in whose conduct
he has a hand. The acceptance, therefore, of twenty to
forty directorships, which is not at all unusual in Germany, should be discouraged except in the case of
men whose attainments are of such caliber as to ena-

284

Miscellaneous Articles on German

Banking

ble them to be useful to so many corporations at the
same time. Really gifted men will, to be sure, through
the mere fact that they are board members of a large
number of corporations, be especially useful to each one
of them, in that they can divert their great experience
and extensive personal connections to the benefit of these
corporations. It is to be regretted, however, that this
ideal state can not always be attained; vacancies in the
board—as is the case everywhere else with institutions—
are often filled through the agency of "pull" or kinship.
Such evils, however, can not be cured by law, but call for
a gradual improvement of the methods and a sharpening
of the sense of responsibility on the part of the individuals
at the head of commercial enterprises. Something would
be gained if the fees for the members of special committees within the board were differentiated to a certain extent and a distinction made between members of essentially decorative significance and the really useful directors.
It would also be advisable to fix a maximum limit for the
profit participations so as not to allow them to increase
indefinitely in exceptionally favorable years. The abovementioned rule of the Friedr. Krupp Company serves as a
good example. The amounts paid to directors should be
made public and be set forth clearly in the annual reports.
In conclusion it may be mentioned that the taxes imposed
by the Empire on directors' fees and by most of the federal
states upon personal income serve as a corrective against
excessive remunerations.
The German system of providing proper or even liberal
compensation for directors possesses also a distinct moral
value. If the present system were to be abolished or the

285

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compensations materially reduced, the danger might arise,
apart from the other disadvantages already mentioned, that
the members of the board of supervision would attempt to
profit by their position as directors in some other manner.
This possibility has to be reckoned with as a logical consequence wherever the members of the board of directors
receive no compensation or an inadequate one. It will be
readily understood that no one would feel inclined, without
compensation, or for such an insufficient consideration as,
for instance, the pittance of attendance fees, to place
at the disposal of a commercial enterprise his knowledge
of economic conditions and his energies, and to procure by
his labors economic advantages for others, without the
promise of a proper reward. Things are different where
the members of a board of supervision are properly provided for by an adequate share in the profits and do not
have to seek their compensation in incidental spoils. In
Germany, therefore, it is considered unfair and unbusinesslike for corporation directors to exploit for their own
private gain and benefit the knowledge and information
acquired through their official position. There is no doubt
that this principle is strictly adhered to by a great number
of directors, although it must be admitted with regret
that there are leaders of large corporations who are inclined
to be rather remiss in that respect. However, the German system deprives such malpractices of the last shred
of justification; and business morality, which is becoming
increasingly high in Germany, will more and more eliminate such delinquencies.

286

V.
THE LAND MORTGAGE ASSOCIATIONS (LANDSCHAFTEN).
By DR. J. HERMES.
[Article from Conrad's Handwdrterbuch, second edition.]

(a)

INTRODUCTION.

By "Landschaften" is understood the public credit
institutions resting on private or corporate mortgaging
of landed property. The historical Prussian Landschaften, from which the newer, and in some degree differently
organized, credit institutions have borrowed the name, are
a much lauded creation of Frederick the Great. I say
purposely of Frederick the Great, because the plan which
the merchant Buring proposed, and which was accepted
owing to the shrewdness of the great ruler, would hardly
have been realized except by the authority of an absolute
government. Only a few decades later a crisis broke
over Prussia, which severely tested newly created credit
institutions. They may be said to have acquitted themselves splendidly. Indeed, in the most critical times
agricultural credit was more solid than that of the State;
for the latter came to the East Prussian I,andschaften in
1808 and 1809 to raise a part of the military contribution by the issue of mortgages on its forests and domains.
Though the results of the Napoleonic wars, together with
the agricultural depressions of the twenties, rendered state
aid necessary, the Landschaften finally fulfilled all of their

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obligations and contributed very greatly to the relief of
the necessities that the estates of the eastern provinces,
which were most concerned, experienced at that time.
But the Landschaften helped also directly in the national
uprising of 1813, chiefly the East Prussian Landschaften,
in whose assembly hall—which is still standing—the East
Prussian provinces, with the General von York, decided
upon the organization of the voluntary popular rising of
the memorable days of February, 1813.
While this review of the close relation of the history
of the Landschaften to that of the whole state seems
necessary in order to estimate properly their place in the
history of the Prussia, some further observations are desirable in order to give a more definite conception of their
nature.
The fundamental idea of the Landschaften consisted in
the substitution of the mortgage system {Pfandbrief system)
for the individual mortgage in which creditor and debtor
deal directly with each other. The Landschaft is the
intermediary between the estate (Grundbesitz) which
needs credit and the capital which is seeking investment. Its aim is to afford the advantages which the
mortgage bond {Pfandbrief), payable to bearer, has over
the individual mortgage (Einzelhypothek), namely, the
possibility of realizing on the former at any time, and the
added security of the institution and of those joined
together under it. In order to do this it evokes a supply
of capital which enables it to satisfy the need of the
estate for credit under cheaper and more moderate conditions than would be possible otherwise. This ingenious
organization of land credit on banking principles, which

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was first created in the Landschaften, has been imitated
in and out of Germany, but a distinction must be made
between mortgage institutions of the most widely differing sorts. From the Landschaften, in the above sense,
are to be distinguished not only the mortgage banks
and stock companies which carry on mortgage business
for their own profit, but also the state or communal landcredit institutions erected in the interest of the estate—
agricultural banks (Landesbanken), provincial auxiliary
banks (Provincial Hilfskassen), agricultural credit banks
(Landeskreditkassen), etc. These institutions, which take
the place of the Landschaften in those sections where
the latter are wanting or but feebly developed—particularly in the west and middle provinces of Prussia—
differ markedly from the Landschaften in that they do
not rest upon the independent management of the organized estates, but are operated either by the state,
the province, or the communal union on its own account. In this respect they are similar to the mortgage banks. The security which is inherent in the
nature of the Landschaft constitution, namely, the treatment of agricultural credit as the most important factor,
is thus lacking in the other institutions. The tendency
has therefore grown to use the latter institutions as a
means for earning an income for the special purposes of
the union which has created them, in order to avoid
assessments which would otherwise be necessary. A fall
in the interest rate is not always followed, as with
the Landschaften, by a fall in the mortgage rate charged
by the institution on mortgages and bonds (Pfandbriefe,
Schuldverschreibungen). This group of public credit insti77267—10

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tutions is not considered in the following discussion,
although they are regarded as similar in the sense of
the Prussian law of the 3d of August, 1897, which deals
with foreclosure (Zwangsvollstreckung) at the request of
agricultural credit institutions. (Sec. 1, par. 2, ibid.)
Finally, private mortgage institutions, resting on an
association of estates, do not belong to the Iyandschaften,
according to the definition given at the outset. This is
all the more to be regretted, since they are similar in their
nature to the Landschaften, and many of them have
already transformed themselves into public institutions.
(6)

REVIEW OF THE EXISTING LANDSCHAFTEN.

The plan of a general organization of the land-owning
noble classes of all the Silesian principalities into a credit
union (Kreditverband) including the whole province,
was authorized by the cabinet order of Frederick the
Great of the 29th of August, 1769. The Silesian Landschaft Regulation is dated 9th of July, 1770. It was
followed by the creation of the Kur- und Neumarkisches ritterschaftliches Kredit-Institut under the regulation of the 15th of June, 1777; the Pomeranian Landschaft, under that of the 17th of March, 1781; the West
Prussian Landschaft, under that of the 19th of April,
1787; the East Prussian Landschaft, under that of the
16th of February, 1788. These five old Landschaften
have numerous common characteristics, but also some
material differences, as will subsequently appear.
Next came the Landschaft of Posen, erected in 1821,
which expired in 1877 after the final redemption of its
bonds, its functions being transferred to the new credit

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union {Kreditverein) founded in 1857, which took the
name of "Posener Landschaft" in 1887. For the other
Prussian institutions, compare the review elsewhere.
Outside of Prussia mention must be made of:
(A) The Kreditverein der mecklenburgischen Ritterschaft of both Grand Duchies, of 1818.
(B) Brblandischer ritterschaftlicher Kreditverein of
the Kingdom of Saxony, of 1844.
(C) The ritterschaftlicher Kreditverein in the Duchy
of Brunswick, of 1862.
(c) LEGAL NATURE AND EXTERNAL

ORGANIZATION

THE LANDSCHAFTEN—PRIVILEGES.

The Landschaften are public corporations under state
supervision; which is exercised in Prussia either by a
commissioner especially appointed by the King (regularly the lord lieutenant) or, since the royal decree of
the 10th of September, 1874, by the Minister for Agriculture, Domains, and Forests. A permanent commissioner has not been appointed, however, for the Silesian
and the Hanoverian Landschaften. The Berlin municipal mortgage office is also to be regarded as a public
corporation, which is under the direct supervision of a
commissioner of the Berlin magistracy.
The boards of directors of the above-mentioned Landschaften have the character of public authorities. (Sec.
24 of the Civil Code of the 21st of July, 1852.) In
this capacity they not only introduce and supervise
the coercive proceedings against dilatory debtors, according to the statutes (sec. 145, sec. 202, par. 2, of the law of
the 13th of July, 1883), and demand legal compulsory

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sale, but they have also been given public duties of other
kinds, such as the making out of certificates of clear title
and the determination of valuations for loans. (Law of
the 3d of March, 1850; the 27th of June, i860; the 15th
of July, 1890; the 4th of March, 1867, s e c - 2\\ the 24th
of July, 1875, sec. 25«) The officials of the Landschaften
are, indirectly, state officials. They are under oath, are
subject to the code of discipline, and enjoy the privilege
of state officials with regard to communal taxes. (Communal ordinance of the 14th of May, 1832.) The syndics
(Syndici) qualified for the office of judge have notarial
powers within their business district.
The higher officials are chosen by the credit unions,
and the appointments are ratified by the King or the
Royal Minister, except in the case of the Landschaft of
Posen, where the members of the board of directors are
nominated by the state. The syndics and the subordinate officials alone receive full salaries; the salaries of the
members of the board of directors, who belong to the
landowning class, are nominal and based on the compensation for loss of time and other expenses.
Within the limits of state supervision the Landschaften
are self-governing and independent in the management of
their business. The organization of the individual institutions is similar only in its general characteristics. The
executive authority is composed of a general Landschaft
board of directors; associated with this is a board of representatives (sub-committee) which, with the exception
of Brandenburg, forms at the same time the board of
appeals from the decisions of the general l,andschaf t board

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of directors. The highest court of appeals, and the chief
representative body, is the general Landtag (general convention) , formed of representatives of the landowners, presided over by the royal commissioners.
The Landschaften of Silesia, the Margravate of Brandenburg, Pomerania, and West Prussia have a decentralized organization and are divided into departments, with
special boards of directors and representatives. In the
Margravate and West Prussia there is only an administrative department, while in Silesia and Pomerania the
departments have a corporate constitution and hold
their own property. In Silesia the greater part of the
funds is the property of the department, and since this
fund serves as the security for the mortgages it follows
that in Silesia the Landschaften of the principality determine the appraisements and decide as to the amount of
credit to be allowed, while the general Landschaft board
of directors is empowered only to supervise the appraisements. In all of the other institutions there is either a
regular supervision by the general board of directors, or
the determination of the appraisements is wholly vested
in this body.
Of the numerous privileges which were given to the
older Landschaften at the time of their creation, the most
important is the right to levy executions on mortgaged
real estate without legal process. The statutes of newer
Landschaften did not include this right, which would have
required a special legislative act. They have been able to
protect themselves in part (e. g., Posen and SchleswigHolstein) through the statutory provision that the debtor,

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on taking the loan, must, by statement before a notary,
consent to immediate foreclosure in accordance with section 702, No. 5, of the civil process ordinance.
The Landschaft's right of foreclosure was practically
extended by the Prussian law of the 3d of August, 1897,
which became applicable to all public Landschaften established by the 1st of January, 1900. According to this law
the statutes of a Landschaft may, with the consent of the
state, provide that the right of foreclosure shall extend to
personal property and shall include the coercive management (Zwangsverwaltung—receivership) of the real estate;
further, that its demand for compulsory sale is to serve as
a substitute for the title of the property which has been
foreclosed upon; and, finally, that in case of waste or
loss, the seizure can be executed by the Landschaft, instead of by the court, upon the movable property of the
debtor, or by the coercive management of the real estate.
The statutes may further provide that the legal foreclosure shall apply to the documents accepted by the syndics.
This law is very advantageous to the newer Landschaften and contains many improvements for the older
institutions.
Finally, a very significant advantage which the Landschaft mortgage affords is as an investment for trust
funds. The privileges of the Landschaften have not been
affected by the Civil Code (Biirgerliches Gesetzbuch) and
the accompanying laws. (Compare the reservation in
article 167 of the introductory statute of the Civil Code.)

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(d) PRINCIPLES OF AGRICULTURAL CREDIT, ESPECIALLY
MORTGAGES AND

THEIR

FUNDING—GENERAL

GUAR-

ANTY.

It follows from the defined purpose and the corporate
organization of the Landschaft that each member has
a right to be granted the use of credit in the ways provided by statute. The Landschaft is not authorized, like
the mortgage banks, savings banks, and other institutions, simply to decline to make loans that are asked for.
The purpose for which the loan is desired is not generally
inquired into by the Landschaft. However, in the case
of the Landschaft of the Margravate, a request for a loan
to four-sixths of the estimated value must be based on an
existing material need, for example, the redemption of
another mortgage, improvement, etc. (Commentary by
the chief board of directors, 1892, p. 38.) Credit is created
by means of the issue of mortgage bonds (Pfandbriefe)
bearing interest and made payable to bearer. The
earlier system of the so-called old mortgages, which
were partial mortgage instruments on a definite piece of
property with the additional responsibility of the Landschaft corporation, has been given up. The following observations may be made concerning the legal security and
material funding of the new mortgages, which alone are
taken into account here.
The mortgage bonds (Pfandbriefe) are obligations of
the Landschaft which are to be considered as funded on
a mortgage claim of the same amount. At least this is
the case in the older Landschaften. The legal connection
between the mortgage bonds and the hypothecated

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security which supports them is evidenced by the fact
that the mortgage bond is drawn up by a special commission of control, which must be convinced, by looking
through the mortgage documents in question, of the existence of an equivalent amount of mortgageable property,
and that the mortgage document is provided at the
same time with a stamp. The effect of the latter is
that the keeper of the land register may record the surrender or the redemption of the mortgage security only
on proof being given to him by a certificate that a similar
amount of mortgage deeds is withdrawn from circulation.
In the case of individual Landschaften the stamp is cancelled by the commission of control itself, under the same
conditions. In the case of several Landschaften it is
further prescribed by statute that the hypothecated securities shall be liable exclusively for the mortgage deeds,
and claims may not be laid upon them by the other
creditors of the institution. Most of the newer Landschaften have not adopted such a provision, the legal
effectiveness of which is not free from doubt (statement
accompanying the bill presented in the Reichstag in
1879-1880, concerning the law of mortgages and other
pledges of debt). The newer Landschaften have not
adopted the commission of control and the seal for the
maintenance of equality between mortgages and mortgage bonds, but have placed the whole responsibility with
the board of directors, in other words, the advisory management.
Thus, the legal relation between the mortgage deed
and the hypothecated security in the individual institutions has been until now a more or less loose one. In

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reality this matters little. The organization of the
Landschaften and the nature of their management are a
guaranty that no more mortgage deeds are issued than
there are securities available. The question whether the
holders of the mortgage bonds have a lien on the mortgage claims is of little significance for the Landschaften,
because they do not enter into business of other kinds, and
the mortgage holders do not thus compete with other
categories of creditors.
The latter is not applicable of course to the Landschaften
in Silesia and the Margravate, which are responsible for the
obligations of the loan banks in question. (Compare below.) It is therefore not wholly without value for the
Landschaften that in the imperial mortgage bank law,
which, as is well known, gives to the holders of the mortgage bonds of the mortgage bank a preferred right to the
underlying mortgages, a reservation is made whereby the
states may create a similar privilege for the holders of
the mortgage bonds of the Landschaften.
The chief consideration in the material funding of the
mortgage deeds is the quality of the securities, e. g., the
guaranties of proper estimated value and careful loans
which borrowing institutions and persons can give. Since
each land-credit institution which really desires to fulfill
its duty must reckon with the possibility of loss, the
Landschaften must have further material guaranties in
order to make the mortgage deeds and their interest safe
under all circumstances, just as the mortgage banks
require a stock capital. The fund belonging to the Landschaft as a corporation, a widely varying amount with
the individual institutions, is the chief security for the

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creditors. A further security is the amortization fund, or
in other words, the amortization deposit of the debtor.
The old Landschaften had also the general guaranty of
the borrowers, that is, the solid responsibility of the
properties belonging to the members of the Landschaft.
This general guaranty is an obligation created by special
law, to wit, by the old Landschaft Regulation. Therefore it does not rest upon a title at private law, and is not
affected by the legislation concerning the registers of
landed property. In East and West Prussia, Silesia and
Pomerania (with the exception of Neuvorpomerania,
which was only subsequently attached to the Landschaft)
all property capable of being mortgaged is subject to the
general guaranty; in the Mayorate and Neuvorpomerania
only that which is really mortgaged is subject to it. The
state domains in Silesia are also subject to the general
guaranty, and in East Prussia, the domains and forests.
In Silesia and West Prussia there is no general guaranty
for those series of mortgage deeds which are issued under
special titles on the basis of loans in excess of one-half of
the estimated value.
A general guaranty of that kind has no place in
the newer Landschaften. A law would have been
necessary for that. Very different systems have been
chosen for the security of the mortgage bonds. Either
special security funds or reserve funds are formed
(for example, for the above series of the Silesian and
West Prussian mortgage bonds, for the Silesian Rustikalian, the new West Prussian, the Berlin and the Posen
mortgage bonds); or the borrowers are obliged to make a
limited supplemental payment (5 per cent to 10 per cent

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of their debt), as for example, in the institutions of
Saxony, Westphalia, and the older Schleswig-Holstein
institutions. (For details see Saling, pt. 2, pp. 300 ff.)
For the new Landschaft of Schleswig-Holstein the noble
cloisters and properties have undertaken to guarantee the
common fund at 1,000,000 marks.
All of these insignificant distinctions with regard to the
nature and quantity of the guaranties afforded to the
holders of the mortgage bonds are hardly expressed in
the valuation and rate of the mortgages. From this it
appears that the public, and indeed rightly, depends
chiefly on the integrity of the valuations and loans,
and in this respect places great trust in the management
of the Iyandschaften. It may be doubted whether, without the security of the general guaranty, the mortgage
bonds would have acquired that confidence, both at the
time of their introduction and later, which they now
generally possess. The general guaranty is the historical
foundation on which the mortgage system has developed,
and which has made later progress possible.
The interest rate of the mortgage bonds has varied with
general monetary conditions, and reflects accurately the
interest fluctuations of the last century. At the end of the
thirties a general conversion of the mortgages to 3 X per
cent was carried through. The increased need of capital
which railroad building and the development of industry
brought with them soon led to an appreciation of money
rates, which has slackened only since the end of the
seventies. The mortgage bonds issued originally at 5
per cent have since then been gradually converted to $%
per cent, and in the years 1894 a n d 1895 m ° s t Landschaften

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continued the conversion to 3 per cent. Only a part
of the Landschaften succeeded in effecting this conversion,
as the appended table shows. In general, conversions
quickly following each other have not been favorable for
the mortgage bonds as investment securities, and have
perhaps contributed to the fact that their rate, which was
formerly equal to that of state securities, has fallen below
it in recent times. The Landschaften have never resorted,
as the mortgage banks did formerly, to the issue of premium mortgage bonds, or those with fixed premiums
payable at redemption, a measure which is regarded as
suspicious by the mortgage banks, and which has been
forbidden to them by Imperial law.
Recently, under the influence of the continually rising
interest rate, the East Prussian Landschaft has resorted
again to the issue of 4 per cent mortgage bonds.
Concerning the possibility of recalling the mortgage
bonds, see below under 5 B.
(e) AMOUNT AND

K I N D OF SECURITY AFFORDED, L I A -

BILITY TO RECAI.IV, AMORTIZATION, ETC.

A. Limits to which loans are made.—This limit is determined by establishing a definite valuation of the property;
loans may be made to a certain proportion of this valuation, which is variously determined by the individual
institutions. The Landschaften loaned originally to half
of the estimated value. At present they loan generally to
two-thirds of this value. The West Prussian Landschaft
loans to six-tenths; the Posen Landschaft, which formerly
loaned only to one-half on properties of less than 30,000
marks valuation, has recently introduced the general

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policy of loaning to two-thirds of the value. The differences arising in this respect need not be considered, since
where the proportion to which the property may be
mortgaged is fixed low, the valuation is usually raised.
The detailed provisions drawn up by the old Landschaften
concerning the proceedings for estimating the value are
very numerous. In general, three groups are to be
distinguished, in which the basis for the mortgageable
valuation was:
(i) The land tax; (2) a simple estimate of the value
made on the basis of the land tax; (3) a formal estimate
of the value.
In the first case loans were made to a certain multiple of
the yield of the land tax, usually to fifteen times that tax,
without further inquiry into the value. Under the second
method a simple estimate of the value was made, which
was based upon the land tax. Under the third method an
especial estimate of the value was made. The second
method is applied advantageously in making loans upon
smaller holdings, and the third in the case of loans on larger
properties. The first and the second, or the first and the
third alternate with each other, so that he who desires
only a small loan can elect the cheap and convenient
method of making the loan according to the land tax.
The formal estimate of the value is partly an estimate of
the value of the land, partly an estimate of the product;
even in the cases in which estimates of the land value are
introduced, the value is so measured that it does not
represent the purchase price, but the value of the product.
Forest lands are mortgaged on the basis of the value which
the land would have for other uses. The mortgaging of

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the forests as such, which presupposes a permanent control
of the cutting and the forest culture, occurs in Silesia, and
was earlier practiced also in Brandenburg
The estimate is made by local deputies who, as members
of the Landschaft, are jointly responsible for its correctness. For determination of the value see above, under 2.
B. The way in which credit is granted; the liability of
recall; additional loans.—The Landschaften grant amortization loans which can be repaid by the debtor at any time,
with the statutory period of notice. These loans can be
recalled by the Landschaft, however, only on definite
grounds (waste of the property, destruction, and the like).
To the right of the debtor to cancel the debt corresponds
the right of the Landschaften to recall the mortgage bonds,
since the balance must be maintained between mortgage
bonds and securities. This right exists even in addition to
the customary redemption in the ordinary course of amortization. vStrangely enough, the old Prussian Regulation
forbade the Landschaft the privilege of recalling the mortgage bond, but did not prohibit the holder of the bond
from returning it for redemption. On the other hand, the
right of giving notice of return was expressly granted to
the holders of the bonds (for example, Kur- und Neumark
credit regulation of 1777, section 271). This had its
reason perhaps in the fact that the Landschaften were
as yet new institutions, and it was not certain that the
mortgage bonds would be taken unless a right to return
them were granted. This right of giving notice of return
was properly abolished in the above-mentioned conversions
in the thirties, and without reservation, so that the holders

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of the mortgage bonds, even in the event of non-payment
of interest, can not give notice of their return.
The old Landschaften pay the value of the loan in mortgage bonds, which are converted into money for the debtor
by the loan banks named under 6; the Hanoverian institution pays in cash. If the rate of the mortgage bonds
stands below the face value the old Landschaften furnish
the debtor additional loans on demand from their ready
capital to make up for the difference in the rate. Interest
is figured on this advance for a number of years in addition
to the quotas payable to the amortization fund on the
principal. This proceeding is similar to that of the mortgage banks with regard to covering the discount on mortgage bonds.
C. Things required of the debtor—Administrative costs.—
The Landschaften, according to the nature of their organization, furnish credit as cheaply as conditions of the money
market permit. Only the newer institutions collect
assessments to cover extraordinary administrative costs.
The older ones meet such costs from the interest on the
corporate property, formerly from a stamp tax (Quittungsgroschen). The funds belonging to the Landschaften were
created in former times mainly by the additional payments
of the debtor; the sums given by the state form only a
small part of the same.
D. Amortization—Disposition of the amortization fund.—
The old Prussian Landschaft Regulation laid no obligation on the debtor to make amortization payments. At
present this requirement has been generally introduced,
but the payment varies widely in amount and manner.
The newer Landschaften have a general one-half to three-

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fourths per cent amortization payment. The institutions of Silesia, the Margravate, and Hanover have a regular
amortization payment of one-half per cent and over.
A regular amortization payment (formerly at least onehalf per cent) is prescribed for those loans also on the
basis of which "central mortgage bonds" are issued.
(See Central Landschaft under 7, below.) In the Pomeranian Landschaft, as soon as the debtor has paid
off 5 per cent of his debt, he can demand to be released
from further amortization payments, but must definitively give up the right to make any later disposition of
the amortization fund. The West Prussian Landschaft
collects amortization payments of one-half per cent for
ten years on that part of the debt which is based upon
the first half of the estimated value. For that part of
the debt which exceeds the first half of the estimated
value (up to six-tenths of the estimate) a permanent
amortization payment of one-half per cent is required.
The East Prussian Landschaft has made the earlier
amortization provisions more strict since 1899, in that
one-half per cent of the whole loan must be paid off
annually for those loans which exceed the first half of
the estimated value. A voluntary increase of the amortization payment is generally permitted.
Corresponding to the nature of amortization credit is
the right of the debtor to demand release from that
part of his debt which has been redeemed. This is
generally limited by statute, so that at least 10 per
cent of the debt mast first be redeemed. Furthermore,
with most Landschaften the debtor is granted the right,
after the redemption of 10 per cent of his debt, to de-

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mand new credit to this amount—that is, to demand
an amount of credit corresponding to his redemption
deposit. In this case a revision of the estimated value
is made. (For example, Regulation of the Pomeranian
Landschaft of 1889, sec. 291.)
(/)

LOANS ON PEASANT PROPERTIES.

While the newer Landschaften (with the exception of
that of Schleswig-Holstein of 1895) were founded for
peasant properties, the older Landschaften were originally
intended for the property of the noble classes alone, and
have only later voluntarily made their credit accessible to
the peasant classes, or more exactly, to the properties not
belonging to the noble classes. Especial institutions under the cooperative management of the Ritterschaftliches
Kredit-Institut exist in Silesia, the Margravate, Pomerania, and West Prussia. They are organized as independent corporations in the last three provinces. In East
Prussia peasant property is accepted by the Landschaft
itself. Since this is true also of the new Landschaft of
Posen, special institutions for peasant mortgage credit exist
within the kingdom only for the four provinces above
mentioned. The minimum property on which loans can
be made is generally fixed at 75 to 150 marks land tax,
or a corresponding capital value, and thus includes the
large peasant holdings, the medium holdings, and a part of
the independent smaller holdings. The Silesian Landschaft
extends its loans considerably further under the limits of an
independent development of the land. In 1895 it reduced
the necessary minimum land tax from 30 to 15 marks.
Concerning the results obtained in the making of loans
on peasant properties, compare below under 9.
77267—10

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(g) SUBSIDIARY BUSINESSES OF THE LANDSCHAFT—FIRE
INSURANCE AND LOAN BANKS.

In East and West Prussia there are special companies
under the management of the Landschaft for the insurance
of the properties belonging to the Landschaft against fire.
The Landschaft loan banks are of general importance.
The first bank, now known under the title " Landwirtschaf tliche Bank" was founded in 1848 by the Silesian Landschaft.
The other legally independent provinces followed, so that
at present banks of this kind exist in Konigsberg, Danzig,
Posen, Berlin, Stettin, Breslau, and Halle; of these the one
in Berlin, with an annual business of about 1,300,000,000
marks, and the one in Breslau, with an annual business of
about 400,000,000 marks, are by far the most important.
The banks are independent, with the exception of those in
the Margravate and Silesia, for which the Landschaft is
responsible. They are endowed from the Landschaft
fund, and possess corporate rights. Their original capital,
exclusive of the reserve fund, is as follows:
Berlin
Breslau
Konigsberg
Danzig
Posen
Stettin
Halle

Marks.
2, 668, 000
5, 000, 000
2, 000, 000
1, 200, 000
2, 000, 000
2, 000, 000
2, 000, 000

This capital yields a return of 6 per cent to 10 per cent
on the average. The net earnings, in so far as they are
not turned into the reserve fund of the bank in question,
go to the fund of the Landschaft, or to the amortization
fund, and are thus applied for the benefit of all. More
important than this direct income are the indirect ad-

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vantages which accrue to the borrowers through the
medium of the loan bank, and which make them independent of bank credit. The chief business of the loan
banks is the financing of the mortgage business, which
covers such activities as the following: The sale and purchase of mortgage bonds; payment of interest on mortgage
bonds; payment of cash for mortgage bonds allotted;
the carrying out of conversions; and, finally, the making
of loans to individual borrowers by furnishing advances
and by the redemption of private mortgages. In addition,
the loan banks carry on banking business of all kinds,
with the exception of speculative transactions. They
have developed the deposit business especially. They
furnish, chiefly to the mortgage borrowers, temporary
credit against bills or the pledge of securities or mortgages. The loan banks are therefore in the nature of
personal credit institutions which are intended as a support and a supplement to the credit of the Landschaft.
(h) T H E CENTRAL LANDSCHAFT.

The Central Landschaft, which was created on the 2 ist of
May, 1873, is intended for the further extension of the associative principles on which the Landschaften rest. It is a
union of nine Landschaften, organized with the object of
promoting an international investment paper through
the creation of a unified security possessing the advantages of a mortgage bond. Thus the organizers hoped to
capture the world market for mortgage-bond credit. The
Prussian Centralbodenkredit-Aktiengesellschaft had been
organized a few years earlier for the same purpose, but on
different principles. The statute of the Central Land-

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schaft is designed to allow the included Landschaften the
greatest possible freedom. The Landschaften reserve the
right to issue provincial mortgage deeds. Mortgage loans
in central mortgage deeds are granted as a matter of
course through the provincial Landschaften, according to
their own principles of making loans, except that changes
in the principles of estimating the value and in the terms
on which loans are made require the concurrence of the
Central Landschaft board of directors. This body is
chosen from the administrative heads of the included
institutions. The guaranties created for the security of
the central mortgage bonds are really of a provincial
nature. (Saling-Siedfried, p. 344.)
The amortization contracts of the real estate belonging
to the Central Landschaft union serve as a general guaranty, which in case of necessity can be drawn upon to
cover losses, according to the detailed ordinance of the
Central Landschaft Board of Directors. (Statute, sec. 22.)
The included institutions are permitted to withdraw from
the union, and other Landschaften may enter with the
consent of the Landschaften belonging to the union.
The Central Landschaft has not experienced the general
increase which was expected, and as a result has not been
able wholly to fulfill the hopes placed in it. Several
institutions interested in its foundation have since withdrawn. Of the two and one-third billions of Prussian
mortgage bonds which were outstanding at the end of
1897, only 336,000,000 were central mortgage bonds.
The Silesian Landschaft alone had a larger circulation of
mortgage bonds, and thus the standing of the Central

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mortgage bond on the Exchange is not at all prominent, in comparison with the provincial mortgage bond,
which the public has known for many years. The reason
for the relatively small support which the institution has
received seems to be that the provincial Landschaften
find the limitation of their activity, which centralization
unavoidably entails, to be an overwhelming disadvantage.
(i) RKsuivTs

AND FURTHER PURPOSES.

The services which the Landschaft, as the intermediary
between capital and the estate which needs credit, performs for the former are ordinarily less considered, and
yet it is evident that the preparation of over 2,000,000,000
of investment securities which have stood the test of the
worst crises of the century is significant for solid capital.
In the present agricultural crisis, 0 which is affecting
chiefly the larger properties of East Germany, the shrewdness with which the management of these institutions
avoided every over-tension of agricultural credit in the
days of agricultural prosperity is now being commended.
Mortgage credit very properly shows itself therefore to
be unaffected by the disturbances of the general depression.
The greatest importance of the Landschaften, however,
lies not in their achievements for capital, but in the improvement of land credit. The interest of the estate requires
an unrecallable credit, which is given as cheaply as possible. Besides the Landschaften, unrecallable credit is also
given by mortgage banks and communal credit institu-

o This article was published in 1900.
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tions (not savings banks), but these institutions are
generally not able to compete with the Landschaften in
cheapness of credit. Hence, where the Landschaften
have developed, the business of the mortgage banks is
limited chiefly to municipal loans. The great importance
of the impossibility of recalling the loan consists partly
in the fact that the debtor (who on his part can cancel
the loan at any time) has the advantage of a fall of the
interest rate, but not the disadvantage of a rise, such as
happens especially in times of tightened money conditions.
Collected material is not available concerning the results
of the whole development of the Landschaften. We limit
ourselves, therefore, to the following reports of the business
of the Landschaft of the Margravate, which in a certain
degree may be considered as typical of the conditions for
the other old Landschaften. The two institutions considered are the "Kur- und Neumarkisches Ritterschaftliches Kredit-Institut," for loans on larger properties,
and the new " Brandenburgisches Kredit-Institut, ,, for
loans on peasant property, which is connected with the
former under a common management. Their districts
extend to the boundaries of the Kur- und Neumark,
as they were in 1777, a territory which is only partly
covered by the present province of Brandenburg.
(A) At the close of 1897 there were 1,031 properties
mortgaged with the Ritterschaftliches Institut, on which
a total mortgage debt of 202,468,340 marks was issued,
partly in Kur- und Neumark mortgage bonds and partly
in Central Landschaft mortgage bonds. The average loan
was 197,000 marks.

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The total loans are divided as follows:
TABLE

Properties.

Amount.
Marks.

Altmark and Priegnitz
Mittelmark
Uckermark
Neumark

____
_ . . . _ _

_ _ _ __
__

Total

146
3S4

25,382,950
56,162,000

164
367

8 0 , 3 0 6 , 720

1,031

202,468,340

The progressive mortgaging of properties within the district of the Kur- und Neumark Ritterschaftliches KreditInstitut shows the following collection of the mortgages
issued since the creation of the institution in 1777, deducting those meanwhile redeemed:
From 1777 t o —
1785
1795
1805
1815
1825
1835
1845
1855
1865
1875
1885
1895
1896
1897

Marks.
n , 100, 600
io, 920, 900
11, 526, 900
12, 665, 400
24,739,950
34,657,650
37, 894, 950
38,295,450
51,541,350
_ 82, 204, 600
152,551,580
192,303, 100
197,404, 160
202, 468, 340

Estimates of value for the purpose of loans have been
made as follows:
Properties.
(a) According to formal estimate of value
661
(b) According to estimates based on land t a x
312
(c) According to section 9 of the law of the Centrallandschaft (fifteen
times the net amount of land tax)
55
(d) Basis of earlier purchase price
3

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The interest on the mortgages is being paid increasingly
by checks on the accounts of the borrowers at the Ritterschaftliche Darlehnskasse. (See above under 7.)
Assessments for administrative costs have not been
collected from the borrowers for a long time. The collection of the considerable duties and fees which are legally
allowed to the institution has been discontinued " until
further notice/' so that they can be resorted to if necessary.
The property of the corporation amounted to in—
Marks.
2,752,591.52
3,073,799.67
3,522,274.75
4,961,075.36
9, 054, 876. 29
IO,268, 937. 07
10,918,378.49

i850_-__
i860
1870
1880
1890
1893
1897

The total amount of the special amortization fund
amounted to 21,043,776.34 marks at the end of 1897;
and since this fund is available, by statute, for emergencies,
the total reserve, including the property of the corporation,
amounts to about 16 per cent of the mortgage debt.
The amortization fund in itself amounts to not more
than 10 per cent of the mortgage debt. Thus it appears
that, after reaching the necessary minimum amount of 10
per cent of the redemption fund, the borrowers generally
demand suspension of the redemption payments. It is
not shown how far new credit is demanded after such
suspension. The debtor can not make a direct claim upon
the accumulated redemption fund of 10 per cent (as in the
case of the other Landschaf ten).

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From the total amortization fund received since 1845,
the following payments have been made:
Marks.

For redemption of mortgage deeds

46, 905, 915. 92

For repayment of—
Cash advances due to difference in ex- r Marks.
change rate
6, 674, 896. 32
Cash advance loans
1, 559, 508. 18
8> 2 3 4 J

O4>

5 0

For interest on—
Cash advances due to difference in exchange rate
1, 708, 285. 56
Cash advance loans
244, 883. 50
1,953,169.06
10, 187, 573. 56

Total payments

It is yet to be mentioned that in the year 1897,
785,916.61 marks were voluntarily paid in by the debtors
to strengthen the amortization fund; this sum is included
in the above amortization fund. The possibility remains,
however, that a part of these payments were not really
made for the purpose of accelerating redemption, but for
the purpose of raising the amortization deposit to 10 per
cent of the debt in order to secure in that way a cancellation of a corresponding part of the debt, and to obtain
new credit.
(B) At the end of 1898 there were 8,397 pieces of property mortgaged with the new Brandenburg credit institution for peasant property, with a total loan of 125,003,250
marks. The amount of the average burden was thus
14,900 marks as against 16,200 marks in 1894, 17,700
marks in 1890, 22,000 marks in 1895, and 40,000 marks
in 1880. These figures show how the institution has applied itself increasingly to lending upon the smaller
peasant properties.

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The total loans are distributed as follows:
Pieces of
real
estate.

Altmark and Priegnitz_
Mittelmark
__
Uckermark
Netunark-- -

_ __
_ _

_.. _

_ _
___

Total

_ _ _

Value.

1.485
3.044

Marks.
19.969,000
48,838,800

1,127
2,741

35.953.5oo

8,397

125,003,250

20,241,950

Among the 8,397 pieces of real estate are 515 municipal
properties which are devoted to agriculture.
Five hundred and thirty-eight new pieces of real estate
have been mortgaged during the business year 1898, and
during the same time 78 pieces have been freed from debt
through the redemption of the mortgage.
The mortgaging of real estate in the district of the new
Brandenburg credit institution, which has generally been
progressive, shows the following collection of the mortgages issued since the creation of this institution (statute
of the 30th of August, 1869), deducting those redeemed in
the meanwhile:
Pieces of
real
estate.

T o end of-

Value.

Marks.
1870.
18751880.
1885.
1890.
1895.
1896.
18971898.

93
377
195
649
348
937
8,397

47.55o
739.950
3,694,600
30,144,800
74,274.300
105,672,900
1 1 4 , 4 9 6 , 000
I20,776,750
125,003,250

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Of special interest is the relation, given for this institution, between the new loans and those loans which served
only for the conversion of a former private mortgage.
The mortgage debt was entered in the land register as
follows:
As a new debt
Through the conversion of mortgages
Total

Marks.
49, 750, 628. 50
75, 252, 621.47
125,003, 250.00

The appraisements for the purpose of making the loan
were made as follows:
(a) For 299 pieces of real estate, on the estimates of
value.
(b) For 6,514 pieces of real estate, on the land taxes.
(c) For 1,584 pieces of real estate, according to the final
sentence in section 9 of the statute of the Central Landschaft for the Prussian States of the 21st of May, 1873 (at
fifteen times the income of the land tax). The redemption fund amounted to 6,016,778.42 marks at the end of
1898.
From the current redemption funds the following sums
have been applied to the redemption of mortgage bonds,
and for repayments of cash differential advances and advance loans due to the lower rate of mortgage deeds, or
for the interest on these in the period from 1873 to the
31st of December, 1898:
For mortgage-bond redemption
For repayment of—
Cash advances due to difference in exchange rate
Cash advance loans
For interest on—
Cash advances due to difference in exchange rate
Cash advance loans

3i5

Marks.
5, 485, 962. 88
951, 536. 36
164, 587. 50
366,021. 67
29, 724. 75

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The corporate property of the institution is still small.
The costs of management are borne by the Ritterschaftliche Hauptinstitut, for the moderate charge of one-tenth
per cent of the mortgage circulation. A part of this
sum has been given for the last few years to the safety
fund of the peasant institution. The borrowers are to
make the following annual payments on their loans for
interest and gradual reduction of the mortgage loan:
(a) Interest for the mortgage holder at 4 per cent or
3>£ per cent or 3 per cent.
(6) For redemption of the mortgage, one-half per cent.
(c) Contribution to the cost of management or to the
safety fund of the new Brandenburg credit institution,
one-tenth per cent. (Cf. above.)
The mortgage circulation of the other Landschaften, as
of these institutions, has significantly increased in the last
fifteen to twenty years. Since the value of the properties
has not increased in that time, and since only the smaller
number of the new loans made to the larger properties rest
on the conversion of older private mortgages, it follows
that in this increasing extension of agricultural credit there
has been an increase of the total debt of agricultural
properties. This fact is indeed recognized in other investigations. However suspicious this phenomenon has
become, yet it shows, on the other hand, the evident use
of the Landschaften, which has made it possible for the
land holder to utilize his credit most advantageously
within the limits of safety in time of need. If the Landschaften did not exist the total debt would not be smaller,
but would be far heavier and more oppressive, and would
have been made at a heavier interest rate, while there

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would have been the danger of the recall of the loan at
any time.
It lies in the nature of a corporation which is compelled
to maintain definite standards, that the Landschaften are
deprived of the mobility which the mercantile mortgage
banks have. Yet charges of oppressiveness, tardiness,
and expensiveness in loan proceedings are but seldom
heard. Meanwhile perhaps all institutions have improved
in this regard in the last few decades, to which end the
introduction of simplified principles for estimating the
value for lower loans has contributed particularly. The
keen interest which has been manifested recently with
regard to the Landschaften in general, and also the
activity of the X,andschaft institutions, give assurance
that they will find in the achievements of the past a spur
for further perfection in the future.
The amortization system of the Landschaften is considered on many sides as superannuated or unsatisfactory
and contradictory. On the one hand, compulsory amortization is generally rejected for present agricultural conditions, because the amortization quotas are frequently
not to be saved from the products of the property. A
further argument is that, in the case of change of ownership, which occurs now more freely than formerly, the
seller is not always able to bind the purchaser to make
compensation for the amortization, in which case he loses
the fruits of his economy. The principal supporters of
amortization, on the other hand, hold that compulsory
amortization does not go far enough; and they show particularly that the authority of the debtor to make dispo-

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sition of the amortization deposit after it has reached a
definite amount is harmful to the redemption of the debt.
It is to be observed that amortization is of importance
for the credit institution independently of the above consideration, in that the amortization fund serves to secure
the mortgage, and takes the place of a safety fund.
This fund would be necessary in any case, and would be
collected from the debtor. A moderate amortization
fund, however, such as is obtained under the present
right of the debtor to make disposition of the deposit,
serves this purpose.
From the general standpoint the principle of the gradual redemption of the debt, which is practically obtained
only by means of compulsory amortization, is undoubtedly the proper one, since the condition of a debt upon
the property is not the normal one. The postulate derived
from this is that improvement debts must be redeemed
from the income of the improvement, and that other debts
must be redeemed before the return of the same event
which caused the debt; e. g., in the case of inheritance
debts, the occurrence of the next demise of the property.
It is also claimed for the idea of compulsory amortization that the amortization deposit serves as a kind of
security for the personal credit of the debtor, and is
useful in case of a temporary money stringency. The
objection against this is that the present amortization
system of the Landschaften, with the all too small amount
of the amortization contributions, is not sufficient for the
plan of the redemption of the debt. The complete carrying out of the plan fails, however, on the given conditions.
If the right of the debtors to dispose of the amortization

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deposit were withdrawn, the result would frequently be
that they would redeem the mortgage by taking a loan at
a mortgage bank or from a private creditor, in order to
accomplish the withdrawal of the deposit. This method
has been used heretofore in order to withdraw the
amortization fund prematurely. In any case a time of
declining net income is not the proper one for compelling
the debtor to make heavier annual payments, or for rendering it more difficult for him to recover a previous
deposit. Though the full application of correct principles
is not now attainable, yet present conditions by no
means prevent us from approaching this end. The agricultural population, and even the peasant population, are
generally possessed of both the intelligence and the inclination to redeem their debts, as the voluntary payments
to the amortization fund show; and the problem is to use
this knowledge. The plan under which the amortization
was introduced for the old Landschaften furnishes an
instructive parallel for the present in this respect. This
was by having the debtor continue to pay 4 per cent when
the conversion of the thirties reduced the interest rate from
4 per cent to 3% per cent, the one-half per cent difference
being applied to amortization. In the more numerous and
more extended conversions of peasant private mortgages
into mortgage deeds at the present time there is not, however, a single instance in which the debtor continues to
pay the former interest in order to make it a really effective amortization. Secure peasant mortgages frequently
pay from 4 ^ to 5 per cent interest, while the Landschaften,
at least until the recent rise in interest rates, gave credit
at 3 per cent to 3% per cent. Thus with the reduction

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of the former interest rate, a total yearly payment of 4 ^
to 4 X P e r cent, would yield an amortization of 1 to \%
per cent. In practical operation the debtor could certainly be allowed to undertake, voluntarily, a higher
amortization quota than that prescribed by the statute.
In general, the increased utilization of the Landschaften
for peasant and small peasant holdings in Prussia is undoubtedly one of their most important duties. The institutions have taken up this duty zealously in recent times,
with state encouragement. In the years 1895 to 1897, the
Landschaft regulation was almost entirely changed in the
direction of simplifying the proceedings for estimating the
value of the peasant property, the cost was reduced
and the amount of the loan was fixed at a more equitable
relation to the value of the smaller holdings. Next to
this, the united efforts of the Landschaften, agricultural
councils, and state authorities have been directed to
bringing the advantages of agricultural credit before the
peasant class by proclamations, addresses, etc., and to
inducing this class really to make use of this agricultural
credit, particularly in the conversion of existing higher
interest-bearing recallable private mortgages. These
conversions form a large part of the mortgage loans, as is
shown by the account given above of the new Brandenburg
credit institution.
It is especially noteworthy that the East Prussian
Landschaft has for many years worked in the proper
direction by sending officials, after making previous public
announcement, into different localities to give free information concerning agricultural credit, and to receive appli-

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cations for loans. If a number of participators announce
themselves in the same locality, then so-called village
estimates (Dorftaxen) of valuation are made at reduced
fees; this happened in 78 localities in 1898.
Past accomplishments are always to be regarded only
as a beginning. In the provinces of Brandenburg, East
Prussia, and Silesia, where the transactions of the Landschaften are most advanced, the number of the peasant
properties actually loaned upon is only a very small part
of those which are available for the purpose. In Brandenburg there are 8,400 pieces of real estate on which
loans have been made, as against 50,000 pieces of real
estate on which loans may be made. The great majority
of these properties are not altogether free from debt, but
burdened with savings bank and private mortgages, subject to recall and bearing high interest. The mortgage
holdings of the Prussian public savings bank amounted
to 995,000,000 marks in 1892, which was loaned for the
most part on smaller and medium sized holdings. In
Brandenburg, the amount was 48,000,000 marks. Of
course the savings banks have been led, by the influence
of the progress of the Landschaften, to reduce the interest
rate on their mortgages, in order to retain their borrowers.
In East Prussia, in the year 1897, the holdings were as
follows:
Properties.

Up to 5 hectares, exclusive
From 5 to 10 hectares, exclusive
From 10 to 50 hectares, exclusive
From 50 to 200 hectares, exclusive
200 hectares and over

160, 250
21, 000
36, 500
7, 500
1, 750

Total

77267—10

__ 227,000

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According to the extent of tillable surface, holdings
below 5 hectares, and two-thirds of the holdings from 5
to 10 hectares, are to be set down as unavailable for loaning purposes; that is, as below the minimum estimated
mortgageable value of 1,500 marks. There remain 52,750
properties, from which are to be deducted about 5,000
lease and secondary properties in foreign districts, which
are included in the above enumeration. This leaves
47,750 mortgageable pieces of real estate, as against 12,000
which are actually loaned upon.
Experience proves that the safety of the Landschaft is
in no way endangered by the inclusion of peasant holdings. The latter are more capable of enduring a crisis than
the larger properties, and further, they are more easily
salable because the number of intending purchasers {Reflektanten) is larger. In order to induce the peasant class
to avail themselves of mortgage loans, it is not sufficient
to make the procedure as easy as possible. Because of the
smaller business experience and greater immobility of
these classes of the population, the Landschaft organs, in
connection with the agricultural councils, the agricultural
societies, and the public authorities, must exert themselves
in the movement.
(/) T H E PRIVATE LAND CREDIT UNIONS.

Numerous unions of the landholders have been formed
after the model of the Landschaften. These have taken
the form of purely private companies, or of associations
for mortgage business, and are brought under state over-

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sight by the privilege of issuing securities payable to
bearer. Of these the following are to be mentioned:
a. The Dantziger Hypothekenverein of 1868.
b. The Landschaftlicher Kreditverband for the province
Schleswig-Holstein, of 1882. (NOTE.—It has since been
transformed into a public institution.)
c. The Stettin National-Hypotheken-Kreditgesellschaft
of 1870.

d. The Landwirtschaftlicher Kreditverein in the Kingdom of Saxony, of 1866.
e. The Bavarian Landwirtschaftliche Bank of 1896.
In part these private legal "Landschaften" have later
transformed themselves into public institutions. This
was the case with the Landschaft of the province of
Saxony, mentioned above under section 2. In the unions
of municipal land and house holders there is at present a
strong movement in favor of such a corporate organization of land credit, but the opposing difficulties are
underestimated. One of these difficulties consists in the
frequent change of possession of city real estate, which
would render a practical self-management of the real
estate much more difficult to carry out than with the
more stable agricultural holdings. The share of the householders in the management of the public Berlin municipal
mortgage schedule office (above, sec. 2) is not as remote
as with the Landschaften proper.
A general judgment can not be formed concerning the
private institutions and their adaptability as private
companies to this work. The Bavarian institution mentioned above under (e) seems to meet a keen demand

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which has arisen from the initiative of Bavarian agriculture in the absence of any existing agricultural institution. In the first two years of its existence it has reported 1,955 loans, with a total of 12,750,650 marks.
With respect to the legal form of institutions of this
kind which shall arise in the future, it is to be observed
that by section 2 of the mortgage bank law, mortgage
business is forbidden to the registered limited-liability
companies. New institutions must take the form of a union
in the sense of section 22 of the Civil Code. The elasticity of the provisions of the code makes the form very
suitable.

324

VI.

AGRICULTURAL IMPROVEMENT BANKS
(LANDESKULTUR-RENTENBANKEN).«
By Dr. J. H S R M E S .
[Article from Conrad's Handworterbuch,

(i)

second edition.]

PRINCIPLES OF LEGISLATION.

The Landeskultur-Rentenbanken are public institutions
which supply the necessary capital for the carrying out of
agricultural improvements by means of loans to landowners, companies, and communities. The expression
"agricultural improvements" is to be taken here in the
broadest sense. Such institutions were first created in
Saxony (1861), and then in Prussia, Hesse, and Bavaria.
The basis of this legislation lies in the following considerations.
The capacity of the soil to yield income, with which
the most important state interests are closely connected,
is in Germany almost everywhere still capable of being
very greatly increased. This is especially true of Prussia,
on account of the great extent of its territory. An article
which appeared in 1868 in the Neue Landwirtschaftliche Zeitung (printed in Schober, Landeskultur-Rentenbank, pp. 8-12), and which has exercised considerable
0
Literally, the expression "Landeskultur-Rentenbanken"
means agiicultural improvement income banks.
As we have no counterpart for
them in the United States, the German term has been retained in the
translation. The nature of the banks is clear from the article itself.

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influence on legislation, estimated the increased income
obtainable in Prussia by drainage alone at 177,000,000
thalers yearly. Though this estimate would not bear
close examination, yet it is a fact that wide districts
remain in need of this most useful of all improvements
because of stagnant waters which are still found in spite
of the extensive drainage improvements since 1868.
Official efforts in this direction have been made, for example, by the administrative district of Oppeln. Here an
area of 46,788 hectares, or over 8 German square miles,
was ascertained to be in need of drainage in the districts
of Pless, Rybnick, Iyublinitz, Ratibor, andTost-Gleiwitz,in
the emergency of 1880. Of this area 10,806 hectares were
domain possessions. From the passage of the emergency
law of February 23, 1881, to the end of 1898, 222 drainage
companies were formed or promoted, and 21 drainage
systems installed on small properties which, owing to their
location, could not be included in the public associations. The total area was 24,205 hectares and the cost
6,000,000 marks. The results were highly satisfactory.
An area of 6 8 0 ^ hectares was made tillable for the first
time. {Berliner Korrespondenz of June 20, 1899.)
Though the conditions of this district are not typical
for the whole State, they are by no means exceptional.
For example, a great part of East Prussia suffers in a
similar manner from injuries by floods, and drainage is
but one factor for increasing the agricultural productivity. Other not less important tasks and results are to
be considered with regard to the present position of technique in the sphere of irrigation, the controlling of rivers,
and dike building.

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If legislation finds an important task in the furthering
of improvement credit, then it has to take into consideration, on the one hand, the peculiarities of this kind of
credit; and on the other hand, the general condition of
agriculture, and the situation in regard to land debt.
Improvement credit must be given for long periods and
must not be liable to recall, so that the loan may be
gradually repaid from the income of the improvement.
Such loans do not generally meet the needs of the private
capitalist. Nor is comprehensive assistance to be expected from the existing institutions which make a business of furnishing amortization mortgages, such as the
agricultural or mortgage banks and communal credit
institutions. A large part of the landed possessions in
Germany is already so heavily indebted that it can hardly
ask for further credit along the prudent lines on which
these institutions make loans. The furtherance of improvements also lies outside the sphere of the existing
credit institutions. On these considerations is based the
creation of special institutions — Landeskultur-Rentenbanken—devoted to the task of furnishing credit for such
improvements. In Bavaria, Saxony, and Hesse they are
state institutions. (Bavarian law concerning the Landeskultur-Rentenbank of April 21, 1884, and the supplements
in the finance laws of 1894, 1896, and 1898; the endowment of the institution was raised to 8,000,000 marks
in 1898. Law of Saxony, concerning the erection of Landeskultur-Rentenbanken, of November 26, 1861, and the
provision for carrying this into execution of November
26, 1861, with supplementary laws of June 1, 1872, August
23, 1878, May 1, 1888, and the executory statutes of

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June i, 1872, and May 2, 1888. The law of Hesse, concerning the erection of Landeskultur-Rentenbanken of
March 20, 1888, and the erection of a Landescreditkasse
of October 15, 1890. The Landeskulturrentenkasse went
out of operation according to article 20 of the law of
1890—also supplementary law of August 8, 1896.) In
Oldenburg the agricultural credit institution erected as a
state institution by the law of February 14, 1883,
serves at the same time for the advancement of agriculture. In Prussia, by the law of May 13, 1879, which dealt
with the erection of Landeskultur-Rentenbanken, the
erection of such institutions is freely permitted to the
provincial (communal) associations. The Provincial (communal) Union is responsible for the institution. The
law provided standards which govern such L,andeskultur-Rentenbanken as are erected by the statute of
the union in question. This statute is granted by the
national authority. On the basis of this law, such
institutions have since been erected for the Provinces of
Silesia (statute of July 22, 1881, and supplement of
June 8, 1891), Schleswig-Holstein (statute of October 10,
1881, and supplement of May 8, 1888), Posen (statute of
June 17, 1885), and Westphalia (statute of July 20, 1896).
The outlines of the institution are the same in all the
States mentioned. The Landeskultur-Rentenbanken give
unrecallable amortization loans for the purpose of carrying
out agricultural improvements, and create the capital for
this by issuing bonds payable to bearer (LandeskulturRentenbriefen and Landeskultur - Rentenschein&n), which
are gradually redeemed from the amounts paid in by the

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debtor for their redemption. The internal constitution
of these institutions is of no especial economic interest.
(2) T H E ORGANIZATION OF THE IVANDESKUI/TUR-RENTENBANKEN IN DETAIL.

1. The purposes which the banks serve to advance.—
According to the Prussian law of 1879, loans may be
given (a) for the advancement of agriculture, especially
for drainage and irrigation, for the building and repairing
of roads, for planting forests and making land tillable,
and for the introduction of the new agricultural economy;
(6) for the building of protections for river banks; (c) for
the building, extension, and maintenance of dikes and
structures pertaining to the same; (d) for the construction,
use, or maintenance of water courses or artificial lakes, for
the restoration and improvement of water courses, and
other aids to navigation. The sphere of action for the
existing institutions is sometimes more narrowly limited
by statute. The advancement of drainage is expressly
forbidden to the institution of Schleswig-Holstein, while,
on the other hand, the institution of Posen devotes
itself exclusively to drainage and irrigation. In Saxony,
where the Landeskultur-Rentenbank is connected with
the Land-Rentenbank, which is designed for the furthering
of (mortgage) redemptions, the purpose of the former institution, according to the supplementary law of 1872, is
to furnish credit for the improvement of water courses
(law of Aug. 15, 1855, sees. 1-29), for agricultural drainage and irrigation, as well as for municipal water supply
and sewerage. In Bavaria the stated purpose is similai
to that of Prussia; but the furthering of aids to navigation

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and the construction of artificial lakes are mentioned
separately as improvements for which the combination of
pieces of real estate is allowed. For Hesse, compare article
i of the law of 1890.
2. Limits to which credit is supplied.—With the great
indebtedness of agricultural property which already
exists, the question arises, What security will be afforded
for the loans made by the Landeskultur-Rentenbank?
This question is the real crux of the whole matter. The
proper cancellation of these loans is the first condition
for the practical safety of the whole institution. If the
point of view is taken that in any real improvement the
value of the soil must be increased at least by the amount
of the expenditure, then it may be held that the income
to be paid to the Landeskultur-Rentenbank legally takes
precedence over the private mortgage already given. It
would always be assumed that an official examination
could satisfactorily assure the profitableness, the proper
execution, and the maintenance of the undertaking to
be performed with the loan given by the LandeskulturRentenbank. The legislation in question has only tentatively approached this idea, the realization of which
would make any further provision concerning the limit
of safety superfluous, and would afford a radical solution of the difficulties presenting themselves with regard
to this limit. In Prussia the plan of creating compulsory prior lien for drainage loans at least, before the
satisfaction of private obligations, was checked by the
proposal in the preamble to the law of 1879, a n d particularly by the opposition to the agricultural credit institution. There is then, according to the German laws, no

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obligation on the mortgage creditor to give precedence
to the claims of the Landeskultur-Rentenbank for the improvements installed by the individual landholder. In the
case of Prussian drainage loans, and all Bavarian loans
for purposes of agricultural improvements, detailed proceedings are provided for having the interested parties
declare whether they will voluntarily yield precedence
to the claims of the Landeskultur-Rentenbank. Creditors
who do not declare their opposition to this requirement
within the time designated, are counted as agreeing to the
grant of this privilege. (Prussian law, sec. 18 ff; Bavarian law, art. 12.) A more extensive limitation of interested third parties applies in Prussia to estates in fee and
entailed estates, where, under the legal hypothesis, the
heirs of an estate in fee or of the entail are deprived of the
right to oppose the acceptance of drainage loans. (Sec.
32 of the law.) Where there is in general no means of overcoming the opposition, results are hardly to be expected.
In Prussia the officials can negotiate with the opposing
parties for this purpose. (Sec. 22, par. 4, of the law.)
But while the individual landholder, if he is greatly in
debt, can generally make no use of the credit of the
Landeskultur-Rentenbank, such undertakings are facilitated where a number of landholders are interested. By
forming a corporation they can avail themselves of the
credit of the Landeskultur-Rentenbank, for the obligations arising from membership in a public company or a
corporate body are matters of public law, and take
precedence over existing private debts. Therefore it is
provided in the laws of Prussia (sec. 33), and substantially, also, in Bavaria (art. 9), and Hesse (law of 1890,

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art. 3), that the Landeskultur-Rentenbank loans may be
furnished to city and country corporations and public
companies without mortgage guaranty. The legislation
of Saxony also leads to the same result. For in the latter
case all incomes to be paid to the Landeskultur-Rentenbank are entered in the register of landed property, with
the amount of private debts already incurred. The consent of the mortgage creditors is needed except for the
payment of such incomes as are earned on account of corporate adjustments of water courses or communal drainage and street works. (Law of 1861, sees. 4 and 5; law
of 1874, sec. 4.)
In so far as there is no legal prior lien to cover the
advance made by the Landeskultur-Rentenbank, special
provisions concerning the limits of security are needed.
In Prussia this limit is fixed at twenty-five times the income of the land tax, or one-half of the value of the real
estate, which is ascertained by the Landeskultur-Rentenbank on the basis of agricultural or other special estimates.
The increase of value of the real estate resulting from
the enterprise may be taken into account, with loans for
improvement proper. (For the purposes classified in sec.
1, par. 1, of the law.) Here the surety is considered as
sufficient, if the loan is less than three-fourths of the
original value, or one-half of the resulting total value of the
real estate. That amount of the loan which does not fall
within three-fourths of the present value, or within the
amount of twenty-five times the income of the land tax,
may only be paid out after the undertaking has been
systematically performed. Section 8 of the law is to be
referred to concerning supplementary loans for the com-

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pletion of undertakings. Except when necessary for
affording the prescribed surety, the Prussian borrower is
not required to give the loan the exclusive right over
earlier mortgages. This is prescribed, on the contrary, for
the borrowers in Saxony (law of 1861, art. 65), in Bavaria
(art. 7), and in Hesse (law of 1890, art. 4). The law of
Saxony does not provide any special limit of security, while
the other two States require security to one-half of the
value of the real estate to be mortgaged.
3. Special conditions on which credit is furnished.—Loans
will be made by the Landeskultur-Rentenbank either in
cash or in annuities (Rentenbriefen). They are not recallable by the lender—unless the debtor be negligent, or
the other legally established conditions of exceptional
revocability are present; on the other hand, the debtor has
a right to make extraordinary repayment, and he can perform such in cash or in annual payments. In Prussia the
debtor must pay at least one-half per cent annually to the
redemption fund. He must pay at least 4 per cent for
drainage loans, in so far as the special provisions of sections 11-31 of the law are applicable to them. Within these
limits the amount of amortization is established by agreement. In Saxony, by the law of 1888, the total payment of
the debtor is fixed at 4^3 per cent of the amount of the loan,
of which 1 yz per cent is used for redemption, so that the
debt is liquidated in thirty-eight years. In Bavaria at
least one-half per cent is to be paid to the sinking fund;
and in Hesse, formerly 1 per cent, but since the law of
1836, three-fourths per cent annually. The annual payments to be made by the debtor are enforced everywhere
by administrative compulsory proceedings.

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4. The control over the use of the money for a definite purpose and the maintenance of plans already carried out.—Provisions of this kind are required only with regard to the
undertakings of individual landholders. The guaranty
for the proper use of the money in the case of corporate and
communal undertakings lies in the constitution and organization of the borrowing institution; and so far as supervision is needed, this falls chiefly to the regular communal
supervising authority, and not to the Landeskultur-Rentenbank or its organs. In Prussia, if the credit be sought
by an individual business man, previous proof of his ability
to use it and of the profitableness of the undertaking is
expressly prescribed only in case the loan is desired for
drainage improvements, and the special proceedings apply
which are provided for this case by sections 10-31 of the law.
The inquiry is then made by a special commission under
the direction of the general authorities. The proof of the
profitableness of the improvement is taken for granted if
the borrower desires to avail himself of the legal provision
whereby the increase of value to be attained as a result of
the undertaking is to be taken into account in the estimate
to be made by the Landeskultur-Rentenbank. Aside from
these cases, the Landeskultur-Rentenbank is permitted to
apply the provisions of the statute concerning the method
of investing the loan. The Silesian statute prescribes, in
section 10, that in all cases the request for a loan shall include a comprehensive plan of the projected undertaking,
which shall give the time within which the undertaking is
to be completed, as well as an estimate of the costs prepared by an expert. The control over the systematic execution and regular maintenance of the improvements is

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very limited, according to the Prussian law. Aside from
those cases where, in the interest of the LandeskulturRentenbank itself, such a control is necessary, supervision of drainage loans according to this provision is
practiced only where a prior lien exists. (Sees. 7, 8, 9, 25,
and 52, par. 4, of the law; and sees. 21 and 22 of the
Silesian statute.) In Saxony all contracts for loans by
individual landowners are first of all examined by the
general commission with regard to the utility and profitableness of the undertaking. (Sec. 10 of the law of 1861.)
Systematic application of the funds is controlled by the
general commission, which is to deliver the loan to the borrower in installments corresponding to the actual progress
of the work. (Law of 1861, sec. 9.) In Bavaria, a plan
and estimate of costs are to be added to the request for
the loan, and the Landeskultur-Rentenbank commission,
which acts in the furnishing of the loan, investigates
the profitableness of the undertaking, if necessary, by
taking expert testimony. The use of the loan is legally
supervised, as well as the maintenance of the improvement,
to which the borrower is legally bound. (Arts. 3 and 13
of the law.) The Hessian law of 1890 does not contain
special provisions in this direction. The loan can be recalled from the debtor if he does not use it for the general
purposes for which loans may be furnished by the institution.
(3)

RESULTS

AND CRITICISM OF THE
RENTENBANKEN.

LANDESKULTUR-

The results of these institutions are satisfactory throughout, and are generally known in the German Middle States,
though but little in Prussia. Only four Prussian provinces

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have established the Landeskultur-Rentenbanken on tfie
basis of the legal grant, and of these the Silesian institution alone has reached a noteworthy stage.
This institution has made loans of about 3,500,000
marks during its eighteen years of existence; of these,
more than half have been to the owners of entailed estates,
for whom the Landeskultur-Rentenbank offers the advantage that the consent of the heirs and relatives is not
required. If the majority of the provinces have stood
aloof, this is to be traced in part to the fact that they regard the existing provincial auxiliary banks (Provinzialhilfskasse) and improvement credit (Meliorationkredit) as
sufficient. The statute of the provincial auxiliary bank
in the Rhine province has been so broadened as to
extend the activity of the institution to the purposes
indicated in the act of May 13, 1879. This, at any rate,
may be regarded as a result of the LandeskulturRentenbank law.
The development of the institution in Saxony and Bavaria makes a far more favorable showing. In Saxony, the
home of the institution, 18,855 loans had been made, with
a total of about 28,000,000 marks. These were distributed
as follows:
Marks.

53 associative improvements of water courses
2,443 agricultural drainage and irrigation
609 local drainage and street improvements

878,406
12, 486,067
14, 554, 706

In 1898 alone there was a capital investment of 2,640,336
marks, as follows:
Marks.

Improvement of water courses
Agricultural drainage and irrigation
Local drainage and street improvements

336

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8, 424
304, 374
2,327,538

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In Bavaria the agricultural income improvement commission {Landeskultur - Rentenkommission) had loaned
4,183,832 marks up to the end of 1898. These loans were
distributed among 611 improvement undertakings, as
follows:
I . — T H S BORROWERS: 1884-1898.

Improvement companies
Communal unions (Kommunalverbande)
Other borrowers
Total

Loans
made.

Borrowers.

185
292
i34

S.64S
298
i39

Amount.
Marks.
768,202
2.992,984
4,183,832

The total loans were distributed among 6,082 borrowers; the average loan was 688 marks.
I I . — P U R P O S E S OF T H E LOANS: 1884-1898.

407 drainage and irrigation undertakings
78 river improvements, etc
6 real estate
65 improvements of fields, etc
49 road building, to improve farm properties
6 reforesting communal waste areas
Total

Marks.
3, n o , 685
566, 319
12, 888
113, 290
364, 590
16, 060
4, 183,832

In Hesse the loans at the end of 1898-99 amounted to
2,266,600 marks, of which 921,100 marks were given to
forty communes and companies, and 1,345,500 marks to
individual borrowers.
The conclusion follows that the Iyandeskultur-Rentenbanken in their operation up to this time have fulfilled
only a part of what was expected of them. The difference
appearing between Prussia and the other German States
may be neglected when it comes to judging the whole
institution. For since the fundamental principles and
77267—10

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the conditions of credit of the Landeskultur-Rentenbanken in all states are in reality the same, the difference
in result is to be traced chiefly to the fact that arrangements for public welfare in a smaller State, with its
homogeneous conditions, are much easier to work out in
legislation than in a large State. Thus, for example, the
very fortunate manner and method by which in Saxony
the Landeskultur-Rentenbanken and the general commission have been brought into cooperation, can not be
imitated in Prussia without further development; because
in the latter State the Landeskultur-Rentenbanken are
provincial, and the general commissions are State institutions, and a general commission does not exist in each
province. The fundamental idea of the institution is
undoubtedly a sound and proper one. That larger results
have not been obtained may be traced in part to the lack
of familiarity with the law, which, like every innovation,
is only gradually accepted by the rural classes. It may,
however, be chiefly the security demanded from the
borrowers which prevents a general application of the
law. The heavy indebtedness already existing makes the
credit afforded by the Landeskultur-Rentenbank unattainable to a great part of the landholders. An extension
of the limits of the loan, so far as this is generally possible
without endangering the safety of the institution, would
not be sufficient to change this condition materially.
Therefore, the only remaining way is that already considered earlier by the legislature, of giving the demands
of the Landeskultur-Rentenbank the preference by law
over private debts, whether in general or for defined
and well-tested plans of agricultural improvement; e. g.,

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drainage. An interference of this kind in the rights
of the mortgage creditor can be justified, however, only
when full guaranty is given that material injury to
the interests of the creditor will not occur in the improvements to be made, that only profitable improvements will be undertaken, that the improvement is really
made with the money loaned, and is regularly maintained
after being made. The prerequisites for this, particularly
a corresponding organization of agricultural technique,
have not yet been realized, at least not in Prussia.
But attention must be drawn to the inconsistency of
the treatment of corporate and individual undertakings.
The laws assume the ability of public companies to discharge their liabilities, and therefore grant the credit of
the Landeskultur-Rentenbank to these companies without
further security. If, however, state supervision of public
companies can prevent misuse of the credit privilege which
would endanger the rights of the private mortgage creditor,
then this supervision ought to be extended to the demands
of individual landholders for improvement credit. If a
tract of i ,000 acres in need of drainage belongs to an individual landholder who is greatly in debt, then the Landeskultur-Rentenbank is inaccessible to him, and the improvement must be delayed. If, however, the same tract comes,
by division, into the hands of ten owners as deeply in debt,
then these can form a public drainage company, and the
mortgage creditor can not oppose the granting of a loan to
them by the Landeskultur-Rentenbank. This confusion
shows that legislation on the subject is still in process of
change, and has not yet been brought to a state entirely
free from objection.

339

VII.

THE GERMAN SAVINGS BANKS,
By Doctor SEIDEL.
[Article from the Zeitschrift fur die gesamte Staatswissenschaft,

(1)

1908, pp. 58-107.]

T H E ORIGIN AND HISTORICAL DEVELOPMENT OF SAVINGS BANKS.

The idea of establishing savings banks was, according
to Malarce, propounded in 1611 by the Frenchman
Hugues Delestre, who devised the "first plan of the
French Mont de Piete, consecrated to God, which was
presented to the Queen Regent, mother of the King and
the Kingdom." Every wage-earner was to be allowed to
make deposits which he might withdraw in whole or in
part, as his need dictated. The depositor was to receive
simple interest at the rate of 5.9 per cent, calculated
according to the length of time the money was deposited.
The repayments of deposits were to be made upon demand within a maximum period of two weeks. There
was also to be connected with the bank a life annuity
fund: "The Monts will receive money which they will
pay out as life annuities at the rate of 3.7 per cent." This
plan of Delestre, however, was never carried into execution.
The efforts of some philanthropists of Great Britain,
who had the common welfare at heart, resulted in the
further elaboration of this plan. Thus, in 1798, London
witnessed the establishment of a bank in the form of a
benevolent institution by a private company. In 1801 a

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similar bank was founded by Priscilla Wakefield in Tottenham, near London. The following year Lady Isabella
Douglass opened the Servants' Savings Bank in Bath,
while in 1810 a bank was established at Ruthwell, Scotland, by Henri Duncan for the purpose of mitigating
poverty. These became so prosperous that they led to
many imitations in England. The Edinburgh Savings
Bank was founded in 1814 by the Society for the Suppression of Beggary, and in 1815 at Southampton a silent
partnership (Stillorgari) began to cooperate with the First
Irish Bank (parochial bank).
In Germany the first savings banks were founded in
the eighteenth century as a result of the efforts which, in
the second half of that century, were directed toward the
reform of the North German poor laws. "The Ducal
Loan Bank" (Die Herzogliche Leihkasse) was established
in Brunswick in 1765. Hamburg followed with a savings
bank in 1778, which was the first to bear the name of
"savings bank" (Ersparungskasse).
A Versorgungsanstalt (charitable institution) which was organized in 1765
opened this bank as its "Ninth Independent. Bank"
(Neunte selbstandige Kasse).
It was for the express
purpose of profitably collecting small sums of money
from the lower classes of both sexes, such as servants,
day laborers, manual workers, sailors, etc., to whom an
opportunity was thus given to save a little of their
scanty earnings. At the outset it paid interest at the
rate of 3.5 per cent, then 4 per cent, then 3.5 per cent
again. It began to liquidate its affairs in 1814, but it
was not until 1823 that its doors were closed, without,
however, inflicting any loss on its participants.

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The name of savings bank (caisse d'epargne) was given
at the same time to a French insurance institution. In
1760 a society was organized aiming at the amelioration
of the conditions of the poor. In 1786 Lavoisier proposed
to the provincial assembly at Orleans the establishment
of a life annuity fund under the name of "Caisse
d'epargne du peuple," to be guaranteed by the Province.
This proposition was not accepted. But soon after, in
1791, the National Assembly gave its sanction to a tontine which, on Mirabeau's suggestion, was designated as
the " Bank of Savings and Benevolence " (Caisse d'epargne
et de bienfaisance). This institution was not a savings
bank in the modern sense of the word; but such a bank
was provided for in the law passed on the 16th of February, 1799 (24 plwvi&se an VII), which related to the
organization of the Bank of France. Under the head of
the business of the bank, this act stipulated that " a
deposits and savings bank be opened in which all sums
above 50 francs should be received, to be repaid at convenient periods. The bank should pay interest on these
deposits and issue certificates payable to the bearer or
his order." This stipulation, however, did not go into
effect.
This system of savings banks carried the day in Germany and abroad. Hamburg was followed in 1786 by
Oldenburg and in 1787 by Berne, Switzerland, where the
administration established a "servants' bank" (Dienstenkasse) with a non-interest-bearing capital of 40,000
livres; in their wake came Geneva, in 1789, with a private
institution; Kiel, in 1796; Gottingen and Altona, 1801;
Zurich, 1805; Lauf, in Switzerland, 1806. The Basel Loan

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Bank, which was established in 1792, branched out into a
savings bank in 1809; St. Gallen followed in 1811;
Schwyz, Aarau, and Neuchatel, in 1812; Karlsruhe,
Sleswick, Baden, and Philadelphia, 1816; Gliicksburg and
Lubeck, in 1817; Berlin, Stuttgart, Brieg, and Apenrade,
in 1818; Vienna, in 1819; Stockholm, in 1821; Venice, in
1822; Milan, in 1823, and so on.
Henceforth the extension of savings banks proceeded
rapidly. At first they were fostered by legislative and
administrative provisions, but their progress soon became
due primarily to the growth of commerce and the reforms
of the money and credit systems.
While in their origin most of the early savings banks,
particularly of those in Germany, are to be traced back to
the activity of philanthropically inclined individuals and
benevolent associations and must be regarded as purely
charitable institutions, their later development has proceeded on quite different lines. At the present day
they are being opened by municipal corporations, and
these assume the guarantee of the legal obligations of
savings banks. The larger municipalities, the pioneers
in this respect, were followed by smaller cities and commonwealths, boroughs, parishes, and villages, as well as
by larger communities, particularly by the districts
{Kreisen) and only exceptionally by associations and private persons.
It was owing to the district savings banks {Kassen der
Kreiskommunalverbande) that the savings-bank system
was advanced in Prussia. This was due to the fact that
the districts {Kreisen) had the advantage over the small
commonwealths in that they were in a more favorable

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position to offer the security which is legally demanded
from savings banks. The savings banks in the county
(Kreisstanden) of the district of Schleusingen, which were
established in 1831, must be regarded as the first district
savings banks. Those of the Schweidnitz district followed
in 1837; of the district of Heiligenstadt in 1838, and during
the period beginning with 1840 and ending with 1874
the district savings banks of Worbis, Nordhausen, Weissensee, Ziegenriick, Heiligenbeil, Prenzlau with its four
branches, Dramburg, Zielenzig, and Bielefeld were established. The real development of this kind of bank and
of state supervision, however, began only after the year
1850, when the National Economic Association {Landso-'
konomie-Kollegium), then headed by Herr von Beckedorff, recommended the extension of district savings banks.
The same recommendation was made by the Minister of
Agriculture in an official circular of the 27th of April,
1850. At that time the second chamber of national representatives began to consider the matter. The commission
which had been appointed to investigate the money and
credit institutions of the country also investigated the
conditions of the savings and loan banks. Its report was
published on the 8th of May, 1851, and was followed by the
ministerial decree of July 14 urging the establishment of
district savings banks. These measures were of the greatest significance for the further advancement of public
savings banks in Prussia, and greatly contributed to
the high rank which the latter hold at present.
The number of savings banks which existed in 1840
amounted to 94, and their deposits to 20,000,000 marks;
in 1850 there were 234 savings banks, with 54,000,000

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marks of deposits; and after the lapse of another decade
(i860) the number reached 471, with deposits amounting
to only 151,000,000 marks. But in 1875 there were
already 1,004 savings banks, with deposits of 1,112,000,000
marks; and in 1880, 1,190 savings banks, with 1,600,000,000
marks of deposits. And since then—
Savings
deposits.

Year.

Marks.
1902-

5,266,120,189

1903-

7,229,944,620

1904-

7,771.933.248

Of the 1,374 public savings banks in the year 1904,
717 were municipal, 423 district or Kreis-und Amtssparkassen, 228 country savings banks (Landgemeinde-Sparkassen), and 6 provincial and state savings banks. To
these are to be added 646 branches or subsidiary banks, as
well as 2,556 collecting or receiving offices, and 190 associations and private savings banks. There was, therefore, a total of 4,766 savings-bank offices in 1904. These
were distributed among 3,886 localities, which means
that those cities, villages, estates, or dwelling places which
formed a distinct part of a commonwealth were provided
with savings banks. There was a savings bank for every
73.52 square kilometers and 7,734 inhabitants.
The distribution of the savings banks among the separate provinces of Prussia in 1904 was as follows: In the
Rhineland, 245; Schleswig-Holstein, 193; Westphalia,
189; Hanover, 176; Silesia, 174; Saxony, 138; Brandenburg, 107; Hesse-Nassau, 83; Posen, 82, Pomerania, 82;
East Prussia, 45; West Prussia, 44; Berlin, 3 ; Hohenzollern, 1.

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Banking

The interest-bearing investments of the savings banks
amounted in 1904 to 8,136,230,000 marks:
Marks.

Municipal mortgages
2, 948, 700, 000
Country mortgages
1, 791, 680,000
Securities payable to bearer
2, 288, 970, 000
(a) Bonds of German Empire
152,410,000
(6) Prussian bonds
651,910,000
Promissory notes with security
14, 440, 000
Promissory notes without security
149, 590, 000
Bills
79, 600, 000
Loans on pledges (Lombards)
95, 360,000
Investments with commonwealths, public institutions, and
corporations
801, 110,000
Other investments
66, 780,000

Account must be taken of the fact that 411 of the
1,564 savings banks (including 190 associations and
private banks) have more than three-fourths of their
capital invested in mortgages.
Then there are the investments in securities payable
to bearer (Inhaberpapiere), which constitute 26.9 per
cent of the total investments. Unlike mortgages, securities can be easily disposed of; but the oscillation of
prices on the exchange renders them too speculative a
means for big investments unless the bank carries a
sufficiently heavy reserve fund. There are 208 banks, of
which 138 are private, which have no loans upon securities
at all, while 249 (including 4 private) have from 30 to 50
per cent of their total investments in securities, 61 (5
private) from 50 to 75 per cent, and 11 (6 private) over
75 per cent. The Berlin Savings Bank is one of the 5
public banks last designated, and the ratio of its investment in securities is 78.9 per cent, a ratio exceeded only
by that of a district bank recently established in Silesia
(93.6 per cent).

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The investments in promissory notes (Schuldscheine),
with or without security, are of less significance, since in
only 6 banks do they exceed 75 per cent, and in 8 their
rate oscillates from 50 to 75 per cent; in 29 banks, from
.30 to 50 per cent; in 56, from 20 to 30 per cent; while in
459 they are not even to be found.
Bills (Wechsel) nowhere form one-half of the total investment. In 5 banks they form from 30 to 50 per cent
of the total; in 19, from 20 to 30 per cent; in 49, from
10 to 20 per cent; the general average in the whole state
being only 0.98 per cent; 1,178—i. e., practically all the
banks—refuse to accept them. The investments in
pledges (Faustpfand) exceed one-half of the total investments in only 2 banks, and are nowhere over 75 per cent.
One hundred and thirty-two banks invested from 20
to 30 per cent, 27 from 30 to 50 per cent, 6 from 50 to
75 per cent, and 11 more than 75 per cent of their capital in other savings banks, public institutions, corporations, etc.
The reserve fund in all banks amounted to 515,686,147.69 marks, or 6.64 per cent of the total deposits.
Since the existence of the savings banks the common
interests of the security associations (Garantieverbande)
consumed 309,798,284.02 marks of the annual net earnings of the banks. The cost of management amounted,
in the year 1904, to 13,221,716.92 marks, or 0.17 per
cent of the deposits.
The other German Federal States show similar results.
According to investigations, the sum of the deposits in
all German (including Prussian) savings banks at the
beginning of 1880 amounted £0 2,500,000,000 marks, and

348

Date.

N u m b e r of
books.

Books
p e r 100
inhabitants.

Deposits
in
millions
of m a r k s .

Deposits
per
inhabitant.

9,773,103
IO,211,976

26. 96
27. 71

7, 2 2 9 . 9 4
7. 7 6 1 . 9 3

199.44
210.59

1, 6 8 l , 0 3 I

24.07

587.99

8 4 . 18

407,417
i6,694

5.83
. 24

58.14
596.18

85.34

2, 1 0 5 , 1 4 8

3 0 . 14

i. Prussia:
1903
1904

Total savings banks
2. B e l g i u m :
(a) G e n e r a l ( s t a t e ) s a v i n g s b a n k s
i, Postal bureaus
2. O t h e r p l a c e s

1903

(b) F o u r c i t y s a v i n g s b a n k s t o g e t h e r .

1. 17

3. D e n m a r k :
M a r . 1, 1903, t o

Total savings banks

M a r . 3 1 , 1904.
4

England:
Postal savings banks
Other savings banks

N o v . 20, 1 9 0 2 - 3 .

Total
Postal savings b a n k s
O t h e r savings b a n k s

N o v . 20, 1 9 0 3 - 4 .

Total
5. F r a n c e :
National savings b a n k s (postal)
Other savings b a n k s

1903

Total

863.58

1, 2 9 1 , 5 6 9

9,403,852

22. 19

1,689,617

3-99

11,093,469

26. 18

9 , 6 7 3 , 717
1,704,766

22. 61

3,026.12

3-98

1 , 0 6 6 . 53

70. 71
24.92

111,378,483

26.59

4,092.65

95.64

4,143,888
7,362,073

10. 64

894.37
2 , 5 5 0 . 22

22.95

18.80

14.91
5.38

695.48
1, 3 0 3 . 5 4

20.94
39.24

2, 9 8 1 . 16
1, 0 7 1 . 82

70.36
25-30
95.65

65.45

11,469,961

6. I t a l y :
Postal savings banks
Ordinary savings banks

1903

Total

4,951,971
1 , 7 8 8 , 167
6,740,138

6 0 . 18

7. N e t h e r l a n d s :
Postal savings b a n k s
Savings banks

1903

1,035,527
377,354

19.07
6.95

186.19
142.76

Total

34-28
26. 29
60.57

8. N o r w a y :
Savings banks
9. A u s t r i a :
Postal savings b a n k
Other savings b a n k s

1903
1904

742,912
766,375

32.46
33.32

392.71
410.78

171.60
178.61

1,694,702
3,464,715

6-34
12. 96

153-12

1903

3,713.27

5- 73
138.86

Total

3,866.39

10. R u s s i a :
Postal savings banks
Total savings banks

1904
1903

i,798,018

6. 72

167.23

6. 25

4,838,000

3.38

2,206.66

15-43

570,686
1,314, n o

10.93

6 1 . 29

1903.

25. 17

597-94

1 1 . 74
114.52

1904.

1 , 8 8 4 , 796
570,209

3 6 . 10
10. 84

659-23
62.34

484,834

2.44

907,136

4.56

44-86
1,295.80

65.16

1,340.66

67.42

11. S w e d e n :
Postal savings b a n k s
Other savings banks
Total
Postal savings banks

126.26
11.85

12. H u n g a r y :
Postal savings b a n k s
Other savings b a n k s

1903

Total

77267—10.

i,39i,97o

(To face page 349.)

2. 26

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Banking

to about 5,500,000,000 marks in 1892, while to-day the
deposits in the 2,800 German public savings banks consist in round numbers of 12,000,000,000 marks. There
are about 17,000,000 savings account books in use—that
is, 1 book for every 3 or 4 persons, and about 200 marks
of savings deposits for every inhabitant.
Since the wealth of the German people is estimated at
from 150,000,000,000 to 200,000,000,000 marks, that of
the German savings banks constitutes about 7 per cent
of this total.
With regard to the savings-bank system, Prussia ranks
foremost in the civilized world; and in this connection
the statistician Evert published the following interesting
figuresa for the years 1903 and 1904:
(2)

T H E CONCEPTION, PURPOSE, AND LEGAL NATURE OK
SAVINGS BANKS.

Savings banks are institutions for centralized management of deposited and interest-bearing sums of money.
Their purpose is to foster the economic instinct in the people by holding in security their surplus money and paying
interest upon it, and particularly to enable the lower classes
to increase their own property, and in times of prosperity,
lay up for a rainy day. The accumulation of enormous
sums of money from small savings, which would otherwise be spent, exerts a moral influence upon the population. They also assume the functions of credit institutions, which, like banks, are of importance in adjusting
on a small scale the demand for, and the supply of,
capital. Technically speaking, savings banks are deposit
a

Worterbuch der Volkswirthschaft,

349

Bd. II, Jena, 1907.

National

Monetary

Commission

banks, but they are radically distinct from all other
banking institutions in that they are not run primarily
for gain. Their purpose is rather exclusively humanitarian, striving as they do to advance the economic conditions of the middle and lower classes. This humanitarian mission of the savings banks is particularly emphasized in recent times, so much so that care is taken
that as considerable a part as possible of the accumulated
savings deposits be available as credit to those classes
that have made the deposits.
These economic functions of the savings banks are
stated in the statutes of most of the German savings
banks, or in the state regulations. Thus, the Prussian
savings-bank regulation of the 12th of December, 1838
(sec. 4), which is still in force, reads: " It must be remembered that the institution is intended primarily for the
needs of the poorer classes, in order to extend to them
the opportunity for depositing small savings. Any
deviation from this policy must be avoided/'
This humanitarian purpose, though not expressed in
the acts, is also found in the Motiven, or declarations, of
the recent laws, as, for example, in the savings-banks
acts of Baden and Alsace-Lorraine. (For Baden, ministerial decree of September 23, 1880.)
Quite recently the activity of the savings banks has
been subjected to severe criticism from this same humanitarian point of view; it was claimed, on the basis of
statistical data, that the savings banks were being transformed into deposit banks for the use of the middle
classes and the capitalists; that they neglected the interests of the small in favor of the big depositor, and that

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they were being managed principally for the sake of
profits.
This matter has been carefully looked into by Professor Rauchberg, of Prague, who presented the results
of his investigation in a treatise entitled, "The Savings
Bank Question" (Sparkassenfrage), which first appeared
in the Oesterreich Rundschau.
These are the questions raised in the treatise: (i) Were the savings banks
really losing sight of their original aim, and was that aim to
be impressed upon them only through state interference?
and (2) Which was the more expedient: To force them
back into the old rut, or let them develop in their newly
adopted course?
I shall first treat of the parts of his discussion with
which I agree in general. Other points which have already
been elucidated in the previous pages will be referred to
later.
The savings banks, Professor Rauchberg maintains, by
no means perform the function of an almshouse for those
proletarians who are in need of such an institution. This
is evident from the average deposit, which has been growing from year to year. But the objection made against
the savings banks on the ground that they are exclusively at the service of capitalist interests is by no means
valid. The classification of deposits according to the
amounts of individual deposits reveals the fact that, as
regards numbers, the small depositors are in the majority,
but that the greater part of the total is composed of
large deposits. Furthermore, this is not wholly a recent
development; it has existed for many years, and was
first brought to light by the general savings-bank statis-

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tics in 1882. The savings bank of Bohemia examined its
ledgers as far back as to 1830, and found that even in
1840—that is, before the enactment of the Austrian
savings-bank regulation—the greater part of the total
deposited consisted in amounts of more than 1,000 crowns.
The same is true of most of the other savings banks. The
attempt of the framers of the Austrian savings-bank regulation of 1844 to deny the right of the use of the savings
banks to "the opulent who could otherwise invest their
money profitably," convinced them that this provision
even at that early day was contrary to the actual existing conditions. The economic state of the country was
then chiefly that of a natural economy, there being no
thrifty and well-to-do working class, while the middle
class had to apply to the savings banks even more
than now, a measure to which they were compelled by
the violent convulsions of the public credit and by the
absolute lack of banks and mortgage-credit institutions.
The participation of large depositors is therefore not a
recent phase, but has always been one of the characteristic features of the Austrian as well as of the German
savings-bank system.
It is indeed true that, owing to the constantly increasing deposits of the wealthier classes, the average deposit
is swelled from year to year. This is not to be explained,
however, by the assumption that the number of "capitalist" depositors is on the increase, since, as a rule, the
average of new deposits is lower than the average of
the previous deposits. The cause lies rather in the additional deposits of those who already have bank accounts
and in the transfers of accrued interest to the deposit

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books. It is particularly to these transfers that we must
look for the multiplying factor. It is clear that the increase of the total deposits is due not to the alleged tendency of the banks to favor the " capitalist" interests,
but to the increment of capital among their old clients.
Moreover, thanks to the accrued interest, the repayments
of most savings banks generally exceed the deposits.
This is a sorry proof that the depositors of those savings
banks are either unable to make new savings or they no
longer trust them to the banks. There is therefore no
ground whatsoever to abuse the savings banks for their •
"capitalistic" tendencies. Besides, it is difficult to perceive in what respect the large depositors harm the small
ones, while, on the other hand, there is no doubt that
the greater the units of transaction the smaller the
coefficient of expense.
It is also claimed that the large deposits are unstable;
that they compel the savings banks to keep larger cash
reserves to make more short-time investments, which
yield a smaller revenue, and thus lower the interest rate
on the small savings deposits. This objection holds true
of those amounts of floating capital which enter the savings banks only incidentally at times of low interest in
other fields. Unwelcome deposits of this kind, however,
can be easily detected and rejected at any time, since
almost all savings banks are allowed by their statutes to
reject, or to request the withdrawal of, deposits. On the
whole, the larger depositors have shown themselves by
no means more unstable than the smaller ones. When
the Czechian agitation resulted in the run of 1903 on the
Bohemian savings bank, which was directed and managed
77267—10

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by Germans in Prague, the large depositors behaved with
great discretion. The repayments, which in the period
from the 20th of February to the 19th of March, 1903,
exceeded the deposits by 27,700,000 crowns, were made
mostly to lesser depositors. A close scrutiny of the oscillation of deposits reveals the fact that there is always a
counterbalance between the large and small deposits. At
times of economic prosperity wages rise, and small deposits are predominant, since the large capitalists then
find investments in commerce and industry more remunerative. Contrariwise, economic depression brings large
idle funds into the savings banks and checks the small
savings.
The large and small deposits represent, as it were, the
compensatory swings of a pendulum, that secure the regular movement of the savings-bank clock. The demand
for discrimination between the small and large depositors
by paying higher rates of interest to the former can be
supported only by socio-political considerations. " Glad
as I should be to have the small depositors favored in this
way," Professor Rauchberg remarks, "the habit of doing
business with 'the bearer' would be an obstacle." The
anonymous nature of the savings-bank book would enable
the larger depositors to obtain similar favors by distributing their deposits among several accounts. Yet this
anonymous nature of the savings-bank book is of such
sovereign importance that it can by no means be abandoned. Moreover, the savings banks would be put at a
disadvantage by less trustworthy competitors, as well as
by investors in securities, who would not equally discriminate in the interest of the small depositor. Professor

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Rauchberg is quite right in maintaining that the premium
policy of the savings bank is the most feasible expedient
for favoring the small depositor.
The nature of savings banks, as institutions created for
the public interest, explains why in most countries, and
particularly in Prussia and France, they are founded
chiefly or exclusively by commonwealths.
In some countries the banks are established by the
State itself, as is the case in Oldenburg, in the principality
of Lippe and Reuss j . L., in Brunswick, in Belgium, Luxemburg, Roumania, Servia, and Russia.
The postal savings banks have been introduced during
the last fifty years. In France these were state institutions, designated as national savings banks (caisses nationales d'epargne) to distinguish them from the banks
described above, which were called private savings banks
(caisses d'epargne privees). We shall subsequently discuss these banks, which now flourish to an important extent in European and non-European countries.
Savings banks must also be regarded as institutions
subject to public law (offentliches Recht). They can be
established only with the consent of the State, and their
business is run under regular state supervision. Their
constitutions vary either according to the specific nature
of their origin, or, in general, according to the administrative law of the particular State in which they exist. In
Germany they are only separate departments of the general wealth of public corporations, viz, of village communities, cities, districts, and similar commonwealths. In
other countries they are independent aggregates of
wealth, regarded as legal persons, and the right of pub-

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lie control is limited. This is, for example, the case in
Baden, "where the savings bank, which is guaranteed by
the community and which receives its statutes from the
State, is neither a private nor, inasmuch as its property
does not belong to the commonwealth, a public institution. It is rather a public institution vested with the
right of a legal person." The laws of the 25th of December, 1869, and of the 20th of August, 1893, relegate the
savings bank of the Wiesbaden Landesbank to a similar
position. The Alsace-Lorraine savings banks became independent public institutions with these same rights of a
legal person (Rechtsfahigkeif) by the enactment of the
law of the 14th of July, 1895 (supplemented by the law of
the 12th of May and the 14th of November, 1897). In
consenting to guarantee the savings bank, the commonwealth enters into the relations of a bondsman to his
debtor.
The general legal position in Prussia is as follows: The
nine old provinces are still subject to the regulation of
the 12th of December, 1838. The Government attempted
to apply the principles of this regulation to the other provinces, especially through the influence of standard statutes. The provisions of the regulation apply to public
savings banks only. The question, which of the savings
banks are to be considered, according to the Civil Code,
as public and magisterially indorsed savings banks, is one
belonging to national law (Landesrecht). (Motive zum
BGB. IV. S. 1114, Protokol IV', 5. 762 /.) Prussia recognizes as public savings banks those which are either conducted by a corporation which is approved by public law
or whose obligations are guaranteed by such a corpora-

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tion. (Ministerial decree of the 27th of July, 1900, Ministerial Bulletin, p. 255; of the 19th of October, 1898, ibid.,
p. 233; and of the 14th of November, 1899, ibid., p. 234.)
Unless otherwise provided, the public savings banks in
Prussia are social institutions and not legal persons. They
are subject to the general legal provisions of public control, and the same state authority supervises both the
corporation guaranteeing the savings banks—the guaranty union—and the savings bank founded by that union.
(Compare sec. 53 of the law defining the competence
of authorities (Zustandigkeitsgesetz), of the 1st of August,
1883.) Some writers maintain that, although a savings
bank is not a legal person, its funds are not the property
of the guaranty union; that these funds are composed of
the deposits of individuals, and must be repaid on their
demand. The guaranty unions, it is alleged, are the
managers, while the depositors are the owners of the
savings-bank funds, which, according to section 6 of the
savings-bank regulation, must be kept separate from the
other state (or district, etc.) accounts. This, however,
is not a sound assumption, for the provisions of the regulations, especially sections 3 and 8, which are cited in
support of this view, and which deal with the safety to be
afforded to the depositors and the taking of loans on the
part of the city, are provisions of public law. As such
they can not influence the fundamental conceptions of
private law. The depositors can not be the owners, because they do not form an association (Verein) or company (Gesellschaft) of any legal status whatever. Consequently there remains only the guaranty union as the
owner or the legal person. The deposit constitutes only

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a loan to the institution which is represented solely by the
guaranty union.
According to the provisions of public law, the right of
a legal person can be given to the public savings banks
only by an imperial decree. This applies also to those
associations (Zweckverband) which perform the function
of savings banks and are vested with the rights of public
corporations. (Sec. 128, L. G. O.)
But although in the prevailing opinion, which is in accordance with legal authority (decision of the imperial
court of the 25th of April 1892, " Savings banks," p.
234, judgment of the superior court of the 4th of July,
1904), the public savings banks in Prussia are not regarded as legal persons, yet in the business world they
are treated as such. For example, in the rubric of charges
the bank is designated as the plaintiff; it is also customary to name it as mortgagee, while in fact it is the
municipality that is the plaintiff or the creditor. It is,
therefore, more proper to have the municipality draw
up mortgages in its own name with a postscript " Savings
bank fund." (Decisions of the Kammergericht of the
12th of April, 1904, and July 4, 1904.)
In accord with this practice, a recent decision of the
imperial court of December 1, 1906, declared that
although municipal savings banks are not legal persons
they may be the legal representatives of the Commonwealth. The banks are nothing else than municipal
institutions, and their wealth is only a separately managed
fund of the total wealth of the community. This leads to
the conclusion that when action is brought by or against a
city (or other municipal) savings bank it must be considered

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as raised by or against the municipality in question. The
court of appeals erred, therefore, in refusing to uphold an
action against the municipal savings bank on the ground
that the defendant was incapable of acting as one of the
parties. The court erred also in its dissent from the
view that the "savings bank administration" should be
considered as the legal representative of the real defendant or municipality. The idea of regarding the burgomaster as the sole legal representative of the community
is too narrow and misconceives the nature of legal representation. It is erroneous to maintain that the legal
representation of an individual, against whom no proceedings can be instituted, and especially of a corporation,
must lie wholly in the hands of one person. Besides the
burgomaster or city magistrate, there may be other public officers performing specific functions and possessing
full right of legal representation. In our case the bank
administration is by far the most natural legal representative of the municipality.
3. T H E

DEPOSIT OF

MONEY

OF WARDS

AND

MINORS

(Milndelgeldern) IN SAVINGS BANKS.
Since the establishment, administration, and supervision of savings banks are matters of public law, the legal
provisions of Prussia, in compliance with article 99 of
the Statute of the Civil Code, remain unchanged, although
amendments may at any time be added (art. 218, ibid.).
As regards their business, the savings banks are subject
to the provisions of the Civil Code.
The provisions of section 808, as well as of section 1807,
paragraph 1, No. 5, and of sections 1809, 1810, of the Civil

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Code, concerning the deposit of the money of wards and
minors, are placed expressly without the sphere of national legislation by section 99 of the statute law.
Section 1807 of the Civil Code provides that money
of wards and minors can be deposited in a domestic public
savings bank, if the proper authority of the federal state
sanctions its acceptance of such deposits. According to
article 75, Section I, of the Prussian Executive Orders
{Ausfuhrungsgesetz) the grant of such qualifications is
to be issued by the president of the provincial council
with the concurrence of the president of the provincial
court. This privilege, however, can be revoked at any
time. The grant and the revocation are to be published
in the official newspaper.
The essential prerequisite of the bank applying for the
right to accept the money of wards and minors consists
in that it must be a public bank. The question as to
which savings banks are to be regarded as public is to be
decided by national law, since, apart from the provisions
of section 808 of the Civil Code concerning credentials
{Legitimationspapier), and the provisions of the Civil
Code relating to the deposit of trust funds, article 99 of
the law of the Civil Code stipulates that the provisions
of national law remain unaffected. There is no doubt
that, according to the savings bank regulation of the
12th of December, 1838, only those are to be considered
as public savings banks which are guaranteed by a quasipublic association (Verband des offentlichen Rechts), i. e.,
municipal savings banks exclusively. This view has been
supported by the minister of the interior. Nevertheless,
in speaking of the minutes of the second commission for

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the revision of the Civil Code, contained in volume 4, page
763, Mr. Schneider a maintains that this practice does
not take into consideration the question whether the
imperial law might proceed beyond these limits and
include as public those savings banks which have an
unlimited membership, as, for instance, the cooperative
societies (Genossenschaft) which are open to new members.
The second prerequisite consists in the common grant
which must be issued by the presidents of both the provincial council and the provincial court. This is prescribed
because of the different points which must be carefully
considered in the selection of the proper bank. The
further provision, that this privilege once conceded can
be revoked at any time, is one not overlooked by the
Civil Code. Such a stipulation is necessary in view of the
fact that the conditions which favor the extension of the
grant may at some time undergo a radical change. In
accordance with this principle, the above-mentioned
ministerial decree urgently insists that, in case a bank
is rendered unfit to accept deposits of the money of wards
and minors, the grant must be recalled by the presidents
of the designated institutions. The grant as well as its
recall goes into effect only after announcement in the
official newspaper.
Thorough and careful investigation of the conditions
of the bank applying for a grant must be made. It is
my opinion that the greatest attention must be paid
to the business administration of the bank, and its solo Schneider, Das Biirgerliche Gesetzbuch und seine Nebengesetze nach ihrer
Wirkung
im Geschaftsbereiche der ofjentlichen Sparkassen,
Hanover,
1899, s. 10.

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vency. Significance must be attached particularly to the
nature of the audit system, to the methods of checking
the accounts, etc., as well as to the question whether the
bank is connected with the provincial or district branch
(Unterverband) of the German Savings Bank Association
(Sparkassenverband). The revision of books and accounts
periodically undertaken by the latter undoubtedly furnishes greater assurance of regularity of management,
and, therefore, of solvency,
If the latter condition is complied with, there is no
ground, in my judgment, for withholding from the "savings bank the right to accept money of wards and minors.
For the municipality is always the chief factor in the
security of the savings bank, and it is quite evident that
by leaving the matter of proper qualifications to the judgment of the authorities, the legislator intended that the
above-mentioned condition of guaranteeing the property
of wards and minors should be sufficient for granting to
public savings banks the right of receiving such deposits.
It would be against the ratio legis were the provision in
question to be used as a means of imposing on the savings
banks duties which are perhaps desirable and expedient,
but which can not legally be demanded, since I do not
believe that the state should have the power of unlimited
interference with the rights of the savings-bank administration. No rigid rule, however, can be laid down, since
the conditions in individual savings banks are exceedingly
various and complex. In the natural competition of
these banks with cooperative societies {Genossenschafteri)
and other institutions, the situation of the former became
precarious. But the deposits must be secure under any

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circumstances, so that, as far as can be foreseen, there
should be no need of resorting to the Guarantee Communalverband. If these requirements are satisfactorily
fulfilled, no bank can be deprived of the right of accepting
the deposits of wards and minors. It has been suggested
that the grant should be—as in a few cases it was—issued
only upon the stipulation of the altered bank statutes
that the net earnings should be used solely in the interests
of the lower classes, i. e., for socio-political ends. This
measure, however, overshoots the mark, and is contrary
to the spirit of the law.
Provisions similar to the Prussian executive order of
the Civil Code were inserted in the statutes of other
German federal States. Article 109 of the Bavarian
executive orders provides that ''minors can make savings deposits * * * in a public savings bank * * *
without the consent of their legal representative.'' Section 36 of the Saxon executive orders reads: "According
to section 1807, paragraph 1, No. 5, of the Civil Code,
those public savings banks are qualified to receive deposits of the funds of wards and minors whose regulations have been approved by the Minister of the Interior,
and hereafter the minister's approval of the regulations
of a public savings bank ipso facto renders the latter
qualified to receive deposits of the money of wards and
minors. The Minister of the Interior can at any time
recall his decision." Finally, the executive order stipulates in article 33, paragraph 2: " I t lies within the competence of the Minister of Justice to designate those
public savings banks which are qualified to receive deposits
of the money of wards and minors according to section

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1807, paragraph 1, No. 5, of the Civil Code." This provision was later simplified in section 63c of the regulations
of the 6th of September, 1906: ''The Baden savings banks
which are guaranteed by the municipalities and for which
the law of the 9th of April, 1880, makes provision, are
qualified to receive deposits of the money of wards and
minors/'
The following states have enacted similar provisions:
Hesse (art. 125 of the law concerning the execution of
the Civil Code, of the 17th of July, 1899), MecklenburgSchwerin (sec. 232 of the 9th of April, 1899), MecklenburgStrelitz (sec. 230, V. 0., of the 9th of April, 1899), SaxeWeimar (sec. 244 of the executive orders of the Civil Code,
of the 5th of April, 1899), Oldenburg (sec. 23 of the executive orders of the Civil Code, of the 15th of May, 1899),
Brunswick (sec. 102 of the executive orders of the Civil
Code, of the 12th of June, 1899), Saxe-Meiningen (art. 28
of the executive orders of the Civil Code, of the 9th of
August, 1899), Saxe-Altenburg (sec. 125 of the executive
orders of the Civil Code, of the 4th of May, 1899), SaxeKoburg-Gotha (art. 50, sec. 3, of the executive orders of
the Civil Code, of the 20th of November, 1899), Hamburg
(sec. 73 of the executive orders of the Civil Code, of the
14th of July, 1899), Alsace-Lorraine (sec. 142, No. 2, of the
executive orders of the Civil Code, of the 17th of April,
1899).
4. PRIVATE SAVINGS BANKS.

In addition to the public savings banks, there are in
Prussia numerous private savings banks—that is, savings
banks whose obligations are not guaranteed by any

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quasi-public corporation. As independent business companies, they are subject to the general supervision which
is exercised over private companies, but not to special
state supervision. The provision of the savings bank
regulations and laws are, therefore, not applicable to
private savings banks, except to those which, complying
with section 22 of the Civil Code, and with the special
statute (Munstersatzung) of state supervision, are subject to the provisions of the regulation of 1838 (Ministerial
decree of the 23d of May, 1900).
Private savings banks owe their origin chiefly to mutual-benefit associations (Gemeinniitzige Vereine) or to
private individuals. Under this head are classed the
factory savings banks (Fabriksparkassen) founded for
the use of the factory or of any large business house.
These banks are for the most part established by the
employers themselves in order to encourage economy
among their workers, to bring their interests into more
intimate relation with those of the enterprise, and thus
to advance the latter. Frequently, however, these banks
are instituted by workingmen themselves and are managed without the participation of entrepreneurs—as, for
example, the so-called Laborers' Savings Unions or the
Union Savings Banks (Arbeitersparvereine or Vereinssparkassen). According to their special functions, these
institutions are known as rent, endowment, old-age, etc.,
savings banks. The school and children's savings banks,
though of a private nature, are closely connected with the
public savings banks. These we shall consider separately.
Most of the Italian savings banks have been developed
by mutual benefit associations (Gemeinniitzige Vereine),

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whose members provided guarantee certificates (Garantiescheine) and served without compensation. The shares
(Aktieri) issued by them are constantly redeemed. The
reserve fund serves as a guaranty.
"The First Austrian Savings Bank" (Erste Osterreichische Sparkasse) was established in 1819 in Vienna, by
an association (Verein) the members of which were
regarded either as the founders or as the patrons, according to their respective contributions, ranging from 300 to
100 florins minimum, to the security fund. Every member was pledged to cooperate in forwarding the purpose
of the association.
In Switzerland the savings banks are for the most part
private enterprises of stock companies, associations, etc.,
though, of course, there are other institutions which are
guaranteed by the municipalities or by the State.
After the enactment of the provisions of the Civil Code
in Prussia, a number of private savings banks submitted
themselves to state supervision, and thereby gained legal
competence. A special statute (Mustersatzung) was
drawn up for these banks in 1899 by the Minister of the
Interior. Such statutes exist also for the public savings.
banks. They were framed as a result of a consultation
with the provincial savings-bank associations and passed
by the lord lieutenant (Oberprdsident) with the authority
of the Minister of the Interior. These statutes, which are
substantially the same for all provinces, provide for the
proper organization and management of the savings
banks, for state supervision, as well as for the legal relations between the depositors and the savings banks. In

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Silesia there is a special statute for each administrative
district, whereas Hesse-Nassau has none at all.
5. ECONOMIC AND SOCIO-POUTICAIV SIGNIFICANCE OF
SAVINGS BANKS.

Although the origin of savings banks may be traced
back to about a century and a half ago, their great economic significance has attained general and unquestionable recognition only during the last few decades. Even
as late as the middle of the nineteenth century, the Times
in England and the National in France took issue against
the savings banks. The objections against them were
that they tended to raise the standard of life of the depositor even when his savings were not adequate to secure
him a higher position; that they loosened the bond between
the creditor and the debtor, and thus fostered individualism; that they depressed credit and withdrew capital from
useful enterprises; and, finally, that they did not ameliorate the conditions of the poor, who must first be given the
means to save.
Recently, however, the idea has become quite universal
that individual saving is an important remedy for social
evils (Schaden) and a quite indispensable virtue in economic life. With the exception of those who oppose
saving as a matter of principle—or to give it in the words
of an international labor assembly in Marseilles, "The
worker who saves is a traitor''—the governments and the
political parties of all civilized states fully agree that the
encouragement of thrift is one of the chief economic functions of the State, and is one of its best means of alleviating
poverty, of augmenting the wealth of the vast lower

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strata of the population, and of securing the economic
independence of the greatest possible number. Saving
and its encouragement are effective in averting the growth
of social democracy. The practice of self-denial and the
possession of savings exert a favorable influence on the
individual and protect him from communistic ideas.
Economy is as consciously aimed at in the sphere of consumption as in that of production. In this lies the enormous significance of saving, which must be regarded as
the beginning of economic civilization. As long as man
lives, in the strict sense of the word, from hand to mouth,
and does not provide for the next day, he finds himself
retrograding economically, while, on the other hand, the
more the individual allows his economic activities to be
influenced by considerations of the future the higher
does he stand on the ladder of economic civilization. In
his study on "Thrift," Domela Nieuwehuis shows very
aptly that the great historical significance of the transition
from the hunting and fishing stage to that of agriculture
consists for the most part in the fact that, owing to the
advantage of the long period between sowing and harvest
over hunting and fishing, where the exertion is followed
by immediate enjoyment, agriculture leads to prudence
and economy.
Although saving must be considered a good means for
mitigating poverty, the meagre sums that can be laid
aside are in general inadequate to afford sufficient aid
in case of need, of sickness, or of old age. At this
point may enter the various forms of life-insurance institutions, which in reality pursue the same purpose of saving.
The German State has recently pursued this line of

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activity by compelling the workman to insure himself
against disability, old age, sickness, and accident. So
far, this state compulsion has had as little effect on the
deposits of the savings banks as similar attempts of the
English fraternal societies and trade unions. That the
latter did not restrict the deposits of the savings banks
has become evident from the steady development of the
English postal savings banks.
Like the savings banks, the cooperative societies (Genossenschaften) have greatly contributed to the encouragement
and the progress of saving, though this end was regarded
by them as secondary to the availability of credit which
the accumulation of capital affords.
We have seen wherein lies the economic significance of
the savings banks. But the question as to how far the
banks are interested in that phase must be deferred to a
later occasion.
6. SAVINGS BANKS AND INSURANCE.

Insurance and savings banks, as indicated above, pursue two similar ends: The accumulation of capital for the
purpose of redeeming losses or of securing economic subsistence. We have already shown the enormous development of the savings banks since the second half of the eighteenth century. The economic importance of insurance
institutions is not less. The latter are much older than
savings banks. Their first traces are to be found among
the Romans, in the associations of persons of the lower
classes {collegia temniorum), which, in return for the
initiation and monthly fees, paid to the survivors of their
members a certain burial insurance. Later the system
77267—10

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expanded in various economic ways and has been steadily
progressing. In this connection may be noted the
recent foundation of a German bank which is based on
principles of mutual benefit, namely, "The People's and
Pensions Insurance Bank" at Diisseldorf (Volks und
Pensionsversicherungsbank), whose insurance premiums
will be lower than those of other banks which were established as business associations.
Of all kinds of insurance, life insurance in the form of
capital insurance (Kapitalversicherung) payable in the
case of death, or at the end of a certain period, is in a large
measure identical in purpose with savings banks. The
accumulation of small savings, the annual premiums, provide sufficient capital for security against diminutions in
income, which may occur with a decreasing or lost earning
capacity, or as a result of the death of the supporter of the
family. Insurance capital may also be used to secure and
improve the economic conditions of more than one person.05
This form of saving contains an element of compulsion
and has a great educational value, because the material
issue of the insurance, i. e., the realization of the capital
designated in the policy, is attained only after a long
series of savings—that is, after the regular payments of the
annual premiums. If the policy holder does not pay the
premiums—that is, if he ceases to save—he suffers losses
and does not attain his object. The paid-up premiums
either lapse in favor of the insurance company, and the
insurance contract becomes void, or the insurance is maintained for an amount smaller than the original one, the
oSee " Die Sparkasse,"

1907, No. 601, p . 139, etc.

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so-called "reduced policy"; or else the paid-up premiums
are returned to the policy holder. In none of these cases,
however, is the real purpose of the insurance ever attained.
Owing to its compulsory method, a life insurance institution is characterized as a compulsory savings bank, and
this same compulsory feature makes it superior to savings
banks. At the same time insurance grants greater protection to the individual, for not only does it, like the savings
banks, return the money received together with the accrued
interest, but it also assumes the risk of the death of the
policy holder before his premiums cover the amount of
his insurance. For the company pays the full insured
amount, notwithstanding the shortness of the time that the
policy has been held by the deceased. The prompt payments of premiums—that is, the regular savings—afford,
therefore, greater assurance of the attainment of the purpose of saving than the savings banks. The latter assume
no risk of the premature death of the depositor, and repay
only the actual deposits and the accrued interest.
On the other hand, mere savings in the savings banks
may have undeniable advantages. Beneficial as the feature of compulsory saving connected with life insurance
may be for certain individuals, it renders saving more
difficult and may become very burdensome under certain
conditions; since, in order to prevent loss, the premium
must be paid despite any adverse turn in financial circumstances of the policy holder. The latter may thus be
compelled to inflict privations upon himself and his family,
and sometimes even to borrow money at high interest
in order to pay the premium. Furthermore, he may, in

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spite of all efforts, be compelled to give up the insurance,
or to be satisfied with a reduction of the policy, and thus'
not completely attain the end desired. Finally, insurance
is rendered much more difficult for those who are advanced
in years, because of the necessity they are under of paying
very high premiums; and again insurance is sometimes
absolutely denied to persons in an ill state of health. It
is such inconveniences as these which make the possessors
of small capital prefer the savings bank. The person of
limited means is reluctant to tie up his savings completely,
and, in case of emergency, submit to the necessity of borrowing on his policy at a high rate of interest, in order to
pay his premium. It is for this reason alone that the
savings banks are particularly preferred, since numerous observations show that the rate of interest paid by
banks has no attraction for the small depositors, in whose
interest the savings banks were chiefly created.
In an article on "Savings Banks and Life Insurance,"
contained in No. 601 of the Sparkasse (volume of 1907),
the question was raised as to what role was to be played
by the life insurance institutions in the apparently favorable development of savings banks. The conclusion arrived at was that the former were not to be relegated
to the background. Savings banks and life-insurance
institutions do not mutually exclude one another; each
have their own peculiar advantages, and there is room for
both. The article brought to light the fact that, notwithstanding the enormous growth of savings banks, life insurance has also developed and is continuing to advance.
The amount of the capital-insurance policies (Kapital-

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versicherungeri) of the German life-insurance companies
at the end of 1904 was as follows:
Marks.

27 stock companies
18 mutual companies

4,397,742,289
3,940,020,439

Total

8,337,762,798

Of this sum 92.2 per cent was insurance payable at
death and 6.8 per cent endowment insurance. To this
capital insurance, which is composed of larger sums, there
is to be added 842,079,240 marks of the so-called " people's insurance''—that is, the policies for smaller sums—
and, further, 270,004,138 marks for insurance in the military service, and also an amount of 18,039,439 marks of
annual income-insurance policies (Rentenversicherung).
To the insurance carried on by large companies is to be
further added the insurance managed by the "small mutual insurance associations"—that is, by the numerous
Versorgungskassen, viz, the death, endowment, pension,
widows', sickness, and similar insurance institutions.
There are about 4,000 of these offices in Prussia alone, and
about 2,000,000 persons insured. The property of the
companies amounts to about 59 and a half million marks;
the value of the outstanding life policies to over 311 million
marks. Finally, in addition to this private insurance,
which rests on free compact, there is in Germany the compulsory old-age, invalid, accident, and sickness insurance
institutions, whose wealth at the end of 1904 amounted to
1,160,405,468.44 marks, and the number of insured persons to 13,756,400.
It was these statistical facts that led the author of the
above-mentioned article to the conclusion that savings

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banks and insurance companies are not mutually antagonistic in performing their very important social
functions. This conclusion can, I think, be extended
further, both institutions supplementing one another,
so that the public savings banks may be brought into
alliance with the insurance companies, in order that one
institution may support and further the activity of the
other. In accord with this idea it has been proposed to
make the savings banks the agents of national insurance.
Such a combination of the savings bank and insurance
systems, to be specially undertaken in the form of an oldage and invalid savings bank, as a first step toward general national insurance, has been recently propounded in a
very practical manner by the official of the First Austrian
Savings Bank, Prof. Robert Mully von Oppenried, of the
Gremial Commercial School of the Vienna Merchants' Association.
According to the proposed system, the deposits which
are made in the savings banks at convenient times and in
convenient amounts, shall be at the disposal of the depositor at any time—in case of death to be repaid to his
heirs—while the accumulating interest on the deposits at
the rate of 3 ^ per cent will form a surprisingly favorable
old-age income, which can be withdrawn sooner or later.
An old-age income may be secured even if the depositor
keeps his fund in the bank for only three months, so that
a complete consumption of deposits once made becomes
impossible. In this way provision may be made not only
for old age, but also for all the other vicissitudes of life.
The interest on the deposits is to be the premium, so to
speak, by which a laborer, small handworker, etc.,secures

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for himself a pension for old age, or even before old age
in case of premature disability, as well as a fund on which
he can draw in times of need.
As was already observed, the small depositors generally
attach little weight to the interest paid. They do not save
20 marks in order to receive 70 pfennigs interest at the
end of a year, but solely because they realize that eventually they may be in need of the money. They consider the
savings banks merely as trustworthy custodians of their
money. Now, according to Prof. Mully von Oppenried, if
the interest be left with the bank till the approach of old
age—assuming it to be at the age of 60—the results of the
saved pfennigs, though depending upon the age of the
depositor and the sum deposited, would be astonishingly
favorable. Professor von Oppenried constructed a table
of deposits of 100 crowns each, which technically represented double insurance, i. e., income insurance and 100crown death-insurance policies.
Assuming the interest at the rate of 4 per cent to be
permanently foregone by the depositor, Table I shows that
for a deposit of 100 crowns, made by a person at the age
of 50 years, an annual income of 9.14 crowns will be paid
to him after his sixtieth year throughout the remainder of
all his life. A person of 30 years of age will secure an annual income of 33.29 crowns; a 10-year-old child, an income of 95.9 crowns. According to Table II ( 3 ^ per cent)
a depositor of 50 years of age will, after his sixtieth year,
receive annually 7.35 crowns; a person 30 years old, 23.43
crowns; a 10-year-old child, 59.63 crowns. Later deposits increase the capital and income according to the
actual age of the depositor. It is, of course, understood

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that the capital, as well as the income, diminishes by withdrawals; but the latter can never be completely consumed
if a deposit has been at least three months in the bank.
The small interest which accrued during that short period
will, after the sixtieth year has been reached, be the permanent source of income.
According to Table II, the acquired income can be drawn
in correspondingly smaller sums, as invalid income, before
the sixtieth year, or in significantly larger amounts if
postponed until after the sixtieth year.
A person who had saved enough to secure at his sixtieth
year an income of i ,000 crowns may, in lieu of this, draw
after his fifty-sixth year annually 420.60 crowns, i. e.,
42.06 per cent, or, if he waits till his seventieth year, an
annual income of 3,280.7 crowns, i. e., 328.07 per cent of
the total sum. It must be admitted that this is a clear
and simple form of savings, and that the income of accumulated interest tends to encourage thrift and economy.
Concerning the methods of these income savings banks,
the author suggests that an account be opened with the
depositor at his first deposit, and a deposit book made out,
stating his full name and the place and date of his birth;
these facts are to be certified by some sort of document at
the time of making the first deposit.
In this book, which contains capital and income columns
(except for the income column, the book is quite similar to
the ordinary savings book), the deposits and withdrawals
are entered. The interest is neither capitalized for the
holder of the account, nor paid out, but is transferred to or
deducted from the income column, which presents the
mathematical probability of the income beginning with

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the sixtieth year, calculated in Table I, according to the
actual age of the holder of the account at the time of the
deposit or its withdrawal.
Since in this scheme the insurance premiums are not
composed of the deposited capital, but of the interest on
that capital, and since in reality the interest and the
income to be received by the depositor after his sixtieth
year are at par, Prof. Mully von Oppenried sees no reason
why withdrawls of deposits should not be allowed. On
the contrary, he would favor them as much as possible, in
order to encourage deposits. The possibility of withdrawing the money, he believes, " will render the means of
life insurance accessible not, as formerly, only to the wellto-do, but also to the smallest depositors. The latter
can not devote their savings to a definite purpose, no
matter how commendable, but must have them at their
disposal in case of need."
According to these propositions and calculations, an
alliance of the savings banks with life insurance institutions would become possible and practicable. The question as to how this plan would be put into operation by the
German public savings banks and the private insurance
companies, would require a special examination in all its
details. It would be particularly advantageous, if the plan
were adopted by the above-mentioned German Vereinsversicherungsbank, which was established on principles
of mutual benefit. Since its insurance premiums would
be especially low, the policy holder would obtain a higher
income in a shorter period of time than he could obtain
from other insurance companies which have greater

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expenses and are, therefore, forced to demand higher
payments.
Mention might also be made of the bill which was suggested by the plan of Mully von Oppenried, and which
was introduced by the Austrian deputy Stein and his
associates, for the purpose of connecting a general income
insurance institution with the postal savings banks.
Furthermore, similar institutions aiming at the combination of savings banks and insurance have already been
established, viz, the first General Association of Official
Employees (Allgemeiner Beamptenverein) of the AustroHungarian Monarchy; the ''Lower-Austrian Life, Income,
and Property Insurance Institution;" the "Royal Saxon
Old Age Income Bank" (Koniglich sachsische A ItersRentenbank), in Dresden, etc.
The association of the Belgium savings bank (caisse
generate d'epargne et de retraites) with the insurance
institutions goes so far that the law of the 9th of August,
1889, extends to the bank the privilege of entering into
life insurance compacts with laborers, and of pledging the
repayment of the money after a definite lapse of time,
or else, in the event of death, before that period.
7. PRACTICAL ARRANGEMENTS (Einrichtung) OF SAVINGS
BANKS.

In order to achieve their ends, savings banks must be
established in such wise that (1) they render the opportunity for saving as easy as possible; (2) that they encourage savings; and (3) that these savings be secure.
Next in importance are the records of deposits and
withdrawals, their form and legal right. Each depositor

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must be provided with not more than one savings-bank
book, in which the deposits are entered, the interest computations added, and the withdrawals deducted. There
are also deposit coupons (Einlagescheine), which, when
cut out of the book, can be easily identified if matched
with the stub (this is the practice in Jever). The depositor must sign his name on the cover of the book.
The minimum amount which may be received as a
deposit and upon which interest is paid is to be fixed as
low as possible, in order that the purpose of the savings
bank may be perfectly fulfilled. In Germany it is ordinarily fixed at i mark and in France at i franc. In order
to afford opportunity for the deposit of small sums, savings stamps and savings-stamp books have been introduced. Stamps of 10, or even of 5 pfennigs, are sold in
numerous and specified places, which are designated as
" pfennig" or "groschen" savings banks, corresponding
to the English "penny savings banks." These stamps
are to be attached to the stamp book, which is furnished
without charge and is provided with a definite number
of blank places. After all the blanks are filled the stamp
book is either exchanged by the savings bank for a savings-bank book, or the amount is entered in the book
already issued, and interest is calculated from that date.
The pfennig savings banks are merely collecting offices
for the savings banks proper. They may or may not be
opened by the latter. In Germany their formation was
begun in Darmstadt by the merchant, W. Schwab, who
founded a Pfennig Sparkasse in 1880 at his own risk and
independently of the local savings bank. During the

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first year 48,000 and the second year 58,000 marks were
taken in. Since 1881 the local savings bank (Ortsparkasse) of Burgstadt, Saxony, kept stamps for sale in a
number of places, and issued savings-stamp books free
of charge. Other savings banks soon imitated this plan
and began to issue 50-pfennig and even more valuable
stamps. The introduction of this system in the public
savings banks gradually banished the private pfennig
savings banks.
According to the Prussian regulation, the maximum
amount of deposit is to be defined by the statutes of the
bank and not by the law, in order that "the special conditions of the locality" may be taken into consideration
by the guaranty association. In case too wide a margin
may imperil the bank or the guaranty association, it is
the business of the supervising authority, or of the authority approving the statutes, to institute such changes as
they may deem necessary.
The guaranty association itself, according to the Prussian ministerial decree of the 4th of October, 1892, is
allowed a larger maximum deposit than other depositors.
But the savings banks reserve the right to reject such
deposits, or to give notice of their withdrawal within a
definite interval.
The payment of interest begins after a period of time
variously determined upon, mostly after the first of the
following month; or, if the money was deposited before
the 15th, after the 15th of the same month. Similarly,
on withdrawal, the interest ceases on the 1st or the 15th.
There are banks, however, which begin to calculate the

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interest from the day of the deposit. At the expiration
of a year, the interest which has meanwhile accrued and
has not been withdrawn, is ordinarily transferred to the
capital, and in its turn begins to yield interest. Deposits
exceeding a certain amount bear a lower rate of interest.
This is done with the view of encouraging small deposits
as much as possible and of restricting the use of the bank
by the well-to-do. For the same reason, some banks offer
premiums, besides the interest, to persons belonging to
certain classes, as handworkers, servants, etc. These are
the so-called premium savings banks (Prdmiensparkassen).
Again, certain advantages are offered if regular minimum
deposits be made within a stated time. There are various
other devices in vogue, all tending to the same purpose.
The chief object of the premium is to induce saving.
Thus, for example, Prince von Stolber-Wernigerode, of
the Wernigerode and Ilsenburg savings banks, gives a
premium of 6 marks at the end of each year to servants.
This ground for awarding premiums is often combined with
others. Thus, since 1882, the savings bank of the district
of Teltow distributes 3 per cent of its surplus interest as
savings premiums (up to 30 marks in an individual case)
to servants who have served with the same master for
the last five years, and have had deposits in the district
savings bank. The parish savings and loan bank (Sparund Leihkasse) of the community of Angeln presents, out
of its surplus, a savings-bank book with a deposit of 10
marks to every child of the parish that is confirmed, on
condition that within the next two years an equal sum
shall be deposited from its own savings.

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A further development of premium savings banks is
shown by the old-age savings banks. The principle is as
follows: A part (usually from one-fourth to one-half of
the interest-bearing deposit of the saver, is transferred to
a special account; the accrued interest on this part is annually increased by additional sums of the surplus of the
savings banks. This deposit is regarded as savings until
the owner reaches a certain definite age (ordinarily 55
years). In this manner, the purpose of providing for old
age is more easily attained than by the simple premium
system. As a rule, only deposits of laborers, servants,
and commercial and industrial clerks are accepted by the
old-age savings banks.
The old-age savings departments have so far found
relatively little adaptation in the public savings banks.
For the most part they remain benevolent institutions,
which large industries establish for their laborers as factory or union savings banks, although some city savings
banks, as, for example, Breslau and Frankfort-on-theMain, have also introduced them. It is desirable, however, that for the benefit of their depositors, the rural and
the town banks should develop this useful institution on
broader lines. The objection advanced by the management that the business of the bank must have reached a
certain stage before it can sacrifice some of its surplus
> without endangering its solvency, applies naturally in
the same degree to the simple premium banks.
In view of the elasticity of the market interest rate, the
Prussian savings-banks regulations made no provisions
concerning the amount of interest to be paid on deposits,

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but laid down general principles. According to the latter,
the interest rate is to be fixed so that:
(a) The interest and the compound interest on the deposits shall be covered by the interest which the savings
bank realizes from its capital; and
(b) Above the interest to be paid to the depositors, the
bank shall have a surplus to defray the cost of management, and the loss of interest, entailed by holding
in reserve a necessary cash fund, as well as to accumulate the ordinary reserve fund. The interest to be
realized by the savings banks is to be computed according
to the general money market, which must, of course, take
the local "economic conditions" into consideration (in
the eastern provinces and in the predominantly agricultural districts, the interest is ordinarily higher than in the
western and industrial localities). The interest rate is
then fixed by statute according to these conditions, a certain margin being allowed in case of emergency. Interest
reductions must never be retroactive. (Prussian ministerial decree of the 20th of April, 1888, Ministerial Bulletin, p. 100.) A reduction below 3 per cent requires the
consent of the supervising authority.
The interest rate on deposits will thus be regulated by
the current interest rate on loans. The difference between
these must be sufficient to defray the costs of management of the bank, and to secure at the same time a premium for risk (Risikoprdmte).
On the average, a difference
of % per cent is generally adequate for this purpose. It
can be somewhat lower perhaps for mortgage loans, while
for personal loans it will have to be fixed somewhat higher.
In case of its proper administration, i. e., of proper invest-

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ment of its funds in various securities, the bank will find
this average difference between the deposit and the loan
rates sufficient for the maintainance of a reserve fund and
for annual surpluses, since the increments of the accumulated interests themselves yield new interests by participating in the business of the bank.
Professor Rauchberg justly believes that the validity of
the objection so often raised against the savings banks
that their administration is governed by the desire for
profits, can best be tested by investigating the difference
between the savings-bank interest rates on assets and
liabilities. The general tendency of the rate of interest
for the last decade, Professor Rauchberg observes, has not
been very favorable for the savings banks. Ours is a
period of diminishing interest rates, an era of financial
revolution. Savings banks can not possibly pay to their
depositors more interest than they themselves obtain from
their investments. Owing to the limited sphere of sufficiently safe investments to which the savings banks are
restricted, no administration would be able to raise its
income above the general level of interest rates. Furthermore, as regards the Austrian savings banks, Professor
Rauchberg's statistics show that during the last few years
their surpluses have diminished considerably, and that
almost all institutions competing with the savings banks
realized a higher rate of interest. The advantage of other
banks and associations over the savings banks lies in their
ability to make short-period investments, which enables
them to follow more closely, and especially to better
avail themselves of, the fluctuations of the money market,
both in their investments and in paying interest on their

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deposits. Thus it comes about that when the general rate
of interest rises, they offer higher interests on deposits,
and are, therefore, able to attract considerable funds
which would otherwise flow into the savings banks.
In order to enable a wider class of people to gain
access to the savings banks, it is necessary that numerous receiving offices should be established and kept
open, if possible, every day at convenient hours. The
institution of such offices, however, is difficult in rural
districts, where there are few qualified to manage them.
But it has been demonstrated that the opportunity for
saving must offer itself, since this is the only means
of rendering the great masses of the population accustomed to regular saving. A plan has been recently
devised, therefore, proposing that small savings to the
amount of from 50 pfennigs to 4 marks be collected once
a week by a savings-bank messenger, who shall issue
receipts by means of savings stamps to be attached to
special books, containing 52 blank spaces. At the close
of one year 1.7 per cent interest would be paid by the
savings banks on the accumulated deposits, and the
stamp books would be exchanged for savings-bank books,
to which further deposits could be added or from which
savings could be withdrawn. In this manner a collection system would be combined with the savings-stamp
system.
This scheme was suggested in Berlin by August Scherl,
the proprietor of the Berliner Lokalanzeiger, who wished
to introduce it on a large scale in our local savings
banks. The collection plan, which was not new, he combined in an original manner with the idea of savings
77267—10

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premiums. The interest of 1.7 per cent on the weeklydeposits, which come from the sale of savings stamps
before being entered in the savings-bank book, was not
to be paid out to the saver, but to be aggregated into
larger sums and, at the close of the year, be apportioned
as premiums among the depositors.
Scherl's plan has been much discussed in Prussia, and
was finally rejected on the ground that it contained an
element of lottery. But the collection of small savings
deposits has been recommended to the Prussian savings
banks by the decree of the Minister of the Interior, issued
on the 4th of August, 1894. This system has been introduced in several cities of South Germany, as Karlsruhe,
Mainz, etc., and is to be found also in Frankfort-on-theMain. The plan is generally the same everywhere; the
only divergence lies in the practice of computing the time
for which the interest is due.
The idea that the savings bank must offer the opportunity to the saver hardly needs any proof from an economic point of view. It might be safely prophesied that
after the collection system has been properly organized
and operated for some time it will be adopted in more
cities and towns. But because of the great expense involved it seems impracticable under present conditions
to have it applied to the country districts and sparsely
populated localities. The cooperation of the postal service, of which we shall speak in the subsequent pages,
would be more expedient and successful.
Small amounts are paid out by the savings banks immediately on demand, but the repayments of large sums
are made after given notice, the length of which, in

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some banks, varies with the amounts. The banks are
accustomed, however, to make immediate repayments if
possible.
The Prussian savings-bank regulations have prescribed
no definite period of notice for withdrawal of deposits,
but have made provisions to the effect that small amounts
are to be repaid at once, and that the period of notice for
large deposits be conditioned by the sum to be withdrawn.
The supervising authority must approve the statutory
period of notice, and may demand its change whenever
necessary. The savings bank must never give up its right
to demand a period of notice. (Ministerial decree of the
27th of August, 1898, Ministerial Bulletin, p. 155.) It
has also the right of requesting the depositor to remove
his savings within a reasonable period of notice.
Two weeks' notice is the general practice in France. In
critical times, as in the case of a run, the banks are protected by the " safety clause " (clause de sauvegarde) of the
9th of April, 1881, which provides that "in case of great
stringency, decrees may be issued by the council of state,
authorizing the savings banks to make repayments of 50
francs minimum at fortnightly intervals."
General legal provisions prescribe terms of limitation
for stipulated interest which becomes due. A period of
four years is fixed by section 19 of the Civil Code. But this
statute of limitation is not applied to the savings banks,
as it is diametrically opposed to the fundamental idea of
savings deposits. Yet provision is m^de for such cases
when the depositor has for a long time held no relations
with the bank.

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According to the Prussian savings-bank regulations, all
further payment of interest on savings deposits ceases if
it becomes uncertain who is entitled to receive it; but
there is no definite term of limitation at the expiration of
which the bank may appropriate the deposit. Some
statutes aptly provide that if a savings-bank book is not
presented to the bank for fifty years the deposit should,
after proper public announcement, be turned over to the
Guarantee Union.
The use of "closed savings books" (gesperrte Sparbiicher) is also current. These secure to the depositor or
to a third party a definite sum to be received at a certain
time or upon a certain occasion.
(Remboursementsdifferes in France.) The depositor foregoes the right to
withdraw the deposit at his discretion, and the savings
bank promises to make repayment only upon the event
provided for or after the lapse of the stated period. In
this case the functions are merely those of dowry, wedding,
rent, tax, confirmation, military service, etc., savings
banks, and render special banks for these purposes superfluous. At the same time they may act as insurance
institutions, being especially related to those which satisfy
all particular purposes of insurance. The system of
' 'closed bank books " has not as yet become popular even
in Prussia, though it is quite evident that their use is
spreading. From 1894 to 1898 the number of such books
rose from 28,573 to 44,005; then in following years it
reached consecutively 51,385, 65,116, 82,741, 99,152,
114,452, and finally, in 1904, the number was 131,875.*

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Losses are to be defrayed by a reserve fund which, after
deducting the cost of management, is made up of the surplus interest obtained by lending the deposited capital.
The rate of 10 per cent of the liabilities is regarded in
Prussia as the minimum reserve fund. (Ministerial decree
of the 16th of November, 1877.) Still it is recommended
that after the reserve fund reaches 5 per cent of the
liabilities, only one-half of the further surpluses shall be
added to the fund, while the other half is to be used for
extraordinary needs. (Ministerial decree of the 19th of
March, 1880; 2d of April, 1888; 6th of December 1889;
and the 19th of November, 1891.)
The ministerial decree of the 4th of February, 1901,
permits the banks to use their reserve funds to cover
exchange losses (Kursverluste) as long as these funds do
not fall below 5 per cent of the liabilities. Then, according
to the ministerial decree of the 27th of April, 1905, only
one-half of the sum of both the surplus earnings and the
interest of the reserve fund must be added to the latter.
If the reserve fund has reached 10 per cent, the interest
may be carried entirely to the surplus.
In France the reserve fund is fixed by the average
amount of the annual expense of management. The
remaining surplus is employed according to the purpose
of the bank for the benefit of the depositors. (Compare
also sec. 15 of the Baden savings-bank law of the 9th of
April, 1880.)
As the case is all over Germany, the savings banks in
Prussia may, upon the consent of the president of the
provincial council, use for public purposes those surpluses
which must not go to the reserve fund. The president

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can withhold his consent only when backed by the district
committee.
The savings-bank regulations do not define what is
meant by public purposes. It is the custom of the
authorities, however, to use the surplus not for paying
taxes, but exclusively for extraordinary needs. (Ministerial decree of the 24th of August, 1847.) There are
also many statutes that stipulate that the surplus can
be used only for public and legally permissible ends, and
not for purposes of mere luxury.
Besides the ordinary reserve fund, a special safety fund
can be formed, in which the surpluses above the regular
reserve fund are saved for later use. A so-called '' exchange
balance fund" (Kursausgleichungsfond) is also customary
for the purpose of balancing the surplus accounts. The
gains on the exchange (Kursgewinne) are added to this
fund, which must also make good the exchange losses
(Kursverluste). (Ministerial decree of the 28th of February and the 17th of March, 1900.)
In many countries the savings banks are exempted from
stamp taxes. According to schedule number 3 of the
imperial stamp act of the 3d of June, 1906 (Imperial Code,
p. 675), the German imperial stamp duty is not imposed
upon the savings-bank books, which are mere acknowledgments of savings deposits, since they are neither
intended nor suitable for negotiation, and are, as a rule,
not payable to bearer. Similar exemption from the stamp
law of the 31st of July, 1895, is practiced in Prussia; for
according to schedule 58c, public savings banks are
instituted for the common good and not for gain.
Promissory notes (Schuldverschreibungen) made out to

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the savings bank, either as mortgages or as personal
promises, must pay a stamp duty of one-twelfth of i per
cent of the debt. Certain documents used frequently in
the business of the savings bank may be taxed by the bank
itself. This privilege must be granted by the Minister
of Finance and is subject to revocation. (Proclamation
of the Minister of Finance, February 13, 1896.)
8. T H E LEGAL NATURE OF THE SAVINGS-BANK

BOOKS

AND OTHER LEGAL CONSIDERATIONS IN RESPECT TO THE
SAVINGS-BANK BUSINESS.

The savings-bank book is commonly issued in the name
of the depositor. It serves as a receipt, as well as a certificate of the obligations of the savings bank (Schuldschein).
The savings bank is the receiver, while the depositor is the
giver of a loan. The book is different from a promissory
note, however, in that the repayment of the loan (the
deposit) is made only after satisfactory proofs of the
identity of the receiver. It is a legal and redeemable
paper {Legitimations- und Prasentations-papier), and the
right to its ownership may be distinctly independent of
the legal claim. (Judgment of the imperial court, 26th of
June, 1885.) It i s by no means a note payable to bearer
which can become the property of another person even
against the will of the depositor. This is a characteristic
feature of circulating securities but not of certificates of
savings deposits. The Prussian savings-bank regulations
of the 12th of December, 1838, extend to the savings
banks the right of paying a deposit not only to the
actual depositor but also to anyone who lays claim to it in
virtue of his possession of the savings-bank book. Pay-

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ments to such persons release the bank from any further
obligation. The bank must not investigate the legal right
of the bearer to the book, since this would involve too great
an expense; it reserves to itself, as the issuer of the book,
the right of returning the deposit to anyone who may
present that book. (Sees. 808 and 362 of the Civil Code.)
The only protection against the loss of the savings-bank
book through theft, etc., lies, therefore, in a strict and
proper care of it.
There is only one exception to the above rule, and that
is when a savings-bank book has been attached in court.
Since the transfer of the book itself is not necessary for a
voluntary surrender of the savings deposit, legal attachment of the latter is possible and permissible without
attaching the savings-bank book. If an attachment
issued by the proper court is presented to the savings bank,
it has no right to pay anything to its former creditor (the
depositor), even if he presents the book, nor to the one
who attaches the deposit, for repayments must be made
only on surrender of the book. Possession of the latter
can be obtained, therefore, only by its direct attachment
(Zwangsvollstreckung). Until this is done, the bank must
comply with the order of the courts
The attachment of the savings-bank deposit is not to be
made in the same manner as in the case of securities payable to bearer (Inhaberpapier e), i. e., not by attaching the
savings-bank book, but by first attaching the deposit itself
and then, on this ground, demanding the possession of the
book.
a The most important legal questions concerning savings-bank business
are treated by Justizrat Doctor Harnier in the Sparkasse, No. 603, p. 219,
1907.

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Lost or destroyed documents—including

Banking
savings-bank

books—according to section 808, paragraph 2, of the Civil
Code, can be invalidated by a legal process if no other
method is prescribed.

Since the savings-bank statutes

do not provide any other means of invalidation, the legal
process (Aufgebotsverfahren)
method in Prussia.

remains the only available

No. 15 of the Prussian savings-bank

regulations of t h e 12th of December, 1838, requires t h e
depositor, who has lost his savings-bank book, to report
at once to the savings bank.

" Lost savings-bank books "

includes all cases in which the depositor has been deprived
of the possession of his book in any way independent of
his own will.

(Judgment of t h e imperial court, 5th of

May, 1887.)
The savings bank, according to t h e provisions of t h e
regulations, must record t h e loss and, if it is proved t h a t
the book has been totally destroyed, issue a new book to
the depositor.

If t h e loser can not positively prove the

destruction, the b a n k must delay its issue of a new book.
If during t h e course of t h e quarter of the year in which
the loss is reported, or b y t h e end of the following quarter,
the book is presented by another person, the savings b a n k
must not refund t h e deposits, b u t forward t h e book to
the proper court (Amtsgericht)

and send written informa-

tion of this proceeding to t h e one who presents t h e book
as well as to t h e loser, with instructions to state their
claims in the legal manner.

The savings bank m a y m a k e

payments only when the book is presented again by t h e
one who can prove his right to t h e deposit.

If t h e time

mentioned expires without the book having been presented to t h e savings bank, legal publication of the in-

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validity of the book must be made. This process of
invalidation is governed by the provision of No. i5e, etc.,
of the regulations, which is not repealed by section 808,
paragraph 2, of the Civil Code; for, in so far as "no other
method is prescribed," this proceeding is authorized by
the above-mentioned general provisions. Another process
may be provided by national legislation, as well as by
the statutes of each bank. (Art. 102, par. 2, of the Civil
Code.) Again, in section 1023, paragraph 2, the Civil
Process Ordinance, in compliance with Article I, section
20, of the executive order of the imperial law of the 17th
of May, 1898, makes necessary an insertion of a notice
of the invalidation in the official paper, as well as a public
announcement by means of placards on the court bulletin
board, and finally establishes a minimum period of suspension of three months.
The legal nature of the savings deposit itself is not entirely settled. It is generally considered in the light of
a loan to the savings bank. But the deposit does not conform completely to the legal nature of a loan, and is considered, therefore, as an irregular compact (Vermehrungsvertrag), depositum irregulare, in the sense of section 700
of the Civil Code.
The decision of the question as to whether savings deposited with cooperative credit societies (Kreditgenossenschaften) are to be regarded as loans or as "deposita
irregularia," was, by the judgment of the Imperial Court,
made dependent upon the condition whether the deposit
was entered in the interest of both parties or predominantly in the interest of the depositor. If the association
accepts deposits to meet its own needs for credit, and conse-

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quently not solely in the interest of the depositor but also
in its own, these deposits must be regarded as loans. This
principle does not apply to public savings banks, for, as
institutions for the general welfare, the latter have no need
for credit, and issue loans only to an extent that is limited
by the paid-in savings. They have, therefore, no interest
of their own in the deposits, which are for this reason
regarded as irregular (deposita irregularia). Only those
amounts are to be considered as loans proper which are
borrowed by public savings banks from other institutions
in order to widen their own activities in a manner not
contemplated originally, i. e., by assuming the functions
of credit institutions. This is the case when the savings
banks are acting as intermediaries between the national
insurance institutions and the rural landowners. The
banks of Hanover, Westphalia, and Hesse-Nassau, for
example, borrow money from the national insurance
institutions and public savings banks for the purpose
of contracting loans.
Practically there is no serious distinction between a
loan and an irregular deposit (depositum irregulare), for
the provision of section 607 of the Civil Code that the
article returned shall be of the same kind, quality, and
quantity as that received is, according to section 600 of
the Civil Code, also applicable to the depositum irregulare. The deposits do not become the property of the
guaranty union, but are employed by this union for the
benefit of the depositors and are paid back upon demand.
The statutory declaration of January 21, 1873, is to the
same effect. (Striethorst, Archiv, vol. 87, pp. 342ff, 347.)
The funds of a municipal savings bank are accordingly not

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the property of the city. The community (Kommune)
has undertaken to act only as representative, and article
3 of the regulations, concerning "the safety to be afforded
to depositors," withholds the assumption that the community must furnish no security for its funds. It is the
manager but not the owner of the funds. The intent of
article 8 of the regulations, concerning savings-bank loans
to the city, is also against the idea of regarding the guaranty union as the owner, since the notion of lending
money from the fund belonging to the borrower is contrary to thef legal conception of a loan.05
We must now consider the question of savings-bank
books of wards and minors.
Section 1809 of the Civil Code requires the guardian to
deposit the money of wards and minors in the savings
banks, and provides that the withdrawal of the deposit
be made only upon the consent of the supervisory guardian (Gegenvormund) or the probate court (Vormundschaftsgerichi). The preamble of the Prussian Executive
Order of the Civil Code (sec. 232, ibid.) expresses a
doubt as to whether the statutory provisions regarding the
savings banks allow the latter to receive money of wards
and minors (Miindelgeld) which must be deposited in compliance with section 1809. (Compare No. 14 of the regulation concerning the organization of savings banks, of the
12th of December, 1838.) The lack of such right, however, would render partially ineffective section 1807, paragraph 3, No. 5 of the Civil Code, according to which the
deposit of the money of wards and minors must be made
a

S e e Von Knebel-Doeberitz, Sparkassen inPreussen,

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only in those public savings banks which are legally qualified to receive the same.
The provision of section 14 of the savings-bank regulations has already been discussed. According to this, the
municipalities may include a clause in their statutes to the
effect that the savings banks may refund deposits to the
bearer of the savings-bank book without demanding proof
of his legal right, and without further obligation to the
depositor or to his heirs, except in case of an attachment
before the deposits are repaid.
Those savings banks that act under this provision must
introduce proper changes or supplements in their statutes.
This does not require legal enactment, since the order can
undoubtedly be issued as an administrative measure by the
supervising authority. Assuming that the consent of the
court of guardianship is gained, the question arises whether
the repayment of the money of wards and minors can be
made to anyone who presents the savings-bank book, or
only to the guardian. According to the above-mentioned
provision of the savings-bank regulations, the usual savings-bank books are identification papers (Ausweispapiere)
in the sense of section 808 of the Civil Code, and the savings bank has a right to pay to anyone who presents the
book. But the question is whether the same holds good
of the deposits of wards and minors. This must be answered in the affirmative, since the provision of section
1809 of the Civil Code binds the guardian alone and not the
savings bank. It is only when, in its statutes or in individual cases, the bank gives up its right to pay to anyone
presenting the book that the consent of the probate court
(Vormundschaftsgericht) or supervisory guardian becomes

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necessary for withdrawals. This limitation is of no legal
consequence, since it does not affect the general right of
the savings bank to pay to anyone who presents the book,
which still remains only an identification document. In
view of the fact that no provision binds the savings bank
to pay only to the guardian, the banks have a right, after
securing the above-mentioned consent, to make payment
to anyone who presents the book, and, as is frequently
the case, even to the ward himself.
The fight of the guardian to collect money ceases, and
the need of the consent of the supervisory guardian or the
probate court becomes unnecessary, with the end of the
term of the guardianship. Nor is the consent of the probate court then necessary for the withdrawal of the money
by the minors themselves or their heirs. The provision
entered in the savings-bank book, that the consent of
the supervisory guardian or of the court of guardianship
is necessary for the withdrawal of the money, becomes void
at the close of the guardianship, and the savings bank
therefore proceeds to deal with the money of the former
ward or minor as though the provision of guardianship (sec. 1809 of the Civil Code) did not exist. For
that purpose the bank must be informed of the close of
the guardianship by the probate court, which issues a certificate to that effect. Such was the import of the decision of the president of a provincial court on the 15th
of March, 1902, in a case submitted by a savings bank.
This decision recommended also that in order to prevent
confusion (sees. 1885-1889 of the Civil Code) the provision
of the Civil Code (sees. 1882-1884), which stipulates for

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the closing of the period of guardianship, shall be inserted
in the certificate of the probate court.
The insertion of the following or similar provisions in
the savings-bank statutes is accordingly recommended:
"The books which are issued in the name of wards and
minors (it would also be advisable to add * or of municipalities') should be distinguishable in form. Money entered in such books, as well as interest, can be withdrawn
only by submitting a certificate that the probate court
consents to this withdrawal, or by certifying to the termination of the guardianship. The money of municipalities
can be returned only upon consent of the chairman of the
district committee. The external features of such savingsbank books are to be determined by the district committee (in city savings banks, by the municipal council)."
To the same effect was the decree of the president of
the Dusseldorf administrative council of the 23d of December, 1900, which holds savings-bank officials responsible for the proper fulfilment of the legal provisions regarding the repayment of money of wards and minors.
But, although the savings bank must pay all damages
caused by its neglect of the provisions in question, it is
a matter for consideration whether the bank must suffer
in case of its refunding the deposits to the unauthorized
bearer of the savings-bank book who manages to submit
the required certificate at the withdrawal of the money.
The nature of the case demands, however, that repayment
of the money of wards and minors be made with the greatest care, and that utmost advantage be taken of the authority of the bank to investigate the legal right of the
bearer of such a book. It is also left within the competence

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of the management to decide whether the protection of the
bank and its officials requires that the savings book for the
deposits of wards and minors should be provided with a
special cover.
The latter arrangement seems to me very expedient
and, as was already mentioned, it is permitted by the
statutes. The safety of the deposits of wards and minors
is best secured by the use of closed savings books (gesperrte Sparbucher) of a special form. Mr. Schneider
advises the following heading: "Savings Book for Minors
and Wards/' then the ordinary imprint, and between or
below these the following lines: "According to court certificate
is the guardian and
the supervisory
guardian;" or, "No supervisory guardian is appointed."
The names are to be copied by the bank clerk from the
certificate of appointment bearing the signature and seal
of the court and presented by the guardian.
If not vested with the right of a so-called " free guardianship/' the guardian may, according to section 1810 of the
Civil Code, deposit the funds of the ward in the savings
bank only upon the consent of the supervisory guardian,
which consent must be approved by the probate court.
The bank need not find out, and it is a matter of no consequence to it, whether or not the guardian complied with
his duty before making the deposit. The guardian is
responsible only to the probate court, and can be brought
to account only by that court.
In the Grand Duchy of Baden, where the ordinance of
the Minister of Justice of July 1,1899, rendered the municipally guaranteed savings banks qualified to receive deposits of wards and minors as prescribed in section 1807,

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paragraph 2, No. 5, of the Civil Code, the administrative
council of the City Savings and Loan Bank {Spar- und
Pfandleihkasse) of Karlsruhe has, in view of the provision
of section 1809 of the Civil Code, introduced the following
rules:
1. The savings book issued for the deposits of wards
made by the guardian in compliance with section 1809 of
the Civil Code, is to be distinguished by the title "Money
of Wards " printed on the cover.
2. On the first page of this savings book the following
note is to be inserted: "Repayment of principal and
interest will be made only upon the consent of the supervisory guardian or the probate court."
3. If this savings book is presented for repayment the
management is to demand:
(a) Proof that the person requesting the payment is
the guardian of the ward in whose name the savings book
is made out, i. e., the guardian must submit the certificate
of his appointment (Civil Code, sec. 1791), and, if necessary, offer proof of his identity.
{b) The written consent of the supervisory guardian or
of the probate court for the withdrawal of the specified
sum.
(c) In case of the consent of the supervisory guardian,
proof must be submitted that the person consenting is the
supervisory guardian of the ward in question; this latter
proof is to be given by the presentation of the certificate
of appointment of the supervisory guardian.
4. The foregoing provisions apply also to the previously
issued savings books which are already in the hands of
guardians.
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5. At the conclusion of the guardianship the precautionary provisions (Nos. 1 and 2) are cancelled and the
book is exchanged for an ordinary savings book. A written certificate of the probate court is necessary to prove
that the period of guardianship has terminated.
6. The precautionary provisions (Nos. 1 and 2) as
well as their cancellation are to be noted in the account
book.
According to section 60 of the guardianship rules of
the 5th of July, 1875, the probate court may order that
securities (Wertpapiere) of the ward which are payable
to the bearer be withdrawn from circulation.
Under
this provision it is the practice of the banks to invalidate
also savings-bank books. (Year Book of the Decisions
of the Council Court, vol. 3, p. 31; against this practice,
see Eccius, Preussisches Privatrecht, sec. 233, note 15;
Dernburg-Schulzenstein, Vormundschaftsrecht, sec. 858,
P- 35i-)
The provision for invalidating securities payable to
bearer has become ineffective by article 176 of the introductory statute of the Civil Code. In lieu of that provision, the above-mentioned section 1809 of the Civil
Code is strictly followed. According to article 210 of the
introductory statute of the Civil Code, all guardians who
perform their duties at and after the time the Civil Code
goes into effect are subject to its provisions. This
general provision, however, does not apply to savingsbank books which were invalidated before the above
provision of the Civil Code was enacted. (Preamble to
the Prussian executive order of the Civil Code, p. 232.)
The significance of the invalidation as explained in article

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75, section 2, of the Prussian executive order of the Civil
Code, lies in the fact that the repayment of the money is
thereby conditioned on the consent of the supervisory
guardian or the probate court. The expediency of such a
provision followed from article 99 of the introductory
statute.
Notwithstanding the imperial legislative regulation, the
invalidation of securities payable to order is made ineffective by the above-mentioned provision of the Civil
Code. The guardian or the probate court must, therefore,
in compliance with sections 1814, 1815, and 1817 of the
Civil Code, resort to other methods of securing the safety
of the money of the ward.
It was with this purpose in view that the special decree
of the 27th of June, 1901, was issued to the lord lieutenant
of Magdeburg by the Ministers of the Interior and of
Commerce and Industry, and was approved by the Minister of Justice and Finance. Without considering article
75, section 2, of the introductory law of the Civil Code,
this decree declared that although, according to the Civil
Code, no legal importance is to be attached to the invalidation of the savings-bank book, it is recommended as
more convenient that such invalidation should be revoked.

403

VIII.
BRIEF SKETCH OF THE HISTORY OF SAVINGS
BANKS IN GERMANY.
B y B . BRKsivAUER.

It is intended here to consider primarily the historic
development of German savings banks. The first institution in any way resembling our present savings banks
was that which was known as the loan office of the
Duchy (herzogliche Leihkasse), established in Brunswick in
1765. This institution, however, was established mainly
for the purpose of lending out the moneys deposited with
it at a moderate rate of interest in order to put some
check, if possible, on the usury widely prevalent at
the time. Another institution, therefore, the Ersparniskasse, founded in 1778 by what is known as the
Patriotic Society in Hamburg, must be regarded as the
first savings bank in the full present meaning of the term.
Here we find clearly outlined, though in primitive form,
the essential characteristics of our savings banks to-day.
We see from clause 94 of its regulations that it was established ''for the benefit of industrious persons of small
means of both sexes, such as servants, journeymen, artisans, seamen, etc., in order to afford them an opportunity
of acquiring some savings even by small installments, and
of depositing securely at some interest the fruit of their
toil, for their succor or dower." Then followed, in the
year 1786, the establishment of the savings banks (Ersparungskasse) in Oldenburg i. G., which came still nearer

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to present day. conditions by restricting deposits to the
savings of small people.
The development of savings banks as an institution
continued, though at first very slowly, as the following
particulars prove. An interval of ten years elapsed
before another savings bank was established—that of
Kiel, in 1796. After this, in the year 1801, the institutions in Gottingen and Altona were founded. Only
after a long delay and various abortive attempts was
an institution successfully established in Lubeck in 1817,
the "Spar- und Anleihe-Kasse."
Almost all the savings banks owe their existence to the
action of the municipalities. The Hamburg Institution,
founded in 1778, was compelled to wind up in 1814, and
in 1819 its place was taken by a fresh bank. The latter,
too, owing to the inefficiency and out-of-date method of
management, was destined to be short-lived. It was only
by means 01 a radical reform in the Hamburg savings
bank system that a viable institution was created. The
latter was founded in 1827, and at the present day still
exercises its beneficent activity.
The establishment of the Berlin savings bank in 1818
must be regarded as the next event of especial importance. It was founded on the initiative of the chamber
of municipal deputies, with the guaranty of the municipality. By reason of the favorable rate of interest allowed
by the bank its course of development was rapid from the
outset. It was the first of all savings banks to establish
paying-in offices (1846). The provisions of its by-laws
that " t h e savings bank could only receive deposits from
the residents in its own municipality/' and " t h a t when

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the sum to the credit of a depositor reached a certain
amount, namely, 1,000 marks, it should no longer carry
interest," were widely imitated.
Soon after the founding of the institution in Berlin a
more brisk development of the savings-bank system began.
Savings banks arose in almost every part of Germany, and
it would transcend the limits of this article t o record the
date of establishment and the development of each
individual institution. Therefore only a few particularly
important general facts and characteristics as they presented themselves in the largest German States will be
briefly recalled.
In Prussia there were already 86 savings banks at the
end of the thirties of the last century. Till then the
State had only a general right of supervision over the
savings banks. Not until 1838 were more specific and
uniform regulations provided by the issue of an important ordinance, requiring all savings banks not established by a municipality to apply to the King himself
for a concession, while in the case of municipal establishments the approval of the chief president of the Province
was regarded as sufficient. To the chief president, in conjunction with the government presidents, was further
allotted the task of keeping careful check on the business
methods of all savings banks by means of surprise audits.
These officials were furthermore empowered to require
the filing of regular reports. This more rigorous State
control was shown, if only by the comparatively rapid
increase of the number of savings banks to 191, to be
highly favorable to the development of these establish-

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ments, although no perfectly uniform standards for them
had yet been evolved.
Notwithstanding many difficulties during the following decade, this progress was still more pronounced,
owing largely to the work of the Central Association for
the Welfare of the Working Classes (Zentral-Verein fiir
das Wohl der arbeitenden Klassen). In 1857 the number
of savings banks in Prussia had already risen to 405.
Among the particularly important measures carried
through by the above-named association, and which contributed to this very desirable development, were the
general increase of the rate of interest, the awarding of
premiums for savings to workmen, and the regular communication to savings banks of all desirable innovations
in the savings-banks system.
About this time (1854-1860) the establishment of rural
district savings banks, which had hitherto existed only on
a small scale, was largely promoted by instructions issued
by the competent ministries to the local Governments.
The presidents were desired to do all in their power to
further their establishment, in order to enable the rural
population to enjoy the blessings of the savings-bank
system in a larger measure.
The great progress made during this very period by the
savings bank as an institution generally in Prussia is
proved by some further figures from the year 1859, which
relate to the preceding decade. During this period
the number of savings-bank books had increased by
about 46 per cent, the total of deposits had risen by no
less than about 282 per cent, and, while in the year
1849 there was only one deposit book to every 62 inhabi-

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tants of Prussia, in 1859 there was already one book to
every 31 inhabitants.
The following decade saw a somewhat slower rise relatively, though still a considerable one. The forward
strides taken by the institution in the years 1871-1875—
the period following the war with France—were very
large. As a result of this successful campaign the
savings-banks deposits in Prussia rose to three times
their previous amount, simultaneously with an increase in
the number of establishments. In the years 1875-1879,
however, there was a considerable falling off in the
founding of savings banks, chiefly owing to the fact that
this was the time when the Imperial Government first
considered the plan of introducing the post-office savings
bank into the Department of the Imperial Posts Administration. It was this intention on the part of the Imperial Government that led, in 1884, to the establishment
of the General German Savings Banks Association
(founded chiefly by the municipalities and rural districts),
owing to whose exertions a post-office savings-bank bill
submitted in 1885 was rejected. On the other hand,
however, the work of the newly-founded association
exercised an exceedingly favorable influence on the institution of savings banks, both in the Empire generally
and particularly in Prussia, more especially during the
first years of its existence, inasmuch as it was the aim
of the association to facilitate the investment of savingsbank funds. The reason for this was that at the end of
the year 1880 the number of the savings-bank offices—i. e.,
the various places where money could be paid in for
deposit in the savings banks in Prussia—was 3,416, as com-

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pared with 2,083 in 1881, and while the deposits at the
beginning of 1870 only amounted to about 1,000,000,000
marks, this sum had in 1889 risen to 3,100,000,000 marks.
In the succeeding period, too, the methods of the
savings banks were constantly progressive. It must be
regarded as an important fact, in the history of the
consolidation of the savings-bank system, that, on and
after January 1, 1900, the Civil Code required all private
savings banks throughout the Empire to be converted
into institutions of a different character, with a view
to their subjection to more rigorous control, i. e., into
municipal savings banks, share companies, cooperative
societies, etc. Furthermore, the above-mentioned Savings
Banks Association directed its efforts toward securing a
uniform distribution of savings banks or receiving offices
in town and country.
In 1906 the Prussian Government submitted a bill to
Parliament intended to restrict the investment of savingsbank funds in long-date mortgages, to the advantage of
the Prussian and German government stock. This bill,
however, did not meet with the approval of the Prussian
Chamber of Deputies, the majority of which feared that
in critical times, by a sudden sale of the gigantic amount
of state loans in the possession of the savings banks, there
might be risk of a great drop in the prices of these
securities.
In Bavaria, the second largest German Federal State,
the development of savings banks was comparatively
rapid, which is chiefly attributable to the initiative of farsighted State and municipal officials. The first institution
was established in 1806 and with municipal guarantee.

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When after the elapse of fifteen years the savings bank
in Nuremberg was founded in 1821, other establishments
followed in fairly rapid succession, so that at the end of
the year 1837 there were already 64 savings banks in
operation.
While the Bavarian savings banks during the first
decades of their existence had placed their money with
a state institution which allowed them a very favorable
rate of interest—the sinking-fund establishment—they
have, since the end of the forties of the last century,
invested more and more in land mortgages. The main
reason for this is that the Government in the year 1849
prohibited the sinking-fund from accepting the saving
bank funds, because at critical periods, particularly in
the year 1848, there was a positive run on the sinkingfund office. As furthermore many abuses had arisen,
particularly owing to the fact that the savings banks
were, on account of their favorable rates of interest, used
to a continually greater extent by the better-to-do classes
of the population, for which they were not primarily
intended, the Government in 1848 promulgated a statute
which remained in force for several decades. In this
statute it was laid down that only the savings proper
of certain classes of the population, namely, servants,
apprentices, journeymen, factory workers, day laborers,
and miners of every condition, could be deposited in the
savings banks. The smallest amount accepted was fixed
at 30 kreuzer, and the largest at 100 florins. Amounts
beyond 1,000 florins ceased to bear interest, which was
practically equivalent to a maximum limit. The results
of these measures were excellent, as in the year 1855 the

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depositors represented 3.9, in 1861 5.9, and in 1903 no less
than 13.6 percent of the population; and while the average
amount possessed by each depositor in 1861 was 170 to
200 marks, it was 434 marks in 1903. Moreover, the
exceedingly advantageous effect of the above statute is
further proved by official statistics for the year 1898,
according to which those small people represented 62.38
per cent of all saving persons. Thus the average amounts
on deposit which, although they have constantly risen,
are low in comparison with Prussia, prove that in Bavaria
the savings banks strenuously endeavor to fulfill what is
their real task, namely, that of being institutions for the
poor man.
In the Kingdom of Saxony the first savings banks were
founded in 1819. I n i 8 2 i th^re followed those of Dresden
and Annaberg. Until 1840, however, only 16 additional
institutions were established. The following decade, owing
to the brisk educational activity of several associations with
aims of public utility, witnessed a highly gratifying improvement in the savings banks department. From 1841
to 1850 no less than 44 new institutions sprang up. By
1904 this number had risen progressively to 329 institutions, with 2,675,617 savings-bank books, so that there was
one savings-bank book to 1.67 inhabitants, an exceedingly
favorable showing. To this development the introduction
of the saving-stamp system, which will be later referred
to, and which took place in 1881 in many banks, contributed to a very considerable degree. The Saxon establishments likewise invested by far the greater part of their
funds in mortgages; in the year 1903 the proportion of

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capital invested on such security was no less than 82.82
per cent of all savings-bank funds.
In Wiirttemberg the first establishment was founded in
1816 in Stuttgart, under the name of the " Wiirttembergischen Sparkasse," upon the initiative of the General
Beneficent Association. According to the by-laws only
those belonging to the poorer classes were allowed to
become depositors, and as a further privilege they were
allowed to use the post-office free of charge for their
transactions with the savings banks. On the principle
of these banks provincial savings banks were then formed,
which served mainly for the rural population, and municipal savings banks were created. In the twenties 15
establishments were founded. In the year 1904 the
number of savings banks amounted only to 64, but the
number of paying-in offices had already risen to 1,829. In
contrast to Bavaria, however,Wiirttemberg, despite the outset which had promising beginning, shows an ever greater
falling off of small depositors; for while in the year 1893
the book accounts beyond 500 marks represented only 26.7
per cent of the total number, in 1904 37.6 per cent of the
accounts exceeded 500 marks. This is beyond doubt due
in the main to the circumstance that in Wiirttemberg the
limits for single payments and total deposits are considerably higher than, for instance, in Bavaria. On the other
hand, the proportion of rapidly realizable deposits in the
savings banks in Wiirttemberg is considerably larger than
is the case in the same institutions in Bavaria and Saxony
and elsewhere.
In the Grand Duchy of Baden the first four savings
banks were established in the twenties of the last century.
In the case of this State it is particularly remarkable that

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in these institutions, which in 1903 had risen to the number of 155, the average amount to the credit of a depositor
had risen to 1,082 marks, thus reaching the highest average in the large Federal States, a circumstance which it
is well known, usually points to a relative decrease in the
number of small savers.
Passing on to more general considerations, a glance at
the statistics will show that the German savings-bank
system is in process of brisk growth. 0 This is very largely
due to the great confidence which these institutions enjoy,
being for the most part in the hands of public corporations and all under official supervision. How fully justified
this confidence is may be seen from the fact that cases of
peculation or breaches of trust are extremely rare.
It is, however, to be regretted that the distribution
of the savings banks throughout the Empire is still
very far from uniform, so that, for instance, in the Grand
Duchy of Oldenburg there is one savings-bank office to
83,996 persons; but in the Duchy of Saxon-Meiningen,
one to 3,095 persons. Here there is undoubtedly much
room for improvement.
It has further already been pointed out that the relative
participation of the small depositors for whom the savings
banks were, properly speaking, created, shows a downward tendency in many States. When considering this
fact, it must, however, be remembered that the prosperity, and consequently the income and likewise the
savings, of the population at large have enormously
increased. It is only by taking this factor into account
o Detailed statistics of the Prussian and German savings banks are to be
found in the volume of statistics for Germany published b y the National
Monetary Commission.

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that we can explain the fact that in Prussia, in 1850,
34.89 per cent of the books totaled deposits under 60
marks, while by the year 1903 this number had fallen
to 27.91 per cent. On the other hand, the number of
depositors with more than 600 marks had risen during
the same period from 5.05 per cent to 27.91 per cent, i. e.,
more than fivefold. That the savings banks, even in
Prussia, still predominantly serve the interests of the
small man, is proved by the fact that in 1903 72.09
per cent of all deposit accounts were less than 600
marks. As will readily be understood it is of great
importance for the development of savings banks that
the office hours should be long enough and conveniently arranged, as otherwise a great impediment will
be offered to all saving. In this respect, however,
the greatest diversity still prevails in Germany, and
although local circumstances must of course be taken
into account, this important question does not receive
sufficient consideration from many institutions. This is
very strongly illustrated, to take only one example, by
the fact that in Prussia 67 savings banks did not in
the year 1904 have even one office day every week.
Even in the most important rural district savings bank of
Germany, the office hours are not conveniently arranged,
as they are fixed from 9 a. m. till 2 p. m. daily. It is only
lately that gratifying improvements in this department
of savings-bank policy are to be recorded.
In order to
saving-stamp
It has been
the Kingdom

facilitate the saving of small amounts, the
system was introduced in certain States.
already remarked that this originated in
of Saxony. Although in this State up to
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the year 1888 a relatively large number, perhaps 30 per
cent, of all savings banks had adopted the system, its
progress even here was comparatively slow. Nor, except
here and there, has this system found wide acceptance in
Prussia. The reason must be sought in the fact that most
savings banks have but little predilection for this method,
because the stamps, in view of their low amounts—generally from 10 pfennigs to 1 mark—involve too great an
expense in printing, and furthermore can be so easily
forged.
Transfer business, i. e., the transfer of credit balances
from savings bank to savings bank, which is likewise a
great incentive to saving, is but little developed as yet in
Germany. Here, too, Saxony leads. There are, however,
signs (such as the strong plea in favor of this business by
the Savings Bank Association) that this practice will find
wider and wider adoption in the rest of Germany.
Smaller variants of the savings bank, such as the
Farthing and People's Savings Banks {Pfennig und Volkssparkassen) and the factory, tax, school, and rent savings banks, are still of so little significance in Germany
that they need not be dealt with here.
The post-office savings banks which already exist and
in part prosper in many countries are still wanting in
Germany, as a second bill aiming at their introduction y
submitted to the Reichstag in 1906, did not obtain the
approval of the representatives of the people.

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IX.
THE STATE AND COMMUNAL SAVINGS BANK
LEGISLATION OF RECENT TIMES.
By Dr. R O B E R T SCHACHNER.
[Article from the Jahrbiicher fiir Nationaloekonomie,

86, 1906, p. 247.]

Some time ago, in the Archiv fiir Sozialwissenschaft und
Sozialpolitik, I showed that in savings bank affairs the
antisocial tendency, first noticeable in the middle of the
century, has become more and more pronounced, despite
the development of social legislation in general. In
tecent times especially we have had several instances of
the further progress of this unwholesome tendency,
particularly in the development of institutions organized
for profit making.
After a long period of opposition the Prussian administration has now yielded to the demand—subversive of the
fundamental principle of sound business—of the communal administrations, and to the pressure of the German
Savings Bank Union, for less stringent regulations relative
to the reserve funds.
Until now the most extreme general concession required
that, after a 5 per cent rate had been reached, at least
half the surplus funds were to be turned into the reserve
fund, in order that a 10 per cent rate might be attained.
As recently as December 5, 1903, Privy Councillor von
Knebel-Doeberitz, representing the administration, made
this emphatic declaration at a session of the German
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Savings Bank Union: "We must unfalteringly uphold the
principle that after reaching 5 per cent half the surplus
must be added to the reserve fund."
And now the Minister of the Interior decrees, under
date of April 27, 1905: " I hereby authorize until further
notice, that as soon as the reserve funds of the communal
savings banks have reached 5 per cent of the liabilities,
the surplus earnings and the interest of the reserve fund
may be combined, and of the total sum thus formed not
more than half need be turned into the reserve funds.
When the reserve funds have reached 10 per cent then
all the interest of these funds may be transferred to
surplus."
It is easy to realize from readily calculable examples
that henceforth, with rapidly increasing assets, the reserve
will remain stationary unless large surpluses are obtained.
Indeed, if the savings banks earn small or no profits, or
allow them to disappear through secret manipulation of
surpluses (above all, by loaning capital at low interest
rates), the communes will be able to pocket annually a
portion — up to a half—of the interest of the reserve
fund, and in many places the increase of deposits will
cause the existing level of reserves to be lowered. The
principle of the 10 per cent reserve fund is de facto abandoned.
In order to rectify this oversight, the State should have
at least created standards for liquidation of investments,
as it has again broken a pillar of safety in order to aid
the struggle of the communes for a surplus. It must be
pointed out again and again that each relaxation of the
provisions regarding reserve funds is merely a source of

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profit to the commune, and instead of furthering the
interests of the savings bank rather injures them. The
concessions of the Prussian State fill the city treasuries,
but in no way assist the savings banks as such.
Something might nevertheless be gained if the State
would only carry out its relaxed regulations in another
way than formerly; for when we consider that in Prussia
at the end of 1902 there was a reserve of less than 1 per
cent of the deposits in 45 city savings banks (total 689),
in 34 of a total of 227 village community savings banks,
and in 35 of a total of 412 district savings banks, it is
clear that the former provision was theoretical rather
than practical. Such small reserves burden the guarantors with a serious risk, for which they should not seek to
reimburse themselves with the largest possible surpluses—
a method justified by its advocates—but they should be
compelled to minimize their risks, chiefly by the creation
of larger reserves. The reserves of many savings banks
are far behind those of solid banking institutions with
which they come into direct competition.
Another questionable Prussian practice is that which
opposes the founding of new savings banks if inimical to
the interests of district banks. This is accomplished
chiefly through a peculiar interpretation of sections 2 and
3 of the Prussian savings bank regulation—according to
which the consent for the creation of savings banks can be
refused if the commune, on account of its situation and
the condition of its finances, is not in a position to guarantee safety to depositors. Various wholly unfounded
interdicts have recently been made. Pankow, Rummelsburg, near Berlin, in the district of Niederbarnim, and

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Grosslichterfelde in the district of Teltow, are among the
places that had to give up the plan to create their own
savings banks on that account.
It is not less strange that the State permits agreements
of district savings banks, by which these banks give
local communes a share of their surplus in return for the
nonestablishment by the communes of their own savings
banks.
The Prussian State thus directly blocks the establishment of as many savings banks as possible, and thus hinders the desirable extension of opportunities for saving.
The ministerial decree, which requires savings banks to
give the financial business of the Prussian Seehandlung
preference, has been properly opposed in so far as it seeks
to give a monopoly to the Seehandlung. The Bavarian
savings banks may enter into relations with two banks
only, the State Bank, and the Mortgage and Exchange
Bank closely connected with the State, and anyone who
knows how injurious this regulation has been for these
banks must oppose such a limitation of the business of
savings banks and banking institutions.
On the 13th and 14th of January, 1905, the Wurttemburg official savings banks were discussed in the legislature.
Section 14 of a district ordinance dealing with the official savings banks came up for discussion and decision in
the Chamber of Deputies. The administration's draft of
this section was fundamentally changed. In its original
form the traditional social principles of savings banks had
been embodied. In its amended form, however, the demands of middle-class politicians and self-seeking communal representatives which endanger the fundamental

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principles of savings banks were embodied. In what
measure the function of the savings bank as a help to the
poor was illegally relegated to the background may be
gathered from the prominence of the middle class in communal representation.
If we compare paragraphs 3 and 4 of section 14 of the
administration draft with those sections as passed by the
Chamber of Deputies, we shall see very clearly the change
in the fundamental point of view concerning savings-bank
institutions.
The administration draft provided: "The reserve fund
shall amount to at least 10 per cent of the total deposits.
"Administrative surpluses not used for increasing the
reserve fund or raising the interest paid on deposits may,
with the consent of the district administration, be rendered available for communal purposes, provided that
these purposes relate exclusively or mainly to the welfare
of the poorer classes, and they shall be used for other purposes only in exceptional cases and with the consent of
the Minister of the Interior.''
The Chamber amended these paragraphs as follows:
"The reserve fund shall amount to at least one-twelfth
of the total deposits.
"At least one-half of the administrative surpluses are
to be added to the reserve fund until this has reached the
proportionate amount. Further surpluses shall be applied
to increasing the rate of interest on deposits, or to lowering
the rate of interest to borrowers; they can also, with the
consent of the Minister of the Interior, be made available
for communal undertakings that are entered upon for the
good of the inhabitants of the district.''

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A large minority even advocated the 5 per cent reserve
fund, and only a few, like the Director of the Genossenschaftsbank, Henning, were in favor of the administrative
draft, and emphasized the strengthening of the banks by
strong reserves, as opposed to the safeguarding of the
oflEicial corporation, which is always brought forward in
opposition. These provisions establish a dangerous fundamental principle for oflEicial savings banks, one far
removed from the splendid standard set by the Wurttemburg savings banks.
A minimum reserve fund ought to have been fixed, all
surplus to be turned into it until this was reached. Such
a provision is almost universal elsewhere. Most dangerous in the disposition made of the surplus is the granting
of equal consideration to the interests of the depositor
and of the borrower, and the elimination of special consideration of the poorer classes. This involves a breaking
away from traditions concerning the purpose and the
nature of the savings banks, which had hitherto been
recognized by law, and which had been embodied in the
administration draft. The provisions as to the consent
of the state ministry in regard to the use of the surplus
have also been so changed that previous mistakes pointed
out by ministers and deputies are in no wise avoided.
Whether the administration really can and will oppose
the danger arising from the reconstructed paragraphs
may well be doubted. Past experience shows that communes have been able to ignore statutory provisions
pertaining to the reserve fund and other inconvenient
standards.

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In the Kingdom of Saxony an ordinance has been issued
which prescribes, in view of the extension of the maximum
deposit from 3,000 to 5,000 marks recently made by many
banks, and in view also of the increase of large deposits, a
period of notice of withdrawal of six months for private
deposits of more than 1,500 marks, instead of the former
period of three months. This is intended to protect
numerous savings banks from the injury which may
result from short-time notices of withdrawal in a crisis.
Since the history of savings banks shows that they have
been compelled, in the interest of their reputation and to
maintain confidence in critical times, to dispense with
any period of notice, it would have been better, instead
of these regulations entirely inadequate to meet a crisis,
to enact regulations relative to the liquidity of assets.
This most recent phase of state savings bank policy
shows that we are steadily giving way before the selfseeking demands of the commune. Therefore it is not
strange that the communes themselves, in the absence of
opposition, continue these dangerous tendencies, and in
many places even go further.
From the reports concerning the business of the savings
banks affiliated with the German Savings Bank Union, in
the last Yearbook of the savings banks of Hanover, we
obtain information concerning 150 savings banks (more
than one-fifth of all published reports) in various federal
States, which, with an interest rate of 3 per cent on deposits, manage to get for their surpluses from 0.75 per cent
to i X P e r c e t l t of the total deposits.

423

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Commission

The fact that depositors are satisfied with an interest
rate of 3 per cent when state securities pay 3 per cent at
90 is to be explained in the case of very small depositors
by their necessities, and in the case of the depositors with
small capital by their inexperience in business. To seek
to derive profit from the necessity and inexperience of
others is not creditable to the German savings banks. The
3 per cent interest rate is not only the heritage of time and
conservatism, but has often been especially introduced to
increase surpluses, or to maintain them, in cases where
there are larger reserves. Of this, Tilsit affords a drastic
example:
MUNICIPAL SAVINGS BANKS IN TILSIT.
Year.

1903
1904 (from April i)

Interest.

Deposits at
Interest surclose of year. Reserve fund.
plus.

Per cent.
3-S
3

Marks.

6, 2 3 7 , 0 0 0
6,692,000

° 3 2 9 , 000
c

Marks.

373.ooo

c 5.6 per cent of total deposits.
d 1.15 per cent of total deposits.

S-3 per cent of total deposits.
6 1.11 per cent of total deposits.

In both years amounts of over 2,000 marks, which were
withdrawn before the end of the year, drew interest only
at the rate of 2 per cent.
Furthermore, we find in these statements of the savings banks mention of numerous objectionable features
that interfere with the liquidity of the assets of the banks,
as a too small investment in negotiable securities—and
these consisting often in state securities exclusively. On
the other hand, the small investments in mortgages show

424

Miscellaneous Articles on German Banking
that the banks paid little attention to local long-term loans,
thus producing an even lower interest on deposits.

Savings bank.

Municipal Savings Bank of Eppingen, Baden
__
Savings Bank of the District Biickeburg at Bilsen __
The Mayoral Savings Bank at
Hamborn__ _
Municipal Savings Bank at Oberhausen
Municipal Savings Bank at Oldenkirchen

Savings banks.

cent of
Invested cap- Negotiable Per
securities
ital bearing
to
total
insecurities.
interest.
vestments.
Marks.

Marks.

Rate of
interest.

Per cent.
4

4,620,000

63,000

1.38

5, 4 3 5 . 0 0 0

204,000

375

5,458,000

354,000

6.48

3H-4

9,430,000

716,000

7-59

2J4-4

2, 926, 000

276,000

9-43 3 *A and 4

Per cent of
Invested capmortgage
ital bearing Mortgages. to
total ininterest.
vestments.

Marks.
Municipal Savings Bank at Crossen. 7 , 4 3 9 . 0 0 0
District Savings Bank a t Templin _ 4, 2 0 7 , 0 0 0
24, 8 1 1 , 0 0 0
District Savings Bank at Halle
District Savings Bank at Breslau_ _ 1 2 , 2 7 0 , 0 0 0
Municipal Savings Bank a t Mag96,377,000

Marks.

Rate of
interest.

Per cent.
3

605,000

8.13

547.000
3,990,000

13
34.07
32.60

3
3

37,932,ooo

39.34

8,453.ooo

Thus we see the social-political and financial-political
principles of the savings banks violated in like manner.
Under these conditions it is small wonder that the postal savings bank idea continually comes up for discussion.
The German savings bank system does not offer the small
depositor to-day the advantages of the close-meshed postal
savings bank net, and has short-sightedly avoided sacrifices in that direction. Other factors are also at work in
Prussia to limit the opportunities for savings.

425

National

Monetary

Commission

Even the conservation of local credit, which is the chief
argument against that system, is neglected in many places.
Nor has the small depositor the consolation of a higher
rate of interest in the communal bank than the postal
savings bank could afford to pay. An interest rate of 3
per cent, such as the German Imperial Postal Savings
Bank would have afforded him, calls for the sharpest criticism in the case of public savings banks, especially wrhen
such a rate is not established or maintained because of
pressing necessity.
If a bill for a postal savings bank is again introduced—
and considering the tendency of the State to enhance its
credit by all possible means, such a bill is to be expected—
public savings banks can be charged, without fear of contradiction, with having broken the promises made by
them in 1885. They have done nothing to give their
depositors the advantages of the postal savings bank, a
procedure which an earnest social spirit and the restraint
of communal greed now so evident would make largely
possible.
The clamor for State interference here and for the
institution of new savings banks there naturally gives
rise to the question whether savings-bank reform is possible in no other way. The German Savings Bank Union
seems to be called to this task, and this is also its manifest
duty, since it abhors and opposes any interference by the
State in the management of the banks. It would render
a great service to the German savings-bank system if it
would oppose the numerous evils, so readily apparent in
financial-political and social matters, and if it would

426

Miscellaneous Articles on German

Banking

exclude from its membership all banks which do not
come up to certain minimum requirements of liquidity,
security, and rate of interest which it might establish.
And the State and public opinion would back these
efforts.
Instead of this, the activity of the Savings Bank Union
has continually lessened, and its latest conventions show
an utter lack of vigorous initiative, and indicate a radical
departure from the old fundamental principles of savings
banks. The communal self-seeking tendency has come
to dominate them more and more, and the conceptions of
liquidity and safety are beginning to be blurred. In no
other way can the opposition to adequate reserves and
the indifference to the dangers from the existing way of
investment of savings-bank capital be explained.
Indeed, for the sake of peace, resolutions on which
unanimous agreement is not to be expected are avoided,
referred to the subunion, postponed ad Gr&cas Calendas,
or reported on and tabled without action.
If in former years there was general surprise that no
decision as to Scherl's project could be secured, the convention of the 5th of December, 1904, took one positive
step, the rejection of State interference in investments of
savings-bank money. Instead, however, of influencing
the savings banks to rectify the notorious lack of liquidity
of their assets, so that the State would have no motive for
further interference, as the speaker who proposed an
investment of 20 per cent in negotiable securities desired
to do, they were content with the following platitudinous
resolution: "The German Savings Bank Union recog-

427

National

Monetary

Commission

nizes that due regard to the necessary liquidity of all
communal savings bank assets requires that a definite
proportion must be invested in negotiable securities."
A recommendation that savings banks lend their aid
for the building of small homes, attached to the resolution,
was neither debated on nor disposed of, in spite of its very
questionable assertions and demands.
This attempt to avoid taking any action led one of the
speakers to point out the duty of the German Savings
Bank Union. We can only agree with him that the traditions of the German Savings Bank Union and its significant achievements for German savings banks at the
beginning of its career, impose other duties than that of
making long-winded speeches, crammed with curious
theoretic problems, and displaying a Manchester-like
indifference to all abuses.
If the German Savings Bank Union persists in this
attitude, of indifference to the abuses by individual banks
it must not be surprised if the State finally interferes.
In view of the conditions in German savings banking,
the discontent of political economists is steadily increasing, and however unwelcome State interference in the
activity of autonomous institutions may be, a conflict
between communal selfishness and social efficiency, the
outcome of which is always disadvantageous to the latter,
will finally urge the most energetic advocates of communal independence to call to the State: Quousque
tandem?

428

THE
PREUSSISCHE - CENTRAL - GENOSSENSCHAFTS - KASSE, OR PRUSSIAN CENTRAL
BANK FOR COOPERATIVE SOCIETIES.
By C. HEILIGKNSTADT.
[Article from Conrad's Handworterbuch, third edition.]

The Prussian Central Bank for cooperative societies
entered upon its business activity in Berlin, October i,
1895. It was created under the Prussian law of July 31,
1895. The function of this institution is to promote and
strengthen the commercial credit of the small manufacturers and tradesmen—the class who go into business
independently, bringing to industry small accumulations
of capital and their own labor.
Previous to the establishment of the Central-Genossenschafts-Kasse the advantage of a well-organized and
efficient commercial credit was to a considerable degree
inaccessible to the small business men, and even to the
somewhat larger producers and merchants in the villages
and towns. Particularly was this true of the farmers.
Difficulties were encountered in satisfying the credit
needs of this class of the industrial community. The
forms and usages of the existing credit system were not
adapted to the needs of the smaller producers and could
not be used by them to any considerable degree. Not
having access to the money market and its instrumentalities—the Central Bank, the large private banks, the

429

National

Monetary

Commission

exchanges—they were unable to secure the cheap credit
obtainable through these institutions.
The problem of satisfying the credit needs of these
classes of the industrial community in a manner that is
adequate and at the same time gives due attention to
the solvency and trustworthiness of the borrower can be
solved only through the concerted action of cooperative
societies. It is impossible in the money market to deal
with the small producers as individuals. They can
enter the general money market only through the mediation of cooperative organizations. Hence many cooperative credit societies sprang up for the purpose of enabling
their members to make use of the organized credit facilities of the general money market. With few exceptions,
however, these societies found the money market closed
to them. They could not bring about a proper adjustment between the demand and supply of money of their
members and the demand and supply of the other industrial classes. As a result, the price which these societies
had to pay for credit remained high. This was the rule,
the few exceptions to the contrary notwithstanding.
Well-managed cooperative credit societies which had
succeeded in accumulating considerable capital were
indeed able to secure on the basis of it a certain amount
of credit. These, however, were rare. Very few societies were fortunate enough to possess sufficient funds
to enable them to obtain from the banks the credit they
needed.
At first sight the Reichsbank might have been looked
to as the institution better suited than any of the existing

430

Miscellaneous Articles on German

Banking

banks to satisfy the credit needs of these societies. Under
the charter regulating it, however, the Reichsbank can
give its credit only through discounting commercial paper
or in the form of loans on collateral. Credit from the
Reichsbank could thus be granted only to societies presenting negotiable paper for discount or satisfactory
securities as collateral for loans. As this was seldom the
case the associations could not secure credit from the
Reichsbank. In order to be admitted to the discounting
privileges of the Reichsbank, an association must have
funds (capital and reserves) of at least 15,000 marks
($3,750). In consequence of this requirement the credit
facilities of the Reichsbank were necessarily denied to
societies not possessing this minimum.
A further difficulty arose in this way: Credit in the
form of current accounts is in very many instances the
form best adapted to the requirements of the small business man. If, however, a society, in attending to the
best interests of its members, fostered its credit business
in the form of current accounts, it had to forego the
taking of notes to a certain extent, and to this extent the
association had to do without the credit that could be
obtained through them from the Reichsbank. A society,
otherwise able to comply with the requirements of the
Reichsbank, could seldom afford to sacrifice this source
of credit. It was obliged to choose the lesser of two evils,
according to its own peculiar circumstances. As a result,
it could not, in its business relations with its members,
always employ the methods that would have served their
interests best.

431

National

Monetary

Commission

Loans on collateral could be obtained by these societies from the Reichsbank only within certain limitations.
The mortgages, bonds, and numerous evidences of
indebtedness which constitute the property of many of
the societies can not be accepted as collateral by the
Reichsbank. All these circumstances tend to reduce to
a minimum the number of societies which can utilize
its credit facilities. Moreover, even in the case of
those societies which did business with the Reichsbank,
the bank responded to but a small part of their total
credit demands. The failure of the Reichsbank to meet
the credit needs of the societies doing a discount business
with it is evidenced by the statement of its president in
the Prussian House of Lords July 6, 1895. More clearly
is this seen in the fact that in 1896 Doctor Cruger, the
counsel for the General Association of Cooperative Credit
Societies, applied to the directors of the Reichsbank for an
increase in the amount of credit granted to the cooperative societies in the discount department of the
Reichsbank.
Similar difficulties confronted the societies when they
sought to secure credit from the other large banks. Under
certain conditions these were indeed willing to extend
credit to the societies in the form of current accounts,
provided these furnished satisfactory deposits. The
societies, however, had no resources on which they could
draw for deposits that would enable them to open current accounts adequate for their needs. For the most
part their funds were still in their incipient stages, and
the benevolence of well-to-do members could not well

432

Miscellaneous Articles on German

Banking

be counted upon. Moreover, as a rule large banks were
but little inclined to occupy themselves with the petty
troublesome business of the societies. As early as 1864
Schulze Delitzsch called attention to this evil in the
relations of the societies with the large private banks.
Assertions to the contrary notwithstanding, the necessity for a central banking institution, organized so as to
satisfy the needs of the societies, had to be recognized.
Such an institution was needed even by the societies of
the Schulze-Delitzsch type, which were better organized
along banking lines. That the agricultural cooperative
societies, even less commercial in character than those
in the towns, stood in need of a central bank can scarcely
be open to serious doubt. In the course of their regular
business such societies seldom obtained from their members commercial papers that could be discounted at the
Reichsbank or the other large banks. In the rural societies credit is predominately based upon sponsor's notes or
mortgages or takes the form of current accounts. The
hypothecation of agricultural produce was out of question. It is a method attended with technical difficulties
even for the large landowners. For the smaller farmers
it was impossible before the Central Bank was established.
In the first place they had but small quantities of produce to offer as collateral, and in the second place the
branches of the Reichsbank and of the other large banks
were too far away.
The entire banking organization existing before 1895
was not adapted to the conditions and circumstances
attending the credit needs of the small producers and

77267—10

433

National

Monetary

Commission

business men, whether as individuals or organized in
cooperative credit societies. Not only was it unsuited
to their needs, but it did not admit of better adaptation.
A special institution had to be created.
In establishing a special institution to facilitate credit for
the smaller producers and traders in town and country, the
primary consideration was to provide for the small independent business men, operating with moderate means,
facilities for obtaining the credit necessary for carrying
on their business. This credit was to be made available
on terms in keeping with the general money market and
the conditions of the business in which the applicant was
engaged. Pecuniary profit had to be a secondary consideration. It soon became clear that an institution of
this character, with philanthropic rather than business
motives, could not be established except as a government
undertaking.
These considerations did not pass unheeded by the
Prussian Government. A bill was introduced in the
Prussian Diet June 8, 1895, providing for the establishment of a central institution to facilitate the commercial
credit business of the cooperative societies. This bill
became law July 31, 1895. The authorized capital having proved inadequate, the law was amended July 8, increasing the capital from 5,000,000 marks ($1,250,000)
to 20,000,000 marks ($5,000,000). By a subsequent
amendment of April 20, 1898, the original capital was
increased to 50,000,000 marks ($12,500,000).
The chief importance of the law of July 31, 1895, lies
in its making credit available for the first time to a

434

Miscellaneous Articles on German

Banking

large part of the industrial community. It organized for
them a centralized system of* credit facilities adapted to
their needs and admitted them to the general money
market. It made possible a coordination of the demand
and supply of money on the part of these classes with the
demand and supply of money coming from general trade
and large-scale industry. This in turn makes possible
the most equitable distribution of loan capital among all
classes engaged in commerce and industry. As the demands for capital in agriculture and the demands from
commerce and manufactures come as a rule at different
seasons, an adjustment in the money demands of the different interests will be arrived at with less difficulty. According to the terms of the law creating it, the Prussian
Central Bank for Cooperative Societies (Preussische Central-Genossenschafts-Kasse) was founded with a view to
fostering commercial credit, particularly the commercial
credit of cooperative societies. Its mission is to help the
smaller men engaged in industry, both in city and country,
to obtain sufficient working capital for their legitimate
business needs; and it thereby seeks to maintain and
foster this industrial class—a task of the highest importance to the social interests of the state.
The duties of the Central Bank are analogous to those
of the Reichsbank. The function of the Reichsbank is
to maintain harmony in the monetary affairs of the
country, to regulate the money circulation throughout
the Empire, to facilitate clearings, and to provide means
for the utilization of free capital. (See §12 of the bank
act.) The Central-Genossenschafts-Kasse of Prussia is

435

National

Monetary

Commission

called upon to perform the same functions in the financial
transactions of the Prussian cooperative societies, to coordinate their business with the work of Reichsbank and
the general money market. Whenever a scarcity of capital is felt in any locality it is the duty of the CentralGenossenschafts-Kasse to come to its relief, either with
funds secured from some other society, which may have
money lying idle for the time being, or, when this is impossible, with money obtained from the general market.
On the other hand, whenever the societies accumulate
funds in excess of their immediate needs—and the amount
is by no means insignificant—it is the function of the
Central Bank to put these funds at the disposal of the
general money market. The task of the Central Bank is
not limited to an adjustment of the money transactions
between the associated mutual societies, although this
erroneous view seems to exist in some circles. Its activities are intended to help in bringing about an ultimate
equitable distribution of loan capital among all classes
engaged in industry. The latter end, however, is the general purpose of the Central Bank; its specific function is
to provide for the small producers ample facilities for obtaining credit in the forms best adapted to their needs.
In commercial transactions notes have been found
most useful instruments of credit. Where, however,
their use is attended with danger to the borrower, it is
the duty of the Central Bank to endeavor to minimize or
remove the dangers involved in the use of this form of
credit. Where this is impossible it must seek to find
some other form of credit as a substitute for note transac-

436

Miscellaneous Articles on German

Banking

tions. Furthermore, it is the aim of the Central Bank to
extend to all affiliated with it an amount of credit justified
by the circumstances of the applicant and adequate to
his needs. Formerly such a course was possible for a few,
but not for all associations.
Finally, it is the endeavor of the bank to secure credit
for its clients as cheaply as possible. Only in this way
can it help a class handicapped by the lack of adequate
capital, whose very existence is at stake in the competitive struggle.
The establishment of the Prussian Central-Genossenschafts-Kasse marks a decisive advance toward the thorough organization of the entire system of commercial credit.
Incidentally the bank finds opportunity to contribute to
the removal of a social evil, by eliminating unsound and
uneconomic credit based upon the pledge of property.
For this it seeks to substitute credit resting on personal
liability. In the domain of commercial credit, too, the
bank can exert its influence in behalf of "emancipation."
Affording to the small producers and traders credit, adequate in amount and adapted to their needs, at a rate of
interest obtaining in the general money market, the
Central Bank will extricate many who are at present
forced to engage in business on disadvantageous terms or
on conditions that threaten their very existence. It is
needless to explain in detail how great is the boon that
may be conferred on these classes through the Central
Bank. It makes possible the emancipation of the farmer
and the artisan from dependence upon the middleman
who buys and sells their products.

437

National

Monetary

Commission

The Central-Genossenschafts-Kasse was established as
an independent institution, having a legal personality of its
own. It is subject to government supervision and control.
To a certain extent the organization of the bank was
modeled after that of the Reichsbank. While closely
affiliated with the Prussian Government, it is not a purely
government institution. A detailed discussion of the legal
status of the Central Bank is found in an opinion of the
supreme court, rendered at the instance of the Prussian
Minister of Justice on October 31, 1904.
(Justiz-Min.
Blatt, No. 45, p. 316.) The bank has a legal personality
of its own, and in matters of property is entirely independent of the Prussian Government Treasury. Under
the Prussian act of July 31, 1895 (cf. also acts of June 8,
1896, and April 20, 1898), it is endowed with a special
charter determining its organization. As an institution engaged in commercial banking, it is subject to the provisions of the mercantile code with regard to all matters
not covered by its charter. The bank was established
with its chief place of business in Berlin, the financial
center of Germany. No attempt was made to organize
branches, the banks of the federations and the individual
societies assuming the functions of branches for credit
and loan transactions. For this purpose they are well
suited—far better than any specially organized branches
corresponding to those of the Reichsbank could be.
In section 5 of the act of July 31, 1895, there was reserved to the federated societies the privilege of subscribing to the capital of the Central Bank. Since 1905
a number of these federations have availed themselves
of this privilege.

43*

Miscellaneous Articles on German

Banking

The bank is under the supervision of the Minister of
Finance. In questions affecting the Ministry of Agriculture or of Commerce and Industry, he must act in concert
with these departments. In the interest of a proper
business administration the accounts of the bank are
subject to audit by the high court of accounts. Moreover a report of the administration, of the expenditures
for salaries and other expenses, is made annually to the
Prussian Diet. The members of the House are thus
informed of the cost of administration, the objects for
which the expenditures were made, as well as of the extent
of the business. The Diet has furthermore a voice in the
general policy of the institution.
The officers of the Central-Genossenschafts-Kasse have
the privileges and duties of officials directly employed
by the Government. The administration is vested in a
board of directors. This board has the character of a
government body. Associated with the board of directors
is an advisory council made up of men identified with
the societies. Their duties are prescribed in sections
12 to 14 of the act of July 31, 1895.
The character and the scope of the business open to the
Central-Genossenschafts-Kasse is prescribed in detail in
section 2 of the act of July 31, 1895. The bank is authorized to grant commercial credit to meet temporary business needs; it is forbidden to make loans on real estate.
As it is impossible to investigate every application for
credit, it has made it a rule to grant loans at interest only
to federations and associations of registered industrial and
agricultural societies.

439

National

Monetary

Commission

For a more detailed account of the organization and
business methods of the bank, the reader is referred to
the special publication entitled Preussische CentralGenossenschafts-Kasse von 1895 bis 1905, Berlin, 1906.
The growth of the bank is shown clearly by the appended table.

440

TRANSACTIONS AND ACCOUNTS OF T H E CENTRAL-GSNOSSENSCHAFTS-KASSE, 1895-1907.

Fiscal year April i t o
March 31.

Total transactions.

Cash transactions.

Transactions in
coupons a n d interest certificates.

1895 a,

1 4 1 , 6 2 6 , 5 7 4 . 24
1, i 7 7 . 3 3 5 . 8 6 8 . 7 o
1,987,852,162.82

1896
1897
1898

2,971,555,393-64
3,361,478,343-42
4,010,245,360.10
5,862,292,106.52
8, 180, 3 0 9 , 5 4 8 . 76
8,674,868,004.38
9,835, 159,987.80
12, 2 7 8 , 2 2 5 , 957. 02
1 1 , 9 1 2 , 4 7 2 , 9 4 9 . 52
13,281,819,862.98

1900
1902
1904

6 4 , 727, 807. 84
470,286,989.66
7 4 6 , 6 5 3 , 8 5 6 . 59
1, 1 2 2 , 4 5 9 , 0 4 5 . 18
1,251,494,381.06
1 , 3 4 7 . 123, 158-46
2 , 0 3 3 , 3 0 9 . 5 6 4 - 96
3,184,203,218.18
3 , 3 7 3 , 4 3 9 , 6 o 8 . 71
3 , 8 4 2 , 0 9 2 , 5 6 2 . 09
5,050,892,955.82
4, 766, 1 8 1 , 6 5 6 . 89
5,310, 221,386.32

6 1 , 0 3 4 . 23
2,371,093-85
4, 7 0 6 , 3 7 8 . 72
5,238,658.47
6,455,534-21
8, 0 3 2 , 2 6 7 . 82
9,877.375.29
13,143,543.79
13,512,007.36
16, 156, 142. 51
17, 6 4 4 , 9 6 6 . 18
19,872,078.14
3 5 , 1 5 4 , 6 8 2 . 46

a Semester, October 1, 1895, to March 31, 1896.

77267—10.

(To face p. 440.)

Bills discounted.

3,881,736.15
4 6 , 184, 097- 01
i n , 4 1 3 , 6 5 6 , 52
149, 7 7 i , 1 9 1 . 3 2
164,225,497-79
259, 287, 1 1 0 . 6 4
3 8 4 , 0 6 4 , 0 6 1 . 84
4 7 9 , 9 1 2 , 4 4 4 - 43
4 6 8 , 8 3 8 , 6 9 9 . 78
478,830,017.75
521,083,863.96
5 8 3 , 8 8 0 , 6 8 0 . 79
6 4 9 , 8 8 4 , 3 3 6 . 15

*> No data.

Bills collected.

00
(P)
00
00
(P)
<P)
00
00
(P)
b

()
00
(P)
5 0 , 2 4 5 , 1 0 4 . 24

T r a n s a c t i o n s i n securities (including L o a n s on collateral.
own securities).

8,824,066.85
100,100,195-37
88,894,890.85
5 8 , 5 2 1 , 410. 11
50,873,125.75
2 5 4 , 5 7 1 , 0 2 0 . 24
588,633,964.80
329,451,103.06
3 6 6 , 1 0 3 , 8 7 9 . 22
4 5 4 , 1 6 1 , 0 6 2 . 73
251,863, 716.93
226,432,568.18
246,619,933.85

2,126,038.47
47,170,126.38
88,761,477.10
c 40,491.156.40
4 5 , 6 1 2 , 550. 26
3 3 . 2 3 5 , 3 7 8 . 77
3 0 , 907, 4 0 7 . 4 i
3 9 , 8 0 2 , 216. 08
42, 2 4 7 , 5 6 7 . 6 8
42,975,803.32
82, 7 4 9 , 8 7 8 . 0 3
120,564,464.IO
2 1 4 , 7 7 9 , 3 9 0 . 26

Current accounts.

16, 9 2 4 , 730. 21
156, 5 1 2 , 8 5 9 . 40
288, 462, 360. 46
380, 5 1 8 , 9 2 5 . 4 5
429, 3 1 2 , 6 2 9 . 6 8
520,386,881.77
6 6 7 , 238, 189. 14
6 4 1 , 8 3 8 , 074. 83
6 9 1 , 9 5 4 , 8 7 5 . 49
841,632,879.34
913,397,549-98
9 8 9 , 5 2 9 , 2 0 1 . 58
1, 117, 9 5 7 , 4 3 4 - 93

Deposits.

Checks cashed.

Other business.

958, 733-48
6 2 , 6 2 5 , 7 0 5 . 93
163,233,949-37
1 9 3 , 9 3 8 , 7 1 8 . 17
2 0 6 , 1 2 5 , 6 7 2 . 66
249.794.214.13
5 2 5 , 9 4 0 , 0 7 6 . 90
582,309,795.07
634, 2 1 8 , 6 3 7 . 9 8
792, 2 8 2 , 3 1 5 . 6 4
865.049.142.14
1, 0 1 5 , 6 0 4 , 257. 21
1,339, 5 2 7 , 0 6 8 . 6 6

(P)
00
(P)
(P)

(&)
00
(P)
(P)
00
(p)
(p)
7,190,593-05

c Decrease compared with the preceding year due to change in the interest rate on loans on collateral.

44, 122, 4 2 7 . OI
292,084,8oi.io
495,725,593-21
1,020,616,288.54
1, 207, 3 7 8 , 9 5 2 . 01
1.337.815,328.27
1, 6 2 2 , 3 2 1 , 466. 18
2, 9 0 9 , 6 4 9 , 153-32
3 , 0 8 4 , 5 5 2 , 728. l 6
3 , 3 6 7 , 0 2 9 , 2 0 4 . 42
4,575,543,883.98
4, 190, 4 0 8 , 0 4 2 . 6 $
4,3io, 239,933.06

XI.
COOPERATIVE CREDIT SOCIETIES (RAIFFEISENSCHE DARLEHNSKASSENVEREINE).
By H A N S CRUGER.
[Article from Conrad's Handwbrterbuch,

(a)

third edition.]

DEFINITION.

The term Darlehnskassenverein " loan association"
usually designates a certain class of cooperative credit
institutions—the cooperative credit societies organized
on the system of Raiffeisen. The name is, however,
misleading, for the designation "loan association" or
"savings and loan bank" is used also by credit institutions organized on different systems.
All cooperative credit institutions come under the
cooperative society law of 1889 (amended in 1898), and its
compulsory provisions therefore apply to these associations. Section 1 of the law speaks very broadly of "loan
and credit associations.'' All systems come under it.
None can escape its provision, except as the law allows
for regulation by special charters. Sometimes the business of a society develops beyond the bounds of its charter,
so that it is to be classed with one kind of society according
to its charter, and with another according to its business.
Some cooperative credit institutions do business under
the name "loan associations," and enjoy the special provisions applicable to the "loan association," while in
fact they are credit institutions seeking to promote the

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commercial and industrial interests of their members
in accordance with ordinary business principles. Here,
however, we are concerned with only a certain kind of
cooperative credit institutions—those originating with
Raiffeisen. These are more often called " savings and
loan banks " either with the prefix " Neuwieder," referring
to the location of the central office of this system of
banks, or "Raiffeisensche," referring to the name of the
originator of these institutions. They are also spoken
of frequently as the " agricultural savings and loan banks,"
from the fact that these cooperative societies are intended
primarily to serve the agricultural interests. The last
statement must be taken with some limitation. On
the one hand the field of service of these savings and
loan banks is limited, at least according to the original
plan, to the small farmers. Here, however, they are
not the only credit institutions catering to this class.
On the other hand an attempt has been made to establish
loan banks on the same principles for other classes; for
instance, for artisans. The name of these institutions is
not sufficiently descriptive of their essential character,
when it is applied to societies which do not confine themselves to the granting of credit, for as a rule they extend
their services to all branches of industry associated with
the farm. It is not at all a rare thing for a mutual credit
society to give more attention to the purchase of feed
and fertilizer than to its credit transactions.
The history of the Raiffeisen loan societies was rather
obscure up to the last few years. The various institutions intended to serve the loan societies were well known,
but little could be learned of the extent of their business,

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and less of their character and purpose. Their publications were scanty and the Neuwied confederation would
have nothing to do with statistical reports. Fassbender's work, F. W. Raiffeisen, His Life, Thought, and
Activity, first made it possible for a larger public to gain
some insight into the history and organization of the
Neuwied banks. It is true the Neuwied Federation has
not accepted this book as unquestionable authority; it
has gone so far as to declare it apocryphal, without
attempting, however, either to refute or to correct it.
No doubt an attempt to do so would have been in vain.
Professor Fassbender was on intimate terms with the
Neuwied Federation and particularly with Raiffeisen.
He was even a member of the mercantile corporation,
Raiffeisen, Fassbender & Co., established by Raiffeisen.
After Raiffeisen's death, Fassbender endeavored to
institute a number of radical reforms. In this he met
with most determined opposition, and at last decided
to retire from his position at Neuwied. Developments,
a few years later, proved that Fassbender was fully
justified in his demands. Perhaps, however, even then
his reforms would have been too late.
(b) HISTORY.

The following sketch of the history of the loan societies follows the account given by Fassbender in his
above-mentioned work.
Like Schulze-Delitzsch, Raiffeisen had gone through
the horrors of the winter of 1846-47. Both men had
organized societies primarily intended for relief purposes.
Raiffeisen occupied the post of mayor in Weyerbusch.

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There he established a charity society and also a cooperative bakery which was able to sell bread to the poor for
half of the regular price. In 1848, Raiffeisen came to
Flammersfeld. In 1849, he founded there the " Flammersfeld Society for the relief of indigent farmers." The
activity of the society was limited, primarily, to the purchase of cattle for poo;r farmers. In 1852, Raiffeisen
became mayor of Heddesdorf. There he proceeded to
organize the Heddesdorf Benevolent Society. This association had a great variety of objects. Thus, for example,
it assumed the care and education of neglected children;
it attempted to find work for idlers and discharged convicts. The interest and zeal of the members gradually
abated. At the general meeting of the society Raiffeisen encountered obstacles. " It was finally decided to
dissolve the benevolent society, to relinquish all of its
purposes, except that of regulating credit, and to organize
a cooperative society based on self-help, in accordance
with Schulze-Delitzsch's example. This plan was carried
out in May, 1864. Where there had been before a group
of creditors in the society and a group of debtors outside
of it, now there were brought together in one body those
who needed credit and those who were prosperous and
willing to help." (Fassbender p. 177.) Thus there was
founded a cooperative society of the Schulze-Delitzsch
type.
From a document of Raiffeisen's, Fassbender shows us
what the plan was. This document is particularly interesting because it shows how Raiffeisen changed his views
and adopted the principle of self-help. July 24, 1864,
there was held the first meeting of the Heddesdorf Loan

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Society. On May 21, 1865, at a general meeting it was
resolved to join the legal bureau of the Schulze-Delitzsch
Federation. Fassbender quotes the minutes of the
general meeting: "Schulze-Delitzsch, noted for his social
work, has opened a bureau in Potsdam, a so-called legal
bureau, to serve as a center for the German cooperative
societies. Through it the different societies can readily
communicate with one another, secure information from
one another, and be of mutual assistance. It is highly
desirable and to the interest of the society that it join
this federation and subscribe to the publication of this
legal bureau. It is proposed that this society become a
member and contribute annually 10 thaler to the legal
bureau/'
"The Heddesdorf loan society of 1864," says Fassbender, "is a society of the Schulze type." Its charter
moreover contains the provisions, usual in the SchulzeDelitzsch societies, governing entrance fees, shares, and
the building up of reserves. At this time Raiffeisen's
position was that "self interest is the bond needed to
hold together the institutions in question."
While Schulze-Delitzsch addressed himself primarily to
the artisan and laborer, Raiffeisen turned to the farmer.
Fassbender writes: " There has been much speculation as to
the time and circumstances under which Raiffeisen finally
broke away from Schulze-Delitzsch's plan, and the point
of origin for the various institutions that are at present
found in the societies named after Raiffeisen. This question can be answered more readily than it would seem at
first sight. Psychologically we must consider four influences which determined both the peculiar form of the

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separate societies and the development of the organization of their federation—(i) the pressure of existing circumstances; (2) the adoption of the most obvious expedients suggested by the circumstances; (3) devotion to
the religious and charitable idea of making provision for
the indigent and helpless, and in connection therewith,
(4) an educational motive—that of educating the members individually and collectively, influencing not only
their voluntary conduct, originating in ethical motives,
but introducing various coercive measures which would
necessarily react upon the individual.
The experience at Anhausen was the starting point for
this movement. The characteristic features of the Anhausen society are described by Raiffeisen himself. There
"the members pay neither initiation fees nor dues; none
participate in the profits; after deducting the relatively
slight expenses, whatever profits there are, remain the
property of the society, becoming, so to speak, the deposits of the members." Raiffeisen tells us further, that
at the general meeting of the association at Anhausen he
had himself made an attempt to "bring about corresponding changes in the constitution/' that is, to model
it upon the Heddesdorf society. The members, however,
declared themselves in favor of adhering to the existing
arrangement and refused to introduce the payment of
dues by members. This was the starting point in the
Raiffeisen movement. The geographical position and
other attendant circumstances at Anhausen of themselves
determined the structure of the system. "Chance association with a rural community, where considerations of
business and profit were out of question, constituted the

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starting point and t h e primary elements in t h e origin of
t h e agricultural societies, and not any clearly conceived
theory." (Fassbender, p. 104.)
(c) PURPOSE AND OBJECT OF THE RAIFFEISEN BANKS.
One characteristic in the plan of t h e Raiffeisen societies
is t h a t t h e same institution shall devote itself to a number of objects. The society is not only to be a savings
and loan bank, b u t is also to serve as a cooperative society
for t h e purchase of agricultural necessities, such as seed,
fertilizer, feed; for t h e sale of agricultural produce, such
as grain and fruit, and for the maintenance of machinery,
implements, and breeding stock. u I n a word, the banks
are to constitute t h e basis and center of t h e various common interests of t h e villagers." (Fassbender, p. 201.)
"Raiffeisen's ultimate purpose was undoubtedly ethical
betterment, paving the way for social reform along
general Christian principles. Accordingly t h e improvement of t h e material interests of the members of the
society was made subordinate to ethical aims. As a
natural consequence this led to the idea of shaping t h e
meetings of t h e societies so as to make t h e m serve as
rural clubs, in which there were to be discussed not only
t h e technical questions of farming, b u t also ethical and
social problems." (Fassbender, p . 201.) The starting
point for Raiffeisen's endeavors was t h e idea of Christian
solidarity.
(d) CENTRAL BANKS AND THE FORMATION OF FEDERATIONS.
One of t h e greatest difficulties encountered in organizing t h e societies was t h e fact t h a t all of t h e m found themselves with an abundance of money at certain times and a

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scarcity of money at other times. To remedy this, Raiffeisen planned a central bank. Raiffeisen writes: '"If we
could imagine similar establishments in each province, or
in each State of our beloved German fatherland, and all
the central offices united in turn in one center, social conditions would of necessity become more and more harmonious/' A number of cooperative banks were established.
These were united by Raiffeisen into a "General Bank"
(1874). In connection with it he contemplated establishing a life-insurance company for farmers, the "Arminia." However, the federation of societies was not
compatible with the law of 1868. The federations had
therefore to be dissolved.
September 30, 1876, Raiffeisen established the Central
Agricultural Loan Bank (Landwirtschaftliche Zentraldarlehnskasse). Its main office was at Neuwied. It had a
capital of 500,000 marks. According to its charter speculation was absolutely prohibited, and likewise transactions
which were likely to involve risk. In 1877 the federation
was established. Difficulties were encountered when the
attempt was made to secure regular contributions, for the
small separate societies were able to contribute very little.
Raiffeisen therefore undertook to organize a business
enterprise, the profits of which were to be used to maintain
the organization of the federation. According to Fassbender, Raiffeisen had in mind the organization of a
"society of charity.'' He had before him the vague idea
of a " nonsectarian order, a society embracing the entire
life of its members, based upon the general principle of
'the fulfillment of Christian duties.' " Raiffeisen abandoned the realization of this idea because of Fassbender's

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opposition, as it seems. Instead he transferred to the
new enterprise his private business—a wine shop, and also
an agency which he had held for some time for the Stuttgart Life Insurance and Savings Bank. Out of this step
came the mercantile firm of Raiffeisen, Fassbender & Co.,
registered June 14, 1888. The original proprietors of the
company were Raiffeisen, his daughter Amelia, and Fassbender.
The object of tlie company was to engage in mercantile
pursuits. The profits were to be used, under the charter,
for the benefit of the societies. The conduct of the business was left to Raiffeisen and Fassbender. Fassbender
writes (p. 222): "The purposes of this company can be
understood only in connection with the original idea.
The trading company established was originally intended
to serve as the business section of the society of charity.
As actually realized it is only a torso, the realistic fragment of a society resting on an idealistic foundation, the
members of which renounced property and family, so as
not to be exposed to the suspicion of selfish ambitions. , '
On the death of Raiffeisen, in 1888, he left behind him a
number of small cooperative savings and loan societies in
different communities, a banking corporation to facilitate
the adjustment of the demand and supply of money,
a common legal bureau to counsel and supervise them,
and a trading company to carry on the mercantile affairs
of the societies.
(e) SECESSION FROM NEUWIED.

In 1875, Fassbender writes: " Opposition to Raiffeisen's
views as to the organization and conduct of the societies
77267—10

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became active.'' In 1879 a n independent Hessian federation sprang up. The determining motive for this
secession was not divergence of opinion in matters of
organization, but the fact that many were repelled by the
pietistic tendencies of Raiffeisen and his dogmatism and
mysticism as to the purposes of the societies. Haas,
Marklin, and Weidenhammer, the leaders of the Hessian
and Baden societies, allied themselves with the SchulzeDelitzsch organizations and formed in 1883 the Union of
German Cooperative Agricultural Societies (Vereinigung der
deutschen landwirtschaftlichen Genossenschajten). These
in 1890 adopted the name General Federation of German
Agricultural Associations {Allgemeiner Verband der deutschen landwirtschaftlichen Genossenschajten). Originally
there was no intention to compete with Raiffeisen in his
special field—the rural loan banks. Soon, however, the
federation was extended to all kinds of associations.
Contrasted with the centralization of the Neuwied
Federation, there was the utmost decentralization in this
federation.
(/)

OTHER NEUWIED INSTITUTIONS.

In 1897 the Neuwied organization established a separate central purchasing agency for the purchase of agricultural machinery and implements in Frankfort on the
Main, and a fertilizer factory, "Unitas," in Belgium. In
the same year there was also founded the German
Central Manufacturing and Trading Society (Deutsche
zentral Produktions- und Verkaufsgenossenschaft for the
sale of the products of the allied Raiffeisen cooperative
societies for production and distribution. The reason

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for creating new organizations lies in the fact that agricultural societies for production and distribution organized on the basis of limited liability could not be affiliated
with the Central Loan Bank. Under §4 of its charter
the Bank could cooperate only with societies having
unlimited liability. It did not seem desirable to modify
the charter to permit this. a
(g) FIRST REFORMS.

The organization introduced by Raiffeisen himself,
providing for provincial divisions, each with its branches
and federations, was exclusively for administrative purposes. In 1899 the Neuwied Federation was radically
transformed. The firm of Raiffeisen & Co. was liquidated; the Central Agricultural Loan Bank of Germany,
which had hitherto been devoted to purely financial
transactions, undertook commercial transactions as a
separate branch of its business. This rendered superfluous the Central German Association for Production
and Distribution (Limited). The firm of Raiffeisen & Co.
continued to exist, but only to conduct a printing office.
It retained title to the land and buildings and likewise
to the claims on the association's fertilizer plant,
"Unitas." Subsequently, however, this factory also was
transferred to the Central Agricultural Loan Bank of
Germany.
a The principle of unlimited liability is accepted only in the Neuwied
Federation. In the Darmstadt Federation there are numerous loan banks
with limited liability. In Prussia loan banks with limited liability, but
otherwise organized on the Neuwied type, are found, particularly in Pomerania and in the Province of Saxony.

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The executive board of the Central Loan Bank, which
had heretofore been composed of only two, the general
director and a second director, was now made to consist
of the general director and all the directors of the federation. These were at the same time the directors of
the branches or subfederations. A dozen such branches
were established for Germany. A feature entirely new in
the organization was the establishment of cooperative
district banks. These were to devote themselves to the
financial transactions of the mercantile cooperative societies allied with the General Federation—that is, all
cooperative credit societies that were not organized on
Raiffeisen principles. Such societies could do only a
mercantile business with the Central Loan Bank; under
the charter of the Central Loan Bank they could not
become shareholders, owing to the fact that they were
not unlimited liability corporations. For the same reason they could not enter into credit dealings with the
Central Bank. Hence the district loan banks were organized as registered companies with limited liability. The
director of these district banks is the director of federation or of the branch in the particular district. These
district banks are in turn intermediaries between the
separate societies and the Neuwied Central Loan Bank,
for the Central Loan Bank claims the right to deal with
these bank associations, although they are not organized
on the unlimited liability plan.
As a result of these changes a certain amount of centralization was introduced, at least as compared with the
previous situation. On the other hand, however, financial and mercantile transactions were now combined in

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the Central Agricultural Iyoan Bank of Germany. The fertilizer factory " Unitas " was also taken over by the bank.
This amalgamation of different branches of business involved considerable increase in the business risks, as
unhappily appeared. Undoubtedly, however, the serious
crisis through which the Central Loan Bank passed a few
years later had its origin in affairs antedating the period
of the reforms of 1899.
(h) FUSION WITH THE IMPERIAL FEDERATION—ADDITIONAL
REFORMS IN THE NEUWIED FEDERATION.

In 1901 the General Federation of German Cooperative
Agricultural Societies at Darmstadt and the General
Federation of Cooperative Agricultural Societies of Germany at Neuwied issued a joint declaration to this effect:
" Convinced that a unified organization of German agricultural societies is imperative for the success and extension of this important branch of industrial life, and
is also in accord with the wishes of those concerned,
the two federations have entered into negotiations looking
to a union of these great bodies of societies." However,
the alliance was not consummated at once. Not until
1902 was the announcement made from Darmstadt that
the Darmstadt and Neuwied federations had united.
The Kolnische Volkszeitung of November 10, 1904, published an article by Fassbender on this subject. He
says: "Neuwied merges its central organization with that
of the General Federation and allows its twelve branches
to become legally independent. These branches will now
have each its own federation director, federation executive
board, and supervisory committee. As independent pro-

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vincial federations they become members of the existing
general federation for the Empire. It is further determined that individual agreements are to be entered into
between the old provincial federations and the Neuwied
branches, so as to avoid friction in the future." The
terms of consolidation, as they became known subsequently {Blatter filr Genossenschaftswesen, 1905, p. 8),
coincided in the main on these fundamental points.
This programme received the approval of Fassbender,
who had zealously fought for decentralization while he
was still a member of the Neuwied Federation. As a matter
of fact, the question was now no longer one of decentralization but of surrendering independence and uniting with
the Darmstadt Federation. In the Cooperative Societies
News (Blatter fur Genossenschaftswesen, 1905, p. 10) the
situation was examined critically. With reference to the
Neuwied Central Loan Bank, the report reads: "The condition of the bank is quite unintelligible. It reflects in
a high degree the serious mistake made by the Neuwied
Federation of combining in one institution credit and
mercantile transactions/' Criticism was directed against
the Central Loan Bank's absorption of the fertilizer factory " Unitas " and the business of Raiffeisen & Co. The
outcome has proved the criticism to be justified.
The union effected with the Imperial Federation seems
as a matter of fact to be very loose. Not even the conventions are maintained. Though the Neuwied associations have in the meantime become progressive federations, they very seldom manifest any tendency to amalgamate with the progressive local organizations of the
Imperial Federation. Champions of extreme Neuwied

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orthodoxy cherish the idea of imbuing the Imperial
Federation with the Neuwied spirit. In the report to
the convention in 1905, Kreth, the director of the federation, says, incidentally: " I t will be our duty henceforth
to stand by the work and the spirit of our leader in the
struggle, and to convince our new friends as quickly and
as unobtrusively as possible that we are the heirs to the
'true ring/ and that the best they can do is to become
converted to our views. * * * To this end we will
contribute all we can. By a campaign of education and
by example we shall work for the day when the united
cooperative agricultural societies will be enrolled under
the banner of Raiffeisen."
It may perhaps be only chance, but it is none the less
remarkable, that the amalgamation of the two federations should have occurred at the time of a serious crisis
in the Central Agricultural Loan Bank of Germany and
the repudiation of the Imperial Societies, Bank (Limited)
by the Prussian Central Bank for Cooperative Societies.
In 1902 the Imperial Agricultural Societies' Bank (Limited) (Landwirtschaftliche Reichsgenossenschaftsbank e. g.
m. b. H.) was organized by the Darmstadt Federation. It
was established in opposition to the Prussian Central Bank
for Cooperative Societies. The Prussian Central Bank
responded by a circular in the Berliner Korrespondenz
of October 31, 1904, in which the various federation
banks were given the alternative of doing business with
it or with the Imperial Societies' Bank. This was a
declaration of war against the Imperial Societies' Bank
(Limited).

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(i) CRISIS IN THE CENTRAL LOAN BANK.

In 1905 the Central Loan Bank of Germany, at Neuwied,
was forced to make public acknowledgment that its reserves (about three-quarters of a million marks) had been
lost in various ways. Among the losses was a claim
against the Neuwied Federation amounting to 215,000
marks. It was explained earlier, that one of the characteristics of the Neuwied Federation was to exact very few
contributions from its members, and to defray the expenses of the federation from the profits of business
enterprises. The expenses were to be defrayed by the
mercantile firm of Raiffeisen & Co. This firm was taken
over by the Central Loan Bank, and with it claims to
the amount of 215,000 marks against the federation were
written off. The Neuwied Federation had, moreover,
repeatedly received considerable subsidies—a gift of
30,000 marks from Emperor William I, in 1882, and
another of 20,000 marks. Subsequently other subventions were granted.
At the time of the crisis of the Neuwied Central Loan
Bank, the trading societies were frequently blamed for
the losses. It is true many losses are to be traced to this
source. It is not, however, the trading societies as such
that are to blame, but rather their recklessness in granting
credit, their undertaking of many hazardous enterprises,
and in connection therewith the too liberal grants of
credit on the part of the cooperative district banks.
The extension of their business activity to all sorts of
enterprises proved disastrous to the Central Loan Bank
and likewise to the district banks. They thought it

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necessary to extend credit at all times at a low rate of
interest, regardless of the commercial rate, and sought
to recoup themselves from the profits of their commercial enterprises. This led to the most involved undertakings and to losses.
The latest report of the Central Agricultural Loan
Bank of Germany (for 1907) is a valuable contribution to
the study of the situation, in spite of the fact that the
transactions show a balance of profit. In it there is
written off 119,000 marks as absolute loss; further, 122,000
marks in doubtful current accounts are written off; the
bank shows an item of almost i,ooo,ooq marks charged
to participation account; the mercantile stock account
amounted to nearly 3,500,000 marks; under current
accounts the "Unitas" establishment is charged with
460,000 marks, and Raiffeisen & Co., in liquidation, with
1,735,000 marks; the Central Sales Agency of the German
Wine Growers' Societies (Zentral Verkauf Genossenschaft
deutscher Winzervereine) with 1,500,000 marks; the outstanding accounts of the mercantile department amounted
to 6,356,000 marks. At the general meeting (July 6,
1908), one item criticised throws a peculiar light upon the
general method of doing business. The item "receipts
from interest" amounted to 560,190 marks. In the report,
however, there was added the statement: "The receipts
from interest were, in fact, 129,800 marks more. Interest
to this amount, however, was remitted or abated in the
course of the year to poor societies and charged to interest
abatements and remissions." (For an account of the
crisis in the Central Loan Bank, see Blatter fur Genossenschaftswesen, 1905, pp. 355, 366, 393, 410, 439, 508.)

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Naturally we are led to compare these incidents with
the charter limitations which the Neuwied organization
has adopted for the regulation of its business transactions.
The Central Loan Bank was organized as a corporation,
this form of organization being chosen because there were
doubts as to the value of the newly affiliated societies.
Only cooperative credit societies were permitted to acquire
its shares, and they could not transfer their shares without the consent of the directors of the banks. Twenty
per cent of the net profits were to be carried over to the
permanent reserve fund. The rate of dividend was limited to 4 per cent at first and later reduced to 3 per cent.
Much was said about philanthropic purposes and Christian
charity. There was a time when the leaders of the Neuwied federation claimed that the credit societies were
superior to societies belonging to other systems, on the
ground that one established on Neuwied principles was
proof against loss. The limitation of each society to a
small district, the gratuitous administration of its affairs,
the absence of accumulated business capital—these were
regarded as constituting an almost perfect safeguard
against losses. Events have proved that these precautions did not afford the agricultural societies absolute
protection against defalcation and bankruptcy. It is
regarded as characteristic of the Neuwied system that in
extending credit its officers consider not only the reliability of the applicant, but also the uses to which the
money is to be put. However, it has not been possible to
escape losses by these means. What is more, the Central
Bank itself suffered severe losses, and at the general con-

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ventions it had to bear the charge of engaging in speculation.
The weak points and economic defects in the organization became apparent in the crisis of the Neuwied Central
Loan Bank, and unless a radical reorganization takes place
they will appear still more frequently in the future.
Strict adherence to the original dogma is found to-day in
the Neuwied Federation only among the lowest elements
in the organization—the individual cooperative banks.
The central branches, on the contrary, are more in danger of
being charged with too much willingness to enter upon business enterprises for which they are not adapted either by
the technical knowledge of their officers or by the financial
strength of the associations. At the general meetings
and at the federation conventions seven-eighths of the
speakers belong to the clergy. But, while there is no
doubt that the cooperation of the clergy had been to the
advantage of some of the loan banks, nevertheless commercial experience is essential for the success of enterprises which amount to millions, and part of which involve
considerable risk. The bad effects, in many cases, on the
business condition of cooperative banks resulting from
their being largely left in the hands of farmers is shown
by Ehlers in his book The Problems of Cooperative Credit
Societies.
These events are furthermore very instructive as showing the effects of the combination of societies for business
purposes. In spite of the decentralized organization,
there has been maintained a most far reaching centralization in business. The result has been that the entire
business organization and all its component parts are

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affected by losses, whereas in the absence of combination
the effects of such losses might have been localized. (On
this point see the author's article " Centralization and
Decentralization,'' in the Revue Economique Internationale,
Sept., 1908).
(/) THE SOCIETIES IN RELATION TO THE PRUSSIAN CENTRAL
BANK FOR COOPERATIVE SOCIETIES.

In his book " Banking and Credit for the German Middle
Class," Hugenberg gives an account of the societies in
relation to the Prussian Central Bank for Cooperative
Credit Societies. His exposition, has particular value, for
he was for many years director of the Federation for the
Neuwied organization in the province of Posen, and later
filled the position of expert on the cooperative societies in
the Prussian finance ministry.
The local cooperative loan banks, in Hugenberg's view,
constitute the foundation of the system, just as in the
Neuwied organization. Having no business managers
they must avoid financial and commercial transactions
with the outer world—the world outside of associations—
if the agricultural societies are to administer their affairs
on a sound basis and remain true to themselves. This
fact makes necessary the establishment of a central office
for a large number of banks, the purpose of which is to
direct their technical banking operations and mercantile
transactions, to advise and supervise them. This is the
basis for the union of the agricultural societies. The
sphere of the credit societies must be so limited that
the members will know one another, "and be able to
look into one another's pockets," that is to say, it

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should be confined to the local community—"at most
the parish." It is the duty of the cooperative loan
bank to manage the joint purchase and sale of the
main commodities produced or required on the farms—
feed, fertilizer, coal, machinery, grain. Another of its
functions is, "the moral and spiritual uplift of its members, for this constitutes the essence of the philanthropic
endeavors which were at the basis of Raiffeisen's work in
building up the societies.''
The cooperative loan banks form the foundation of the
provincial organization. The institutions for the provinces are the federation banks. This system culminates
in the Prussian Central Bank for Cooperative Societies.
Hugenberg is therefore opposed to the Central Agricultural Loan Bank of Germany at Neuwied, and likewise
to the Imperial Agricultural Societies' Bank (Limited),
which had in the meantime become a corporation. He
can find no need for a " separate bank, independent of
the State, created at the instance of the agricultural
interests," and he claims that its opposition to the Prussian Central Bank rests upon " a strange misconception
of actual conditions and constitutes a menace to the
interests of the agricultural societies." In this view we
have the principle of self-help, supplemented by governmental assistance, carried to its logical conclusion. The
entire system of agricultural societies—and subsequently
it seems, also, the cooperative societies in other trades—
is to become subject to the all-embracing influence of the
Prussian Central Bank for Cooperative Societies. Whether
this is ultimately to develop into an " imperial system of
cooperative societies" Hugenberg does not say. The

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question naturally suggests itself whether in the end
the Prussian Central Bank, in obedience to this fundamental idea, will not adopt the same attitude toward the
Central Agricultural Bank of Germany at Neuwied that
it did in 1902 toward the Imperial Agricultural Societies'
Bank (Limited).
(k) THE CLERGY AND THE NEUWIED BANKS.

We have said above that Raiffeisen wanted his organization to be imbued with a Christian spirit and Christian
charity. For this reason the clergy gave particular attention to this Neuwied idea. The Congress for Home
Missions (Posen, 1895) adopted the following resolution:
" I n the Raiffeisen loan banks, organized on the plan of
Frederick William Raiffeisen, we welcome a truly Christian
undertaking, in which there is realized practical social
reform on a Christian basis. These cooperative societies
have a Christian origin (in the consecrated Christian
personality of Father Raiffeisen and the religious and
ethical principle underlying the regulations of the societies); they manifest a Christian labor of love, mutual
responsibility in a Christian sense, parochial organization, gratuitous service in their administration, extreme
conservatism and due care in granting of loans with a
view to the religious and moral good of the borrowers,
the accumulation of common funds; they pursue Christian
aims, the revival of the spirit of Christian fellowship, a
sanctifying discipline, the prevention of degeneration and
pauperism, and maintenance of public welfare. ,,
The evangelical clergy, and even more the Catholic
clergy, endeavored to secure a large influence in the
Neuwied organization. In France and Italy it is the

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Catholic clergy which exercises a decisive influence in the
Raiffeisen banks. The German Neuwied Federation, too,
joined an international federation of associations—the
international federation of Raiffeisen banks. The conventions of this body were of a pronouncedly Catholic
character, which was made very prominent. The administration of the loan banks is strongly dominated by
the clerical element.
(/) SCHULZE-DEUTZSCH AND R A I F F E I S E N .

The differences between the systems of Schulze-Delitzsch and Raiffeisen have been set forth in the author's
Introduction to the German Cooperative Societies (p. n o ) ,
as follows: Raiffeisen was of the opinion that the shorttime loans of the Schulze-Delitzsch societies were not
adapted to the needs of the farmer; further, he did not
approve of the note as evidence of indebtedness, but
preferred less formal evidences. He also favored loans
for two years and more, up to ten years. Recognizing
the fact that such long-term credit was incompatible
with the short period for which money was at the disposal
of the society, Raiffeisen proposed that it should always
reserve to itself the right to call loans after four weeks'
notice. Under certain circumstances this would of
course render illusory a long-term loan. To-day the conviction is steadily gaining ground, even in agricultural
societies, that long-term credit is not compatible with the
economic foundation of the society and that it involves
a serious violation of the banking principle which requires
that funds be invested in readily realizable securities.
The limitation of the business sphere of the society to
the rural community or to the parish under the Raiffeisen

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system rests upon the idea that the institution should
embrace the entire economic life of the village, while
at the same time remaining but a member in a larger
general organization. Here we find the clearest expression of Raiffeisen's principle of paternalism. It is
sometimes said that Schulze-Delitszch contemplated a
very wide sphere of activity for the cooperative societies.
This opinion is erroneous. Schulze-Delitzsch was content
that the society should choose for itself a sphere of activity
extensive enough to insure its existence and its independence. Thus Schulze-Delitzsch often enough warned the
cooperative credit societies against embarking upon business undertakings the outcome of which they could not
foresee. The society was meant to foster individuality.
Schulze-Delitzsch avoided as much as possible such interference with the societies as might weaken their sense
of independence and responsibility.
The treatment of administrative posts as honorary and
unsalaried, is given as a characteristic of the Raiffeisen
cooperative loan bank. This is not, however, peculiar to
the Raiffeisen loan banks. It is only the natural outcome of the fact that the loan banks confined themselves
to the rural communities. The scope of their activity
is so narrow that gratuitous management of their business is a matter of course. We may, however, add the
observation that whenever the societies have been forced
by the pressure of economic circumstances to occupy a
larger territory, a system of paid officials has immediately
replaced that of gratuitous service. Furthermore, the
gratuitous service of directors is not a matter of much consequence, for all the Raiffeisen loan societies have paid

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accountants who are not members of the executive board.
The Schulze-Delitzsch cooperative credit societies do not
have such an official, their accountant being a member of
the executive board.
The Anhausen model explains Raiffeisen's opposition
to the creation of shares. Repeated efforts have been
made to have this principle sanctioned in the law of
associations, but the Government in revising the law
was never inclined to recognize the validity of Raiffeisen's economic principle. However, Raiffeisen always
managed to evade the compulsory legal requirement.
Though the law required that the charter should contain
a provision as to the amount of each share, he thought
it sufficient to give the amount as zero. When the law
of associations tried to put a stop to such evasions by
expressly providing for shares, a share of 10 marks or
less was often chosen. In practice Schulze-Delitzsch's
view of the necessity of an adequate capital belonging
to the society has gained ground, and it is only the
extreme dogmatists who still insist that the members
may not and should not participate in the society with
their own funds. The highest authority in business for
the Raiffeisen Banks of Prussia, the management of the
Prussian Central Bank for Cooperative Societies, has
repeatedly emphasized the necessity of building up business capital.
The adherents of the Raiffeisen loan bank movement
lay great stress on the point that, in contradistinction
to the Schulze-Delitzsch societies, there is no distribution of profits. They, however, overlook the fact that
to renounce dividends means no sacrifice for the members
77267—10

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of the Raiffeisen loan banks. In view of their limited
shares, this is to be regarded as a matter of course.
One of the characteristics of the Raiffeisen loan banks
consists in the accumulation of a permanent fund; that
is, of a fund that can not be distributed. The accumulation of this fund suggests the non-distributive funds
of the French associations of Buchez. The underlying
thought is highly ideal. Practically, however, this fund
has been of no consequence.
Another characteristic of the Raiffeisen loan banks is
that they do not confine themselves to the granting of
credit, but include among their activities at least the
purchase of feed and fertilizer. As a rule they meet,
as has been said, all the economic needs of the village.
Schulze-Delitzsch was not alone in opposing the combination of various industrial enterprises in one society.
In 1890 the Imperial Federation of German Agricultural
Societies adopted the following resolution: " I t is not
deemed advisable that one and the same society should
devote itself to and pursue diverse aims and activities,''
and this resolution was adopted "in the interests of the
proper upbuilding and development of the entire organization of agricultural societies."
Since its union with the Imperial Federation of German Agricultural Societies the Neuwied Federation has
stopped publishing statistics. The statistics of the loan
banks belonging to the Neuwied Federation are contained in
the annual report published by the Imperial Federation.

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XII.
SPECIAL LOAN BANKS (DARLEHNSKASSEN).
By W. LoTz.
[Article from Conrad's Handworterbuch, third edition.]

(a) OBJECT OF THE LOAN BANKS.

Successful attempts have been made a number of times
to avert an impending fall in prices and money stringency
in political and business crises when it seemed likely that
the depression would be of brief duration. These efforts
are of three kinds: One is self-help—the strongest houses
unite in associations for guaranteeing credit. Another is
intervention by a central bank of issue. This is of course
possible only where a central bank is in existence and
enjoys freedom of action adequate to meet the emergency.
The third way has been to create extraordinary credit
institutions endowed with special funds supplied by the
public authorities. The credit banks (Darlehnskassen)
about to be discussed are institutions of this character.
Their purpose is to facilitate the obtaining of credit in
times of crisis and to prevent a sharp decline in the prices
of securities and commodities.
Such institutions assumed importance in Germany in
1848, 1866, and 1870. Similar institutions have been
established from time to time also outside of Germany.

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The measures adopted to restore credit in France in 1830
and 1848 are in many respects similar.0
It is not here proposed to describe every loan bank or
relief institution of a local character that may have been
established in one or the other of the towns or districts
of Germany. Nor is it purposed to deal with loan banks
which operated with capital or with funds raised on
interest-bearing obligations. We are now concerned only
with the loan institutions established in 1848 and 1866
in Prussia, and in 1870 in Prussia and other parts of
Germany on the Prussian model—institutions supplied
with special non-interest-bearing bank notes expressly
created for them. The history of these emergency loan
banks is of interest as showing the contrasted attitude
adopted toward the same institution under differing
political circumstances.
(6) ESTABLISHMENT OF LOAN BANKS IN 1848, 1866, AND
1870.
On April 4, 1848, the King of Prussia decreed the issue
of notes by the loan banks to the amount of 10,000,000
reichsthaler in denominations of 1 and 5 reichsthaler.
This decree was issued in accordance with the resolution
adopted by the Second United Diet, authorizing the issue
of securities guaranteed by the Government. The Government's liability for these bank notes did not appear
a In 1830 and 1848 there were established in France extraordinary credit
institutions (comptoirs d'escompte) intended primarily to facilitate discount transactions by bringing together the Bank of France and the public.
To these there were added in 1848 institutions granting loans on merchandise as collateral. In France, in contradistinction to Prussian policy,
the expedient of securing funds for these emergency loan banks by permitting them to issue their own bank notes was scrupulously avoided both
in 1830 and in 1848.
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on the surface. On the one hand, the notes were to be
issued through loan banks created as independent legal
entities. On the other hand, however, the Government
expressly guaranteed them. In essential points the administration of these loan banks was bound up with the
Government and with the Prussian Bank, a part of the
capital of which was owned by the State. The administration of the loan banks was intrusted to the Prussian
Bank, subject to the supervision of the Minister of Finance.
The business of these banks was, however, put in charge
of a special department of the bank administration in
Berlin—the division for the central administration of the
loan banks. Measures were taken to keep absolutely distinct the business of the loan banks and the other transactions of the Prussian Bank.
The purpose of the loan banks was to grant loans to
business men in sums of not less than ioo reichsthaler,
accepting as collateral merchandise or commercial paper.
Whenever needed, loan banks could be established wherever there were branches of the Prussian Bank. In the
absence of such branches the loan banks could arrange for
agencies. The loan banks thus constituted an extension
of the collateral loan department of the Prussian Bank,
and were peculiar in that they were provided with special
funds.
Two questions naturally arise in this connection: Why
did not the Prussian Bank extend its business to meet
this need for credit? What constituted the distinguishing
element of value in the circulating medium issued by these
banks?

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The first question can not be answered decisively on
the basis of the documents thus far made public. In any
event, material modifications of the charter of the Reichsbank would have been necessary in order to enable it to
perform with its own funds the task set for the loan banks.
It would have been necessary to authorize an increase of
its note circulation beyond the maximum of 21,000,000
reichsthaler allowed by the charter. Another obstacle
would have been the requirement that no more than onesixth of its circulation be invested in collateral loans, as
also the restriction of collateral loans to sums of no less
than 500 reichsthaler. Moreover, the Bank was forbidden
to charge more than 6 per cent for collateral loans, whereas
no maximum rate was set for the loan banks. Finally,
there were restrictions on the kind of commodities and of
commercial paper which the Prussian Bank was allowed
to accept as collateral.
It does not, however, follow that it would have been
impossible to modify the constitution of the Prussian
Bank and adapt it to the new situation, instead of supplementing it with this emergency system of loan banks.
The second question is, What constitutes the intrinsic
character of the non-interest-bearing bank notes which
formed the working funds of the loan banks? The notes
were made receivable as payment in lieu of cash. They
were to be accepted at all public treasuries at their face
value. Nevertheless they were not legal tender in private
transactions. No promise was made that they were to be
redeemable in currency. Provision was made for publishing monthly the amount of notes in circulation.

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The entire institution was regarded as provisional. The
loan banks were to be abolished within three years at
most and their notes redeemed with the money repaid t o
the banks. I n J a n u a r y , 1851, when t h e time limit was
about to expire, Minister von Rabe proposed t h a t t h e
liquidation of t h e loan institutions be delayed. H e proposed, further, t h a t t h e b a n k notes be not withdrawn from
circulation b u t t h a t the non-interest-bearing debt of t h e
State should be permanently increased b y t h e amount of
the notes. A t t h a t time t h e non-interest-bearing public
debt amounted t o 20,842,347 reichsthaler. This project
of t h e minister passed t h e Diet—not, however, without
vigorous opposition. I n return for this measure demand
was made t h a t t h e credit business of these institutions be
rapidly liquidated and their functions t a k e n over b y t h e
regular banks.
The increase in t h e paper currency of t h e Prussian
Government t o t h e sum of 30,842,347 reichsthaler, which
von Rabe's measure h a d p u t into effect, was rescinded as
early as 1856. I n t h a t year about one-half of t h e government paper currency was withdrawn from circulation.
At t h e same time there was conferred upon t h e Prussian
Bank t h e right of an unlimited issue of b a n k notes.
The policy adopted in 1851 was manifestly dictated b y
t h e financial necessities of t h e Government, although this
was not admitted. This is evident from t h e report of t h e
committee of t h e Diet. Contrary to t h e purpose of t h e
credit banks, out of a total of 8,813,985 reichsthaler outstanding a t t h e close of 1850, less t h a n half h a d been
utilized for t h e benefit of the business community. Four

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million reichsthaler had been loaned to the treasury of
the central Government, 941,090 reichsthaler to the district authorities, the Berlin municipality, and the like.
From 1848 to 1851 the bank-note circulation of the credit
institutions averaged 6,867,142 reichsthaler. It is the
universal opinion that in the earlier period of the crisis,
the extension of credit by these institutions had a most
salutary influence. In all, 13 credit banks and 11 agencies
were established, one of them in Leipzig. The institutions still in existence at the close of 1851 were mainly in
the eastern provinces.
The establishment of credit banks was resorted to
again in 1866. This time, however, the measure was
received with less favor than in 1848. By a decree of
May 9 the Diet was dissolved. A royal decree of May 12,
1866, suspended the remaining restrictions on the legal
rate of interest. (One exception left standing is of no
concern for our purpose.) This time the Prussian Bank
was no longer hampered, as it had been in 1848, by a
restriction as to the amount of bank notes it might issue.
Nevertheless the Government hesitated to entrust the
maintenance of credit to its sole care. In accordance
with article 63 of the constitution of Prussia, credit institutions were again established. As before, they were
organized in connection with the branches of the Prussian
Bank. Instead of 10,000,000 reichsthaler, provision was
made for the issue of 25,000,000 reichsthaler in denominations of 1, 5, and 10 reichsthaler. Loans in sums as
low as 50 reichsthaler were authorized. Unlike in 1848 no
formal government liability for the notes was assumed.

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In all other respects the provisions of decree followed that
of 1848.
Upon the victorious termination of the war Freiherr
von der Heydt, who had meanwhile been appointed Minister of Finance, proposed that the Diet should give its
ex post facto sanction to the royal decree. This proposal
met with scant favor in the Diet. The occasion was
taken to " censure the Government for its economic
policy." Amid the applause of the house Deputy SchulzeDelitzsch pronounced this condemnation of the emergency
credit institutions: "The Government was confronted
by a European war of vast proportions. According to
its own confession, it could not foretell its duration.
Nevertheless, gentlemen, in an emergency, when every
business man took care to restrict his business, and hesitated to enter upon new undertakings imposing financial
obligations, the Government entered upon a banking
business, for the operation of the credit institutions is
nothing else but banking." The Diet refused its ex post
facto sanction to the decree authorizing the credit institutions. The decree was accordingly annulled. The
Government was, however, granted indemnity. Accordingly in the Prussian Code the annulment of the
decree of May 18, 1866, is followed immediately by a law,
bearing the same date as the annulment, providing that
the legal acts of the credit institutions should in no way
be prejudiced by the Diet's failure to sanction the decree
of May 18, 1866. Moreover, this law repeated substantially the text of the decree, adding, however, the provision that no new loans should be granted after September 30, 1866.

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The policy of Minister von Rabe in 1851 had created a
prejudice against the institution. The Left insisted that
this time the bank notes should be retired at once, to
avoid another permanent increase of the Prussian public debt. On the whole after 1866 they succeeded in
their endeavors. However, in order to relieve the crisis in
the district of Gumbinnen there were again issued by the
law of December 23, 1867, bank notes to the amount of
1,228,000 reichsthaler, which had not been destroyed,
and in addition new notes amounting to 1,000,000 reichsthaler. Up to 1874 these sums constituted an addition
to the non-interest-bearing public debt of Prussia.
The decree of 1866 establishing the emergency credit
institutions at a time of the utmost political excitement
was condemned in the Prussian Diet on both political
and economic grounds. Nevertheless on the outbreak of
the Franco-Prussian war the North German Diet lent its
initiative to the demand for such a measure as a remedy
for the crisis. The political situation had, however, undergone radical change. Schulze- Delitzsch, the deputy
who had opposed the credit institutions as a matter of
principle in 1866, took part in the deliberations, expressing
himself in favor of the plan. The credit institutions of
the North German Confederacy were authorized to emit
30,000,000 reichsthaler in notes of 5, 10, and 25 reichsthaler. Of this amount 29,651,000 reichsthaler were put
into circulation. When the war was over the bank notes
authorized by the North German Confederacy were duly
called in and destroyed.
The Grand Duchy of Baden followed the example of
the North German Federation. It authorized the "*Gen-

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eral Provident I n s t i t u t i o n " to issue 3,000,000 florins in
non-interest-bearing loan bank notes of 5 and 10 florins.
These were to be loaned on collateral. They were t o be
accepted at public treasuries and to be redeemed at the
close of t h e war.
(c) LESSONS FOR THE FUTURE.
Will it prove advisable in t h e event of a war in the
future again t o establish emergency credit banks, or will
it be better t o leave t h e credit needs of t h e country at
t h e beginning of t h e disturbance to the sole care of the
Reichsbank and t h e other banks of issue, extending their
powers if need be for the time? We have as yet no
example of a political crisis in which t h e German banks
of issue unaided proved equal to the credit needs of the
country. I n all probability if a war broke out there
would be a tremendous demand for loans on securities of
all sorts, particularly from private individuals and savings banks, and likewise from cooperative credit societies.
On the one h a n d the Imperial Government and t h e individual States would be issuing loans and depressing the
price of securities b y their excessive flotations. At
t h e same time private and public savings banks and
cooperative credit societies would be making every effort
t o secure cash for their holdings of first-class interestbearing domestic securities in order t o have t h e resources
to meet their obligations. I t is not t o t h e interest of the
financial mobilization of Germany t h a t all these security
holdings should be thrown suddenly upon t h e market just
when t h e first war loans are being floated. Some means
of hypothecating these securities must be devised.

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The Reichsbank and the private banks of issue, under
§44 of the Bank Act, may not issue bank notes against
collateral. They would therefore find it impossible to extend their bank-note circulation through loans on collateral, unless the provisions of the Bank Act should be modified in such emergencies. In times of peace, collateral
loans are not so well suited as good short-time commercial paper to induce the constant redemption of
bank notes. It is therefore altogether proper that collateral loans should be limited to the amount of the
bank's original capital and reserves, or at most to that
and also a small part of their Giro deposits. In times
of war the problem is, however, far more complicated.
If we uphold the policy of 1848, 1866, and 1870, it
might seem advisable to meet the need for collateral
loans in times of political crises by creating again special
loan banks, authorized to issue notes without promising
to redeem them at once. The primary objections to this
plan are the following:
1. The plan would result in a confusing variety of paper
currency; there would be in circulation, in addition to
bank notes and notes of the Reichsbank, the special loan
bank notes. This confusion would be more distressing
now than in 1848, 1866, and 1870. As a matter of fact
the government would be obliged to assume liability for
the notes. Another point to consider is the question
whether the hasty emission of large quantities of notes at
the outbreak of war might not lead to an increase in
counterfeiting.
2. There would have to be a guaranty that the facilities created for collateral loans should be used in behalf

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of the industrial community, and not be improperly
diverted in secret for government uses, in pursuance of
some near-sighted financial policy, as was done in 1850.
The only way to provide against a repetition of such a
policy would be to let the Reichsbank undertake the
granting of collateral loans as part of its business on its
own account, and to assume liability for it. Under
sections 32 and 35 of the bank act, secret demands can
not be made upon the bank by the treasury. Special
loan banks, however, do not offer the same security
against government abuse, not even when in charge of
officials of the Reichsbank.
In view of the foregoing, much is to be said in favor of a
policy, for the future, of refraining from issuing notes
through loan banks, but rather of repealing in times of
war certain hampering provisions of the bank act. In
this connection, however, one important point must
not be lost sight of—in times of peace the accumulations of savings banks and the business of cooperative
credit societies must be regulated in such a way that
they will not find themselves at the outbreak of a war
with all their funds tied up in permanent investments,
and compelled to seek excessive collateral loans.
Finally, in order to meet the various legitimate demands
for credit arising in times of war from other sources than
the discount of commercial paper, a considerable increase
of the note circulation can not be avoided. In this situation, as the example of France in 1870 proves, the existence of a uniform circulating medium, supplied by a wellconducted central commercial bank, is of greater moment
than the depreciation of the credit currency. To-day

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there are further objections to loan banks. Under the
law of February 20, 1906, the Reichsbank has gone so
far as to issue in time of peace bank notes in denominations of 50 to 20 marks. Imperial treasury notes are
available in the very smallest denominations. These
considerations furnish additional ground for doubting the
advisability of increasing the note circulation in times of
war by adding to it the notes of loan banks. This would
be particularly undesirable if the notes of the Imperial
Bank should be made legal tender. As against a variety
of notes resting on different guaranties, a uniform note
currency is the lesser evil. Worst of all would be a condition in which one form of representative money would
sink to a discount as compared with either another form
of representative money or the standard coins.

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FRASER